Thank you joining Forward Air Corporation’s Third Quarter 2017 Earnings Release Conference Call. Before we begin, I would like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air’s website at www.forwardaircorp.com. With us this morning are Chairman, President and CEO, Bruce Campbell and Senior Vice President and CFO, Mike Morris. By now, you should have received the press release announcing our third quarter 2017 results, which were furnished to the SEC on the Form 8-K and on the Wire yesterday after market close. Please be aware, during the conference call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others, regarding the Company’s outlook for the fourth quarter and fiscal year 2017. These statements are based on current information and our current expectations. As such, they are subject to risk and other factors that may cause actual operations and results to differ materially from the results discussed in the forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission, press release and webcast presentation relating to this earnings call. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Today’s presentation will include non-non-GAAP financial measures, including adjusted income from operations, adjusted income before taxes, adjusted income taxes, adjusted net income and adjusted diluted earnings per share. These non-GAAP financial measures exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our third quarter 2017 earnings press release. And now I will turn the call over to Mike Morris, Senior Vice President and CFO of Forward Air. Please go ahead.

Thank you, Kevin, and good morning to everyone on the call. Before we get to Q&A, we would like to update you on our strategic and capital allocation initiatives, as well as an upcoming accounting change related to the new revenue recognition standard that will go into effect next year. On the strategic front, our LTL Group is continuing to make investments in drivers and expanded capacity to provide our current customers with dependable, expedient and readily available freight movement. To grow its customer base, LTL is also making great progress in its efforts to penetrate the 3PL market. We like this initiative, because 3PLs provide us with additional opportunities to manage shipments that are heavier and have a longer length of haul. We believe that the expedited segment of the 3PL market is a $2 billion addressable opportunity, which we hardly participate in today. To be price competitive for this freight, we need to implement local owner/operator pick-up and delivery, similar to the way we use owner/operators for line haul. This will lower our P&D costs and improve our value proposition for this type of freight. Of the initial terminals that we plan to convert to local P&D, we are nearly completed and expect to be done by year-end. To transact with 3PLs, we also need to be in their TMS. We have our tariffs loaded in over 100 systems with more to come in 2018. We are excited about being in a position to provide sustained service to our current customers, while penetrating the 3PL market to selectively supplement our existing density with higher weight, longer length of haul shipments. Our Truckload business is implementing the McLeod operating system, which will help us grow by improving our load visibility and real-time decision-making. The Dry Van business in our…

Thank you. [Operator Instructions] First question is Jack Atkins of Stephens. Please go ahead.

Hey guys, it's actually Andrew on for Jack. I appreciate the time. I guess, starting off, Mike, can you provide the monthly tonnage during the third quarter, and also, kind of what you are expecting for tonnage growth in the LTL business in the 4Q guide?

Sure, in the third quarter, Andrew, our tonnage per day was up 10.2%. For the month of July, it was up 6.5%. For August, it was up 11.3%, and for September, it was up 13.1%. With respect to the tonnage that we expect in our guidance, we would expect our average daily tonnage to be up around 10% driven by our growth initiatives and a stronger macro climate.

Okay. I guess, with that tonnage growth kind of accelerating through the quarter and the truckload market tightening, I mean, have you guys started to see or have you noticed any spillover of truckload freight into the LTL market?

Yes, it’s the normal spillover that we see when truckload capacity gets tight and I think that's probably going to exacerbate as we go further into the year.

[Operator Instructions] So we’ll go to the next question with Todd Fowler of KeyBanc Capital. Please go ahead.

Hi, great. Thanks, good morning. Bruce, I guess maybe to start some comments on the yields that you reported here in the quarter. I know that there is a lot of moving things that could impact that. I think that you had some rate actions in the quarter. But can you just talk about decline in the line haul yields on a year-over-year basis, what drove that? And then just kind of your thoughts on the pricing environment right now?

That's primarily a change in characteristics, Todd. So it's not something we lose sleep over, although we are addressing it in a number of different ways, as you know, we came out with the rate increases at the beginning of October. We implemented that oversize charge, which has done very well surprisingly. And a couple of other, what I’ll call, tuning. We think we have our yield back where it needs to be in spite of a length of haul that's not quite as good as it has been in the past. But those are all things that we anticipated and we are okay with because it's the right type of freight that we want.

Yes, understood and that's good clarification. And I am probably not so focused on it comping positive because of some of the mix profile, but should we start to see it move up sequentially from the levels that it was in 3Q?

My gut is, yes. As I say that, what happens if we see a surge in short haul traffic or any type of an anomaly like that, so, apples-to-apples, we should see it start to move up.

Okay, okay, thanks. And then, just as far as we did see tightness in the spot market here this quarter, it feels like in the Expedited LTL segment, you were able to respond to their issue that there was a lot of compression on the PT side. Can you just talk about owner/operator availability? And if you are going to have double-digit volume increases, how much more you have to go into the third-party market in your ability to kind of cover those costs if spot rates are moving up?

Well, as you pointed out, it does cost more money. I would point out to you that from a base standpoint, a year ago, in the third quarter it was our best PT in the history of the company. So it's a tough comp to begin with. But secondly, the capacity, as you mentioned, is tight, which means we are going to pay a little bit more money than we'd prefer to. But that's what we do to take care of our customers. All of that having been said, we have a very strong initiative going to increase the number of owner/operators we have. We think that's going to really help us. We have, I think, 14 teams coming out of training today. So we are excited about that. The pipeline is back full. So we think we can fix this and hopefully fix it very quickly. But, we were definitely behind and the volume made that worse and actually kind of surprised us. So, we'll get it back. We've been through this before. I am hopeful that within the next few months, we've got it back where it needs to be.

Yes, and I wasn't trying to be critical, actually think the performance…

No, you are right.

Yes, but, yes, okay. And then, just as far as the growth initiatives and kind of expanding beyond the core market, is that something that - and Mike, I know you gave us some comments on that, but is that more of a 2018 or will you start to see some of that into the fourth quarter?

No, we are pushing into it now.

Okay.

Seeing really good growth. It's not hard to show growth when you are coming from zero, right? But it is, I mean, the initiative has done so well that it’s kind of surprised us and we are happy.

Do you have a number, I mean, inside of the almost 10% tonnage growth here this quarter? How much of that would have been, maybe, I don't know how you are phrasing it traditional, LTL versus Expedited or what - new markets versus old markets, I don't know what the right way to say it is.

Yes, we are not quite ready to release that information. Perhaps, that will be part of our statistics in the future.

Okay, fair enough. Just a couple of last quick ones. I know there was some comments in the release about weather, but if you had to publish, think about it as a net positive, neutral, negative in any sort of additional costs, how would you talk about the impact of weather, particularly in the LTL business, but also broadly across the other segments as well?

Yes, Todd, it's Mike.

Hi, Mike.

I would characterize it as a net drag.

Okay.

Probably, we did some estimates around it as you'd imagine, it probably cost us, call it a penny and a half of EPS. We felt it at LTL, but we also felt it in solutions, given their footprint and we saw a little bit of it in intermodal as well.

Okay, and then, maybe just the last one that I'll ask and turn it over. On the comments about the one turn of leverage on the balance sheet and the comfort level there, would the expectation be that you move to that level through predominantly stock buybacks or is there is something factored in there from an acquisition standpoint? How do we think about the path to get to the balance sheet leverage?

It's a little bit of everything. I think, we spend money on buybacks. We are going to leave some dry powder for M&A. We spend money on CapEx. And so I think, what we are signaling is that, we'll slowly walk our leverage up across time. We don't have any fixed timetables, but I would think of it just more broadly in that regard that we are getting comfortable with a small amount of debt in the capital structure.

Okay, that’s helpful. Let me turn it over. I’ll jump back and if we’ve got anything else.

Thanks.

Thanks, guys.

Next question is from the line of Scott Group, Wolfe Research. Please go ahead.

Hi guys, it's actually Ryan on for Scott.

Good morning.

Good morning. So you guys touched on a few of ours, but just wanted to go back and talk about the owner/operators. You guys saw a drop sequentially and kind of talked about how recruiting continues to be an issue. Are you noticing any uptick in October as the rate increase takes effect?

With that question, we are – it's not only our rate that we increased to the owner/operator, but it's also a lot of other resources going to this initiative. We've seen good initial success. We think that success will continue through the quarter and get us right back to where we need to be.

So what is kind of your target looking out to 2018 in terms of the mix in owner/operators?

Well, the ideal target is to be 100% owner/operator. We will never be that because of the balance issue. So we may have 20 loads out of Dallas tonight and five loads in. So you have to – you don't want to run empty miles like that. So you use outside carriers. But we need to be somewhere around 8% of outside purchasing in terms of the total budget and we are typically happy at that level.

Helpful. Thank you.

You are welcome.

And the next question is from the line of David Ross, Stifel. Please go ahead.

Yes, so, good morning, Bruce. Good morning, Mike.

Hi, David.

So, just to go back to the line haul quarter yield, you mentioned that mix was the main reason it was down. But it seems to me that weight per shipment didn't change that much and with the 3PL issue, you are trying to pick up longer length of haul. So what was it about the mix that was compressing the yield?

Primarily, length of haul, David.

Okay.

Yes, our existing customer base, our normal customer base, if you will, we saw a shortening of the length of haul.

And how much was average length of haul down year-over-year?

About 3%.

Yes.

Okay.

As I said earlier, the last few weeks we almost got that back to even.

Good. And then on TLX, just wondering why – I guess, what the impediment is to seeing it return to 2015 margin levels there?

We just got to get more – we just have to get more drivers. We are having to outsource it. We do have contractual work in there. Meaning, we have no way to move up the rate and then when you would – as the rate on the outside market goes up, we get compressed like everybody else. So we are doing a lot of work, not only in terms of bringing on owner/operators, but in revisiting rates that are contractual or perhaps having to leave that business.

And what percentage of that business would you say is contractual versus transactional?

About – I am guessing I can give you an actual number later, about 60%.

Okay. And then, what was the reason for choosing McLeod over other providers? What did they allow you to do or do you have familiarity with them?

Well, we do have familiar – I can't say that word familiarity with them. They have a great track record, long time player in the industry. When we looked at them and about three others, as I recall, it was just a much better fit for us.

Excellent, thank you very much.

David.

Yes, Mike.

Before you take-off, I am not making excuses on truck load and your comments around purchased transportation are very valid. Just want to make sure you note – you noted a large pick-up in insurance and claims in the third quarter driven by a reserve that we took for an item, that we don't expect that to be reoccurring. So just wanted to make sure you saw that in your margin analysis.

Okay. It's just, it's been a trend now. I mean, you had high single-digit margins two years ago and then it's been low single-digit margins since, though.

Yes, your comments are valid. I just wanted to make sure you saw that.

Yes, I appreciate it. Thank you.

Thanks, David.