Thank you for joining Forward Air Corporation's First Quarter 2023 Earnings Release Conference Call. Before we begin, I'd 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 CEO, Tom Schmitt; and CFO, Rebecca Garbrick. By now, you should have received the press release announcing our first quarter 2023 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed. Please be aware that certain statements in the company's earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts, including statements regarding our expected second quarter 2023 and fiscal year 2023. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the 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. During the call, there may also be discussion of financial metrics that do not conform to U.S. Generally Accepted Accounting Principles or GAAP. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued, which is available on the Investors tab of our website. And now I'll turn the call over to Tom Schmitt, CEO of Forward Air.

Thank you, Alan and good morning to all of you on the call. I want to take you back to a three statements I made on the earnings call three months ago. The first statement was I said Q1 will be tough also, it was. Secondly, I did finish the call last time saying we still expect 2023 PS to top 2022. At this point I have to say this will not happen. Third statement was our drive to be the best in high value freight holds and that is very much still the case. Let me just unpeel all of those three statements a bit and let me start with the first two, the quarter and the year. If you remember on the last call we reviewed an earnings bridge, an EPS bridge where we had revenue initiatives and cost containment initiatives, Forward Force and Forward Game Shape. And we believe based on our own expectations and our modeling that the revenue and cost management initiatives would actually make up for the headwinds that we are facing both on a sluggish economy front and fuel coming down. Three specific points, we had modeled a 5 percentage point year-over-year LTL tonnage decline. We actually are at minus 5% right now but we have four months in the books that were actually worse than minus 5. If you remember Q1 as you saw in the release, minus 12%. First part of April was minus 10%. We are at minus 5 now for the last couple of weeks and still going so better now, but not in the first four months. Secondly, there's a very, very important margin driver and that's pieces per shipment. And that pieces per shipment remains suppressed. We are currently down 16% lower pieces per shipment today, first…

Thank you. [Operator Instructions]. At this time, our first question will be from the line of Jack Atkins from Stephens. Your line is open. Go ahead.

Okay, great. Good morning, Tom. Good morning, Rebecca. Thank you for taking my questions.

Good morning, Jack.

So I guess Tom, if we can maybe start with April, it feels like there's an improvement in the second-half of the month certainly on a year-over-year basis. Is there anything that you can maybe walk us through in terms of helping us to understand what's driving that, are you seeing is it a comp issue, are you seeing improvement in the number of pieces per shipment, just kind of help us maybe get a better handle on why the second-half of April was better than the first half?

Yeah, Jack everything you just said obviously at face value is correct. So it's been about two and half weeks when there was a kind of several percentage points improvement in our LTL tonnage. As I said, if you look at the first couple of months of the year, frankly actually even including into March it was the same very, very sluggish volume environment that we had seen in November and December. First part of April was a tiny step up and then the last two and a half weeks was actually a significant step up. So what happened here, we are working with our best customers and tremendously closely. Our sales team has never been more engaged in getting more slice of the pie. Some of those customers are seeing a slight improvement in the traffic coming in from Asia. And frankly, some of them we are working with harder to make sure that their customers are appreciating the type of high value freight movements that benefit from zero damages. One thing Jack, I mean, they're doing a better job. Our larger customers that know us extremely well, to take the sales leaders with them to their customers. I personally have been on sales calls where the customers have come with us and go to the end customer. This is $10,000 of high tech equipment. They have zero propensity for damages and that type of I think energy is starting to play out more and more. Two weeks, Jack, don't make a trend yet. I do believe from everything we're seeing on a daily basis, it's fairly consistent. So that's why, frankly, we have probably been somewhat conservative. We have not always been conservative in the past about Q2, but what we're seeing is real. It's impact from us working with our best customers that know us extremely well, making a more compelling case for winning more high value freight together with us. And then we also have a sales leader that joined us six to nine months ago, Erica Toller [ph], who helps us building the small medium sized businesses that actually are not using our value added intermediaries. And that's starting to kind of take-off too. We're now into the 200 customers. They're active in shipping. Earlier this week I looked at the shipment count and there were accounts that had zero shipments a few months ago. They're all new. So collectively, that energy of convincing some of our best customers who know us well to win more high value freight with us, together with also ramping up those smaller companies that do not use intermediaries is starting to work. So I think that's what we're seeing Jack, two and a half weeks is more than a few days. It's not a trend yet, but what we're seeing is real.

Okay, got it. So I guess just if I can follow up on the 2Q guide commentary Tom, it sounds like the idea was to maybe expect some improvement from a seasonal perspective, but relatively muted versus what you would normally expect to see from the first quarter to the second quarter, I guess, could you maybe expand on the idea that you guys are being a little bit conservative with the outlook?

Yeah. So when you say somewhat muted, you and I and Rebecca, we might be looking at the exact same thing. So Q1 to Q2, we're showing a small step up. It's about 15% or so EPS step up between the actual Q1 once you take the reversal of that benefit accrual out. That's on the lower end of what we had seen. Last year Q2, just to remind you, may not be the best comparative measurement. Last year Q2 had two crazy things going on, it was the most pronounced amplification of the freight boom. April last year was crazy, June last year was crazy. Certainly something I had never seen here before. Secondly, fuel was at pretty much all time high levels last second quarter. So the 204 we had last year is probably not the typical benchmark. So I would not look at the guidance we just put out at around 130 to compare to 204. It's up 15% from Q1. And I would say, personally, I believe this is on the conservative side. I don't want to overestimate and then disappoint. I do see real improvements, I see what we're putting out here working, I expect the odds of us beating what we put out to be better than missing it but at the same time, this freight recession now has probably been going on for about six months. A typical recession lasts about nine. So you would somehow think, which is also what's built into our model, that the second half will see some of that benefit, but I would be somewhat cautious for the second quarter still.

Okay, got it. And then I guess for my last question, just kind of focused on that second half ramp. I mean, if I look at the bottom end of the range and I take out that $0.24 accrual reversal, it looks like you're assuming over 50% improvement in earnings in the second half versus what the first half, including the guidance would assume. I guess what gives you the confidence to say that you're going to see that type of step up, that's much more significant than normal, second half versus first half improvement, is it the macro getting better, is it your internal initiatives really kicking in, what's driving that, Tom?

Yeah, so let me do a little bit of math here Jack and you're pretty good with that, too. So we can go to a bit of mental ping pong here. So if you looked…

I am a history major, so I'll defer to you on that.

Okay, I think you've given yourself not enough credit. But no, seriously, if you look at the first quarter, pound for pound the first quarter, as you just correctly pointed out is 113. Typically, at first quarter, you multiply by five to get for the year, because the first quarter is the one quarter that doesn't get on a metal podium from a typical sequential perspective. So if you take 113 times five, that gives you 565. Now, what I do believe this is that we should be fairly confident in saying, what we saw in the first quarter is the absolute bottom of the freight recession. April second half is better, even April first half was slightly better. And November, December were edging to go bad, but they were not as bad as the first quarter collectively was. So if you get to 565, by doing the typical multiplication by five over a first quarter, which would be a completely normal thing to do, I would sure expect that when you multiply the absolute bottom of the freight recession, you should be able to multiply it by slightly more than by five. So the 620 to me is not a stretch, because again, multiplying this quarter by five should be less than what reality will bear out.

Okay, well, I hope this is the bottom of the freight recession. I know that, to your point it certainly we would hope that things will get better in the second half, but I'll turn it over to others. But thanks for the time, Tom. Thanks, Rebecca.

Thank you, Jack.

Ms. Boyle [ph], your line is open. Please check your mute feature.

Sorry about that. I didn't hear that my line is open yet. This is actually Joe Hafling [ph] on for Stephanie. Good morning, Tom and Rebecca, thanks for the question. I was wondering if you wanted -- good morning, I just kind of wanted to quickly follow up on that sort of second half recovery thesis. I'm wondering sort of what are you hearing from your customers at this point about how they're thinking about the second half and just kind of how you're framing A second half recovery is what you're hearing from your customers or is it kind of based on your thought that timing wise the nine months versus it's already being sort of 12 months, then it's just kind of how you're thinking about the freight?

In contrast to our previous conversation partner, Jack, I'm not a history major. So I wouldn't go just by the nine months. Now in all fairness, every single customer interaction and everything single business partner interactions that we have, we always go into the pipeline of our customers, we talk with them about it. What we're hearing is that the deliveries from Asia to our customers are expected to get closer to a normal size and normal frequency by the end of this quarter. That's not what every single one of them is saying. But if you had to get a kind of a mean or expected midpoint, that's what we're hearing from the vast majority of them. We see a little bit of that already happening. Some of our customers actually even just yesterday had a differentiation between, for instance, imports from the Middle East versus imports from Asia. But the mean expectation that we are hearing is that by the end of this quarter, the shipment sizes and the shipment frequency should start normalizing with some of the inventory rundowns getting closer to conclusion. I know you guys, Joe, you actually put out a piece of research earlier this year that said some of that may go into the second half of the year, the inventory kind of depletion may not be complete by the end of the second quarter, which is also why we assumed some sluggishness still in the second half, but significantly more activity during the first half. So we were looking for to get that midpoint between seeing the recovery but not overestimating it.

Appreciate that, and then is there anything you would call out from an end customer perspective areas that are seeing kind of particular strengths or weakness that are surprising you right now?

The one thing on the strength side is the one thing that we really, really should be benefiting from. You remember when we talk about focus on high value freight and where we came from over the last two or three years, kind of patio wicker furniture out, medical equipment in. Medical equipment and some of those higher end industrial goods are less discretionary or more resilient than more discretionary consumer goods. So that's what we're seeing, we're seeing some more firmness on the medical equipment side, on the high tech side, and on the kind of less consumer goods side. The second thing that I always like pointing out events, events are going very, very strong. Our trade shows, our concert business is exactly where we expected it to be significantly up. So I think in some pockets of life experiences, even consumer experiences and goods are picking up overall in the less discretionary space, medical equipment is the best example. We see very, very good trends. So I do believe that, again, people are spending their discretionary income not on the third refrigerator and second dishwasher more on life events. And on the industrial side, we do see good improvement and I would put medical equipment into that non-discretionary bucket also.

Perfect. And then I hate to squeeze the third one in but Rebecca, if you could walk us through the share repurchase activity in the quarter, tell us where the authorization stands right now and maybe Tom, if you could tell us what you're thinking about capital allocation and M&A, what looks interesting to you?

Sure, yeah, so we did repurchase during the quarter with 475,000 shares is what we repurchased, that leaves us with, we do we were authorized in the number of shares. So we're left with 1.8 million of shares still outstanding under that repurchase program, which, using the share price as of last night it's about over 186 million less that we have available to repurchase. I'll let Tom kind of talk through where we stand from an M&A standpoint, which will drive our share repurchases for the rest of the year.

Yeah, and the one thing and I think one of the reports that came out last night or this morning and Joe it may have been yours, I have to admit I didn't track statements by analyst, did point out that our share repurchases was an all-time record for the quarter. We bought about $50 million worth which is the equivalent of the former 75,000 shares that you just mentioned, Rebecca. So we clearly made a choice putting more of our capital into that repurchasing bucket in the first quarter. We will continue doing that and at the same time, we are very, very fortunate that even in a depressed freight cycle we are very, very cash flow strong. We will be using that cash flow for a continued enhanced share repurchases. We also will continue using that cash flow for tuck in acquisitions that make perfect sense for us. The two primary areas continue to be expedited LTL, Land Air Express was a great addition to our team, JNP Hall two years ago was a great addition to our team. We also organically did opening several LTL stations and terminals, we'll continue doing that. We just opened a significant sized one in Chicago area, that's the third one that we have in Chicago right now. So if you look at it this way, share repurchase is enhanced, but still following organic growth, LTL terminal expansion, and very, very specific tuck in acquisitions. We did a phenomenal job, I think within the model team to really fill out some of our geographies in the Pacific Northwest, Edgemont in Mobile, Alabama, and Memphis, Chickasaw. So again, if you put on the podium, clearly, you'd have organic growth, think of LTL terminal expansion like Chicago, tuck in acquisitions think Chickasaw Edgemont in a world rage [ph] as well as Land Air Express. And third would be share repurchases. That's the gold silver bronze.

Perfect. Thank you so much for all the time guys though. I'll get back in the queue.

Thank you, Joe.

We'll go next to the line of Scott Group with Wolfe Research. Go ahead.

Hi, this is Jake on for Scott. Thanks for the time.

Hi, Jake.

Hey Tom. So revenue per hundredweight that still declined slightly year-on-year in the first quarter. What's causing that and do you expect that to continue just looking forward into 2Q?

Yeah, Jake. And this is -- the answer is yes. This might continue slightly not a hell of a lot. What's going on here and this is the issue why we report like everybody else does, revenue per hundredweight, and it's still not the best metric. Our length of haul has been getting shorter and that's intentional. When we do shorter lengths of haul we actually have an opportunity to use solo drivers, not only team drivers. Team drivers are terrific because they enable one load and then baton handoff basically only at the end of the trip. And in between the drivers take turns driving and sleeping. But sometimes when we have -- sometimes when we have shorter distances, we can afford to use solo drivers, which are more economical and frankly easier to recruit. We love both equally, solo drivers and team drivers but solos are easy to recruit and we can use them on shorter distances more than we can longer distances. So we actually have a very active tactic in place to go more after shorter lengths to the haul. I don't have in front of me but if my memory serves me correctly, we've been down in length and fall by 6.7% year-over-year. So when you look at the revenue per hundredweight ex-fuel that does not reflect that. It's basically if you look at what I called out before revenue per ton mile ex-fuel that's actually the less used but a much more powerful metric because it takes the shorter distance out of the equation. Revenue per hundredweight, is agnostic to distances over shorter distances, he chose a smaller number because we charge less for it. But that’s an imperfect metric. The quality of that revenue actually continues going up and revenue per ton mile is actually a metric I think we should be using much more.

That's all helpful. And just a quick one, could you give monthly tonnage in the quarter and then I'm not sure if you gave a consolidated April number but if you could give that as well, that'd be helpful?

Yeah. So for January, our tonnage, our daily tonnage was down about 16%. For February, we saw some improvement, it was down only 9%. And for March, it was down to 11%. So -- and then for April, we have not given a consolidated number, but the blended between the 12% that we talked about, and the 5% gets us roughly in about 8% decline year-over-year.

Alright, that's helpful. Thanks, guys.

Thank you, Jack.

[Operator Instructions]. We'll go next to the line of Chris Kuhn with Benchmark. Go ahead.

Hey, Tom. Hey, Rebecca, good morning.

Good morning, Chris.

Tom, Rebecca, last quarter, you guys went through the headwinds and then some of the efficiency -- some of the efficiency measures offset some of that headwind. Are those efficiencies, basically the same, it's just the headwinds are a bit more maybe you could just kind of touch on that briefly?

Yeah, so what we did and I think, Chris, if I remember correctly, you did a really good job of recapping that in your follow-up, right up. So yeah, we are talking about that exact EPS bridge and just to remind those of you who actually have not been familiar with that conversation, what we did do over the last five to six months we looked at last year, and where we ended up on an adjusted 7.18 EPS, then we looked at 2023, we were at least foresight fully enough to say the sluggish economy and fuel coming down which was the expectation by the Washington Institute will cost us somewhere in the neighborhood of $1.50 EPS. And then we came up as you know, Chris, with those revenue initiatives, which we call Forward Force, we came up with these cost management initiatives, which you called Forward Game Shape. And we said like, how much do we expect those to be worth for this year. Roughly speaking, Forward Force and Game Shape were kind of equal halves. So each one of them made up about between $0.70 and $0.85 respectively. And so we thought that between all of those initiatives on the revenue side and cost management side, we would have enough counter activity to make up for the headwinds of fuel and sluggish economy. What we saw and this is what we just talked about, at the beginning of this call, we're updating obviously, these EPS bridges on a monthly basis. Stefan Vermeil [ph] runs our Pricing and Analytics takes the whole commercial team, the operations team through this exercise. And what we saw is the fuel like headwind and the sluggish economy headwind was heavier than what we expected. And therefore also some of the revenue initiatives,…

Okay, alright, Tom. Thanks. Yeah. We'll talk later. Thank you.

Thanks, Chris.

And we have no further questions in queue at this time, you may proceed.

Okay, well, Alan, thank you so much. And also thank you to those of you who listened in and who have been partnering with us, not just as thought partners, but also as action partners, making this remarkable company work the way it does. We are in a freight recession. We are not out of it yet. And I look forward to having calls when we actually see all of the Go Forward, high quality freight priced appropriately operated in a very, very clean precision execution environment, and made accessible to more customers and working even better with our existing partners. It happened at full throttle. We'll get there together. Thank you for your support and for the business partnership. And I think with that, Alan, we're concluding this call.

Thank you. That concludes Forward Air’s first quarter 2023 earnings conference call. Please remember that this webcast will be available on the investor relations section of Forward Air’s website at www.forwardaircorp.com shortly after this call. You may now disconnect.