Q3 2023 Forward Air Corp Earnings Call

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Ladies and gentlemen, thank you for standing by the forward Air corporations third quarter 2023 earnings conference will begin in approximately two minutes. Please continue to hold while others are assembling.

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Okay.

Thank you for joining forward Air corporations third quarter 2023 earnings release conference call before we begin I'd like to point out that both the press release.

A webcast presentation for this call are accessible on the Investor Relations section of forward Air's website at Www Dot forward Air Corp Dotcom.

With us this morning are CEO, Tom Schmitt and CFO, Rebecca Carr brick by now you should have received the press release announcing our third quarter 2023 results, which was furnished to the SEC on form 8-K and on the wire yesterday after the market close.

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 fourth 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 security and Exchange Commission and the press release and webcast presentation relating to this earnings call.

Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise unless required by law.

During the call. There may also be a discussion of financial metrics that do not conform to U S generally accepted accounting principles or GAAP.

Management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions.

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 in the investors tab on our website.

And now I'd like to turn the conference over to Tom Schmitt CEO of forward Air.

Thank you rich and good morning to all of you on the call.

Let me start by addressing our performance and our trends first.

On our last earnings call I did say that this freight recession is tricky.

I did talk about intermodal and truckload, where a lagging E L T L recovery.

That was still the case for our third quarter and also L. P. L itself, we had a weak July and we were still showing negative year over year volume trends in July.

That was in L. T L. Turning towards flat in August and we had positive volume trends in September.

And September both ended up being 85, Oh our territory.

And October is showing further volume improvements.

Over the past couple of years and especially in the past few months.

Gave us a lot of feedback around our L. T L focus and around corporate clarity.

We are listening and we are stepping up.

Our go forward program is all about L. T O.

It's about rigorous focus on high value freight priced appropriately with industry, leading servicing a cleansed operating environment and accessing a larger customer and revenue base.

That strategy of grow forward remains unchanged and first results can be seen in our O our trends.

When we announced on August 10, the acquisition of Omni that was all about going after more of that 15 billion dollar high value freight L. T. L. A market that's false block of grow forward accessing a larger customer and revenue base.

We will.

Execute that focus.

Got any claim.

In three ways.

First and foremost growing with the core and that's the most important part our domestic forwarders have been our core partners since our beginning Andrew calling with them again in fact, since we announced on August 10th the acquisition of Omni, we actually have grown with our domestic forwarder customers.

We have given them our commitment that we will continue to give them. The service in terms that will make them win more business and build scorecard to track revenue with them win rates for them and make sure that'd be do everything possible to make them win more business with us we will not confuse efforts with results with them.

Secondly, we will sell full steam direct to those customers, who do not work with forwarders.

But the August announcement, it should have been clear to everyone that he believed in our superior service. If you want to make it available to everyone large medium and small.

Aftermarket uses forwarders, and we want to make them even more the other half does not anybody going out fully after that other half as well.

Building out our direct sales force significantly over the next few months.

And also we will be laser sharp on getting the volume and pricing sweet spot right for door to door service and for direct service. When you look at our numbers you see we still have work to do on getting the volume and pricing sweet spot right for direct and four door to door.

The third point.

People live more corporate clarity.

Starting in Q1, 2024 L T L will be its own reporting segment.

And over the next few weeks, we are finalizing clear short and midterm targets.

Action and dashboards laying out very specifically our increased L. T. L revenue plans March and plans and the percentage of L. T L. As a revenue of the overall company.

Corporate clarity is something we will be living more portfolio review in an accelerated fashion is a big part of that.

Our forward focus is L T L and what's essential to make L. T L stronger.

With that rich, let's open it up for a lot at the lines for comments and questions.

Thank you the floor is now open for questions and comments, if you'd like to place yourself into the queue. You May press. One then zero on your telephone keypad, you may remove yourself from that Q by repeating the one zero commands if you will.

You're using a speaker phone, we ask that you. Please pick up the handset before pressing the numbers.

Once again, if you'd like to place yourself in the queue. You May press. One then zero at this time.

We will begin with the line of Jack Atkins with Stephens. Please go ahead.

Okay, great good morning, and thanks for taking my questions. Good morning, Jack.

So Tom I guess, maybe if we could start with the you know maybe double clicking a bit on the on the organic strategy.

Strategy related to your <unk> business I think part of that requires building out your commercial team in your commercial organization could you talk a bit about our about the investments that you either have made or you might need to make there to really kind of be able to expand your direct too.

Yeah direct shipper strategy over the next couple of years.

Yes, Jack so.

First of all as you know over the first 40 years, we exclusively dealt with our domestic forwarder and other intermediary partners and then two years ago. We started in a small way selling direct and we went out to small and medium sized businesses that do not use third.

Third parties that do not use forwarders that Jack we have build out very very slowly and consistently it's grown over the last few months. It's a commercial team of 20 plus people, we have a very very strong seasoned leader in place.

Actually leaders with Eric a toller and agenda for Johnson hires that we've made in the last year and a half and more recently in one case Nancy Walsh, our Chief commercial officer has developed with her team a very specific plan over the next few weeks to the next year to two years from now.

To tripling or quadrupling their salesforce with sales to either that are proven in the in the space of selling direct we also break here Jack that we have to.

Not to make this an investment year, but in fact cut costs and re direct energy and resources from other places and invested in that direct sales force but.

But so let me slowly started two years ago with small medium sized businesses only now its full force fair game. That's the benefit of the August 10th announcement that'd be that'd be became very clear about making sure that we are accessing that other half of the high value L. T L market small medium and large.

But you should be expecting as a road map.

Pacific resources in that space over the next few weeks this.

This is gonna be a doubling and tripling of that sales force within the next 18 months.

And you should also expect us to go with a revenue and margin numbers and percentage of overall company revenue that comes both from our indirect sales without partners and direct sales that we were building out.

That roadmap should be extremely specific with milestones targets and dates but to be very clear, we're talking about a multi exiting of the effort that we started two years ago in a short timeframe.

Okay. Okay that that's that'll be encouraging to see I think as you guys disclosed that and when you think about your network both whether it's your terminal infrastructure or your you know your first and final mile capabilities do you need to make any investments there to execute on odd.

The directors shipper strategy or do you feel like you have you have the infrastructure in place to be able to execute on that.

Yeah, we're going to continue doing terminal a expansion. If you think about this year, we actually did in the first 10 months we did.

Five new locations with the land Air Express acquisition early in the year and then we opened up.

Our third Chicago area L. T. L terminal. So we did six this year already we said a couple of years ago. We expect at least 30 over the next five years I E about six per year with.

With the strategy that we're now deploying and more aggressively than just going for SMB direct that terminal expansion of game plan may have to be accelerated also we are very clear that this.

This is not only about our recruiting and and deploying world class sales leaders. These also option needs to have an operating environment of customer service environment, the pricing environment that goes with it. So that is all part of that overall plan.

Again, our strategy has been very consistent it's accessing as much of the high value L. T L freight market as possible direct and indirect.

The tactics that we're gonna be pursuing much more aggressively our organic and that's that's what I think what you're going to be seeing in this planning very very specifically this is Jack where I become very German analytical nerdy and youll see some of that output.

Okay.

I think everyone would appreciate that dominated I guess, maybe last question I'll turn it over but it's you know.

It's the elephant in the room, which is which is omni and the pending acquisition there and I know you guys are.

I'm really pretty limited on what you can say, but you know.

I guess.

What are the next steps here I mean, well what should we be looking for from a from an investor perspective.

Moving forward and you know at what point are we going to maybe see some resolution to this just well what can you tell us about the next steps related to omni.

We feel very strongly that.

We are not under obligation to close that the conditions for closing have not been met.

And that's actually does put us into a position to consider options, including termination.

I'm, a big fan of when things get longer they don't get better.

So we should be getting out of the circus and into our business, 100% full time at cricket as quickly as possible. So if you have this conversation again in our next earnings call I think I did certainly Miss my objective.

So that's all I can say on this but we strongly feel that the obligations to close have not been met and determination is an opportunity that we can seize if you choose to do so.

Okay, well I'll turn it over to the next person, but thanks again for the time, Tom Thank you Jack.

Well now go to the line of Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks. Good morning, So wondering if Tom can you any any color you can share on on any sort of.

Discussions you've had with omni since that since your update a week ago and.

Any degree of confidence of.

Getting out of this transaction and why you feel confident you can and then just separately when you talk about portfolio review, maybe just give us a little bit more color of what's on the table of stuff to be sold.

Yeah Scott.

First topic I think I said at this point I should say and can say, we feel very strongly that the obligation to close is not there and determination as an option. Obviously omni has been a business partner and a good customer of ours.

Unknown Executive: Ladies and gentlemen, thank you for standing by the Forward Air Corporation, third quarter, 2023 earnings conference will begin in approximately two minutes. Please continue to hold while others are assembling. Your conference will begin momentarily. Please continue to hold.

We're going to see looking for ways to make sure that that's getting preserved and enhanced.

But theres nothing more I can say I mean, I think I did say Scott.

I mean, it just talk with Jack that a longer is not better. So we're looking for resolution obviously quickly.

Quickly, but that's all we should be talking about this it's much more I think full calories and useful calories spent on kind of what we do and what we can control and that's what I just gave some highlights on with the building out of the direct sales force. In addition to serving all gold class.

<unk> and make them win more on.

On portfolio review it is what what what what we always do if you remember.

Every single supporting business line has to make the L. T L business better and it has to be essential for it and it also has to bill as to.

Live up to its own financial expectations. If you remember three years ago that was no longer the case for one of our supporting business lines. You would had to have fulfilled its service to pool retail distribution business and we sold it and all I'm, making.

And making sure that we're clear on is we are accelerating that portfolio review looking at other supporting businesses.

But obviously, we don't talk about M&A, one direction or the other before it's done but.

Just be Russia, the rest assured we hear loud and clear that supporting business lines have to be essential to making L. T. L domain show and when that's no longer the case and they served their purpose and Gratulation who is coming.

Okay, and I guess I understand you're limited in how much more you can say, but can you at least share what what conditions have not been met.

Yeah, it's actually in the in our release that we put out on our own.

Thursday last morning, Scott, We did we do speak to.

Access to material information for instance, in a timely manner.

But we actually I think I'm, putting out there are two specific paragraphs in the merger agreement. So that's in the merger agreement is public record. So that's certainly something that you can look up most important part is we control what we control we are managing our business. We are we did see.

Unknown Executive: Thank you for joining Forward Air Corporation's third 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.FordAirCorp.com.

August 10, we are going after all of the high value LDL market direct and indirect and we are just doing more of that faster now organically.

Okay, and then just shifting gears to the to the guidance, maybe either time or Rebecca can you just share what's.

Unknown Executive: With us this morning, our CEO Tom Schmitt and CFO, Rebecca Garbrick. By now, you should have received the press release announcing our third quarter, 2023 results, which was furnished to the SEC on form 8K 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 fourth quarter 2023 and fiscal year 2023.

I know that we did some debt transactions in the quarter or are we capturing a higher interest expense in this guidance, but what are the margin assumptions in here I just.

Want to understand the moving pieces here with the guide.

Yeah, So Scott happy to talk through some of that.

So we gave an adjusted guidance, we put out but know that into our earnings release, suggesting that we wouldn't be able to.

Consolidated adjustments, but we believe that the interest expense that we're drilling now in the high yield notes and then other fees on our term loan b that those would be considered part of our non-GAAP. So they wouldn't be part of the adjusted EPS that we've provided.

I think from a margin standpoint.

Q4 is looking a bit like Q3 mm.

When we think about it we think there's a bit of an immediate peak you know.

Unknown Executive: 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 Security and Exchange Commission and the press release and webcast presentation relating to this earnings call. Listen is our Carson not to place undue reliance on these forward looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward looking statements, whether as a result of new information, future events, or otherwise unless required by law.

For the L. T L business intermodal gets a bit worse than in Q4, just from a seasonality standpoint so.

There was a little bit of a comparison, if you will in between Q3 and in Q4 as you're thinking about it from a guidance standpoint.

The one thing Scott obviously go ahead I'm.

I'm sorry go ahead.

Specifically on the LDL volumes, while the volumes are getting better.

And we see that momentum continuing what we in all fairness are fully focused on and still need to get better at is finding that volume pricing speeds sweet spot 40 door to door business and for the direct business. The airport to airport business. Obviously, we have lived for 42 years will be better.

Unknown Executive: During the call, there may also be a discussion of financial metrics that do not conform to US generally accepted accounting principles or gap management uses non-gap measures internally to understand, manage and evaluate our business and make operating decisions definitions and reconciliations of these non-gap measures to their most directly comparable gap measures are included in the press release issued, which is available in the investors tab on our website.

A good understanding of how to price that for maximum profitability.

Still need to be able to get that game app for the direct basis info door to door business. That's what's reflected in some of the muted numbers that you're looking at from Q4 guidance.

Okay.

Okay.

Okay. Thank you.

Thank you Scott.

We'll now go to the line of Bruce Chan with Stifel. Nicholas. Please go ahead.

Rich: And now I'd like to turn the conference over to Tom Schmidt CEO of Forward Air.

Thanks, operator, and good morning, Tom Good morning, Rebecca good morning.

Tom Schmitt: Thank you, Rich, and good morning to all of you on the call. Let me start by addressing our performance and our trends first. On our last earnings call, I did say that this freight recession is tricky. And I did talk about in a model and truckload were lagging the LTL recovery. That was still the case for our third quarter. And also LTL itself, we had a week July and we were still showing negative year over year volume trends in July.

Just wanted to focus a little bit big picture here for a second obviously you know there are some.

Maybe questions or concerns or uncertainties about the underlying business strategy and I just wanted to get a sense of when you speak with your core legacy customers. What are they most worried about and what are you doing to convince them that the fundamentals of your value proposition are still sound.

Yeah, I mean the.

The good news is I mean, obviously, we've known now.

<unk> is the company's bump, but most importantly.

Players at those business partners and customers extremely well.

Tom Schmitt: That was in LTL turning towards flat in August and we had positive volume trends in September. August and September both ended up in 85 of our territory and October is showing further volume improvements. Over the past couple of years and especially in the past few months, you gave us a lot of feedback around our LTL focus and around corporate clarity. We are listening and we are stepping up our global forward program is all about LTL.

Our sales leadership and frontline people have worked with them for a long time. So there is a strong relationship and is also a strong understanding of what makes them win.

I'm going to see actually one of them. This afternoon, and and we have very open conversations. So what they are obviously, we're concerned about with the acquisition announcement on August 10 is as someone else getting preferential treatment are we still going to support them and make them win more business and.

What do I think we are very focused on it but what we have been successful with is can you measure on each other by our actions and our results.

Tom Schmitt: It's about rigorous focus on high value freight price appropriately with industry leading service in a clent operating environment and accessing a larger customer and revenue base. That strategy of growth forward remains unchanged and first results can be seen in our our trends. When we announced on August 10th, the acquisition of Omni, there was all about going after more of that $15 billion high value freight LTL market that fourth block of growth forward, accessing a larger customer and revenue base.

Much more so than by our words at the end of the day My test with our domestic forwarder business partners is when you use forward air are you winning more business than you did without forward air.

Are you, making more margin in that you can keep score of that but we can keep as golf the revenue and then.

When you use house, what's the win rate when you use us is that going up or down and Bruce what we're doing is to be happy I was very specific scorecards in place with those customers.

Tom Schmitt: We will execute that focus organically in three ways. First and foremost, growing with the core, and that's the most important part. Our domestic voters have been our core partners since our beginning, and we're growing with them again. In fact, since we announced on August 10th, the acquisition of Omni, we actually have grown with our domestic forwarder customers. We have given them our commitment that we will continue to give them the service in terms that will make them win more business, and we'll spark our track, revenue with them, win rates for them, and make sure that we do everything possible to make them win more business with us.

If at the end of the month and end of the quarter and we actually keeping those scorecards to up to date on a monthly basis those business partners see they're actually winning more business and they're making more money when they use us and every single time. They go do bad debt percentage of winning actually looks better than it did three or six months ago. They say, okay. There's still works for us and.

All fantasies August 10, it's now been more than two and a half months, our domestic forwarder customers are using us 14% more than they did before the announcement. So despite a lot of kind of I guess straight talk and somewhat emotional conversations the strength and depth of those relationships is.

Tom Schmitt: We will not confuse efforts with results with them. Secondly, we will sell full steam direct to those customers who do not work with forwarders. With the August announcement, it should have been clear to everyone that we believe in our superior service, and we want to make it available to everyone, large, medium and small. Half the market uses forwarders, and we want to make them win more. The other half does not, and we're going now fully after that other half as well.

Very very very profound and I think we're living that and we're keeping score together and as long as we are rallying tending competent and make them, even more basically move heaven and earth to do so they're going to keep going with us and that's an and not an or two also accessing the direct sales the direct market, but the small SMB.

<unk> focus that we've had for the last two years, we got all kind of a training I E are in place to make sure that we actually ask all the questions upfront to make sure that we are not stepping on our partners toes, we were actually going after a market that's complementary and additional to our domestic fall.

Tom Schmitt: Building out our direct sales force significantly over the next few months, and also we will be laser sharp on getting the volume and pricing sweet spot right for door to door service and for direct service. When you look at our numbers, you see, we still have work to do on getting the volume pricing sweet spot right for direct and for door to door. The third point, we will live more corporate clarity.

Order a business partner market and so we tried that already that's M. B now I'll be going to continue doing that and we're going to go medium sized and large customers also so much more of that but we are not rookies to that game, but we do still need to get better on finding the volume and pricing sweet spot selecting the right freight pricing it correct.

Rich: Starting in Q1 2024, LTL will be its own reporting segment. And over the next few weeks, we are finalizing clear short and midterm targets, action and dashboards, laying out very specifically, our increased LTL revenue plans, margin plans, and a percentage of LTL as a revenue of the overall company. Corporate clarity is something we will be living more. Portfolio review in an accelerated fashion is a big part of that. Forward focus is LTL and what's essential to make LTL stronger.

And again some of the conservatism into our Q4 numbers is reflecting the fact that we still have untapped upside on the pricing side for the business, that's direct and that store to door.

Okay, Great. That's really helpful and maybe just a follow up you talked a lot about metrics and kpis for your customers. Obviously, you're one of the important ones. This service can you just talk about how things like damage claims on time metrics have trended.

Through the quarter from last quarter, and when you think about some of the coming changes to your business and your networks. What are the investments that you need to make in order to maintain those levels of service.

Rich: With that, Rich, let's open it up for the lines for comments and for questions. Thank you. The floor is now open for questions and comments. If you'd like to place yourself into the queue, you may press one then zero on your telephone keypad. You may remove yourself from that queue by repeating the one zero commands. If you are using a speaker phone, we ask that you please pick up the handset before pressing the numbers. Once again, if you'd like to place yourself into queue, you may press one then zero at this time.

Bruce It's interesting when we actually did a third party study last year on looking at having a third party. This was S. J consulting ship matrix looking at the entire U S. L. T L market millions and millions of data points and looking for speed on time performance claims ratios.

And we came out on top of each one of those metrics over a world class companies.

Jack Atkins: We will begin with the line of Jack Atkins with Stevens. Please go ahead. Okay, great. Good morning and thank you for taking my questions. Morning, Jack. Tom, I guess maybe if we can start with the maybe double clicking a bit on the organic strategy related to your LTL business, I think part of that requires building out your commercial team and your commercial organization.

The others are hunting in chasing us they are very good at what they do and it's always keeps us sharp win when they are looking to get better too, but we have a objectively the lowest claims ratio in the <unk> market in the U S. We have objectively the best on time performance once you actually.

Eliminate or at least make parallel all the exemptions and exceptions. So that takes a lot of investment, which we are obviously, making into our terminal network. Our operations team led by Chris Ruble is world class.

Jack Atkins: Could you talk a bit about the investments that you either have made or you might need to make there to really kind of be able to expand your direct to direct to ship or strategy over the next couple, for a couple of years.

But we're not taking this for granted we have absolutely top notch competitors that are chasing us, but we are the best at what we do in terms of investments.

Tom Schmitt: Yeah, Jack. So, first of all, as you know, over the first 40 years, we exclusively dealt with our domestic forwarder and other intermediary partners. And then two years ago, we started in a small way selling direct and we went to small, medium-sized businesses that do not use third parties that do not use forwarders. That, Jack, we have built out very, very slowly and consistently. It's grown over the last few months. It's a commercial team of 20 plus people. We have a very, very strong seasoned leader in place, actually leaders with Eric Atoller and Jennifer Johnson, hires that we've made in the last year and a half, and more recently in one case.

Anything from making sure that the flows in and determined notes are efficient desk technology. We're deploying we have a great kind of business partner with our CIO, Jay Tomasello and his team that's making sure that the flows are the most direct flows with EQT and inbound and outbound floors.

That we can actually always locate the freight we have obviously a guaranteed service and on top.

So that'd be a a last in first out to rule in place. They are significant safety investments as you can pick a significant operational investments that we're making and we're going to continue making dose.

Tom Schmitt: Nancy Ronning, our chief commercial officer has developed with her team a very specific plan over the next few weeks, to the next year, to two years from now, to tripling or quadrupling this sales force, the sales leader that are proven in the space of selling direct. We also have a very clear track that we have to not make this an investment year, but in fact, cut costs and redirect energy and resources from other places and invested in the direct sales force.

The best service in the industry doesn't happen it actually is the opposite outcome.

<unk>.

Investments in technology is a big one both on the safety side as well as on the operational efficiency side.

Okay, Great and then just directionally with the changes in the mix and the changes in the business have those metrics been flat up down.

Yeah.

So.

The increased focus on door to door and also direct especially going forward.

Tom Schmitt: But so, what we slowly started two years ago with small, medium-sized businesses only. Now, it's full force, fair game. That's the benefit of the August 10th announcement that we became very clear about making sure that we are accessing that other half of the high value LTL market, small, medium, and large.

The investment itself I think is still as a percentage of overall revenue going to be somewhat stable.

But we do have to do Bruce is we do have to get more into making sure that the customer service aspects. The pricing aspects are going to be equally sharp as they were in the airport to airport. So they may there may be a small uptick there for a short period of time, but again. This is why I said before we have to find the money in other spaces. This cannot.

Tom Schmitt: What you should be expecting is a road map with specific resources in that space over the next few weeks. This is going to be a doubling and tripling of that sales force within the next 18 months. You should also expect us to go with revenue and margin numbers and percentage of overall company revenue that comes both from indirect sales with our partners and direct sales that you're building out. That road map should be extremely specific with milestones, targets, and dates, but to be very clear, we're talking about a multi-exing of the effort that we started two years ago in a short time frame.

Being an investment year.

Coming up.

But yes, we do have to build out that door to door and the direct service not just on the sales side as I said before but also on the supporting team side. So you will see an investment there Thats got has to come from other resources and expenses inside the company cost management is certainly going to be a top priority to make sure that we.

Can funnel those types of.

Energy and resources into the direct space.

Okay I'll turn it over thank you.

Jack Atkins: Okay. That'll be encouraging to see, I think, as you guys disclosed that.

Thanks Bruce.

Thank you, we'll now move along to the line of Stephanie more with Jefferies Group. Please go ahead.

Tom Schmitt: When you think about your network, both whether it's your terminal infrastructure or your first and final mile capabilities, do you need to make any investments there to execute on the direct chip or strategy? Do you feel like you have the infrastructure in place to be able to execute on that? Yeah, we're going to continue doing terminal expansion. If you think about this year, we actually did in the first 10 months. We did five new locations with the Land Air Express acquisition role in the year, and then we opened up our third Chicago area, LPL terminal. So we did six this year already.

Hi, good morning, Thank you.

Morning.

I wanted to maybe follow up on.

<unk>.

I'd like to follow up on a point you just made Tom in your comment about how domestic forwarders are using more kind of anymore. If you start with the last couple of months. It seems like the underlying freight environment is still pretty weak funding environment, some pretty weak, but what do you think is driving maybe the desktop engagement.

Yes, so we all.

If you look at the entire industry and that's that's definitely true to a smaller extent for US also we did have a temporary dislocations. The first one was obviously yellow capacity that had been temporarily out of the market 9% of the doors.

Tom Schmitt: We set up a couple of years ago. We expect at least 30 over the next five years, i.e, about six per year, with these strategies that we're now deploying and more aggressively than just going for SMB Direct. That terminal expansion of game plan may have to be accelerated also. We are very clear that this is not only about recruiting and deploying role-class sales leaders. This also, obviously, needs to have an operating environment, a customer service environment, a pricing environment that goes with it.

Obviously, those shipments still have to be moved and Dave Damien to other providers you saw some of that so the first batch freight companies reporting.

I would bet you that some of them like I saw you would have had quite a bit of a what otherwise in the past would have been yellow business, we had some of that to lesser than the others, because the freight mix freight overlap between yellow and Ics, perhaps less.

Tom Schmitt: So that is all part of that overall plan. Again, our strategy has been very consistent. It's accessing as much of the high-value LPL freight market as possible, direct and indirect. The tactics that we're going to be pursuing, much more aggressively, are organic, and that's I think what you're going to be seeing in this plan very, very specifically.

Fully developed as it was between yellow and some of the other first class class freight companies.

So and then as this obviously had an unfortunate.

We're very familiar with that because we live through a cyber attack ourselves in 'twenty 'twenty incident on cyber security that also temporarily I think shifted some volumes, having said all of that.

Jack Atkins: This is Jack where I become very German analytical nerdy, and you'll see some of that output. Okay, I think everyone will appreciate that.

If I look at specific September ends if I look at October.

It seems like on the high value L. T. L. Freight side this is less consumer discretionary and more industrial.

Tom Schmitt: And I guess maybe last question I'll turn it over, but it's, you know, it's the elephant in the room, which is, which is Omni and that the pending acquisition there, and I know you guys are probably pretty limited on what you can say, but, you know, I guess, what are the next steps here? I mean, what should we be looking for from an investor perspective, you know, moving forward? And, you know, what point are we going to maybe see some resolution to this?

There is actually a bit more momentum in the demand that we're seeing when we talked with our business partners.

Yes imports from Asia are still muted, but the <unk> environment clearly is better than it was.

Towards the end of Q4 last year Q1. This year Q2. This year. So there is a bit of a springing to step off of for the industry from the yellow and the <unk> temporary dislocation, but are there trends overall are more sound right now I still am not high Fiving myself here for a huge peak, but this is.

Tom Schmitt: Well, what can you tell us about the next steps related to Omni? Yeah, we feel very strongly that we are not on an obligation to close that the conditions for closing have not been met. And that actually does put us into a position to consider options, including termination. I'm a big fan of when things get longer, they don't get better. So we should be getting out of the circus and into our business 100% full-time as quickly as possible.

A better <unk> environment right now than it was three months ago or six months ago.

So maybe just following up on that is it.

Reasonable to say that with the dislocation from yellow that maybe some of the high value right that six months ago. The likes of your public LCL play.

Tom Schmitt: So if we have this conversation, again, in our next earnings call, I think I did certainly miss my objective. So that's all I can say on this, but we strongly feel that the obligations to close have not been met and determination is an opportunity that we can seize if we choose to do so.

Like the other I'll tell players.

Eddie maybe they would have missed some of this high value right, but now given the tighter capacity environment. They kind of are getting some of that freight back to you guys is that.

That's fair assessment or no.

Jack Atkins: Okay, well, I'll turn it over to the next person, but thanks again for the time, Tom. Thank you, Jack.

I wish it were that generous, but I think they know better than that.

So.

Unknown Executive: Well, now go to the line of stock group with Wolf Research. Please go ahead. Hey, thanks.

That's why I said before I do believe the yellow dislocation.

Helped the industry on pricing discipline, all up but it also helped.

Scott Group: Good morning. So, can you any color you can share on any sort of discussions you've had with Omni since your update a week ago, and any degree of confidence of getting out of this transaction and why you feel confident you can? And then just separately, when you talk about portfolio review, maybe just give us a little bit more color of what's on the table of stuff to be sold. Yeah, Scott, on the first topic, I think I said what at this point I should say and can say we feel very strongly that the obligation to close is not there and determination is an option.

Some of the players with has gaining new volumes, we did get some volumes through our intermediaries for long haul yellow business and also some events business.

We were clearly from a pure volume perspective less of beneficiary than some of the class III companies, where and I do I do not have the impression that this is a ripple effect, where yellow business went to <unk> old Dominion and their high end business went to us.

I do believe I do believe domestic forwarders, frankly are just gaining more business getting more business and when they compete with us and as part of that.

The contest.

Scott Group: Obviously, Omni has been a business partner in a good customer of ours. We're going to see looking for ways to make sure that that's getting preserved and enhanced. But there's no more I can say, I mean, I think I did say Scott, I mean, I just talked with Jack that longer is not better. So we are looking for a resolution, obviously, quickly, but that's all we should be talking about this. It's much more, I think, full calories and useful calories spent on kind of what we do and what we can control.

The win rates are going up so I do see a better LTR environment going into the fourth quarter again, the reason why the numbers.

Look probably somewhat.

Muted or conservative is us being very much aware that we need to figure out the pricing and volume sweet spot for door to door and direct the same way. We have worked on that for many many years on the airport to airport side.

Okay got it and then just following up there can you talk a little bit about your plans for <unk>.

Scott Group: And that's what I just give some highlights on with the building out of the direct sales force in addition to serving our gold class intermediaries and make them win more on portfolio review. It is what we always do. If you remember, every single supporting business line has to make the LTL business better and has to be essential for it. And also has to build has to live up to its own financial expectations.

Great.

In the fourth quarter.

Alright.

El <unk>.

Where are they.

Yeah.

Oh, yes.

Yes, we are very consistent when it comes to the process here, So Stefan and Katie Fox and the pricing team.

Towards that November we announced for the following year, we worked with our customers.

Scott Group: If you remember three years ago, that was no longer the case for one of our supporting business lines. It had the fulfilled its service to pull retail distribution business and we sold it. And all I'm making sure that we are clear on is we are accelerating that portfolio review, looking at other supporting businesses. But obviously, we don't talk about M&A one direction or the other before it's done, but just be rest assured we hear loud and clear that supporting business lines have to be essential to making LTL domain show.

Directly so that they that there's predictability and they can actually build those increases into our budgets.

They are driven obviously by investments we talked about terminal investments, we talked about safety investments.

And also obviously in some cases as wage adjustments that we have to make sure we finance.

And fund.

So there's always going to be a G. R. I. It's always the first Monday in February so that gives predictability to our business partners for their budgeting season themselves and I think the range that you saw in the last couple of years 2021.

Scott Group: And when that's no longer the case, they serve their purpose and graduation is coming. Okay, and I understand you're limited in how much more you can say, but can you at least share what conditions have not been met? There's actually India in our release that we put out on Thursday last morning Scott. We did we do speak to access to material information, for instance, in a timely manner, but we actually I think I'm putting out there two specific paragraphs in the merger agreement.

One was at the high end with 7.9 some of the lower numbers. So you have seen is five nine somewhere in between those two numbers is probably going to be the Gi for 2020 four.

Perfect and then lastly for me and just taking kind of a big a big picture of you and appreciate your commentary about kind of building out that direct sales network in going after you do that incremental Tam in the premium LCL space.

Kind of building out organically this direct sales team.

What do you need to do to kind of make sure you're preserving your existing relationships with the domestic market I think we talked about what you've kind of had in place.

Scott Group: So that's an emerging agreement is a public record. So that's certainly something you can look up. The most important part is we control what we control. We are managing our business. We are we did say in August 10, we are going after all of the high value LTL market direct and indirect. And we are just doing more of that faster now organically.

The omni transaction went through but if it is all kind of done internally organically.

What would be the strategy to kind of preserve your existing relationships also going after some of that.

Yeah, So it's Stephanie.

Scott Group: And then just shifting gears to the guidance, maybe either Tom or Rebecca, can you just share what I know that we did some debt transactions in the quarter? Are we capturing higher interest expense in this guidance? What are the margin assumptions in here? I just want to understand the moving pieces here with the guide.

There's a huge focus for all of us here to get that right.

But again I think as a reminder.

Estimated net estimate is probably very conservative because it's about six years old data.

$15 billion of high value <unk> market that values the.

No no damages high speed hitting tight time windows of that $15 billion roughly speaking half of it gets transacted between shippers and companies like us directly the other half goes through intermediaries.

Rebecca Garbrick: Yeah, so Scott happy to talk through some of that. So we gave an adjusted guidance and we put it, but note into our earnings release, suggesting that we wouldn't be able to, you know, reconcile those adjustments, but, you know, we believe that that interest expense that we're really known as high yield notes and then other fees on our term, when these would be considered part of our non gap. So they wouldn't be part of the adjusted EPS that we've provided.

So if you take that the one thing we have to absolutely nail is when we go after the half that's not being transacted through intermediaries, we have to be extremely explicit asking the questions upfront I using follower forwarders have you worked with farmers are you intending to use forwarders and if they do then that obviously would be.

Rebecca Garbrick: I think from a margin standpoint, you know, Q4 is looking a bit like Q3. You know, when we think about it, we think there's a bit of a muted peak, you know, for the LTL business in our modal gets, you know, a bit worse and Q4 just from a seasonality standpoint. So there's a little bit of a comparison, if you will, between Q3 and Q4 is because you're thinking about it from a guidance standpoint.

Going to do everything possible to make that forward or keep and win that business because they probably have it for a reason those companies may not have a sophisticated large transportation of our supply chain department because they use those forward as in essence to be that department for them.

So but that's.

Again, the team did a great job, Melissa <unk> and her colleagues kind of over the last two years and now increasingly Jennifer and Erica making sure. We ask those questions upfront and we don't and we go by the facts. Obviously in two years there were a handful of instances, where there was some noise literally.

Rebecca Garbrick: The one thing is that specifically on the LTL volumes, right? The volumes are getting better. And we see that momentum continuing. What we in all fairness are fully focused on and still need to get better at is finding that volume pricing speeds sweet spot for the door to door business and for the direct business.

A handful in thousands of interactions. So we have our training wheels in place here, we know how to ask those probing questions. We know how to actually qualify for that.

Scott Group: The airport, the airport business office, we have lived for 42 years. So we've got a very good understanding of how to price that for maximum profitability. We still need to be able to get that game up for the direct business and for the door to door business. That's what's reflected in some of the muted numbers that you're looking at for Q4 guidance. Okay. Thank you. Thank you, Scott.

Stephanie in vivo only win if we keep and re earn the trust of our domestic forwarders by making sure. We get this very very right that this is an and not an or and it's complementary not overlapping a gray zone here is D and it's got to be something thats black or white and.

We have to as probing questions can make very certain it's black and white there is half of the market that gets transacted directly between the shipper and transportation providers and we need to make sure we identified that half of the market correctly.

Bruce Chan: We'll now go to the line of Bruce Chan with Stephal necklace. Please go ahead. Next operator and good morning, Tom. Good morning, Rebecca. But I just want to focus a little bit, big picture here for a second. Obviously, you know, there are some, you know, maybe questions or concerns or uncertainties about the underlying business strategy. And I just want to get a sense of when you speak with your core, you know, legacy customers, what are they most worried about?

Great. Thank you so much.

Thanks, Stephanie.

We will now go to the line of Bascom majors with Susquehanna. Please go ahead.

Rebecca I think to help us reconcile the guidance without necessarily guiding non-GAAP things that you can't guide is there any way that you could give us some bookends on what operating income for the expedited freight or intermodal segments are underlying that guide.

Bruce Chan: And what are you doing to convince them that the fundamentals of your value proposition are still sound. Yeah, I mean the good news is I mean obviously we've known not just the companies but most importantly the players at those business partners and customers extremely well. I mean our sales leadership and frontline people have worked with them for a long time. So there's a strong relationship and there's also a strong understanding of kind of what makes them win.

Yeah happy to give you a bit of some flavor. There you know I think when we think about expedited freight and we think about the margin.

We're expecting a bit of some margin.

You know a bit of some <unk>.

Bruce Chan: I'm going to see actually one of them this afternoon and and be a very open conversation. So what they obviously weren't concerned about with the acquisition announcement on August 10 is someone else getting preferential treatment. Are we still going to support them and make them win more business and what do I think we are very focused on and what we have been successful with is can you measure each other by our actions and by our results.

Margin expansion as we look from Q3 to Q4, not you know not much but I do think there is a little bit there when we move down a bit to intermodal.

As I mentioned from a seasonality standpoint, just looking at the intermodal business Q3 is typically stronger than Q4 and that is that you guys hold true.

As we think about the guide to Q4, so we will see a step down from intermodal from Q3 to Q4.

Bruce Chan: Much more so than by our words at the end of the day my test without domestic forward of business partners is when you use forward air. Are you winning more business than you did without forward air? Are you making more margin and you can keep score of that but we can keep score of the revenue and then when you use us, what's the win rate when you use us? Is that going up or down and Bruce what we're doing is we have those very specific score cards in place with those customers.

Are you talking specifically margins or operating profit on both of those signals.

For any margin.

Thank you.

On the.

Bruce Chan: And if at the end of the month and end of the quarter and we actually keeping those score cards up to date on a monthly basis, those business partners see they're actually winning more business and they're making more money when they use us. And every single time they go to bat, their percentage of winning actually looks better than it did three or six months ago, they say okay, this still works for us.

Tom.

Tom.

This is a legal question I don't know if you have someone from inside or outside counsel available or if you can just comment loosely but the shareholder plaintiffs did appeal.

The ruling in your favor late last week any update on how long that would take to have some resolution on whether or not that appeal will be heard would be helpful.

Yes so.

I will tell you, obviously, what I know.

So there is you're actually correct.

Don't know if ive everybody is following this had to be with the had to do with the temporary restraining order and that three plaintiffs former employees and shareholders.

Bruce Chan: And in all fairness since August 10, it's now been more than two and a half months. Our domestic forward of customers are using us 14% more than they did before the announcement. So despite a lot of kind of I guess straight talk and somebody emotional conversations, the strength and depth of those relationships is very, very, very profound. And I think we're living that and we're keeping score together. And as long as we are well intending competent and make them win more business and move heaven and earth to do so, they're going to keep going with us.

Greenville, Ed at the Chancery Court actually received and is that temporary restraining order was lifted which means there is no.

Actually frankly.

I appreciated that outcome because it does mean and that's very important we're doing.

Things to right way.

I always say, we're not a hotdog stand we need to make sure that we get things could we get the right things down, but we also do them the right way.

Bascom there was a.

Bruce Chan: And that's an end, not an or to also accessing the direct sales, the direct market. But the small SMB focus that we've had for the last two years, we got our kind of training gear in place to make sure that we actually ask all the questions upfront to make sure that we are not stepping on our partner's toes. And so we tried that out with SMB. Now we're going to continue doing that and we're going to go medium size and large customers also so much more off that, but we are not rookies to that game.

I'm not sure where the determine appeal is technically correct, but there was that the plaintiffs asking the judge one more time to reconsider to getting a temporary restraining order in place and there is a hearing and or ruling.

Afternoon in Greenville about that so there should be more news coming out of Greenville.

Within the next 10 hours or less I think it's a four o'clock meetings, where it's more like six or seven hours from now.

So thats still undergoing again our focus is.

We have a very very seasoned mature team here our focus is on controlling the things we can control.

Yes, a very small group here.

Bruce Chan: But we do still need to get better on finding the volume and pricing sweet spot selecting the right freight pricing it correctly. And again, some of the conservatism into our queue for numbers is reflecting the fact that we still have untapped outside on the pricing side for the business that's direct and that's door to door. Okay. Great. That's really helpful. Maybe just a follow up. You talked a lot about metrics and then KPIs your customers.

Rebecca and me included Michael Haines, Our Chief legal officer included that need to guide us through some of the ongoing kind of navigation of the litigation issues.

90, 999% of our team to be fully focused on finishing this year strong and.

The guidance I think is conservative, but lets just lets us be let it be what it is and let's just keep finishing the year strong we have a very clear strategy. We have a lot of untapped upside we told the world on August 10, Denver going ask this untapped upside which is going after it organically because thats, what we can control right now.

Bruce Chan: Obviously one of the important ones is service. Can you just talk about how things like damage claims on time metrics have trended through the quarter from last quarter. And when you think about some of the coming changes to your business and your network, what are the investments that you need to make in order to maintain those levels of service? Yeah, it was interesting when we actually did the third party study last year on looking, having a third party, this was the S.J.

Two big picture questions to close.

The direct sales strategy was always part of your attach.

Bruce Chan: Gonzaloine Ship Matrix, looking at the entire US L.T.L, market, million and million of data points, and looking for speed, on-time performance, claims ratios, and we came out on top of each one of those metrics over role-class companies. The others are hunting and chasing us, they're very good at what they do, and it's always keeps us sharp when they're looking to get better too, but we have objectively the lowest claims ratio in the L.T.L, market in the US.

Attempt to grow forward.

In August we found out that you thought doing that acquisitive, we might be a better path to achieving that in an <unk>.

And now we're pivoting back to really doubling down on the organic direct sales strategy.

Can you talk a little bit about what drove the change of heart and what didn't work.

As fast as you hoped it would in the first year or two of that and why it can work now.

Yes, so first of all basketball I think you characterized as <unk>.

The way we are looking at this the strategy has been very clear to you appoint the tactics over the last several months looked like they were shifting back and forth between two alternative approaches.

Bruce Chan: We have objectively the best on-time performance, once you actually eliminate or at least make parallel all the exemptions and exceptions, so that takes a lot of investment, which we are obviously making in our terminal network, our operations team, led by Chris Ruble, his role-class, but we're not taking this for granted, we have absolutely top-notch competitors that are chasing us, but we are the best at what we do in terms of investments, anything from making sure that the flows in the terminal are efficient, there's technology redeploying, we have a great kind of business partner with CIO, Che Tomasello and his team, that's making sure that the flows are the most direct flows between inbound and outbound floors, that we can actually always locate the freight. We have obviously a guaranteed service on top, so that we have a last-in first out-to-ruling place, there's significant safety investments, there's significant operational investments that we are making, and we're going to continue making those.

The good news is those approaches don't have to be alternatives, Amanda can be complementary and additive.

The reason why Bascom I fully believe that we can go full steam direct.

Now is at least twofold. The first one is we do have two years of experience basically doing the direct selling in a small way with going after small medium sized businesses that do not use forwarders.

So we kind of know how to ask the qualifying questions what what the right high value freight is and we started getting better with pricing for it and again they are still untapped upside as I said before so the SME experienced that we can bring to bear I think the second reason is.

Now that we that we on August 10 announced that we are going after that entire direct space I think we have a license to do it in the past almost felt constrained.

Bruce Chan: The best service in the industry doesn't happen, it actually is an obviously an outcome of investments and technologies as a big one, both on the safety side as well as on the operational efficiency side. Okay, great, and then just directionally what the changes in the mix and the changes in the business have those metrics been flat up down. So with the increased focus on door-to-door and also direct, especially going forward, the investment itself I think is still as a percentage of overall revenue going to be somewhat stable.

As a company for four decades, all we did was working with great business partners domestic forwarders and debt. That's in essence. All we did then we started getting our toes into the water with small medium sized business on August 10, we announced that we're going to go after the entire direct market that does not use forwarders.

So I think just by announcing it having the tough customer conversations gives us license to do now what we never felt we had a license to do so I think thats, a mind share in <unk> and <unk>.

Mentality issue the last thing I do want to mention I mentioned before the somewhat nerdy analytical German mind, and we do have a very very strong chief commercial officer with Nancy running who.

Bruce Chan: What we do have to do, Bruce, is we do have to get more into making sure that the customer service aspects, the pricing aspects are going to be equally sharp as they were in the airport. So there may be a small uptick, therefore, a short period of time, but again, this is why I said before, we have to find the money in other spaces, this cannot be an investment year coming up.

Who has the type of analytical.

Structured thinking and approach that goes together in her case also with a great way of leading.

Teams developing teams.

And also having a great.

Relationship kind of.

Building mentality with customers. So I think between having started to doing the SMB sector.

Bruce Chan: But yeah, we do have to build out that door-to-door and that direct service, not just on the sales side, as I said before, but also on the supporting team side. So you will see an investment there that has to come from other resources and expenses inside the company. Cost management is certainly going to be a top priority to make sure that we can funnel those types of energy and resources into the direct space. Okay, I will turn it over. Thank you. Thanks, Bruce.

Leah announcing we are going to do it now for the entire direct market and third having the right leadership in place. We've got ingredients now baskets that we didn't have three or four years ago.

Thank you for walking through that Tom I'm going to ask one more big picture question, and then pass it on here, but.

I mean, it's frankly been difficult for investors to keep up since early August. This war has kind of grown on several fronts expanded to include your acquisition target itself late last week.

Tom Schmitt: Thank you. We'll now move along to the line of Stephanie Moore with Jeffrey's Group. Please go ahead. Hi, good morning. Thank you. Morning. I wanted to maybe follow up on I'd like to follow up on a point you just made Tom and you're coming about how domestic forwarders are using more kind of using more of your service in the last couple of months. It seems like the underlying freight environment is so pretty weak and the pouring environment is so pretty weak.

And I realize you can't talk about the specific path forward given the myriad legal issues involved but if we were to go to sleep today and wake up in February two year <unk> released an initial 24 outlook and everything has gone to plan from your perspective over those four months what are your customers employees and investors looking at <unk>.

The company's structure strategy and go forward outlook.

Yes.

Tom Schmitt: So what do you think is driving maybe the depth of engagement? Yeah, so we all if you look at the entire industry and that's that's definitely true to a small extent for us also we did have a temporary dislocations. The first one was obviously yellow capacity that's that went temporarily out of the market 9% of the doors. Obviously those shipments still have to be moved and they they went to other providers.

<unk> and bascom of truly appreciate and <unk>.

I am very grateful to our team and also to our business partners for.

Having had support and patience over the last several months all we were doing.

Is pursuing a strategy of grow forward, we've talked about this before and yes, I think the fact that we were exploring.

Exploring different tactics getting to a larger customer and revenue base direct cost a lot of.

Tom Schmitt: You saw some of the some of the first class rate companies reporting. I would bet you that some of them like a scia would have had quite a bit of what otherwise in the past would have been yellow business. We had some of that too less so than the others because the freight mix freight overlap between yellow and us is perhaps less fully developed as it was between yellow and some of the other first class class rate companies.

Emotional up upheaval on multiple fronts, and I realize that I'm, sorry for that and I apologize for that because that's obviously not what.

We intended to do here, we are doing the right thing we are the best company into high value freight space and we're working through our grow forward strategy to get to.

Tom Schmitt: So and then as this obviously had an unfortunate and we were very familiar with that because we lived through a cyber attack ourselves in 2020 incident on cyber security that also temporarily I think shifted some volumes having said all of that. If I look at specifically September and I have a look at October it seems like on the high value LTL freight side this is less consumer discretionary more industrial.

To provide that type of world class service to more customers.

Business partners.

And it's been a bit rocky over last several months trying to get to the best path.

To execute here.

Four months from now when we all wake up in February to our Q4 release.

And our outlook for 2024.

I certainly will do everything possible to have stability in place soon.

Tom Schmitt: There is actually a bit more momentum in in the demand that we're seeing when we talk with our business partners yes imports from Asia are still muted but the LTL environment clearly is better than it was towards the end of q4 last year q1 this year q2 this year so there's a bit of a spring in the step of a for the industry from the yellow and the estus temporary dislocation but the trends overall are more sound right now I still am not high-fiving myself here for a huge peak but this is a better LTL environment right now than it was three months ago or six months ago. So maybe just following up on that is it would it be reasonable to say that with the dislocation from yellow that maybe some of the high value freight that you know six months ago the likes of your public LTL player the life of the other LTL players you know the size and od's maybe they would have moved some of the high value freight but now given the tighter back the environment they kind of were giving some of that freight back to you guys is that.

We know kind of how are we going to go forward organically.

With that strategy.

Currently.

Would expect us to be extremely mathematical with a multiyear scorecard of LTM revenue <unk> margins.

<unk> as a percentage of overall company revenue.

And third.

I would expect that corporate clarity with our portfolio review, we will have yielded consequences by then.

Yeah.

Thank you Tom I appreciate it.

Okay. Thanks Bascom.

We will now go to line of Christopher Kuhn with the benchmark company. Please go ahead.

Hey, Tom Hey, Rebecca Good morning, Good morning, Chris.

Maybe just to the extent.

If you did take on some yellow and at these volumes.

Your sort of thought process around keeping that line do you think some of that then.

Settle somewhere else or do you feel confident you can keep some of that.

Tom Schmitt: I have a fair assessment or no I wish there were that generous but I think they know better than that no so I that's why I said before I do believe the yellow dislocation helped the industry on pricing discipline all up but it also helped some of the players with gaining new volumes we did get some volumes through our intermediaries for long haul yellow business and also some events business but we were clearly from a pure volume perspective less of beneficiary than some of the class freight companies were and I do I do not have the impression that this is a ripple effect where yellow business meant to shy all the meaning and their high end business went to us. I do believe I do believe domestic forwarders frankly are just gaining more business getting more business when they compete with us as part of the.

Yes, so again, Chris the one thing and I think we even talked about this before.

I strongly belief based on data sets that we see on our salt from one week to the next.

Like over the last two or three months.

We were a volume beneficiary from those two dislocations, but we were much less a volume beneficiary than some of.

Great class rate companies.

So we're talking literally a key.

Couple of three percentage points, not eight or 10.

And but the business that we were going after was long haul business that fits us well and it also was some events business. So my sense is what came came here for a reason it wasn't a hell of a lot, but what came here should should've come here and it's going to you're going to be here to stay so those volume trends that we're seeing.

Now I expect to continue seeing them.

Tom Schmitt: The contest their just their win rates are going up so I do see a better LTL environment going into the fourth quarter again the reason why the numbers look probably somewhat, and muted or conservative is us being very much aware that we need to figure out the pricing and volume sweet spot for door-to-door and direct the same way we have worked on that for many, many years on the airport to airport side. Okay, got it.

Okay, and then just as you go after sort of the larger customers for your for your direct sales I know I know youre going after customers that don't use forward areas, but.

Looking forward as market to them and will you be stepping on some of your customers toes as you as you try to grow the large businesses.

Yeah. So this is again where.

Chris we have to get this as black and white as possible Gray is not helpful. Here. So.

But fundamentally if you look at this going into the automotive industry go into the like some of the industrial verticals you do have companies and they are in the same space and some of them say transportation and supply chain for us as a core competency and others say in the same industry. That's not something that's core to US we are going to use a world class.

Tom Schmitt: And then just following up there, can you talk a little bit about your plans for a GRI or general rating increase? Can you hear it going to the fourth quarter or first off in the 2024? I know some of the other outfield players have come to know where they stand with you out the next couple of months. So, any updates on timing? Yeah, be out very consistent when it comes to the process here.

To help us with that.

Tom Schmitt: So step on Katie Fox and the pricing team towards November, we announced for the following year, we work with our customers directly so that there's predictability and they can actually build those increases into their budgets. They are driven obviously by investments, we talked about terminal investments, we talked about safety investments, and also obviously in some cases there's wage adjustments that we have to make sure we finance and fund. So, there's always going to be a GRI, it's always the first Monday in February so that gives predictability to our business partners for their budgeting season themselves.

All we have to do is very surgical where we have developed the right questions to make sure. We understand are we dealing with a company that basically uses forwarders as their supply chain transportation department or are we dealing with a company that has built out that capability and has 50 or 80 people sitting in there our operations research and transportation.

Floor and doing all of that themselves and if it's the latter these people tend to not use forwarders I wish this DB schenker for three years between 2015 and 2018.

And we had customers in the same industry embracing us and the same industry other customers, telling us sorry with no need for you we're going to deal with the transportation providers directly so I'm very used to.

Tom Schmitt: And I think the range is that you saw in the last couple of years, 2021 was the high end with 7.9, some of the lower numbers you have seen is 5.9, some rain between those two numbers is probably going to be the GRI for 2024. Perfect. And then lastly for me, I'm just taking kind of a big picture of you and appreciate your commentary about kind of building out that direct sales network and going after that incremental tab in the premium LCL space.

Two pronged complementary approach and it's actually as we saw in the last two years very well executed executed by our sales team with the SMB space it's fairly.

If you go about it in a disciplined way, it's fairly doable to find out which of these two you're dealing with so Chris I would not expect that stepping on our apartments toes at all.

Okay I'll leave it at that time thanks.

Thank you Chris.

Tom Schmitt: So, as you're kind of building out organically the direct sales team, what do you need to do to kind of make sure you're preserving your existing relationships with the domestic borders? I think we talked about what you kind of had in place, you know, if the Omni transaction went through, but if it is all kind of done internally or organically, what would be the strategy to kind of preserve your existing relationships will also going after some of that direct sales?

Our final questioner for today will be Scott group with Wolfe Research. Please go ahead.

Hey, guys. Thanks for the follow up I just wanted to again follow up on a few things I heard Tonight. So Tom when you when you talked about a mid eighties or in the last couple of months is that the whole expedited segment or just a piece of that.

<unk> <unk>, that's the type of Oh are.

Tom Schmitt: Yeah, so it's definitely obviously huge focus for all of us here to get that right. But again, I think as a reminder of that estimated and that estimate is probably very conservative because it's about six years old data, 15 billion dollar high value LCL market that values the no damages high speed hitting high time windows of that 15 billion roughly speaking, half of it gets transacted between shippers and companies like us directly, the other half goes through intermediaries.

View and mindset that youre going to be seeing next year, starting in Q1 systemic late.

And then so within LCL can you maybe can you give us a sense of.

If it's at a mid eighties or whats the airport to airport are doing versus what's the door to door.

Oh are doing right now.

Yes so.

We have not made that public and but again this may be something we may want to do for those.

Dashboards that we're going to be developing the obviously tracking both of them separately our airport to airport always Washington.

Tom Schmitt: So if you take that, the one thing we have to absolutely nail is when we go after the half that's not being transacted through intermediaries, we have to be extremely explicit asking the questions upfront, are you using forwarders? Have you worked with forwarders? Are you intending to use forwarders? And if they do, then obviously we're going to do everything possible to make that forwarder keep and win that business because they probably have it for a reason.

The most profitable part of our business and again, it's our effort to say if you think of one more in the high teens and perhaps the other ones are more and more in the low teens that direction. It gets you there, but we need to clearly get better and better with direct in door to door.

Some of the class freight companies are clearly demonstrating that it's possible to get into.

85% and South <unk>, when you sell door to door. So there is certainly a discipline that we still need to get better at but it's certainly not rocket science to get there.

Tom Schmitt: Those companies may not have a sophisticated large transportation or supply chain department because they use those forwarders and essence to be that department for them. So by that's, again, the team did a great job, Melissa Feaser and her colleagues kind of over the last two years and now increasingly Jennifer and Erica making sure we ask those questions upfront and we don't and we go by the facts obviously. In two years, there were a handful of instances where there was some noise, literally a handful in thousands of interactions.

Right.

I guess ultimately what I'm trying to get to is you keep saying you really really want to grow this <unk> business is door to door business.

But you said multiple times on the call that you still haven't figured out the sweet spot of volume and price in this door to door business. So.

I guess strategically I'm, just sort of struggling a little bit like if.

It's a business we haven't figured out yet why are we so gung ho about growing it I'm just like I said I'm a little confused.

Tom Schmitt: So we have our training wheels in place here, we know how to ask those probing questions, we know how to actually qualify for that. Stephanie, we will only win if we keep and re-earn the trust of our domestic forwarders by making sure we get this very, very right that this is an end, not an or and it's complementary, not overlapping. A gray zone here is the end, it's got to be something that's black or white and we have those probing questions to make very certain it's black and white. There's half of the market that gets transacted directly between the shipper and transportation providers and we need to make sure we identify that half of the market correct. Emily. Great. Thank you so much.

Stephanie Moore: Thanks, Stephanie.

Well, let me.

Given the opportunity people choose to be confused so let me take that opportunity away.

The door to door to door business linear meant into that six seven years ago. The main reason to go into it was that the Tam is at least 10 X of airport to airport. So in terms of just the.

The addressable market, it's a much bigger pond in which we can fish and secondly, when you sell direct.

You also to point to people, who do not use forwarders, you also potentially deal with a much larger margin potential because there is no. Other group in between that is also looking to make a margin off of that opportunity.

Bascome Majors: Well, now there's a line of Bascome Majors with Susquehanna. Please go ahead.

And third we do have some verticals and we have some customers in the direct space that margin wise worked beautifully. So we know it's fast in terms of the Tam.

Rebecca Garbrick: Rebecca, I think to help us reconcile the guidance without necessarily guiding non-gap things that you can't guide. Is there any way that you could give us some book ends on what operating income for the expedited phrase? Yeah, I mean, happy to give you a bit of some flavor there. I think when we think about expedited phrase, we think about the margin. We are expecting a bit of some margin expansion as we look from Q3 to Q4, not much.

We know that the margin potential look at some of the best class very companies also look at the pure math formula of not having an intermediary in this case.

It's a vast market it has huge margin potential and in pockets Scott in pockets. We are seeing that we actually can make very very good margins with it all we have to do is.

Make it a main priority for us to do it more comprehensively across the board.

Rebecca Garbrick: But I do think there is a little bit there. When we move down, a bit to intermodal, as I mentioned, from a sample. Susanality standpoint, just looking at the intermodal business Q3 is typically stronger than Q4, and that in fact, it does hold true as we think about the guide to Q4. So we will see a step down from intermodal from Q3 to Q4. Are you talking specifically margins or operating profit on both of those signals? Operating margins. Thank you.

And then just the last thing if I may so assuming you're able to get out of this omni transaction and obviously save.

A lot of capital do you think about.

Deploying that capital to Theres, a whole lot of yellow terminals about to come to market like if you want actually become an LPL.

Maybe we need some of those terminals.

How do you think about that.

Yeah. So we obviously clearly have a.

Tom Schmitt: This is a legal question. I don't know if you have someone from inside or outside council available, or if you can just comment loosely, but the shareholder plaintiffs did appeal the ruling in your favor late last week. Any update on how long that would take to have some resolution on whether or not that appeal will be heard would be helpful. Yeah, so and I'll tell you obviously what I know. So there is that you actually correct this.

Capital priority.

Kind of set which organic growth always is number one you could actually argue that the building out organic the direct sales business and then having it.

Accelerated terminal expansion would go well together so yes, we clearly would be looking at organic growth, including making sure. We have the network in place as something that would be a great use for our capital and Scott you just mentioned, one very particular application, which with the yellow terminals.

Tom Schmitt: I don't know if everybody's following this. This had to be with the had to do with the temporary restraining order. And that three plaintiffs former employees and shareholders in Greenville and at the chance record actually received and that temporary restraining order was lifted, which means there's no. We actually frankly appreciated that outcome because it does mean that that's very important. We're doing things the right way. I always say we're not a hot dog stand.

So that would come first and foremost and then we have our regular priority set between M&A, which would be typically smaller tuck ins, but it could be tuck ins in the LDL space.

And then we obviously have dividends, which we always stick to and buybacks all of that I think has quite a bit of breathing room.

With the termination.

Opportunity of the omni transaction.

Okay. Thank you for the time I appreciate it.

Tom Schmitt: We need to make sure that we get things. We get the right things done, but we also do them the right way. You write past them. There was a. I'm not sure whether the term appeal is technically correct, but there was the plaintiffs asking the judge one more time to reconsider to getting a temporary restraining order in place. And there is a hearing and or ruling this afternoon in Greenville about that.

Thank you Scott.

And that concludes forward Air's third 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 Dot forward Air Corp, Dot com shortly after this call you.

Tom Schmitt: So there should be more news coming out of Greenville within the next 10 hours or less. I think it's a four o'clock meeting. So it's more like six, seven hours from now. So that's still undergoing. Again, our focus is and we have a very, very seasoned mature team here. Our focus is on controlling the things we can control. There's a very small group here, certainly Rebecca and me included Michael hands out chief legal officer included that need to guide us through some of the ongoing kind of navigation of litigation issues.

May now disconnect.

Okay.

Yeah.

We're sorry your conferences ending now please hang up.

Tom Schmitt: The other 99.99% of our team need to be fully focused on finishing this year strong. And the guidance, I think, is conservative, but let's just let's us be let it be what it is. And let's just keep finishing the year strong. We have a very clear strategy. We have a lot of untapped upside. We told the world on August 10th that we're going after this untapped upside, which is going after it organically because that's what we can control right now.

Bascome Majors: Now, two big picture questions to close. The direct sales strategy was always part of your attempt to grow forward. You know, in August, we found out that you thought doing that acquisitively might be a better path to achieving that end and now we're pivoting back to really doubling now and on the organic direct sales strategy. Can you talk a little bit about what drove the change of heart and what didn't work as fast as you hoped it would in the first year or two of that and why it can work now?

Bascome Majors: Yeah, so first of all, Bascome, I think you characterized us exactly the way we're looking at this. The strategy has been very clear to your point the tactics over the last several months looked like they were shifting back and forth between two alternative approaches. The good news is those approaches don't have to be alternative and they can be complimentary and additive. The reason why Bascome, I fully believe that we can go full steam direct now is at least two fold.

Bascome Majors: The first one is we do have two years of experience basically doing the direct selling in a small way with going after small medium-sized businesses that do not use forwarders. So we kind of know how to ask to qualify in questions, what the right high value for it is, and we started getting better with pricing for it and again there's still untapped upside as I said before. So there's some experience that we can bring to bear.

Bascome Majors: I think the second reason is now that we on August 10 announced that we are going after that entire direct space, I think we have a license to do it. In the past almost felt constrained because as a company for four decades all we did was working with great business partners domestic forwarders and that's an essence all we did. Then we started getting our toes into the water with small medium-sized business.

Bascome Majors: On August 10 we announced that we're going to go after the entire direct market that does not use forwarders. So I think just announcing it, having the tough customer conversations gives us a license to do now what we never felt we had a license to do. So I think that's a mind chair and a mentality issue. The last thing I do want to mention, I mentioned before the somewhat nerdy analytical term mind.

Bascome Majors: We do have a very strong chief commercial officer with Nancy Ronning who has the type of analytical structure thinking and approach that goes together in her case also with a great way of leading teams, developing teams and also having a great relationship kind of building mentality with customers. So I think between having started to doing the SMB, secondly announcing we're going to do it now for the entire direct market and third having the right leadership in place. We've got the ingredients now that's come that we didn't have three or four years ago.

Tom Schmitt: Thank you for walking through that Tom. I'm going to ask one more big picture question than pass it on here, but I mean it's frankly been difficult for investors to keep up since early August. This war has kind of grown on several fronts. You know, expand it to include your acquisition target itself late last week and I realize you can't talk about the specific path forward given the myriad legal issues involved but if we were to go to sleep today and wake up in February to your four key release and initial 24 outlook and everything has gone to plan from your perspective over those four months, what are your customers employees and investors looking at for the company structure strategy and go for it outlook?

Tom Schmitt: Yeah, so and that's come of truly appreciate and I'm very grateful to to our team and also to our business partners for having had support and patience over the last several months. All we were doing is pursuing our strategy of growth forward, we talked about this before and yes, I think the fact that we were exploring different tactics, getting to a larger customer in terms of revenue based direct cost a lot of emotional up people on multiple fronts and I realized that I'm sorry for that and apologize for that because that's obviously not what we intended to do here.

Tom Schmitt: We are doing the right thing, we are the best company in the high value freight space and we're working through our growth forward strategy to get to provide that type of role class service to more customers and business partners and it's been a bit rocky over the last several months trying to get to the best path to execute here. Four months from now when we all wake up in February to our Q4 release and a outlook for 24.

Tom Schmitt: I certainly will do everything possible to have stability in place so that we know kind of how we're going to go forward organically with that strategy. Secondly, I would expect us to be extremely mathematical with a multi-year scorecard of LTL revenue, LTL margins and LTL as a percentage of overall company revenue and third, I would expect that that corporate clarity with portfolio review will have yielded consequences by then.

Tom Schmitt: Thank you, Tom, I appreciate it. Good, thanks, Baskham.

Christopher Kuhn: We'll now go to the line of Christopher Kuhn with the Benchmark company. Please go ahead. Hey Tom, hey, we're back in the morning.

Tom Schmitt: Good morning, Chris. Tom, maybe just to the extent if you did take on some yellow and sbs volume, what's your sort of thought process around keeping that vine do you think some of that, then you know, kind of settles somewhere else or do you feel confident you can keep some of that? Yeah, so again, Chris, the one thing, and I think we even talked about this before, I strongly believe based on data sets that we saw from one week to the next, like over the last two or three months, we were a volume beneficiary from those two dislocations, but we were much less a volume beneficiary than some of the great class rate companies.

Tom Schmitt: So we're talking literally a couple or three percentage points, not eight or ten. But the business that we were going after was long haul business that fits us well, and it also was some events business. So my sense is what came came here for a reason. It wasn't a hell of a lot, but what came here should have come here and is going to be here to stay. So those volume trends that we're seeing right now, I expect to continue seeing them.

Tom Schmitt: Okay, and then just as you go after the larger customers for your direct sales, I know you're going after customers that don't use forwarders but do forwarders market to them and will you be stepping on some of your customers' toes as you try to grow the large businesses? Yeah, so this is again where Chris, we have to get this as black and white as possible. Gray is not helpful here, so I mean, but fundamentally if you look at this, go into the automotive industry, go into the like some of the industrial verticals, you do have companies and they're in the same space and some of them say transportation supply chain for us is a core competency and others say in the same industry, that's not something that's core to us.

Tom Schmitt: We're going to use a whole class company to help us with that and all we have to do is it's very surgical. We have developed the right questions to make sure we understand are we dealing with a company that basically uses forwarders as their supply chain transportation department or are we dealing with a company that has built out that capability and has 50 or 80 people sitting in their operations research and transportation floor and doing all that themselves.

Tom Schmitt: And if it's the latter, these people tend to not use forwarders. I was a DB Shanko for three years between 2015 and 2018 and we had customers in the same industry embracing us and the same industry other customers telling us, sorry, no need for you, we're going to the transportation providers directly. So I'm very used with that two-pronged complimentary approach and it's actually, as we saw in the last two years, very well executed by ourselves in the S&B space, it's fairly, if you go about it in a disciplined way, it's fairly doable to find out which of these two you're dealing with. So Chris, I would not expect that stepping on our partners' toes at all.

Christopher Kuhn: Okay, I'll leave it at that time. Thanks. Thank you, Chris.

Scott Group: Our final questionnaire for today will be Scott Group with Wolf Research. Please go ahead. Hey guys, thanks for the follow-up. I just want to, again, follow up on a few things I heard today. Tom, when you talked about a mid 80s OR in the last couple months, is that the whole expedited segment or just a piece of that? That's just LTL and that's the type of OR view and mindset that you're going to be seeing next year starting Q1 systemically.

Scott Group: And then, so within LTL, maybe can you give us a sense of, if it's at a mid 80s OR, what's the airport to airport OR doing versus what's the door to door OR doing right now? Yes, so we have not made that public and, but again, this may be something we may want to do for those dashboards that we're going to be developing. We obviously tracking both of them separately. Airport to airport always was the most profitable part of our business.

Scott Group: And again, it's our effort. So if you think of one, more on the high teens and perhaps the other one, more on the low teens, that direction it gets you there. But we need to clearly get better and better with direct and door to door. Some of the class freight companies are clearly demonstrating that it's possible to get into 85 AD and stop AD ORs when you sell door to door. So there's certainly a discipline that we still need to get better at, but it's certainly not rocket science to get there.

Scott Group: I mean, I guess ultimately what I'm trying to get to is you keep saying, you know, you really, really want to grow this LTL business as door to door business. But you said multiple times on the call that you still haven't figured out the sweet spot of volume and price in this door to door business.

Scott Group: So I guess strategically I'm just sort of struggling a little bit like if it's a business we haven't figured out yet, why are we so gong hell about growing it? I'm just like I said, I'm a little confused. Yeah, it's, well, let me, when giving the opportunity people choose to be confused. So let me take that opportunity away. The door to door business, when we went into that six, seven years ago, the main reason to go into it was that the TAM is at least 10X of airport to airport.

Scott Group: So in terms of just the the addressable market, it's a much bigger pond in which we can fish in. Secondly, when you sell direct, you also to people who do not use forwarders, you also potentially deal with a much larger margin potential because there's no other group in between that's also looking to make a margin off of that opportunity. And third, we do have some verticals and we have some customers in the direct space that margin wise work beautifully.

Scott Group: So we know it's vast in terms of the TAM. We know that the margin potential and look at some of the best class rate companies also look at the pure math formula of not having an intermediary in this case. So there's a vast market. It has huge margin potential. And in pockets, Scott, in pockets, we are seeing that we actually can make very, very good margins with it. All we have to do is just make it the main priority for us to do it more comprehensively across the board.

Scott Group: And then just the last thing, if I may, so assuming you're able to get out of this omnichransaction and obviously save a lot of capital, do you think about deploying that capital to there's a whole lot of yellow terminals about to come to market? Like, if you want to actually become an LTL, maybe we need some of those terminals. How do you think about that? Yeah, so we obviously clearly have our capital priority kind of set, which organic wealth always is number one.

Scott Group: You could actually argue that the building art organic, the direct sales business and then having accelerated terminal expansion would go well together. So yes, we clearly would be looking at organic wealth, including make sure we have the network in place as something that would be a great use for our capital. And Scott, you just mentioned one very particular application, which is with the yellow terminals. So that would come first and foremost.

Scott Group: And then we have our regular priority set between M&A, which would be typically smaller tokens, but it could be tokens in the LTL space. And then we obviously have dividends, which we always stick to and buybacks. All of that, I think, has quite a bit of breathing room with the termination opportunity of the omnichransaction. Thank you for the time I appreciate it. Thank you Scott.

Unknown Executive: And that concludes Forward Air's third 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.FordAirCorp.com shortly after this call. You may now disconnect. We're sorry your conference is ending now.

Unknown Executive: Please hang up.