Bruce Campbell - Chairman, President and Chief Executive Officer Rodney Bell - Senior Vice President and Chief Financial Officer.

Scott Group - Wolfe Research Jack Atkins - Stephens Todd Fowler - KeyBanc Capital Markets Jason Seidl - Cown & Co David Campbell - Thompson Davis Zax Rosenberg - Baird.

Thank you for joining Forward Air Corporation's Fourth Quarter 2015 Earnings Release Conference Call. Before we begin, I'd like to point out that both the press release and this call are accessible on the Investor Relations section of Forward Air's website at www.forwardair.com.

With us this morning are Chairman, President and CEO Bruce Campbell; and Senior Vice President and CFO, Rodney Bell. By now, you should have received the press release announcing fourth quarter 2015 results, which were furnished to the SEC on Form 8-K and on the wire yesterday after market close.

Please be aware this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding the company's expected future financial performance.

For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing words such as believes, anticipate, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in our filings with the Securities and Exchange Commission and in the press release issued yesterday. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. And now, I'll turn the call over to Rodney Bell, CFO of Forward Air. Please go ahead..

Thank you, operator. Good morning and thank you, everyone, for joining us. We'll jump right in with revenues for the fourth quarter. On one additional business day, consolidated revenues were $42.3 million or 19.8% compared to Q4 a year ago, mostly as a result of our March 9 acquisition account Towne Air Freight Forward Air Inc. without regards to CST.

Revenues increased $40.1 million or 28.3%. Airport-to-airport revenues inclusive of complete increased 21.2% this resulted from average weekly tonnage growth of 21.7% offset by a 2% year-over-year decline in total yield. Quarterly progression of Q4 tonnage growth was 23%, 21%, and 26% respectively for October through December.

The yield decline consisted of a 0.2 decline in our Linehaul yield, the 3.4% negative impact of lower fuel surcharges and a 1.6% benefit from Forward Air Complete which grew 40% as compared to Q4 a year ago. Logistics which is primarily TLX full truckload revenues grew an impressive 50.7%.

CST intermodal and related revenues were up $2.4 million and 11.4%. Quarter-over-quarter deceleration of CST revenues was due to the grandfathering in 2014 acquisitions. Last week, we did close a small tuck-in deal and our top line of potential acquisitions for CST is full. TQI revenues were $3 million and 24.8% less in Q4 a year ago.

We expect Q1 will be another challenging quarter for the TQI team. However, we do expect the new initiatives will begin to gain attraction and we should see progress rather as the year proceeds. And finally, solutions revenues were $2.7 million and 6.7% higher than Q4 a year ago.

Innovating from both Q1 new business winds as well as to generate increase, we expect solutions revenue growth to reach double digits for Q1 as well as 2016. Jumping to Q4 expenses, purchased transportation was up $15.2 million or 16.5%, but down 120 basis points as a percentage of revenue.

Most impressive was the nearly 5% decrease in airport-to-airport cost per mile as our use of more costly third party miles went from 26% in Q4 last year to only 12% this quarter. Salaries, wages and benefits were up $15.2 million and 30%.

Included in this increase was approximately $1 million of cost associated with workers compensation claims experience, a $700,000 increase in payroll taxes related to employee stock purchase activity and $700,000 increase in incentive pay related to our technology-related tax deduction.

In addition to these costs, we have higher-than-expected dock costs associated with a nearly 3% decline in our average shipment size. This essentially resulted and is incurring the same labor costs on our lower revenue base. This will be mitigated in part by our February 1 change in our dim weight factor.

Operating leases were up $6.2 million and included approximately $432,000 related to the buyout of a duplicate Towne facility. Depreciation and amortization was up $1.3 million, most of which was related to Towne amortization and additional depreciation. Insurance and claims increased $21 million and were down 30 basis points as percentage of revenue.

Finally, other operating expenses increased $2.2 million or 12% but decreased 60 basis points as a percentage of revenue. These include the $400,000 of additional costs, again associated with the technology-related tax deduction. Operating income increased $3.4 million and 13.3% to $29 million for the quarter.

After factoring out the approximately $1.1 million cost related to our technology tax deductions, and approximately 600,000 of Towne integration cost, our operating would have been 88 compared to an 88 Q4 a year ago.

The following comments are related to our consolidated income for diluted share and the table included at the end of our earnings release. It reconciles Q4 EPS as reported to the midpoint of our guidance.

Adjusted for approximately $0.01 of integration related cost, adjusted EPS was $0.77, included in the $0.77 was $0.17 per share related to amending our prior tax returns for the technology-related tax deduction. This was all set in the quarter by $0.02 of operating expenses related to that tax deduction.

The remaining variance to our guidance midpoint was attributed to $0.02 of lower than expected net fuel surcharges and the $0.01 lower than expected EPS from the contribution from our TQI segment. Both CST as well as Solutions met our modeled EPS contributions. Finally, let me jump to our Q1 guidance. We expect revenues to increase 12% to 14%.

We expect income per diluted share to be between $0.42 and $0.46 - I'm sorry, $0.41 and $0.45 compared to $0.40 Q1 a year ago. Our guidance included to an estimated $0.04 - I'm sorry, included an estimated $0.03 to $0.04 per share estimated reduction in our net fuel surcharges. That concludes our comments. Now, back to the operator for your questions..

[Operator Instructions] We will begin with the line of Scott Group with Wolfe Research. Please go ahead. .

Hey. Thanks. Good morning, guys. .

Good morning. .

So, I'm wondering if you can help, that is there any way to think about or organic tonnage ex-town and maybe kind of walk us through the monthly progression there and what you're seeing in January and, so far, in February?.

Scott, that's really tough. I was initially tough when we bought Towne because it's really the same customer base, the same lanes, the same cities to a large degree. And Scott and we’re even fuzzier over time.

With a lot of assumptions right now, we think the base organic growth without regard to the change in our dim factor is low-single digits, call it 2% to 3%. And….

And are you seeing any directional changes? Is that slowing, is it accelerating?.

It's pretty much the same coming out the quarter into the New Year. There's been a little bit of noise from weather, but by-and-large in January and into February tonnage in the low 20s..

Okay. The dimensional pricing change.

Is this something you guys have done before? And is there any way to think about what percent of the business it impacts and what ultimate impact you guys are hoping for?.

Well, it has never been change in our history, Scott. So, we always had a 250 dim-factor. If you look at international airlines, they're at 166, now there's at 190.

It was never a huge concern to us until the shipment traits and characteristics really began to change over the last let's say two years where normal - what we would call normal freight three years ago would be in the 750 pounds per shipment and today it struck all the way down to below 600's the cause of that is moving very low density freight, much more than we have in the past.

And that's driven by probably technology and other issues like that. So the freight is different today than it was in years past. And so, we had to address that, as you know we moved it from 250 to 200. It will have an impact from standpoint from those customers who handle that type of freight. It will not impact across the board.

So, to give you an exact number, we don't know that number yet. We need another a month or two of actually having the real implemented and then we'll be able to tell you exactly what happen. .

Maybe is there or anything that - what's the perspective rate increase from this or kind of it's that all hits kind of what the margin benefit is?.

Sure, Scott. The intent was just to essentially take the place of our normal general rate increase and as you recall, that's typically targeting somewhere between 3% and 3.5% across that airport-to-airport line item..

And then, just last question. So, If I look, the core Forward Air business had a roughly 87% operating ratio last year. You guys used to do low 80%s. I think you've had high 70%s operating ratios.

Is that still the goal and what does it take to get there? And maybe what kind of margin improvement do you think you can see at Forward Air this year?.

Yeah. Our goal is to get into the 70s this year because that's not going to happen. And one time, we did get into the 70s was an absolutely perfect storm. So, for us to - but we do have opportunities to improve and one of the critical steps was the one we took last week on the dim factor.

We also have opportunities within our labor, where we still have tried to get the old Towne influence out and where we are much more efficient in that area than we have been. We have seen great efficiencies already in our load averages, which is critical to the airport-to-airport business.

And we would be happy to work it down to an 86, 85 OR and then start working it to get it even better. But today, our goal is to get it to the 86, 85 area..

And that's a near term goal for 2016 85 to 86 OR?.

As best – yeah, I mean, I'm not sitting here telling you we're going to do that. I am telling you we are striving to do that..

Got you. Okay. All right. Thank you, guys. .

Welcome..

Next, we'll go to the line Jack Atkins with Stephens. Please go ahead. .

Good morning, guys. Thanks for the time. .

Sure..

So, kind of going back to the GRI comment for a moment. If I heard you correctly, it sounds like this dim weight change is in place of a standard GRI.

Can you maybe talk about why you guys decided not to go forward with a GRI this year and when was the dim weight changes set?.

Well....

Sorry. Go ahead. .

Well, Jack, as you'll recall, back this fall, we - it was a rivaled approach to putting in place a couple of surcharges, West Coast driven and Florid driven, so, that's relatively new.

And we've got to be cognizant of just our customer having to - which is to Forward to primarily having to be able to pass along the rate increases we put in place to their customers. So, we really didn't feel like we can do both. .

Let me add to that, Jack. This was the most sensible pricing action we've ever taken primarily because the business mix has changed. Had the business mix stayed the same, we wouldn't be talking about this. But as we recognized and kept trying to say, gee, that's not - that's really not happening, well, in fact it was happening.

And so, as a core tenet to our ongoing business, we have to fix that part of it. And I think our teams did a great job of doing that..

Okay. And then when we think about fuel surcharges, we've seen some of the LTLs adjust their fuel surcharge tables in 2015.

Is that something that you guys have looked to doing? It is decided not to do or is that something that can be in the card?.

Exactly. That could be in the cards. We're certainly not going to do it right on top of what we just did. We have discussed fuel surcharges just behind the lead. So, I think at some point, if oil does not recover in anyway, say, perform, we'll probably take an action there..

And then, Rodney, I guess taking back to 2015, what was the total impact year-over-year of EPS from the lower fuel surcharges? And what would you expect that full-year impact to be in 2016?.

Jack, it was - we're broadcasting remotely from Florida, so I don't have my notes. But from memory, it was about $0.12, $0.14 impact in 2015, I believe. And we're looking somewhere between $0.10 and $0.12 again in 2016 with fuel at its current prices. .

Okay.

And then well, what are you assuming in the first quarter guidance, Rodney, in terms of Tonnage growth year-over-year? And then in terms of yield?.

Jack, as far as tonnage growth, keeping in mind that we grandfather town on March 9th. We're looking at between 12% and 14% without regard to the change in dim-factor or what would drive tonnage up, about the way that works. And, essentially, we got back to as far as our core line, how yield pretty much flat with the prior year in Q4 2015.

We - sequentially, we think that'll be a little bit better. But not a lot better..

And so the dim-weight, the dim-weight changes won't back tonnage not yield..

The way that works, it's an increase in buildable tonnage. It's not an increase in yield..

Okay. And then last question, I'll turn it over is on TQI. It seems like where every quarter talking about some issues there. I guess you all refer to some initiatives that you're putting in place.

But what do you guys do to get profitability back on track in TQI? And what sort of the timeline to make that happen?.

We - the first thing we did was have a complete organizational change. We put some, as I like to call it, some horses in there. The person has running it is an industry veteran, topnotch, and it's going to deliver some really good results for us. And then we further supported that down the organizational structure.

And I can tell you we're hard on TQI right now, our efforts because the great thing about TQI is they have wonderful opportunities that we need to bring to the table. So we're looking at the next three months to six months, getting it back to where it was and then from that point on really taking off with it.

A lot of work to do but we have the right players in there to do the work..

Thank you again for the time..

You're welcome, Jack..

Next from the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead..

Great, thanks. Good morning.

Bruce, can you just give us an update with where you are at with respect to Towne? At this point are the integration costs going to be behind us? And then, is there any work to still do with the legacy pricing on the Towne business?.

We're basically done. So we're happy about that. Don't have to deal with it going forward. There's a few, I don't know the exact number but it's not meaningful, of ongoing contractual rates, if you will. But basically, we're done..

So at this point, when we think about both volume and yield trend, it should just be reflective of obviously adjusting for the timing of when the acquisition came in, but we shouldn't see any big ships of freight moving in or out because of pricing actions of Towne..

That's correct and the big thing at Towne - that Towne freight does and has done is it's a lower length of haul so we're into more and more regional traffic….

Okay..

… which is good. Nothing wrong with it, but that’ll be the big change we see..

Got it. Okay. And then it sounds like that the outside capacity costs in the quarter were back down to where they've been historically.

Is there any more opportunity when you think about the purchased transportation within the network or is that where you needed to be at this point? And do you - is there anything you have to do with the owner operator pay going into 2016?.

We - if -- to improve our linehaul. Our ability to buy on the outside market is like everybody else's. You can get capacity cheaper than you could a year ago. We are anticipating that change. But for the time being, we work every single day on lowering that cost. .

Okay. And then just the last one I wanted to ask about. So, with the change in the shipment size and the other LTLs have talked about this to an extent, but it sounds like in your network that that's more of a reflection of a shift in the freight that you're handling versus being economically driven and maybe there's a combination of both.

But maybe it would be helpful if you can talk a little bit, Bruce, about specifically what you're seeing is that mostly e-commerce-type customers or I think you'd made a comment about technology source the way that your customers are packaging the shipments.

Maybe just a little bit of high-level context as to what you're seeing with the shipment size, I think, would be helpful..

Yeah. I would tell you to look at your own office, and everything in that office is….

It's a mess, if that helps..

Well, yeah, it does. It helps me -- we're not going to comeback with TV's out of big boxes that weigh 1,000 pounds, those days are over. So, we really had to make a change that will be a forever change. .

Okay.

So, with the shrinking of the freight versus a shift in the customer base or anything like that?.

Correct..

Got it. Okay. Thanks so much for the time this morning..

Thank you..

Next will go to line of Jason Seidl at Cown & Co. Please go ahead..

Thank you very much, Operator. Getting back to talking about the LTL's what we've seen from the LTL's obviously is going a little bit of weakness in some of their tonnage in the fourth quarter.

Did you guys see them get a little bit more competitive and you remain and sometimes they kind of drift over in the competition maybe?.

No. I think what we see the most chase in this the disappearance of large shipments because with capacity available, our customer will take a 7,000 pound shipment and put it on the truck load carrier. We really don't see a lot of bleed off to LTLs, not to say there is in any but it's just not significant..

Okay, that color helps. Also, when you're looking at some of your end-markets -- I've been reading a lot of the stuff that our retail team has been putting out there and a lot of their companies are telling them sort of about a glut in inventories that they have, especially on the apparel side.

What are you hearing from your customers and what should we expect going forward?.

We obviously read the same report and we simply did not see it. And the quarter started for solutions, I'm referring to Solutions and their customer base…..

What?.

Started off pretty well. We were really concerned that the quarter would start off with basically zero freight but it started off pretty well. So, were pleased with that although we read again the same things you talk about and keeping a very watchful eye on it..

In terms of the business for TQI for the first quarter?.

TQI is going to struggle again, Jason. Its revenues we're starting to see sales went but it's coming on slow. We're essentially modeling TQI to be a breakeven contributor for an EPS perspective..

Now, that's a good call. Again, gentlemen, thank you for your time as always..

Thank you. .

The next will be from the line of David Campbell with Thompson Davis. Please go ahead..

Yes. Bruce in running about your solutions division. It's obviously developed in fourth quarter.

Do you think it's going to lose money again like it has been in the first six months of the year and doing profitable the rest of the year?.

Let me tell you that that division now reports for me. And we are working as hard as a human being can work to make sure that we're making every effort to get through to Q1 and Q2 profitably. We will take a breakeven in Q1, which we think we're on the road to.

And then in Q2 up back into a small profit not a huge profit, and then be ready for the balance of the year. .

And most of that is from new contracts?.

Part of it is, and part of it is efficiencies. .

Right. Right. Right.

And what would you say - last questions about the synergies of that business and your core airport-to-airport businesses, has there been any synergy benefit?.

The only synergy we get out of the solutions business as it relates to our other businesses is we do in a few locations share buildings but that’s it. Different customers..

Right..

Different services..

Okay. Thank you..

Thank you. .

All right. And our last question is from the line of Ben Hartford with Baird. Please go ahead. .

Hi. Good morning. It's actually Zax Rosenberg on for Ben. Just hoping to follow up on the core linehaul tinge comments. Just wondering what are reasonable rates, so that can be after Towne's contributions or lapped you're looking to second quarter through fourth quarter this year.

Are we looking at positive or negative growth, do you think?.

Zax, we're looking at to be positive for a couple of reasons. We think - again, the core organic for legacy with that regard for Towne is probably bumping around in a low-single digits. But we think the impact of the change in our Dim-Factor, which is going to increase tonnage.

That will bring it up into the solid, mid-single digits for the post-Towne balance of the year..

And related to that, what benefit have you guys seen from the BX solutions closure in the fourth quarter, if any?.

No, we saw a bit. The weeks following that, it wasn't big because quite frankly based on our intelligence, was they didn't have a whole lot of business to begin with. But we saw volumes go up a point, point-and-a-half..

Okay. And if I can sneak just one last one in here. Total region benefit, growth of 30% and you broke out a few of the items.

So, just wondering to what degree was a great of an internal expectations given efforts to improve service due to integration of Towne? And can we expect that to be flat year-over-year in 2016 as realization of synergies and savings are now they're with Towne integration related?.

Most of that integration, those efficiencies were accomplished in the second half. So, you're going to see some improvement in - well, the first half really of the year.

And then you mentioned, we called it out as some what we considered not necessarily onetime cost, but some very unusual cost that were in that line item, so those shouldn't mitigate and you should see some improvement from a percentage of revenue across that salaries and wages line item..

Great. Well. Thank you very much for taking the time..

Yes, sir..

And there are no further questions. Thank you for joining us today for Forward Air Corporation's fourth quarter 2015 earnings conference call. And please remember the webcast will be available on the IR section of Forward Air's website at www.forwardair.com shortly after this call. Thank you for your participation. You may now disconnect.