Forward Air Corporation (NASDAQ:FWRD) Q2 2022 Earnings Conference Call July 28, 2022 9:00 AM ET
Company Participants
Tom Schmitt – Chief Executive Officer
Rebecca Garbrick – Chief Financial Officer
Conference Call Participants
Bruce Chan – Stifel
Jack Atkins – Stephens
Tyler Brown – Raymond James
Todd Fowler – KeyBanc Capital Markets
Bascome Majors – Susquehanna
Operator
Thank you for joining Forward Air Corporation’s Second Quarter 2022 Earnings Release Conference Call. Before we begin, I’d like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air’s website at www.forwardaircorp.com. With us this morning are CEO, Tom Schmitt and CFO Rebecca Garbrick.
By now you should have received the press release announcing our second quarter 2022 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed. Please be aware that certain statements in the company’s earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements which are based on expectation, intentions, and projections regarding the company’s future performance, anticipated events or trends and other matters that are not historical facts. Forward-looking statements can be identified by the use of words such as anticipate, intend, believe, estimate, plan, seek, project, expect, may, will, would, could or should, and the negative of these terms or other comparable terminology.
This conference call and the company’s earnings press release contain forward-looking statements which include, but are not limited to statements relating to future operations and results, any statements of plans, strategies and objectives of management for future operations and any statements about future financial or operational targets and the likelihood of achieving the same. These statements are not a guarantee for future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. The company undertakes no obligation at any forward-looking statements whether as a result of new information, future events, or otherwise.
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. 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 investor tab on our website.
And now I’ll turn the call over to Tom Schmitt, CEO of Forward Air.
Tom Schmitt
Thank you so much, Connie, and good morning to all of you on the call. First, I want to just say, we keep getting better. And when I say we, I mean our teammates and our business partners and those business partners certainly include our drivers and our customers. It’s a true team sport. Remember on our last earnings call, we celebrated our first quarter of this year as our best quarter ever, finishing with a March that had a record 80.5 LTL OR.
Well, in this call, we’re doing an encore. We are celebrating our best quarter ever ending with June with a record 80.3 LTL OR. We talked about the goodness behind those numbers on the last call too. That goodness is still here, only a bit more of it. The best example is visibly when you walk through our LTL terminals, basically more events business. We guesstimated about $200 million of our LTL revenue before COVID is events related and it’s ramping up to that again. It may not get to 100%. I previously had estimated this year would be 70%, 75%, but it’s looking pretty darn impressive. And it is high value freight. Oftentimes when we sell events business, it actually is generating several revenue events. We sell to a house event company once and then we have up to 20 trips or 20 revenue events associated with it. National trade shows, concert tours are good examples. And sometimes these shipments come with the guaranteed blue ribbon around it which means extra premium freight on top of the high value freight to begin with.
Our grow forward strategy, higher value freight, price correctly and operated in an efficient, clean operating environment which we started 3 years ago is clearly working. On our last call few months ago we said that the $6.30 EPS be targeted for 2023, we will already achieve this year, in 2022. Remember, we said we don’t wait. Now with 6 months under our belt for 2022, we feel confident that shooting for at least $7 EPS this year is realistic. And while we have not reached that 2023 guidance yet, we expect us to continue to get better.
Now when you step back, what gives us that confidence? We do see the slowdown in the economy and fuel has started, very slightly, but has started to come down and still as a company we have become more resilient and better. A good example is when you look at our revenue per shipment this quarter versus same quarter last year, up by 40%. Even when you strip fuel out of it, it is still up 26% this quarter versus same quarter last year. So I would say if there is a recession, bring it on. Oftentimes, it feels like waiting for something is more scary than the event itself.
So back to that confidence, we have a specific forward ‘23 initiative in place. Inside that forward ‘23, we manage our key revenue and margin initiatives very tightly. And at this point we still believe for this year and for next year, that what we call the puts outweigh the takes, specifically that we mention 6 large positive factors. The first one I mentioned before, more events. The second one and more events this year and probably even more next year, because we are selling now not just to the domestic forwarders that have for events [indiscernible] go to some small events companies directly. Secondly, selling more direct overall in all of our lines of business. Third, deeper penetration into our core traditional customers, we have done a great job and my hats off to our customers, they have done great job tag teaming with some of our legacy traditional customers that know us well and we know them well to go after more high value freight together with them. Fourth, fewer outside broker miles, I always said we love working with our independent contractors who know us and our customers well.
Right now about 12% of our total miles flight haul, the LTL, we keep the outside carriers that we don’t know so well. They do a great job, but that’s not our regular roster. That number of 12% is less than half of what it was in the first quarter. And I expect, thanks to our operations and HR teams for that number, the 12% to go down, not up. So that’s the fourth positive put. Number five, our three supporting business lines, Intermodal, Truckload, and Final Mile has become more and more effective, making our LTL main show better. For instance, now in Final Mile even we have local synergies, which we’ve always had and on top of that, we have the rail driving line haul business for our LTL business. Six and finally, those supporting business lines are getting better and better pound for pound themselves.
We published our quarterly results, just check out our intermodal division and their results for the quarter. It’s spectacular. So that’s why we believe in our Forward ‘23 model for this year and for next year at $7 is the minimum for this year. There’s a cushion on top of that and we expect to get better in FY ‘23 because we believe what we controls these puts are outweighing those takes.
I also mentioned that we have a ton of confidence pun intended in our company and into our business. So our good practice of returning capital to our shareholders, we are continuing in 2022 also and that includes significant buybacks and also dividends which we recently raised. So we are as a team living our 10 leadership imperatives. One of those 10 is called we remove the ceiling. So we are removing the ceiling and getting better and better every single day. And we strive to keep getting better.
So with that back to you, Connie, we are going to open it up to questions right away.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question will come from the line of Bruce Chan with Stifel. Please go ahead.
Bruce Chan
Thanks, operator. Good morning, Tom. Good morning, Rebecca. Just I am going to follow-up on some of your comments there on Final Mile and, I guess, that six positive factor or six pillar. Wondering if you can talk about some of the big initiatives that you have got going on to improve the Final Mile operation and maybe get your sense of how you think about that business in the context of a higher quality freight mandate at LTL? Because I guess, it seems like fridges and telecoms and washer dryers are maybe not that consistent with that high quality freight mandate and especially if you start to share line haul and share P&D?
Tom Schmitt
First of all, thank you, Bruce and good morning. Thanks for the question. So I’ll fire them out. This is just for the whole audience. It actually is the delivery and installation of high-value appliances for some of the best most demanding retailers on earth. Bruce, so what we are doing to make sure that Final Mile by itself is in the high single-digit margin space and has visible and quantifiable synergies for our LTL business. We are making sure that we are dealing with high-value appliances. This is not dropping off wicker furniture on the patio. It’s because frankly, that’s to your point, not in line with our high-value trade proposition. What we are doing specifically is we’re going to make sure that we always are the top one, two or three ranks, ideally number one on our customers’ scorecard. So you may remember we actually won the Home Depot Appliance Provider or Carrier of the Year Award this past year. And so what are we doing to get better and better? So first of all, it has to be the same value proposition, almost zero damages, looking to be the best in the industry in Final Mile the same way as we are in LTL. So we actually are copying and pasting and cross-fertilizing some of those sensitive handling principles and policies and that DNA that we actually have lived for 40 years in our LTL business. So we are looking for premium appliances. We’re looking for premiums for delivering and installing them and we’re obtaining those.
Secondly, on the efficiency side, we did talk about 2 years ago that we are expanding co-locations. If you remember, we actually opened up 8 terminals for LTL initially out of our Final Mile locations. We are co-routing locally on a light installation. The installer is actually picking up LTL pallets and now we’ve had through tremendous collaboration between our sales leaders, under Melissa Feeser on the LTL side and Jeff Potter on the Final Mile side, more and more examples where the line haul that’s associated with getting those appliance into specific cities is actually going with Forward Air LTL or TL. So in my mind, Final Mile is a good example of the same high-value freight DNA. Lots of synergies that make up the two businesses that are the main show, which is LTL as well as the supporting business, which is Final Mile and we strive to be operationally, and from a damage, from an on-time performance perspective to be the best provider in the industry bar none. That is true for Final Mile and that’s true for LTL. So I do see this cross-fertilization happening, Bruce. And I also see actually the DNA to be truly a Forward Air DNA that’s consistent across those lines of businesses.
Bruce Chan
That’s really helpful color. And then just as a quick follow-up here as we have been hearing a lot about AB 5 and the Supreme Court denying Cert. Any operational risk there, whether with regard to Final Mile or the LTL, IC footprint or drayage?
Tom Schmitt
Yes, we have, this AB 5 is obviously the rule for California to implement a law that makes it in essence harder for independent contractors to prove and live their status their own businesses. Bruce, I think we as well as the rest of the best players in our industry, we have been prepared for this for the last 2 years. And so we know what the independent contractors have to do to maintain their independent contractor status as today and we actually are helping them to make sure that they understand what they need to do. What the outcome ultimately will be, some of them may choose to actually exit the business. That actually would call – would make the driver situation even tougher. But this is really a responsibility for those business owners to do what they have to do to keep their status. We do everything possible to always make sure we get the best roster of drivers to drive for Forward Air in Final Mile and in LTL.
Our recruiting team has been getting better and better. Kyle Mitchin and Ryan Gilliam, that entire team has done a tremendous job of making sure we live best practices in the recruiting space. We have a driving school. We have a driver board I talked about it many times before. But in this case proves very specifically the onus, the burden is on the independent contractors. There maybe additional costs that comes with them keeping their status. As and if and when that happens, we have no choice other, but – other than forwarding that cost to our customer. So business in and out of California might get even more expensive from a Forward Air perspective. I oftentimes say luck is when preparedness meets opportunity. I’m not sure if I can call AB 5 luck or not, but we certainly were prepared for it.
Bruce Chan
Terrific. Well, thank you for that and congrats again on the result this quarter.
Tom Schmitt
Thank you, Bruce.
Operator
Thank you. Our next question will come from Jack Atkins with Stephens. Please go ahead.
Jack Atkins
Okay, great. Good morning, Tom. Good morning, Rebecca. Thank you for taking my questions.
Tom Schmitt
Good morning, Jack.
Jack Atkins
So I guess maybe to start, would love to get an update on what you are seeing in July. If you could maybe kind of give us a sense for tonnage trends in the core LTL business and any sort of sense for revenue ex-fuel, that would be helpful?
Tom Schmitt
Yes. So I think we did put in the release that we see continuous positive trends in our business in July.
Jack Atkins
Okay.
Tom Schmitt
Very specifically, the first 20 business days or so, 20 –actually now we are actually even furthering the first 25 or so business days, we actually – tonnage wise versus the same number of days last year, are up by 3% in tonnage actually for July. And from a revenue per tonnage perspective, we clearly see similar or exactly the same type of events that we saw over the last several months. So if tonnage is positive, those stats that we showed before, the revenue per shipment clearly holds because all of our pricing discipline and our surcharge discipline has been very consistent and still it’s very consistent. So July, actually anything pound for pound instead of in June for us and June was pretty phenomenal, with 80 points, the OR. I always looked at 80 as an OR for LTL as a milestone, certainly not their final destination. So – go ahead.
Jack Atkins
No, no. That’s great to hear. I’m glad to hear you’ve got some positive tonnage and, I guess, as you sort of think about backfilling some of the latent capacity that you have in the LTL network that you’ve achieved through this cleansing process over the last 12 months. Where do you think you are in that process from a sales perspective? And I know the macro getting a little bit more challenging probably makes that a little more challenging. But could you update us on that and I would think as you kind of go into 2023, as you sort of think about your six sort of buckets of opportunity, that’s got to be near or at the top of the list.
Tom Schmitt
Definitely. And you asked a couple of things here, right. So if I look at the six that I mentioned, the first three are all about more organic LTL business of super high quality. Remember, again, I said more events first. Every single time Rebecca and I walk through a terminal with a shareholder or a customer and our operations leaders, we see the efficiencies that Chris Ruble and his team are putting in place managing our terminals, which is so, so much advanced from even a few years ago, and they were good at the time. But also I see the events business way up. Again, our guesstimate is, is it was about 20% pre-COVID of our total shipments. It definitely will get back to that again is my expectation and more. The second thing is selling more direct to some smaller and medium sized businesses that do not use our customer base or forwarders. So there is actually an and, not an or, we can be tremendous business partners to our legacy customers and sell a ton of high-value freight direct to other customers that do not use forwarders. And then obviously the deeper penetration into our existing forwarder customers themselves, I had been so impressed with our domestic forwarder customers over the last year, how, after we worked with them and this was not their choice. This was our choice after we worked with them, cleansing all the unprioritized, inefficient freight out of our system. And they had to find other outlets for those – that shipments that they couldn’t upgrade to prioritization. They have done a tremendous job as customers getting us on their teams, and their selling teams and saying, okay, why don’t we go after the business together that we actually should be owning because we, Forward Air, are truly a sales value proposition for them for all the freight that is the most sensitive freight to handle. And it – and that’s all – when I look at those trends, some of our largest domestic forwarders customers today has actually more tonnage with us today than a year ago when they still had the inefficient freight with us on top of the high-value freight and they are growing tremendously.
So, Jack, just perhaps in sum we have several levers to increase tonnage. We do see the slowdown, but this is, if you remember, we always committed our team to, if there is no size of pie getting to be won. We’re winning a slice of pie game. Right now this team is winning a slice of pie game. That 3% year-over-year in July that we see so far in growth, again, this is my expectation, as Tony said at the beginning of this call, I’m making forward-looking statements that are not guarantees. My expectation is that over the quarter, our tonnage volume growth over last year same quarter is going to increase past that 3% and not get smaller. The puts that we have, that we can control exceeds the takes, that’s our current estimation.
Jack Atkins
Okay, that’s great. And I really appreciate that additional insight. I guess maybe shifting to the full year outlook and then sort of the longer-term outlook for a moment, I guess, maybe a two part question and then I’ll turn it over. But the $7 plus and EPS, when I just kind of take that in context with the 3Q outlook, that would imply something if you’re just $7 at about $1.50 in earnings for the fourth quarter, which is a pretty meaningful step down sequentially. I’m guessing that’s just you guys erring on the conservative side there. But I would love to kind of get you to maybe flush that out a bit if you could. And then when you say, Tom, that you expect to continue to get better in 2023, is that code for your expecting further earnings growth in 2023? I guess, just some clarification there because we will be getting some questions on that during the call?
Tom Schmitt
Okay. So let me address both then very succinctly and then, Rebecca, if you want to add to that, obviously you always do. So the first part absolutely correct. Let me just be very blunt about it, we’ve said at least $7. I mean, we don’t know exactly how fast figure is coming down or how much overall demand pullback will counter all of the positives that we put forth. But to be very clear, our model gets us way past $7 for 2022. So that’s on the first point and then you, Jack, are in the same math that we are running. The number that you set for Q4, there has got to be a lot of economic headwind for us to not get past that number comfortably. So, the second thing is about growth and continue keeping getting better for 2023. I do expect, again, from where we’re sitting right now, how puts are outweighing those takes which is no matter exactly where we end up this year, on the positive side of $7. I expect that we will continue to get better margin expansion we talked 6 months ago. Well, it’s not a 2022 exercise exclusively. So we expect the same in 2023. And again, we are very, very aware of the slowdown in the economy and we’re modeling fuel to come down in line with the forecasts that are out there. And then our model still says in 2023 from an EPS perspective, we continue to get better on top of wherever we ended up in 2022. That’s all math I did have a long time ago, but still works. I haven’t had a finance and accounting major in undergrad and grad school, so the math actually I think adds up quite nicely.
Jack Atkins
Well, you are talking to a History major here. So you are better positioned than I am. So I will hand it back over to the queue. Thanks so much, Tom. We are back up for your insights. Really appreciate it.
Tom Schmitt
Thanks, Jack.
Operator
Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please go ahead.
Tyler Brown
Hey, good morning.
Tom Schmitt
Good morning, Tyler.
Tyler Brown
Hey, obviously fantastic results. I’ve got a few questions here. But just to start, can you kind of give us an update on that direct selling effort, how that’s proceeding? Are you on pace? And then I know that you talked about it having a better margin profile. But you’ve got more freight in the system to maybe sample from. Can you talk about how much better the margins are there?
Tom Schmitt
Yes, so Tyler, we are on pace and we also said that this is a significant untapped upside. So it’s hard for us to guesstimate off that $10 billion plots, it could be as much as $17 billion of what we call high-value freight. How much of that is basically being run by small medium sized businesses, but its several billion dollars. We said this first year of our effort in that space is a growth and learning year. We expect about $20 million or so in revenue. We are on track to make a peak stack. And we expect, if you remember, we talked about this for that trajectory to be a significant steep incline. So the $20 million grow by from $20 million to $40 million to $60 million, will grow more from $20 million to $50 million to a $100 million over the next couple of years. That’s our expectation at this point. Our sales team and Melissa Feeser is completely bought into this. In fact, she’s probably going for more aggressive numbers and I’m going for and I’m pretty constructive and impatient. So that’s the first thing on it. So it’s going as we said, as expected, but to be very clear for us in the LTL space not so in the Final Mile space, Truckload, or into more drayage space. In the LTL space, the selling direct to shippers for us is a new skill, good news is it’s not rocket science. I mean, I’ve lived this stage before, so have many of our teammates here, but its $20 million or so this year.
To the margin profile, to be very blunt about this, we’re still learning. But every time we do it correctly, the price to the value that we deliver, we can’t – we do see the margin potential can be in the type of territory that you saw the best class freight company or Dominion report for this quarter. So we are expecting clearly given that there is no value added intermediary that the margin should be more in the 70 OR territory versus an 80 OR territory. So we have seen that we can get there. We are not consistently there yet, but the better priced and better selected small medium sized business clearly is in that 70 OR territory.
Tyler Brown
Okay. That’s extremely helpful. And then I think gross margins and expedited, if I just look at revenue less PT, they were again just very solid this quarter. I know there is a lot of concerns about demand rolling over. But you do have this asset light model. You mentioned protection from not only the rolling truckload market, but also the shift from internal – from external to internal miles. Can you talk about the differential and what it means when you use internal miles versus external financially?
Tom Schmitt
Yes, so and, Tyler, you know this industry about as well as I do, if I remember correctly, you did actually manage your freight terminal at some point. So – but roughly speaking, the way we look at the map, a so called internal miles, which is not a completely accurate term because the internal miles means that in most cases, an independent contractor who works on our behalf on a consistent basis, but it’s still their own business. They keep the ton at two-thirds the cost of an external mile and you think in very rough terms, we got $3 per mile versus $2 per mile. So if we meet only 8% and that’s what perfectly achievable in the fact that those types of numbers should not have been here. But if you need only 8% of those miles at a $3 per mile level, and versus which we also had in the tightest months 28%, that makes a big difference. And again, we came down to roughly 12% in the last few weeks, tremendous effort by Justin Lindsay and his team and that 12% is down significantly from the first quarter where we had more than twice that. So yes, and again, the 12% is a important milestone. That is also not the final destination. We have seen and that’s a very healthy number. We have seen numbers between 5% and 8%. And Chris Ruble, our COO, always keeps reinforcing that having zero is probably not the perfect answer. But being somewhere in the mid single digit range is a very, very good answer to strive for. So 12% is not quite the destination yet, we can get lower and better.
Tyler Brown
Okay, that’s great. And then just kind of one last one here, I think in the release, you guys noted higher fuel surcharges as a kind of call it a driver of momentum, it seems to indicate that higher fuel is what’s called EBIT dollar accretive. So is there any way to help us just understand how a change in fuel either hurts or helps EBITDA or EBIT dollars, let’s call it? Because I think at some level the market is just unsure of how much of the $7 is simply from higher fuel versus some other structural changes?
Tom Schmitt
Yes, again, Tyler, let me say the first thing first because that’s the most important one to us. So the $7 plus that we set for 2022 and I want to emphasize the plus, that is already taken into account that fuel is starting to come down over the next several months, not down to where it will be ultimately, but starting to come down. We also modeled and we actually are listening to the experts that have perhaps the best finger on the pulse, if we go further down to somewhere in the $4 to $4.25 range, then that’s becoming part of our model for next year. We still expect our EPS number of $7 plus for this year to go up because of some of those $6 drivers that we’ve talking about in the first part of this call. So fuel is important. Let me just give you another example. If we published the ready-for-shipment increase versus the same quarter last year and I said its 40% higher than last year in the second quarter. And if you skip fuel from this quarter and the same quarter last year, it’s still 26% higher. If you compare that to some of the best LTL companies in the industry that is significantly higher ex-fuel number and that 26% truly is earned through a higher quality tonnage, through in some cases actually more density, i.e., more tonnage on some lanes and certainly also by being more in tune with pricing that higher tonnage correctly. So the best way for me to put it is, is the $7 plus in the higher number in 2023 is taking into account fuel to go down to levels that they were a year or 2 ago and/or levels that some of the forecast would indicate for next year, news industry forecast. So we – by every metric we want to look at revenue per shipment, rate per shipment, overall EPS development by every metric, even if we strip fuel out, it’s getting better.
Tyler Brown
Excellent. That is very, very helpful. Thanks, Tom.
Tom Schmitt
Thanks, Tyler.
Operator
Thank you. Our question will come from Todd Fowler with KeyBanc Capital Markets. Please go ahead.
Todd Fowler
Hey, great. Good morning, Tom. Good morning, Rebecca.
Tom Schmitt
Good morning, Todd.
Todd Fowler
So Tom, I guess, I maybe want to start on pricing and yields. When I look at your revenue per 100 weight ex-fuel, it’s up nearly 10% and that’s with the higher weight per shipment here in the quarter. Can you give us some thoughts on kind of how base pricing, your contract renewals are trending, and as you look going forward? The team has done just a great job in moving pricing up. What are your expectations for the level of pricing that you can continue to achieve on maybe for the back half of this year and maybe even into next?
Tom Schmitt
Yes. I think the first thing that Todd that I think is worthwhile enforcing, GRIs, when we put them in place. First of all, they are an annual event that happens on February 1 and that’s going to be consistent. We do obviously take outside factors into account so that we can have an honest conversation with our business partners and customers about why the GRI at a specific number is happening. So I do expect in a economy where the driver supply and demand is less of a friction than it was at the peak a year ago, that our driver cost increase maybe lower. Some of the other kind of cost increases and prices may be lower. So the fixed 49% GRI that we had this year, when you take all the input factors into account, also after investing into higher safety technology, that might become a lower number, that maybe 4.9%.
I am not saying at this point we have a pricing team set on [indiscernible] certainly inform us of what they think the number should be. But it may be a lower number in 2023 than it was in 2022. But with our freight mix and the predictability of the freight to our customers that we handle on behalf of them, the GRIs are a certainty and again certainly by the range of the number. The best companies in our industry, the best companies in every transportation industry, whether it’s airlines, railroads, parcel companies, or LTLs are extremely pricing disciplined. So, again, my short answer to talk to your point would be the expected GRI on an ongoing basis, that’s robust, that’s reflective of realities and yet it could be in a few – in some years like next year, it could be slightly lower than 6.9%. But there will be a significant investment into our customer commitment, into our safety technology that even in a kind of software environment when it comes to labor supply, there will be a significant GRI. So, that discipline is consistent, it’s holding and if I could ask sometime about current pressures, obviously a customer given the choice, should I pay more, should I pay less for a shipment, they would most likely opt for less. But we have – as long as we keep our commitments, we oftentimes tell each other, our customers expect near perfect on-time performance and zero damages from us. As long as we keep our commitment for our customers and we select together with our customers the freight that they should be handling correctly, our pricing discipline with them is going to be at the exact high consistent level going forward that it had been over the last year or 2 years.
Todd Fowler
Okay. Alright. And then, I guess Tom, when you look back over the past couple of years, there has obviously been a lot of moving parts within the macro-environment and some things that your team has done specifically around those types of freight that you want in the network. I guess now kind of removing the macro from the conversation, but thinking about the algorithm going forward, do you have a view on kind of in general over the next several years what the tonnage growth rate should be? I mean is your business now positioned where the tonnage should grow kind of at a multiple of where the market growth rate is, should it grow faster than that if some business comes back? I am just trying to think about a normalized level for tonnage growth given how you position the network and some of the investments that you have made?
Tom Schmitt
Yes. So, I am going to just give you the framework very briefly and, Rebecca, could you please follow-up with some of the specifics that we put into our model. So, the framework, Todd, it’s very simple. We have our, what we call Forward 23 effort, which is focused on 2022 and 2023. That’s kind of the successor to what we internally had called Beyond 19, which was the milestone between late 2018 and 2021 for us to become a double-digit margin company. Forward 23 is a model that takes us through this year and through next year. But we do have a 5-year model where we expect to be based on what we control and what we can do. And inside that 5-year model are obviously, the revenue and growth assumptions, growth assumptions both for the top line and for the margins. Rebecca, if you can give a little bit more kind of numbers flavor to that, that would be helpful.
Rebecca Garbrick
Yes. I think, Todd, as we think about going into next year, this year was a bit of a, I will call it a challenge, not necessarily a challenge, but we stripped and we cleansed. And so when you are thinking about kind of Q1 over Q1, it’s not necessarily apples-to-apples. As we move into 2023, you are looking at more of an apples-to-apples basis. But we do expect our tonnage to grow. And to your point, we expect it to grow faster than necessarily the market is, equal or better than the market, as we think ahead to that, as well as our revenue from that standpoint will help us continue to grow. I think that’s it.
Todd Fowler
Okay. Yes. That’s very helpful on the apples-to-apples comparison. Just kind of the comments about market growth rates for ‘23, and that’s probably from a visibility standpoint, maybe where it makes sense to start. So, the last one I wanted to ask, and maybe this is for Rebecca as well. But if I have got my numbers correct, I don’t think that there were any share repurchases during the quarter. And obviously, the performance of the business continues to do well. I guess I am just curious kind of your thoughts on, number one, if I have got that right? And number two, kind of your thoughts on buybacks and how you are viewing it if it’s opportunistic, if it’s more formulaic and why there was a pause in the quarter?
Rebecca Garbrick
Yes. So, you are right. We didn’t do any share repurchases in Q2, and that’s definitely more of a formulaic method as we think about our capital allocation. So, as you remember, we did purchase Edgmon this quarter. So, some of our cash was used from a capital allocation standpoint to do it, acquisition. As we think ahead to the rest of the year, we don’t necessarily give guidance per se on our share repurchases. But as Tom mentioned, we continued to commit to our shareholders to return capital back to them. So, in our earnings release, we did end up giving our weighted average diluted shares for the end of the year, which was 26,000,800, so it does imply that we will do some share repurchases for the rest of the year.
Todd Fowler
Yes. Got it. Okay. Thanks for the time this morning.
Tom Schmitt
Sorry, Todd. I am just going to do – goes back to having done financing and accounting in undergrad and grad school. So, in the release, we actually did say 376 million in our share repurchases and dividends over the last 5 years. So, if you take this year and divide that 376 million by five, it gives you an idea of the size. And clearly we have so much confidence in the power of what this company will be that returning capital via dividends and especially buybacks at the price that we are sitting at right now for us makes a ton of sense.
Todd Fowler
Yes. Understood. Yes, I just wanted to kind of get a better understanding of just the cadence and with where the stock was in the quarter. So, I certainly understand all the comments. Thanks for the time.
Tom Schmitt
Thank you, Todd.
Operator
Thank you. Our next question comes from Scott Group with Wolfe Research. Please go ahead.
Unidentified Analyst
This is Jake on for Scott. Thanks for the time.
Tom Schmitt
Good morning.
Unidentified Analyst
On your 3Q guide, it looks like you guided earnings a little lower sequentially despite flattish sequential revenue. Why is that?
Tom Schmitt
Yes. So, I am going to start and then Rebecca could give you certainly a second half on that. So, if you look at historically, Q2 and Q3 typically were somewhat similar in earnings for us. So, if you look at the 204 results that we came in with, now we are saying 190 for Q3, to your point, that is a step down sequentially quarter-over-quarter. We do believe that – I mean we want to be realistic and we want to hit the point where we say we have a chance to exceed it and we also have a chance to fall short. The 190 does include the fact that around us there is a demand pullback and fuel has started to come down. The 190 still is, by far, the highest number that we have had for a third quarter. And so I do believe that the pullback is an acknowledgment of the fact that fuel is starting to come down and the fact that overall demand has gone down. But having said all of that, we do expect tonnage growth in Q3. So, the things that we control, we still expect it to be in place. But again, it’s an acknowledgment to what we see. However, if you look at yourself and some of the other covering analysts for us and for some of the other LTL companies, I think for the most part, you are calling the same thing we do, which is while a Q3 typically looks pretty much earnings-wise, the same as in Q2, I think the many estimates I also have seen a slight acknowledgment, adjustment to the economy and to the fuel prices. So, that’s the main backdrop. The things that we control for the most part are working beautifully.
Unidentified Analyst
Got it. That’s helpful. And then if I just look at revs per shipment ex-fuel and weight per shipment, each declined around 5% to 6% quarter-on-quarter in 2Q. What drove that?
Tom Schmitt
Yes. This is a bit of a customer success consequence. So, you are absolutely correct. The – what you are referring to is that sequentially the rate per shipment has been going down, not up. What’s happening in its most simple form, the shipments that we do on behalf of our domestic forwarders, which is the customer base that has been with us from the very beginning, tend to be airport-to-airport shipments and tend to be lower rate shipments, highly possible, but lower rate. The shipments that we tend to have are more recent customer base, such as 3PLs tend to be higher rate shipments. We go from door-to-door, not just from an airport to an airport. Intrinsically, when you think about airport-to-airport, it’s freight debt in the past and alternatively would be in the belly of an airplane. So, they are typically high value, but they may not be quite as bulky and there is a kind of multi-pallet shipment that would go from a door to a door. So and the reason why the shipment has been – rate has been going down, we have been in a good way to remain to be successful. It goes back to some of the comments I made earlier, growing with some of our legacy domestic forwarders, companies that have done a tremendous job themselves going after high-value freight and making us a big part of that commercial pursuit. So, the math exercise that you are pointing towards is, in essence, a consequence of us being over proportionately successful selling together with our domestic forwarder customers, what in many cases, is lower rate airport-to-airport business.
Unidentified Analyst
Got it. And thanks for your time.
Tom Schmitt
Thank you.
Operator
Thank you. And our next question comes from Bascome Majors with Forward Air. Please go ahead.
Bascome Majors
I am Bascome Majors from Susquehanna. Yes, I am just neither. Thanks for taking my questions. You have been pretty confident in a $7 plus number on the EPS front throughout the call. Can you talk a little bit about how that comes out on free cash flow based on you guys’ modeling, not to get too precise, but just want to see how roughly that compares to your $2.6 billion, $2.7 billion in market cap.
Tom Schmitt
Yes. So, Rebecca, you go.
Rebecca Garbrick
Sure. Back on our free cash flow, we think we will continue to be strong throughout the rest of the year. If you look through Q2, our free cash flow was essentially double that year-to-date from last year. It was actually 3x. So, we expect that to continue maybe a little less than that for the rest of the year.
Bascome Majors
And when you say rest, you mean the first half versus the second half, or you mean the growth rate versus last year?
Rebecca Garbrick
The growth rate, right, for the rest of the year, we will essentially be equal to or maybe a little less for the rest of the year when we model that out.
Bascome Majors
Alright. Thank you for that. And you have been pretty adamant that you expect to at least hit the market and probably grow tonnage and more convincingly earnings into next year, even though you have been admitting that there are some signs of slowing. I am just – we have got a new management team. We have got a new freight mix. We have got a new strategy for Forward Air versus last time we had a “normal freight recession,” not counting what happened in 2020. I am curious, if we do end up in an environment where you have, call it, mid-single digit broad LTL market tonnage declines, what’s your playbook? How do you protect the bottom line while still serving your customers? Just want to understand how you flex your strategy, so we can think about what that means for your top and bottom lines. Thanks.
Tom Schmitt
Yes. So, that’s – I mean there are traditional skill sets that we need to obviously practice consistently. Cost control and flexing up and down is something that we need to be doing and we need to be doing extremely well and precisely. So, the nice thing is, it’s obviously our asset-light model, we may not look like geniuses in the hardest economy ever, but the asset-light model works quite well as and when the environment slows down. The miles that we have to give outside, to outside providers, is basically our first flex space to go to. So, that’s what, the 28% or so of outside brokered miles go down to mid-single digit numbers like 5% or 8%. As I mentioned, it’s 12% in the most recent weeks. So, that’s a good flex opportunity on the cost balance or purchase clarification, we need lesser freight and it’s also less costly on a per mile basis. Overall, again, we believe that we are more resilient and robust. And again, the proof is in the pudding and I want to see it every single month, every single quarter play out. But the high-value freight that we together with our forwarder customers and increasingly also the small and medium-sized customers directly are going after is more. We would have said over the last 2 years, more essential than the discretionary freight that will be pulled back first. So, there may be fewer appliances and discretionary kind of home goods spend. But at the same time, when we talk about automotive and you talk about industrial goods, high-tech equipment, agricultural and farm equipment, medical devices and my belief strongly is over the next 2 years, while we all may have to actually be a bit more cautious because of the economy, people are thirsting for events. And they first need to fly, they first need to take a cruise and to go to a concert. And so I do believe there is a lot of puts that in my model and Rebecca’s model, that those puts add up to more upside than we may 5% to use the decline in LTL volume would imply on the negative side. So, we are doing the same models that we are doing and we are coming out ahead with our modeling where the puts outweighing the takes.
Bascome Majors
Thank you.
Operator
Thank you. That concludes Forward Air’s second quarter 2022 earnings conference call. Please remember that this webcast will be available on the Investor Relations section of Forward Air’s website at www.forwardaircorp.com shortly after the call. You may now disconnect.
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