Forward Air Corp (Delaware) (FWRD) 2002 Q3 法說會逐字稿

Please stand by your meeting is about to begin. Good morning and welcome to the third quarter earnings conference call for October 30th 2002. Your host for today will be . Miss please go ahead.

Thank you Steve. Good morning everyone and thank you for joining us. With me today Bruce Campbell President and Chief Operating Officer and Andy Clarke Chief financial Officer. By now you should have received our press release regarding third quarter 2002 results which crossed the wire this morning. Before we begin let me remind you that our discussion today will include forward looking statements and as such are subject to the risks and uncertainties including those discussed in the company's form 10-K for the year end December 31 2001 and form 10-Q for the period end June 30 2002. Our actual results may vary materially from those discussed today and we do not undertake any obligation to update these forward-looking statements. With that I'll now turn the call over to Bruce Campbell President and COO.

Thank you and thanks to each of you joining us this morning. As noted in our press release this morning our third quarter earnings were up 12 percent on the year over year comparison. And we achieved revenue growth of 7.5 percent a record third quarter in terms of revenue andour best revenue quarter since the first quarter of 2001. We are most appreciative of the efforts of our dedicated employees on achieving these results.

As we have done in the past we will break down revenue by and this time it's most interesting. July was up 12 percent a very strong July however right on it's heels came in zero growth month of August followed by an 11 percent growth month in September. In my many years in this business I've never seen this type of sporadic pattern before. From an operating viewpoint we were able on a year over year basis to improve our operating ratio by 40 basis points and we're pleased with that effort although not satisfied. We continue to feel strongly that additional improvement is achievable from the Forward Air model. I want to touch on a few more areas of general interest.

First is . On a year over year basis our yield is down slightly but during quarter it ran flat to slightly improve. We believe we have stopped through our pricing discipline the erosion and with the addition of our recently implemented field charge we hopefully will see improvement. Second area is owner operators. We continue to feel questions concerning our ability to retract and retain on our operators. And our answer is we are able to do so. While without doubt this area is tougher than say two years ago.

The Forward Air model fills offers a great place for unknown operator to work. Like in other areas of our business when the economic environment is tough we simply have to work harder but even under those circumstances we have been able to attract good operators. Third the market side. First let me clarify one erroneous statement. We are not an overflow carrier nor are we dependent upon overflow business. Obviously our customers determine the size of our market today and our customers as a reminder are primarily forwarders, airlines and some integrators. Our customers sell time definite services or just services.

In other words a shipment picked up on Monday must deliver Wednesday. The mode of transportation is almost irreverent. What is relevant is the on time service. Mode becomes relevant when our customer chooses the most cost efficient and most reliable means of transportation and we believe that in most cases that is the Forward Air network. While during tough economic times market size is always an issue. We continue to believe even we can grow our company as evidence by our third quarter results. That concludes my statements and I would like to turn it over to Andrew Clarke our CFO for his comments.

Thank you Bruce and thank you all for joining us this morning. After I've concluded the financial review portion of the call we will open the lines for your questions. As Bruce said we are pleased to report that positive and revenue earnings growth for the first time since the first quarter of 2001 and we will continue to improve our operating results.

The company's model does work and our people strive everyday to grow revenues and increase operating efficiencies.

In the third quarter operating revenue increased seven and a half percent to 57.4 million. Traditional hold revenue was 48.8 million an increase of 6.1 percent.

Average weekly line hold tonnage increased 8.9 percent to 25.2 million pounds to the third quarter of this year.

We continue as Bruce said to be in the competitive pricing environment while are down versus last year due to the shorter length of haul. They did show a positive sequential improvement as the quarter progressed.

Logistics in the UV revenue increased 28.1 percent and other revenue increased 5.4 percent. As Bruce indicated earlier the company has implemented a field surcharge that was effective on October 21st.

For more complete information including scale and timing please visit our web site. During the quarter income from operations increased 10.8 percent to 7.2 million and the company's operating margin expanded by 40 basis points to 12.6 percent.

Purchase transportation cost increased 160 basis points versus the same period last year. As discussed in previous calls the company has experienced a greater growth in its logistics services which has a higher purchase transportation cost component that our traditional airport to airport business.

Additionally the company has relied on outside brokers to balance break flows in the network. In each case the company paid a higher rate per mile to outside carriers for transportation then in the same quarter last year.

BT for the traditional network was 43.2 percent versus 42.9 percent last year and purchase transportation for the logistics business was 68 percent this year versus 63.4 percent last year.

Salaries, wages and benefits increased 10 basis points to 22.5 percent. While this figure is up over the second quarter nearly two thirds of that increase is attributable to wages associated with the increased airport to airport revenue as well as an increase in healthcare costs.

Additionally the company has continued to grow its sales force in an effort to expand its market share. Operating leases decrease 50 basis points to 5.2 percent. Depreciation and amortization decreased 100 basis points to 3.2 percent. Insurance and claims decreased 60 basis points to 2.3 percent and finally other operating expenses decreased 10 basis points to 9.3 percent.

Total assets grew to 148 million from 137 million at the end of the year. Company's cash and investments position grew to four million during the quarter even after accounting for the repurchase of nearly 7.2 million of the company's common stock.

During the quarter we repurchased 366,000 shares at an average purchase price of $19 and 62 cents. Accounts receivables decreased nearly one million from the end of last year and for 45 for the first nine months.

Allowance for doubtful accounts were made flat at 1.1 million. Tests provided from operations in the third quarter were up three point million to 12.4 million versus the same period last year.

The company ended the third quarter with operating terminals in 80 cities. One month regarding long term debts the company intends to call early the bond obligation on its Columbus, Ohio in December for approximately $3.2 million using internally generated funds.

After this event the company will have less than $500,000 of total debt on this balance sheet. For the fourth quarter of 2002 the company expects revenue growth between four and eight percent versus last year and earnings per share to be between 21 and 25 cents a share. These estimates depend on a number of variables, many of which are outside the company's control. That concludes the financial portion of the call on behalf of the Forward Air employees than you for joining us this morning and I will now turn it back to the operator for your questions.

Thank you and we will now begin the question and answer session. To place yourself in to the question queue please press stars one on your touch-tone phone. If you are using a speakerphone please pick up your handset and then press star one. To withdraw your request press star two. Please go ahead if you have any questions.

Our first questions comes from please go ahead.

Good morning guys.

Good morning.

Bruce thank you for the clarification on your business model I thought I had forgotten. The first question I have is can you with the you saw in the quarter can you give us an idea is it in terms of the revenue growth. Has the continued in to October and Bruce can you give me an idea of giving the amount of freight that is still in the system it's not in to the retailers yet do you think you are going to see some carry over of that freight in to the first quarter.

You know let me start John by saying we did not like to be in the predicting business especially over the last year, year and a half. We will tell you that our October has been good but you know we told you back in July that our July was good and then we turned right around and got in August. We don't think that is going to happen this time but you know we just simply don't know in this world again October has been good. As far as packed on retail and those that carry over in the first of the year you know your guess would be as good as ours.

Were certainly are not counting on that to happen but we think it could.

OK given that a lot of your competitors in the space follow through with a you know followed through I guess with a duplicate search similar to yours do you finally think that there is some rationality coming to the pricing in .

I surely hope so. We were real curious to see if there would be a follow on by our competitors in terms of the third charge we were happy there was because obviously that makes our journey a little bit easier and hopefully indicates some rationality coming in to the pricing side of the equation.

OK Andy can you remind us how large was the share repurchase plan that you had authorized.

It's authorized to two million shares.

OK and you have completed except the three 66's all you have done under that.

The three 66's what we have done up in to the third quarter.

And last question can you remind us again I didn't catch the cash balance at the end of the quarter.

Cash balance was cash and investment balance was $57 million.

What do you start to do with the I mean besides the share repurchase and retiring the debt I know you guys continue to look at equisitions possibilities is there anything else that you have contemplated use of cash was as were looking at the dividend policy anything like that.

We continue to look at all possible alternatives for the cash right now we continue to be focussed on the equisition program and have actually received more proposals from potential targets. Obviously has we have discussed in the past valuation levels are still above what we think are reasonable and in the meantime we continue to believe in the value of our stock and that's why we have a stock purchase plan in place.

OK Thanks ...

And our next question comes from please go ahead.

Thank you, I guess I want to try to get as good a handle on the cost side of the equation as possible. It seems like your revenue trends tonnage was the best it's been in at least a year and a half. It looks like your utilization on a pounds per week per tractor was the best it's been since late 2000 and top line didn't translate to the bottom line the way that I think at least I'm sort of used to, so Bruce I guess a color comment from you as to where you think you are in managing the owner/operators situation and sort of what your expectations are to get those costs back down or margins up, however you want to look at that.

Let me kind of quickly you guys with the models look at the revenue protractor and that to us is not really relevant, what we look at is above load averages and the costs of the purchase transportation, but if you look, the two areas that we're working hardest on - the SG&A - you know we saw a pretty big hit on health insurance's - not a whole lot we can do about that other than look at policy revisions and candidly we just had some bad luck in the health side, and that happens every few years so you know we have to take the good with the bad or the bad with the good probably better said.

The other issue we have there is dealing with the sporadic side of the business we experienced during the third quarter and the best example I can give you there is when we were going through July we probably were undermanned if anything and we geared up because July kicked in with a 12 percent increase and we thought that would continue, I think that's a rational conclusion to come to, and in fact it did not in August, and so we had to pare it back but in the meantime we had probably not been as efficient in that area as we needed to be, so we learned a pretty tough lesson and from this point on or actually from that point on, we have really pushed to control that side of our labor and we have in fact done that.

On the PT side what doesn't necessarily get us in trouble but what makes it awkward and harder for us, again when you separate out the PT for the Forward Air Network versus the logistics side, when you get out of balance situations, the increase in revenue came from different parts of the country and I don't want to get into where and all of that because all our competitors are listening, but we had just some outstanding revenue performances out of certain locations across the US.

That's both good obviously and it can also cause some bad in the PT because you have to chase it either with empty miles to get it or if we run it with our own owner/operators when you're out of balance, or you go outside and pay a broker, what we call a broker, an outside courier to haul it, that type of line haulage expense is more expensive than our owner/operator because we're paying the owner/operator 90 cents.

In addition to that the outside carriers we used were hitting us with the fuel sur charge, so it was a little bit of a double whammy, we think we have that fixed now, we think we had it fixed in September, and so we you know we're certainly not sitting here telling you that we have everything fixed, and everything's wonderful, and don't worry about it. We're working as hard as we've ever worked.

And I can tell you, in this type of volatile environment, it makes it more difficult. Our people, all of us have to work a little bit harder. But it is manageable, and we are managing, and we did see the results of that managing in September.

Well that's fair enough I guess. I think you have a track record for managing that, so that's why I wanted to understand what your thoughts were currently.

Now you don't want to be specific about parts of the country, but can you be general about what you think changed the growth moving in the right direction? Because it was a pretty big inflection point in the quarter in terms of the really turning up.

I think there're probably a number of factors there Alex, and I'm not real, you know, I'm hesitant to get into that deeply again because we're being listened to by a number of people.

But you know, we were pleased with some of the areas we saw the growth in. We put a lot of effort into that, probably more than we've ever put into growing our company. We you know, as Andrew touched on earlier, we added a few sales people.

We saw the results of a airline program, especially the international airlines, which is really our focus now. And we saw the results of our logistics, you know, where we're really pushing hard to get into what we call a logistics business. Which is everything from truckload brokerage to handling - terminal handling, that type of thing.

Now it's a bit of a two-sided sword there in that, you know, when we handle that type of business it is not always as profitable as some of our other business, but it's still generating really nice rates of return.

So you sit there and say, you know, do we want this business? The answer is yeah, we're still making between 15 and - you know, somewhere around 15 percent. And that's not quite as heavy as - or quite as profitable I should say as our typical business. But it still gives us a nice profit, and more importantly, we're doing it without any additional investment, or minimal investment.

So it fits in the Forward Air model and we're happy with it.

Just Andy, length of haul, you guys talked about it going down. Can you give us some reference points, where it was in the quarter versus, I don't know, second quarter and last years third quarter? Something like that.

Alex we don't provide that information 'cause it's competitive information to us.

But we did, you know, as we've talked about in the past you pick up shorter length of haul business - Atlanta to Miami for example, where we've got great density in that lane. And the yield and the pricing on that lane is certainly below that of an Atlanta to Los Angeles for example.

How about giving us a percentage? I mean I think we need something to work with. It's down what? Three percent year over year or ...

That's about right.

OK. Thank you.

Thank you.

Our next question comes from . Please go ahead.

Hi. Good morning.

Just if I could kind of - Andy if you could talk a bit about the insurance line? It was down I guess a little bit more than expected. And then you're other expenses on the - I guess was that kind of skyrocketed a bit there, was that due to higher branch spending? Or can you kind of clarify where that was?

And then finally on the revenue side, if you can just talk a little bit about your sort of - Bruce can you talk a little bit about kind of the impact of the port strike and has that been kind of location sensitive in where your freight have been falling and do you see those volumes kind of slowing down as that gets resolved or the fact that it started up again at the end of December as the 80 days kind of ends?

Well I'll touch on that first and let Andrew do the other two issues you ask about.

Your know the port has impact on us we will get airline business say out of San Francisco that typical would have been on a boat. We have experience that, we have seen that.

As far as the future, you know your guess is as good as ours. We think there will be continued shots of revenue coming out of West Coast Cities, but we're certainly not counting on that or relying on that to build our business.

Have you seen any of that yet, as carriers scramble to make kind of holiday dead lines?

A bit of it, but not a whole lot.

OK.

Regarding the insurance Ken, that is due to better claims experience as we talked about in the second quarter. Our premiums went up for this policy year but it somewhat goes hand in hand with what Bruce was talking about earlier on the purchase transportation.

When we use outside carriers we certainly pay more per mile but we are not responsible for the insurance, the outer liability insurance on those vehicles. So we've done a much better job, a great safety program of bring in only the top owner operators and as a result we've had better claims experience.

In terms of the other operating expense, I don't think I would categorize $400 thousand increase from the second of the third quarters sky rocketing. Quite a lot of that number came in terms of the fuel additional expense associated with fuel which is certainly something we're hoping to counteract in the fourth quarter with the fuel serve charge.

Great thank you.

Our next question comes from Greg Burns, please go ahead.

Hi guys.

Just want to leave with the purchase transportation issue, we realize there was a make shift and I hear you on the increase brokerage, but you know if we look at the second quarter, yea had a fairly sizable increase on a percentage basis on logistics revenue and yet your purchase transportation didn't increase as a percent of revenue nearly as much as it did this quarter.

And I'm curious Bruce whether you know is it your view that on a pure apples to apples basis you're purchase transportation on comparable revenue is you know essentially rising in line with revenue, if you exclude these imbalance lanes etcetera or are you seeing, or you doing anything from the compensation stand point, are you losing lower paid earning operators and bring in higher paid ones. Is is doing anything on a wave scales that would alter that number?

Yeah we really are, that number has what we pay our earning operators have fade the same we've had no changer. It really gets into an issue of efficiency and outside buying power and you know we had - we stumbled in just to be bluntly honest, we stumbled in August.

We did not do as good a job as we should have or we're capable of doing and trust me that got everybody's attention. We thought we Brian as you said the more revenue you bring on, typically the more we can improve our efficiency in that area. We did not during August, we corrected it in September and we are watching that, trust me very vigilantly.

The other side of that is on the outside purchasing of carriers you know on the brokerage side. It is a little bit more expensive now. But we have also put together a program to - where we think we can control that better than we did. So if we diverse to be spanked that's one area we need to be spanked in because we just did not do as good as job as we typically can do and you know it was disappointing to all of us. But we're back on track trust me.

So sounds like August was dead head mile issue is that really it that...

It was that and you know the load average slipped a little bit and load average to us is what we live and die on and so wanted to get in that area in some of lanes not across the board as we should have been.

Have you seen an uptake in owner operator turnover or time to or the ability to recruit new ones that lead you to believe you may have to do something in the future?

No we continue to with our owner operators I mean we've had some owner operators. I mean we've had some owner operators who I would say were somewhat spoiled and they've had a tough time in this tougher economic period.

On the other hand it goes back to what we've said about our model from day one and that is we can recruit to the Forward Air model because it's a great place for an owner operator to work and so even though we've had some turnover and we don't like turnover but we have had it. We've been able to replace those people and most importantly and we've touched a little bit on it we've replaced them with good people and good defined is not only character but safety related.

And we have pushed our safety program so hard this year and our people have done such a good job in that area knock on wood as say that. So we're still happy with where we're at on the owner operator we still have to work harder than we have in the past but we are comfortable that we can continue to attract and retain good owner operators.

And just one final question Bruce on the looking at your customer base you know the airlines and the forwards which is showing more strength what do you see among those two customer base and do you have anyone on the forwarding side whose on the watch list you know given the downturn we see in the market.

Actually my quick comment to that would be we watched a number of the forwarders all the time. But you know to their credit if you'd asked me this two years ago I would have told you that we would have seen a lot of bankruptcies and we have really seen minimal bankruptcies and to me that's a real positive point to all the forwarders out there because they have done a good job of getting through these tough economic times.

Obviously we're watching a number of the domestic airlines. There are some big issues there. We being mainly our AR people have watched and patrolled our activities at those airlines very closely to make sure that we don't have exposure there as we go forward and our group and accounts receivable lead by have just done a wonderful job there.

And so we're pleased with where we're at. But it is a constant watch for us.

And just so far, a question about area in terms of what would your exposure be as a percent of revenue say United Airlines ands US Air, ball parkers.

United Airlines Andrew's getting excited cause want me to tell the number. But I can tell you we have minimized our exposure to United Airlines and we have minimized our exposure to some of the other troubled carriers. If that's the way to put it.

And finally just on the demand side from the airlines is utilization a driver of demand for Forward Air? In other words I know you offer a very good, you know, second day proposition but assuming that their belly space is under utilized why would they go outside if essentially their belly space utilization is really low?

if they had a wide-bodied aircraft, and they had space for cargo. And remember the cargo we handle is usually around 700 pounds. So if they have a wide-bodied aircraft which indeed has cargo space available to it, they would use internal lift means.

But if they have a narrow body or even a regional jet, which is becoming more and more popular as we all fly around and see, you know, that basically has very limited cargo space if any at all. So it does help us.

Great. Thanks a lot.

Thank you.

And our next question comes from Steve Jacobs. Please go ahead.

Morning Bruce and Andy.

Morning.

I got a couple of questions.

The change in ownership it - , is that going to affect you in any way?

No we had a - we think a good relationship with . We - as a matter of fact I was on the phone with the new owners last night.

We believe, you know, that they're really inspired, dedicated etcetera to make this new work, and work very well. So we're comfortable today with our position. Obviously we've got some work to do there to make sure that they're comfortable with us as we go forward. But we think it's going to be a good situation for all the party's involved.

Good. Getting back to your costs. At the terminal level, isn't your largest cost the handlers, the cargo handlers? And is kind of what got out of whack in August?

Yeah that's correct.

Cargo is - cargo handlers I should say, approximately six percent of our revenue. And in fact that's probably the biggest. It's not the biggest. The biggest variable that got out of whack was our group health insurance. And that is grouped into SG&A Steve.

But we did slide backwards a little bit on our labor control, and we have fixed that. Actually we've had four or five weeks that have been outstanding.

Good.

And then just kind of a segue into the terminals. Year over year your - the number of your terminals have increased from 75 to 80. But the mix has changed. You've had - you have less corporate and more independents. Is that a trend that you think will continue? And could you just talk a bit about how you're managing your terminal network?

First of all most of the increased terminals that you see Steve are those that we run on a variable cost basis. An example would be down in the Texas Valley where we use another carrier in Houston, Texas by the name of . And we pay them on a variable basis to take the freight into those areas.

The bigger question I think you alluded to is do we convert a company station into an agent station? We have in fact done that this year in a few locations, primarily Omaha, Nebraska, and Columbia, South Carolina.

The reason we do that, and that's a continual process for us, is we evaluate terminals and more importantly we evaluate the market. And if we don't think a market is big enough to support the infrastructure that Forward Air requires in any city, then in fact we will look at our alternatives. And a good viable alternative in many cases is to do it via an agent.

We have done it in those cities, it has been successful for us. We look at that every day, and we will continue to look at that into - in the future.

In the past you've started an agency relationship and then bought them and turned them into a corporate, is that still a potential to that?

Yeah it's something we look at. But you know, right now that's not on our agenda today.

Sure. So when I see your terminal profitability dropping sequentially from roughly 112,000 to 90,000 it's a mixed issue up along with the cost that you got a lot of whack here in August.

You see you know again the way to look at that is the reason we bring in those terminals as Bruce described in the Texas Valley is just a it's simply an inlet and outlet for additional freight. I wouldn't look at it in terms of profitability over 80 terminals you know there's 15 of them that do the but we simply open them up to service our clients.

Sure ok thanks a lot.

Thank you.

Our next question comes from . Please go ahead.

Could you give us a write down for your logistics revenue between what's EUV business and what's the appropriate to business as it stands now and versus what it was last year.

Yes the EUV business is that is the brokerage business .

Ok so everything's EUV.

It's EUV and dedicated work and that's probably 75 percent EUV, 25 percent dedicated. This quarter versus probably 65 percent, 35 percent same period last year.

OK and could you just kind of give us an update on the competitive landscape you've talked about it somewhat already but in particular there it seems like there is more competition coming from the LTL carriers. If you could talk to that specifically as to how you and me may have seen some changes over the last several months.

We we have seen no change from the EDLTL carriers at this point. They've had no impact on us. We have certainly something we watch but the other competitive issues that we face you know for the last year, year and a half, literally remains the same. We haven't seen any big changes there we've had from success in selling against them.

I'm sure they've had some success in selling against us but basically it's the same environment and we continue to sell and push our services and our reliability in the quality aspects of our services provided to our customers. And we don't spend a lot of time looking over our shoulder. We prefer to look ahead. We do competitive analysis all the time but don't spend a lot of time there.

Ok and also can you give us an update as to any new business that you may have signed since the end of June.

You know we used to do that I mean we really haven't time to do that anymore because again we're being listened to by a lot of people that we just do not know that.

All right thanks.

Thank you very much.

Your next question comes from . Please go ahead.

Good morning all. I wanted to ask first of all about . I always thought the fuel passed fuel surcharges was kind of a pasture thing that we wouldn't really see and revenue for a pound now you seem to think that we will see it. Is my am I doing something wrong.

No the yield has shown, pardon me, fuel surcharges shown net of expenses. So it's essentially a wash although there is a slight timing difference.

Right ok so so we really won't see an increase in year per pound judging from the fuel surcharge then as you showed on your statistical data.

That's correct.

But it also in September don't you think we can solve these four ways down turn helps stabilize pricing a little bit?

That could be a conclusion . I wouldn't argue that.

And in terms of building business - does it make any difference they were discounting pretty big to get business?

You know we as Forward Air did not call on customers. I think what it did do was to help our customers sell to the customers. I think and again this is just a that it probably helped firm our pricing. But you know we certainly can't scientifically conclude that.

Other revenues were down from the second quarter. The but warehousing revenues. Any comment on that?

They went from 3.6 million to 3.624 million so they were flat.

Should now we see growth?

you know again its revenue. It's terminal handling and it's you know the type of business that we add but as our customers need it.

And it also terms to be what I call step revenue and that is - you know those you will grow that revenue in as opposed to percentages so it we kind of deal with in you know just use UPS Air cargoes as an example. If we cut a deal with them next month to take on 20 more of there facilities and I'm not saying that's going to happen. That revenue will come in a big piece so that part of our revenue tends to move up in a step function as opposed to a more defined graph if you will.

OK. And Andy you gave us purchase transportation cost of logistics this quarter and last quarter a year ago. Do you have the same numbers for other quarters.

I do not in front of me right now. If you want to follow up afterwards ...

Ok. Will do. And the number of shares. You said you bought shares but this year outstanding I think was the same. The second quarter third quarter effect. I knew they went up. Do you have any - What's going on there?

. As I said we repurchased 366,000 shares as you do in a sort of weighted average calculation it takes that number down versus last year the primary shares have actually gone up and that's simply because due to the last nine months we've had exerciser stock options.

Right. Well what were the shares outstanding at the end of the quarter.

At the end of this quarter?

Yes.

The shares outstanding basic 21669 fully diluted 22084.

662159 basic right OK. And the other question was coats scored the situation which you answered in a national airline business is fairly helping a little bit. I guess that's it for me right now. Thank you. I do need statistics for the third quarter. they weren't sent to me.

We'll make sure they get sent out to you .

Thank you.

Our next Question comes from . Please go ahead.

Hey guys. I've one question for you. When you touched on the costs for logistics versus in the operations it seems to be a fairly large difference. I wanted to know how that translated into overall profitability for the different segments.

we don't track the over all profitability individual for logistics and the traditional airport to airport network we do track it on purchase transportation because you've got shared resources between the two on the salaries and wages line and you know it certainly makes sense that the purchase transportation costs on the logistics side which includes dedicated and truck load brokerage business would be higher as a percentage of the revenue.

In that case if you don't pass it out how are you measuring the success or failure of your investments in logistics versus the traditional line haul business.

Well David you know the way we look at it is it's an additional service that we offered to our customer and if the customer is grown between two certain points and there obviously not willing to pay rates when they have got truck loads freight we could either go and get that business or we could let someone else have it. We would rather have the business provide a service to our customer and keep him happy.

And we did in fact measure just so that we don't leave this cloudy we measure every single load that is hauled in our group in terms of how much was paid out in comparison to the revenue and we have a very strict goal there and we know if they are meeting that goal or not.

The portions they get a little bit cloudy on handling because we price that on a per pound basis and you know if your in our Chicago terminal your handling your also handling obviously all our business our airport to airport business and it is some what difficult to break that apart and put it in to a separate team now but we do have measurement that we look at like they have a pound to prevent our goal that they have to get and we know how much revenue we get off on the pounds that they handle so we can make very good measurements that either you know we know were doing well or were not doing well. Does that help.

Yes sure that helps a lot. So then I am guessing when you go to price the logistics versus the mine haul you have the core business those are the types of things that you are looking at.

That's exactly right and we think we have a very good history there and a very good practice there of been able to a sign the proper cost so that we can in fact bid or price a new piece of business that would give us a good return on our.

OK thanks very much .

Our next question comes from please go ahead.

Morning gentlemen.

Morning.

Bruce you said a number of times that you offer offer is a better place to work. I know everybody is concerned about general operators right now giving the struggle the last in finding new operators and quiet frankly the trouble are having. My understanding is a bit is that you one of the largest tangibles differences you offer that another operator is that you are basically giving him a pay rate that is competitive with a carrier who is required him to run a gypsy round to be away from home from extended periods where as you offered a particularly out back reigns which given better and more reliable home time.

I mean simply it is similar pay better quality of life. Am I correct in my understanding of why if you guys are if you ever would have problems finding other operators you would be the last ones to do so at the inner straight or is there some other tangible differences that I don't understand.

No your statement was exactly correct.

Right, thanks guys.

Thank you.

And once again if there are any questions please press star one on your touch-tone phones. And our next question comes from please go ahead.

Thanks I just wanted to see if I could get you guys to clarify something cause there seems to be some confusion you sort of addressed it, there's confusion in the market place about the service you offer versus LTL carriers and there appears to be some thought that it's a commodity service offering, there's even an LTL carrier doing a secondary offering right now saying that they're competing directly with you and they're going to take your business and so forth, can you just give us some examples of the types of service you offer that a typical LTL carrier would not offer, and what the differences are that really set your service levels apart.

First of all a LTL a typical LTL carrier can in fact do what we do, we don't argue that point. The question is or the real issue is that they don't and the way we measure service versus how they measure service and the way we run schedules, across the board, not just - we have dedicated lanes between Boston and Charlotte, we run every single lane to scheduled and dedicated. That's the difference.

But the huge difference the big difference is they will sell - an LTL carrier sells to the forwarder and they sell to the forwarders customer, so I used to be an LTL salesman and if we brought on business from a forwarder I can tell you I would walk out on the dock and look at where that business came from and do my best to steal it from them.

Now I can't believe that if these LTL carriers who think they can just walk in and do business like we do it that they're sales people won't be out there trying to take that business away from the forwarder and put it into their pipeline, perhaps not, but my guess tells me that a sales person is going to do their best to get revenue and they don't care where it comes from, including from another customer.

And the other thing that's critical to us is that we have the ability to do international business that we don't think most LTL carriers - and we're certainly not saying that they can't do it but we're set up to handle international, we're set up with customs firms ... in every single location, we're set up with CFSs in many locations and with CESs in many locations.

And then the last point that we would make with an emphasis on we, is airport locations, and while people talk about well the LTL carriers are close by or near the airports, you know I travel every week, I'm with our people and on in terminals every week, all our terminals are either on the airport or in the airport cargo community as we call it and I have yet in to see an LTL carrier there, I just haven't seen it so maybe there's something I'm missing in this thing, but I don't think so.

I appreciate your comments, it would be fair to say that demands placed on you for one of the effectively airfreight light service at a slower speed are different from the typical demands for other types of LTL freight.

Right.

Thank you.

Thank you

Our next question comes from please go ahead.

sort of quickly about this market size business, and there isn't any market size I mean it is it's not turning, it depends on, it depends on what situation is in a given month or year with regards to balance and forwarders. What their shippers want them to say or do with a freight etcetera.

I mean how can anybody say there's a market size.

I think you're right, you know one thing we struggle with is you know people attempting to define it. I think it's somewhat tradition bound and by that I mean you know five or ten years ago freight either moved on a truck, if it moved on a truck it was LPL or Truckload, it moved on an airplane, it was Pure Air Cargo, you know it moved on a boat, it was Pure Ocean or Barge Transport and today all of those lines have blended.

And I think what puts us all of that aside, what puts us in a good position and in turn our customers in a good position is the fact that their shippers, the buyers of transportation services are interested number one, in time definite or just in time. Whatever phrase you want to use to cover that type of business. That's what they're interested in.

They are not concerned with mode and they are not concerned with other issues that have come out of the past, so we think that the forwarders are in great position to grow that business, we think in turn we're in great position to take advantage of their growth and we think we offer the best network, the most efficient network and day in and day out, the most cost efficient alternative.

Thanks and on the issue of health insurance, was that a one time event or is that an increase in premiums or what sort of, what kind of cost was it in the third quarter?

You know David as our health advisers tell us every four of five years you get into shock cases, our premiums we're basically self insured, our premiums are almost non consequential, but we've had a shock year where we - I think we had three or four people on dialysis and just you know it was just a bad quarter and a bad year.

You know they had to pay for my hip replacement, so you know it's just not been a good year from a health standpoint. The experts tell us that occurs every four to five years.

OK. Thank you.

Sure.

And our next question comes from David Ross, please go ahead.

Good morning Gentlemen.

I just have a quick question on revenue growth going forward and how it's going to trend between logistics and in typical line haul in the network and where that would come from in the line haul?

Well we think that we're going to continue to see the good growth out of the logistics in the UV business and certainly help to continue the positive growth in the traditional airport, airport business over the next quarter.

Again as I described somewhat the type of services that we offer to our customer, we're going to you know look forward that revenue growth the 48 percent and you know that will depend a lot to the type of freight that our customers have.

So are you going to continue to try and grow logistics maybe 20 percent on year over year basis and you know line haul six percent, the economy continues to move side ways?

You know again I don't think we would comment on the break out either because to a large degree it depends on the type of freight that our customers have. We want to be responsive due to the freight that they are bringing to us.

Understandable, thank you.

Thank you.

Our next question comes from David Campbell, please go ahead.

On the line haul revenues, were there subsequential increases?

There were.

Every month or did August fall back from July?

I'm talking subsequential increases from the second to the third quarter.

Oh I know that, but you know on a monthly basis was there a downturn in August and a backup turns in

David I don't have those numbers sitting in front of me. If you want to call me afterwards we can go through that.

OK, thank you.

Thank you and there are no further questions at this time.

Thank you operator. If you would please announce the re-play information.

I would like to inform today's participants that a re-play of today's session will be available until November 13th at www.forwardair.com. Now I will turn back over to you for any concluding remarks.

Thank you very much everyone for joining us.

This concludes today's conference call please disconnect you're line and have a great day.