Forward Air Corp (Delaware) (FWRD) 2003 Q2 法說會逐字稿

Good morning and welcome to the Forward Air Corporation Second Quarter Earnings Release Conference Call for July 25th, 2003. Your host for today will be Vera Doherty (ph). Please go ahead.

Thank you, Monique. Good morning, everyone, and thank you for joining us. Before we begin, I'd like to point out that both our earnings release and this call are accessible on our Web site at www.forwardair.com. With me today are Bruce Campbell, President and COO and Andy Clark, CFO.

By now, you should have received our press release regarding second quarter 2003 results which was furnished to the SEC on Form 8-K and which crossed the wire yesterday after market close. Please 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 ended December 31, 2002 and Form 10-Q for the period ended March 31, 2003. Our actual results may vary materially from those discussed today, and we don't undertake any obligation to update these forward-looking statements. With that caveat, I'll now turn the call over to Bruce Campbell, President and COO.

Thank you, and thanks to each of you for joining our call this morning. We are quite pleased to announce second quarter earnings of 29 cents per share, a year-over-year increase of 21%, on revenue growth of 5%. We are most proud and grateful of the efforts of all our people for achieving these results. I would like to touch on some of the significant highlights of the quarter. First, in spite of a less than Rosae environment and continued gutter level pricing by some of our competitors, we will finally able to increase our yield and still grow our revenue. Our sales team took on this very difficult task, and were most successful in they're efforts.

Second highlight came from our operating group achieving a purchase transportation cost of 41.7% of revenue the best tin the history of the company. Again, just a great effort by our operating group. Now a few updates First, our FTV project in Dallas is officially up and running, and now has begun to produce revenue. We look forward to gaining returns from this investment in the future. Secondly, we continue to the expand and better our partnership with Kitty Hawk, a partnership we feel has been beneficial to both companies. I would be remiss not to touch base on our continuing success in the safety area. Our owner-operators are providing prompt, reliable service at the best safety levels we have experienced. We are most grateful for their contributions. And with that, I'll introduce Andrew Clark, our CFO.

Thank you, Bruce. And thank you all for joining us this morning. After I've concluded the financial review portion of the call, we'll turn it over to the operator for your questions. We continue to make positive strides as a result, as Bruce said, of all of our employees and independent contractors, and we are pleased to report these results. Going into the second half of the year, our focus remains the same, profitable growth and continued cost controls. For the last 12 months, our return on equity was nearly 19% and our pre-tax return on assets was 24%. In our space, these continue to be some of the best results.

In the second quarter, operating revenue increased 5% to $59.2 million. Traditional line haul revenue including fuel surcharge was $50.2 million, an increase of 4.7%. Average weekly line haul tonnage increased 9.9% to 24.2 million pounds versus last year, and average revenue per pound was up 3.8% versus last year. Logistics revenue decreased 2.6% to $4.7 million as the company made decisions to shed certain businesses that did not meet profit expectations. Other revenue increased 18.8% to $4.3 million, as a result of increased assessorial business, particularly our terminal handling.

For the second quarter, income from operations increased 17.6% to $10 million, and the company's operating margin expanded by 180 basis points to 16.9%. As Bruce said, purchase transportation cost decreased 160 basis points to 41.7% of operating revenue. Purchase transportation for the airport-to-airport network was 40.5% of revenue, which is down from 42.4% last year. The result was driven by loading trailers more efficiently and use are more owner/operators, as our average owner/operator increased from 460 last year to 483 this year.

Purchase transportation for the logistics business was 70.3% of revenue versus 62.3% last year. While this figure is up year-over-year, we did see an improvement sequentially from the first quarter of 2003. Salaries, wages and benefits were up 100 basis points versus last year, but down 20 basis points sequentially from the first quarter. Increase in salaries and wages including incentives as well as increases in health care and worker's compensation costs are the primary drivers of the year-over-year increase.

Operating leases increased by 30 basis points to 5.6%. We did, however, experience over $100,000 in exit relocation cost in the quarter that are not ongoing. Depreciation and amortization decreased by 30 basis points to 3%. Insurance and claims decreased 40 basis points to 2.2% of revenue. As Bruce stated earlier, our focus on safety has paid off, and we continue to see positive improvements in the dollar amounts of our claims experience.

Finally, other operating expenses decreased 80 basis points to 7.9%. Decreases in communications expense as well as decreases in bad debt expense were the primary drivers. Some other statistics for the second quarter, total assets grew to $157.9 million. The company's cash and total investments position grew during the quarter to $66.8 million. The company did not repurchase any other shares of its common stock during the quarter. Accounts receivables were at $27.8 million for the quarter and AR days were at 43. Allowance for doubtful accounts was $1.2 million. Our entire team has worked hard to make sure that we collect these receivables, and these figures reflect those efforts.

The company ended the quarter with operating terminals in 80 cities. Our outlook for the third quarter, the company expects revenue to grow between 4 and 8% versus last year and fully diluted earnings per share to be between 26 and 30 cents per share. These estimates depend on a number of variables, many of which are outside the company's control.

With that, I conclude the financial review portion of the call. Again, on behalf of all the forward air employees, thank you for joining us this morning and I now turn it back to the operator for your questions.

We will now begin the question and answer session. To place yourself into the question queue, please press "*1" on your touch-tone phone. If you are using a speakerphone, please pick up your handset and then press "*1." To withdraw your request, press "*2." Please go ahead if you have any questions. Your first question comes from John Barnes from Deutsche Banc. Please go ahead.

Good morning, guys. Congratulations on the quarter, Bruce, can you give us an idea, I mean, pricing during the quarter was up nicely, and we've certainly seen it among the other asset-intensive ground operators. Do you see this continuing, especially in the face of continued gutter-level pricing, as you put it?

Well, you know, we made up our minds a few quarters back that we were going to increase the yields irrespective of what the others did, John, which was a big challenge for our salespeople. I mean, they've been through some difficult times. They had walk away from business, but the overall result was just outstanding, so we will continue that push as we go forward

Ok. On the purchase transportation side, especially on the line haul business, and Andy, if you could just give me the logistics purchase transportation cost as well because I'm slow, just bear with me, but is the purchase transportation sustainable at this level or as the economy gets a little bit better, will that number slide back up on you a little bit?

We hope that as we go forward, we're able to, at worst, maintain it and hopefully improve it. We'd like to think that we have leverage in that area, and as business returns to more normal levels, we're able to take advantage of that cost. Now, one thing that can push that upwards, John, is if we were to expand greatly our brokered truckload business, because as in any truckload business, your PT is a higher cost component than in what we consider to be LTL business. But on the pure airport-to-airport side of the business, we hope to be able to at least maintain and improve it as we go forward.

Ok. And Andy, on the logistics PT again

The logistics PT was 70.3% of logistics revenue.

Versus a year ago?

62.3.

Thank you and then Bruce, last question for you. It's been a while since you guys have engaged in any type of acquisition. Is there anything out there that looks attractive these days or is it just -- are you just focused on running the business and waiting for things to turn?

Well, we're focused on the business obviously and don't want to lose that edge, but we continue to -- and without speculative. We continue to look at acquisitions. You know, maybe it's best said that some of the evaluations, which a year and two years ago were what we considered to be somewhat unrealistic now appear to be coming a little bit more realistic. So, you know, perhaps that opportunity is going to open up again, but again, that's speculative at this point.

Ok. Guys, thanks for your time.

Thank you.

Your next question comes from Ed Wolfe from Bear Stearns. Please go ahead.

Hey, Bruce. Hey, Andy.

Morning, Ed.

Can you talk a little bit about the revenue slowdown, you know, deceleration year-over-year? Obviously you're focusing on the cost side and getting the product right, but you mention in your press release that you walked away from a logistics customer. Can you give a little more flavor on that and what you're generally - I mean, has that stabilized now or could we see more margin improvement and slower revenue growth without the economy as you do more on this kind of thing?

We think we've got it stabilized now, Ed. It was base basically a strategic move that as a group, we made the decision a few quarters back that we just weren't going to handle business to handle it. And there is pressure, downward pressure in this industry as there are in many industries today on yield and pricing, and we just made the decision that we just simply were not going to handle business for the sake of handling it. That was somewhat of a -- you know, a tough moment for all of our -- where all of our companies go through in shedding some of this business, but on the other hand, it has positioned us, we think, today in the very best position Forward Air can be in and has us positioned even more so into the future to go actively chasing some new business that will leave us in even better shape than we are today and would have been had we not made this change.

Was it one logistics customer or is it a bunch of them in line haul and logistics, and how big was the mean customer you referred to?

It kind of covered the gamut, if you will. There were a few of the larger customers, and then there were also lanes within certain customer segments where we maintained part of the business but gave up part of the business. So it was a little bit across the spectrum, Ed.

Ok. How much of the 3.8% improvement that we see in yields after being down for six quarters in a row, how much of that is because you put in a rate increase across the board and how much of it is calling out bad business and just a change in the mix?

We did not do an across the board rate increase. What we did do is basically go after what we called underperforms business, either by lane or by company, dependent upon the situation. So we haven't taken a rate increase in quite a while, an across the board increase, and this is simply what we call fine-tuning. And in a few cases, we went to the customer and on a customer-specific basis got a rate increase.

What percentage would you say of your customers have you gone through at this point, and what's left to do?

We have not gone through that many. We are mainly focusing on getting rid of the underperforming business as opposed to doing rate increases with the majority of our customers. I don't think you're going to see us pursue that much further in terms of trying to get rate increases, because where we are today, assuming we can maintain that, we're pleased and we're going to get aggressive on the sales side now.

U.S. express talked about a 5% rate increase in their business in September. Have you heard anything about that in the market or are you seeing their behavior any different?

We aren't seeing any behavior change there. If they put the 5% rate increase across the board in September, God bless them, I'll be the most shocked person here.

Ok. In terms of your customers, are you seeing anything that might make you think that the economy is improving or decelerating or certain parts of the economy or geography are changing?

We see areas of really good activity, and then we see other areas that it doesn't appear there's a whole lot of positive moves there. I guess the most positive thing we see today, Ed, which we had not seen for quite a while, is that even though revenue levels aren't indicative of an economy recovering, what we do see and hear from our customers is activity, you know, the bid processes and everybody going through all that. That's positive, and I have not seen that for quite a while.

And which -- manufacturing or retail, or can you get a sense from your customers or their customer of what's seeing more strength or morbid process or is it too far away?

It's too far away. Again, we don't always get to see the actual commodities, so we'd be pretty hesitant to comment on that.

How about your customers, is there a difference between the international forwarders or domestic forwarders or the airlines international or domestic that you're seeing more or less strength from?

That's all over the board too. Our two large partners, KLM and British, appear to be doing very well, and they're showing revenue growth and other positive attributes that certainly we enjoy, but yet we see other airlines who obviously are struggling, so I'm not sure you can draw a conclusion from that. Maybe the conclusion is that the well-run airlines are doing okay and the ones who aren't very well run franchises are not doing well.

And finally, Andy, can you give us a cash flow breakdown, what was cash flow from operations and net CAPEX in the quarter?

Sure. Cash flow from operations for the six months June 30th this year was $14.5 million. Last year six-month, $12.1 million. CAPEX for the first six months of this year, $2 million. CAPEX for the last -- for the six months last year, $2.6 million.

And is there any change in your 03 and do you have a 04 kind of guidance yet for CAPEX?

There's been no change to our 03 estimate, and we do not have a 04 guidance yet.

So for 03, is the number kind of 10 or 15? Is that the -- or am I way too high on that in

On CAPEX?

Yeah.

No, it's about 5 million.

Ok. We're just way conservative in our model. Ok. Thank you.

Thank you.

Thanks, Bruce.

Your next question comes from John Larkin from Legg Mason. Please go ahead.

Yes, good morning, gentlemen, and outstanding performance in the quarter.

Thank you.

Looks like you're doing a great job of ferreting out the marginal accounts, but that is sort of putting the lid on growth at least temporarily. Is there anything that you're doing with respect to new marketing initiatives to maybe put a little sizzle back into the volume growth?

Actually, John, I think your assessment is correct. I think what's important is that we're through that now or basically through it, and we're working very hard to do, as you say, put sizzle back into it, and most of that, we're at this stage, as I'm sure all our competitors are listening, we're not real comfortable with releasing that information. But you're exactly on target.

Ok. Thank you very much.

Thanks, John.

Your next question comes from David Mack from CSFB. Please go ahead.

Good morning, guys. Could you go into a little more detail on some of the newer growth? initiatives like the free trade zone?

Well, the free trade zone is basically what's known as a general purpose zone, and it allows, you know, any importer or broker to tender to us the traffic in the warehouse and for a period of time, avoid paying duty until that product is actually confined to its end user, assuming that end user is in the U.S. If the end user is actually in another foreign country, then there is no duty at all. So there are big advantages, and there are other things, David, that it does, there are big advantages to the shipper and (inaudible) properly use the FTZ.

And what kind of costs and other risks do you guys take on when you open up a free trade zone?

Well, you know, the risks associated with that are fairly limited. Obviously, we have a lease on the building, and we have to staff it, but beyond that, there is no huge risk that's associated. We do have to obviously comply with all the customs regulations. We do have people who are expert in that area, and we can comply.

This might have been answered already, but in terms of weeding out some of your lesser performing customers, how far are you through that process? Do you have more customers that you're targeting to go back to and say, you know, we need some rate increases or do you think you're pretty much done there?

No, we're comfortable as we sit here today, David, that we're done with that, although it's a continual process of review, but we're out now actively on the aggressive side of growing the company.

And how much you have been finding the market for either brokered capacity or more of your dedicated trucks within the line haul business?

We continue to have an adequate supply of owner-operators. I would echo what I said earlier in earlier conferences, that the owner/operator market is still a little bit tough, but we're able to find them so we're fortunate in that area and find very good ones, I might add. On the brokered transportation side, pretty much depends on what area of the country you're in. In some areas, it's not hard to find trucks. In other areas, you have to work a little bit harder, but still not an issue.

Just one more question on the customer base. In terms of incentives for your sales force, have you changed your strategy at all? Are they being paid the same way? You know, it does sound like you guys had a little bit of a shift to focus on the more profitable accounts. How is that affecting the sales force?

Well, with the beginning of the second quarter, we implemented a new incentive program, and we think based after the growth of the results for the second quarter that it was very effective. It's individual terminal-based, so a terminal, if they go out and achieve the growth that we want out of them and the profit contributions that we want out of them, they make their incentives, and in the second quarter, we had terminals that did exactly that. We also had some that didn't, who had their eyes opened when they saw their sister terminals making incentive money. So we think it's a good program. It's based on both growth in profit contribution and we think people have an opportunity to make money and we hope they did.

Ok. Thanks a lot, guys.

Thank you.

Your next question comes from Alex Brand from BB&T Capital Markets. Please go ahead.

Thank you. I'll just follow up on that last question for starters. The jump year-over-year, although sequentially not really changed but in terms of salaries as a percentage, was that driven at all by the incentive program, so should we view that as potentially a positive?

Yeah, that's certainly one-way to look at it, Alex. There were basically four components that drove that cost. One was work comp, we had a bad accident, and as a result, took the hit on that. Secondly, we had health insurance costs that we think we have under control now, but you know, that's an ongoing issue, but again, we think we can control it going into the future. Then we had what we called investment spending in some of our salaried people, which would not only include the incentive amounts of money that were paid out, which we were happy to pay, but we also did some investing in national account sales and in our IT group, which we think will pay us big dividends in the future. And then candidly, the fourth part was in the salary level where we got a little bit sloppy, and I can assure you we are dealing with that and dealing with it quickly.

Ok. So that was part of my next question was going to be, do you feel like you have invested enough in a sales staff so that you spend a lot of time focusing on yield and obviously you've proven a lot of people wrong on sort of what you can do in a difficult pricing environment, but now you need to ramp your tonnage growth back up and your own line items. Do you have the staff levels you think you need to do that?

Yeah, we think we're perfectly positioned. We think we have a great group of people, both national account wise and on the local terminals, which are extremely important, and we think we have them positioned to take us to the next level now.

Has part of the incentive plan been particularly at the local level that your people have had some choice about how to grow their business, whether it was pricing or tonnage, or was the focus driven by you guys at the top to focus on the pricing component now and now the focus is going to shift?

Well, the focus doesn't shift basically for them, and by that, here's what I mean. They have to achieve both revenue growth and they have to achieve their terminal -- what we call terminal contribution probably better said in the rest of the world, terminal profit. If you go out and you sell business that gets your terminal revenue growth, yet it is very poorly priced, it will not be profitable obviously, and as a result, you won't get paid incentive. So what we've got is a program where we have everyone involved, both the sales and operating groups, so that the business set that is sold hopefully is operated at a profit and everybody makes money, if that makes sense.

Yeah, I think so. I mean, I think that's what I'm trying to get at, is when we look at the sustainability of how you've built this model and the margins that you're now getting, it sounds like it's not so much that you guys are making decisions about what the focuses are. You've more or less set up, for lack of a better analogy, an expediter's like model where you're letting your people decide how to get to the end result that is going to drive the company's profitability?

We are basically running 80 businesses. That's exactly right.

And the other thing I want to ask about is sort of the trends in the quarter, particularly in June, I'd be curious if there was anything in terms of other than seasonal trends that went on during the quarter.

Any month that is the quarter-end month, we expect a lot out of. You know, we didn't see a huge June but we didn't see a bad June either. I'm not sure if any conclusions can be drawn from that. You know, it was just -- it was ok in terms of previous years' comparisons is how I would put it. Obviously busier at the end of the month, when everybody's pushing to achieve their quarter-end results.

Ok. Great. Thanks, guys.

Thank you.

Your next question comes from David Campbell from Thompson Davis. Please go ahead.

Hi. Good morning. A lot of my questions have been answered, but in the Kitty Hawk agreement, was there any impact on revenues in the quarter?

Yeah. We did business with them, but as we have not disclosed in the past, we're not going to break out any particular customer as far as their impact on our business.

And it was in line haul revenues or some of the other too?

We do truck brokerage for them, which shows up n the logistics line, and we also do consolidations for them, which shows up in other.

Ok. And the free trade zone, when did the revenues for that start?

This week, we're happy to say.

Ok. So there weren't any costs for it in the quarter either?

Oh, yeah, we had cost because, David, you have to get your people in place, you know, the lease obviously is in place, so there were definitely costs associated with it in the quarter.

Uh-huh. Ok. And that will be in accessorial revenues?

Yes.

In the Other expenses, the major reductions were bad debt expense and communications. Was the bad debt expense down from the previous quarter or just down year to year?

Down year-over-year.

Ok.

And the allowance was down versus the first quarter. Went from 1.3 to 1.2. The receivables number is also down over a million from the end of the year and greater than that from the first quarter. And so we've really focused the effort on managing those accounts and collecting the money.

Right, but as to whether it goes down again or not, you really can't predict?

Well, you can't predict it, David, but what's interesting is some of the business we've shed, one of the things we looked at was our receivables history with them, and it's amazing how all of that correlated. You know, they had low yield, they treated you like a dog, and oh, by the way, they pay you whenever they felt like paying you, which typically was 60- some days. So there were a lot of benefits from getting out from underneath that business, and AR was one of the areas that it really helped us.

Yeah. And when you say you've gotten rid of the -- or you've weeded out the low-yield business, now you're ready to be more aggressive on sales, you mean the focus of the company is shifting

Correct.

But in general, before this downturn started in 2001, the company was able to grow, you know, rapidly, without focus particularly. It just grew. And I take it that's the marketplace. I mean, the marketplace isn't helping you, is that correct?

Well, the marketplace isn't helping, and I'd probably take a little bit of exception that the company just kind of grew because we worked awfully hard, but I any understand your point. You know, we would love to see the marketplace take off again and grow again, and we're sure it's going to. It's just when, and we're not going to wait for that. We've got a good team and we're going to push the sales side of it and get it growing again.

Can you say who the bad guys are that are discounting a lot? I mean, I thought when consolidated freight ways went away that we lost a lot of that discounting not only from them but from competitors, but now you're starting to talk about it again. Are they other trucking companies, are they other airlines? Who's doing it?

Well, it's something that we have never quit talking about because it continues to go on in the industry. You know, I'm not going to get into names, but, you know, it's what I call irrational pricing and irrational strategic direction, so, you know, hopefully it goes away, I hope they wake up and quit doing it, but we're certainly not going to build our company around that.

Right. But it's mostly other trucking companies, not airlines doing it, or can't you even be that specific?

I'd prefer not to, David, if that's ok.

That's fine. So you feel like the 4% to 8% revenue growth forecast -- or not forecast but plan for the third quarter is inclusive of some success in this new sales effort?

Sure.

Or is it just based on the current level of business?

Based on everything, David, 4% to 8% for the quarter.

Ok. Well, it's a pretty wide range, so I guess that gives you some leverage there. Ok. Thanks a lot.

Thank you.

Your next question comes from Gregory Burns from J.P. Morgan Stanley. Please go ahead.

Hi, guys. Bruce, I'm wondering how you would characterize the customer base on the airlines side or the forwarder side. Is one outperforming the other, is profitability varying differently? There's certainly been a lot of terminal on the airlines side. Where are you more optimistic or where do you see more growth out of those two customer bases?

You know, it's really across the board, Greg, and I think it really points back to regardless of if it's a forwarder or an airline, it's dependent upon how well they're run, and, you know, we have some excellent and see some excellent airline results and we also see some very poor, and the same is true on the forwarder side, just some outstanding efforts by some of the forwarders, and then some very poor efforts. So we've had a difficult time saying, you know, one segment is better than the other.

And in terms of actual growth, was it balanced this quarter or, you know, are they basically in the here and now, are they performing from a growth perspective comparable?

I would say that's probably a fair statement.

And just still on this issue, at some point the airlines, one would think, would have to sharply reduce capacity, although certainly they're taking their time in doing so. Would you view that as a positive or really having no impact on your business?

We think it's going to be a positive. You know, Greg, again, you have to go back to the structure, The way it will help us is they will keep their big planes on their international routes, keep their smaller planes, even their regional jets, on their domestic routes. They have to have a way to feed those international flights with cargo when it doesn't fit on a regional jet or even a smaller series of jets. And, you know, we think we're the perfect complement for that. So we think as, you know, history goes on, we will see some positives come out of that.

Okay. And then Andy, just on two line items, on the depreciation, you know, you're sort of benefiting from both worlds, it seems like. You're getting more efficient on purchase transportation and yet depreciation is also coming down. Was there a -- usually they move inversely. Were there any gains or any changes in, you know, residual values or anything like that in the depreciation numbers?

No. What that essentially was is we had some assets that came off of depreciation. We continued to, with our CAPEX trailing below where it was last year, you know, that number is down.

And on the insurance and claims, obviously part of that line is insurance premium and part of that line would be claims, and, you know, everything we hear, you know, from people is that the insurance premium side seems to be still going through the roof. I'm just curious, is that correct, is there an insurance premium in that line and then essentially what I'm hearing would be that the dropping claims is more than offsetting. I assume that your premiums are going up. Can you just tell me what the breakdown is there?

Yeah. We just removed at the beginning of the quarter, April 1, our insurance policy for the next year, and we did see increases in that plan, but because of the focus on safety, which has been in effect for over the last two quarters, that we really have decreased the number of claims, but also the amounts for those claims. And typically in a quarter, depending on what your claims experience is, the premium portion represents 60 plus or minus percent of that number. It can be higher and it can be lower. Our retention is half a million dollars, so while the focus is always on safety, if anything does happen, that does tend to add variability to that line item.

So the premium was up, was it up sort of 20% or 10%? What was the ballpark increase that

It was actually up, you know, less than 10% on, you know, sort of the first couple layers of coverage, but once you get up into the higher layers of excess coverage, that's where everyone took their increases.

Is there any change in how you layered the per occurrence liability? It sounds like 500,000, beyond that per occurrence are you off the hook or do you share that in some ratio?

No. We take it up to a half million dollars, and we've had that in effect since April of 2002.

Ok. Good. And then just on the sustainability, obviously it sounds like the insurance companies agree with your safety record that's a below seems like a much lower increase. Do you think you can sustain -- I mean, there's a lot of volatility sometimes to those numbers? Can you sustain what you saw in the quarter, and should we sort of model that ratio going forward?

Well, led by Loretta Miller, our VP of safety, we have really worked hard in this area, and I knock on wood every time I say that. We think we can maintain it. We think we have a great core of drivers. We have higher standards for our owner/operators than most companies do, and we just think we have a great group of men and women driving for us, and we're comfortable going forward.

And then Bruce, just one final sort of strategic question. Your return on capital and ROE is among the highest in the group, and I assume it's significantly higher than these gutter-level competitors that you're facing, and then my question would be, why not just drive them out of business? I mean, why not live with a 15% ROE, which is still respectable, and destroy them? In other words, could the market be saying essentially that you're making too much money and, therefore, if you want to grow faster, you've got to do so with lower returns and lower prices?

You can certainly make that argument. We have always, for the 13 years I've been here, prided ourselves in making money, and not being like all the others as I tell our people, we are the (inaudible) leaders. We just have never taken that approach. We may look at certain lanes and get aggressive in certain lanes and you may see us do that in the future, but I doubt if you would ever see us across the board do it, although it's tempting. I mean, we've got a lot of cash, we've got great returns, and there are times when you see irrational acts that you just think, you know, that's enough, we ought to stop on them, but we don't. We prefer to be professional Gregory Burns: I guess if you asked me, if you said to me you could grow at, you know, 12% with margins, 200 basis points less, I'd sort of say, why not? You'd be growing much faster and you'd still be highly profitable.

That is certainly an argument that can be made.

Ok. Thanks a lot. Thank you.

Your next question comes from Jon Lagenfeld from Robert W. Baird.

Good morning.

Good morning.

Little bit more on the quarterly incentive plan. Can you give us some idea just roughly the breadth of the terminals that receive some sort of incentive compensation in the quarter?

No, we don't break that out.

Ok. And then secondly, moving on to more of the additional services, things like Kitty Hawk and like the free trade zone, is it safe to say that there are other ideas like those that are in the incubation phase, and if so, how long before we'd be able to see some of those formally introduced and contributing?

We continue to work, John, you know, to come up with different ideas like that. We have some in process as we speak, and we'll roll them out when we think most appropriate, but obviously, you know, we like the airport-to-airport line haul business, we think that's a great business. We also think the most important thing we can do is leverage our network. And that's exactly where we're headed.

So would you say there is -- you know, when you look at kind of the priority of the company, is there equal vigor being put into those type of incubation phases as is the sales process in the core business?

I would agree with that.

All right. Good. And then just curious, I guess it kind of relates to the free trade zone and then just in general with your international -- with international movement of goods. The custom brokerage, the customs clearance side, you don't do that, do you? Do you partner with excel?

That's correct.

And does that relate primarily to the free trade zone or in other areas?

That's primarily just the free trade zone.

Ok. And why don't you clear your own?

There are some issues that we weren't prepared to set up initially, and so it was just much more convenient to do it this way and more cost-effective for both us and Excel. Now I can tell you in Columbus, Ohio, we do clear -- we have our own customs group there, and we clear into and out of Canada from there, so there are some cities, John, where we do that.

I see. Ok. And maybe over time, that's something you do?

That's something we'd certainly look at, yes.

All right. And then lastly, can you give us an idea, Andy, the contribution of fuel to the revenue line in the quarter?

We do include fuel on the top, and on the line haul side, it represented about -- of the yield improvement -- just about half of that. Half of the yield improvement on the line haul?

Ok. Good. Thank you very much. Good job on the quarter.

Thank you.

Once again, to place yourself into the question queue, please press "*1" on your touch-tone phone. Your next question comes from Art Hatfield. Please state your company.

Morgan Keegan. Morning, guys. Great quarter. Bruce, just one quick question, and I'm sure I'm beating a dead horse on this one, but with regards to the top line, you talked a lot about calling the customers out, the low-yielding customers, and you did a great job of getting your pricing up in the quarter, but in the last several calls, you've talked about comfortably saying that over the long haul, you can grow revenue 10 to 15% in a good environment. Does that change at all with this focus on yield at this point in time?

Not at all, Art. We stand by our statement that says we think during good times, we can grow this company 10 to 15%, and, you know, we're comfortable we can get back there quickly.

And you can do that now just with new marketing initiatives, or how much help do you need from the economy?

We would like to have a strong economy, but obviously being hopefully prudent business people, we're not going to wait for that. We're going to push very hard. It was important for us, Art, to before we really started pushing all the different areas, was to make sure that the current revenue base that we had in place really at the beginning of the year was worth building on, and had the yield that would reward us and our shareholders the way we want it to. And some of it was - a lot of it was and a small portion of it wasn't. So we felt it was important to clean it out and start all over -- not start all over, that's not properly said, but put us in a really solid revenue base, good customers, people we really want to serve, and push that from this point on, and that's exactly what we're going to do

Great. Thanks, guys.

Thank you.

Once again, to place yourself into the question queue, please press "*1" on your touch-tone phone. There aren't any questions at this time, sir.

Thank you. I guess we'll conclude the call now. I'd like to remind everyone that a replay of this call is available on our Web site at www.forwardair.com, and, again, thank you for joining us.

This concludes today's conference call. Please disconnect your lines and have a nice day.