Forward Air Corp (Delaware) (FWRD) 2004 Q3 法說會逐字稿

Good morning, my name is Tamara, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the third quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS.)

Ms. Lera Doherty, you may begin your conference.

Good morning, everything, 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 website at www.forwardair.com.

With me today are Bruce Campbell, our President and CEO; and Andrew Clarke, our CFO.

By now you should have received our press release regarding third quarter 2004 results, which has been furnished to the SEC on Form 8-K, and which crossed the wire last night.

You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the Company's expected future financial performance. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in our filings with the Securities and Exchange Commission and in the press release related to this quarter's earnings. And, consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

With that caveat, I'll now turn the call over to Bruce Campbell, our President and CEO.

Thank you, Lera, and good morning. We are pleased you have joined our third quarter earnings call. Our Forward Air team of both valued employees and independent contractors worked very hard during the third quarter to deliver not only another quarter of double-digit revenue growth, but also earnings growth exceeding 40 percent on a year-over-year basis -- truly an outstanding basis.

While there were a number of extraordinary achievements in the quarter, I'd like to highlight two. First, as the quarter began to unwind and we were experiencing some double-digit growth, it became a key issue to grow our independent contractor fleet. Under the direction of Chris Ruble, but just as importantly with the efforts of the entire Forward Air team, we were able to grow our fleet by over 50 power units in the toughest recruiting environment I can recall. We had continued this growth into the fourth quarter, which has solidly positioned us for both today and into the future -- truly an outstanding effort.

Finally, we were recognized for the sixth consecutive quarter -- or year -- by Forbes as one of the best 200 small companies in America, one of only 11 companies to achieve this honor six consecutive years. A tip of the hat to the Forward Air team for this achievement.

And now Andrew Clarke, our CFO.

Thank you, Bruce, and thank you all for joining us this morning. After I've concluded my remarks we will turn it back to the operator for your questions.

Let me add my thanks as well to all of our employees for their effort in producing record revenue, operating earnings, operating margins and net income during the third quarter of 2004. We hope you'll agree with us that these results were impressive, and continue to demonstrate the significant leverage of our business model. We expect to continue this trend by keeping our focus where it has always been, giving our customers what they need -- reliable, cost-effective, damage-free, time-definitive transportation.

In the third quarter, total operating revenue increased 18.8 percent to $71.9 million. Everyone at Forward Air is excited about the positive top-line momentum we have developed over the last five quarters.

Traditional line-haul revenue grew 18.4 percent to $60.8 million. Average weekly line-haul tonnage showed strong growth during the quarter, growing 17.4 percent to 29.4 million pounds versus last year. Each shipping season has begun in earnest, as volumes showed nice trends throughout the quarter. Average revenue per pound, including the impact of fuel surcharge was up .9 percent versus last year. The growth in this figure on a year-over-year basis is significant as the Company's average shipment size increased over the quarter by over 9 percent, and is now over 800 pounds.

Logistics revenue increased 27.8 percent to $6.1 million; and other revenue increased 13.9 percent to $5 million. On a year-over-year basis, income from operations increased 38 percent to $13.8 million, and the Company's operating margin expanded by 260 basis points to a third quarter record of 19.2 percent.

Again, we hope you'll agree that we have significant leverage for an asset-light company.

Purchase transportation costs increased 30 basis points to 42.5 percent of operating revenue. Purchase transportation to the airport-to-airport network decreased 50 basis points to 40.7 percent of airport-to-airport revenue, versus 41.2 percent last year.

During the quarter, we averaged 524 owner-operator trucks versus 473 last year, and 501 in the second quarter of this year. Increased demand for our airport-to-airport services forced the Company to rely more on non-owner-operator power during the quarter than last year. Additionally, we have increased the amount paid on a per-mile basis to our owner-operators. Despite these issues, the Company was still able to produce better results in the airport-to-airport network, as improved yields and better load factors mitigated this increase.

Purchase transportation as a percent of revenue for the logistics business increased 400 basis points to 73.5 percent versus 69.5 percent last year. In addition to higher prices in the spot market for non-owner-operator power, we also increased the amount paid per mile for these owner-operators.

Salaries, wages and benefits were down 50 basis points versus last year to 21.7 percent of revenue. Although the dollar amount spent in this area rose year over year as a result in increases in wages and incentives, the Company produced more revenue during the period to mitigate the increase.

Productivity remains high at the terminal level, and with over 20 percent of our shipments booked electronically through Fast Book and EDI, we have been successful in adding tonnage without significantly increasing office costs.

In terms of leverage, the next three P&L items combined produce 220 basis points of operating margin expansion during the quarter. Operating leases decreased 80 basis points to 4.6 percent of revenue on essentially flat year-over-year costs. Depreciation and amortization decreased 70 basis points to 2.4 percent of revenue, again on slightly decreased costs year over year.

After last quarter's challenges in insurance and claims, we are pleased to report markedly improved results. On a year-over-year basis, this line item decreased 70 basis points to 1.8 percent of revenue. Both our insurance and claims expense were down during the quarter.

And finally, the other operating expenses decreased 20 basis points versus last year to 7.8 percent.

The Company's fully diluted earnings per share for the third quarter 2004 increased 41.4 percent to 41 cents versus last year. Our tax rate during the quarter was 36.1 percent versus last year's 37.5 percent as a result of a tax credit.

Other relevant information for the period includes total assets grew to $201.3 million. The Company's cash and total investments position grew during the quarter to $104.3 million, an increase of $17.8 million since the beginning of the year. The Company repurchased 167,700 shares of its common stock during the quarter at an average price of $37.42 per share. And the total debt position stands at $914,000.

Since the beginning of the year, we have repurchased 227,400 shares for approximately $8.1 million. Accounts receivable were $37.8 million; allowance for downfall accounts decreased from the beginning of the year to $1 million. So while the number in the receivables is actually higher, the quality of those receivables is greater.

Operating cash flow for the first nine months of 2004 was $26.7 million versus $23.9 million last year. Net capital expenditures were $5 million for the first three quarters, versus $2.5 million for the same period last year.

During the quarter our average trailer account increased to $1,384 versus $1,228 last year.

The Company ended the quarter with operating terminals in 80 cities, which is slack year over year.

For our outlook for the 2004 fourth quarter, the Company expects revenue to grow between 17 and 21 percent versus last year, and fully diluted earnings per share to be between 42 and 46 cents per share. These estimates depend on a number of variables, many of which are outside the Company's control.

During the fourth quarter of last year, the Company's income for fully diluted share was 35 cents, which included 2 cents per share in positive insurance liability development and a 34.3 percent tax rate. We expect our tax rate to be 37.5 percent for this year's fourth quarter.

That concludes the financial review portion of the call. On behalf of all Forward Air employees and independent contractors, thank you for your interest in Forward Air, and I will now turn it back to the operator for your questions.

(OPERATOR INSTRUCTIONS.)

Alex Brand, Brand Capital Markets.

I guess you partially answered my question, and indeed my first question with your guidance, but I'll ask it anyway. It looks like you had a real mismatch between adding capacity which was a stated goal from last quarter's call and the volume that came on. Can you just talk about I guess just sort of the effect of buying capacity on the quarter's results versus your increased rate per mile that you're paying, at least in some order of magnitude the greater impact there so that we can sort of see? The rate per mile stays in there, but is that a big impact, or is it just a mismatch of timing? And your Q4 guidance looks pretty strong.

I would say, Alex, that the impact does come from relying on more non-owner-operator power, and that has a lot to do with obviously the demand and where that demand comes from. So even though we increased the rate that we pay to the owner-operators by 3 cents, the greatest impact does come from using non-owner-operator power. And you know I don't think our comments are going to reflect anything different than what you would hear from the truckload guys in terms of prices have continued to go up throughout the year.

Okay, but, and forgive me I heard a little bit late on some of Bruce's comments, but did you quantify sort of how many drivers you added versus the 50 that was your goal stated on the last conference call? And do you have enough now? Are we sort of prepared to fully leverage that now for a little while going forward?

We ended the quarter -- the average throughout the quarter was 524. We ended the quarter with 550. So we're comfortable with where we are right now. Obviously flow issues are important to us, in terms of where we get the demand and making sure we have owner-operators in those areas to run those loads.

Okay, and in terms of -- I think you said in your comments, Andy, that you like the progression of the quarter, and I think you were referring to sort of the demand progression. Has anything changed? I mean, if it got stronger through the quarter, do you feel pretty good about what you've seen so far in October? And again your guidance indicates that you do. But is the strength continuing? And was it across the board? Is that what gives you confidence that it can continue going forward? Or is there some other driver?

No, I mean, I think obviously with our fourth quarter guidance of 17 to 21 percent we are confident in our ability to execute on that plan. You know, as it relates to actually what we saw during the third quarter, you know, September did really start to show a lot of positive strength the further we got into the month. July was good, August was good. There was probably a week or a week and a half, sort of just a brief slowdown -- and what I mean by slowdown, I don't mean it went negative, it's just that the growth rate wasn't as high. And then September picked back up.

Okay. And just one more question. At this point anyway it looks like you have at least one downgrade. The stock is going to be weak today. You were a buyer of your stock in the high 30s, and you have even more cash now. Can we assume that the Company continues to have interest at some level in repurchasing shares with all that cash?

You know, as we've always discussed during the conference call, we will discuss what we repurchased during the particular quarter. It's not our position right here to say where and when we're going to buy it, other than if you look back we have traditionally bought our stock.

Ed Wolfe, Bear Stearns.

Hey, Andy, could you just educate me a little bit about the driver model? The owner-operators as I understand it are up about 12 or 13 percent. But you said that you're growing the non-owner-operator or the I guess the brokerage piece? Is that what I heard you say?

No, actually what happens, Ed, is we run a network every night, and we fill that -- we barely try to fill that with owner-operator power. Occasionally, and particularly on the weekends, we run into a situation where the demand exceeds that owner-operator base. So we go to the outside, meaning non-owner-operator power, to fulfill that. So it's not as if we're actively growing that non-owner-operator base. It's just something that we rely on when demand outstrips our owner-operator availability.

And what do those people that you rely look like? Are those local guys that have their own trucks, or is it the same people that you use time over time? I'm assuming they're not driving a Forward trailer.

In certain cases -- in a limited number of cases they are, but for the most part they're pulling their own trailer. You'll see them predominantly off of the West Coast in more longer-haul situations. We use companies like CFI, we use companies like Warner -- you know, some of the names that you do recognize, as well as some of the names that you might not recognize in more regional markets.

But it's truckload guys though?

Truckloads, right. Where they're -- there in fact we have the demand in the airport-to-airport network, and our capacity on any particular day may not meet that demand, so we'll go and we'll broker that load.

Okay. Hey, Bruce, it's hard to find fault, but I'm going to try to be nit-picky, if I can.

Be -- (indiscernible) -- otherwise.

The overall margin, which is spectacular, the OR of 80.8, was up a little bit sequentially from second quarter. And I'm guessing some of that was you've been holding the owner-operator fleet fairly flat all year; now it's up 12 percent or so. Is that a fair assessment of why that purchased transportation as a percent of revenues is up a little bit?

That's exactly right, Ed. We probably held off adding to our fleet probably a month late, and that's -- you know, if you want to point a finger, you can point it at me. We think we have recovered from that, and we're in a great position as we sit here today.

Okay, I mean when you look at the guidance you need for the fourth quarter, does that, within it assumes the purchased transportation is more or less flat year over year?

No, I think in terms of our guidance, Ed, you know, we are going to manage that on a real-time basis. So we've made a number of assumptions in there as it relates to both PT and every other cost item in that. So --

So you're not going to tell me?

We're very happy with where we have our fleet today.

Okay, fair enough. In terms of the tonnage, you saw some acceleration where most of the transportation companies were seeing -- have seen tonnage growth either flatten or decelerate even a little bit. Do you think some of that is market share gains? Is it maybe that you're in a little bit of a different business than most of the truckload and LTL carriers? And it seems like from your guidance you're expecting that to continue to accelerate a little bit.

I think the answer to all of that is yes.

How fast can you grow this business internally right now? I mean, what -- if everything continues going well with the economy and so forth, can you grow 20 percent sustained internally?

You know, again, based on your caveat, the economy is good and you know the winds are in the right direction, yes.

When you look out to '05 in terms of terminals and CapEx generally, do you expect that you're going to need to expand anything?

The only terminal additions we might consider would be almost what we would consider a satellite terminal. An example would be in Los Angeles we might open an Orange County facility. As far as adding any new, truly new geography to the system, that probably isn't going to happen. We basically have the network where we want it today.

Okay. And then the last thing is in terms of pricing, it would appear that net of fuel pricing is down a bit. With demand as strong as it is, I'm a little bit surprised that pricing isn't a little bit firmer. Can you talk to that a bit?

Actually, Ed, pricing -- fuel didn't have a material impact in terms of the year over year, because the fuel surcharge was in both quarters from where we were. So it really wasn't -- didn't have as material an impact on a year-over-year basis.

But even at 0.9 percent revenue pounds per week, that's not tremendous --

Yeah, but I think what's also important is that our average shipment size is up over 9 percent. And so if you think about our pricing, which is distance- and weight-based, an average shipment size of up 9 percent, and now it's over 800 pounds, that's pretty significant for our system.

So there's mixed issues is what you're saying?

Correct, meaning, you know, if you're getting a bigger shipment, so the price break that you get for a 500-pound shipment on a price-per-pound basis is going to be higher than you would if you tender to us a 1,000-pound shipment.

Is there any way to get out and kind of take a look at pricing, and if you could break that out where you thought it would be, mix adjusted and directionally where you see it heading?

You know, as you stated earlier, Ed, this is a good environment not only for us but for most carriers. You know, we constantly evaluate that. We have pricing people that are looking at how our flows change. We are more concerned with flow change than we are with, say, general rate increases. And by that I mean if we have a very heavy lane from Atlanta to Miami, we probably would look harder at increasing that particular lane as opposed to doing a general rate increase. And the overall impact of that tends to be positive. But it also -- you know, there are a few occasions when it's to our benefit to lower a rate. So you know overall the pricing environment is very good.

When you talk about lane-by-lane, and sometimes it being worthwhile not to raise your rate, I'm guessing that if all the competitors were in line, the best scenario would be everybody raises their rate in every lane obviously. But I mean where is that competition coming from? Is it a lot of regional little guys? Or is it some of the guys that are getting a little bit bigger that compete against you? Where do you see it when you see it in a particular lane?

You know, it's basically across the board. It can be a regional, it can be someone else. It can be, in some cases, although this is starting to disappear, where a truckload carrier will put together three 5,000-pound shipments and run it, although again, to be redundant, that part of the business has really gone away. So it's competition from a little bit of everywhere.

Okay, then one last question. Do you expect in '05 you're going to have to give the owner-operators another couple pennies? It seems like we're in this area where driver pay keeps going up every couple of quarters.

You know, we had gone 13 years without giving a pay rate increase. So the one we gave them was most deserved. And we will evaluate next year. You know, we have that concern that you do. But right now our people are in really good shape. We think we have them on the best fuel surcharge reimbursement program in the industry. So, you know, we think we have them really well positioned. But that's an ongoing process. We'll review that again next year and see where we are.

Jon Langenfeld, Robert W. Baird.

Nice solid quarter. I know you don't necessarily look at the business this way, but just from the standpoint of incremental margins, it looks like over the last couple of years you've been at a 30-percent-plus type incremental margin, which is higher than what you've historically done. Do you think that level is sustainable? Is there anything when you look out in the business and say, you know, each dollar of revenue coming in is going to be less profitable or more profitable than what it is today? Could you provide color on that? Andy, I know you love incremental dollar conversations, but --

I found one in my wallet yesterday.

Just a quick response from my side, Jon, and that is we, number one, don't believe in incremental, as Andrew used to say. And, number two, it depends on the lane. You know, so it would be nice to sit here and say, you know, if we add $1 million in any particular operating period that X amount of it was incremental. You know, part of it is incremental, but again it depends on where it came from, meaning if it's in a head haul lane it's not as incremental as if it's in a back-haul lane.

But, you know, to provide the color, obviously yield, improving yield and then improving pricing, assuming you don't have any other increase in those costs, does provide that incremental boost. And what we've been able to do in terms of our pricing has helped us in terms of our margins.

And is the -- I'm assuming weight per shipment, that density also helps tremendously. Do you see the weight per shipment here leveling off? It accelerated from the second quarter, I know, but what would be kind of your outlook there?

It still is right just above 800 pounds, and that's where we've seen it for over the last two months.

Any thoughts on if that holds there based on your history with the Company? Is that higher than it's ever been? Or maybe some context there would be helpful.

Very high number, Jon. It's not unusual to see us in the third and fourth quarter for that average shipment size to increase, and then see it retract a bit going into the first and second quarter, similar to our revenue trends.

And then on the logistics side, obviously having great success there, is anything different that you're doing there, either in the logistics or the other category, that's worth mentioning?

You know, we basically -- I think you're familiar with this -- a year and a half ago had to go back and retrench that area. You know, we put in a new different operating group. They've been led by Cliff Byrd (sp), so they've done a great job, and it's an area that we think for the future will be very beneficial to us. But primarily putting the right people in the right systems, good selling from our sales group, and putting all that together to make it work.

No additional services that are helping contribute to that business?

No, it's basically what we've always done. That is an area we're looking at very hard as we go into 2005. But you know as far as the numbers you see today, that's what it has been.

Okay, and then finally on the acquisition front, do you get the sense that expectations out there from sellers are reasonable? Are they becoming inflated in terms of what they are asking for with their businesses?

I would respond to that by saying it's a little bit across the board, although it appears there is a little bit more reasonableness going on.

Okay, very good, thanks a lot, and nice quarter.

Thank you very much.

David Campbell, Thompson Davis.

Yes, thanks a lot. Bruce, do you have any comments on the Kitty Hawk business, the Free Trade Zone business and any new international contracts you may have won?

The Kitty Hawk business continues as in the past, to very -- you know, we think it's a great relationship and a very good piece of business for us, and we enjoy having it. The FTZ hopefully will be where we need it this month in terms of profitability. So we'll be happy if that occurs, and then see what we do from there.

And what was your last question again?

Any new international relationships with or new contracts with international airlines?

Nothing to -- nothing that I'd want to put on this conference call.

Okay, thanks. So the Free Trade Zone hasn't gotten enough density to be profitable? Was that your --

That's a fair conclusion, although they have made great strides.

Okay, and it's just that one? It's just Dallas, right, that you're doing this?

It's a small part of our overall picture.

Right. Isn't the growth of international air freight a big reason for some of the acceleration in your freight carries?

You know, I'd like to be able to absolutely tell you that's correct. Here's the issue that we get into if pilot air freight gives us a shipment. We don't always know if it's had prior or subsequent international movement. I think your conclusion is a fair one, David. I think that is indeed driving part of what's going on here, but we cannot answer that absolutely.

Yeah, I know, you never have been able to tell between the domestic and international, because that's not your job to tell that, right? It's the floor's job.

The other thing I wanted to ask you was the owner-operators, are you still looking for more in the fourth quarter? I think you said you're probably satisfied with your position at this point.

We like where we are today. I mean, our people have just done a truly great job there. But as business expands -- and it's expanding -- we continue -- we put on eight owner-operators last week. So we are certainly not quitting. You know, I would like to say at some point -- no, I wouldn't -- I'd like to always be behind in that curve, because that means we're growing.

There's a seasonal slowdown in the first quarter, so you have to kind of measure that, don't you?

You know your point is very valid, but you have to remember that we outsource a number of loads also. So if the business slows down a little bit we have the ability to lessen our outside carrier usage and give that freight to one of our people.

It's a great flexible model. Thanks for the help.

John Larkin, Legg Mason.

A couple of quick questions here. First of all, on the Kitty Hawk business that you're doing at the terminals, have we lapped the one-year anniversary of that?

We have.

Okay, second, on the insurance and claims area where it looks like you had an excellent quarter, can you remind us what your sale pretention is, whether you plan to change that in your future, and when your next policy renegotiation might be taking place, and what your feel for the insurance market is currently?

Our retention jumps -- this is Andy -- our retention is a half a million dollars on the auto liability side. Our renewal period is at the end of the first quarter, April 1. And in terms of -- you know, we're just getting into that market right now, so I think it's too early until we start seeing feedback from some of the brokers that are out there in terms of whether or not we would expand that self-insurance from or contract that self-insurance retention of a half a million dollars.

I could tell you the last year that we looked at it, which was April of this year, it did not make sense for us to move it either way, because to take it up didn't necessarily dramatically decrease the insurance amount over that, and then to take it down to $250,000 costs too much. So --

Okay. Well, thank you on that one. Also shifting gears to pricing again, I realize your average shipment size was up pretty dramatically. Was there any change in other mixed variables, like length of haul or rate class? Do you have a rate class concept like the LTL carriers have?

We do not, John. The only thing we do is have declared values, which in a sense you could equate that to classification, but in general we do not have a classification.

Is there a higher price in declared value per pound?

Yes.

Okay, thank you. And also I know you've been trying to branch out into expedited LTL, and I guess overlap between expedited LTL and deferred air freight is becoming a pretty large and blurred area. But I was wondering if you felt like in what you're currently thinking of in terms of expedited LTL is growing faster than deferred freight, deferred air freight that is, and whether you see that as a potentially larger, faster growing market? And lastly whether there's a separate pricing structure for that.

I'll answer the last question first. There is not. And we do in fact think that's a larger, faster growing market, and probably has helped feed where we are today, John.

And you're offering that service to virtually any LTL who may want to offer expedited --

Correct. We do business with some of the LTL carriers.

Any sense for what percent of the business that you're currently handling might be characterized as expedited LTL?

No, I really don't, because I don't think we can do that, because again it's, as you said so well, is to blur the area, and we're not always aware of, you know, this is expedited or -- I mean, if yellow, expedited, gives us an expedited shipment, we know that. But other, if a forwarder gives us one, we do not.

Just one last clean-up. With CRST getting out of the business and handing over their volume to U.S. Express, has that pretty much done away with what you used to refer to as better level pricing? Is pricing a little more firm out there in the marketplace?

I think it was a step in the right direction, and basically we've been of the ilk recently -- probably for the last year -- we're just not going to get into pricing. We're going to price where we think we need to price. And if somebody else wants to do it cheaper and get in the gutter, so be it.

That's very helpful. Thanks very much. Good quarter, guys.

Brandon Clark, J.P. Morgan.

I wanted to ask you guys about the increase owner-operator pay, I guess you said it was about 3 cents. Does that make a big difference in terms of recruiting the new owner-operators in this quarter? Or did you have to pay any kind of special signing bonuses to get them?

No, we have never paid signing bonuses. I think it obviously helped our cause in terms of adding owner-operators, but we have never paid a signing bonus.

Okay. And I guess you know you mentioned adding eight new owner-operators in the last week. Do you have a final end of, you know kind of where you are right now, in terms of owner-operator count?

We're at about 565 owner-operators.

Okay. And you mentioned you were talking about opening a satellite office in Orange County, and I just wanted to maybe get a sense for, you know, are you tighter in terms of capacity coming out of California, maybe give us a sense geographically of how demand was during the quarter, and it may be some of the port congestion incrementally helped you a little bit.

I'm not sure we could ascribe it to that. The issue has always been the West Coast is a very heavy area for us, and the reason we would consider doing a satellite in that area of the world is that a lot of the businesses move there, including our Forward Air customers. So it would only make sense that we would follow them and match up with them.

Geographically, we are experiencing growth across the board though, so it's pretty vibrant everywhere.

(OPERATOR INSTRUCTIONS.) Donald Broughton, A.E. Edwards.

Incrementals 17-plus percent and pounds of line haul, that's fabulous. Talk to us about how you convert what is surge into the base and how you transition it to purchased transportation, because I know you've successfully done that when you've got busy and grown this fast. Historically the question is how long does it take you to move purchased transportation down. I understand that function. I understand how it happens as you go out and pay more for the spot market. The question is, you know, is it realistic to expect you to bring that line back down, because sequentially where we saw them was 200 basis points for the surge.

Donald, you know the answer is it depends on the area. In some areas we can convert it very quickly. In other areas it just takes longer. And that's driven primarily by are we balanced or do we have a good flow into and out of that particular area. You know, we have worked very hard over the last two months to increase the fleet, to make that transition very quick, or as quick as we could. We think we have basically positioned the Company to do what you describe, and we'll wait and see. But we're comfortable with where we are today.

And I kind of feel like pricing has been beaten a bit. But I've asked a couple of times, but I'm going to try and ask it one more time in a different way. Do we see an acceleration for the quarter, and we're not seeing a stronger pricing number here because we're looking at an average number? Can you give us some more color on what you saw sequentially through the quarter?

Donald, this is Andy. Pricing has essentially been the same throughout the quarter. If you look at what we did in the first quarter of this year, is actually when we went out and took selective rate increases, and we have not done rate increases throughout the year. It's an event that occurs primarily at the beginning of the year for us. But if you look at again the pricing in the overall yield, which is an average, the average yield increase on a year-over-year basis being up just shy of 1 percent I think is a good number in light of the fact, again, that our average shipment size was as heavy as it was throughout the quarter on a year-over-year basis. The pricing hasn't changed in terms of the average yield throughout the year. If you go back and map it it really hasn't changed throughout the year, and obviously the percentage growth on a year-over-year basis.

So what I hear you saying is that there's some mix that's offsetting some of the absolute price gains?

That is correct.

Fair enough. I'll let someone else ask a question.

Matt Gardner, Credit Suisse.

Just a follow-up on the owner-operator issue. Bruce, you kind of said you are comfortable where you are right now. But I'm just curious as you head into '05 and if demand remains strong is there going to be a need for another push to go out and recruit another 50 or so owner-operators like you did this quarter? You know, when I look at the revenue guidance, you bumped it up a little bit for the fourth quarter as you've added the 50 new owner-operators. And what I'm really trying to get at is this, if demand remains stronger, and you go out and add another bunch of owner-operators, is this a business that you can grow the top line at 20-plus percent? Is it a 20 percent top line growth that you think you can do?

Well, I think the answer -- let me answer about the owner-operators first, and that is we added the 50, and actually more than that, to our fleet. That gives us the base that we really felt comfortable with, and a base that we can now grow on a weekly sequential basis of 5, 10 owner-operators, whatever our demand requires at the time. So hopefully we will never have to go through a big push again, and you'll just see us sequentially adding owner-operators as revenue increases.

You know, how much can revenue grow? You know, I wish I could answer that. I think it can grow a lot. We're in a great environment as we sit here today. We're grateful for that. But, as you know, the world changes. So we think we're positioned to go and handle any amount of increase in revenue.

Were you capacity-constrained in the quarter?

Constrained only from the standpoint that, you know, we had utilized all our owner-operators, and that forced us to go to outside more than we cared to. So if that's a constraint, yes. But we have never in the history of this Company not moved a load of freight.

Okay. And then, Andy, can you just give me the share repurchase number again for the quarter?

Yes. It was 167,700 shares.

At this time there are no further questions. Are there any closing remarks?

Thank you all for joining us this morning, and I'll now turn it back over to the operator to give you replay information on today's call.

Thank you. Today's conference will be available for replay at www.forwardair.com. Again, today's conference will be available for replay at www.forwardair.com.

This concludes today's conference call. You may now disconnect.