Forward Air Corp (Delaware) (FWRD) 2005 Q4 法說會逐字稿

Welcome to the Forward Air Corporation fourth quarter and fiscal year 2005 earnings conference call. [OPERATOR INSTRUCTIONS] You may also access the webcast at www.forwardair.com. I would now like to turn the presentation over to your host, Lera Doherty. You may proceed.

Thank you. Good morning and thank you for joining us. Before we start I'd like to point out that both our press release and this call are accessible on our website at www.forwardair.com. With us this morning are our President and CEO Bruce Campbell, and our Chief Financial Officer, Andrew Clarke. By now you should have received our press release announcing fourth quarter and fiscal 2005 results which we furnished to the SEC on Form 8-K and across the wire yesterday after market close.

Please 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 issued yesterday, and consequently actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. And now with that caveat, I will turn the call over to Bruce Campbell.

Good morning and thank you for joining us this morning. While our fourth quarter was very challenging, it was in very many ways very rewarding. We were very pleased with our core airport-to-airport business achieving 19% revenue growth while maintaining our yield. Most importantly, we were able to convert this revenue growth to the income line, finishing the quarter with an operating margin of 22.3%, a record for the Company. On the negative side, we lost a major company within our logistics group which hurt their results. The nature of this complementary line of business is to have both gains and losses, and while we don't ever like to lose a customer, it's a natural part of the process. Our people are working hard to not only replace this business, but to grow it.

As we enter 2006 we're encouraged by our progress to date within our core business and by our three key initiatives for the year. First is our terminal automation program commonly referred to as TAP. Our initial success has been so great that we're expediting the implementation of this very critical initiative. Our second and third initiatives entering the international forwarder segment of the market and the pickup and delivery market represent good opportunities for us to expand our service offerings for our customers while continuing our growth. Before I conclude, a special thanks to our Forward Air team to helping us achieve these results. And now I will turn it over to Andrew Clarke, our CFO, for the financial review portion of the call.

Thank you, Bruce, and thank you all for joining us this morning. After I've concluded my remarks we will open the line for your questions. As Bruce mentioned we are pleased to report both record revenue and earnings results for the fourth quarter of 2005. It is the 14th quarter in a row of increased revenue and the 15th consecutive quarter of increased earnings per share. In the fourth quarter operating revenue increased 14.8%, to $89.1 million.

As mentioned, we operated essentially two less days in the quarter versus the same quarter last year, and as a result, revenue per operating day increased nearly 19%. Traditional line haul revenue was 78.2 million, an increase of 19.1%. Average weekly line haul tonnage increased 11.1% to 34.6 million pounds versus last year. Average revenue per pound including the impact of fuel surcharge was up 8.9% versus last year. As we've discussed in previous calls our March 2005 rate increase, along with the additional long haul business generated from the XGS acquisition certainly helped drive yields higher. Logistics revenue decreased 11.1% to $6.1 million, other revenue decreased 5.4% to $4.9 million.

On a year-over-year basis, and excluding the 1.3 million charge for the fourth quarter acceleration of options, income from operations increased 27.1% to a record $19.9 million. And more importantly, the Company's operating margin expanded by 210 basis points to 22.3%, an all-time record for the Company. Purchase transportation costs increased 10 basis points to 42.6% of operating revenue. Purchase transportation for the airport to airport network was 41.3% of revenue this year versus 40.7% last year. While we were able to achieve higher yields on freight and have more owner operators versus last year our load averages were slightly worse than last year and we relied more heavily on nonowner-operator power as the imbalance of freight off the West Coast continued. The average owner-operator count increased to 587 this year from 559 the previous year. Purchase transportation in the logistics business was essentially flat at 71% of revenue this year versus 70.7% last year.

Salaries, wages, and benefits, excluding the $1.3 million noncash charge related to the accelerated options, decreased 270 basis points versus last year to 19.6%. The primary driver of this change as a percent of revenue was the decrease in salaries and wages including incentives last year. This decrease was offset somewhat by increases in Workers' Compensation expenses. Operating leases decreased 20 basis points to 3.7% of operating revenue on slightly more dollars spent. Depreciation and amortization increased to 2.6% of operating revenue. The primary driver of this increase is the amortization expense associated with the XGS acquisition.

Insurance and claims increased 40 basis points to 1.5% of revenue versus last year. In both 2004 and 2005, the Company engaged an independent valuation expert to perform an actuarial analysis of our reserve amount for incurred but not reported liabilities. Due to our recent positive experience in this area we were able to decrease our reserve during the second and fourth quarter of 2005. During 2004, the adjustment to the actuarial study was taken entirely in the fourth quarter. Finally, other operating expenses decreased 20 basis points to 7.6% of operating revenue for last year.

Some of the other statistics for the quarter, total assets decreased slightly to $213.1 from $214.6 million at the end of last year. The Company's cash and total investments position at the end of the quarter was $79.3 million. This year the Company spent $12.8 million on the XGS acquisition, approximately $20 million on capital expenditures, 7.8 million on dividends, and $52.3 million for purchasing a total of 1.7 million shares of our company's stock. Over the last 12 months the Company's average return on pretax assets -- pardon me, the pretax return on assets and equity rose to 33% and 25% respectively. Net accounts receivables were $45.8 million for the quarter, and allowance for doubtful accounts was slightly less than $1 million, reflecting the high quality of our receivables. Operating cash flow for the year was approximately $43.5 million. The Company ended the quarter with operating terminals in 81 cities, which is an increase of 1 versus last year. As we've discussed previously we began an agent operation in Harrisburg, Pennsylvania, during June of this year.

For the first quarter of 2006 the Company expects revenue to grow between 15 and 19% versus last year and fully diluted earnings per share to be between $0.32 and $0.36 per share. These estimates depend on a number of variables, many of which are outside the Company's control. During the first quarter of last year the Company's net income per share was $0.27. Additionally, the Board declared and voted to increase the dividends that we pay our common shareholders from $0.06 per share to $0.07 per share on a quarterly basis, an increase of approximately 17%. That concludes the financial review portion of this call. On behalf of all Forward Air employees and independent contractors, thank you for joining us this morning, and I will now turn it back to the operator for your questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] And your first question comes from the line of Edward Wolfe of Bear Stearns.

Couple different things. Can you talk a little bit about the strategy with logistics and other? I remember historically we were talking about those becoming a bigger part of the revenue, all of a sudden line haul the last couple of quarters is becoming a bigger part of the mix. Can you talk to how you see this playing out going forward and what's going on at logistics and on the other side and maybe if diversification into other business lines are something that needs to happen over time for growth?

That's a good point you make. The logistics business by its nature, Ed, as we talked about earlier, you have bigger customers which means that at any given time you can have a substantial loss. Not that we like it, but it does occur and it did occur to us. We continue to push that area and will going into 2006 perhaps harder than we have in the past, but I think what's real important is that during the second half of the year, with the XGS acquisition, we really had to focus more and more people, including some out of this area, into our operation, our normal airport-to-airport operation, which, in retrospect probably hurt us a little bit on the logistics side, but it was the right decision to make. We're now back going full steam in rebuilding that business and are comfortable that we'll get there.

When you talk about losing a customer, I wasn't aware of that. Can you talk about the customer that you lost, how large they were?

We don't get into those details, but most of the customers within the logistics group are larger than, our forwarder or our normal Forward Air type business. Again, you run -- I'm a hoosier, I'm a basketball junky. When you shoot three-point shots and they go in you're happy, and when they don't go in you're unhappy. So as a result that's very common to what occurs in this side of the business.

When we look at logistics revenue 24, 25 million for the '04 and '05 kind of flat, how should we think about it in '06? Is flat the way to think about or is it going to start to grow again?

I think it is going to be flat initially because we have got to overcome the loss but hopefully by midyear we've got it on a growth pattern. Again, our actual EUV business, which rolls up, which is basically truckload brokerage is doing well. We've just got to replace the lost customer.

With XGS, are you feeling confident at this point that the revenue is sticking and what you have is what you'll keep?

Yes, Ed, we're real comfortable with that. Our people did a great job with converting that and overall it's been a very positive experience for us.

Okay. When I look at your depreciation and amortization, it looks like you went from 2.8 million on an absolute basis in third quarter, down to 2.3 million. Were there some write-down of equipment or something that I'm missing here?

No, you recall in the third quarter that was on the turn-in of trailers. So we did accelerate the depreciation on the trailers that were being turned in. And that returned to more of a normal figure. There was still some of that in the fourth quarter, but it was less than what occurred in the third quarter of 2005.

What was the amount that was accelerated in third quarter, if you have it?

I can get that to you.

Just one bigger picture. Bruce, when you look out at the landscape, are there any decent-size acquisitions in your core business out there over the next couple of years? Should we expect more acquisitions or should we start thinking in terms of maybe deploying the cash to other ancillary businesses? How should we think about forward three to five years from now?

I think the quick answer is yes to all of those. We continue to look at opportunities within our core business, and that's an ongoing process. We're probably more focused now on doing what we call fleshing out the model, and that is going after -- if we can find the right piece of business, to expand into the pick up and delivery. If we can't find it you'll probably see us start building that internally. So we obviously at all times are looking for acquisition opportunities with the cash that we have on board. We'll continue that. But as we sit here today we're certainly not in position to comment beyond that.

Going into the P&D doesn't concern you about competing with your customers? You don't see that as a risk?

Actually, they ask us to do it, Ed. It's part of providing the complete service to them. We had a customer advisory council meeting back in August of last year, and that was one of the key takeaways from the meeting. So it's really in response to what they would like.

At that point do you consider taking on retail customers?

We would never take on retail customers as long as our focus is on our forwarder base and what they do. That's what they do, and we want to do all the support.

Thanks a lot for the time. I appreciate it.

Thanks, Ed.

Your next question comes from the line of Alex Brand of Stephens.

Thanks. Good morning, guys. Ed was just asking about some things I wanted to know about, and I may have missed an answer here, but on PU&D I hear you saying your customers want this, but you've always avoided it largely because that was viewed as something that would be a lot less profitable than your line haul. Can you talk about how that fits in to sort of your big picture strategic view, and is it something you only do if it links in more volume to your core line haul business?

Alex, it's Andy. We've done a lot of work, and there's still obviously more work to do in terms of managing the PU&D process. We don't anticipate going out and acquiring assets to provide a door to door solution, but what customers are looking for is that door to door visibility and the door to door control. Right now we've got great control and great visibility on the airport to airport. We're looking to extend that beyond the airport to airport to provide not only the pickup but also on the delivery side if the customer so chooses it, they can have any number of choices that they can select from for services. But the answer is we would only do it if it included a line haul move. So if they wanted us to pick up, do the line haul, and then tender to them at our destination terminal, we would do that, and vice versa, we would allow the tender at our terminal and then do the line haul as well as the delivery to the ultimate consummate. What customers are looking for is that visibility of the entire shipment process. And they're looking to in turn sell one price and one solution to their customers.

So if I understand what you're saying, Andy, this -- you're obviously continue to be focused on the profitability aspect, but it sounds like you want to do more business with the international forwarders, and in order to sort of fully take advantage of that sort of gateway opportunity, you need to do more from sort of the gateway or the airport to your terminal or vice versa?

That is correct.

Okay.

That's one aspect, to serve the international forwarder, but also as well the domestic forwarders. Right now they can use any number of pickup and delivery agents across the United States, and the one that they use in Atlanta may be different than the one they use in Jacksonville which may be different than the one they use in Los Angeles, so they've got to really try to pipe in all those different -- with all those different companies to get the visibility. What we're analyzing and what we're sort of envisioning is that door to door solution controlling the pickup, controlling the pricing, then obviously providing that level of information.

Okay. Now, and, Bruce, in your commentary you said TAP was going so well that you were expediting implementation. Can you just refresh us on what the time frame was and sort of what's the accelerated expectation now?

Well, the time frame was we wanted to spend an entire year to have it installed in each of our facilities, or better said, the majority of our facilities. There will be a few that don't get it. We implemented in the second week of January our Columbus hub which was obviously a huge undertaking. It's our largest facility, it has the most transaction, it puts the most stress on the system, et cetera. That went so well, there were really just a few minor difficulties during the implementation process that we felt comfortable accelerating our program and having it hopefully finished by midyear. So our goal now is to be done by July 1, with the initial rollout phase -- there will be a few additional modules that we will continue throughout the year, but the key is to have it in place in each of our facilities by midyear. We think we can do that.

And what we're finding there is we're able to provide more timely and more accurate information at a reduced cost to our customers.

Okay. And just, my final question, can you just clarify in your -- you talked about that some of the challenges in your logistics revenue. Can you just clarify for us in the other revenue line items, the challenges are in, what, truckload brokerage but freight handling continues to go well, or is that not right?

In the logistics and the other revenue, the customer Bruce mentioned, we were both -- we were doing truckload brokerage which showed up in logistics, and we were also doing terminal handling, which showed up in other. And so to further -- to Bruce's point, when you get into a very busy fourth quarter where average weekly line haul pounds are at 34.6 million pounds, everyone's really busy at that time, and they're not doing terminal handling, quite frankly because they're focused on moving the airport to airport product. And as a result, that contributed to that, as well as a loss of a customer in that area.

Okay. Thanks a lot, guys.

Thank you.

And your next question comes from the line of Ken Hoexter of Merrill Lynch.

You mentioned SG&A was flat but that you had decreased some incentives. Can you talk about why your incentives were down so dramatically and what impact that has had on your sales force?

Well, they were down, candidly, because we didn't hit the objectives that we had forecast internally, as you might expect, and so we all, including the group sitting around this table, have to pay the price of not doing that. Does it affect our people? I'm sure they're not happy about it. I'm not overjoyed about it. But on the other hand, that's the purpose of the program.

So it wasn't a change in the structure, it was just that you missed the targets for the quarter.

Our internal targets, yes.

So it highlights how variable the costs can rebound with the volumes.

Exactly right.

Can you talk a bit about that? What was the flow of volumes through the quarter? Was this something that was missed kind of consistently through the quarter on the targets or did this kind of happen toward the end? Was Christmas a little bit weaker than expected?

October and November were good. December actually was good, and we consulted with our customers and essentially decided -- made the decision to shut down the network going into Christmas and going into New Year's, and as a result, that shifted a little of the freight from what would traditionally have been in December out into January. Now, some of that we actually lost because some of the freight, in fact, had to move, but we did see -- we did see some of the spillover, if you will, into January.

And what was behind the decision to shut down?

It was essentially a customer -- a combination of customers coming back and telling you what they expect their volumes to be and what they expect the sensitivity of their freight to be, and if it doesn't have to go on the 31, and can go the following Tuesday, because people were taking off that Friday, you're not going to run the network for a few customers that has to move the freight when the majority of them tell you we're just going to hold shipments and move them on the following Tuesday.

Andy, I know you don't normally comment on the forecast. Can you talk a bit about how January looked then? Did you see it rebound pretty solidly because of some of that held over volume in the new year?

Well, I mean, our forecast of 15 to 19% growth for the first quarter certainly captures what we were seeing in January what we were seeing in February, and the bogey is, of course, March, and how that's going to work out. We are taking a 3% general rate increase for 2006. That will be effective March 1. But similar to last year, we hold our rate increases and obviously volume then becomes a fluctuation point.

Ken, not to over emphasize the point, but any carryover into the quarter was basically one day. So it's not -- it had an impact -- in retrospect should we have shut down the network? Who knows. We think we did the right thing, but without question it had an impact on us. That, in some ways, we regret, but we move on, and we're happy with where we are today.

Very helpful. Thanks, Bruce, thanks Andy.

Your next question comes from the line of Art Hatfield of Morgan Keegan.

Most of my questions have been answered. But just one thing if you could. If you could touch a little bit more on the imbalances you talked about, Andy, in the network and what you're doing to resolve, I guess what you would feel would be any concerns about the amount of volume you're seeing off the West Coast and how you can adjust that so you can improve the purchase transportation line.

Yes. We're never unhappy, I guess, to see volume, and to see volume off the West Coast is good. What we've been trying to do is find freight that gets us more in balance. So freight coming from the Midwest to the East Coast that gets our owner-operators out to the West Coast because if we were to deadhead, for example, run those owner-operators empty, that's 2,000 miles or 2,200 miles from Columbus to L.A. and Columbus to San Francisco, and you would have no revenue on those trucks. And so as a result, we're forced to broker -- we're forced to go to the outside, the owner-operator pool to have trucks deliver that freight into Columbus or to the East Coast. But it's always difficult to find freight that's leaving on Tuesday that you can get into Los Angeles or anywhere else on the West Coast for Friday. Everyone wants to ship on Thursday and Friday, both from the east and the west. And so that is one of the focuses of the logistics group. But again you've got to find the right customers that take you out there. Otherwise, you're simply paying deadhead miles, which doesn't help us.

Was that one of the issues in the quarter, then, the loss of this large logistics customer? Were they providing you with that freight to the West Coast?

Not necessarily, no. We may have gotten a few out there, but it was more of a dedicated network that we were running.

Okay. So it's a function of just finding the freight more from a brokerage standpoint?

Yes. And one where we can consistently put owner-operators on that route. Again, if it's not consistent, we've got to have consistency in bringing owner-operators from the Midwest out to Los Angeles, so they land there on Thursday and Friday that we can then load them with our freight coming off the West Coast to get them back East. If it's not consistent, we either end up deadheading them somewhere, or we end up not running them, and they're going to -- owner-operators are not going to continue to stay with a company where they can't get miles.

Right. Just one last thing on this then. Is it more of a hit or miss thing, or do you feel confident over time that you'll be able to fill up that volume running to the West Coast so you don't -- I call it an issue, but so you don't have to deal with this going forward?

Art, it's Bruce. I don't think that issue will ever go away as long as Asian imports are what they are today. But nevertheless, with the Express Global acquisition last year it probably exacerbated this issue for us, and we weren't quite in as good a shape as we needed to be, and that is a huge initiative for us and for our logistics team to get fixed -- we have to fix that problem in the next two or three months so that we're ready when the peak season comes in the fall. I can assure you there are a lot of efforts to do that.

That's helpful, Bruce. Thanks.

And your next question comes from the line of David Campbell of Thompson, Davis & Company.

Yes, good morning. What about Kitty Hawk's expansion and Atlanta and other wet places doing their own less than truckload brokerage? Is that having any impact? And not to -- I want to speak positively about this. We have not noticed a major impact, but we don't dwell on our competitors, David. I think we've talked about this in the past. Our job is to go out, increase our revenue, provide the best service possible to our customers and not worry about the competitive issues. Okay. And with respect to the pickup and delivery service, is that likely to -- will we see very much of an impact on purchase transportation costs? Or is this going to be very small and gradual?

Could you repeat that question?

The pickup and delivery costs, will we see any impact on purchase transportation costs? Is that likely to increase the purchase transportation ratio, or is it more of a slow and gradual thing?

It will be more slow and gradual.

Okay. And tax rate for this year, do you have any estimate for that?

Approximately 37 to 37.2%. That fluctuates based on the amount of tax free investment income that we generate as well as any resolution of open tax years.

Great. When you've announced the decision to expense -- accelerate divesting of the options, you said it would cost about $1 million in the fourth quarter, and save 8.6 million over the next three years. Is this still going to save 8.6 million over the next three years?

When we did that calculation, it was based on the -- essentially the price at the time we announced the press release. The ultimate charge was determined by the price at the end of the year. So that's, first of all, the discrepancy between the 1 million and the 1.3 million. In terms of the 8.6, that is if you just looked at a Black-Scholes model for 123R at the time that we issued the press release, that was essentially the expense that would have been recognized in the P&L, and it's non cash. It's the expense that would have been recognized for options that were granted prior to or restricted shares that were granted prior to January 1 of 2006.

Now, as we go into 2006 and beyond, we will be going to a restricted share grant, and those restricted share grants will have expenses associated with them. When we give our guidance, we are including the expenses that are associated with the new grants.

Okay. Is there any -- is the 8.6 million plus, whatever it is, fairly spread over the three years, or is there more up-front?

Again, the 8.6 is, it goes all the way through 2009, and because of the layering effect of when the options would have normally vested, it decreases in the out years. But I want to be clear about the fact that it's not a reduction of SG&A, it's just you're required to -- when you file the 8-K, to file what the expected expenses would have been had we not done this.

The option expense is in salaries, not SG&A, right?

That's where salaries, wages, benefits are, yes.

Right, right, right. Your other expenses in the fourth quarter, 6.8 million, is there anything unusual in there? Or is that -- no particular unusual charges or credits?

No.

And I guess that's about it. Thank you very much for your help.

Thank you.

And your next question comes from the line of Brannon Cook.

On pricing I calculate your pricing was up about 7%. How much of that was fuel surcharge?

About 2%.

About 2%. The pricing environment continues to be pretty strong for you guys. It's been two full quarters since the XGS acquisition. Clearly looking at your first quarter guidance you appear fairly bullish. Could you talk a bit about the competitive landscape right now in light of the fact that what was one of your biggest competitors is no longer out there? And maybe how some of the more pricing focused competitors have been responding in light of XGS no longer competing in the market?

The pricing environment I think essentially across the board from what we hear from our trucking friends, the -- not only the truckload, but the LTL and the like, continues to be firm, and there are others that -- and people will always come in to any marketplace and provide a lower price and a lower service. I think what we have focused Forward Air on is providing a high level of service and as a result, the rates that we charge tend to be at or above where others would -- that don't provide that level of service, where they would charge. And we're comfortable when we talk with our customers and we explain to them the need for rate increases and the things that we're doing. Bruce mentioned TAP, the pickup and delivery, and all the things that we're doing in these areas, that the rates that we charge are commensurate with the services we provide. So we're comfortable in taking the rate increase and holding that.

Okay. And when you think about TAP, and the benefits that that provides, is that something that's going to drive down, say, the salary, wages, and benefits line as a percentage of sales, or is that something more that you're going to give back to the customer?

Right now, we're still on the rollout phase, and we're having some successes in there, so I think it's probably premature to say what we're exactly going to do. We're just happy with the fact that it's decreasing the number of calls that come in and it's decreasing quite frankly the amount of work that the people in the terminals have to do on nonfreight. So they spend more time moving freight and handling the needs of the customers and less time inputting data.

Okay. And just my final question was on CapEx guidance for 2006.

Yes. It will be approximately $12 million. And that includes an expansion of our Columbus hub.

Okay. Thanks for the time.

Thank you.

And your last question comes from the line of John Larkin of Stifel Nicolaus. Please proceed.

Good morning, Bruce. Good morning, Andy.

How are you?

Doing just fine. First question related to the line haul tonnage increase that was cooking along at about 11%. Would you be willing to share with us what percentage of that you think was related to the Express Global acquisition and what would be more thought of as same-store sales growth?

It would be awfully hard to determine, John. Actually, we would love to be able to say 8% of it was this and 3% was the other, but we really can't. A lot of common customers, so it's very difficult to differentiate the two.

But when the deal anniversaries, it's safe to say that that may decelerate a little bit? I think obviously there was a kick in our business levels when we took on Express Global in June of this year, and so that's probably a safe. Okay. On the fuel, it looked like with fuel included, your unit revenue was up nearly 9%. You also indicated you're going to take a 3% rate increase I think on March 1. Would it be safe to say that roughly maybe a third of that 8.9% was what I would call pure price and the other two-thirds was fuel surcharge, or would that be incorrect?

There are several variables that affect the yield. One is price, two is weight, and the third is length of haul. And so when we get more -- during peak, it is more longer haul West to East Coast shipments, which drives the yield up, because the yield from L.A. to Chicago is higher than the price or the yield from L.A. to San Francisco. And so that drove that up as well as fuel. So when we look out into -- on a real comp basis for 2006 assuming, again no change in the composition of freight, our pricing will be up 3%. Then fuel -- whatever fuel does, whether it's up or down versus last year will be the variable.

Was the trend towards longer haul freight in the fourth quarter more exaggerated this fourth quarter than in the prior year's fourth quarter? Is that what you were saying?

Yes. More of it.

With respect to the 3% price increase, does that apply across the board, or just to what we would think of in an LTL sense as tariff customers?

That's across the board, John.

So there are no contract customers that get a better deal than that? That's just--?

There are a couple of smaller contract deals, but overall it has no impact on the business.

That's the best way to put a price increase into effect. Then with respect to your three initiatives for 2006, I think I have a handle on the TAP program, but the focus on international forwarding, it seems like you've been focusing on that area for a number of years, also the international airlines as their sort of pickup and delivery distribution and assembly arm in the United States. Tell us what's different about 2006 with respect to your focus on the international forwarders.

Well, on the international forwarder, while we have, in fact, as you said, done business with them in the past, we've never really had a strong sales focus on doing business with them. And there are a number of reasons why that was the case. But as we entered -- really we started highlighting it in the latter part of 2005, and we recognize that as a larger opportunity than, perhaps, we were willing to look at in the past, and we're going to make a real push in that area as the year goes on. The interesting thing about that sale, though, John, is it tends to be a longer sales process. The cycle tends to be a little bit more extended. So our -- hopefully our opportunities and awards will be great, but it's going to take longer than the typical domestic forwarder type of business.

Would you characterize that business as more or less profitable than either, say, the domestic forwarding business or, say, the international airline business?

They're very comparable.

Okay. All about the same margins. Then just one final wrap-up maybe on the pickup and delivery operation. Sounds like you're going to go into that with owner-operators on the local basis. Would the idea be to mix multiple customers within the same pickup and delivery network?

Our idea in going into it is similar to what we do today, and that is we want to manage the process and we have no intention of owning the asset. So we are interested in establishing a very reliable, good core of PU&D operators across the U.S., and then being able to provide that reliability to our customer and the visibility to our customer that does not exist today.

Over time you would, by mixing multiple customers in there, you would build more density than anyone else had, and ultimately be in the pickup and delivery market what you are in the international market. Is is kind of the long-term strategy?

That's certainly the goal.

That's very helpful. Appreciate it a lot.

Thank you very much.

Nice job.

Ladies and gentlemen, you do have an additional question coming from the line of Michael Halloran of Robert W. Baird.

Just a quick question, piggybacking on the earlier acquisition question. Just wanted to know a little bit about the current environment, in particular what the valuations on acquisitions are out there -- are looking like right now?

They continue, Michael, to be pretty extensive is probably a nice way to put it. We'll watch it this year, obviously, and see if it doesn't -- if it won't pull back a little bit, but the PE multiples are very high.

All right. I appreciate it. Then one quick one. I might have missed it earlier, but what was the cash flow from operations for the year?

Just over 43.5.

Appreciate it, gentlemen.

And there are no other questions in the queue, so I will turn the call back to speakers for closing remarks. And as a reminder to the participants, you may also access the webcast at www.forwardair.com. And now I'll turn it back to the speakers for closing remarks.

Thank you very much for joining us. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect your lines. Have a great day.