Forward Air Corp (Delaware) (FWRD) 2007 Q4 法說會逐字稿

Thank you for joining Forward Air Corporation's fourth quarter 2007 earnings conference call. Before we begin, I would like to point out that both press release and this call are accessible on the Investor Relations section of Forward Air's Web site at www.ForwardAir.com. With us this morning are Chairman, President, and CEO Bruce Campbell; and Senior Vice President and CFO, Rodney Bell. By now, you should have received the press release announcing the fourth quarter 2007 results which were furnished to the SEC on Form 8-K and on the wire yesterday after market close. Please be aware, 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 forgoing 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 the 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 result of new information, future events, or otherwise. Now I will turn the call over to Bruce Campbell, Chairman, President and CEO.

Thank you, operator, and good morning to each of you joining our call today. I want to begin the call with a sincere thanks to the Forward Air team for all their contributions throughout the quarter. We would not have achieved these results without their superior efforts. A very special mention to the former Black Hawk employees, now valued Forward Air teammates, for their extraordinary efforts during the integration period. We're most grateful for their efforts and most thankful to have them on board with us today.

As you know, there were a number of significant events during the quarter and I'd like to address each one individually. First, Kitty Hawk ceased operations. While it was somewhat meaningful to us, it was at best a small contributor to the quarter simply because much of their business was not desirable to us for various reasons. However, there were segments of the business we were interested in and through solid sales efforts of our team we were able to bring this business on board.

Secondly, we purchased Black Hawk and merged their operations into ours in early December. There is good news and bad news to discuss with this integration. First, the bad news. As with any integration, it takes time to fully assimilate the operation and it can be very expensive as we did anything and everything possible to make sure we retained the revenue acquired from Black Hawk, which leads us to the good news. We're pleased to share with you today we were able to retain 90% of the acquired business, which we consider to be an excellent result. Our subsequent progress on the cost side of this acquisition continues to be on track during the first quarter as are able to bring more and more efficiencies to the various operating areas.

Third, our Forward Air Solutions Group turned in an outstanding performance for the quarter and we believe they are well on their way to establishing a solid platform for us to build off of as we enter 2008.

I would also like to discuss briefly our recent Chicago regional expansion where we extended our overnight capabilities by adding additional direct points, such as Chicago, St. Louis, and other Midwest cities. We were greatly assisted by both the Black Hawk acquisition and the new United Airlines business from this key gateway city. We look forward to continued success from this 2008 initiative.

I would like to close by sharing with you that we believe we have positioned the Company for great future success with each of our Completing the Model initiatives performing well, as is our Forward Air Solutions Group. However, we are and will continue to be most mindful of what could be a difficult operating environment for all of us as we enter 2008 and will be ever-vigilant on the cost side. While we maintain this vigilant approach, we will not become a stagnant Company as we believe during difficult economic times we will have even more opportunities and we look forward with the backing of our solid balance sheet to take advantage of them.

Thank you, and here's Rodney Bell, our Chief Financial Officer.

Thank you, Bruce, and thank you all for joining us this morning. After my comments, we will open the line for your questions.

First, I'm sure that everyone noticed the expanded segment disclosure included in our earnings release. The change in format was intended to provide additional meaningful data and allow more time for questions on the call.

First, at a high level, we would like to go over the results for Q4. On the third quarter conference call, we provided guidance of $0.35 to $0.39 per share compared to $0.40 one year ago. As you know, we posted $0.43. Here's how we accomplished that result. We had better-than-expected performance in the core business which solidly put us within the range. In addition to that, the Kitty Hawk shutting the doors in late October provided estimated revenue for the balance of the quarter in the range of $2 million to $2.5 million, or just over $0.01 per share benefit.

The acquisition of Black Hawk Freight Services in early December contributed approximately $2.5 million in revenue. The resulting income, which was partially offset by integration costs, is estimated to be just less than $0.01 per share. Our full distribution segment, Forward Air Solutions, contributed $0.04 to the bottom line, which was twice what we had anticipated.

Lastly, below the operating line item, a flip from interest income to interest expense combined with a lower tax rate and a lower share count provided for approximately $0.005 benefit to the quarter. Let's stop for a moment and expand upon the impact of those line items going forward. We anticipate the estimated $1 million in monthly revenue formerly handled by Kitty Hawk to continue throughout the year. Annualized revenue for Black Hawk was approximately $30 million with anticipated retention somewhere north of 90% -- I'm sorry -- right around 90%. Additionally, we are expecting implementation costs estimated at $0.01 per share continuing into the first quarter.

Lastly, we were very pleased with the $0.04 per share contribution by the Forward Air Solutions segment for Q4. However, given the retail nature of the business, we recognized the seasonality going into the first and second quarters. We're projecting between a breakeven and a $0.01 per share benefit in Q1 which is included in our guidance.

Now, for a deeper dive into the quarter. Year-over-year revenue increased 23% for the reasons previously cited with emphasis on the two 2007 acquisitions. On the expense side, our team did a fantastic job for the third quarter managing purchased transportation in our airport-to-airport network. As expected, handling the growth in logistics through third-party transportation providers caused margin contraction. Lastly, the impact of the relatively low -- lower PT as a percentage of revenue from our Pool distribution business is apparent.

Salaries, wages, and benefits were higher due to the Forward Air Solutions segment and to a lesser extent, the business from Black Hawk acquisition having higher wages as a percentage of revenue. There was $1 million of additional incentive accrued compared to Q4 '06 for discretionary bonuses for key employees. The year-over-year share-based compensation due to FAS 123R was in excess of $700,000. Insurance and claims were up due to a $500,000 charge for the development of a 2004 vehicle liability claim. Additionally, we had higher premiums as the number of owner-operator power units covered was up substantially. Changes to both operating leases as well as D&A were unremarkable for the quarter. Lastly, other operating expenses were ahead of this year's run rate and substantially up over last year. Some of this excess expense is a result of the December acquisition of Black Hawk. Our team will be addressing those expenses in the first quarter, along with dialing back any discretionary spending that resulted in this uptick.

Other key metrics are as follows.

Total assets grew from $213 million at the end of 2006 to $242 million at the end of this year. Cash flows from operations were $18.6 million for the quarter and $69.9 million for the year. That compared to $14.3 million and $52.5 million, respectively, for 2006. Cash and short-term investments were $5.4 million at year-end compared to $69.9 million last year. Additionally, we had $30 million outstanding on our new senior credit facility at year-end. This reduction in cash and short-term investments as well as monies borrowed on our line went to fund our Atlanta and Chicago facilities, which combined were $33 million; acquisitions of USA Carriers and Black Hawk, which together were $49 million; and $55 million spent to repurchase 1.8 million of our Company's stock at an average of $30.22 per share. In the fourth quarter, we repurchased 845,000 shares at an average price of $28.30. We have approximately 1.8 million shares remaining on our 2007 repurchase plan.

Average weekly line haul tonnage was up 0.7%. Average shipment size was up 4.9% to 768 pounds. Shipment count was up 2.6%. Pricing remained challenging, including the benefit of fuel yield was up just less than 1%. Terminal count in our airport-to-airport network increased to 85 from 81 cities with a pickup from Black Hawk in the Iowa markets of Cedar Rapids, Burlington, Moline and Des Moines. Forward Air Solutions terminals remained constant at 11.

Guidance for the first quarter is as follows. We anticipate revenue coming in between 8% and 12% without regard to the Forward Air Solutions segment. EPS is expected to be between $0.32 and $0.36 per share.

That concludes our comments. Now back to the operator for your questions.

(Operator Instructions). Edward Wolfe, Bear Stearns.

Can you just go a little bit over the revenue guidance for first quarter of 8% to 12%, coming from 23% with having Black Hawk for the whole quarter now? You talked a little bit on the Pooling side about the earnings being less strong I think in the first quarter from the fourth seasonally. Can you talk about the revenue side of it?

That's correct. The 8% to 12% is without regard to Forward Air Solutions because there was no there was no comp last year. That would just be kind of a crazy number, and especially since we're anticipating a breakeven to $0.01 per share on the EPS contributed from that, we're just excluding that until we get a little more experience under our belt.

Okay, and excluding these is just zero basically in that line?

Correct.

Just from a seasonality standpoint, it should be less than the fourth quarter. The question is, where it falls out, is that the issue?

That's the issue. We only had -- the only other experience that we had with Solutions was the months of August and September in the third quarter and even annualizing that, but we're anticipating the first quarter being less. We were told going in that the way to look at the Pool distribution business is from a total revenue standpoint that you would receive 20%, 20%, and 20% in Q1 through Q3, and then the remaining 40% in the fourth quarter. We're going to wait and see.

Okay, well that's helpful though. Can you talk a little bit to Kitty Hawk, Bruce? What is the type of business that you took? Can you quantify how much that was, and is there still stuff coming on that maybe you looked at, it was the wrong price, you gave them a higher price, it walks away and it comes back?

There was a lot of their business, Ed, as I think we've tried to explain to others that for various reasons, we just simply didn't want it. It didn't fit into our network. It was in some cases very low-priced. In other cases, we did not want to extend the operating capabilities of our Company to do what they were doing. They had to run their company, we run ours. We think we were able to bring on each of the business segments that we wanted, and segment is probably a bad word. Each of the business customers that we really wanted, we had them clearly identified. And when they shut down, we went after it. And in most cases, we were successful in doing that.

Can you quantify how much that was revenue wise or earnings wise, or both?

Ed, we sort of extrapolated back to somewhere between $12 million and $15 million, annualized.

And is that higher margin kind of stuff because it's incremental? How do we think about it from an operating margin standpoint?

It's actually both. I don't mean to be confusing. Part of it is basically truckload that's running in short-haul lanes, and that is not incremental. Because you actually, you buy the truck, you put the truck on the load, and you move it. But then, there is a part of it that was incremental that's LTL that fits into our system that theoretically you could say we didn't add cost to handle it or we added minimal variable cost. So, it was a mixture of both.

And is 50-50 as good as any for truckload versus LTL?

That's what I would use, Ed.

When I looked at yields for the quarter, they had a nice improvement. They've been tracking -- well I guess in third quarter, they were down and in fourth quarter they were up three and change. What's the biggest driver when you look at mix, when you look at pricing, when you look at the acquisitions? How do we think about yield going forward as revenue pounds per week?

We think yield will mitigate somewhat, primarily because most of the business that we have acquired is of the shorter-haul nature. And as a result, we will see a contraction in the yield. Now, that's not a bad thing. There are two things that cause yield to go down, obviously. One is the shorter haul. If that's the cause of your yield contraction, that's okay. If your yield contraction is created because you are giving away [rake], that's not okay. So, we like where we are on the yield side. We don't think we're going to see a big uptick in that as the year goes on, but we don't think we're going to see a degradation either.

Am I right there, that it bounced up a bit in the fourth quarter? What drove the fourth quarter? It sounds like going forward because of the mix it's going to be flat to down, but what drove it up 3.5 in the fourth quarter?

The biggest driver there obviously was some of the Kitty Hawk business, which was of a longer haul nature which yielded higher numbers. And then there was, in the fourth quarter, we were ahead of the [field] curve for once, which is the first time it happened this year. So we got some bonus there.

Can you talk about the fuel benefit in terms of earnings in the quarter?

We really don't because it's all over the board and we've addressed this in the past. You know, if you get a high load average, if you've got 32,000 pounds on the trailer, we will make money off the fuel. And if we're running empty out of Miami or 10% of our miles are empty, we still pay our owner-operator fuel adjustments or fuel surcharges and we lose money on it. So, every quarter is different but it's -- over the course of a year, it balances out.

When you say you are ahead of the curve in fuel, I'm guessing that means you got the surcharges in before the price spike? Can you talk a little bit about that?

That's strictly luck. That doesn't have anything to do with management. We adjust our fuel on the last Monday of every month, and then depending on what happens to fuel, we are either ahead or behind the curve. During 2007, it seemed like most of the year we were chasing that curve.

Going forward, how do we think about cash flow and CapEx and capital projects?

Cash flow will be -- cash flow from operations will be in the high 60s, approaching 70. CapEx is just -- it's about $26.5 million. $13 million of that is to complete the building in Dallas that we have started that we've been talking about for quite some time now. We're finally off the ground there and getting going. One other anomaly is within the two acquisitions that we made, you always get some equipment that's right on the cusp of junk. And we had about $3 million of CapEx there where we needed to get rid of some equipment that's costing us a lot in maintenance. So, you take into consideration those two things and we're at our call it $8 million to $10 million of our normal annual CapEx.

And the 35 to $40 million of cash you generate, where is the first uses to put that towards?

Acquisitions.

What does the acquisition market look like? Which types of acquisitions?

Well, we would probably spend most of our time on the Pool side. Now, that having been said, we didn't expect Black Hawk to jump up like it did in the fourth quarter. So, come the first quarter earnings call, we may be retracting what I just said. But that's typically a good deal. We're happy with it. The overall market thankfully is good on the acquisition side. Multiples have contracted a bit and there's no private equity money or very little out there right now, and that helps our position greatly.

Just in terms of the business, as you look through the quarter, October, November, December and then January, can you give a sense for how demand and pricing track through those periods?

The pricing, as we've stated earlier, has been okay. We still have a couple of idiots out there that are giving away things, but idiots will stay idiots. That doesn't ever change, and that will continue in the future and we just ignore that. Overall, we've been able to the protect our yield. We think we're giving fair value for what we charge, and as a result, we're able to get that.

As far as looking into the future, I'm reminded of what Yogi Berra said, and that was -- it's hard to make predictions and it's even harder to make predictions about the future. And going into 2008, that's never been truer. And as a result of that, we are -- we have set up a number of initiatives that will allow us to adjust our cost side as necessary. But as I said in my opening statement, we're comfortable that there are going to be a lot of opportunities. So we're not going to go into a shell.

Do you have the numbers there, though, for pounds per week, if we just look 6% for the quarter, how that ramped up through the quarter and how that played out in January?

I can get that for you. We don't have that have it in front of us, Ed.

[Ben Hartford], Baird.

Nice quarter. Just touching within the line haul and Black Hawk specifically, the integration progress in there, is that complete? Is there anything that remains to date?

We have what we call bleed-over costs going on. They were anticipated. It's not a big shock. The primary driver there was we basically when we took over Black Hawk were running two software systems which creates additional data entry, which creates -- it goes on and on. And our IT group in Dallas did a great job of getting those put together so that we can become more efficient in that area. We just actually implemented the final phase of that yesterday, and hopefully by this time next week we won't have to deal with that anymore. We have some other areas on the cost side that just simply take time to clean up. Nothing unusual, nothing unanticipated as I said earlier and we're really pleased with progress that they have made there.

Okay and on that costs side, if we back out the contribution from USA Carriers specifically on the personnel costs, the growth was about 20%. How do we look at that line item going forward? How much of that should be ongoing throughout '08 and how much of it was onetime in the fourth quarter related to the acquisitions?

Well, the big number that is in there in the fourth quarter is about $1 million on incentives. So, that -- a portion of that hopefully will go away, but we want to keep some of it because we all like to get incentive. The other part is strictly a matter of us becoming more and more efficient and we think again we can over a period of time rein that costs back to where it was in our normal operating times.

On the acquisition side, are you reluctant at all to do additional acquisitions given how much you have digested over the past six months? Do you feel you like you have the capacity to, looking three to six months forward, to layer on another acquisition?

That's a good question. We actually slowed down the process in order to do, as you ask in the question, to get everything under wraps, if you will, and make sure that the current acquisitions are solidly under control. And we will look at that over the next week. If this software does everything that we think it's going to do, and we do expect that with about 100% confidence that it will, then we're ready to move on. But, we will assess that next week. We have some opportunities that we think might be meaningful to the Company but we're not going to move until we're comfortable.

And then, related to that, you said you would use cash toward acquisitions. You are carrying $30 million or so in debt and have capacity on that line. Are you comfortable with that balance? Would a priority be to pay that down? Are you willing to maintain some sort of debt balance to facilitate the acquisitions?

We're becoming more comfortable with debt. I have to tell you, my philosophy is, cash is king and always has been. But, you also have to grow and have to do other things. So, we will treat the debt as we have cash available, obviously pay it off. But we have other plans in mind and hopefully they will come through and maybe that debt number might even increase. But, the beauty of the Forward Air model, as Rodney touched on, is we generate a lot of cash. And so even if we make certain acquisitions as we go forward in the year, or make buybacks or whatever proceeds of cash, we are comfortable that we'll always be in a good position there.

David Campbell, Thompson Davis & Company.

Your first quarter revenue forecast, excluding the Pooled distribution, doesn't seem to have any significant slowdown in it, yet we hear a lot of talk about how business is slowing down. How would you describe your visibility of the first quarter revenues? Is it based upon what's happening in January? Is January pretty good? And it includes the pretty good, strong -- pretty growth in December?

Our visibility is as good as yesterday and any prediction we would make about the future, who knows, David. We are not unhappy with where we are positioned today. But obviously every other word you hear on the news programs begins with an 'R'. And we are just -- we're not going to sit here and make broad and big predictions that we're going to come in and grow the Company by 25%. We're very concerned as we go forward. I think we should be. But, again, it does not put us in the position where we wouldn't act where it was appropriate. Through the end of January, our numbers have been very consistent. We're not unhappy, again, as I said previously, nor are we predicting that we're going to have a screaming economy for the balance of the year.

Does the increase in average shipment size in the fourth quarter have any -- give you any indications of future business? Sometimes that means that business is going to be fairly strong.

That's a great point, David, but that number is somewhat convoluted in the fourth quarter because we did bring on additional airline business. The good thing about airline business is, they tend to be much larger shipments, which in turn tends to affect our average shipment size. We were speaking last night with another group and we are a little bit encouraged by that, only from the fact that it's not going to the negative on a year-over-year basis. But we're not jumping up and down about it yet because we're not convinced it's a long-term number. It may be. We hope it is. We hope it's an indicator that things might get better, but we don't know.

The last question here, on the capital expenditures, I got a little bit diverted there. Did you say what it would be in 2008?

Yes, David. 2008 will be $26.5 million. $13 million of that is our Dallas facility that we'll finish, and we had $3 million of that related to some equipment that we got through the acquisition that just needs to be cycled out because of high maintenance costs.

Brannon Cook, JP Morgan.

Nice quarter, guys. I just wanted to drill down a little bit more on Black Hawk. Could you refresh our memory where the buckets of revenue from Black Hawk go? I realize most of it's in airport-to-airport, but where else does the revenue from Black Hawk fall?

It's primarily airport-to-airport. The other rolls up under Other, Brannon, with -- I will tell you that 80% of it is going to roll up in airport-to-airport, and then probably 10 will roll up in logistics. They had a small hotshot business that we're excited about, and then 10% would be in other CFS type business.

Okay. And with your revenue guidance for the first quarter, how much revenue are you counting on from -- or factoring in for Black Hawk?

It's -- Bruce and I were just here conferring -- $7 million to $8 million.

Okay. Could you talk a little bit about the competitive environment? Obviously with Kitty Hawk leaving the marketplace, with the Black Hawk acquisition, are you seeing -- obviously it's a difficult macroenvironment, but are you seeing with some of the consolidation in the industry that the competitive landscape isn't as competitive as perhaps it has been in past economic downturns?

I think the answer is, the age-old thought process on truck lines is that it's almost impossible to bankrupt them because they always -- they still generate cash. Most of them have huge assets and so their depreciation lends themselves to generating cash. We haven't seen a big change in that operating environment. One of the reasons we are somewhat -- we're not adverse to bad economic times is that it knocks out the competitors who shouldn't be there. So, I'm not doing a good job of answering this question mainly because it's pretty hard to tell you, gee, it's going to be this or it's going to be that. So I will stop at that. That's a poor answer. I apologize, mainly because we don't know.

I understand. Thanks, Bruce. And just a final question. There have been a few inquiries on the acquisition front. Could you talk a little about the opportunities you see as most attractive looking out through the year between call it Pooled distribution versus airport-to-airport versus logistics?

Airport to airport for us, it's very difficult to find somebody who we really would want to buy. Black Hawk as I said earlier was an exception. They were truly a great company, top-notch management, everything positive that it could be. So, we were pleased to be able to buy them. But unfortunately, there aren't a bunch of those around. We wish there were.

On the Pool side, they are characterized by primarily a lot of smaller companies throughout the nation. We think part of our strategy is to determine where we want to be geographically and then see if there's an opportunity to buy within that area. That does not preclude us on the Pool side to open on -- I have some banking background -- to open a de novo type of operation if we felt that was more efficient than making an acquisition.

On the logistics side, we think there may be opportunities in the future there. But, their multiples at one time were just outrageously high. If they pulled back, and we're seeing indications that they may, then we would be okay with the right situation to make a buy there. But there's nothing on the immediate horizon for that to occur.

Alex Brand, Stephens.

Bruce, you kind of answered this question on the weight per shipment, but sort of as an add-on, it sounds like you think that at least part of the improvement in weight per shipment is maybe less economy and more that you've got higher density, shorter haul airline business. Can you just update us on where you are with some of those airline initiatives and whether or not those have all sort of started, or is that something we should look forward to in 2008?

The airline business, as we have tried to explain previously, tends to be a longer sell as opposed to domestic forwarding type of a shipper. And the reason for that is most of them use various RFPs to award their business and you have to get in on a cycle, etc. For instance, the United business that we were able to grab in Chicago in January, we have probably worked on that business for over nine months to get positioned and then to be awarded. So, it's a much longer selling cycle. We did have some success in the fourth quarter, not only the United business but, other lane-by-lane airline business, as I like to call it. So, no one significant award but a lot of nice opportunities. A lot on the West Coast on the I-5 area, some out of Texas. So, they are making progress. It's slow. We anticipate it to be slow, but we like where they're positioned today.

And would use sort of categorize the United January business as also not in and of itself significant, but just kind of add-on?

Well, what it did for us, Alex, was it allowed us to open the -- as you know, we opened a brand-new terminal in Chicago in March of last year, which as only a trucker could say, it's truly beautiful and it has all the operating areas and efficiencies that we need. And then we turned right around and planned this expansion of our regional capabilities in Chicago to serve basically about 20 Midwestern cities on an overnight basis. That does -- allows us to really go after two different markets there that we really in past because of the way our network was designed, we weren't set up to handle and meet the customer requirements. And that basically is a later cutoff and an earlier recovery at the destination city. We cranked that up in January, January 15, and the lead customer on that was United, which was a big plus to us. We are most grateful for the opportunity. And we have been able to add additional business and we think as the year goes on we're going to be able to attract even more business to it. So it's simply another opportunity for people to sell to.

Bruce, can you just sort of strategically -- you know, for a long time you had a good top-line growth story with the core business, but it was also big margin story and you made a pretty major strategic shift to get into these other lower-margin businesses. Where do you think we are in that process? Is '08 the year that we can return to some decent top-line growth and become a margin story again, or is it just based on if you do another acquisition, that hurts the margins another time?

Well, I think the important thing to realize is, it hurts the margin initially. But an example would be the Pool business. That was a 5%, 6% margin business when we grabbed a hold of it, and in the fourth quarter they improved on that considerably. But these things take time to do. You just can't do them overnight. I would also remind you that, as we told others over the course of last year and even before that, we have the Forward Air conundrum, as I call it. We achieve operating ratios that nobody else in the industry can achieve, and then we get the hell smacked out of us because we aren't growing fast enough. So then we turn around, we start growing again with the full understanding that we're going to have a little bit of margin compression and we get the hell smacked out of us for that. So, it's kind of like going home at times. I don't know what's right.

That having been said, strategically we're going to continue with the revenue growth that you've seen in the past. Do we think we can improve the margins once we get this bleed out cost out of it? Yes, we think we can do that. And we understood going in that we were going to have that. But, will this business in total -- all the Pool business, all the logistics business -- ever equal what we do or did on the Forward Air side? No, it's just not going to get there. On the other hand, the earnings per share, which is what we've said from the beginning is going to continue to grow. That having been said, we also, and Rodney points out so appropriately, the return on invested capital is great in this business. We grow our logistics -- our brokerage business significantly throughout the year and basically the only investment we make there is in people and a little bit of technology. So, again -- I'm being somewhat long-winded here. We will never have the extreme margins that we had when it was strictly airport-to-airport business. But we're okay with that because our goal is to continue to improve our return on invested capital, our return -- or I should say our earnings per share. But we will strive, I can assure you, to get our margins better than they were in the fourth quarter. We had a decent quarter considering everything, but we can do much better. I didn't mean to get too long-winded there.

That was great color. So to summarize, are you -- so you think you're through it? Is the focus back on, instead of -- we've got to take a hit to move the business to where we need to move it for growth, focuses back on -- now, we're going to grow our earnings and our EPS? Is that a fair statement?

Basically, yes. If we had the right opportunity to come along and if it were not at the margins that we would normally be expecting but we thought we could improve that margin over a period of time, we would make the move.

David Roth, Stifel Nicolaus.

A question on the bad news you mentioned briefly at the beginning about the Black Hawk. You said that with any integration, you did what you could to retain the revenue. But can you give a little more detail there -- what was really bad news about it?

Well, the biggest thing that we had to overcome was basically the software issues that I touched on earlier, which -- they were running a different system than ours. We simply because of the limited time we had from the time we announced until the time we implemented, we were unable to integrate those different operating systems immediately. So, in order to protect the customer base, our operating group did a great job of basically running two operating systems simultaneously. And then our IT group had to come back and over a period of time which basically took them between six weeks and eight weeks, implement various bridge processes that allowed us to put the two operating systems together. And the costs that drive there, David, are primarily labor costs because you're making duplicate entries all through the process. We had some -- it sounds crazy, but our phone volume went up about 200%, and you obviously have to have people able to answer the phone. You just become extremely inefficient all across the board when you're trying to run two operating systems. Again, the good news on that is, we think it's behind us now.

That's helpful. Then you talked also a bit, Rodney, salary, wages, and benefits in the quarter being higher due to the Solutions segment and also due to Black Hawk. Was that because those employees had a higher pay scales, or is it the bigger mix of employees versus owner-operators, or was it because of bonuses for performance or acquisition-related?

The biggest reason on that, Dave, is that there's a higher -- as opposed to our core business with the owner-operators, they -- both of those businesses have -- both Black Hawk and USA Carriers have company drivers, and that adds to salaries, wages, and benefits.

Okay. And then also, I didn't quite get all the numbers you were throwing out there when you were going through everything. You talked about in the quarter you bought I think maybe 845,000 shares at an average purchase price of what?

At an average purchase price of $28.30.

Then, Bruce, you talked about the current operating conditions you expect to persist throughout 2008. Does that mean it doesn't get any better, doesn't get any worse, it's kind of a flat freight market?

What it means to us, David, is from a planning standpoint we're not going to anticipate things getting any better. It's a lot easier to add costs than it is to take it away. So, we've challenged our people to recession-proof the Company. And by that, we mean pare things back, make sure we're not having any wasteful spending. Make sure that if you do spend, it's a good investment for the Company, not only today but into the future. Just all the normal things that we do when it's time to tighten things down. Again, with the caveat that if we need to add people or add costs, we're comfortable that we have the processes in place that we can do that. And I would also touch base on part of that pullback would be if we think we can rein in about half of our CapEx. So, if things got really, really bad as the year goes on, we don't think we have to spend $26 million. A lot of that is what we call maintenance CapEx. We wouldn't have to buy 200 trailers. We wouldn't have to buy forklifts. We can get by with what we have. But we would prefer to stay on course and prefer to continually improve our fleet and do the right kind of investment that keeps us a solid Company. But if we need to pull back, we can.

The last question I have is just on the acquisitions. Are you focused purely domestically on acquisitions, or are you looking at any international opportunities?

Purely domestic.

Ken Hoexter, Merrill Lynch.

Nice move. I don't know if you've seen, it's up 20% this morning, so well done. Just a quick question on your pricing commentary. You had noted that I guess there were still as you noted idiots out in the market. And if you remember last quarter, you were very vociferous in your language on how crazy some of these pricing competitors have gone. It sounds like you're looking for flat pricing. Just wondering, are you seeing that -- the pricing competitors start to slow down a bit, obviously post Kitty Hawk, or are the other ones out there still playing that game and your customers are just moving away from those providers?

You know, I wish they would quit. But sometimes it's hard to make stupid well. We just ignore it. That's all you can do, is just -- we think from the Forward Air perspective and other reasonable competitors, that -- and our customers. I think the important thing, our customers are going through some difficult economic times too. So, it's important that -- there are times when you really don't need to raise rates mainly because you want to make sure everything is going as well as possible for both us and our customers. So we don't anticipate any type of rate increase this year. Now again, Kenneth, if economic conditions change, we may have an opportunity down the road, but not today.

Okay. Can you talk a little bit about the -- on the solutions, on the rollout, where do you stand as far as the various products with brokerage and other kind of subdivisions? Can you kind describe how you are within your rollout on each of those?

The strongest one without question is our brokerage operation. They have really done well and they continue to do well and we anticipate good things from them this year. Forward Air Complete, after about a year and a half of really hard work and a lot of struggle in that area, our people have really got it positioned well and we're looking forward to good things from it this year. It's in the best shape since we brought it up. They have really done a nice job in getting it again to where it needs to be.

Our handling opportunities are sporadic at best right now. We continue to work on those. We think we will have more and more opportunities, but that initiative is okay, is how I would describe it. The airline initiative, as we touched on earlier, we've had some major wins there which we're most pleased with. But that business, again, to reiterate what we said earlier, is a lot slower. You just don't bring it online overnight. We have a lot of good activity in their pipeline. That's what we watch there the most. On the Forward Air Solutions, our desires there -- when we took it over in early August of last year, was to get it solid, to get a complete and total understanding of the operating model, to make whatever improvements we need to make in the operating models, and most importantly, to provide high levels of service. And that's exactly what they did. So, we're comfortable with where Scott and his team have taken Forward Air Solutions and we're ready to do more with it.

Now, when you talked about the seasonality and the pullback, obviously that's just the traditional trucking pullback in the first quarter. But how do you look on the brokerage side? Do you see a tremendous pullback in kind of total gross revenues? Do you see your margins getting squeezed? How do you look at that business?

We would probably parallel that with the normal Forward Air business. It's not as robust during the fourth quarter, or during the first quarter, pardon me. But it's not pulled back as hard as Solutions does. So, we're okay with where we are today.

Than just kind of jumping back to a question asked earlier on the volume side and looking out into a weaker economy, if you just look at the core business outside of the Black Hawk and other acquisitions, how do you see volumes trending into the new year? Have you seen any kind of slowing down? Are we still running at the same pace?

No. We would respond to that as we have in the past and as we talked about previously, and that is, you know it isn't great and it isn't bad. We view it so far into the year as being okay. There's not a lot of up-growth on the airport-to-airport, nor is there any slowing down there. But it's not great, it's okay.

Okay. But in your mind, we're kind of -- we're at least at or near the bottom in kind of where we're trending?

I would go back to Yogi Berra -- I have a hard time making predictions. I hope it is, Ken, I honestly do. I just -- we just don't know.

I liked your comment about going home as well.

Todd Fowler, KeyBanc Capital Markets.

Bruce, maybe coming at the first quarter guidance question a little bit differently, if I look at the $0.32 to $0.36, that implies a midpoint of $0.34, which would basically be flat with the first quarter of last year. When I think about lowered share count, the acquisitions, is there anything else that you guys are seeing right now that doesn't make you as confident from the operating environment standpoint, or is that just being conservative with an outlook?

The quick answer is, that's being conservative. Hopefully, we won't ever change being that way.

Okay. That is fair enough. In this environment, it certainly makes sense. And then, I guess my next question -- with the growth on the logistics side, what should we think about on the truck brokerage growth? Certainly we've seen some good year-over-year numbers, comparisons become more difficult. I think we get into the law of large numbers here in 2008. But what's your anticipation for revenue growth on the logistics side throughout the year?

Todd, it's Rodney. We are forecasting the logistics growth into '08 being in the mid-20 range.

And what's the opportunity that still exist there? Is it just more of the same of what we've seen throughout 2007, or is there anything different that's going to happen here in 2008?

It's more of the same, but we continue to think that there is a lot of opportunity of more of the same out there.

Just lastly, and Rodney maybe this is for you as well. There were some comments in the earnings release about margins and going forward being relatively consistent with where the fourth quarter ended up. I guess I'm just kind of curious, and I hear some commentary about some opportunity with controlling costs. And I guess is that kind of a near-term outlook for where we expect margins to be based on kind of a steady state, and then as we get some of these acquisitions underneath our belt, if the environment were to improve, then we see some margin expansion, maybe if not towards the end of 2008, but maybe into 2009? Is that the right way to think about that?

It really is, Todd. The reason for that comment on Q4 is because we had a full quarter of Forward Air Solutions and I think your comment is spot on. That's exactly how we look at it.

John [Mimms], BB&T Capital Markets.

Most of my questions have been answered, but great quarter and appreciate the color.

There are no more questions in queue. I would like to hand the call back over to Bruce Campbell for closing remarks.

Thank you for your attendance today and your participation in our conference call. The replay is available on www.ForwardAir.com. Have a great day.

Thank you for your participation in today's conference. Your call has been concluded, and have a great day.