Forward Air Corp (Delaware) (FWRD) 2008 Q3 法說會逐字稿

Thank you for joining Forward Air Corporation's third quarter 2008 earnings conference call. Before we begin I would like to point out that both the press reese lease and this call are accessible on the Investor Relations section of Forward Air's website 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 third quarter 2008 results which were furnished to the SEC on form 8-K and on the wire yesterday after the market closed.

Please be aware, this call may contain forward-looking statements within the meaning of the Private Securities Litigation 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 fact and may be deemed 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 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 those 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 I will now turn the call over to Mr. Bruce Campbell, President, Chairman and CEO. Please proceed, sir.

Thank you, operator. Good morning, and welcome to our third quarter earnings conference call.

We had several significant events during the third quarter. I would like to highlight just a few of them. First, our core airport to airport business continues to perform well, even with volumes slowing in the latter part of the quarter. While we will continue to push growth, more importantly, our focus will be on cost controls. Secondly, and clearly, the star of the quarter was our completing the model initiatives, specifically our Forward Air TLX group and our Forward Air Complete group. Both of these important groups contributed nice growth and profits during the quarter with a very solid ongoing growth plan. Third, on the Forward Air Solution side, we were able to acquire Service Express during the quarter which gave solutions the much-needed geographic footprint and density to become a consistent contributor to our corporation. As we have said all year, 2008 is the building year for solutions, and we believe we have now positioned them for the long-term consistent success we expect.

I would now like to speak to the fourth quarter. Without question, this economic downturn has caused much uncertainty. Not only within our company and our sector, but also throughout the environment. However, and equally without question, the Forward Air model has been and is designed to perform well even during these tough times. With our great team of employees, independent contractors, we will continue to generate industry-leading profits, and cash, most importantly, and cash, which will allow us to position for even better times in the near future.

With that, Rodney Bell, our CFO.

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

Total revenue for the third quarter increased 24.2% to $121.5 million, approximately 65% of the overall growth came from our Forward Air Inc. operating segment, which includes our airport to airport business, which grew 13.5%. This growth in our airport to airport business is attributed to nearly 9% increase in tonnage which resulted primarily from our Blackhawk and Pinch acquisitions, as well as just over 1% improvement in yield including fuel surcharge. The balance of the growth came from increased revenues from Forward Air employees.

Our logistics group, which is primarily TLX Truck Load Brokerage had another good quarter of growing revenues by approximately 32% to $16 million. The 24% growth in other revenue was due to additional service offerings at additional facilities gained through acquisitions, as well as a better overall job cross utilizing our existing facilities to generate more incremental revenue. In our Forward Air solutions operating segment, revenues grew $8.4 million to $13.5 million in the quarter. Approximately $2 million of that growth resulted from our September 8 acquisition of Service Express.

Expenses for the quarter are as follows. Overall purchase transportation improved 200 basis points to 40.2% of revenue. Against increasingly difficult comps, our team improved PT and our core airport to airport network by 100 basis points. This improvement resulted from good load averages and a favorable mix of less costly owner-operator power, offsetting more costly third party providers. Logistics PT as a percentage of revenue was approximately 72%, or a 650 basis points improvement versus Q3 '07. This improvement primarily resulted from a larger percentage utilization of less costly owner operator power as well as better per-mile pricing. The relatively lower PT component in our solutions segment had a slightly positive impact on overall PT And that is due to that segment having a higher percentage of the miles provided by company drivers and equipment.

Salaries, wages and benefits increased 100 basis points from Q3 '07. This increase was primarily due to increased share based compensation and higher performance-based incentives. The remaining increase was a result of increased head count of mainly terminal personnel and company drivers associated with our recent acquisitions as well as our solutions segment having a relatively higher salary component as a percentage of revenues. Operating leases were up 50 basis points due to leased equipment from our recent acquisitions. During the quarter, we continue to right-size our solutions fleet by turning in excess leased equipment as well as replacing company drivers and equipment with owner operators where warranted. Depreciation and amortization increased 40 basis points, due to primarily D&A resulting from our acquisitions. Insurance and claims declined 10 basis points as a a result of good claims experience as well as lower premiums.

Fuel was up 190 basis points as a result of additional company trucks necessary to service our full distribution business as well as pickup and delivery requirements brought on by our recent acquisitions. Obviously, the year over year costs of diesel also contributed to this increase. Other operating expenses were down 30 basis points. Income from operations was $19.3 million, compared to 16.9 million, an increase of 14.2%, operating income as a percentage of revenue declined 140 basis points for the quarter, as a result of our changing business mix, along with the difficult economy.

Below the operating income line there was nearly 350,000 swing from interest income to interest expense, which resulted from using available cash and borrowings over the last 12 months to finance share repurchases, funding our Dallas facility now under construction and three acquisitions. Our tax rate for the quarter was 37.1%, compared to 37.3% for the third quarter last year. And the cumulative rate through the end of the second quarter was 39.4%. In Q3 '07, we had the cumulative benefit of a tax credit, which reduced the rate and this year, we settled a state tax dispute for less than the amount that was originally reserved for.

We anticipate Q4, the Q4 tax rate to be approximately 39.3%. Net income increased $1.3 million, to $12.1 million for the quarter, which is an increase of 12.5%. While EPS increased $0.06 per share or 16.7% to $0.42 per share. Included in the $0.42 was approximately $0.017 cents per share that resulted in the previously mentioned state tax settlement which impacted income tax, interest, and other expenses. Year to date revenues were up 26% reflecting the benefit of our three acquisitions as relative to nice growth from TLX Truck Load Brokerage and Forward Air Complete.

For essentially the same reasons cited for the quarter, we operated 240 basis points worse for the first nine months of 2008 as compared to 2007. However year to date operating income exceeded last year by 10.1% and EPS was up 9.3%. Other key information in the metrics for the third quarter are as follows. Total assets grew from $242 million, to $305 million from year end. Cash flow from operations were down $5.7 million, to $38 million, from $43.8 million, resulting from timing and negative trends in accounts receivable, as reported last quarter. We are pleased to report that we have made progress reversing that negative trend and were able to reduce DSO by four days in the quarter and expect additional improvement through the end of the year.

We ended the quarter with $17.6 million in cash and short-term investments, and $50 million outstanding on our line of credit, compared to 4.9 and $30 million respectively at the year end. No shares of the company stock were repurchased in the quarter and approximately $1.8 million remain on the 2007 repurchase plan. Average weekly line haul tonnage increased 7.1%, and average shipment size for Q3, driven in part by an increase in heavier airline shipments was up 6.7%, to 773 pounds per shipment. Shipment count was up approximately 2%. We ended the quarter with 83 airport to airport terminals and 24 air solutions terminals.

Guidance for the first quarter is as follows. We anticipate revenue coming in between 14 and 19%, while EPS is expected to be between $0.40 and $0.44 per share. That concludes our comments. Now back to the operator for your questions.

Thank you. The floor is now open for your questions. (OPERATOR INSTRUCTIONS). Participants may ask as many questions as they would like. But you may not re-enter the queue. And our first question will come from the line of Alex Brand with Stephens. Please proceed.

Thanks. Good morning, guys. Let me start with a question on the costs. On your line haul PT, I didn't expect to see sequentially that get worse since your tonnage was still growing. Is there something that accounts for that going back up as a percentage of revenue?

Are you taking the total PT?

Just the line haul PT from Q2 to Q3. I mean it had done such a good job in Q2, and I just want to make sure that I understand if there is anything unusual that drove it back up a bit in Q3.

It was a pickup, we implemented a driver pay increase in the quarter, Alex, in Q3, which resulted in about -- in dollars, about a quarter million. About $250,000 annualized, so it would be closer to five per quarter.

Okay. That would explain it. And can you -- I know it would be a guess, at best, but if you pulled out Pinch and Blackhawk, do you have any idea what your tonnage would look like, what that sort of core -- what I guess is shrinking now, what that would look like?

Alex, as you know we talked about that before. It is a bit of a blur. In Q4, it was a point or two intuitively, looking at some other data, we feel like we're down organically, if you will, 4 or 5%.

And as your tonnage progressed through the quarter, I assume that you had that surprising quarter where July was the better month, and September was unusually weak, can you quantify what that looked like sort of as we progress through the quarter, and sort of what the trend line looks like for October?

I think perhaps you've overstated it a bit. And maybe that is the result of an environment we live in. July was okay. August was okay. And September was okay. What wasn't okay was we never got any kind of pop like we typically would expect to receive at the end of the quarter. We did receive some, but not much.

So I mean I read the same things you do, and people talk about July was great. I thought July was okay. I thought August was okay. And again, I thought September was okay. We're just missing the pop. As we look at October, without question, that trend has continued into the quarter. There is not a peak.

And actually, we've been saying this for six months, we didn't think there would be a peak, there is not a peak occurring, and outside of our solutions business, which is doing very well. But in airport to airport, it is just moving along. I think last week, we were up 1%. Is that right? On volume, so you know, it is just kind of a ho-hum month to date.

Okay. And then last question for me, and I will turn it over, your I.T. system in solutions is sort of the key, as I understand it, at least, to significantly improving profitability in that division in '09. How good do you feel about finishing that, and sort of getting those efficiencies and getting that profitability up to where you would like it.

Well, I mean I.T. is certainly an important part of that, but there are a few others. One of them we touched on earlier, we had to get the density and the geographic footprint where we can go to customers and say we can handle this entire area for you. And then secondly, that allows us to drive the actual delivery trucks with more density, which is basically a higher profit opportunity for us when that occurs. The I.T. supports all of that. And our group in Dallas, they made great strides, and we have piecemealed some of it out as introductory phase-in but it is not all there yet. It wasn't expected to be there yet. But we are very comfortable with where they are today and where we think they will be in the next few months with that.

So net-net, your confidence and significant profitability improvement in solutions is pretty high.

Yes, we feel good about solutions right now. We've done a lot of work, and in particular, Scott and Jerry and that group, taking it literally from the dark ages to where they are now. We've got more work to do. But they're doing much, much better, having all kinds -- I shouldn't say all kinds, having some real individual customers successes so it is not being built just on our acquisitions. We now have them, as we said earlier, at a size that we're comfortable with, that we can think it is a platform to take us into the future.

Okay. Bruce, Rodney, thanks for the time.

Thank you.

And our next question will come from the line of John Langenfeld with Robert W. Baird. Please proceed.

Good morning. Bruce, can you just reflect on kind of the earnings cyclicality here, and maybe just kind of flashback to the early 2000s, I mean I think you have a much better model, a much better position, but when you kind of think through, how bad earnings got last cycle, there were quarters in there when were you down 20, 30%, what is different about the model as it relates to the core business? Not the solutions side, but as it relates to the core business today that helps you kind of maintain your earnings, if not grow them in this type of environment?

I think the key, John, has been completing the model initiatives where we're not totally reliant on the airport to airport, again, that is a wonderful business, it generates cash, and all the positives you could want, but it is going to go through pullbacks like any other business, and part of the criteria behind those initiatives, both the complete, and the TLX was to give us a more stable platform as we go through economic downturns, and in fact, that's occurred. So we're real happy with that.

And wasn't your business mix, you had more reliance on true air freight type business, versus kind of the ground line haul type business at that point, and I mean I know it all still went through the ground but wasn't that also through the earnings cyclicality as well as the pricing being much more aggressive, because of some alternatives that were out there at that time that aren't there today?

I think those are all fair statements. It is very hard to quantify your initial statement, because who knows. But I think you're right, and I think the competitive landscape, you're absolutely right on. So all of those have been a positive this cycle, too.

Do you think if the environment just stays like you've been seeing this ho-hum environment for the next 12 months, and can you grow earnings? Are there enough levers in the company to do that?

There is one side of us that says we kind of like for it to be tough for the next three, six, nine, months, because we will see a landscape change like we've never seen before. And I don't need to elaborate on that. On the other side, we're not counting on that. What we're counting on, when revenue growth becomes tough, your alternative at that point is to control costs. And we've challenged our people, and they've already done a superb job, and we're going to continue to push that very, very hard, to control the costs of it, and in fact, we can't lever those things that you talked about earlier. On top of that, we continue to show nice growth, revenue growth on both complete and TLX as we discussed earlier and that's just so critical during a difficult time like this.

So those are the positives that -- the negatives would be, the negative leverage would then be the line haul, but it sounds like you feel you have enough leverage to offset that.

I hate to predict, but I really think we've got a grip on the PT, and as we go forward in the quarter, we're going to get better and better. We added a number of owner-operators to our fleet this quarter, primarily to get away from the more expensive outside carriage. We had worked very hard on empty lanes, and any type -- if you improve empty lanes by 1%, that is 1% to the bottom. So we have just really worked that area, Jeff, and Tim Parker and that group have really done a good job in fine tuning, and any place we can make an improvement, we do. Now, we work hard on controlling discretionary costs, but as you well know, in other, the big bucks are on the PT, and that's where we have to make the strides.

And how would you characterize pricing as you move through the quarter relative to what you've been seeing over the previous six months?

I would say overall it is stable. We have pockets where we get into some issues, but overall, there appears to be some sanity out there.

And those issues, though, those pockets of issues were you talking about those six months ago, right?

Right and we will be talking about those three and six years from now.

Okay. And then on the solutions side, we've seen kind of this come in a bit below expectations here, I know it is not a big needle mover one way or another, but in terms of the profit line coming a bit below expectations for the last several quarters, but you sound like you have a lot of confidence in the business on the right track. I mean how confident are you, again, even in this type of environment, that you can get this solidly on a double digit type margin clip as you leave next year, which I think was your target.

Put a number on, it above 70, 75%. This group has done a really good job. Part of what we had to do was put them in position to be successful. As we told you now and others throughout the year, we are approaching '08 not on a short-term basis of making money in solutions but on a longer-term basis of positioning this operating group to be very successful in the future. We think we have done a lot of that.

We have work left to do there. But we like this business. We think within the next three to six months, it is really going to take off on its own. And then it is going to act just like our truckload brokerage and our forward air complete group. In that it is going to give aus little bit more -- give us a little bit more variety in our revenue sources so we can tend to stabilize our revenue base as opposed to be totally dependent on airport to airport.

Good color, Bruce. Thank you.

Thank you very much.

And our next question will come from the line of Ken Hoexter with Merrill Lynch. Please proceed.

Great. Good morning. Bruce, just to follow on that solutions line of questioning, I know -- I think the earlier questions were you saying there were I.T. issues that need to get resolved in order to get profitability up. Are there other investments you're making right now that as we move forward you won't have more, and then I guess when you look toward that '09 target, are you thinking about continuing to make even more acquisitions within that solutions sector?

Ken, our investment side, there will be minimal. We are putting in some automation, some conveyor, that type of thing, not huge dollars. And we probably will do some equipment replacing next year, but that will be minimal. As we really scale back our cap ex going into '09. I.T. is important to them. But it is not -- I mean they've had to operate all of this time without I.T. , so it is not like it is something that can't be done. We just think it is critical to help us make us better and be better managers in that area.

So all of those things are important. But we can still hit our goals if necessary. And we would look at buying somebody in this market, only as it represented a really, really good opportunity. And the reason we've slowed down on that is not the environment, but we think we can -- if we need to operate in a geographic area where we aren't today, that as we establish rapport and good relations with the customer base, we can go to them and try to build it on a de novo basis. Having said that if a deal comes along that was too good to pass up, we would probably do that, but it is not on our screen

Okay. And so without -- I guess as I think Rodney mentioned on the solutions side, you're not seeing that great of a slowdown on the retail side within solutions yet, or are you seeing that portion of the business start to get impacted?

I know what you read, it is the same thing I read, hand comes somewhat as a shock, but we don't see it. And not only that, but from some of the customers, we get basically a three-month forecast from them, as to their volumes that they will be shoving through the network. And in both the cases, and these are two large retailers, their volumes are up. Now, I can't bring that back and reconcile it with what we read. I'm just telling you what we see.

Is that because they are eliminating more traditional type of carriers for this product? Or is that how you would view it then?

No, the only way -- they've always done business this way, so the only way I can reconcile it it is they're selling more product in their store. Again, that does not coincide with what you're hearing on the street.

Okay. And then you mentioned CapEx, you're going to cut it into next year. Did you set what your target is?

We will have all of that established probably within the month. And certainly we will release it then. We have minimal spending to do next year as opposed to past years. We will clean up our Dallas -- our new terminal in Dallas. That will consume a decent amount of money. And really beyond that, we will have some I.T. spend, as we always do, because we believe in continuing our investment in that area, regardless of the economic times. And beyond that, we will not have any spend.

Okay. Just last quick numbers question. Did you quantify what you paid for Solutions Express?

We did not.

Can you, or is there a reason why -- is it too small or is it in the K?

It is in the Q. It will be in the Q.

In the Q.

What was it? 12.5. It is not like it was --

10.5. 10.5.

It's disclosed now. If it is in the Q, you might as well.

Thank you very much, Bruce. Thanks, Rodney.

And our next question will come from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed.

Hey, good morning, Bruce and Rodney.

Hi, Todd.

Hey, Bruce, back on the airport to airport network, can you talk a little bit about certainly the tonnage, I mean is your sense that, the decline in your organic tonnage during the quarter, is all of that macro related or do you get a sense that there is a shift in some of the tonnage going to different loads and more traditional LTL and more traditional truckload as some of the shippers are looking to reduce costs in this environment, or do you think it is pretty much related to the macro environment?

Todd, pardon me. I think it is probably 98% related to the environment. And that's what our customers are telling us.

And then I guess on the cost side then, we've always looked at you guys as running a pretty lean operation. What specifically are the lever thats you can pull to reduce costs. Obviously it sounds like some issues on the transportation side, but as far as cost savings or anything else outside of the PT side, what are the biggest opportunities that have you right now.

Well, obviously, as you say, the PT is our biggest opportunity. And also the most difficult. So a lot of effort will go into that as the quarter goes on. And then when you get into the all other category, it is literally -- as many as 500 items that you have to oversee, the big ones there, obviously you have to control your labor, spend both on the dock and office and other function that you would expect. And that is probably your next biggest opportunity. And then when you get beyond that, it is literally a day to day managing of everything right down to the smallest items during these times. Our people are skilled at this. They understand how to do it. We have a great management team that oversees it to make sure that occurs and I can promise you that's what we're doing these days.

Okay. And then on the PT side, I'm not sure you've given this before, but right now how much of your capacity is being sourced through owner/operators in your network versus third party carriers?

That changes with the volumes, obviously. I can tell you traditionally our goal was to get it down below 10% of outside carriage. Again, because of the cost considerations. And also, the quality considerations, better service, and they have been -- they have taken that as low as 7, 7.5, 8% in recent months. Or weeks. Pardon me. And that's big.

Okay. And then just a couple of things on the solutions side. I guess if I do the math right on the recent acquisitions, it looks like you've acquired somewhere between 75 or $80 million of revenue. What sort of run rate should we think about that as we get into 2009? It sounds like that there has been some growth or some account wins within the segment here during the quarter. Is that a 10% grower, as we get into next year? Does a lot of it depend on the environment? There is a lot of opportunity in the niche you're building out and the presence in the market.

I think minimum we expect 10% growth from them next year. That is aside from any acquisition. If you will recall, we purchased USA carriers in August of last year. And then within a short period of time, lost a certain customer there. And so the only comparison, let me go back, the only comparison we can do today is go back and look at what we were doing a year ago, versus today, without the Service and the Pinch acquisitions. So having said that, comparing where we are today, versus USA Carriers, our organic growth, even with the loss of the large customers, was 6% last month, so we're real happy with the fact that while they've lost the large customer, we've been able to go in and replace that business. We think we can continue that next year.

Okay. And just most of the -- like the account wins or the growth on that side of the business is, that with customers that maybe came from USA Carriers and as you do an acquisition in a different geographic area you're doing more business with those customers or is it doing business with new customers, in the geographic area, that USA Carriers was, and you are just growing the USA Carriers business.

Yes and yes.

Okay. Any additional color around that?

Well, that is obviously a selling point. We go out out and if we do business with X, Y and Z and then we make an acquisition and that allows us to service Atlanta, as an example, we will cross-sell that geographic territory, and that is a critical component of building this, that we've had some success with. A lot of remains to be done. But that is a key thing. On the other hand, we look to diversify this product line, and who they do business with. We love the retailers. We have not seen the ups and downs that perhaps a lot of people expect there. And perhaps we will down the road. But we have not yet. But we do see the need to diversify into different product lines besides just retail. I mean we're working very hard on that. And we will continue that push.

So what are the other opportunities outside of retail? I mean what would be like a tradition or what would be a market where this product would --

Any market, Todd, where you would have a shipper who could have enough density to hit a certain area, you could have a dealer network in and around the city of Atlanta, for instance, and be manufacturing all of his product or distributing it from Moline, Illinois. So we would offer them the advantage of not having to ship LTL, but to ship it in a pool which would be more efficient for them. So there are a lot of different product lines. There are drug opportunities, legal drug opportunities.

And an important qualification.

I kind of thought that.

And just one last one here, how much revenue, and if any, earnings are in the fourth quarter from the service acquisition?

$0.02 I think we have in it. I can tell that you the fourth quarter, we -- you know, people are a little bit concerned about our guidance. I can tell you that it is not that we're negative to the fourth quarter, it is just that we've never been through a time nor has anybody else quite like this. We're not going to come out and shoot off the hip and tell you it is going to be wonderful or it is going to be bad. We simply don't know. Anybody in our sector who tells you that knows what is going to happen in the fourth quarter, I suggest you not go trick-or-treating with them, because you're going to be in for a bad time.

Okay. Just to be clear, the $0.02 is from Service Express or the $0.02 is for all solutions.

Todd, if I could, you asked revenue, we're estimated revenue around $12 million for service in the fourth quarter, and it was $0.01 accretive as opposed to the $0.02 contributed.

Okay. Thanks a lot for the time, guys. We will talk to you soon.

And our next question will come from the line of Edward Wolfe with Wolfe Research. Please proceed.

Hey, Bruce. Hi, Rodney. If you said this, forgive me, but did you talk about what the yields and tonnage growth internal net of the acquisitions were in the quarter?

Our yield was basically slightly up year-over-year. Tonnage growth, as Rodney had talked on a quarter over quarter basis, pulling out -- well, you want it without the acquisition, Ed?

Yes.

Without the acquisition, Ed, that is a tough one, but it is negative four, negative five.

That's for the quarter?

Yes.

And what is it -- and you had said something about negative one for October, or the last week of October. Is that the equivalent of the positive seven that you reported or the positive equivalent of the negative four, five. I am guessing it is the equivalent of the positive seven.

Correct.

So we should assume that internal growth is down almost double digits at this point?

Not quite.

How do we think about the fuel impact in the quarter? What are the puts and takes?

We obviously buy more fuel now. Primarily for our solutions group. So that has an impact on us. We continue to, as most company does, charge a fuel surcharge. That tends to be an offset. We charge a fuel surcharge on the solutions side where we then go back in and measure, trying to make sure that we get renumerated as we should. So overall, it is probably slightly positive.

And is there any impact on revenue or other on the line haul piece, or is that eliminated? When you pay the owner-operators?

Do you count the fuel surcharge in the revenue?

Yes, we do.

But then it is 100% passed through the owner-operators or can you, when fuel is quickly coming down, make a little and when it is going up, get hurt a little.

We do not have a truckload advantage. What we pass through to the owner-operator, Ed, is a rate per mile. What we charge the customer in the airport to airport side is a rate per pound which means that if we have a strong load average on any given load, we will make money on the fuel surcharge. However, if we have a weak load average or an empty move, we will lose. Because owner-operator gets paid regardless.

Okay. On the pooling side, the solutions side, the margin right now is zero. Where should that be in two, three, four years in a normal economy, and in a not normal economy, in a weakening economy, when you're putting a lot of things together, where should that be in the near term?

We want a near-term minimum of a 7, 8, 9% return there, Ed. And as the economy returns to more normalcy, we want them into the 10 to 15 range. They should be in the 10 to 15 range. Any fourth quarter, as long as they stay concentrated on the retail side, because of obvious reasons. The trick there is we've got to get them more profitable in the first three quarters of the year, which we think we can do.

So you think this quarter, they could be in the 10 to 15 range?

We would like to see that, yes.

So based on your guidance, that means that the line haul business will be down a bit even though their margin improved in the third quarter?

Based on guidance, yes. I want to be clear on that. I would like to see them do that. We did not build our guidance around that.

What is in your assumption, more the 7 to 9 for fourth quarter?

Yes.

Okay. And so just in thinking about pooling, what you're saying is even now, you have a chance to get the 10 to 15, in the fourth quarter, but the first three quarters are going to be somewhat flattish and the goal is to make all of those quarters get into the 5% range, and then get into the 15 in the fourth, and then when you average it all up, you're getting closer to the 10 to 15 range. Am I thinking about that right?

That's correct. And the second issue, Ed is to bring solutions into our solutions group that is not historically retail. We want to bring other products in, which would allow them greater revenue in the first three quarters of the year to kind of smooth that over as opposed to we're doing everything for the fourth quarter.

And what percentage retail right now?

100% retail.

Okay.

Rodney, the tax rate for '09, you gave us guidance for the fourth quarter of over 39. Are we back to 38 or so for '09? How do we think about that?

Ed, in '09, it will consistently be in the low 39s. 39.3, 39.4. Bruce, should we assume right now your appetite for acquisitions is diminished going forward or are you still looking?

For the right one, we would do it. But our goal this year is the position as we said earlier, the solutions group and get them where they needed to be. We've accomplished that. We're happy with that. If something came along today, again, as we said earlier, that was the right one, we would jump it. But right now, we're not. We're not active involved in it.

And last question and I will let someone else have it. YRCW obviously in a lot of pain. Are you starting to see opportunities? And if so, where would it be, from Yellow, is it in their Exact Express, is it in their regional business, their long haul business? What kind of stuff, they have so much revenue all over the place I'm guessing there is some opportunity.

I can tell you what the customers say on the airport to airport side, when they see Yellow business, that is business they go after, Ed. So we can presume from that that we are seeing a little bit of bleed-off there. But certainly that is not quantifiable and I'm just sharing with you what they tell us. We do see a little bit of business on the pool side. They have a fairly large pool operation similar to our solutions group. And we have seen some opportunities there.

And am I thinking about that right, on the airport side, that where your customers is probably seeing it, that Exact Express, the near air freight product --

I think that is probably a fair statement, yes.

Thanks a lot. Appreciate the time, guys.

Thank you.

And our next question will come from the line of Art Hatfield with Morgan Keegan. Please proceed.

Thank you. Good morning, Bruce and Rodney. Bruce, and maybe Rodney can answer this, you've answered a lot of questions here, but I'm kind of curious, have you seen the credit quality of any of your customers deteriorate in the last quarter or two? And if not, how do you kind of stay ahead of that curve if things worsen in the economic environment, and we see a lot more retailer bankruptcies and how that may impact the finances of your customers and ultimately you, if things do worsen?

Art, we keep -- it is nothing new around here. Our customers are freight forwarders, which is probably the most challenging customer from a elections standpoint, and you throw the airlines in the mix, and it is a really tough situation. But we put some additional horse power into our AR group, and really redesigned the entire group, focusing people on various areas, including the airlines, and the pool customers, and Mike McClain and Terry Woods, and Leslie have done a fantastic job mitigating that risk. Is there more risk today than there was two quarters ago? Without a doubt. But we're on top of it. We have these guys, these guys are just hammering on these customers on literally a daily basis.

It is fair to say that you have increased costs in that area, and so that is somewhat already built into the cost structure.

It is.

Okay: Thank you. That's very helpful.

And our next question will come from the line of David Campbell with Thompson Davis and Company. Please proceed. Good morning, everybody. I wanted to ask you what you thought about the decrease in domestic air lift capacity in September by the airlines, substantially bigger decrease than we've ever seen before. Is that a help or a problem in capturing more business?

Probably a help, David. You know, they were probably a year late pulling out the capacity, and so as a result, it wasn't that big of a day to day issue for us. Or I think anybody else.

A year late, you mean you had already anticipated it was going to happen and customers had already shifted to ground modes?

Or there is no freight to shift. They are just not going to put it in the air today. Minimal what is going to be put in the air.

Right. Okay. And with fuel prices down, your fuel surcharge revenues will be lower in the fourth quarter than the third. Is that not correct? Yes. And so that is incorporated in your revenue forecast? Yes, sir. Good. Is there some possibility that you could be high on the revenue forecast because fuel keeps going down? There is a possibility we could be high, low, in between. But we think it is the right number. But it should help your purchase transportation ratio versus revenue, right? Yes. In fact, on our solutions group, because they obviously pay directly for their fuel. Right, right, right. Well, that is a different type of operation. Okay. Well, thanks. I appreciate your help. Thank you.

And our next question will come from the line of John Mims with BB&T Capital Markets. Please proceed.

Good morning, guys. Most of my questions have been answered, but the last couple of quarters I know you've been focused on acquisitions but at $22 or $22.40 right now, does the share buyback gain some momentum, or is that still kind of a back burner project?

Back burner right now, John. The day may come where we bring it back, but right now, we're doing everything we can reasonably to generate cash.

Okay. That makes sense. And just to clarify, you may have already said this, but in Q3, or going forward, are you going to make any modifications to the network, the line haul network, as far as pulling down direct lanes and is there more volume going through the Columbus hub? Or can you add some color on that?

Well, we basically review that on a daily basis. So it is an ongoing process. It is never a gee, let's stop and take a look at this. We have people who, that's their full-time job is to make sure that our route structure is set up properly, if they start seeing weak lanes, and for instance, if it is a direct avoiding the hub, and all of a sudden, they see that that load average is pulling, they will change that route structure right then. So we don't do it after the fact. We try to catch it beforehand.

So that makes sense. All right. That's it. Thanks. And great quarter, guys.

Our next question will come from the line of David Ross with Stifel Nicolaus. Please proceed.

Good morning, gentlemen. Just a real quick question on the integration. I remember at the end of the last quarter, you were talking about the integration of Pinch and Blackhawk being almost fully divested and not quite. And in this release, you're making great progress toward completing the integration of Pinch. How close are you to doing that? What is the holdup? And is there any issue of integrating service?

Actually on the Pinch David, I would say we're 90, 95% of where we need to be. We've got a few other cleanup issues but they've really done a good job in the quarter. Service was much simpler, much easier. We do have some ongoing normal issues, I would call them, from an acquisition that wasn't quite as chaotic as what we had to go through in Pinch. And he we will get that -- we will get that put to bed this quarter and be ready to go in '09 but nothing big on the service side.

Thank you very much.

Thank you.

Thank you for joining us for today's Forward Air Corporation third quarter 2008 earnings conference call. And please remember the web cast will be available on the IR section of the Forward Air website, shortly after this call. Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.