Forward Air Corp (Delaware) (FWRD) 2008 Q4 法說會逐字稿

Thank you for joining Forward Air Corporation fourth quarter 2008 earning release conference call. Before we begin I'd like to point out that both the press release and this call are assessable on the industrial section of Forward Air's website at www.forwardair.

With us this morning is our Chairman, President and CEO, Bruce Campbell and CFO and Senior Vice President, Rodney Bell. By now you should have received the press release announcing fourth quarter 2008 results which were furnished to the SEC on Form 10-K and on the wire yesterday after the market closed.

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 are not the statements of historical facts may be deemed to be forward-looking statements. Without limiting the forgoing words such as believe, anticipate, 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 any forward-looking statement whether as a new result of new information, future events or otherwise. And now I'll turn the call over to Bruce Campbell, Chairman President and Chief Executive Officer.

Good morning. Thank you operator and thanks to each of you for joining us this morning. Stating the obvious, the fourth quarter was the toughest quarter in the history of the Company marked by the largest and quickest decline in volume that I have ever witnessed in over 30 years of experience. To use the word we now hear often in this economic environment, it was unprecedented. However, the environment is what it is and with no likely near term improvement, our mission has been and will continue to be to adjust to it as quickly as possible without harming the long-term core strength of our company.

To do just that, we have implemented back in December a three prong strategy which consists of the following key initiatives. First, the most obvious initiative was to attack cost even greater than before. We literally went line by line challenging either the need of the expense at all or how much could we reduce it. Secondly, we readdressed productivity again to make sure we are the most efficient Company possible in all the key productivity areas. And finally we are aggressively pursuing every revenue opportunity to make sure we are doing everything within our power to bring it on board. While we have unfortunately had to make across the board personnel cuts, we have made few changes to our sales group to allow us the resources necessary to bring on new revenue.

Even with the implementation of the key initiatives just listed I am not here to sugar coat what is going to be a difficult period not only in the history of Forward Air but in the history of the industry in general. While none of us like what we are facing, we do have three key positive factors that will help us get through this difficult period of time stronger than ever and they are a strong and experienced team of professionals that will see us through with skill and savvy. Secondly led by these professionals we continue to provide unprecedented levels of value to our customers achieving record levels of service and quality while providing our customers a wider array of product offerings. And finally we continue to generate cash.

We will weather this storm finding ways to become better and more efficient every day and when the environment finally improves and it will, we will be stronger and a more profitable company than ever before imagined. 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 line for your questions. Revenue for the fourth quarter 2008 increased 8% to $123.4 million from $114.5 million in Q4 '07. That 8% increase breaks down as follows. Pull distribution revenues from our Forward Air solutions segment more than doubled to $22.5 million driven by the late Q3 acquisition of Service Express and our March acquisition of Pinch Transportation.

Within our Forward Air, Inc. segment our logistics group had another impressive quarter increasing revenue 38.6% or $4.6 million to $16.6 million while other revenue grew 20.7% to $6.7 million. Driven by the severe late quarter drop off in the economy, our core airport-to-airport business declined $8.3 million or 9.7% to $77.7 million. Sequential volumes declined 6%, 4% and 25% for October, November and December respectively ending the quarter down 11% in the aggregate. As mentioned in our earnings release, the levels of tonnage decline experienced in December had persisted into 2009. Yield inclusive of the benefit of fuel surcharge was down 1.7% without the inclusion of net fuel revenues or the impact of Forward Air Complete, yield was down 3.5%. The decline in year-over-year pure yield is abating as we begin the grandfather lower yielding short haul business that increased with our Blackhawk acquisition as well as additional lower yielding airline business.

Within the quarter we began to realize the reduction in year-over-year benefit and net fuel surcharge revenues as the price of our diesel and corresponding surcharge decreased dramatically. If fuel remains at its current levels the unfavorable year-over-year comparable makes for a substantial headwind going into 2009.

Next I will comment on the expenses in the quarter as well as provide hopefully some visibility in the first quarter as it relates the those expenses. Purchased transportation decreased 50 basis points to 39.5% of revenue. We are very pleased with how we've been able to manage our network PT at our current business levels. Our team remains focused on sustaining good load factors and we've been able to reduce more costly third party miles with our owner operator miles. There was some plan decline in gross margins in logistics PT in order to provide balance to the network. At current business levels we feel confident that we can maintain Purchased Transportation as a percentage of revenue into Q1.

Salaries, wages and benefits were up 180 basis points to 26% of revenue driven primarily from not being able to right size our airport-to-airport labor pool as quickly as volumes declined. This was offset by $1.5 million benefit of the reversal of our accrued executive incentives in the fourth quarter. To a lesser extent, we were negatively impacted by increased share-based compensation consistent with the last two quarters as well as higher healthcare cost. Share-based comp will remain relatively consistent in dollars to 2008 and we have tweaked our health plan in order to hold expenses constant.

In the month of January we were able to adjust our variable wages to current business levels. Additionally within the month we completed our second round of management cuts in our ongoing challenge to right size headcount. Operating leases were up 200 basis points to 6.1% of revenue. Leasehold as well as leased equipment have increased as a result of our last three acquisitions. In response we have been successful in turning in higher cost, leased equipment and in some instances been able to renegotiate the facility leases. In both cases this is an ongoing process and we expect limited impact in the first quarter.

Depreciation and amortization was up 120 basis points to 3.8% of revenue resulting primarily from the DNA on equipment and intangibles that resulted from our last three acquisitions. With minimal CapEx for 2009, this expense should remain constant at Q4 levels throughout the year. Insurance and claims were essentially flat for the quarter in whole dollars as well as a percentage of revenue, we anticipate no material change in our insurance expense for 2009. Fuel was up 130 basis points to 2.4% due to additional owned and leased equipment, revenue equipment resulting from our last three acquisitions. Subject to a rise and fall in diesel prices, this expense should remain relatively constant for the year. Other expenses were up 60 basis points to 8.8% of revenue resulting from higher maintenance cost on acquisition related equipment and increased bad debt resulting primarily from the bankruptcy of one major customer.

Our operating ratios slipped 620 basis points to $88.7 million from $82.5 million in the fourth quarter last year. 200 basis points can directly be attributed to the disappointing performance of our solutions pool distribution segment. The majority of the remaining 420 basis points decline resulted from the severe economic downturn in the quarter which added to the shift revenue mix in our Forward Air, Inc. business segment. Net income per diluted share for the fourth quarter was $0.29 per share which was a 14% decline from the $0.43 posted last year. EPS for the full quarter was down $0.03 to $1.47 from $1.50 a year ago.

Other key metrics operating data are as follows. Total assets increased to $307.5 million from $241.9 million at the end of 2007. Cash flow from operations was $21.1 million in the fourth quarter compared to $18.6 million in the fourth quarter of last year and $59 million for 2008 versus $62.4 million in 2007. Our cash position for the year increased $17.2 million to $22.1 million. At year end and currently we have $42 million available on our $100 million line of credit. Our days sales outstanding was 43 days at year end compared to 56 days at the end of the third quarter and 48 days at the end of 2007. As you will recall we struggled in this area mid-year which prompted us to bring in additional resources.

So now in times when cash flow and managing credit risk is so important we are back in good shape. Cash collections as well as cash flow remains strong thus far to 2009, a special thanks to Terry and Leslie and the entire collections team for their efforts there. CapEx for the quarter was $14 million and $26.7 million for the year. CapEx for 2009 will be $19.6 million which includes the remaining $14 million to complete our Dallas terminal with a balance of $5.6 million budgeted primarily for technology enhancements. Average weekly (inaudible) was down 9.9% for the quarter average shipment size was down 4.1% or 736 pounds. Shipment count for the quarter was down 7.5%. Terminal count was 82 cities for Forward Air, Inc.and 19 cities for our Forward Air solutions segment. Assuming the current economic conditions persist, we anticipate first quarter year-over-year revenue from Forward Air, Inc. to decline between 10% and 15% while our Forward Air solutions revenues should approximately double on the strength of the last two acquisitions. We expect earnings per share to be between $0.10 and $0.15 per share. That concludes our comments now back to the Operator for your questions.

Thank you. (Operator Instructions) Your first question is from the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Good morning Bruce. Good morning Rodney.

Hey Todd.

Bruce or Rodney Can you go back over the yield trends during the quarter? And just talk a little bit where yield ended up at the end of the quarter? And then the impact of the fuel comparisons going into the first quarter of this year?

The yield basically was negative throughout the year primarily driven by our entry into shorter haul business. So it was anticipated from that standpoint. The quick and dirty of current yield is that we have seen it stabilize, we are happy to see it stabilize. Part of that was again driven by we are now into a normal comp since we began the short haul operation a year ago. So to this point our yield is holding. We are happy with that, and hopefully it will continue through the quarter.

Last week for instance Todd the yield was down-- pure yield was down 0.3% so we think it has flattened out with the lapsing of that short haul business we talked about. The impact of fuel going in-- as you recall we started fuel the cost of diesel started ramping up in the first quarter last year. I'm not exactly sure when it hit its peak in Q2 or early Q3 and then started back down. So we'll have that headwind to negotiate, but really guessing what fuel is going to do, we don't know.

Okay. That's very helpful. That's perfect. And then I guess you are talking a little bit about the logistics revenue here in the quarter. I was surprised to see it up nearly 40% and it sounds like during the prepared comments that there was some internal effort to do some network balancing. Can you talk specifically about what you are doing there? And then also what's the driver for the net revenue margin for logistic segment, revenue was up but-- net revenue margin was a little bit lower than what we would have expected so maybe a little bit about the dynamics going on with that mix?

Basically let me start with this. That group continues to do an outstanding job of attracting more and more business, and in particular as you noted in helping us reduce empty lanes in the Forward Air airport-to-airport network. Now they really deal with two kinds of truckload business. The first is normal truckload business where we give a price, and then we haul it. We are able in most cases to protect that margin and have the margin exactly where we want it to be.

However, when we look at balancing the big network, we will accept lower margins because of the additional benefits that are provided to us in the airport-to-airport portion of our business. The classic example is if we can get more and more power to the West Coast Forward Air power with these lower rated truckloads, we are able to move back truckloads from the West Coast to the East Coast at a much cheaper price than if we had to broker those loads. So you'll see us give up margin if it benefits the Forward Air airport-to-airport, otherwise we don't give up margins. So not trying to make it sound confusing, but we were okay with their margin erosion. It wasn't that much number one and number two, with their gross we were more than happy with what they've done with it.

That makes sense Bruce and just to be clear, historically the main focus that business has been taking more expedited or specialized type truckload shipments but in a softer environment you will take on plain vanilla, lower margin shipments just to get the balance for the network?

For the network, yes. So when we look at truckload at our TLX group remember we are really looking at two different business propositions, and we will take that vanilla traffic as you just described it so well if it provides us benefits on the other side. Conversely, we tend to shy away from that traffic if it does not provide us benefits on the other side of the business.

Okay. Got you. And then looking at solutions can you talk a little about expectations during the quarter? It seems, this would have been really the second peak that you've had that business and probably the first peak we've had that business more built out with the two acquisitions this year. Can you talk about how things went and my guess is they were weaker than you would have expected given the retail environment but maybe some of the pluses or minuses within that business and then what your expectations would be if the retail environment remains at these levels and what you need to do to get solutions to have either greater contribution or to grow that business?

Let me start by saying we probably could not have timed going into this business any worse, but having said that we continue to believe it's the structure of the business that we like and that when times return to normal, we'll be very, very happy we made these investments. So there's a little bit of short-term pain that we are going to feel for a little while but it's going to work eventually. We should have experienced our second peak as you noted because we did have USA Carriers a year ago in the '07 fourth quarter, but in the '08 fourth quarter there was no peak. I mean, they ramp ed up a little bit but it was nothing to get excited about and as a result they had a tougher quarter than we would have liked.

As we go forward, we are going to do our best to get this business positioned. They continue to have wins as we call it. They have a strong pipeline. They've already brought on three new customers in one month that we experienced in 2009. So from that standpoint, they are doing well. But we have a lot of work to do and in particular we have a lot of work to do in certain geographic locations. If we get that turn, this is going to be a really nice contributor for us, but that is still the word if, and all we can tell you today is that we are working very hard to make that happen.

And with those geographic locations, are those acquisitions you need to make, is that something that you build internally (inaudible) fine tune and improve the operations?

Unless there's a just an unbelievable acquisition opportunity we are not keen on that. We are into the ripe old approach of this is what needs to be fixed and that's where we are headed. Interestingly enough, a number of these term loans are doing extremely well. So as we get the bad ones behind us and again we think we can do that with our own resources as opposed to buying, this is going to be a really nice business.

Okay. Last one and then I'll let somebody else have it. On the expense side it sounds like you guys in the first quarter have managed to do variable cost aspect. Can you quantify a little bit on the management decisions maybe quantify headcount or impact of seller reductions that we can expect either in the first quarter or throughout 2009?

Being the doubting Thomas' that we are what we would like, Todd, is a few more weeks of where we can give validated numbers on the quantifications. We do go so far as to have our human resources group validate, the fact that cuts took place as painful as they are and as much as we don't like making them. So I'm not trying to avoid your question. I would like to have a little bit more quantifiable information before I tell you that. We can tell you that on the personnel side the salary wages and benefits during January, we were okay with where it came in. So we know it's working.

Okay. And okay as a percent of revenue basically is probably the best benchmark?

Yeah.

All right. Thanks a lot for the time.

Thank you.

Your next question is from the line of Tim Denoya with Wolfe Research.

Hi Rodney, Bruce how are you?

Good morning.

Just a quick question on the pricing to get a little bit more into that. With the pure yield, as you said Rodney, down 1.7% and then down 3% X fuel, does that I imply that fuel was still a bit of a benefit in the fourth quarter and if we look out in the first quarter and assume that that swings to a drag and the number of X fuels stabilizes round 3.5%, would that mean that the overall revenue per pound would be down more like mid-single digits like 5%?

It could be. The way the quarter transpired with fuel, we were getting the benefit over the quarter by December it came around to about a push but in the meantime our pure yield because of the grandfather we mentioned, so we have offsetting factors there. I am guessing. I would say the drag of fuel on yield could be somewhere 3% to 5%.

Okay. What's the general roughly on average the lag of fuel surcharge adjustments?

Weekly. We are one week behind all the time.

Thank you very much.

Thank you.

Your next question is from the line of Ken Hoexter with Merrill Lynch. Please go ahead.

Hi. Good morning.

Good morning.

Rodney, can you devil into the logistics? PT really jumped up significantly. I know you expect PT cost to stay at these levels but you did not delve into why PT on the logistics side ran so high. Can you just review that real quickly?

Yes Ken, it was primarily just providing balance to the system as we tried to hold the network cost down and Bruce mentioned earlier essentially when we do have an opportunity to provide balance the network, we are willing to take a lower yielding load to do that.

So it's more about balancing the core airport-to-airport infrastructure?

That's correct.

And then on the solutions side, I want to delve into what levels of demand falloff you've seen. I know-- if I recall you were talking about down 20% but that was for the core mind haul operations that you were seeing in January, February. What about solutions? What demand levels are you seeing on the solutions side?

You have to remember, Ken, that the acquisitions make this a bit cloudy. If you go back and look at when we made the acquisitions it was August of '07 and then we added on Pinch in March of '08 and then turned around and added Service in September of '08. So for us to give you an absolute number is going to be difficult. We obviously will be able to do that post September of this year, but in general what we saw in the stand-alone Companies that we could in fact-- better thing to say would be store-to-store than we had in the year-over-year comp, their businesses were down 10% to 15%. And we didn't go back and look at it in the quarter. What we looked was December over December and that was the big change.

Okay. Thanks, Bruce. And then just to wrap up on the volume side. You talked about-- stabilized down 20%. Are you seeing consistent down 20% from December, January and into early February, or are you seeing any sequential deterioration, acceleration are things really stalled at this down 20% level?

I think that is where it going to settle in. I used to think it would settle in at 5% too. We are not going to rest on that being the right conclusion as we continue to look at methods to make us more productive but right now that is where it's at.

How do you balance out looking at your owner operators giving them enough freight versus not having them sign up and releasing them from the system? How do you look at that for long term and do you balance out the business down to be 20%?

If you recall Ken part of our miles that we would run in a normal environment are run by outside brokers and they give us that cushion that we need to get through those busier times. And during these times, we eliminate those almost 100%. It's been amazing how much we've been able to lower that number. So we go from a high of 10%, 11% using outside carriers to a low of 2% to 3% meaning our owner operators are pulling more and more of our freight, and we watch the utilization of our owner operators very closely so that we are making sure that they can make a living, and that we are using them as efficiently as possible. And then the other area that we stick them into is our TLX group. So if we don't have an airport-to-airport load for one of our own operators, hopefully we will have a brokered load for them to haul, and the cost that they provide us is typically much cheaper than we can buy on the outside. So that part has been a benefit.

Thanks. I appreciate the time Bruce. Rodney thank you.

Your next question is from the line of Art Hatfield from Morgan Keegan. Please go ahead.

Thank you. Good morning, guys. Bruce, when you look at that down 20% in the line haul network, is that-- are you seeing that just your customer business falling off that much or are you having to deal with some incremental competition that you wouldn't be seeing if the economy was in a better situation?

Well first I have to clean up after puking--but we poll our customers all the time and we are in front of our customers all the time, and we don't think we are losing market share. Actually we think we may be improving it. We think it's just a very, very difficult market. Could we be lied to? Yes. But I don't think so. Again we have a core group of over 40 sales people in front of their customers, and you know basically with a few exceptions most of the ones that we talked to, their business levels are down and I can give you an example without naming a name of a very large company where their business on a year-over-year basis is down 39%, which is a staggering number. And again it's just a matter of the economy as opposed to are there any other influences in there.

Great. Next, I don't want to -- I want to get your thought process on where you are at within where the world is today. Can you give us--given what you are seeing right now, what you think your best case and your worst case scenario is to when you can start to see growth and earnings again?

I think that's going to depend initially-- let's go through a couple of phases on that. Initially it will depend on what happens within the sector. I'm not wishing anybody ill luck but if it happens so be it and that will change the environment not only for us but for everybody. And it doesn't necessarily have to be a huge carrier. It can be a number of smaller ones, and you just have to imagine that some of the smaller carriers and other carriers in this business who do not have the financial resources that we and others have, you can't imagine how they survive. So if we see a change in supply, and that's really what I'm talking about, it could recover a little bit quicker than just waiting for the economy. If we don't see that, and we have to tough this out until the economy gets better, we certainly are not planning for anything to get better until perhaps with the emphasis on the word perhaps the fourth quarter, and then we are not jumping up and down saying business is going to be great. So it will be a long tough road unless there are changes in the supply.

Great. That's very helpful Bruce. As always thanks.

Your next question is from the line of David Ross from Stifel Nicolaus. Please go ahead.

Good morning, gentlemen.

Good morning, Dave.

Can you talk about how this downturn is similar to the last downturn? I know it's much worse in the tonnage loss perspective but in terms of your cost initiatives, are there new opportunities now that you are looking at '01, '02 are there fewer cost opportunities because you took a lot of cost back then that might not have returned? Can you talk about the difference between the two times?

I think you are referring to '01, is that correct David?

Correct.

We really didn't feel a very severe drop. I mean it was off without question but nowhere close to this. This downturn at least for Forward Air was as we said earlier very quick and dramatically large. I was shocked by it. You expect a 5% maybe even a 10% but not a 20%. So all that having been said, we were put in a position where we immediately had to go after every cost within the company, and really with no relevance to your point of going back to '01, it just didn't apply this time. I mean it's much more changing than it was in '01.

The star of our ability to adjust the network or adjust our cost structure was our PT our ability to reign that in. They did-- our team a really good job. The ability to reign in variable cost primarily dock labor as a large variable cost-- we did a pretty good job there on a year-over-year, monthly sequential basis. Where we struggled, in terms of getting costs out, were anything which is longer term, and you hate to cut salary heads because you are thinking if it comes back in two months, I need these people. Maybe we can take a little bit of a hit and hang on to them. When you hit that 20%, you can't do that any more. So we had to cut into the infrastructure for Forward Air which none of us enjoyed. We never had to do that before. So that's disheartening but it's the reality of the world and we move on.

A lot of the other expense items and believe me we looked at every single one. You are obligated in some cases where you can't make improvements. You can't lower those costs. So we move on. We don't waste time on it and we go to those areas where we can have an impact. And I think our people have done a really, really good job, and we'll continue to do that. We also now benefit from the product lines or product offerings of both complete and TLX. So we can look at all the negative sides, the positive sides are we are growing those business and thank God we have them now and thank God we invested in them over the last year and a half, two years.

That's helpful. And then also on the airport-to-airport side, can you talk about where the most lost volume is? Is it on domestic Forward Air business, international Forward Air business? Any specific industry segments?

David, it is across the board. It's not geographically. There's no business that hasn't been hit that we can see.

Okay. And then I take it on the Forward Air solutions side as well back on your call in October you said that the retailers anyway weren't seeing a slowdown. I assume that has changed.

That came to a screeching halt in end of November basically.

Okay. And they are three month forecast you get, basically giving you the sign that it is not improving anytime soon?

Right.

Thank you very much.

Thank you.

Your next question is from the line of David Campbell with Thompson Davis & Company. Please go ahead.

Hi Bruce and appreciate your comments and questions. I just wanted to see on the logistics side of the business, you haven't said a whole lot about that for 2009. There seems to be a much larger opportunity in logistics for revenue growth than there is in the core business given it's such a small percentage of the market that you are handling. So what is your outlook on logistics? Is it still influenced by the economy to get any growth out of it in '09? I think your point is very well made, David. It's a wonderful opportunity for us to grow revenue as we go into '09 and in fact they have and they continue to do a really good job. We have forecast the growth at 20%. We think they'll accomplish that regardless of the economy. That is a nice thing to say. They just continue to do a really good job. What has really helped them has been the sales group that we talked about earlier who are actively engaged in trying to solicit and bring more truckload opportunities to the table. They have done a good job and our logistics group has done a good job handling it. So when you look at a lot of doom and gloom and every once in a while there is a twinkling star there. Certainly logistics is our twinkling star. So you didn't see anything negative trends there monthly in the quarter. The only thing I would tell you that is negative there is we are facing more bit activity because obviously shippers realize they can beat the carrier down now. I'm sure the shippers will enjoy me saying that. So they've taken advantage of the situation. So there is a little bit of margin pressure, but not extraordinary. So that's the only negative we have in that group. Yeah. Of course they don't all do the same thing and do it as well as you do either. Well, thank you. Just some help there. Thank you. Thanks.

Your next question is from the line of Jon Langenfeld with Robert W. Baird. Please go ahead.

Bruce on the pricing basis what do you think the airport-to-airport, like-for-like business-- what sort of pricing pressure are you seeing?

Well--our focus-- I have to say this right. We have focused on stabilizing yield which we have done a good job on doing it. We are price competitive. When the kids pick up the dirt balls and throw them up against the wall and they stick and throw a nasty price out there, we have to respond to that. We do that via spot pricing as opposed to permanent pricing and we make the decision and we have a very strong sales group, they make the decision if they are going to match that rate or not or if they can get it perhaps for a little bit more. So we try to keep that very separate where we don't want to give a permanent rate on a dirt ball rate. We would rather just do in the spot market. We have been successful in doing that and that is evidenced by the fact that we have seen a stabilization of our yield. We will work very hard for the balance of the year to stabilize the yield. The other side of that is obviously we don't anticipate being able to increase our yield. If the market were to change, that would be a nice thing to have happened but certainly no plans to do that.

But unlike the rest of the trucking world who have talked about increasing rate pressure, accelerated rate declines, it sounds like what you are saying is look we have taken some actions internally and despite the competitive market we think things are stabilizing out which I assume you attribute to your internal move versus the external market.

I think that is a fair comment, John.

Okay. Competitors, some of the direct competitors you talked about them a little bit earlier, but any sign that there's increasing stress on the horizon given some of the pricing actions they've taken?

When you start offering $0.12 from the East Coast to the West Coast, I would call that very stressful.

Yes that's a pretty dramatic -- is that something you are seeing from multiple players out there or just the couple big ones?

We see it across the board and again every time I comment on it, I get in trouble. It's just pure stupidity. So you either go broke with no freight or you broke hauling freight. It doesn't make a lot of sense to me because the outcome is the same.

The free cash flow side of your business--said look acquisition is probably not a near term priority unless it's an absolute fit. So do you let cash build or do you pay down debt?

We are in the mode of building our cash. We had-- Rodney touched on this in the opening statements. Our collections group has done a wonderful job, and then our group that controls spending. Our terminal managers, all our RVPs they have done a really good job and we have seen our cash position through the first part of the year build very quickly. We are going to hold on to that cash and make a decision later in the year, hopefully we continue to build that cash position as to when and how much we want to pay down debt. But it's really, out of all the negatives that we as a group have gone through the last three, four months it's a wonderful thing to see cash continue to roll in.

Yes. Provide some comfort to. I have to ask. The Armageddon scenario, things keep getting worse. It looks like we end up in a multi-year slowdown. Where do you start cutting in? What are some of the other things you can do versus just looking at line item by line item?

We would go back and review our network structure which would be the first thing we would do to see if we needed to maintain all the overhead structures that we have spread throughout the US. We have had success, as you know, in building these virtual stations. An example is Sacramento which was led by Carol on the West Coast. Where we have service offering into Reno that we handle through Sacramento but we have no facility in Reno so you can make an argument that we can do that at a number of stations across the US. Now that would be dire because we don't like losing that personal touch in cities where there's opportunities and potential to continue to grow, but that's the step we would look at.

And I know you own just a handful of your facilities and the majority of the rest of them are leased but what are the general terms on those operating leases, how long do they extend and do they come up proportionally in terms of renewals?

I think the average you can say of the lease is five years. There are some at three. We do have some that are month-to-month. That is unusual. What we have charged our group with that controls this for us is to on any lease that is either close to expiring, or expiring is to negotiate very hard to get a better deal on it. One of the beauties of Forward Air is four days before the end of the month we send out rent checks and landlords tend to really like us, and during times like this, there's a price to pay for that.

Okay. And then one last question on those lines. If I remember, there was consolidation opportunity in LA if I'm not mistaken kind of predicated on the new facility. Where does that stand?

Actually consolidating in terms of solution and airport-to-airport?

Yeah. Refresh my memory. I thought it was-- yes within the network.

We have five of those online to occur this year. There will be Nashville. Denver is in process. Kansas City is done, just finished, I think. Richmond, Virginia, and Jacksonville, Florida and then on top of that probably the bigger hit will be, assuming we finish our Dallas construction by June 1, today we currently have, this is unbelievable, but from the acquisitions, five leases in Dallas, and when we are able to move into our new facility, you are going to see us lower that cost fairly dramatically.

Yes. Dallas is what I was thinking about. That should occur hopefully here in 2009?

Better occur in 2009.

The other facilities you mentioned were essentially legacy solutions facilities that you'll be rolling into other solution facilities or the line haul network?

Actually it's where we put Forward Air and solutions together.

But are they new facilities?

Yes. They are both existing. And as one of their leases expires we put them into the other assuming of course obviously that the facility will work for both.

So you have five facilities there that you would be able to integrate over a period of time and then you have five facilities in Dallas you would be able to integrate into one?

Right.

Very good. Thanks Bruce.

Thank you.

There are no other questions in queue at this time. Thank you for joining us for today's Forward Air Corporation fourth quarter 2008 conference call. Please remember the webcast will be available shortly after this call on the IR section of Forward Air website at www.forwardair.com. Thank you and have a great day.