Forward Air Corp (Delaware) (FWRD) 2009 Q4 法說會逐字稿

Thank you for joining Forward Air Corporation's fourth quarter 2009 earnings release conference call. Before we begin I'd like to point out that both the press release 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 Chief Financial Officer, Rodney Bell. By now you should have received the press release announcing fourth quarter 2009 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 foregoing words such as believe, anticipate, plan, expect 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 forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

And now I'll turn the presentation over to Bruce Campbell, Chairman, President and Chief Executive Officer.

Thank you, operator, and good morning, and thanks for joining our fourth quarter earnings call. To allow us to get quickly to the financial recap and the question-and-answer session, my comments will be brief.

As you can tell from our results, our airport-to-airport operating segment finally saw strengthening volume numbers on a sequential basis, the first time we've seen any meaningful improvement for a year. Fortunately, our team was able to capitalize on this improvement, and accordingly we saw margins improve.

While we continue to have improved volumes on the year-over-year basis into early 2010, we also continue to lag our 2008 numbers, which are really the meaningful numbers for comparison. We are hopeful we will soon overtake 2008 levels also. All groups within this segment showed improvement, and a special mention goes to our Forward Air Complete team, which continued double digit growth throughout the fourth quarter and into the first quarter of 2010.

Our solutions segment, which is our pool distribution operation, saw both revenue growth and profitability for the quarter, as they should during their peak season. While we were encouraged by our profitability in this segment, we continue to be concerned with the weak consumer spend in the specialty retail market. We are intensely focused on broadening the verticals within solutions, as we must lessen their volatility in the specialty retail market. We continue to believe this segment offers us a great vehicle for the future.

I would be remiss not to thank all the Forward Air employees and independent contractors who make up our team. They have once again worked hard and delivered good results in what is still a tough environment.

And with that, Rodney Bell, our Chief Financial Officer.

Thank you, Bruce. Following our prepared comments, we'll open the lines for your questions. First, one housekeeping note. This is the second quarter that we have included supplemental Forward Air Inc statistics at the end of the earnings release. Yesterday evening in a separate 8-K filing, we provided those same quarterly statistics going back to Q1 2007, hopefully you will find those useful.

Operating revenue for the fourth quarter was $118 million, a decrease of 4.4% from the fourth quarter 2008, and our Forward Air Inc business segment airport-to-airport revenues were $73.3 million, a decrease of $4.4 million or 5.6% as compared to last year. This resulted from a 2% decline in total tonnage and a 3.9% decline in yield. The yield decline consists of minus 3.5% from linehaul pricing, and minus 2.5% from a reduced net fuel surcharges. That was offset by a plus 2.1% from the positive impact of Forward Air Complete, which grew 30.4% compared to Q4 2008.

Logistics revenue were $15.4 million, a decline of $1.2 million or 7.1% compared to Q4 of 2008, as a result of the continued lack of demand and over capacity in the truck load market. Other, which is primarily terminal fee based revenues were $6.1 million, an 8.5% decline compared to last year. Sequentially from Q3 2009, airport-to-airport revenues were up 10% as average weekly tonnage improved 11.5%, while yield declined just over 1%. Logistics revenues improved 17.1% from Q3.

In our Forward Air Solutions segment revenues were $23.2 million, or an increase of 3.1% compared to Q4 2008. This marks the first quarter of 2009 that we have full quarter-over-quarter comparability since our last acquisition was in September of 2008.

Moving to expenses for the fourth quarter, our operations and linehaul teams did another outstanding job managing load factors and network miles, resulting in another good quarter controlling purchase transportation. Salaries and wages were down $414,000 from Q4 '08, a significant quarterly reduction in salaries is masked by a $2 million swing in performance based incentives. In Q4 2008, an accrual adjustment to that resulted in an approximately $1.5 million credit, while this year we had an approximate $1.1 million accrual increase.

Operating leases were down $623,000, resulting from acquisition related equipment being turned in.

Three significant claims drove up insurance and claims expense by $326,000 for the quarter. Our other expense line item, which contains variable as well as some discretionary costs, was down $2.4 million from last year. Good cost controls along with $658,000 of bad debt charge in 2008 accounted for that improvement.

Lastly, our effective tax rate for the quarter was 46.8% compared to 39.1% last year, resulting from the permanent timing difference in our share-based compensation expense against lower EBIT, along with $500,000 of non-standard tax increases. For 2010 we anticipate our tax rate to be approximately 42%.

Our operating ratio was 89.6% for the fourth quarter compared to 88.6% last year, resulting in a 100 basis point deterioration. Compared to the third quarter of 2009, our OR improved 390 basis points. All in all, our Forward Air Inc segments performed as expected with increased profitability that resulted from additional incremental volumes. Solutions (inaudible) contributing $2 million of operating income continued to be challenged by the depressed specialty retail sector.

Net CapEx for the quarter, which consisted primarily of IT spend was $2 million. We project CapEx for 2010 to be approximately $11 million.

Cash increased in Q4 by $14.8 million to end the year at $42 million, and we ended the quarter consistent with the end of Q3 with $50 million outstanding and $39.5 million available on our line of credit.

We finished the quarter with an impressive 43 day DSO compared to 47 days at the end of Q3. Our AR quality remains solid as our collections group remains focused on risk. At the end of the period, Forward Air Inc had 84 cities, 84 terminals, and the solutions segment had 19 terminals in 19 cities.

Assuming no change in the current economic environment, for Q1 2010 we anticipate a year-over-year increase in revenue in the 6% to 10% range, and expect income per diluted share to be between $0.08 and $0.12 per share.

That concludes our comments, now back to the operator for questions.

Thank you. (Operator Instructions). Our first question is from the line of Alex Brand with Stephens Incorporated. Please proceed.

Thanks, guys. Good morning.

Hi Alex.

I'm sorry, I don't think I missed this, but if I did I apologize. Can you tell us what the tonnage trends were by month in the quarter? I assume they were up in December.

We don't have that number in front of us, Alex, but they were up consecutively each month.

Is it fair to assume, then, that with the easier comparisons, that you are seeing the same kind of volume trends now early in 2010?

We are. Let me share with everyone what we are doing internally. While it's easy to say our volumes are up over 2009, it's almost a meaningless comparison. So we not only track that, our real goal is to get back to 2008 numbers. So it's not only looking at how are we doing on a year-over-year basis, but it's how are we doing on a year over a two year basis back to 2008, again that is a much more meaningful number.

With respect to pricing, Bruce, I guess on the one hand it's encouraging your yield stabilized, but can you give some color as to where you think you are, and what I'm asking is, last quarter you said you thought you could pull back on the spot pricing and yield would start to improve. Did you see that start to happen? And what thoughts do you have about, can you actually maybe raise price sometime this year?

Yes. I would assume this will get to our customer base, so the answer is we'd love to raise the rates. The reality of that is we are not sure yet. It's certainly something we are looking at. We haven't had a rate increase in three years, so it's something we believe is appropriate sometime in 2010.

Now go back to what we discussed in the third quarter call, and that was our goal then, and I think we were successful in implementing it, was to stabilize the yield, to stop the downward trend and get it where we could at least say we are not any worse. And we did in fact utilize the methods you talked about, where we limited some of our spotting activity. We continue to spot. We continue to spot where it makes economic sense for both us and our customer, but we weren't doing some of the things that we did earlier in the year. We believe that was a successful program.

We believe as we continue into 2010, as long as we experience volumes where they are today, that we have a little bit more strength on the pricing side, but I want to emphasize it is still a difficult market.

Bruce, how much of the business is spot?

At its peak it was running 10%, 12%. In normal times, it runs between a low side 2% and a high side 5%, just depending on conditions. And we've been able to pull that back down to more acceptable levels.

Just one more question, and I'll let somebody else have it. The airport-to-airport business, the incremental operating margin was like 37.5%. Obviously nothing to sneeze at, but I guess I would have thought it would have been a little higher than that actually, as you began to see volumes recover. Was there anything in the quarter that kept it from being a little higher, or is it just the timing of we haven't seen enough volume growth yet?

There were some moving pieces in there, Rodney touched on briefly, but we experienced two bad claims during the quarter which hurt us. If you will recall, we reversed a year ago some incentive moneys because in the fourth quarter in 2008, we didn't hit incentive so that money came back in, and in the fourth quarter of 2009 we did in fact hit the incentive level, so that expense item climbed. So if you remove those moving pieces, I think you'll find that the incremental rate was about where we expected it to be.

Okay. Thanks a lot, guys. I appreciate the time.

Thank you.

Your next question is from the line of Todd Fowler with Keybanc Capital Markets. Please proceed.

Good morning, everybody.

Hi Todd.

Bruce, just to be clear on the comments on the January tonnage trends, can you help quantify a little bit. I mean, maybe it's easiest for us just to think about where you are at on a year-over-year basis from a comp standpoint, or maybe relative to where you ended December and where you are running in January.

We are basically running in a low double digit percentage in terms of volume. Now, you have to offset that, Todd, obviously with our impact on yield. If you'll recall we got through basically almost all of the first quarter last year, although not all of it, without having a big impact on our yield in 2009, and then the bottom really fell out of it as the year progressed. So our yield comparison year-over-year is a top one. So if we have 15% growth on volume, we typically so far this year are giving up between 5% and 7% of that yield.

That makes second. Just a follow-up on what's going on with the yield, can you talk a little bit about in the fourth quarter, I would think that with the incremental tonnage that you saw, the real strong pick up in tonnage during the quarter, that some of that would have been, where you could have really gone out and gotten favorable pricing. It would have really been that transactional type shipment versus more of a contractual rate. Can you talk about what the break out between spot and contractual was during the fourth quarter from a pricing standpoint on the top line?

I don't have exact numbers in front of me, but our spotting in fact slowed down. Obviously we adjusted to the demand for the market, but it still continues. It was less bad is I guess the way I would put it. Contractually, rates that we have in place typically will cover anywhere from let's say 88% to 95% of the tonnage we move. So, and we have seen a degradation in those rates just as a reaction to the market.

Now, our job as we go into a stronger market, we hope, and we are not sitting her telling you that this market is totally recovered, so we definitely want to temper that outlook, but as that outlook improves we will start trying to get rates up. The simplest way for us to get rates up that has an overall impact on the Company is a general rate increase. Does that help?

That makes sense. It sounds like a lot of the incremental climbs that came in during the fourth quarter came in on the contractual rates and that is really what you are seeing reflected in the yield?

Correct.

Okay, got you. And I guess just shifting gears, talking a little bit about the pool distribution business. A couple of questions, I guess first, what is the expectation for that business from a profitability standpoint? I guess specifically in the first quarter, but as you think about that during the year, I think looking back to 2009 you didn't make money in that business until the fourth quarter. Is that expectation the same or do you think you have your arms around some of the moving parts there to make that profitable sooner than the fourth quarter I guess in 2010?

Let me give you what we would like for it to be and then tell you what we think it will be. What we would like for it to be is to operate the first quarter with like a 5% margin. This business will never be strong in the first quarter . And then we would like for that margin to increase through the second and third quarters to almost a double digit, like a 10% operating margin . And then in the fourth quarter, because of their volatility and they have peak season obviously then, we want to see that margin somewhere around 15%. We think we can do that, but we will need two things to happen.

Number one is, the consumer has to start buying again because each of our customers today, their business, regards to what you hear on CNBC is not strong, and that has a double whammy effect on us, it hurts us.

What that drives for us is the need for this business to diversify in terms of its customer base. There are other verticals which can be placed into pool distribution, and you will see us throughout the year have a big, big marketing and sales push to get us away from our total reliance today on just specialty retail. When we have that done, we believe that this really becomes a solid operating model. It fits. It's very complimentary with our airport-to-airport business, and it does just a lot of positive things. We are not there yet.

So having said all of that, we would be happy to have a break-even in this operating segment during the first quarter, and then start building to the profitability levels that we would like to see even before we get into other verticals. Now, a lot of that in this business in particular is going to be driven by what the

Okay. That's helpful. Two quick follow ups to that, and then I'll turn it over. Number one, what would be the cost associated with the marketing push? Is that going to be external, advertising cost that would come through with that? And then any color or idea that you can give us as to what verticals would make sense to leverage this business into just from a high level perspective to help us conceptually think about where the target would be.

The cost, we've already got stuck in our budget, so we are okay with that. It won't be, we are not talking about $1 million Super Bowl ad here. It's really just strengthening the sales force and strengthening a very rifled approach to the market, which leads to one of the other categories that we can go in, that we can go into, other verticals better said. We've talked about pharmaceuticals in the past. That is certainly one.

But it's really anything that requires precise delivery and has a very tight inventory or better said, a very tight supply chain window where they have to hit certain delivery requirements. So when you say that, it will tend to be a higher priced vertical, meaning we won't be sticking dog food into this product line, but you can look at just about any type of electronic good, any type of pharmaceutical and other areas that we think this is a good application for.

Okay. I won't look for any Betty White Forward Air commercials anytime soon, but thanks a lot.

Your next question is from the line of Nate Brochmann with William Blair & Company. Please proceed.

Good morning, gentlemen.

Good morning.

I wanted to talk a little bit more, Bruce and Rodney, about kind of where the volume is coming from in terms of whether it's because of some of the cross selling opportunities and you mentioned the Forward Air Complete doing really well, whether it's just a general improvement of the overall economy or whether it was due to some emergency shipments that kind of occurred due to some inventory restocking.

I think there is a little bit of yes to all of those questions. Let me give you what we believe is happening. Number one, we believe because the economy is in somewhat of a recovery, and again we want to stress it's not booming time, but it is certainly better than it has been. That inventories have been worked so low that the need for expedited traffic is good, and as a result the need for our service and other expedited providers is good. So that's one area, Nate.

The secondary area we believe is that we are actually taking some share away. So can we quantify that to the Nth degree, no. But we believe there's a portion of our growth that is coming from that.

And in the third, which probably should have been my opening comment, is overall the market is just a little bit better. Again not to over-hype it, but it is better than it was last January thankfully, but it is not as good as it was in January of 2008, and that's really our goal.

And then to be clear a little bit in terms of all those several trends kind of continuing, it feels that even though we are getting into the seasonally slow period from a seasonally stronger period, that those trends still are somewhat evident in the structure right now.

Yes.

Thank you very much.

Thank you.

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

Hi. Good morning. Bruce, can you talk a bit about, on the purchase transportation side, what you are seeing with respect to the capacity with respect to be able to get the drivers to fulfill your purchase transportation side?

Sure. This occurs in every down cycle we've been through, Ken, and that is anytime things get rough out in the economy, it makes it easier for us to recruit, and that's driven primarily by the fact that there are a lot of carriers out there that aren't economically viable anymore. And as we all know, we've had bankruptcies, and so good owner operators will seek out good companies, and we are a great company for an owner operator. All that having been said, we've been able to maintain our owner operator fleet. We've been able to grow it when we needed to, or channel it back if we didn't need growth there. As we sit here today, we are in good shape.

Then, looking at your, on the volume side, you talked a couple quarters ago if I remember right now, where you reengaged in the international airline as opposed to just on the forwarder side. Can you talk about how that's been progressing especially as now volumes start to really pick up?

Obviously, as you might expect, that's been a nice recovery for us. They are experiencing some pretty decent growth. Again you have to temper it with, a year ago those bellies on the seven fours were all basically empty. So this year has been, that part of the market has recovered fairly nicely. The export has been stronger than normal, which I think you would expect with the dollar the way it is, but overall trends on the airline side have been good.

So it's not kind of offsetting with the amount of capacity you are seeing being taken out?

We haven't seen that yet. That is a logical conclusion but we have not seen that.

Okay, and then how about at the end of the quarter? I know they are not a direct competitor to you but can you talk a bit about the impact, the concern about YRC at the end of the year had on some of the customers, and did you see any of that spill over to your side of the business?

It's extremely hard for us to say, this business came from yellow. I can tell you what our customers tell us. Our customers with forwarder base, they compete with yellow and with conway and other LTL carriers and logistics providers for business, that is just part of what they do on a daily basis. And I think that in most cases they found that they had a few more opportunities than they had in the past.

At the same time though, most of those opportunities, and not driven just by yellow, but by the LTL industry in general, were extremely price driven as in really cheap, and I think we all know the fight that the LTLs have been going through over the last few quarters. So some of that business they were able to get. Did it help us? Maybe. But we certainly don't rely on, is yellow going to stay in business or are they not, to build our revenue plan for 2010.

My last one is, they had sold their pool distribution business, did that create any opportunity for your pool side? Did it create any kind of uproar within the segment of those customers, or just too large and too fragmented?

That was typical of most companies that are in trouble, by the time it sold, the business was gone, and fortunately we were able to grab some of it over the course of 2009. I can think of three customers in particular where we added solutions business that had previously been handled by yellow's distribution network.

Great stuff. I appreciate the time.

Thank you.

Your next question is from the line of Jon Langenfeld with Baird. Please proceed.

Good morning. Any perceived pinch points in the operation as things ramped up in the fourth quarter? Did you find yourself more over time or more hiring, anything along those lines?

I wish volumes had been that great. When we talk about them again, Jon, increasing on a sequential basis, we were still lagging the prior year. So fortunately we didn't have any pinch areas or areas where we were struggling to either provide manpower or adequate building size or any of those issues. I think everybody within our executive group would love to have that problem.

Okay. And then just looking at the additional stats you had provided, it's interesting to note the complete growth has been a big positive addition to the Company. I guess I'm wondering, if you think of the customers that are taking more complete shipments, are those spread out evenly across your customer base? Are you seeing a specific type of customer more interested in complete than another?

There's really two answers to that. One is, we do a distribution business within complete that is somewhat sporadic, but when it moves it's big, and it can be anything from popups for theater releases that all the deliveries have to occur on a certain day, and that drives part of their growth. But the growth we really like within solutions has been, we've been able to further penetrate our forwarder market to get more of what I call the normal or the standard business that we had day to day. That's the part that we are really most interested in growing, and we've had a lot of success there in 2009, hopefully we can carry that into 2010.

We think it provides so many advantages to the forwarder, everything from their billing process to their claim process to the absolute control in their ability to see it on the web. All of those things we think are just great advantages for our core customer. And one of our jobs is to continue to make progress in all of these areas to help our forwarder stay competitive and become hopefully even better.

And do I think about this correctly, the complete product probably has as good if not better returns, but the actual margin percent of that incremental revenue you are bringing in would be lower, not thinking this quarter, I'm thinking longer term would be lower than the linehaul business?

That is going to be kind of all over the board, Jon, and that is not to avoid answering your question, but those margins can skip from 10% to 30% depending on size, depending on where it's going, depending on our provider, depending on a number of things. So we are happy with the margin we have in that group today, and if anything think we have some room to in the future to make it even better. So that business, we are excited about that business. It's really done well.

It looks like it's doing well. Okay, and then kind of transitioning to the solutions side, any integration plans or anything where you can leverage the operational efficiencies more so in 2010 with the linehaul business there? I know there are some things around the periphery you've been doing, but wondering if there is anything other major coming down the pipeline over the next 12 or 18 months.

I can't sit here and tell you XYZ is going to happen, but I can tell you that is a focus for us, Jon, that we take advantage of our ability. And if you stop for a moment, look at pool distribution, there are two components of it, basically. One is it's a truckload move and then it becomes 35 LTL deliveries into a metropolitan area. Most of the time, customers who can't use pool distribution, is driven by the fact that they have to have that truckload to get the economies, and what the Forward Air network brings to them is the fact that they can ship a quarter load or a half load in our Forward Air network and then we can distribute it from there. So obviously we believe that is an opportunity. It's one that we are working hard on. Can I sit here and tell you there is something right on the verge of happening within the next month? I can't, I wish I could.

Alright, good, and last question is on the pricing and yield side. If I look at the linehaul rate that you provided, how does that trend here early in the year? And you made the comment about stabilization. Is that on an absolute basis? So theoretically if things get gradually better, your linehaul rate which I think was like 15.84 in the fourth quarter, that absolute number should bottom and either start to move up or at minimum stay stable?

That's our fondest hope.

How does January look with respect to that?

January our yield was okay, and again, further stabilization there. Again, our drive will be to get that number up, I mean we are not looking at, gee, we're going to drive it to 18 or 19. But we would like to, in terms of, I keep referring to 2008 because that's really the year of comparability to 2010. Not only do we want to get our volume levels to 2008, we would like to get our yield levels approximating 2008.

Great. Thanks a lot.

Thanks, Jon.

Your next question comes from the line of David Ross with Stifel Nicolaus. Please proceed.

Good morning, gentlemen.

Good morning.

Talked about getting back to 2008 volumes, I think you may have just addressed this in your last comment, that you want to get back to 2008 pricing as well, but I don't think you said that you think you are going to get to 2008 pricing this year, maybe in a year or two. Is that correct?

Well, I think we don't know the answer to that, David. We would love to get to it this year. I'm not sure, there are a lot of variables in there that will help us either get there or not get there, and I can assure you we are watching that closely. If we have the opportunity, we certainly will, but we are not yet comfortable that this is a fully recovering economy.

Okay, and then if you get back to your volume goal, and you kind of are making progress in the pricing front, but you're not back there yet, is there anything you've done on the cost structure side where you think you can get back to the same margins before pricing returns to the 2008 levels?

Probably not before pricing returns. I think we have, over the course of last year, taken a lot of cost out of our network. When this does indeed flip, and it will, I think our margins will be as good and hopefully better than they were before.

And then on a sequential basis, if you look at revenue in the linehaul segment, fourth quarter to first quarter has dropped anywhere, if you exclude the drop in the first quarter '09, kind of 1% to 10%, more along the lines of 4% to 6% most years, are you seeing normal seasonality this year or do you think that volumes in, or revenues in the first quarter could be somewhat flat with the fourth quarter?

I think this year will be a normal in terms of the volume throughout the year. The first quarter is traditionally, as we all know, not a great quarter. So far this year we are happy with where we are. Certainly it's not a fourth quarter type of volume.

Okay. And then on the competitive pricing front, you talked about some players going out of business, pricing is still very competitive. Are there new entrants into the market?

No, we have not seen anybody new, David. It's unusual that anybody would come in during this type of economic cycle.

Okay, so it's just existing players beating each other up again.

And let me adjust quickly. I know a lot of people are hang up on who is going to go out of business and all that. We absolutely spend no time on that. We understand what we can do, and what we can deliver, and we are not the least bit concerned with all these rumors and everything else about so-and-so is going out of business.

There's been a lot of talk on the international front with regards to tight air capacity and that's what really helps carry your margins in recent quarters with surging volumes out of Asia. On the domestic front, has there been any shortage of air capacity or parked aircraft that has driven more business Forward Air's way?

That's a great question. I have not heard that, David, and I think I would have or somebody within our group would have, but we have not heard that.

Thank you very much.

Thank you.

Your next question comes from the line of Matt Brooklier with Piper Jaffray. Please proceed.

Good morning, guys. I wanted to get back to the pool distribution operations and some of the comments that you had earlier in the conference call. You guys have discussed moving away from kind of specialty retail to take some of the seasonality out of the business, and also just to grow the business in general and to diversify. What areas and what kind of verticals and customers outside of specialty retail are you guys looking at currently?

We'll be better, and let me make sure we are clear on this, Matt, because if I didn't say this properly, I will now. We are actually looking for business to complement the specialty retail. We like our customers today.

Right.

So I want to make sure that doesn't come back to haunt us.

No, I wasn't expecting you guys to drop customers. It's more of a add new customers, add new customers in different verticals. I was just wondering what customers kind of fit the pool distribution model. What customers would you guys be looking to go after.

I think we are going to be better situated on the first quarter call in April to tell you exactly what verticals we are going after, and also don't want to give away some information here that will come back to haunt us, too. We touched on earlier that certainly pharmaceuticals, if you look at it more broadly, it's anybody who requires distribution within a metro or an area of say 100 miles, that that is manufacturing truckloads into that area, and then has further distribution. And that can apply across the board to just a number of different industries.

Okay. I'll leave it at that given we don't want to give away too much to your competitors. And second question here, you have cash piling up on the balance sheet. You guys have stated that you are looking to expand through acquisition. Where are you guys in terms of that process?

Well, what we hear today, and I don't know how accurate this is but it's what we certainly hear every day it seems like, is anybody that is willing to sell in this market is either a bad company, a desperate company or they don't know what they are doing, because you are not going to get anything for it. Now that is certainly a generalized statement. Today as we sit here we have nothing on the boards to speak of, and as soon as I say that that can change tomorrow. We will not get active in this market probably for the next, at least through the first quarter, and then we will begin to go back and see what's available.

Okay. Thank you for the time.

Thank you.

Your next question comes from the line of David Campbell with Thompson Davis Company. Please proceed.

Yes. Bruce, I just wanted to ask you whether you have any particular competitors that are expanding faster than others, whether that's been a factor in your 2009 results. The quick answer to that is no. We don't see anybody out there. I think it would be unusual to see anybody during that very difficult period doing a lot of expansion. So we didn't see it. If it did occur, nobody told us about it. I was thinking there's a company called Town Air, I know you are familiar with it. I thought that they probably had been more aggressive than a lot of other companies. I honestly, we don't see that. I really couldn't comment beyond that. And do you have any new international agreements or are you constantly working on new agreements with international forwarders and airlines? That's the best way to put it. It's almost a daily activity, and we have had some come through in the fourth quarter, and we had one recent win. So that part of our business is doing well. That would show up largely in logistics? It really depends on the deal. It could be all LTL. It could be logistics, as you mentioned, or it could be a combination of them. Right. The last question is, I've asked you this before and you didn't seem to--. Did I answer? Yes. Oh, good. The last call. You answered it. The question is screening cargo, 100% of cargo and passenger airplanes, and your remark was that there really wasn't much cargo left on passenger airplane. Is that still the way you're looking at it? If you look at domestic, speaking domestically, there is very little lift left domestically. If you look international, that is a completely different world because there is lift left on passenger planes. So I think the industry overall has done a good job of adjusting. Will they do a great job of getting to 100%, that remains to be seen. But so far they've been able to do it, and I just don't see that not occurring. Okay. Thank you. Thank you, Dave.

Your next question comes from the line of Edward Wolfe with Wolfe Research. You may proceed.

Good morning, Bruce, hi, Rodney.

Hi, Ed.

Just looking at your guidance for first quarter, and $0.10 in the middle of the range, normally first quarter give or take is 20% of your year, so you are implying $0.50 for the year, which is a flat year, yet things are getting better and you are starting to show some leverage and feels like we should start to get some pricing by year end. Should I just look at this as you are being conservative, or is there something I am missing in that equation?

It's conservative, Ed. And the fact that with the seasonality of solutions now that makes that a little different equation and it's more loaded towards the back end.

Okay. When I think about solutions and pooling, the OR obviously is in the 104 but what's the rate directional OR as you stand now having had the business for a year now? I heard what Bruce said about the goal is to get to a 5% first quarter, and a 10% for the other two, and then 15% in fourth. What is a realistic rate that we are at? Is it still break-even or is it better than that as you look forward the next 12 months?

The next 12 months, a good overall goal will be between 5% and 10%.

So for the full year?

For the full year, yes.

And when you think about pricing in both businesses, what's the comp, let's start with linehaul, with kind of the core business. Is LTL pricing impact your life, does truckload pricing impact your life, is it just very, or is it not? Is it more specific to what you do? When we look at other markets and how that might or might not impact pricing for you.

This is not an attempt to be vague, Ed. It's all of those things. There are times when LTL, the LTL environment affects us. There are times the truckload environment affects us, and there are times that just the general economy affects us on the yield side. So we would not be like a conway or a yellow, where one action affects the other company. We don't react like that nor do our customers. So it's all the way across the board. We approach it basically ignoring all of those and really just working on where are our volume levels today, if I can say that, and do we have enough volume where we can start tightening the yield, if that makes sense.

That makes sense. So you wouldn't say, I'm 80% correlated with LTL or anything like that.

No. It would be easy for me to say that and for our Company to do that, but it really isn't that, we view yield only from a Forward Air perspective. Are we strong enough we can get a rate increase, is business so bad that we need to adjust rates downward? That is strictly what Forward Air does.

Okay. Can you talk a little bit about towards your own expenses, things you can control? How do we think about wage inflation going forward as you look out for the year, assuming volumes are going to be up quite a bit. You come into the year with some pricing pressure. How do we think about what that means for your wage line?

We think we can hold our wage as a percentage of revenue, and actually when our volumes increase typically what we've experienced in the past is that as a percent of revenue, our wages go down because we just get more productive. That is usually a positive as we see volumes come back.

No, I would obviously expect them to be as a percent of revenue, but on an absolute basis, they are going to go up with more volume and with wage inflation I would think year-over-year. Is that fair to say even though the percentages of revenue goes down?

The pure dollars will go up, Ed. They will not go up linearly.

Linearly to tonnage or linearly to revenue or how am I thinking about that?

Tonnage. Any cost always compare it to tonnage and not revenue.

Okay, that's helpful. The last kind of bigger picture conceptual thing. It doesn't feel like a great question because the economy has been so weak for a while now, but when Kitty Hawk went out of business, there was this feeling that there was going to be some next day and overnight business to capture. Has anyone stepped into that role at all? Do you have any competitors now in that business or has anyone stepped up, and is that still an opportunity out when the world feels much better at some point do you think?

Nobody stepped into it, Ed, and I think the last comment you made is viable. When things get better, that might be a really good market.

Okay. Thanks a lot for the time. I appreciate it.

Thank you.

Your next question is from the line of John Barnes with RBC Capital Markets. Please proceed.

Rodney, can you talk a little bit about, you were asked the question earlier about the cash building up on the balance sheet, and Bruce, given your comment about probably not taking a look at anything aggressively until maybe the second quarter. Is there a level of cash that you want to try to manage to, or understanding what potential opportunities might be out there, do you just not worry about cash balances at this point?

John, we are essentially in a cash accumulation mode right now. We still have $50 million debt on our line of credit that we (inaudible) pay down but quite frankly, it's very cheap money. We are just going to keep our powder dry and hopefully towards the second half of the year there will be some acquisitions out there that are attractive to us, both on the pool side as well as into other areas.

Okay, very good. Bruce, looking at the owner operators and from a recruitment standpoint, again going back to your comment earlier, that volumes weren't so good in the fourth quarter, that you had to do a lot of that. Do you have a feel for what the owner operator market is right now, given to your point earlier you hear about failures and it seems like some of the smaller guys are getting washed out. Do you feel like if you have that sudden surge that adding the capacity back in would be relatively easy or are you worried that that could be kind of the choke point in the business if you get a sudden surge in business?

Well, I think with that question, John, the owner operator pool in general has shrunk, and I doubt in my lifetime we'll see that recover much. On the other hand, the bad times of the economy as I said earlier tend to help us in recruiting. So we've been able to maintain that level of owner operator that we need to operate our business efficiently. We have always had back up plans in place in case we did get the sudden surge as you discussed, and we feel we can adjust as we go out through the year. Now, a year from now that market may change completely and it's very, very difficult, but today as we sit here, we think we have a good plan in place and can adjust.

Okay. The discussion earlier about incremental margins on the business, as you look at the owner operator market being maybe a little tighter than it historically has been, there's obviously less capacity within the truckload industry right now, that if you had to use substitute linehaul or something in your network. Do you think that there's a lid placed on your incremental margins as a result of higher purchase transportation cost, or because of how different this downturn was, how much more severe it was, or do you believe that you can still see the same kind of incremental margins you've had in the past because of other cost reduction efforts that you've had and successes that you've had?

I think we are okay there, is the quick answer. A lot of things depend on where that volume increase occurs. So an example would be if we get popped out of LA, because we are out of balance, we wouldn't be able to balance that lane and get enough of our trucks into LA to pull all of their outbound, then we would see a little bit of tightening on the PT line but that is normal.

In general, do we think that this line item will go up? I really don't think so. I think we've managed through that before. Typically as times get better we get better load average, which helps to reduce our purchase transportation. Is that something we watch? We watch it every single day. How can we get more efficient there. If the market on owner operator gets really, really tight, we would have to struggle through it, but again I think we have the right people to do that.

Okay, very good. And then lastly, going back to the conversation about seasonality, I think you guys have kind of indicated you thought maybe January and February were going to continue to be pretty good. There's been discussion about the amount of volume moved prior to the Chinese new year. As you look at the first quarter and obviously your guidance was pleasantly surprising to the upside, do you look at, as you look at the first quarter, is March still as important to the first quarter as it has been in the past, or do you think this is one of those years where January and February is a little bit more important. It's a continuation of what you saw in the fourth quarter? Obviously you have easier comps, how do you look at the quarter progressing, and when do you feel like you'll have a better idea as to whether the number is closer to the bottom end or the top end of that range you gave?

I think I forgot about half of that question, John, but let me focus in on the quarter and the month. If you just look at the calendar and see how many days there are in March compared to business days in January and February, I can assure you that the month of March will be very important, not only to us but to anybody in business. Obviously we are hoping for a very strong March. So far we've experienced okay volume levels. Your big thing in January and February is that you don't go backwards, so that you have so much to make up in March, it's impossible. So we believe the economy is good enough or has been good enough that it's okay today, but we, and I assure you along with every other transportation company, we are dependent upon March.

Okay, very good. Thanks for your time, guys.

Thank you.

Your next question comes from the line of Arthur Hatfield with Morgan Keegan. Please proceed.

Good morning, Bruce and Rodney.

Hi, Art.

Bruce, you alluded to the positive impact a general rate increase would have on your business. Can you talk about, a little bit about what kind of thinking goes into putting one of those out? We've heard from some of the LTL carriers that instituted GRIs in January that they are holding. If they are seeing that, is that something that you think you would see, and if so, why wouldn't you want to institute something like that right now?

Well, because I'd like to keep the volume we have today and not chase off a bunch of business, and that's not a flippant comment. We go stick a rate increase in, we have to be very sure that it's going to be accepted or reasonably accepted. We don't want to put our forwarder in a position where they are no longer competitive. That's very critical to, not only to us but to our customer base. So we go about approaching a rate increase, a generate rate increase, very cautiously with good thought put into it, and with the timing being critical for when we do it.

Can you refresh my memory, when was the last time you put one in?

Would have been in 2006, I believe.

Okay. And that's very helpful. The only other question I had was, I had missed Rodney, your comments on what the reasoning was for the tax rate being so high in the quarter.

Sure, Art, there was a couple of reasons. One was, it's the impact of our share-based compensation on a lower denominator in terms of the EBIT line item versus last year, and we also had about $500,000 where we had to reserve for tax positions that were being challenged.

Great, thank you. That is very helpful.

At this time there are no other questions in the queue. Thank you for joining us today for Forward Air Corporation's fourth quarter 2009 earnings conference call. And please remember the webcast will be available on the IR section of Forward Air's website at www.forwardair.com, shortly after this call. Again thank you for your participation and you may now disconnect.