Forward Air Corp (Delaware) (FWRD) 2010 Q1 法說會逐字稿

Thank you for joining Forward Air Corporation's first quarter 2010 earnings release conference call. Before we begin, I would 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 Chief Executive Officer, Bruce Campbell. And Senior Vice President and Chief Financial Officer Rodney bell. By now you should have received the press release announcing first quarter 2010 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 fact may be deemed to be forward-looking statements. Without limiting the foregoing 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 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 would turn the call over to Bruce Campbell.

Good morning. Thank you to each of us joining us this morning. Allow me to begin by addressing the logistics of this call. I am currently in Houston and Rodney and the balance of our team are in Greenville, so bear with us especially during the question-and-answer session.

Overall, we're pleased with the results of the first quarter. I want to address each of our operating segments separately. First, our airport-to-airport group continue to experience good volume growth on a year-over-year basis, as we saw these volumes improve throughout the quarter. We are pleased with the hard work our team of professionals to once again grow our business.

Additionally, our push to grow the other areas of revenue opportunities within this operating segment continue to meet success. Led by outstanding growth in our Forward Air Complete product, which provides pickup and delivery service for our Forward Air customer base. We expect this product line along with our normal network volume to continue to grow throughout 2010.

Our solutions group business went to an operating loss for the quarter, struggling through January and February on low volumes, only to see reasonable growth return in March, which allowed us to generate a profit for the month. While we are never happy with a loss, we're pleased with our progress as we continue to tighten down the cost side of this model and are hopeful to return to the consume as reported is in fact is true and our revenues continue to be at least at levels sufficient for us to generate profits.

I would like now to introduce Rodney Bell, our Chief Financial Officer, for his comments.

Thank you, Bruce. The information, please be aware that my commentary ignores the impact of the Q1 2009 impairment charge in our solutions segment.

Operating revenue for the first quarter was $107 million, an increase of 10.7% from the first quarter 2009. Our Forward Air, Inc. business segment airport-to-airport revenues were $70.9 million. A $7.8 million increase, or 12.4% as compared to last year. This resulted from an 11.8% increase in total tonnage and 0.5% increase in yield. The yield increase consists of a minus 3.6% from line hold pricing. A positive 1.9% benefit from net fuel surcharges along with a 2.2% positive impact from Forward Air Complete that grew 47.8% compared to the first quarter of 2009.

Logistics revenues were $13.9 million, an increase of just over $800,000. This 6.2% growth is the first quarter over quarter growth increase since the first quarter of last year from the logistics group. In our Forward Air solutions segment, revenues were $16.4 million, an increase of 10.8% compared to Q1, 2009. Moving to expenses for the first quarter, our operations and line haul teams did another outstanding job managing load factors and network miles, matching last year's solid performance on a percentage of revenue basis.

Salaries and wages were up $1.6 million, or 5.5% but were down 140 basis points as a percentage of revenue. The dollar increase resulted primarily from $1.1 million increase in first quarter performance based incentives along with a $600,000 charge for development developing workers compensation claims as well as increased health claims. In the aggregate, the expense line items of operating leases, depreciation and amortization, insurance and insurance claims that include components that are fixed in nature were $654,000 less than Q1, 2009. A 210 basis points improvement as a percentage of revenue.

Other operating expenses, which are mostly variable in nature, were $728,000 more than the prior year quarter. Sliding 20 basis points as a percentage of revenue. Our operating ratio was 94.3 for the first quarter compared to 97.7 last year resulting in a 340 basis point improvement. Net CapEx for the quarter, which consisted primarily of replacement power units was up $1 million. Cash increased in Q1, $2.6 million to end the year at $44.6 million. We ended the quarter with $50 million outstanding on our line, and $38.2 million available.

Lastly, as reported in our earnings release effective May 1, 2010 there will be a general rate increase on the line haul portion of our airport-to-airport business. Since there is significant revenue components within the airport-to-airport line item, that are not impacted from the rate increase, the easiest way to address the magnitude of the increase is a percentage applied to the entire base. We currently estimate the percentage to be approximately 3.5% of the airport-to-airport line item. Inclusive of the partial quarter benefit of the GRI, we anticipate our Q2, 2010 revenues will increase in the range of 13 to 18% over Q2, 2009. And expect income per diluted share to be between $0.20 and $0.24 per share.

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

(Operator Instructions). Your first question is from the line of Todd Fowler with KeyBanc Capital Markets. You may proceed.

Hey, good morning everybody. Rodney, back to the general rate increase, so what you're saying there is that [2.5%] -- that is not the general rate increase. That is what we should expect airport-to-airport revenue to increase as a result of the general rate increase?

That's correct, Todd.

Okay. I think I got that then. And then -- okay so let's see then. Then on the cost side, it sounds like costs came up here a little bit, really related to incentive comp. What would be the thought process where tonnage is trending. When would you started adding personnel and bringing in additional people to handle some of the growth that you're seeing in the tonnage right now in the airport-to-airport business.

Well, Todd, first of all, we want you to understand along with everybody else with the incentive compensation and our overall compensation program worked exactly the way we wanted it to work. We were able to grow our business and as a result pay out incentives that we haven't been able to pay out in the past. We have been able to retain that variable portion of the payout package. We have indeed started adding on the airport-to-airport side people. But what we do initially is we bring back part-timers and we work through our volume upticks and we don't make them permanent employees until such time as we're comfortable that our volume levels will sustain that. On the salaried side, we will see some additions, again what we would call normal additions simply to handle the volume but in terms of the leverage there continues to be greatly in our favor.

Okay good. That sounds good. And then just talking about the visibility and the trends. Can you talk about what the tonnage trends were during the quarter and where you ended March and Bruce you obviously have comments that you feel pretty good this is sustainable going forward. What gives you that confidence and what are you seeing that, you know, makes you feel good that this has some legs to it.

I am not sure I can give you 100% confidence on that because all of us are a bit jaundiced by the past two years. But over the past six months we have seen a pretty good uptick in our volumes on that business, and obviously we're happy about that. If you want the exact numbers and tonnage per day, February was 6.1 million pounds per day. February jumped to 6.5 million pounds per day and March jumped to 6.8 million pounds per day. That is a fairly normal first quarter. So in terms of the volume build-up with March being the better month out of the three. So, you know, it is nice to return to normal volume flows. So in turn, hopefully, from that and not only just looking at numbers but in talking through our customers we're seeing more activity. We're seeing more opportunities than we have seen in quite awhile and we're happy with that.

Have those March trends continued into April?

They have.

Do you have an April number right now?

I don't want to release that. And let let me tell you quickly why. It is not because we're afraid to share it, but we're half way through the month and the month -- you know depending on how many weekend days you have in there, that number gets thrown around. So until you get actually 30 days of good sample, it is a number that you -- you have to kind of watch before you commit to.

We have a holiday shift as well so that makes sense. The last one, then I will turn it over to somebody else. Looking at the balance show and looking at a pretty good cash flow here in the quarter what is your thought as you make it through this year. What are some of the things that pop-up on a use of cash basis. Would it be looking to do additional things in the airport-to-airport network, are there opportunities there, or would it be going back and looking at growing the full distribution network either organically or through acquisitions.

Our number one goal with cash is we truly want to get it built back up to an even higher level that is more in the norm for Forward Air. We didn't like that but our debt is such a good price it is hard to not deal with it but we do want to build our cash back up. And then that in turn, Todd, gives us the opportunities that if something comes along, and if -- we're always looking for what is the right next step. And that may be an airport-to-airport segment. It may be in the solutions segment. We will just have to wait and see which opportunities come up and which ones we consider to be better. Our preference as always, with cash, is to make accretive acquisitions as opposed to other uses of cash at this point.

Okay sounds good. Nice quarter thanks for the time. Thank you.

Your next question comes from the line of John Langenfeld from Baird. You may proceed.

This is Ben Hartford in for John. If we could just turn back to the GRI and the pricing comments, I guess why implement that in May. Was there initially that you can about implementing that in the first quarter? Is that correct?

Typically -- let me say typically, dates back four to eight years so it has been awhile. We do a rate increase. We announce it in March, and make it effective on April 1. This year, we thought it was best to go ahead and get -- because we had some other projects going on, we thought it was best to implement the rate increase effective May 1 with the announcement going out on April 1.

Okay.

Obviously the environment is working in your favor but have you had conversations with shippers about that? I mean, what is your confidence level that this GRI is going to stick? Well, obviously we're hopeful it sticks pretty solid as I look across the table at our Senior VP of Sales. But, you know, in all truth, the response we have received from our customer base in the most part, has been that they understand, number one. Number one, nobody like a rate increase, including us. We don't like people to increase rates on us.

But at some point you have to understand your business model and you have to understand we haven't had a rate increase. And that for us to sustain all our initiatives going into the future, everybody from IT to other projects, new trailers, et cetera, that require capital, at some point we have to be able to up that rate. We did not do it across the board in terms of our product lines because our other product lines have acceptable gross margins so there was no need to do it there. But in our airport-to-airport, where again, we have been almost four years without a rate increase, it was the right thing to do. And in the long term it is the right thing for our customer base.

Yeah. So the other side of the coin, with the purchase transportation, with rates moving higher, how long until you think you have to give some of this rate increase back or -- if you are unable to get it, to what extent can you kind of restrain any sort of growth incentive to your own operators.

The answer I think Ben, throughout this period of time where we did not have an increase, we continued to take care of our owner/operator. I think if you talk to any of them, they will tell you that they are well paid, they are well taken care of. We will look hard at the environment and the environment being what do other carriers do and what kind of competitive pressures are we feeling on the owner/operator side. As we always do. That is nothing new.

And if we see something where we need to increase that rate down the road, we will. But it is important to remember that our people, our independent contractors who do such a good job for us are extremely well paid from an industry comparison standpoint today. We like that. But we also don't see a need today, to increase that number.

Okay. Good. And then aside from that, you know, are there other initiatives that you have internally in 2010 that can allow you to expand gross margins, either at -- on the line all business or other -- hall business or other?

It is a continual process to keep our costs in line. One of the beauties of when you have the return of volumes is your costs improve even if you don't do a whole lot about it because all of a sudden you can take a trailer load average from 24,000 to 24,500 you basically just moved 500 pounds for what you could argue was for free. Now, so, you get some natural benefits from volume increases just like you get whacked in the head when volumes are going down and there is little you can do to offset some of those increased costs. So, as we go forward we're going to work hard on keeping our costs in line but that is a Forward Air tradition, that is what we do. That's what our people do. They understand the value of productivity and the value of making us better than others. And so we will continue that push.

Okay. Good. And quickly on the solutions side, a tough quarter but improved through the quarter. When you look at it in aggregate, first quarter a loss of $1 million in that segment, is that entirely unexpected given your expectations heading into the quarter?

Well, there were a couple things there. One was, we probably listened to some people going into the first quarter, in other words, during December, that said volumes were going to be at x level and in fact they came in x minus a considerable amount. And so, we made a management error there, simply because revenue. I know everybody is hearing that retail sales are up but people tend to in this business tend to remember things over the last 15 days and not over the last three months. In January, the retail sales for our specialty companies, our customers, were not good. As a matter of fact, they may have been the worst that we have ever witnessed.

Now, fortunately, we were able to really curtail our cost side, and then had the good fortune to see our customer revenue base come back, really mid February, and then throughout the month of March. Now the great thing about March was, it validated our model. We can make money. We know at what revenue levels we can make money and we were happy with that. And while we have much work to do, we -- we think we have got solutions just about where they need to be.

Okay. Great. And organically do you think you can get solutions to the point where it doesn't lose money in the first quarter?

Yes, I really do. And, you know, I have said that before. Unfortunately, I haven't been proven true yet. I truly believe that. I told somebody the other day, the month of March, with our additional revenue in there, the leverage there was somewhere in the 50% range and we're extremely happy with that. So our push will be, not only throughout this year, but we're already thinking about first quarter next year. I do not want to be on this call a year from now discussing a loss in solutions.

Okay, great, thanks for the time.

Thank you.

Your next question is from the line of David Ross from Stifel Nicolaus. You may proceed.

Good morning, gentlemen.

Good morning.

Back on the Forward Air solution issue again with customer pricing. If customers are telling you they were going to give you a certain number -- certain volume and that fell through, are there any volume price breaks or minimums for certain price levels you have for certain customers or do you need to readdress how pricing works, you're trying to match it to volume.

We would love to be able to do that David. We have a typical LTL pricing scheme that is common in the industry. So, you know, depending on the shipment size, drives what your rate is. We do not have a floor rate, with any customer. In other words, we don't require customer to give us $10,000 a week revenue and if they don't give us $10,000 they have to make up the difference. It is strictly a variable situation there.

Okay. And then on the airport-to-airport side, can you talk a little bit about the cost trend as it relates to purchase transportation? I think you were probably still able to get good rates in the open trucking market in the first quarter, has that changed in the last month or two?

With that question we probably see it more David in our truckload brokerage. I mean, capacity has -- has begun to tighten. One of the things we did throughout the past years or so, have -- our team of experts in that area have done a really good job of establishing good rapport with certain carriers so that we weren't subject -- nor were they, to the whims of the pricing market. So while we all want to keep -- we want to take advantage of any situation we're in created by the environment, we have such good relations with our carrier base that we think we can hold that cost in line throughout the quarter.

And on truckload brokerage, you have always had more of a -- I guess niche approach to the market. Has that changed at all and given that focus, what do you think of the target growth rate, you know, if you're going to be in that business. How big do you think it would be?

I think you will not see us unless something dramatic was to happen. You're not going to see us change our niche mentality there because we don't want to compete hauling dog food. We want to compete where we can bring value to our customer. In most cases our customers demand this value, which is expedited team service for the most part. We're just simply not going to change that. We actually over the past month, month-and-a-half, have seen a really nice uptick in demand on that business. And our team has responded very well to it. And we're coming into what will be a pretty good comp quarter for our truckload brokerage group so we're expecting big things out of them this quarter.

Great. And my last question is just on the overall margins. You talked about 2008 being the goal, not 2009. In 2008, the business ran at really an 83.6 OR if you look at the airport-to-airport side. How soon do you expect to get back to there, and is that just a volume issue?

Yes, I guess the answer to that is, I used to tell my mother if I had known that, the police wouldn't have called. Our goal and we talked about this at your conference. While it is important for us to sit here in 2010 and compare to 2009, the true perspective that we have to adopt and we have adopted as a company, is to look at where we were in 2008, and that truly is our comparison. Otherwise, you get caught up on gee, we're better than we were in 2009, but the fact of the matter is, we're not as good as we were in 2008. We are finally seeing volume levels that are starting to push where we think we can get our operating ratio back down into the low 80s. Exactly when that is going to occur we're not sure but we're hopeful it occurs in the second quarter or at least one month out of the quarter where we, again, feel good about this is the best operating ratio in the industry.

At least you're not getting whacked in the head any more on volume so thank you very much.

You're welcome.

Your next question is from the line of Alex Brand with Stephens. You may proceed.

Good morning, guys.

Good morning.

Just follow on the margin theme there. Bruce, line haul PT looked pretty good in the first quarter, and I am assuming that as the volume ramps up you can get that back into the upper 30s where it was a couple years ago? That is a fair assumption?

It is.

Okay. And is there going to be any need, do you think, that your per mile costs are going to go up in the near future?

We don't see that. What you will see occur a little bit and this is on a minimal amount of traffic, a year-ago, Alex, because volume levels were low, we were basically able to handle, 97 to 98% of our miles were on our fleet, our independent owner operators. They are cheaper than when we go to the outside world. So what happens when volumes increase is we will start by necessity pushing some of that to outside carriers. And that will get into the 7%, 8% range of business contracted to the outside world. So that by itself will drive the cost per mile up a little bit. But the benefit to that obviously is an increase revenue.

In the pool business, Bruce, I feel like a good fourth quarter, but now we're back to, we're optimistic, we think it is going to get better. I can sense you're a little frustrated, too. Can you be more specific about something maybe that cropped up in the first quarter you didn't expect? Was it, you know, planning on the cost side that didn't happen? I mean, what gives you the confidence that it is going to work itself out in the near future?

Well, I think there are a number -- number one not only am I frustrated with it, I think our entire team is. Part of the issue and what causes frustration are the things that you can't change. One of them is, you go to the January month thinking that volume levels should be x and again they were x minus 15. That business model, our solutions business model, when it gets that hard on revenue, remembering that we're still going -- running the same routes and going to the same stores and having the same frequencies as required by customers, then we get into a very tough situation.

Now without question, we should have done a better job especially during January, in this operating group, and for that, I will take the blame. But we're not going to make that mistake again. We implemented a number of measures that probably should have been implemented in late December, but, again, relying on projections from the customer base, we didn't do that. And, so, we were late to the game. Again, nobody to blame but me. And we go forward with that. We -- we are happy that they have revenue levels today, that we can live with. And that we can continue to improve the cost side of our model, and, again, I point out the leverage impact of this business. We were pleasantly surprised with that in March, and we're hopeful that continues into the rest of the year.

Well, on a positive side in pool, have you had some meaningful new customer wins or moved into any new verticals or anything like that?

On the customer wins most of them are coming in this quarter and we will talk more about that later. I really don't want to get into it at this point into the specifics. But some nice wins on that side of the coin. On the new verticals we're working very hard with an outside group to help us establish who those verticals are, to penetrate those verticals and to diversify the solutions group business.

Now we're comfortable -- "comfortable" is a bad word. We're working hard to -- we're within a 6-month to a year period. Solutions business is not dependent -- not that we don't like the retail business, we simply want to broaden the verticals and give them more of a year-over-year leveling, if you will, of their business. And we think that is doable, and we're working hard on getting there.

Just one more question. Is it too early in the recovery here, for you to be thinking about, your goals and what you think is achievable for the various lines of business to grow sustainably? Or do you have some pretty good ideas of what is possible there across the business?

Across each product line?

Yes, because I'm assuming you think line haul will not stay in a mid teens growth rate but the other ones maybe grow faster.

I think our line haul had better stay there. And had better grow because, again, let's remember the perspective, as we look at a year ago. It is up 15% if we look at 2008, it is still trailing. So, we have work to do there and we will continue to have work. The good news there is a lot of progress has been made. In our other product lines, we have opportunities for good continued growth.

Our Forward Air Complete goes on a weekly basis from 30 to 50% revenue growth. That will start to get tougher in June. But it is still a very doable growth. Our truckload brokerage actually enters into an easy comp in the second quarter so we're -- we should continue to see good growth there. And then solutions has had some wins. We are expecting more wins. And we think we can continue to grow that business, too.

Thanks for the time, Bruce.

Thank you.

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

Good morning. Going back to the pool business. I know you guys had a customer leave in fourth quarter. I don't think the business was profitable but did that customer leaving, did that have an impact on profitability in the first quarter? Or was that not a factor in terms of you guys kind of missing your target for profitability?

Yes, just to set the circumstances properly, the customer is in the process as we speak now of leaving.

Okay.

Even though we talked about revenue, trust me, that is a good thing. It is business that we inherited in our -- in our last two acquisitions that was improperly priced. It was improperly operated from the standpoint of the requirements that the customer put on us were simply not tolerable. We made the decision after much discussion and after attempting a rate increase with this particular customer. Where it would make it more reasonably attractive us that the two of us our customer and Forward Air decided we needed to part our way. So far things have gone well in the separation. Which we want to do professionally as we always do. But, the good news is they affect four of our larger terminals, and two of those terminals, we have already replaced the business, are in the process of replacing the business with a much more suited customer who understands the value that we bring to them. So we're okay there.

Okay. So it doesn't sound like the customer hasn't left and it doesn't sound like it was a factor in terms of hindering profitability in the first quarter. What is your target for profitability? How should we think about putting the pool business in second quarter? Do you think it is break even? Is it a modest profit? A modest loss? How are you guys looking at this business?

This year we will look at it as a modest profit. But in the second quarter we need to have it blow a 95 OR in the second quarter. And as we said before in the third quarter, knocking on the door of 90, and in the fourth quarter -- which they have done before. We can operate it in the 80s.

Okay. And switching gears to your deferred air freight business you guys are pushing through a GRI already announced, expecting to garner a 3.5%. What has been kind of the marketplace response from a competition perspective? Whatever your direct competitors have done from a pricing perspective, are they matching that rate? Or are they planning on putting through increased pricing going forward?

Well, we actually in this case, which is unusual for us, we followed our main competitor with the rate increase. They actually announced earlier than we did. So, I would say overall, that the markets, our competitors are firming up on pricing as they should during this time period.

Okay.

Hopefully, that will be a benefit. Last question, looking out, capacity getting tighter across the board, what is kind of the situation with respect to owner/operators and availability there? Are you guys -- you guys have enough capacity going forward, where you can keep your PT down? Or do you need to kind of go outside the network to brokerage capacity, to service the line haul business. It is a great thing to not have enough owner operators because that means we have for business.

Right.

So far we're in good shape. We're running right around 800 owner operators today. We continue to add owner operators. The market is not great, but not bad. A lot of trepidation over the new regulations coming into play. We happen to think because we have such a stringent safety department, that that will play to our benefit. Because we're already there for the most part.

We do a good job there. The market is tight. Will we have to go outside for additional carriage, yes, but there is nothing wrong with us running between 5% and let's say 8%, 9% of outside carriage because that means for the most part, that our business levels are really good.

Okay.

Thanks for the time.

Thank you.

Your next question is from the line of Nate Brochmann with William Blair and Company.

Hello gentlemen. Nice quarter. Just wanted to talk a little more about the competitive dynamics out there in terms of what you're seeing in terms of maybe getting a little bit of market share gains particularly in this earlier period of maybe some inventory restocking and some expedited shipment. Maybe if you could just talk about that, and then also secondarily, talk about any particular end markets that you're seeing particular strength.

Well, across the board I think we're seeing strength. It is difficult, we have said in the past, for us to identify one particular particular area where we see more strength than another because the customer is not required to identify that. When we say we think this area of business, maybe we're moving more laptops is stronger that is strictly because we have looked. Not because we have empirical data.

What we have told people, almost the entire first part of the year is what we see as the business-to-business portion of our business, in the airport-to-airport segment, it appears to be very good. What we did not see, in the first quarter, was the consumer side of our business. So, hopefully, in March, we saw that turn and the consumer return to buying. But, there was a clear dichotomy between the two.

Okay, great, thank you very much.

You're welcome.

And your next question is from the line of David Campbell with Thompson, Davis and company. You may proceed.

Hi, Bruce. Just wanted to ask you, and Rodney, about the CapEx. I couldn't hear highway said about capital expenditures in the first quarter and can you give us an estimate for the year?

Rodney, would you?

Sure, thanks. David, CapEx for the quarter was $5.4 million. CapEx for the year will be between $11 million and $12 million.

That is relatively normal for the expenditures -- there is nothing special in the $11 million to $12 million?

$11 million to $12 million is cumulative including what we spent in the first quarter. That is maintenance CapEx, replacement, power units trailers, forklifts and IT spend.

Right. And Bruce, you said that you were talking about the pounds per day in the first quarter. Did that include line haul or was that just airport to airport you were giving us the 6.1 million and 6.5 million and 6.8 million per day?

That is our airport-to-airport line haul business, David.

Yes, okay.

David on a percentage basis it might be helpful that January was the weakest month obviously versus January of 2009 it was about 5% up. February was up on a percentage basis about 15, 16. About the same for March.

That's good. I guess I'm doing something wrong because when I divide the 378 million pounds in the first quarter by 63, I get 6.

Why don't we have Rodney call you after this call and we will walk through that.

Okay, great. Thank you.

Thank you.

Your next question is from the line of Edward Wolfe from Wolfe Trahan.

Hi, this is Mike Addeo in for Ed. Good morning.

Hey, Mike.

Can you do the same with the yield trend throughout the quarter and those trended through January February and march as you did with the tonnage?

It was pretty consistent, Mike. It was pure yield without the impact of Forward Air Completed without the benefit of fuel as well. It hovered right around the negative 4% range.

Okay. Great. Thanks. And then, I guess how should we think about Forward Air and how pricing is tied kind of as a TL and LTL industry. I know outside of the GRI, do you guys need to see LTL pricing improve to really have this GRI stick as you hope or is it kind of separate at this point?

It is really separate. I have to say this the right way. We really do not pay attention to others. We pay attention to both our needs, and then, within the industry, which is really different than either LTL or truckload. What the current environment is there. Obviously we're experiencing some -- experiencing some volume growth, and we have not had an increase in a while. So, we believe, that based on our parameters, that a rate increase should hold and it again is warranted.

Okay. Thanks. And just looking forward as demand improves and you're up mid double digits, where do you see some costs and inflation precious at this point moving forward whether it is bringing some employees back on or some other line items?

Well, typically we look at our employee costs as variable outside of our management group. So, we adjust that to whatever the needs are. If we see a city surging then obviously they are going to add variable costs. Obviously we have been impacted some by fuel.

Uh-huh.

As it goes up. We have been impacted -- this sounds crazy, but it is a big cost to us, by increased propane expense. Which went from a low of about $80,000 a month to a high of $150,000 a month. Other areas that, again, are not major areas, but impact us the cost of replacement tires, things of that nature, that you basically see any company experience.

Okay. And then, just last, was that a $11 million to $12 million a gross or a net CapEx number?

That's a net CapEx number.

Okay. Great, thanks, guys.

Your next question is from the line of Ken Hoexter with Banc of America. You may proceed.

Good morning, gentlemen. Most of my questions have been answered but just a little deeper within the solutions business, how should we think about how your team is approaching looking at ways to level -- as you put it, level the solutions business over a year. I assume you kind of mean just to look at different end markets perhaps looking at maybe more of an industrial base or even a manufacturing base?

If you look at the product line today, it is all retail special. We love those customers. We're happy to have them. But, it is important for us to diversify that, and get us into other verticals which will allow us -- you know, more level volume throughout the year. Those exact verticals is an area we're working on very hard now. We have ideas. We have initiatives going on in that area. But as we sit here today, we can't tell you that we have had success in one area or another. As I stated earlier, we're under an arrangement with a outside source, to help us in this area. So that we get there as quickly and efficiently we think that is going to happen. The exact area, I can't answer that as we sit here today.

I understand that. Just to wrap it up I am looking at your effective tax rates going back a couple of years. Notice in 2009 you guys ran about a 40% tax rate and before that, the ceiling, at least looking at the last four or five years, tend to be at 39%. Any reason why going forward, that starting in 2009 that this tax rate, you know, jumped over that 40% hurdle?

There are a couple reasons for that uptick. We had our cash invested in auction rate securities which were tax exempt. Obviously we're not in that any more. That was driving it down. Obviously, in the impact of our share-based comp, which is non-deductible is driving that as well. We see that tax rate being in the 40 to 41% range for the foreseeable future.

Thanks for the insight. Thanks for the time.

At this time, there are no other questions in the queue. And ladies and gentlemen, thank you for joining us today for Forward Air Corporation's first quarter 2010 earnings conference call. Please remember, the webcast will be available on the IR section of Forward Air website at www.ForwardAir.com, shortly after this call. You may now disconnect.