Forward Air Corp (Delaware) (FWRD) 2012 Q2 法說會逐字稿

Thank you for joining Forward Air Corporation's second quarter 2012 earnings release conference call. Before we begin, I'd like to point out that before the press release 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 CFO, Rodney Bell. By now, you should have received a press release announcing the second quarter 2012 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 statement 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 believes, anticipates, plans, 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 the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

And now I'll turn the call over to Bruce Campbell, Chairman, President and CEO.

Thank you, operator, and thanks to each of you for joining us this morning. I will again be brief in my presentation so we can quickly get to the Q&A session. However, I would like to highlight a few key items from the quarter.

Our core airport-to-airport business continued to show decent volume growth during the quarter, and we continue to see nice growth during our current quarter. Our Forward Air Complete product line continues its record-breaking performance, and we are extremely pleased with their progress.

Even though Solutions suffered a small loss, we made great strides during the quarter and feel good about this product line heading into the second half of the year. All in all, a very good quarter, and as always we are grateful for all the efforts of our team, both our employees and independent contractors, in helping us achieve these results.

And now Rodney Bell, for our financial review.

Thank you, Bruce. Following my comments, we'll open the lines for your questions. Operating revenues were up $16.1 million or 12.2% for the second quarter as compared to Q2 of 2011. Airport-to-airport revenues inclusive of Forward Air Complete were up $11 million or 12%. This resulted from a 5.4% increase in average weekly tonnage and a 6.3% increase in yield. The yield breakout is as follows -- 1.6% from linehaul pricing and 4.7% from the positive impact of Forward Air Complete. The impact of net fuel surcharges was neutral for the quarter.

As mentioned in our earnings release, we will be implementing a 2012 general rate increase on September 2. We expect the GRI will be approximately 3% on airport-to-airport revenues, including Complete. With net fuel surcharges at current levels, we anticipate that the GRI will offset any negative impact in Q3 from fuel.

The second quarter saw the full quarter impact of new business, primarily from one major customer. As has been our practice in the past, we don't discuss individual customers by name. What we can tell you is that the shipments are smaller, which has further reduced our average shipment size while increasing our linehaul yield to some degree. This customer has a high utilization of our Forward Air Complete service offering. The startup of this new business has initially placed operational strain on our network, which for the most part has now been corrected.

Logistics revenues were up 17% while other revenues were essentially flat with the prior-year quarter. In ours Solutions segment, pooled distribution revenues were up 15.7%.

Jumping to expenses, purchased transportation as compared to Q2 2012 was up 300 basis points as compared to Q1 2012, was up 80 basis points sequentially. The following are the primary reasons why. We continued and will continue to experience higher proportional growth of both Forward Air Complete and our logistics service offerings. Both of these have a higher PT component as a percentage of revenue. Primarily due to the new customer mentioned, we had a greater than anticipated reliance on more costly third-party miles to support our airport-to-airport network. This imbalance has since been corrected. The change in business mix negatively impacted load factors in the quarter. There's an ongoing effort to improve this.

With the exception of insurance and claims, each of our other expense line items improved as a percentage of revenue compared to the prior-year quarter. Insurance and claims for both Q2 2012 and Q2 2011 had a positive actuarial adjustment. The net of this was an approximate $400,000 net benefit in the current year quarter. This benefit was more than offset by a number of expenses that were not anticipated. All in all, we view this quarter as neutral to slightly higher than our projected ongoing expense run rate.

For the quarter, we increased operating income by $3.2 million or 16.1% while EPS increased $0.08 per share or 20%. Jumping to cash flows, cash in the second quarter declined by $600,000. This was due primarily to a drag on working capital from an approximately $7 million flip-flop of income taxes from a payable position to a receivable position as well as a $2.4 million reduction of our accrued insurance due to an actuarial adjustment. Also contributing to the decline in cash was a $4.7 million CapEx, or $4.7 million of CapEx -- pardon me. Year-to-date, net CapEx is approximately $17.6 million. There's approximately $3 million remaining on our 2012 budget.

Lastly, we anticipate our third quarter revenues will increase in the range of 10% to 14% over Q3 2011 while we expect our income per diluted share to be between $0.47 and $0.51 per share. This compares to $0.44 in Q3 of 2011.

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

(Operator instructions) Jason Seidl, Dahlman Rose.

Bruce, last call you seemed more concerned on the pricing side, especially given some of the actions of your competitors. You seem a little more confident now your GRI is coming in. Do you think you have any problems having the GRI whole throughout the quarter?

You become accustomed to stupid, so you learn to just ignore it (laughter). And we are very confident that, as we go into the third and fourth quarters that we're going to be able to carry off the increase. It's a well-deserved increase, I might add. You follow the industry. We are facing cost pressures that in some cases are unprecedented. So it's not like we're asking for something we don't deserve. So we feel good about it going into the second half of the year.

Since you brought up the industry cost increases, which are the ones that are most impacting you right now in terms of the back half of 2012?

I think in general, and let's not make it too specific, but in general, we've seen costs, everything from tires that have almost doubled to equipment costs are up dramatically. And maybe we went through as an industry 2-3 years of depressed pricing on that side, and people are getting caught up. So it's not the end of the world, but it's something that we're watching very closely and that we are very concerned with as we go forward.

Okay. Let me, just real quick, you said you had that $400,000 net benefit from the actuarial adjustment. You said it was offset by some increases in expenses. Were those increases expenses one-time in nature, or were they just general increases?

I won't say they're one-time in nature, but they were unusual. Cargo claims greater than we had anticipated, legal expenses to support litigation that were higher than normal. But all in all, from an expense standpoint, we think it's pretty much flat with what we thought it would be.

Gentlemen, I won't get too greedy with the questions; thanks for the time.

Ed Wolfe, Wolfe Trahan.

Rodney, can you talk a little bit about the salary and wages and benefits? They're down both year-over-year and sequentially. It's not normally down sequentially. Is that more PT or -- as opposed to -- well, I guess, owner-operators? I don't understand the seller in wages, I guess is what I'm asking.

For some of that, the benefit, Ed, of the actuarial adjustments that we talked about, it's offset by higher-than-expected health claims. Really, it's just a positive leverage against the fixed portion of that, did a pretty good job of controlling those costs.

So I look at them going forward as $32.5 million, a pretty fair run rate?

$32.5 million --

I'm talking $32.5 million for salary, wages and benefits.

I would say right around 22% of revenue is about where we model that. So that's about right.

Okay. Can you talk a little bit about the GRI in September? Why September this year? How confident that you're going to get it, and how should we think about, Bruce, that ramping up as you roll it out?

I think it just makes -- we as a group think it just makes more sense to contemplate any increase during the second quarter of the year and then to make it effective going into the third -- a portion of the third quarter and for the balance of the year, when we have more and more demand on our services. And I don't think we're alone in that thought process, because you've seen a number of the other carriers do the exact same thing. So what used to be a first quarter event, I think you will see in the future become a third quarter event.

And what percentage of your business does that immediately impact, and how does it ramp through the year?

It basically impacts our entire business line. We do go through, based on the classification of the customer, and make some adjustments there. And as Rodney said, we're expecting, let's say, somewhere around 3% in terms of full implementation. And that will be effective immediately September.

And so theoretically, we should see for part of the quarter 3% and part of it we are seeing, on linehaul, 1 and change before complete?

You should see that totally in effect first week of September, and it does apply across Complete. It does not apply to our logistics business.

Can you give us a sense of what Complete's revenue is right now?

We're running -- you just want the Complete segment; correct?

Yes.

You've got the numbers?

I do.

The exact numbers; let me give you that?

Ed, in the quarter, it was just over $2 million.

Did you hear that, Ed?

Yes, $2 million, thanks Rodney, I did hear that. Is it possible that -- and have you thought about -- there's been some news recently that the Postal Service contract that FedEx has been servicing for Priority Mail is going up for bid, and they're probably going to bring some of that down to the ground. Is that something that makes sense for Forward or that you've considered?

Let we just say this -- yes, and I really don't want to speak further to that.

Ed, real quick, I picked up the wrong number. My Controller just pointed that out. The number for Complete is $14.8 million for the quarter.

Oh, that's quite a difference, Rodney. Okay, when you talked about the customer in your remarks, Bruce, ramping up, and Rodney, in terms of using the Complete and the smaller size shipments and the higher yields and the drags on third parties and so forth, is there any way to quantify what that cost was in the quarter?

We did not do an exact qualification. I can tell you, any time you bring in a large customer like that that has different handling characteristics, their product does, we do a pretty thorough analysis. In the end, it's good news and bad news. The good news is, it's profitable to us. The bad news is, it caused us to go through some implementation pains. And the way you fix those pains is you have to throw money at it in order to keep your system fluid and your network operating they way you want it to operate. Then, over a period of time, it truly becomes fluid and it's no longer that big of a deal.

So we went through some tough times with it, with the startup. We anticipated that. We knew the costs would be higher, but I think we're well on our way to having it be a really positive contributor to the Corporation.

But in terms of second quarter, the negative impact that's going away -- is that $1 million? Is it substantial, or is it smaller than that?

Look very hard at the PT line and drop it a point.

Perfect, thanks a lot for the time, I appreciate, thanks, guys.

Bill Greene, Morgan Stanley.

You had some interesting comments on tonnage trends. Can you put a little bit more color around how things evolved over the quarter? There was a sense that in the trucking world, things maybe slowed a bit toward the end of the quarter. But it doesn't sound like that happened at all, as we go through July. So any color around tonnage would be great.

Sequentially, from April through June and then a comment on July -- April was really strong. It was up 8%, May 5% and then June 4%. And thus far in July, tonnage is -- in the network is somewhere between 5% and 6%.

Now, I guess I would suggest -- well, some of that -- are you able to same-store sales at all? Is that because you've got the new customer; is that what's driving this, or is that all organic same-store sales you're referring to?

It's all in.

So if you took that out, does it materially move the numbers?

No.

So when we look at your business, I would think it would be relatively sensitive to some of the concerns that folks have on the macro just in terms of urgency of getting to market and this sort of stuff. Is that not how it plays out? Is it not sort of an early indicator of concerns on the economy?

We think anything, it's the opposite. We're seeing -- July has ramped up from the beginning of the month to be really solid, so far. So we certainly understand the macro concerns. We are concerned with that. On the other hand, our results tell us not to be.

Yes, I know -- tonnage growth, pricing growth, sort of flying in the face of what others have said, so it's kind of interesting to see. When you think about getting back to the consolidated peak margins, is it the sort of thing where it's just what is obvious, you get some tonnage growth, get pricing and that's what's going to drive there? Or what's the most important driver that will get you back? And how fast can you get there, do you think?

The perfect storm is we lever every single cost category that we have because of the increased volumes. On top of that, we are able to get a decent rate increase. And then on top of that, just our network would be in balance. And that's really critical, because every time we get out of balance, which does occur -- it's part of our job -- then it costs more money to move that freight. So the perfect world says we're in balance, we have pricing power and we have volume growth.

That makes sense, great. Then just lastly, M&A -- what's the appetite for maybe a bigger kind of transactions, something that's more transformational? How do you think about the pipeline there?

If we had the right one, we would be the happiest people in the world. So far, we haven't found that right one. But we are obviously building our balance sheet. We're preparing our Company, making investments so that, if the time comes, we're able to do that. Hopefully, it will.

Do you get the chance to look at a lot of deals, or is it few and far between?

Bill, it comes and goes. But there's been a decent pipeline. We've looked at a number of deals this year, and for various reasons have participated up to a point in some and then just -- but 9 out of 10 times we look at a deal, we rule it out in the first 15 minutes because of the characteristics.

Got you, okay, great, thank you for the time.

Alex Brand, SunTrust.

Just wondering, on Complete, how much of the core linehaul is also using Complete, just to get an understanding of where you guys think that opportunity can go?

The attachment right now is just over 28%, meaning that 28% of our linehaul shipments have a pickup and/or delivery component. So there's still a pretty long runway there.

And realistically, do you think it can get to half or something like that?

Realistically, we think we can double that 28%.

Okay. Just to go to even a little bit higher level, following on a couple of the questions you've already had, you're just plugging along here at a steady growth rate in a tough economy, and I'm just wondering how you guys think about as you've come into the year and you've picked up the Estes business and maybe that provided a little bump, maybe it didn't. But as you look at each line of business, what do you think that sustainable growth rate looks like for, let's say, the back half of this year and into 2013?

Alex, when we think about airport-to-airport, linehaul, we think 5%-6% is certainly attainable; Forward Air Complete, 40%-45%; Logistics, 20% and Solutions, we have that modeled at 15% plus. And that's our outlook for the second half.

Okay, and with respect to pool, which is kind of steady now, stable, how do you feel about the customer opportunities there? Isn't it just a matter at this point of layering on the top line and levering that thing up?

It is, Alex, and we had our conference call on Monday, and every Monday we discuss the pipeline, and there's a pretty decent pipeline going into what hopefully is a peak season for the specialty retailers. But you're exactly right; it's layering it on and hopefully doing that in the existing route structure where the incremental profitability is pretty substantial.

Got it. Okay, great. Nice quarter, guys.

Jack Atkins, Stephens Inc.

Congrats on a great quarter here. First of all, just going back to the volume, volume questions we had earlier, when you think about your guidance for the third quarter, what sort of volume assumptions are you baking into your guidance for the third quarter?

Just what I mentioned to Alex, that 5%-6% volume growth in the linehaul, Jack.

Okay, great. And when we look at your CapEx budget, as you guys noted in your prepared comments, you're almost through with your CapEx budget for the year, so you should have some pretty strong cash flow in the back half of the year. When you think about the uses for that cash, could you maybe walk us through how you guys are thinking about using the cash that you'll spin off in the back half of the year?

Jack, the number one way, and it always will be, is finding the right acquisitions and deploying the cash there. We discussed nearly every quarter with the forward-looking at the dividend level, and we evaluate that. And we have been at certain times purchasers of our own shares of stock. And when the valuation is right, like it was in Q2-Q3 last year, we'll jump it and buy a slug. But those are really the three ways that we use the cash that we draw.

And then I'm just curious to hear you guys maybe flesh out a little bit what you did throughout the quarter and maybe what you're going so far in the third quarter to rebalance your network, to better service the smaller shipment size that you're seeing from the one customer that you mentioned. Just curious to know the actions that you've taken internally to right-size your network for that.

Well, we do a number of things. But, essentially, the first thing we do is get a really good grip on the frequency and the flow of the freight. So are they heavy Monday-Tuesday, or are they heavy on the weekend? And then we start building back, meaning to balance that lane, we'll start building back. But initially, we're going to handle that with an outside carrier. That outside carrier will cost us more money than if we ran our own owner-operator. But it's cheaper than running empty in one direction. And then we work to fill that lane so that we can in fact run it within our network and with our own owner-operators. And there's a number of things that we do to make that work, and in some cases we accept the fact that we have to use outside carriers and we work hard to make that even better.

Great, thanks for the color, and once again, congratulations on the solid quarter.

Nate Brochmann, William Blair & Co.

Just wanted to talk a little bit more along the lines with the pooling pipeline there and the Solutions business. But one of the big things was expanding beyond just the retail channel. I just wonder if you could give us a little bit of update of where that stands, or where the opportunities are?

We've had what I would call some successes there in integrating some of those other verticals, if you will. Our concentration now, though, is really into two areas that I don't want to get into in a great degree, but that we find to be compatible with our existing network. As Rodney said, we really need to look at our existing network, fit business that goes into that existing network and delivery process, and that will improve their profitability. So instead of having linehaul density like we have on our airport-to-airport product, we want to have PU&D density. And every time we add 500 pounds to a pickup route or a delivery route, pardon me, it's quite incrementally profitable. So that's what we've been pushing on. Again, that's both a frequency and a day of the week process that we're looking at. But the better it fits, obviously, the more incremental profit for us.

And are those new potential areas as big, if not bigger, than what you're currently doing, or just in terms of the size or scale potential of that?

I would say one of them is, and then the other probably is at least equal to what we're doing now. A lot depends on how you define our current retail markets because, depending on how broad you get there, that's a huge market.

Sure, and within the Logistics business, that's starting to see some nicer growth trends there. Are you guys doing anything different there for customers in terms of the solutions you're offering?

Our primary focus there, as I'm sure you're aware, is our expedited delivery. And we're running primarily teams, and we have -- our team has done a great job of positioning us with the right equipment and the right drivers, and all of those things, in order to make that available to our customer. We obviously concentrate on customers who have that requirement. And then we are able to better serve them, and it works out better for us also.

And then just final question -- just within -- and I know it's sometimes hard for you guys to decipher a little bit in terms of exact end markets. But any areas, particularly, of strength you can point to? Again, with a lot of the other questions, you guys are seeing pretty nice consistency on the volume trends. Just wondering if you can point to anything specific there in terms of any end markets that are driving that.

You mean primarily geographically?

Yes, well, geographic or even within whether it's some manufacturers that you deal with or some of the technology guys or what that might be.

The big comeback that we've experienced has been West Coast. And really, they were in the doldrums for a while, and everybody associates that with port activity. I don't know if it is or isn't. But we do know our West Coast operations have picked up considerably. We are doing well off the West Coast. And they are a big portion of our operating network, so whenever that happens good things happen.

Great, thanks for the time, guys.

Todd Fowler, KeyBanc Capital Markets.

Bruce, your comments on the release about your yield trends moderating in the quarter -- was that Company-specific, related to the comparisons and the timing of your GRI last year, or was there something that you saw within the marketplace?

I'd say, primarily, you're correct; it was just the comp and the differences in the timing.

Okay, thanks. And then just a couple more things on the volumes -- with the customer that you gained during the quarter, was that something that happened in the beginning of the quarter, or was that mid-quarter? And then did you have the full impact of that business during the quarter? Is there more of a ramp to that in the third and fourth quarter?

Full bore, it hit us in May, but we had taken it on earlier, but it really popped us in May. And we expect it to -- June was -- once we got through a certain push we had with them, June then turned into what I would call a normal amount of business from them.

Okay. Just so I understand it right, it sounds like that business is touching both Complete, airport-to-airport. Is there a piece of that that wasn't TLX this quarter, or did I just misunderstand those comments?

Actually, the primary business or product lines that affects are both our airport-to-airport and in our Complete product. And then we actually had a particular situation with them where it did affect TLX. So overall, it's a great customer.

And was this somebody that came from a competitor, or is this somebody new to the market? And along those same lines, I know that there's been some dislocation. In your piece of the world in the past six months or so, are you still seeing some churn or some opportunities, or has most of that business settled down at this point?

Again, we don't want to get into the specifics of the account, so we'll just say that it was the product of a lot of hard work by a lot of people who did a really good job to bring it to the table. And we think things are, hopefully, good and we'll be able to reap the benefit of it for the balance of the year. How's that for avoiding --?

Well done. What about the second part of the question, as far as what you're seeing in the overall market and some of the share opportunities? Does it feel like everybody has found a home at this point? Is there some more opportunity, based on some of the changes in the past six months for more share going forward?

I think we have opportunity to gain share. Our team -- we just wrapped up midyear meetings and our team is enthusiastic. It was fun to be with them because they have a high level of enthusiasm. We've got a lot of good things happening, and so we're looking forward to a strong second half.

The last one I have, and then I'll turn it over -- but on the Solutions business, at this point in thinking about the second half of the year, is the profitability of that segment -- is that dependent at this point on the external and what you see in the retail environments related to the holiday selling season, or is there still some opportunity, some things that you're able to do internally, either through mix or cost or something like that to effect some change if we don't get a particularly strong second half of the year on the retail side?

I don't think we're dependent upon a strong -- but obviously, we have to have at least a fair level of business in order to make money there. We've said from the beginning that we expected a slight loss in the first quarter. We expected to break it even in the second quarter. We did exactly that in both cases. We expect to make money with it in the third quarter, and then we expect to have a really good fourth quarter. That is not totally dependent upon a peak season that's just out of this world. However, if opposite occurs and we go -- the retail market just goes into the dumps, that will change the outlook.

Sure, I understand that, that makes sense. Thanks a lot for the time, and good luck.

Ben Hartford, Baird.

A couple questions on the PT side. I understand some of the influences with mix, but when you think about going to the outside carriers, how are rates on that segment of the business relative to expectations? Are you seeing more pressure to the outside carriers in order to secure them? Is it easier to procure them, all things being equal? Can you talk a little bit about that?

We have been, in most cases, long-term relationships -- not always, but usually. So we have well-established rates. We've taken care of those outside carriers as they have taken care of us. So we tend to not be quite on the spot market. We do have a portion of that business that is true day-to-day spot, and we haven't seen either exaggeratedly high rate levels or low. So it's what I would call fairly normal.

Okay. And then on the owner-operator side as well, how do you look at cost per mile in the second quarter and the back half of the year -- any pressures to that number?

We hope not, but you never know. We've been able to add to our fleet. We're up 40 trucks; is that right? -- 40 teams so far this year, in just our airport-to-airport segment. So a lot of positives going on there. And if we have to deal with a rate increase or whatever, we'll look at that very hard. But we'll wait and see.

Lastly, on the Complete attachments, certainly accelerating here -- aside from the -- because I guess to get to 50% target, is it predicated on new customers that you are targeting and introducing this product to new customers? Or, is there further penetration opportunity with existing accounts to get to that 50% of what appears to be well in advance of what you had originally expected?

The short answer is yes, so it's really a -- we've got to attack all those areas.

Okay. If it's going to be influenced by one versus the other, can you -- ?

Yes, we'd much rather be able to convert more of our existing customers.

Okay, good, thanks for the time, guys.

David Ross, Stifel Nicolaus.

This 15% reduction in average in size due to new customer wins -- does it have any negative impact on the yield in the quarter?

Actually, David, it's the opposite because of the way that our rate breaks work. Those smaller shipments have a higher yield.

So you if you exclude that one customer, what would the yield have been, ex-Complete? Would it have been flattish year-over-year, or just up a little bit?

It would have been up some.

And then also, on the Solutions side of things, this is the first time we've ever seen revenue decline sequentially from the first quarter to the second quarter. Is that from any customer losses or the pull-forward of activity in the first quarter on the retail side?

It was a combination of that. We did lose a portion of a customer. In other words, we lost a pool point with one of our customers. That's normal. We gained one also, it just wasn't as large. So that's normal. And then we did see, as you mentioned, David, at the end of the first quarter with Easter falling the way it did, a little bit of a push in March that we normally would see in April.

The last question is just on the Logistics side. Revenue per mile was down about 4% year-over-year. Any comments on that?

It's simply an issue of mix, where the load is going and all that. We did transform some business during the quarter, which in some cases had a net yield loss to us, but probably helped us improve our profitability.

Excellent, thank you very much.

Ken Hoexter, Merrill Lynch.

I know you hit on UPS already. How about any thought or impact or concerns on FedEx's restructuring domestically as that approaches? Has any noise popped up among your customers about that?

Really not. It's obviously a topic of discussion, but nothing really beyond that, Ken.

Okay. And then on the Solutions, you mentioned a loss of a pool point there. Is that a factor in any way of the pullback on SG&A, or is it with the SG&A savings due to other factors? And can you dig into that a bit?

It was primarily due to other factors and a more efficient operation, if you will.

Okay. Do you plan on -- have you get Solutions to grow again? Is that putting more advertising? How do you re-grow that business?

We go through the normal process. We have targets that we go after. We go through our typical marketing approach and then just very hard and well-positioned sales activities to bring on new business.

Okay. And lastly, on the linehaul side, you mentioned earlier you did more business with third parties -- or, I'm sorry -- that you used more third parties. Was that the cost going up of those third parties, or was it more business? I'm just trying to dig into happen with the purchase transportation side.

Ken, when we have to go to the third parties for network miles, they normally cost us 150% of what an owner-operator would cost us. So there's a balance there, and we got a little out of whack because of the new customer, got that percentage of outside miles higher than we would like. We've got that back down into check now. That -- it wasn't anything but that.

Okay, so it's just the initial ramp-up of using more third parties than taking time to bring it back in-house?

And then catching up on our owner-operator recruiting and just placing those third-party miles with owner-operator miles.

Understood, appreciate the time, next quarter, thank you.

Ryan Bouchard, Avondale Partners.

I was wondering if you could help me understand the other operating expense line in the Forward Air business. On a percentage of revenue basis, it was a little bit lower than I thought. Maybe it was nothing, but I just wondered if you had anything that you could point to that might have been out of the ordinary there as far as maintenance or agent commissions or anything like that.

You know, it was just, Ryan, overall, just a good quarter, good cost controls. Nothing -- that category obviously catches a lot of miscellaneous areas, and it was just overall a good quarter.

Okay. And then, secondly, your guidance -- what type of macro environment does that assume? Is that about a GDP of 2.5%? Do you look at any other variables to make that projection?

It's really not any more complicated than that, Ryan, and that's about the number we're looking at.

Okay, I appreciate the time; congratulations on the quarter and the new customer.

David Campbell, Thompson Davis & Co.

The pooled business that you may have -- you've already talked about it, but it was down from the first quarter. But you seem to be more optimistic about the next six months in terms of revenue growth. Is that driven by pipeline of business that you see? Was it driven by information from the customers, or how do you get that?

Let's touch on three areas. One is we think we have the best cost structure in place that we've ever had. So from a cost standpoint, they're really doing a good job. They've put a lot of effort into it and worked very hard. Secondly, we were able to get some price increases in those facilities where we needed them, where we were underpriced in working with our customers. We were able to get some additional yield -- nothing fabulous, but certainly every little bit helps. And then third, we do have some positives going on in the pipeline. We're not ready to announce those yet, but we think they're going to be positive and we're looking forward to that happening. And then fourth, we have just the normal seasonality, so we know that business will typically pick up. And as we discussed earlier, hopefully the world doesn't fall apart in terms of retail. And if it doesn't, we are confident that we're going to have a really good third and fourth quarter.

I've always looked at Forward Air as an indicator of future demand, and usually your business falls off pretty rapidly. It has not done that, so it seems like it's an indicator that things are a lot better out there than some people believe.

I hope you're right, I hope you're right.

And second, the last question I had was, any new international contracts with international airlines helping build the logistics business?

You know, we've had some success there, and so we press on with it. Most of the airlines now are suffering from the macro trend of there's just not as much cargo as there was before. And we're hopeful as we go into the third and fourth quarters that we see an increase there. But who knows? We're certainly not counting on it.

June was a whole different story on the international business, far better than the other months, so that may help you more in the last six months.

We hope so.

Okay, thank you very much.

Dan Moore, Scopus.

Great quarter. Just a couple of things -- one, I was wondering if you could talk to us a little bit about West Coast demand over the course of the next 60 to 90 days. There's been a lot of discussions surrounding the possibility of a pull-forward with the idea that, I guess based on the idea that there could be some sort of port-related disruption with labor negotiations commencing, and wondering if that will have any impact on your business, if you wouldn't mind commenting on that. And I've got one other question as well.

I wish we could. We're told by some of our customer base that there has been some pull forward. I don't think there's been a dramatic -- I think the way we need to look at it is, if the world was really humming along and there was solid demand out there and everything was just great, this would be a huge issue. But the fact of the matter is things are just so-so, okay. So I think most people are doing a little bit of protection there, if you want to call it that. But otherwise, it's business as normal. And that is strictly an opinion.

Sure, sure. And then this is sort of a soft question, but as it relates to just the backdrop for economic weakness relative to 2008 and 2009, you guys saw a pretty substantial decline in earnings in 2008 and 2009, I guess it was. It was a very different environment, I think, from where we are right now. But one thing I'd like to understand -- I haven't really seen the growth in air freight, obviously, over the last couple of years. We don't have the inventories that we used to have. It seems like we're just not in the same type of environment that we were, obviously, in 2003 through 2007. With that being said, how vulnerable do you feel like your earnings are? There have been a lot of questions about cost structure and that sort of thing. But how vulnerable do you think your earnings are to a deterioration in demand trends relative to the last cycle?

Obviously, having experienced the last cycle hopefully makes us better managers. I think it has. I believe we have a better cost structure in place. We believe that we've done a lot of things that, if that were to happen, probably the key would be we would react quicker and more swiftly than we did before because in the 2008 downturn we couldn't believe it, like a lot of other people. We won't make that mistake, if that were to occur again. But we don't think it's going to occur.

But with that question, our earnings, if our revenues go down like anybody else's, we'd be affected. We're hopeful this time, if that were to occur, that we would manage that a tad bit better, as I like to say.

One other question; I'll just follow up off-line, though. Thank you for the time.

There are no questions in queue.

Thank you for joining us today for Forward Air Corporation's second quarter 2012 earnings conference call. Please remember that the webcast will be available on the IR section of Forward Air's website at www.ForwardAir.com, shortly after this call. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.