Forward Air Corp (Delaware) (FWRD) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for joining Forward Air Corporation's first-quarter 2015 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 CFO, Rodney Bell. By now you should have received the press release announcing first-quarter 2015 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 as forward-looking statements. Without limiting the foregoing, words such as believe, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in our filings with the Securities and Exchange Commission and in the press release issued yesterday, and consequently actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise.

I'd like to remind you at this time that the conference is being recorded.

(Operator Instructions)

I'll now turn the call over to Bruce Campbell, Chairman, President, and CEO. Please go ahead, sir.

Good morning, and thank you for joining our call this morning. I'm going to spend my time covering the integration of Towne Air Freight into our Forward Air network. Prior to the actual date of integration and as part of the planning process, we established four key metrics which we felt were critical to is a successful integration.

First, revenue retention: we modeled as a worst-case scenario at 60% retention rate. After six weeks of operations, we are consistently maintaining between 70% and 80% revenue retention.

Second was owner-operator retention: this area was and is critical to lower the percentage of outside carrier usage, which we have been battling for some time. To date, we have retained slightly over 90% of the acquired owner-operators.

Third, we knew we had to maintain service levels above 90% on time, which we have recently accomplished. Fourth was the retention of key management positions, which again, we were able to successfully do.

Overall, we are very pleased with where we are in the integration process. While work remains for all of us, we are well ahead of our original plans and expect to be completely finished by July 1 of this year.

None of this would have been possible without the hard work and dedicated efforts by our entire team. They have and are performing in an extraordinary fashion. My sincere thanks to each of them.

And now, Rodney Bell, our Chief Financial Officer.

Thanks, Bruce. Let's jump right into the financials, starting with revenue for the quarter. On the same number of business days, Q1 2015 revenues were up $34.3 million or 20% compared to Q1 a year ago. We estimate that the 3.4 weeks that we had Towne resulted in approximately $10 million of revenue. Without regard to Towne, we estimate FAI revenue, which, excluding CST had organic growth of approximately 10%.

CST revenues were up 113% and $12.2 million. This was a result of one additional month compared to the prior year, two second half of the year acquisitions, as well as decent organic growth. As a result of continued difficulty recruiting owner-operators, TQI revenues were flat compared to Q1 a year ago. Solutions revenues appear to be flat but considering the dedicated business that we moved to our TLX division at year end, solution revenues were actually up 6% compared to a year ago.

Moving to expenses: purchased transportation in total was up $15.7 million or 21.3% and 50 basis points as a percentage of revenue as compared to Q1 a year ago. The majority that increase in our PT dollars continues to be spent supporting our airport-to-airport network. In order to accommodate increased volumes, we had a 13.7% increase in miles, and our cost per mile was up to 8%. The latter was a result of our new owner-operator pay package as well as higher rates from our third-party providers.

Our reliance on more costly third-party providers was down to 19% compared to 26% in the fourth quarter of 2014. For the balance of the year, we should see the continued benefit from our new owner-operator pay package as well as from the utilization of the Towne owner-operator base. While it would be difficult to quantify the integration of Towne's volumes undoubtedly caused costly PT inefficiencies in March, which hopefully we'll start to mitigate going into -- have actually mitigated going into the second quarter. PT for our other business segments came in as expected.

Jumping to salaries, wages, and benefits, overall, salaries and wages were up 12.5% -- or $12.5 million, rather, and 210 basis points. Just over $3 million of the increase was direct cost related to the one-time Towne integration. $3.2 million of the increase was due to the purchase of CST, which had a full quarter representing the quarter compared to two months last year. The balance of the year-over-year increases was due to higher handling costs on increased volumes as well as higher employee incentives.

Operating leases were up $7.4 million. $4.7 million of the increase resulted from reserves on vacated duplicate Towne facilities along with unused equipment leases from the acquisition. The full quarter CST -- in the full quarter versus two months of CST resulted in $1.9 million of the increase. D&A was up $1.7 million or 10 basis points. Insurance and claims increased $1 million or 10 basis points. Fuel was down $800,000 due to diesel prices being a significantly lower than a year ago.

Lastly, other operating expenses increased approximately $4.8 million and 70 basis points. $3.2 million of the increases were related to the Towne deal and integration costs. $1.6 million, again, is the CST three versus two months compared to the prior year. Operating income decreased $8 million adding back the one-time deal costs. Operating income actually increased $2.9 million.

Net income decreased $5.4 million, but increased $1.3 million on an adjusted basis. Earnings per share after regarded Towne deal and integration costs and CST deal costs in the prior year were $0.40 compared to $0.35 in Q1 of 2004, or 2014 rather. Our tax rate was 38.3% compared to $37.3 in Q1 2014, and we expect the Q2 2014 tax rate to be consistent with Q1 at 38.3 %. Net CapEx for the quarter was only $4.7 million. In light of the Towne acquisition, we are in the process of reassessing our CapEx needs for the balance of the year, as well as for 2016.

We ended the quarter with $54.5 million of cash, $127 million, which is almost exclusively Towne-related debt, $137.4 million available on our $150 million line of credit. Lastly, we anticipate the second quarter revenue growth to be in a range of 27% to 31%. We expect $3 million of additional Towne-related direct integration costs in the second quarter for severance and facility related cost, and without regard to those costs, we expect income per diluted share to be between $0.59 and $0.63 compared to $0.55 a year ago.

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

(Operator Instructions)

Scott Group with Wolfe Research.

Thanks. Morning. I appreciate the second-quarter guidance. When you guys had announced the Towne deal, you gave full-year guidance. Do you have any update to that given it sounds like Towne is doing better than you thought?

It's doing a bit better, Scott, but I think we would reaffirm the guidance that we gave at the first of the year for full year.

Okay. Perfect.

So, Bruce, maybe just give us some perspective, like do you feel like on the revenue retention side that if there was going to be an issue that it would've happened by now, or and we're in the clear or is it still early days and things could get worse from here or better from here? How do you think about that?

Well, I think that our ship is extremely conservative on the retention rate, because I think we are above that but having said that, we had -- we have a small amount of revenue that is currently at risk because we were committed to honor contracts. After the 30 days or so, we are no -- we will reprice that business to where it needs to be.

And so that small amount of business will be at risk, and we are okay with that. Otherwise, I think our people have just done a terrific job. We have a group of over 50 ASMs, sales managers, national account managers, terminal managers who have just done a terrific job of making sure we retain the revenue, and I think we're going to see that continue.

Okay. So in terms of that piece of business coming up, maybe give us a sense of how far below Forward pricing is some of this Towne business and what the opportunity is there over this piece of business and in the next year to really get that pricing up.

Well, that's completely and totally all over the board. So we have some of the customers were very good and the rates, I should say, were very good. Others were very bad, so we're having to work through that one by one. You will see us probably pickup, on average, from the bad customers, what we call bad customers or improperly priced customers, somewhere between 15% to 20% on the yield. On other customers, there'll be no changes because the yield is good.

Any -- what percent of the business is bad customers?

Let's say it's somewhere around 20%, 25%. Let me reiterate, it's poor -- poorly priced customers. There's nothing wrong with the customer

Sure. I was just using your words.

Which is why I wanted to change it.

Of course. Last thing, Rodney, do have monthly tonnage numbers and an update on April?

Sure, Scott. Monthly tonnage, starting with January, was 11%, February was 7%. With the 3.4 weeks of Towne in March, it jumped up to 29%. And Scott, last week tonnage was up 31%. That's been about what we've been seeing for the month of April.

Is there any way to do March and April ex-Towne?

There really isn't. It becomes very difficult. It folds in. It's being entered into the same system, run on the same trucks. It becomes very difficult to do that.

All right. Thank you for the time.

You're welcome.

John Barnes with RBC Capital Markets.

Good morning. Thanks for taking the call. Hey, just a couple of things. Bruce, first of all, once the acquisition was completed, how immediate did you begin to see a change in pricing in the marketplace on maybe some of the more spot oriented business?

I think we -- you know, the nice way to put that is we continued with the normal Forward Air discipline on pricing, that we did have to accommodate customers because they had to go through changes, so we wanted to make sure we accommodated them for a period of time. And we did that. But overall, we are pleased with where we are today. Pleased with the job that the people have done, and we like the position we're in.

On the owner-operator retention, can you talk a little bit -- was there a big difference between, you know, pay structures and things like that or you having to do anything? Are there any changes you're having to make to either the Towne owner-operators, or even the Forward Air operators to make, you know, the pay scales or the work rules or anything like that more compatible?

We basically brought them over to our pay package, which if you'll recall, we implemented a new one on January 1 of this year. In most cases, that meant an increase to the Towne owner-operator, which we are happy to provide. We have put them on Qualcomm. They were not on Qualcomm previously, so that we could closely track their movement just like we do our owner-operators.

We've had a few issues with discipline there, but for the owner-operator, it's something new. And so we're working our way through that to make sure that we can maintain the same levels of service, make sure that they're no longer a Towne owner-operator, that there they're a Forward Air operator. But for many of them, we were able to give them back escrow money, so it was a little bit of a cash bonus for them for coming over to Forward Air.

And is there anything -- do you have any issues with, you know, too many drivers in certain locations and you're having to battle through some seniority issues, or is the volume overlapping enough that you're really not running into that?

In general, the volume's overlapping. We've got a few domiciles that we're having to make adjustments to. We anticipated that prior to the integration.

A lot of our owner-operators have been very flexible with us. Most of them simply want to run, and we've been able to make sure -- with these volumes, we've been able to make sure they run.

All right. Very good, and now last question on the owner-operator side. Assuming that you hit your retention levels on the Towne owner-operators, can you talk a little bit about what this does to where have you been in terms of the percentage of your fright that's been moving on third-party capacity? And what you think this means to that percentage on a go forward basis? Does it come down meaningfully, does it really reduce the purchased transportation cost, and how meaningful an improvement would that be?

Well, if you recall last year, we basically battled this throughout the year. And so we measure it weekly, as you might expect. And basically, throughout 2014, we were running 25% of our network miles to 29% on outside carriers, which is not acceptable. So we took the immediate step of increasing our existing owner-operators pay package January 1, so that had a positive impact in terms of -- I think we've added net 39 owner-operators, 56 teams, Rodney's corrected me. That's a good correction -- off of the existing Forward Air network. And then on top of that we were able to gain, obviously the Towne.

What that has meant since integration is we have taken that number of 25% of outside miles down to best week 4%. We would like to get that down even lower, let's say around 10%. Once you get to that number, then it becomes a balance issue. So LA may have 50 loads out tonight, and we aren't able with inbound loads to cover that so you go to outside carriers. We can live with 10% to 12%, and that has a big impact on PT.

Okay. Very good. Thanks for your time.

Thank you

Bill Greene with Morgan Stanley.

Hey. It's Alex Vecchio in for Bill this morning. On the linehaul yields, a little bit surprising they decelerated given the GRI. I assume -- was that largely due to just the impact of Towne Air in the quarter, that year-over-year growth rate decelerated sequentially?

Alex, that's exactly what it was. By and large, the Towne business is a shorter length of haul, and so it's lower yielding. You know, that's not necessarily a bad thing at all. And then to Bruce's earlier point, we're working on some of this business to get the yield up to an acceptable level, so that's totally Towne-related and the GRI that we did on our legacy business is still holding where we thought it would be.

Yes, that make sense. Do you have a rough estimate for what the yields would've been ex-Towne Air? Is that too hard to parse out at this point?

It's too hard to parse out, but I'd tell you I'd be surprised if it wasn't between 3% and 3.25%, and that's where it was immediately before Towne. Today, it sailed into negative 2%, so that gives you an idea of the impact of the Towne business.

All-in yields are down 2% quarter to date?

Linehaul yields are down. That's as of last week. That number continues to improve, so.

Do you have a rough sense for how that might trend through the full quarter and maybe the rest of the year just given the impact of Towne Air?

It's going to trend up. As we evaluate and reprice business, but if I gave you what I thought on the quarter, it would be a guess. But I think we can get that back to flat; that would be my best guess.

Okay, that's helpful. And then I just wanted to touch on the impact of the West Coast port situation in the first quarter. Can you just talk about what you saw in January and February and the extent to which you may have seen some strengthen in your business from decongestion in March and April so far?

Well, you know the obvious measure for us, Alex, is CST. They muddled through January and February and then March looked like a brand new year. So our levels are back to where they should have been all along, and we are really pleased with where CST is. Again, they have great leadership, and you're going to see us really push that business now that we're through this port situation.

Did the port stuff not really have too much of an impact on the core A-to-A side of things?

You know, that's a hard one to determine. I can sit here and tell you no. There's no direct line that says it should impact it. I can tell you we've had a -- whenever there's a port problem, air freight picks up, so that's a very general macro view.

Okay, yes, that makes sense. And then just lastly, to that point about the macro, we've seen broadly, I'd argue weak data points in the first quarter from other modes, whether it be rail and trucking, and there's debate as to which -- what's really driving the weakness to the extent it's West Coast port, or whether or really underlying macro perhaps decelerating.

What's your take on the broader macro backdrop right now? Have we seen a change? Have you heard a change in tone from customers and what end markets are particularly stronger or weaker? That would be helpful.

I think our response to that is our picture is probably clouded by the acquisition, but in our business today, things are really good. We do not have a single operating unit that's struggling. So we read the same things you do, we simply aren't experiencing it.

Yes, that makes sense. Okay, great, thanks for the time. Really appreciate it.

Thank you.

Jack Atkins with Stephens.

Great. Thanks for the time this morning. I wonder if you could maybe talk for a moment, Bruce, on the integration? Could you speak to the what degree the facility rationalization has taken hold? And then in terms of the headcount reductions, where are you in that process?

On facilities, I would tell you we are probably 90% of the way there. Everything that we could get what we call cleaned out and ready for the market has been accomplished. Then we have a few, a low number of terminals that we are having to -- that we'll deal with in the second quarter, but it's a very small number, so we'll get through that. On the people side, basically all of that has been accomplished. We do have a few lingering ones, but overall, it's done.

And you know, in terms of legacy Forward Air or legacy Towne facilities that you may need to make some CapEx investments to expand, just given the increased amount of freight, can you give us a sense for what the timeline looks like and what capital needs you may realize over the next couple of quarters as you expand those facilities?

Jack, it's pretty common practice for us, with the exception of the four facilities that we own, to lease. So, we would look to find leaseholds so from a CapEx perspective, it really wouldn't be an issue. The one issue that we do have from a CapEx perspective is Towne leased the majority of their equipment, so as that comes off lease, we would look to purchase.

Looking at the balance of -- and we're currently evaluating this so I don't have hard numbers, but Towne has about six or seven -- we have $6 million or $7 million worth of equipment to replace former Towne equipment leases. That's really the CapEx and that's what we have.

Okay, and then last question for me. You guys made a lot of progress in the solutions business in 2014 from a margin perspective. You also made a lot of progress in the first quarter with that business being profitable on a -- in a seasonally soft quarter. As we move forward through this year, how should we think about sort of margin improvement in that Forward Air solutions business this year going forward?

We should continue to see the margins improve. They took, even though they were profitable and did a great job, Roger and his team, they took a big healthcare hit during the first quarter, which, had we not incurred that, had we incurred normal expense there, it would've been even better results. We're hoping those are one-time events, and as we go forward you're going to see their margins on a year-over-year basis quarter by quarter improve as they have in the past.

Sounds great. Thanks again for the time.

Thank you.

Jason Seidl with Cowen and Company.

Thank you. Hello, Bruce. Hello, Rodney. Sticking on solutions, can you talk a little bit more about why we've seen such a nice recovery there? Is it demand? Are you guys pricing the product better, controlling costs? Give us some.

Yes. The quick answer to that, Jason, is yes. I mean, you hit them on the head, and so we have good leadership in there now. They have effectively had two straight years of rate increases. I would argue with you, that gets us back to 2008, 2009 levels. So it's not like were gouging. We simply are recovering from when we were forced to push down rates. So we now have rates that are compensatory, and that's really important.

We have done a good job on the cost side, and we continue to add small pieces of business to that business. One of the things Rodney mentioned in the year-over-year numbers, we pulled a dedicated account out from the solution segment because it really didn't fit. It's where it started there, but as time went on it didn't fit. So there -- if you go apples to apples, they grew their business 6% in the first quarter.

Okay. Could you give us an idea of the -- you said they took a healthcare hit in 1Q. Could you give us an idea of the size?

It was like a couple hundred thousand.

Okay, fantastic. Gentlemen, thank you for the time.

Thank you.

Todd Fowler with KeyBanc Capital Markets.

Great. Thanks. Good morning, everyone.

Bruce, can you give us a sense of just the timing of going through the Towne's book of business and what point, I'm assuming that there's some contracts that you mentioned that are locked in? There's some contracts that are going to be more spot, but at what point would you expect to have gone through the entire book, and been able to take a look at repricing some of the opportunities that are out there?

Well basically, Todd, we've been through the book, and so now we've put together action plans. We probably have 20% to 30% of those completed that we can complete, and then we are hopeful by that we have all of this behind us by July 1.

Okay. So you'd have basically new pricing structures in place for Towne's customers going into the second half of the year.

Yes, and that's basically to make sure we don't overstate this, probably 70% of the business is okay the way it is today. The balance of it, we go back to its contract that we have to deal with according to the contractual terms.

Okay, that makes sense. And then how should we think about the operating ratio within the airport-to-airport business? I'm coming up on an adjusted basis, something a little bit below 89% here in the first quarter. I'm not sure what that looked like in March. Maybe with Towne coming in if that changed, but do you have an expectation of how that should look as we move through the year and particularly at what point you can get back to a mid-80 OR, given the integration?

We think we can get there, Todd. It's not -- it's certainly not going to happen this year. But you'll see improvements within the guidance that we're assuming, something between an 87% and an 88% for the second quarter, and you'll continue to see that walk up as we see the benefits of the continued integration, as well as the repricing.

Okay. That makes sense. And then just two last ones here. Rodney, I think that the original integration guidance was about $15 million of costs. If I take where you had -- what you had in the first quarter, what you're thinking about in the second quarter gets you about $14 million. Is that basically going to be what we'll see a little bit in the third quarter, or are the integration costs pretty much in line with what you had initially anticipated?

Pretty much what we initially anticipated.

And then running out. So second quarter, a little bit in the third quarter. But that should be it from the integration costs.

Yes, by and large, Todd. Yes.

Okay. Good. And then just the last one I had. With the TQI segment, I think that the expectation had been for a little bit stronger top-line growth this year. I had in my notes 15% to 20%. I'm not sure if that's a little bit stale, and I think that fuel would probably impact that. But at what point do we think about that business maybe growing a little bit stronger on the top line going forward?

Today. (laughter)

All right. I'll change my numbers.

It's all a matter of capacity and getting the drivers on the businesses there. But as you might imagine our team and our recruiting teams focus has been recruiting and retaining not only our legacy owner-operators, as well as the Towne. So you'll see the focus shift to -- more toward TQI and then hopefully bringing on new drivers so we can tackle that new business.

Okay, so it's not an issue with volume or demand, it's an issue on capacity.

Absolutely.

Got it. Okay. Thanks a lot for the help today, and good luck with everything you have going on. Thanks, again.

Thank you.

David Ross with Stifel.

Good morning, gentlemen. Rodney, you talked about the one-time items totaling over $11 million, and I caught a couple of them when you were going through the income statement, $3 million at salaries and wages and $3.2 million in other OpEx. Could you run through again as to where those one-time items fell out in the P&L?

Sure, Dave. $3 million was in salaries, wages, and benefits. $4.7 million was in operating leases, and $3.2 million was in other operating expenses, and then there was to make up the difference is just a smattering really all over the P&L.

Okay. That helps.

And then, Bruce, could you talk a little bit about the rebranding of Towne and where that falls in integration? Is anything still out there running now under the Towne Air Freight brand, or is it all pretty much being billed on a Forward Air invoice? Obviously, a lot of the trucks are probably still say Towne, but where are you from a rebranding standpoint?

We are -- so, a simple way to put this is we're now into fairly good weather so we can start re-decaling. We've already got the decals on site and that process has begun and again driven, believe it or not, by weather. Everything else is Forward Air. Hopefully by the end of the summer at the latest, we won't see the Towne name anymore.

And then as far as the hours of service rollback is concerned, has that had any positive or negative benefit for you guys on the productivity side?

It's had a nice pop for us from a productivity standpoint. I think bigger, David, is from the driver morale standpoint because they did not like the old rule. It made no sense, and so they're much happier. So it's a positive to us.

Excellent, thank you.

Thank you.

Kevin Sterling with BB&T.

Thank you. Good morning, Bruce and Rodney.

Good morning.

Bruce, at the closure of Towne, what do you think has been the secret sauce to keeping the majority of this book of business? Is it service? You have always prided yourself on service. Is it just offering that high quality service to the Towne customers, or is there something else?

I think it's that. And we've had some struggles on the service side. I think the good thing about our team is we get in and rectify it and move on. As long as we have people, we'll always have certain little service issues. But for the past few weeks, we've been over 90.

We're pleased with where they're at, so we think it's a total team effort that gets us to be able to retain that business. And then I think our terminal managers and sales reps have done a outstanding job. So when we have had an issue or we've had to go back in and work with the customer, they've just been terrific. So between the two, that's really helped us retain the business.

I got you. Makes sense. And I think you mentioned adding 56 team drivers as organic growth. How should we think about that for maybe the rest of the year? You know, you still looking to kind of grow organically? I'm sure you are with team drivers or maybe that might be on hold until after July 1 when you fully integrate the Towne acquisition.

For the time being, Kevin, we're going as hard as we can go on adding teams. We are taking a very slow approach to adding singles. Basically, if we have a run that requires a single, then we'll go after a single driver otherwise our whole emphasis is on team drivers.

Okay. And then lastly, was there any weather impact in the quarter? I know weather wasn't as bad as it was last year, but did you have any impact in the first quarter?

It'd be nice to say yes, but, you know.

I got you. Okay. All right. Thanks for your time and congratulations

Thank you.

David Campbell with Thompson Davis & Company.

Hi, Bruce. How are you?

Good, sir. And you?

Fine, thanks. Just wanted to ask you whether you thought the Towne business that you did not retain went to competitors, or went to other miscellaneous, less than truck-load operations.

I would say it went just in a scattering direction, David, to different types of competitors.

Right. There are types of competitors, meaning trucking or less than truck-load operations.

You know, obviously, we still have competitors. So, some of them are in expedited. I'm sure some of it might've found its way to LTL providers, and some of it may have found its way to a different mode. Whatever worked best for the customer.

Right. And the second quarter guidance excludes the $3 million integration costs that are left?

That's correct, David.

Okay, and just one other impact on the lease costs going forward. It will be roughly the $4 million increase. I think you had -- it wasn't $4 million. It was about 4 point, $3.7 million, something like that. $2.7 million, excluding the reserves, that should be increased going forward?

That's about right.

All right. Okay. Great. Thank you very much.

Thank you.

Shawn Collins with Bank of America.

Great. Thank you. Hello. Good morning, Bruce and Rodney. Thanks for taking my question.

Sure.

On the logistic services business, I know it had a strong quarter. Revenues were better than we expected. Can you just comment on what you are seeing there in terms of competition in the marketplace? Is that segment getting more competitive? That's somewhat what we perceive and therefore, (technical difficulty) performing very well relative to your competition.

It's something that hasn't been asked or been mentioned on the call, Shawn, and it may be helpful. When we look at the business that we got as result of Towne, about 65% of that business is hitting the linehaul line, airport to airport and Forward Air Complete. About 20% of that's rolling up in logistics, so that's part of the -- it was a strong quarter. Don't get me wrong, but some of the benefit came from Towne and will continue to with a full quarter and the second quarter. And then lastly, 15% of the Towne business is rolling up under other logistic services.

Okay. I understand. That make sense. And I think you might've touched upon that the last quarter, so that's a good reminder. Thank you. So congratulations on closing the Towne acquisition. It sounds like it's going very well so far.

The deal price was $125 million and integration and deal costs are a little bit less than $15 million this quarter, last quarter and this quarter. That's almost 12% of the purchase price. Can you just comment on how that lines up with some of your past transactions? Is that in line? Is that a little bit heavy, or a little bit light?

It's much higher simply due to the fact that Towne was operating a network much like ours with a lot of duplicate facilities with, unfortunately, a lot of duplicate personnel and that type of thing. So it's, you know, case in point: we did CST a year ago in the first quarter, and we had $900,000 of deal costs and that was truly deal costs. There wasn't any integration costs, so this was kind of a new thing for us.

Okay. That -- understand. That's helpful. That makes sense. I appears a little bit on the high side. And then just on the $3 million of integration costs you expect for this quarter, the second quarter. I know you mentioned severance costs, and I think you mentioned something else in there. Could you tell me what that was again?

Sure. It was to wind up the remainder of the duplicate facilities. We don't hit that until they're actually vacated, so that will be the cost associated with that $3 million, severance and facility.

Okay. Understand, great. And then just last question. On the M&A market, financing costs are obviously -- continue to be at historically low levels, and I imagine this is causing some heightened competition for deals. I wanted to ask if that's what you're seeing and also if you're seeing a discrepancy in terms of valuation between private and public valuations out there.

That's a big question. We've really -- we continue to look at deals, especially in the intermodal space. You'll continue to see us picking off small to medium-size targets and rolling them up into that CST platform, but as we look at those, there's not been a lot of change in the valuation as far as strategic versus PE money. I really don't.

We just simply haven't looked at the larger deals where that would come into play. We're focused on our next big push will be adding, as Rodney said, the drayage companies into Central States so we can continue their growth. Again, they're doing a terrific job so that's an important model for us to continue to build.

Okay, understand, appreciate that color. Okay, great, thank you very much, Bruce and Rodney. I appreciate it.

You're welcome.

Ben Hartford with Robert W Baird.

Hello. Good morning. Rodney, can I get you to tell me the line item from a year ago that the deal costs associated with Central States, the $900,000. Which line item did that fall in? Do you know?

It's under other operating income. The other operating expense, rather.

Okay.

Last line.

And then the 2Q guidance, what does that assume the breakdown of outside miles within the purchased transportation component on the airport-to-airport side? What does that assume? And if you gave a first quarter number, I know things were frenetic with the Towne integration. If you gave a first quarter number, I missed it. If you have that, that would be helpful, as well.

It was 19 and our goal is to get outside miles down to15 in the second quarter.

Okay. Do you think 10 to 12 is realistic by the end of this year?

We do.

Okay, and so assuming that you get to that level as we think out to 2016, understand that you've worked through some of the contractual discussions you've got a slug of the business left to handle. But when you think about the opportunity to improve margins in that airport-to-airport business, as you envelop down, PT stands out as the opportunity.

Is this just in your mind a pricing play from here forward, or is there still an opportunity to be able to improve efficiency beyond just comps on a year-over-year basis in 2016? And if so, what can we think about? What's a target? What's a credible target for that line item as a percent of revenue? If I look back to history, you guys have done sub 40 in the past. Is that a credible target longer term?

It's sub 40, but it's really not credible going forward. You know, 40 to 41 is more of the target going forward. To the earlier part of your question, there are some efficiencies we can gain, but we've done a GRI the last three or four years now, and we continue to have to look at that being an annual event, so we'll get the benefit from that.

Okay. Thanks for the time.

We have no new questioners that is in queue, so I would like to thank you for joining us today for Forward Air Corporation's first quarter 2015 earnings conference call. Please remember 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 our conference for today. Thank you for your participation and choosing AT&T executive teleconference. You may now disconnect.