Forward Air Corp (Delaware) (FWRD) 2020 Q2 法說會逐字稿

Thank you for joining Forward Air Corporation's Second Quarter 2020 Earnings Release Conference Call.

Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website at www.forwardaircorp.com.

With us this morning are: CEO, Tom Schmitt; and CFO, Mike Morris. By now, you should have received the press release announcing our second quarter 2020 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed.

Please be aware that during this conference call, we will be making forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, including statements, among others, about the effects of our business efforts and response to the COVID-19, including the impacts on each of our businesses. The future plans for our approval business, steps to bolster our liquidity, steps to expand our operations organically and inorganically, the company's outlook for the third quarter and fiscal year of 2020, including expectations for revenues, tonnage and free cash flows, the expected impact of growth and strategic initiatives and those other forward-looking statements identified in the presentation. These statements are based on current information and our current expectations. As such, they are subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

And now I'll turn the call over to Tom Schmitt, CEO of Forward Air.

Thank you, Greg, and good morning to all of you on the call. Our last call was less than 3 months ago, and it feels like an eternity. Some things are the same. In fact, they are steadfast. The first and foremost is our commitment to our people's safety and the safety of all those around us at CDC-plus levels.

And the second thing that's steadfast and firm is our execution of our beyond 2019 strategy, the same strategy that we unveiled last year in June in New York: Precision execution for, when it matters and speed within the box, think forward, Two Rock Star segments, expedited freight and intermodal drayage and profitable organic and inorganic growth with a medium-term double-double destination.

Other things, our Forward-Tough team, and that's a term that one of our teammates coined, advanced a lot since our call in May. And I mean a lot. Mike and I discussed in our call at the time how we flexed down cost very quickly, how we raised liquidity and how we made smart adjustments.

We've gotten closer to customers the last 3 months than ever. In fact, I personally have talked to more customers in the last 3 months than I did in any 3-month period in my history of doing business. And I think we put an organic growth-focused grow-forward program in place 15 months ago, finding, keeping, expanding good volume with high-velocity airlines, cruise lines, trade shows, conferences, concerts, temporarily suppressed. We had to dial-up other levers, and we did very, very quickly.

In fact, we turned our grow forward program the last several months into a grow forward Intense program. Talking about essentials, we dialed up with our levers, specifically those SIC codes that are essential goods into our sales professionals call cycles, resulting in significantly more business in those spaces from health care providers to actually even landing a major supermarket chain as a new customer. Resulting in a June of 2020, as you saw, that our continued operations came in comparably through June of 2019. Getting towards what we call a 0-plus, meaning at least as good as last year and better.

And remember, in April, just 2.5 months ago, 3 months ago, our LTL tonnage actually had gone down by 26%. And some of that business that went out was our highest-margin, high-precision, high-velocity business.

Our incoming CCO, Chief Commercial Officer, Scott Schara, he's got a track record of building high-growth sales teams very, very surgically, making sure that he focuses and we focus on those parts of the vast LTL industry of $40 billion in the U.S. that are in for our type of LTL. And quantifying how high is up for that essential business is one of our top priorities, and Scott is going to be part of the leadership team, making this happen.

On the other DB, depressed business, over the last several months, pool scheduled deliveries to retail stores. I can only say, over the last few weeks, amazing job how we helped, with a tremendous team, our customers back up, making this business all it can be. I personally went shopping to many stores over the last few weeks and months and saw safe, bright experiences. And frankly, I also got a few good deals, first-class companies that are doing a great job. And I personally pick up the phone and I let those companies know how tremendously effective they are in bringing their business back up.

We are investing in our pool business. IT, we brought back a senior operations leader, Robert Norris. We are diversifying beyond retail, looking into home delivery. We want to make sure we graduate this business at the top of its class to a new owner who will make the healthy business even better. Frankly, it's our fiduciary responsibility to make this business all it can be. It's also fun to really create a first-class business, the best in its class.

And then finally, back to continuing operations looking forward. The momentum that we started building in June continues in July, giving us a further spring in our step and making us even more confident that the investments we are making into our LTL business are the right ones to make. You probably saw our investment announcement in Savannah, where we actually very creatively are expanding our LTL footprint outside major airports, and we're doing it on the back of our final mile presence.

We always talked about it, the reason why expedited freight segment exists, why LTL and final mile locally and truckload and LTL over-the-road collaborate. Savannah is a great example of that, and there's more Savannahs to come, more network terminal expansions to come this year.

You also saw earlier this week, our investment announcement, Columbus Hub. Our biggest hub already. It's in the center of the economic activity of the country. And we're investing into a significant expansion, 35 more doors, $30-plus million investment over the next several years. It's our commitment to our belief that we will be getting more sweet spot LTL business in a huge addressable market that's actually growing.

Final mile is clicking already. You saw it in numbers. Intermodal continues to be strong, tremendous cost management. And truckload is becoming a strong partner to our LTL business from recruiting to selling to capacity management.

Our sales team's, led by Lance Small, Mike Prandato, Dennis White, Angela Timmons, are doing a tremendous phenomenal job. And Scott Schara, when he comes in, will just add to that. The key focus for us will be to capture that right-fit transportation, that $40 billion LTL industry, where we make sure we find a sweet spot. And we also operationally create synergies like truckload and LTL over-the-road, as I mentioned, or final mile LTL locally.

The very last point I want to make is I'm going to want to talk about our inorganic growth, our commitment to M&A, our proven M&A model. We had 3 acquisitions last year, and I expect 2020 not to be a pause here, I expect more.

Close to our customers, I could not be more proud of our team. We do not wait when we see something same, we react with empowered teams, and we remove ceilings. We move ceilings by industry. I talked about more essential and quantifying how high is up there. We also move ceilings when it comes to geographies. Savannah is a great example as an expansion.

So with a clear eye to our medium-term milestones, I'm going to hand over to Mike, our CFO.

Thanks, Tom. I would like to provide an update on our liquidity planning for the rest of the year. At the onset of COVID-19, we greatly increased our cash balance and secured a 50% increase to our credit line. We felt that enhancing our financial flexibility was prudent in light of the uncertainty created by this global pandemic. During the second quarter, we actively managed our asset-light business model and remained free cash flow positive on a continuing operations and on a consolidated basis. We weathered the depth of this perfect storm while making key investments to emerge a stronger competitor.

We believe the worst is behind us, and we expect to remain free cash flow positive on a continuing operations and on a consolidated basis each quarter for the balance of this year. As such, we plan to relax our excess cash and debt positions during the second half of 2020. By the end of the year, we expect to reduce our leverage ratio from its current level of 1.1x to 0.8x EBITDA. We will also resume quarterly share repurchases at a level consistent with our historic activity. And of course, we remain committed to our dividend. If trouble resurfaces, we believe we have ample liquidity to support our operations. Our credit line -- our increased credit line is committed, and we expect to remain in compliance with its covenants.

Before we go to Q&A, let me provide an outlook for pool since we are only guiding to continuing operations. As physical retail continues to recover, we expect pool will show sequential improvements in revenue and operating margin. And by September at the latest, we expect that pool will generate a small operating profit.

With that, Greg, let's open the line for Q&A.

(Operator Instructions) Your first question comes from the line of Jack Atkins.

So I'll save the questions around what's happening in July for somebody else on the call, but I'm sort of more curious in the recent press releases and announcements you guys have been making, specifically with regard to some of the longer-term strategic initiatives. Tom, could you maybe talk a little bit more about your new Chief Commercial Officer? I thought that hire was very intriguing.

And sort of as you sort of look forward and think about where you want to be positioned within the LTL market strategically over the next several years? What is the sweet spot for Forward Air within LTL? And sort of -- what sort of investments do you need to make to be in a position to really capitalize on that?

Yes. I mean, Jack, there's a couple of things that I think come together here, and that's our job. We always talked about a double-double. And the last few months, we're tremendously focused on the first double, which is making sure everything that broke away temporarily, that we do everything possible to bring this back so that we have density in our network, that our people have jobs and that we serve our customers. So a lot of that dialing up was focused on that first double.

The secret will be and the secret to success sauce will be to make sure that second double, which frankly, is the more important one, is our #1 focus. And that's more important, perhaps, perhaps it was a little bit less urgent in the last 2 or 3 months, but it's become more important. And this is where the investment, Jack, that you mentioned, comes in.

I strongly believe, if I look at the fact that we have the fastest planes, we were built on chasing airplanes from one airport to another. For over 20 years, that's all we did and that's still in our DNA. So if I look at SIC codes, essential SIC codes, medical supplies, some household goods that are in high demand. In that $40 billion LTL industry, we're going to get extremely surgical, making sure we find high-velocity, extreme hitting of tight time windows, low damage ratios, lowest in the industry. And we look for those SIC codes, those lanes and those customer requirements that actually fit that bill. I am a very strong believer that in the $40 billion LTL industry, there's significantly more than $700 million worth of that type of profile, where we are, by far, the best to satisfy that demand.

The Scott Schara hire is a tremendous addition to our team. Scott, if you look back over his 10-year track record, just the most recent period at Coyote Logistics, where he helped a company profitably grow by more than 15x, that's exactly what he and his team did, looking for right-fit transportation in a very, very surgical way. And that's exactly what we're going to be doing here.

So double-double. To be very clear, last few months, we had to bring density into our network, serve our customers, get our people back into job safely. The more important double is the margin double. And everything we're doing right now, with Scott Schara also adding to that surgical approach, is getting -- going to get us more of that type of LTL I just described.

Okay. Okay. That's helpful, Tom.

And for my second question, when we think about the third quarter guidance broadly, you referenced June. By the time you got to June, you saw revenue growth and the bottom line results from continuing operations were comparable. But we think about the third quarter guide, you're guiding to revenue growth, but EPS that are still down pretty significantly year-over-year. So can you kind of talk about maybe some puts and takes, why revenue is going to be up in the third quarter but EPS from continuing operations is going to be down, call it, around 40% at the midpoint?

Jack, it's Mike. I'll take that. If you want, Tom, then can chime in. Jack, I appreciate the targeted nature of your prior question. But since you brought it up, and since I always get asked, let me frame the answer to your current question with the movement of daily tonnage through the LTL network. Since I again ask that so much, it's highlighted in yellow on my talking points. So in April, we were down 26.6% in year-over-year daily tonnage. In May, we were down 13%. And in June, we were down 9%. Quarter-to-date, which is nearly all of July, we are up 1.5%. So we've inflected, we've turned a corner. Our base case, when we spoke to you last, from the depths of this was a slow, steady sequential recovery. We've picked up that -- we follow that same shape out of this at a slightly faster clip. But from a kind of recovery perspective, it's -- we're still recovering.

The revenue growth that you're seeing in our guide is coming inorganically. It is nearly all from the acquisition of Linn Star in January, and there is a little bit of growth from the FSA acquisition. So clearly, expanding the top line through our strategy with respect to final mile and then continuing the recovery path.

Hopefully, there's some conservatism in this outlook. But I think you'll admit there is a quite a bit of chop in terms of where the macro is headed in the coming months. And so we're trying to put it where we think we can hit it.

Your next question comes from the line of Todd Fowler from KeyBanc.

This is Zach on for Todd. Just want to ask about -- just kind of going back again to the third quarter guidance and just thinking sequentially. What are, I guess, the puts and takes kind of from a cost perspective that we should be thinking about, just end into the third quarter?

Yes. I think the key issue is the rate of recovery in the overall tonnage landscape. Our fleet is in a good place. It's in a great place. To give you a perspective around our biggest cost item, which is purchase transportation. Broker power last quarter was 7.1% of miles versus 8.4% in the prior period quarter. So we've got the fleet in a great position. The overall tonnage is what we're doing our best to forecast in our outlook. Fuel plays a role in this as well, a pretty steep drop in diesel price. March, April as COVID really sunk in. Fuel rates haven't recovered as quickly as we would hope, so we're trying to make sure we're capturing fuel in our outlook.

We do have some cost that has not come back in continuing operations. PT is flexing back with tonnage. We have maintained a run rate of about $2.5 million of controllable variable costs at expedited freight. Salaries, wages and benefits is down at LTL. So we're pushing everything we can in the cost side without cutting into bone, which we indicated last call we wouldn't want to do. But it's really about the visibility around the recovery in the tonnage landscape.

Okay. Understood. That's helpful. And then, I guess, just with the tonnage, and you mentioned just kind of, in April, some of the higher-margin tonnage was out of the network. I guess where we are with regard to that. What the profile of the tonnage look like as it is currently?

Yes. No, it's clearly come back. And I mean the question is where is the so-called airport-to-airport in comparison to door-to-door? If you look at the earnings release, there's a number on the bottom that shows you how much of the mix of door-to-door is. And you can see kind of the effect of the extreme drop in April, which was starting to cure itself by June.

We anticipate in our outlook that, that curing process will continue. And that's kind of reflected inside of the overall positive momentum in the tonnage. So each month, as we go through the quarter in our outlook, we're expecting that, that airport-to-airport tonnage comes back, comes back some more, comes back some more, when measured on a year-over-year basis.

Okay. Got it. And then just last one for me with regards to yield. Just, I guess, what's the overall pricing environment look like right now? And kind of what are you guys expecting just going into the, I guess, third quarter and just probably the back half of the year?

It's rational. We have kind of 2 dynamics going on our yield which feed into the mix question that we just talked about a second ago. So in general, when the truckload market tightens, which is what it's been doing for the past many weeks, that's helpful and constructive in terms of the overall tonnage outlook, in terms of the overall yield environment. But we do have -- and we've talked about this previously. We do have a mix shift where we're looking at denser, heavier door-to-door type freight, that is the new addressable markets that Tom was talking about. That mix shift will put pressure on yield. We're not lowering our price per se, but we're just entering the market at a denser price point.

So you'll probably see a little bit of what you see now would be my guess. You're going to see some general tailwind from the overall tightening of the truckload market and the tonnage environment continuing to improve with a little bit of headwind from the strategic mix shift as we go into new addressable markets.

Just, Zach, to kind of summarize this. We've been very, very consistent. The best companies, not only in our space, but certainly in our space, are extremely price-disciplined. We strive to be one of those best companies. And as Mike, as you just described, the environment that we are shaping that we're part of over the next several months actually should help to be disciplined, and should give us some additional tailwind.

And all that's ex-fuel, just to clarify.

Next, we'll go back to the line of Jack Atkins from Stephens.

Jack, you really liked the answer to my question.

I guess, work from home, my phone line dropped on me, so thanks for letting me jump back in the queue to ask another question here.

But I just kind of wanted to go back to, Mike, I guess, to dovetail to your last comment on the truckload market. We are seeing tightening there. We are seeing spot rates rise. I would think that would be good for us to spillover rate down the road on the tonnage side. But how are you guys thinking about rates to your owner-operators? Some -- are you worried about some inflationary costs there?

And in the last couple of cycles, truck cycles, you guys have been squeezed on the purchase transportation side. How do you maybe avoid that over the course of the next 12 months?

Absolute huge focus of the management team. And I'll let Tom chime in. I mean, look, we're going to remain market-competitive. We are much smarter about this than we were in the last upturn. Tom has joined since that last upturn. And the amount of cultural and financial improvements that we've made to help ensure we retain the best fleet has been a very significant investment.

Yes. And I think, Jack, we talked about this in person and also in previous calls before. I know money is tremendously important. We had a year, I think it was 2018, just before I joined where there were like 3 increases to drivers kind of in a 12-month period. We have to be competitive and we will be competitive, but to Mike's point, the amount of tag-teaming, the amount of listening to, kind of, in addition to money, what matters to you, predictable home times, short wait times when you call dispatch, making sure that we actually always work with our independent contractors, first and foremost before we put load somewhere else. And then frankly, even the personal connectivity. I know a lot of them, and we interact the whole time. There is a lot of them who actually are our best-recruiting ambassador, saying, "This is the best professional home as a driver that you can possibly have, come join this team." And so yes, that's qualitative. At the same time, you should not underestimate the power of us really looking out for our independent contractors the same way we look out for our teammates.

Okay. Got you. And I guess just to kind of follow-up on that, though. I mean, is there a way to perhaps get -- either get ahead of it in terms of maybe doing some proactive wage increases on the front end or maybe some proactive price increases? Or should we think about driver wage increases going hand-in-hand with -- if you need to do some driver wage increases, do you also go hand-in-hand back to the shippers and ask for some shorter-term price increases?

Yes. It's a great point. And Jack, you should probably join our team because these are the exact conversations between our commercial team, our people, team, our operations team we're having on ongoing basis.

So right now, we do have record retention rates of drivers. Our Chief People Officer, Kyle Mitchin and I, we talked just months ago, like at what point in time, not just sitting and go back to my point, we don't wait, not just sitting on great retention rates, but looking around the corner, as the market gets tighter, how do we actually stay ahead of that? So we are looking at what does it take in addition to what we have in place with our drivers.

And then to be also very clear, we are very, very articulate with our customers that we continue making investments into safety. Technology that actually drives and enhances safety, like in-cab cameras, as an example, and that we do have to recover those investments.

So that circle that you're talking about in terms of staying -- having great retention rates now, terrific. Looking around the corner, what does it take monetarily to make sure that we add to those qualitative connectivity points I mentioned. And then the third is the feedback loop to our customers so that they are not going to be surprised that we are, in fact, needing to recover the investments that we are making. That loop, Jack, is happening real time.

Okay. Okay, great. One last question for me and I'll turn it over. But supply chains, I think, are going to change coming out of COVID-19. I don't think there's any question that e-commerce is going to be a bigger piece of overall retail sales going forward. You guys have this expedited network. It would seem to really work well and fit well with what a lot of shippers are trying to do with speeding up their delivery flywheel. How do you guys think about the addressable market, the opportunity set over the next couple of years as more and more customers look to compete with Amazon and really have fast delivery to the customer? I've got to think that would bode really well for demand for your service.

Yes. This goes back, Jack. I mean, to -- I think we alluded to that. But at the same time, when we talk about surgical, that's one of the top priorities over the next few months, is putting numbers to -- of that $40 billion LTL market, there's a belief that 1/3 of it is more expedited and that gets you to $13 billion. Then some fraction of that is at the high end of velocity and kind of customer service, is that $3 billion or $5 billion. We need to get more surgical in sizing it, how high is up there, what SIC codes, making sure we pulse those types of customers and prospects into our sales professionals call cycles so that we get that.

Again, the Scott Schara piece of the equation fits in perfectly, having someone who has done this type of surgical, right-fit transportation matching and quantifying the how high is up questions, that we know, to your point, is it $3 billion out of $40 billion LTL? Is it $5 million? What I'm extremely confident about is, not $700 million. There is untapped upside.

Your next question comes from the line of Ben Hartford from Baird.

Just -- or sorry, so I'll get a little bit of feedback here. Could you talk a little bit about what Scott brings and kind of what the cadence may be in terms of building out this more traditional 3PL customer set now that he's in hand?

Yes. So I mean, I think the first thing I would want to do is give a lot of credit to our sales team and our sales leadership that we have in place. I mentioned, Ben, before, that in the last 4 months, I talked more to our customer base than I have in the any 4-month period. And it didn't happen in person, but it happened very personally over the Zoom calls, Microsoft Teams, I mean, whatever, Blue Jeans, I mean like you name it, we used it. So -- and many times with the same customers, we really got closer.

But I also learned in those conversations how close our sales leaders and our sales professionals are to those same customers. I didn't have to wish for complements. In fact, those customers complemented our sales team. So -- and this is also why we were able, over the last 2 or 3 months, to dial up the tonnage as significant as we talked about. And back to, Mike, to your point, in July is ahead of last year. So far, July to date and July is almost over.

So the key addition of Scott is, again, this is the second double, right? So now we know with our grow forward program that we put in place that I used many times in the past before, we also hired a leader that I used before, a DB Schenker, too, for a profitable growth program. We dialed up the volume levers quite a bit in the last few months. We didn't sit idle on the quality of revenue levers, but now those are going to become the prime focus.

The fact that Scott's joined the team is going to be tremendously helpful there, because again, if you look at kind of DNA strength, the thing that Coyote Logistics figured out over a decade-plus and made it so attractive as a member then of the UPS family is the fact that they knew how to look for these right-fit transportation kind of sweet spots. And Scott's been the commercial leader along the way. So if you want to kind of articulate it in the most profound way, I think I would say what he's going to add is that capability and track record of surgical finding of right-fit transportation. We know how to find volumes. We know how -- where to look. He's got the track record and the expertise to actually make it happen, and he's got a -- he's proven it. And he'll do the same thing with our teams here.

Good. On more of the legacy side of the business within expedited freight, could you talk a little bit about any sort of puts and takes that there may be with regard to the airline customers that you do have, given capacity bets and the likelihood that those flights and those routes remain limited here to finish out the year? What type of impact can that have from this point forward?

It has -- I mean, Ben, it's got a significant impact. At the same time, I mean, I mentioned before that we are very close the way we work with our customers. The one thing that I've been informing kind of and pushing constructive way, hopefully, our own sales leaders, but also our customers at some of the large airlines is their schedule, and obviously, we all know that, has been stripped down significantly. So certain routes, they don't fly, right? I mean, like you have to go from hub to hub and then you go from a hub to a spoke to get to a place that you, in the past, went to directly.

So the one thing that I've been pushing on is like, so if you have good freight business airline, why don't you keep that schedule from a freight perspective open? Why don't you continue taking that business? Because we can still move it. And so we have seen some lanes where this actually worked. So my appeal to our airline customers is, I mean, help yourself here by providing yourself access to good revenue by saying, "Hey, customer of mine, imagine that the schedule that we had is still in place, still buy that freight because we know how to move it, and that's where we come in as a good part of the airline."

So some of that we've seen happen, but you're right, it's a bit of a put and take, where some of lanes that are down, those selling efforts are down also. Goes back to the point I made before, we don't wait. So we're doing everything proactively possible to work with our airline partners, and they are some of our best customers and best relationships, to make sure that they continue selling those routes because we can continue moving them. We have not been grounded.

But at the same time, we don't wait. So which is why we're dialing up other SIC codes, essential business, medical supplies, groceries. And again, this is also why we are quantifying how high is up in those areas. And this is also why we're getting a leader in place that will help us get even more precise in our attempts of doing so. And that's also why we're actually building out our network because we know that there's more good volume transportation out there.

And then as and if and when with tremendous tag-teaming, our airline customers come back more and more, that's just in addition to everything else that we're doing in the meantime.

So I'm just curious about how you think about the -- about your initiatives today. We've got the macro, obviously, but you've got a new Chief Commercial Officer in place. You talked a little bit about some of the terminal expansions there still to come. But is this to the point now where you think you've got the organization largely set, and now you can really charge forward as it relates to the market expansion strategy? Or are there still a few more pieces that you need to really put in place before you can really make the full sort of push toward this effort?

Yes. Ben, I would say the -- if I look at this in kind of sequential steps, strategy, I feel very, very strong about. I won't repeat it because you probably now can do it in your sleep as well. The structure that we have with consistent operations and commercial principles across all of our business units is firmly in place. The leadership at the table, I think -- I don't think, I know, I feel extremely strong about key addition last year with Jay Tomasello on the technology side, he comes from a FedEx supply chain background, knowing how to connect different pieces in the forefront and in the background, both customer-facing and back-office. This has done the same thing across several business units within FedEx. On the commercial side, now we have someone with a similar ability to match, right-fit transportation to the demand.

So I feel good about the strategy, the operational principles, commercial principles, the structure that we put in place. Execution, we were firmly underway. We put a grow forward program in place. The last few months, I mean, let's know -- let's be very clear. Some of our best business went away, and it will be temporarily suppressed in some cases for years, which is where those DNA behaviors are we don't wait, we remove ceilings, come in, and we're dialing up those levers faster. So what you'll see on the terminal expansion, you probably are dialing those things up faster. But you see in the investment commitment we made in Columbus, you'll see us make moves that show -- rightfully show constructive impatience because we basically are in catch-up mode because something happened, a Black Swan happened, that we did not expect as part of our execution game plan, and we want to make up for that. And so making alms, we need to be faster with some of the execution of a very, very well-founded strategy, structure and execution blueprint. It just needs now some pace that we didn't anticipate perhaps until 4 months ago, but the blueprint is in place.

So the terminal expansion, you'll see happen. You'll see happen, the M&A, the way we talked about to complement the organic growth. And the level of surgical position execution, we're dialing up to focus on that more important second double with the more rigor because we have to, because of what we saw happen over the last several months in terms of high-velocity, very-attractive margin business that we have to replace.

As and when over the next several years, we bring this back with our great relationships, then we have an end, an end between the things we created in the meantime and the things that we bring back together with our customers.

Your next question comes from the line of Scott Group from Wolfe Research.

This is Jake on for Scott. So I think we talked about purchase transportation a bit on a cyclical level. But when we look at it on a percent of sales on a consolidated basis, it's held pretty steady over the past several years. So I guess, what's the path to drive this lower?

Yes, it's a good question. And you correctly phrased it with, on a consolidated basis. The impact of pool distribution on the math has certainly played a role in terms of our overall consolidated results. Maybe to give a little more transparency, we can kind of unpack the consolidated down to the pieces. I mean, the most action and the most leverage we have to offer is purchase transportation at core LTL. As Jack mentioned earlier, we definitely, in the last cycle, had some lessons learned there. And we talked about what we've done to try to improve upon that. As a percent of revenue, that PT and kind of core LTL, actually from '18 to '19, got almost 300 basis points, 3 percentage points, of revenue better inside of core LTL.

We did grow final mile last year through the acquisition of FSA. FSA really stepped up the revenue size of expedited freight. It is largely above-the-dock organization relative to a terminal organization. So it has a greater mix of purchase transportation inside of its revenue. Currently, that will change as we integrate it further with Linn Star and our legacy operations. But that PT as a percent of revenue was impacted by final mile, and it's impacted by truckload, which have obviously a much greater percentage of purchase transportation.

So the key to getting at the gutsier your question, the key is to both leverage PT and core LTL. And hopefully we're troughing in the cycle, and hopefully, we're starting back up. And at the same time, continued to integrate truckload, continue to integrate final mile, to let the leverage benefits of that inure to LTL specific to purchase transportation. So truckload on the line haul; final mile, where it can help on the pickup and delivery; and kind of keep us using inside power, if you will. That's really the guts of it when you unpack it a little bit.

Understood. And then turning to the LTL expansion plan. Did you mention how many terminals you're planning to open?

I did not, but a handful would be good for this year.

And your final question today comes from the line of Bruce Chan from Stifel.

I'm going to beat a dead horse a little bit here, but I just wanted to go back to the 3Q guide and make sure that I'm understanding things correctly. So you're expecting some good revenue growth and tonnage has inflected positively. But it might have taken it that it's some of the mix shift between the door-to-door and the last mile business versus some of that a-to-a that's maybe coming back a little bit more slowly that's driving the lower earnings relative to the revenue. Is that right?

Yes. I mean you've got a Linn Star acquisition that closed in January. That's not in the prior period. Linn Star's revenue run rate was like $90 million. That's the biggest piece of the year-on-year revenue growth until we lap that acquisition. We picked up good organic growth on FSA, which we lapped late April. But the main driver around the year-over-year revenue growth is inorganic growth at final mile for Linn Star.

If you go to the organic side, we're continuing to kind of climb out of this COVID ditch. And we do anticipate sequential, both quarterly and monthly, sequential improvements in legacy airport-to-airport. But stacked against year-on-year, you're right, there's still going to be some pressure there, partially offset by the good continued organic growth that we've had in door-to-door, which has happened through this entire episode, because it's just such a large market that we're just starting to address.

And then on a year-over-year basis, Bruce, just keep an eye on fuel. It makes the difference. You see what diesel rates did in March and April, you can see where they are now. Hopefully, as the macro comes together, we'll start to see some recovery there.

And -- but Bruce, the way you summarized it at the beginning of your comment, you're spot on. So job #1 for us is to do better than what that actually lays out by, I can only repeat it, by surgically going for that right-fit transportation to compensate and overcompensate for what's missing, which is coming back, obviously, over months, in some cases, years. That's that high-velocity, airline, cruise line, trade show, conference, confidential on business, where we were the fast provider, but the way you summarize it is exactly right. Now the good news is we know exactly what we have to do from a tools perspective, team perspective, process perspective, additional leadership now coming in, to be at a maximum and reasonable pace to capture that right-fit transportation to overcompensate for what actually started going out of our system in March.

Got it. Okay. That makes a lot of sense. And then just squaring that with Ben's question earlier. And Tom, you mentioned some of the things that you can do within your control to juice that side of the business. But ultimately, do we need a restoration of normalized airfreight capacity or normalized air freight environment to kind of fully get back to that legacy margin mix?

So no. The first thing I would say is I'm not relying on that. So if, in fact we get back to those glory days, that kind of icing on the cake or icing on top of the blueprint that we we're executing. The word that has become much more relevant in everything we do and in our capital, and more importantly, our action is essential. And so kind of -- you're going to see us talk a lot about sizing, kind of how high is up by SIC code inside the essential industries. We did look at my green areas over the next -- last couple of months, we did upsize some of the essential industries already. Again, I mentioned grocery chains and medical supplies that we actually captured.

So I want to size and then capture significant portions of that, knowing that airport-to-airport business again, it may come back fully, but it will take time. And I'm strongly in a we-don't-wait mode. To be very, very clear, within the Forward Air team, in writing and certainly also verbally, pretty much forbids the use of the world wait. We don't wait.

Got it. Okay. No, that's very clear.

And then just last one on the topic, Mike. I don't know if you have an update or a breakout of where that a-to-a business is trending in July versus where it may have been through the quarter.

I think we're -- we -- the best clue I'll give you is the tonnage is inflected positive. So a lot of that tonnage relates to a-to-a. I mean, a-to-a is still a big part of who we are, and we're ready to serve that customer now and for the long haul. You kind of follow the tonnage trend, and you're kind of on the path of where a-to-a is going. It's probably not popped positive yet year-on-year, but it's definitely closing the gap.

Okay. Great. And then just very last question, different topic. Wondering if you can give us an update on your tech initiatives and your tech investments. Where are you with your TMS rollout and your pricing software tweaks? And yes, maybe you can just give us some color there.

Sure. So I'll go first and Tom can fill in the ones I missed. We've really got a fantastic IT organization that is keeping very, very busy. I would say there's -- I put them in 2 buckets. So there's turning on new capabilities. We recently stood up salesforce.com. We called it Project Atlas. We've got a lot more transparency into our sales and customer relations actions. We, as you know, have been working on and have stood up cost accounting tool. I don't think it's called TCG anymore, but this is what we call it around here. So we're working that actively with the revenue management side with the sales force. We are in the middle of an Oracle implementation to get our financials off of kind of an inflexible, but very stable legacy system. You've got investments in final mile that help make us interface with their customers more effectively. We have brokerage capabilities that we're developing a truckload, in intermodal.

You see a lot of investments across the business and across the corporate functions, Bruce, that are being turned on, that are being refined. But you also see IT making an effort to untangle our systems and to turn this into something far easier to use. I asked our IT VP if that was called a data lake, and he told me that was so 2005. But you get the picture, right? Like, let's get our own data in front of us in a far easier way so that we can make even better informed decisions.

And just lastly on that topic, Bruce and looking back to the comment we had on drivers and my very, very strong confidence that our driver retention is terrific right now and will remain very good as the market gets tighter. A lot of our investment focus rightfully is on doing the right things in support of our independent contractors, acquiring them, retaining them. So in-cab cameras, huge deal, great coaching tool for them, collision mitigation saves lives as more of that gets installed. And then we actually are launching our driver app. Many of our drivers are using it. That's basically them -- putting them in control of managing their own business at the tip of their fingers.

So there's a lot we're doing to, again, going back to our aspiration is that this place is the best professional home for those drivers. And we want them to be our evangelists and ambassadors, our best recruiting source to get other drivers to drive -- to join us. So technology and IT has its home in all the places, Mike, that you mentioned, and certainly also does as a significant driver of traction and retention tool because we are making this the best home for them.

That concludes Forward Air's Second Quarter 2020 Earnings Conference Call. Please remember that this webcast will be available on the Investor Relations section of Forward Air's website at www.forwardaircorp.com shortly after this call. Thank you for your participation. You may now disconnect.