Q1 2020 Earnings Call
[noise] [noise] [noise], ladies and gentlemen, thank you for standing by welcome to the first quarter earnings call 2020. At this time all participants are in listen only mode. Later, we will conduct a key.
Question answer session. If you have a question. Please press one then zero.
If you require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded.
Thank you for joining forward Air Corporation's first quarter 2020 earnings release conference call before we begin I'd like to point out that both the press release and webcast presentation. Before this call are accessible on the Investor Relations section afford airs website at www Dot forward Air Corp. Dot com.
With us this morning, our CEO Tom Schmidt.
And CFO, Mike Morris by now you shouldn't received the press release announcing our first quarter 2020 result.
Which was furnished to the C.E.S. easy on form 8-K, and on the wire yesterday. After market close you. Please be aware that during the conference call, we will be making forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others.
About the effects of our business efforts on response coal that 19, including the impacts of each of our men. The suspension of our expected 2020 guidance the future plans of our pool business steps to bolster our liquidity the company's outlook for the second quarter fiscal year of 2020, including expectations for revenues tonnage infrequent cash flows.
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 another factor that may cause actual operations and results to differ materially from the results discuss and the forward looking statement.
For additional information concerning these risks and factors. Please refer to our filings with the Securities Exchange Commission and the press release, a 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 Schmidt C. E O forward Air. Please go ahead Sir.
Thank you, Okay and good morning to all of you on the call.
First things first I do think all of our teammates and our independent contractors I've never been prouder of you whether you're in operations buildings on the roads are working from home you. All moving America forward, then that you keeping lives to livelihoods going so thank you for that and especially thank you for doing this list although.
Brent OFAB position you execution at the same time, we are operating with all kinds of street and she plus standard across all of our operations and a this supported you are supported by a thousand deal bosh within a few weeks moved to productive he working from home. So that's what I call persist.
And execution in these times and another first Mike and I, we typically see the cross from each other in our Atlanta support office.
I call like this well, we do see the cross from each other on our virtual table now.
Both safely working from our Atlanta homes, just a couple of mild safety efficiency from each other.
From the health of our people, which always comes first let me talk to the health of our business as you can imagine late 2019, all the 2020, we've been preparing for a slowing economy bumps before you are I couldn't even spell cobot 19 actually imports were going down there were signs of a.
Right recession, the price with fewer whats going down so.
So we were getting ready for a slower economy, and then Cobiz 19 showed up this black Swan, which impacts. So many teams any didn't catch all forward air team tremendously as you know we ask heavy ties to air freight from Asia heavy ties to Ocean freight from Asia typically those things.
Worked tremendously well for us well not the past couple of months and us while retail pool business you have heavy ties to the mall business.
And.
We did win over the last couple of years in a shrinking retail mall pie.
When you 19 actually for our purposes was better than 2018.
Hard to winning a temporarily non existing pie.
And we are moving for the most parts business to business non essential goods. So this cobiz 19, tragedies actually human and humanitarian tragedy first and foremost did impact us tremendously.
Now Fortunately as a leadership team we once a quarter, we have sections, where we always look to reset refreshed look around the corner or think about next practice. In fact on next session scheduled for May which will be a virtual one now what's out black Swan session, where we were about to go through all the scenario said.
Even conceiving quick existing good talking to us.
And well in all fairness that session came a bit faster than plant and it became much more real then plant.
On the positive side that DNA of being agile and acting fast that we learned as a team still soaps and smelting. These days tremendously well you haven't asset light model to begin risk you did flex down quickly we talked we did cut cost across the board and be also deferred capex surgically.
It made sense.
We also asked Mike will talk about in a few moments flex stop our liquidity I.
Significantly.
And most importantly behind the scenes, we did what first class companies do over the last several weeks and months, we calmly firmly moved forward with steadfast confidence if you remember last year in New York that in Investor Day, celebrating 25 years on the NASDAQ and be unveiled.
I'll be entre 19 strategy, we are firmly executing the strategy the implemented <unk> expedited freight segment truckload and LTL collaborating better than ever recruiting together selling together out tying together locally pickup and delivery LTL and decide on all business although.
Together, they're sharing facilities. The first one for that not just opening up and they also.
Routes together, so on a light installation day.
Finally mile driver might also have three pickups healthy drop offs hope LTL pellets.
Truckload business, we are stretching in addition, with enhanced brokerage so all across the board all expedited freight second and really collaborating in a rate that we couldn't see if a year ago and we're executing firmly though.
Final mile. Thank God for our dual with growth of gross girls approach between organic and M&A.
It's working beautifully final mile. These two acquisitions last year and be also growing organically just recently a big win in the queue, Texas markets.
I also meant I talk about five them out I should talk about human sites.
An extra shout out to our teammates on the final mile team the contractors own teammates who safely go into your homes right no installing highly functional fridges washing machines and I can tell you.
I would personally experience last six weeks I've never used to washing machine or you fridge as much as I have the last six week. So this is essential goods and is actual times and a big shout out to our team that safety gets it into your homes.
Intermodal that was the rock star last year, we actually had double digit marching double digit growth rate in promoting last year. So I would venture a better that they'll get there again, so a lot of organic M&A growth collaboration exactly the way we couldn't chief did last year, so badly executing.
Forward.
Our support teams have never been more focused from consistent customer management CRM, just implemented executing to join backbone processes across all of our business units. We are deploying first.
First class standards across the board.
And the most important.
Time spent in the support teams obviously all issues on the safety front, the never had fewer trucks without in cap camera on the road ever which means most of our talks on the road ebay tool in place that huge for safety and it's a great coaching tool as well.
And our onto revenue side, we are clinch consistently leveraging all fastest network, although it's bigger than a box reinventing the game going to essential goods more small medium enterprises beaten see new verticals warehousing.
Right now is still mostly a non essential you could be company on essential goods PDP company.
I said, however, what I just mentioned really reinforces nowhere is written that this is always Shelby.
My final point before I turn over to you might in the release, we did say we are evaluating strategic options for our pro business.
Okay, very clear pool, that's $2 narrative, it's bigger than a parcel led or it's going to these Maltese has to get there in a very tight time window. It's fashion goods in many cases everyday late means is selling day lost and there's only about 2025 stay so many of those highly fashionable goods fast metro precision execution, all that fits all narrative.
However, what we did determining LP entre 19 strategy process last year.
Asset intensity off the pool business does not fit the high velocity asset light character of our portfolio.
It's different than expedited freight it's different than intermodal that way.
So we had been in a sale process supported by Raymond James for several months.
We were interrupted by covert 19 and be resuming that sale process fully.
We will continue serving our current customers you'll look for additional pull customers with a first class service that our customers deserve the stretching into other verticals.
We did start last year hospitality industrial we keep doing that running a first class team and growing this business.
SVR getting it ready for the next owner, we have a clear intention to turn absolutely first class business over to a next owner who will take it to the next level.
All up.
We are executing our game plan with precision execution.
We are moving firmly fall works and the tons of confidence so with that over to my virtual roommates here Mike.
Yes.
Thanks, Tom.
As a results of our strategic intent to divest pool.
We will begin reporting pool as a discontinued operation starting with our second quarter earnings release and 10-Q filings.
For those on the call who are not familiar with the discontinued operation. It is an accounting term that describes how we will report pools financial results because of our commitment to a divestiture.
In the real world. It does not mean that we're stopping or discontinuing pool distribution activities.
We will continue to serve our current an additional pool customers as demand improves and we will make investments to enhance pools profitability in ready it for an efficient separation.
As discussed in our earnings release, we have suspended guidance in light of the significant uncertainty created by Cobot 19.
So let me offer our perspective on the wants to come.
We expect that April will be the most challenging bonds.
Reduce U.S. demands for non essential freight and its flow through effects to air and ocean freight volumes will adversely impact expedited freight and intermodal revenues.
Within the expedited freight network revenue will likely be further pressured by lower fuel surcharges and the diesel prices that are down over 20% year on year.
It would be partially offset by increased final mile revenue driven by our Fs say and Landstar acquisitions.
In total we could see expedited freight and intermodal revenues down 10% to 15% in April.
[noise] pool will be hit much harder.
Temporary retail closures and stay at home orders have nearly wiped out pools April revenue.
Driving it down roughly 95%.
At these low sales levels pool cannot cover its fixed costs and operates at a loss.
As we enter May we are cautiously optimistic that we're turning a corner.
Weekly LTL tonnage, which was down roughly 30% by mid April is now down roughly 15%.
Our customers are indicating that they are preparing for the economy to reopen and.
We are beginning to see increased activity in expedited freight and to a lesser extent in intermodal.
Pool couldn't be slower to improve as retail malls gradually open across our footprint.
Well, we are expecting pools, ne revenue to be better than its April revenue.
Our past traveled through the balance of the quarter will largely be determined by the timing and the impact of loosening stay at home orders and the extent to which the gradual reopening of the economy drives increased demand for non essential goods.
We have limited visibility.
But our base case assumption is a slow sequential recovery through the rest of the quarter.
We currently estimate that pulls results will drive a discontinued operations loss.
$10 million to $15 million for the second quarter.
Which we expect will be big enough to drive a consolidated second quarter operating loss for forward Air.
On a continuing operations basis. However, we expect to have positive operating income for the second quarter, although margins may be very low.
While many of us or sheltering in our homes to ride out the worst at coated 19.
Forward Air will continue to take shelter in its balance sheet.
Our cash balance of $104 million, coupled with $75 million and availability on our committed credit line.
Gives us a total liquidity position of $179 million, which is almost nine times, our historic target cash level.
Our accounts receivables are currently being collected with no significant deferrals or defaults.
On a consolidated basis, we expect to be free cash flow positive every quarter. This year.
We currently plan to pay a dividend every quarter this year.
We believe that our financial flexibility coupled with the incredible people, who make up team forward air will allow us to whether this terrible covert 19 episode and emerge a stronger competitor.
With that rocks NAND, let's open the line for Q and a please.
Certainly again, ladies and gentlemen, if you have a question. Please first one that then zero.
Let me just a moment for the first question.
My question comes from the line of Jack Atkins with Stephens.
Good morning, Thank you for taking my questions.
Hi, John Good morning.
Well first off thank you for the for any additional color it inside into business trends I think that's that's all very helpful. And obviously I think we all know things can change pretty rapidly. So I I guess you know if we just kind of dig into the current business trends just just for a moment you live in more detail.
Ill.
Specifically around you know the improvement that you've seen over the last week or two in the expedited business from a tonnage perspective.
Mike are there any specific end markets that that's tied to any specific geography that that's tied to just some additional color there that's pretty encouraging that you've seen.
Recovery.
So Jack ups you can tell for my accident. This is not Mike responding, but I'm going to go first and then then Mike Mike will follow up and correct me.
No seriously so I did over the last.
Two three weeks I mean, this is to some extent the beauty of refocusing and be shifting the type of and the way you work I did talk to all of our largest 20 customers one on one directly.
So I got our own insights own numbers, but I also thought their perspective, which is equally or more important.
So the first thing Chuck over the last a couple of weeks.
And Mike you talked about it a bit earlier at the LTL volumes are much better this week and much better last week than they were the first two weeks of April delay I wouldn't look at this into I'm not a lever extraordinary terms so shapes your but if we are moving along in.
April the bottom offer you. The first part of April was probably the left hand side of that bottom getting to that midpoint low good definitely on the right hand side of that Bhagyam moving slowly up that adept bottom up that you in percentage terms Chuck.
LTL volumes.
The type of benchmark last year or week over week.
Right now, probably 15 percentage points better than two weeks ago.
The second thing that's hugely encouraging and you talked about customers or geography, <unk> West coast northeast worse, both Super hard hit both coming back, especially West coast I'm. So thrilled I wish there just in early March when you still traveled.
It was beginning to slow down in a big Big Big way, it's starting to come back very encouraging data thing that I would tell you Chuck talking with large customers.
We are producing right now record LTL service.
Yeah on time servers numbers have never been better.
And our customers are seeing that they actually are down themselves too, but my sense is you'd be talking about a slice of high game. Chuck we winning these customers right now are making decisions towards us.
Got that may not showing the numbers from a bunch of April but I love, what that's going to play out to us in a in a three or six months down the road as we are winning with those customers by giving them industry Best service. So I'm hearing good things.
Talking with them one on one I'm Sheena, good things, especially into hard to divest coast and I'm looking at the numbers coming out being 15 percentage points better than there were two weeks ago.
Mike you want to add.
Correct.
There is pretty good time, Jack the only thing that I would just add is against that backdrop.
We are continuing to make progress inorganic growth our door to door.
Last quarter, our Threepl daily tonnage was up over 85%.
So that initiative, it's still smaller and the big picture, but that initiative continues to.
Make progress you know amid this larger.
Backdrop of decline.
Okay got it got event, that's all very helpful color, So I guess.
Of along those same line you know how are you guys thinking about managing costs, given how dynamic the underlying environment is could you kinda talk about some of the cost containment actions that you're taking.
Broadly and then yes, but within that how are you managing capacity because I know it once you lose an owner operator, it's it's really hard to get them back and I'm sure you're hesitant to sort of cut some of those guys lows. So how are you managing capacity in a tonnage environment. That's that's fallen off so significantly like us.
Well I'll answer in reverse so on the on the capacity side.
The fleet is in a very very good place I think we said the 8-K, that's the best.
It's ever been and we had to run that comment by legal. So you can you can take that one of the bank.
One other things that's been helpful.
And that capacity side that I've noticed has been the integration of the truckload and LTL fleets together.
Thats opened up a new kind of degrees of opportunity that didn't exist before.
And in either one fleet now it's basically done but the next wave of this which is starting to kick in is the growth of our truckload brokerage operation.
I spent some time talking to the to the team.
Tim Parker, and Dennis White, who run medicine, and you start to get it and understanding that we haven't had before of how the brokerage operation.
Can help you know reposition drivers who are out of place running in LTL network. But then also go find opportunities for owner operators, who made the idle so not a repositioning, but hey, you know what.
I want to run so can you help me and we're doing a good job in growing our overall brokerage capability leveraging our asset our access to assets and that sort of strength that we bring to the marketplace.
So we feel pretty good about where the fleet is in terms of our ability to operate efficiently now but also to recover.
Demand starts to pick up.
In terms of the overall costs do it quickly Jack and we can double click where your why.
But I'll break it into two buckets and I'll I'll Kinda talk numbers that are your year over year on a quarterly run rate basis, just to give you an apples to apples sense about where we are right now.
The most significant actions, we took her and pool.
Jack essentially pools in a a hibernation mode.
If you will with such low revenue, we've had to remove nearly a nearly all the variable costs and we've removed nearly all of the softer fixed costs.
It is across the cost structure.
Labour supplies.
We've taken workforce actions at pool on 1485 people.
Order of magnitude last year second quarter, Opex was 44 million.
We probably cut that by 30 million.
On a run rate basis.
We're down to about 10 to 15 million of remaining variable cost to serve low volumes and then fixed costs that either we can't get out of or were very reluctant.
Because we do want to being in a position to reopen.
Outside of pool, if we look at the rest of the business and for expedited freight and I'll set aside final mile because final miles growing.
Inorganically, but it's also growing organically and so they actually survived the no hiring exemptions if they needed a person to support growth. We funded that so I'll speak more to LDL, LTL and truckload and intermodal.
We've definitely lowered.
They are able and semi fixed costs you can only do this if your PT and your dock operations are running well they are running very well all of our non financial operating stats are pretty clearly in the green.
So we probably reduced PT on a run rate basis $21 million.
14 of that add LTL to truckload and maybe five that intermodal.
That's about a 15% to 20% decrease in LTL, 5% truckload.
And the 15% to 20% at intermodal so biggest cost lever pretty significant reduction because we're operating well.
Variable labor, we probably reduce to run rate about 6 million, but for that at LTL and want to each of truckload and intermodal.
Or load 350, roughly employees and have eliminated overtime.
And on the Opex side Weve other opex side, we probably took out another 3 million.
Most of that at LTL.
That's where we are now if volumes pick up Jack we're going to pull some of that cost back in volumes stay soft or go down.
We're prepared to take more actions.
But we are.
Not sitting idly in this respect it's kind of a very extreme focus to keep our efficiency and and get cost out Tom do you want to chime in there.
Just one AD, which conceptually attract may be helpful on the.
The power and the strength.
Of our driver pool right now so we obviously because of contracting volumes Oh, we do need to make sure that our eyes, she's our independent contractors get their run. So we pulled two levers one is we stopped recruiting classes.
Which wasn't hard to do because it's hard to actually test and who driving simulation test upfront. So we pull that lever at the second thing as Mike you talked about the two P.T. way down so our independent contractor force.
Still has to arrivals because we took those other two levers. So we actually have our best drivers, who know us best delivering good record service all retention rates right. Now are also at a record high so I feel very very good about flexing the hours offset core driver pulled up again Ashley.
Getting back into more LTL NTL looking at this week versus two weeks ago. So.
So again, we pull two levers, we but we kept our independent contractor force at <unk> record retention levels, and thats going to serve us tremendously well.
Okay, well I picking up a lot of time. Thank you very much for those detailed answers and I'll jump back in Q.
Thanks, Josh.
Our next question comes from the line of Todd Fowler.
With Keybanc capital markets. Please go ahead Sir.
Todd I'm, sorry, I think he dropped from the question. There. We'll go to the next question that comes from the line of Ben Hartford with Robert W. Baird <unk> Company. Please go ahead.
Good morning, guys.
Just to kind of clean up the discussion around the owner operator base.
Have you made any changes to.
The compensation package with the existing.
Owner, operator base of you had to make any changes.
So the answer is no I mean, we have a fundamental principle bend that'd be applied across the board, we rightsized and downsized flex down our workforce in lots of places and Mike you just gave us some details kind of five business units.
We do pay the independent contractors and the team said we have.
They are fair base pay or their fair or pay per mile. So no adjustments there, they're doing an awesome job and tremendous tough times and that they earn every single pay that they get.
When.
Tom you talked a little bit about extension, though the business in the it'll be to see and an essential goods.
We know the strategy on the expansion of the addressable market into the broader through appeals, but it.
No it's difficult to get visibility into that freight.
As well so when you when you kind of can sort of would push into essential goods b to C is that above and beyond what you talked about from a product line or customer base.
Spansion perspective are you able to specifically target verticals, because it's something that's been accelerated here to start the year in mid October.
Yes, so actually it's a good point, Ben we put in place a year ago.
An initiative that'd be called grow forward, and it's basically about keeping and expanding.
Our customer base.
Very surgical tools, which are used in the past calls to profitably grow businesses.
To your point, Ben we actually have two months ago.
Added kind of an extra lever of Ah intend to GMI call to grow forward do tense.
In goes up in that area, we are getting more not only into additional verticals you might you mentioned VPLS, we've talked about as in the past also airlines, which is difficult right now, but it's an important one international fall worse. That's the also leveraging our CRM tool Dun <unk> Bradstreet, who.
We're in local markets do specifically go ask a small medium sized enterprises, which typically in the past would have been below our radar screen. So eat framework of quote fall works that'd be established a year ago and this goes back to this notionals calmly firmly moving forward, we're executing on game plan, we just doubled.
Clicked on a few dimension slowing down mentioned in addition to the ones that you are familiar with would be to size of potential customer we've been down into SMB. That's something we did not go to in the past as much.
Okay.
Any thoughts on Rebasing, the fuel surcharge in an expedited freight LTL given what fuel.
Crews done here.
[noise] section interesting I do dash that are probably one of the topics to that person you spend a ton of time on over the last several weeks I'm not not completely surprisingly, but again also nothing new distance up kind of how first class companies operate we've seen surgical kind of go forward buckets, we had a search.
Charges in essence, Oreo pocket fuel, obviously being a big one we are we looking at.
Yes, that's the same table makes sense all of our customers or to be f. different pay folks by different customer even like a asked as the price goes up and down to be half the rights the right kind of sex and decisive steps in place. So this is a bit of sausage, making the progress. The one thing I can tell use.
There's lot of go forward intensity around making sure we using that lever fuel.
Precisely and also it somewhat surgically right now we got in essence engine Paypal for everybody that may or may not be the same industry in the future. Okay.
And then just back on pool.
Venture that you're exploring this prior to southern started a year.
Things are put on pause and your resuming though that process.
Any sense as to how close you were to consummate again sort of transaction prior to.
This outbreak here late January and February March and as you resumed the process and given Ho drastically things have changed is there any sort of ideas to the timeframe in mind as it relates to the.
The disposal pool.
Yeah. The for the answer to the first question Ben was very close.
I mean as I said before you started the process.
After our strategic review in New York last summer.
And so and we had obviously very very detailed specific conversations. So we were very close.
In terms of timetable.
Definitely hard to say that but I can chase we have active interest by parties. Even now they may not want to execute right now and you don't either because.
We do you need to track record of numbers going up first but we have to pipeline we have Raymond James working with US you have active participant instead, our interest that.
Actual Michael and Choleric edged team stayed on this process throughout the entire period over the last two months so.
It's not like we have to start from scratch. Your basically just had a par spot and now we need to push that are starting to get back on to start.
I, it's hard to say a timeline, but if Q3 is a big step up again, I would see us being in a very very positive position with lots of options that we can execute upon by the end up this year old before.
In the last one I'll turn it over there I know this is hard to assess the mood.
First quarter, and what took place but feel the growth in the threepl customer base.
Mike highlighted the expansion of the door to door took penetration within expedited freight is there anyway is there any way to assess.
How that changing profile freight in that network.
Is functioning relative to your longer term plans and ideas of being able to rebuild density in the network, having it be positive from an operating leverage standpoint, and kind of accretive whether it's from a margin or broader growth return standpoint is there any way to faithfully assess that a bit.
Business declines, but we're seeing at the moment.
I'll give you a headline and then Michael as though it's only the out a bit more or so.
That focus that'd be half Ben is always has been on quality of our LTL revenue and secondarily quantity of LTL revenue. So clearly the door to door from a profitability perspective needs to still step up to get closer to the.
Airport to airport profitability.
So job number one is to be the best possible partner, we can be to those customers primarily domestic forwarders, who uses for that airport to airport business I've never talk more collaborative free supportively intend and tag teaming with our domestic forward or core customer base and have recently and there's a very very.
Close collaboration so that is a base. We always has to happen do you have to strengthen yeah door to door. It comes on top of that and again I cannot overemphasize the value that he draw from having those tools like the total costume tools to make sure. We can go lane specific Zip code specific.
To get good profitability in the attractiveness of that business to be closer to the airport to airport business also I look Mike and I, both talked about the operational synergies pickup and delivery locally and final mile helped tremendously on the cost to serve locally meaning all goal.
Doping since becomes more profitable as LTL pickup and delivery in final mile collaborate more closely in the buildings and picking up and delivering so.
This is a process. It's my benchmark is very simple are we getting significantly better period over period into probably in the profitability of that business and it's a process, but I like what I see Mike do you want to add to this.
Yeah, then the only thing I would add anything you notice I mean.
All the freight in the network.
Works with all the other freight in the network.
So if you're in a situation where certain type of freight is is in decline because of this.
Circumstances, there we're in it is very nice to see that.
On on another initiative and the your organic growth in the door to door.
And that Youre continuing to see progress there.
So that when we get out of this.
Temporary dip and we start getting back to freight levels that were more accustomed to.
It's good to know that this is continuing to March forward.
Optically one thing I will say in it yeah, we really don't have a lot of visibility here.
But as you know there's different yield characteristics between the airport to airport in the door to door.
The depending on the radio.
Resumption of the airport to airport tonnage, you're gonna see some mix effects that could potentially be flowing through our stated yield.
They're not price actions per se, but.
Based upon how this freight washes back and forth over the next couple of lives when we get to next quarter you know it could be overall net dilutive to yield but that's more of just a mix issue in terms of where we are in the recovery process.
Understood. Okay. Appreciate the time goes there so.
Thanks, Ben you to do.
Our next question comes from the line of Todd Fowler Keybanc capital markets. Please go ahead.
Great. Thanks can you guys hear me, Okay Yep perfect <unk>. Good morning, [laughter], Okay. Good morning, Tom a virtual Hello, I guess, a little bit a technical difficulty earlier.
Mike I really appreciate the color on what you're seeing intra quarter I'm on the network side can you just give us what the tonnage level. You think will look like during April when you put it all together and then can you also just give us the quarterly urged me, though the monthly trends during the first quarter. So we got that progression.
Yeah, I would say that when you when you put it all together for April.
You know if you were down 30 at the low point you can kind of finished the month down 15%.
Then you're probably in that 20% range.
22% range when when all said the guy.
In terms of the progression of the first quarter.
You can [laughter] can really see those coded kick in so in January our our daily tonnage was up 1.2%.
February was down 2.5%.
And we really saw it start to kick in in the back half of February.
And then March was down 15.8% as we kind of started to slide into that.
Kobin effect here.
So at a.
15% type of week over week exiting.
The mug.
You know, we maybe kind of back to where we where as we entered in March to Toms.
You analogy.
We're all going to be eagerly watching the tonnage report Tomorrow morning, Friday is our biggest day.
So hopefully, we'll we'll start to continue to see goodness emerge.
Hey, Mike as you saw yesterday was the best Dave you had in six weeks.
Yeah, we were down 3% yesterday.
Year on year.
Okay. Okay. So, yes, definitely some noticeable improvement there.
Tom when you think about this environment and you think about your the initiatives that youve put in place strategically <unk>.
You know I understand that there's got to be a lot of focused on your kind of protecting the near term, but but how do you think about selling the business. In this environment does this create you know more opportunities to reach out to customers that you hadnt been doing business with before or is that something that is put on pause and it's really just servicing the existing account base and being.
Once things normalize going out kind of extending the footprint.
So.
In all fairness and on the commercial front I believe we spin.
As expensive as you, possibly can be and this goes back to what I said before we put a program in place called glow fall works, which is keeping.
We currently have since expanding both our penetration to existing customer base and it's also get into new customer.
Retiree.
So let me just.
Hi, guys pass a few examples so.
On the first of all be talking I think important Todd. This is talking about the organic part of our quote story right. So and that's always been member M&A part is the second part of that's equally important last year, we had three acquisitions.
And I kept saying Hey, there's no there's no limit to that and we have a team that we actually.
Yes, it more into making sure we have a healthy pipeline that you have more of those with Texas. So that's one hot part and you could actually possibly even we expect that with a multiples being suppressed right now that I speak it who these horrible episode and people kind of get back to the table again.
He may be might actually she deals that we like more than we would've liked in the year ago. So that's the first one of them new side on the organic side.
The one thing we are doing very very.
Clearly is cross selling across our portfolio when we haven't LTL conversation in the past reward intermodal did not show up in the past awards truckload did not show up well it is now.
I'm going to many many shelfs calls and customer calls and it's beautiful how their X X L. In cross selling in a good way. So we actually are making the portfolio accessible to those customers. So if you think about selling more off our existing portfolio to our current customer base clearly one big trend and.
Other big trend is what I mentioned before and Ben and I talked about just five minutes ago that notion of also going deeper from large medium sized accounts only also into action be that's within benefit from us becoming more surgical more scientific.
Adding the science to this helps prostitutes to the article shelves process, we always had.
I'm not sure taught at this answers your question, but think about it.
We have a portfolio that we are providing more holistic and broad access to for our customer base and we also adding to our customers both industry verticals, we talked about that before for large customers as well as going down into size of customers into actually meet territory.
The time that no that is helpful and you know it puts into context I know a lot of this has been in place, but it sounds like that you're still continue to move forward, even with the disruption in the current environment. So.
Just on two last quick ones that I have it sounds like the final mile is relatively unaffected by some of the disruption that's happening right. Now is that is that an accurate way to think about it or you know would you expect to see some pressure on the final mile business, but just not as great as what you're seeing in some of the other segments.
Yeah. So.
The first let's do your first happens is absolutely correct. So final mile. If you if you and I lived in a complete document we didnt know what's going on around us.
We looking at the results of final mile I wouldn't notice that anything unusual is happening around us meaning they are on track.
Fortunately and I know, it's it feels weird, perhaps from a human perspective, Fortunately the service that they're providing.
People have time for people need right now because they've got all at home and beneath those high value appliances that they're breaking and most jurisdictions are actually open to that so thats why its final miles on track and frankly also helps as you're not just any fundamental company we were growing a good.
Core that came out of town acquisition and didn't Miss this double whammy. This one two punch of F. I say and Landstar, we got two of the finest teams into all portfolio.
Most importantly, the customers the ones that I've mentioned before I'm talking to like now a hell of a lot there mentioning to me that we are amongst the top if not the best service provider. So not only are benefiting from a trend also inside that trend our customers look at us as a top choice, Mike if you want to add to that.
Yeah. The other thing I would point out Todd as we've talked about the integration of final mile into the LTL network.
And Tom made comments in his opening.
Remarks, we are now overlapping HUD in six markets.
And nearby Coas, the independent contractor operating agreements with.
Owner operators were harmonized in a way that it makes it easier for LTL to contract.
With a final mile owner, operator for pod during down points in the week. So six markets should continue now to grow in terms of the overlap providing a synergy to the LTL network.
I think.
We are actually.
Co mingling two terminals right now and Charleston in Raleigh, and I think we have another terminal coming in July and another terminal coming in September and so we're starting to see Doc integration, where it makes sense.
We've talked a lot about expanding our footprint.
Outside of pure airport to airport.
Coal bid interrupted a plan there, but we were actually pretty close to opening up new terminal and final mile was part of that strategy and going into a new geography, working together with LTL.
To try to help you know work is one to penetrate a market. So the integration in terms of final mile is really really working well. In addition to the organic growth comments that you guys just discussed.
Great I think just overall, Mike Todd Let me just add that it may have looked a bit like a paper pushing you exercise. When you created this expedited freight segment, which combines LTL truckload and final mile under one umbrella I hope that some of the color that Mike shared that I'm shedding onto.
Makes things come more like this is a reality expedited freight is actually how LTL TL over the road.
And the LTL and final mile more locally are truly working together as one team, which is why there one segment.
Yeah, no it makes sense or we can definitely here that in the comments and I'm sure there'll be more apparent once we get too.
No more consistent or normal freight environment I'm, just the last one I wanted to ask quickly Mike on the discontinued operations that means you'll be pulling out pool revenue and expenses on a consolidated basis. When you report and I'll just be lumped into kind of one line item altogether. So is that the right way the reporting will look going forward.
Yes, so starting in the second quarter, continuing result will be the consolidation of expedited freight intermodal and the unallocated part of our of our corporate.
Revenue the costs, all the way down to net income.
And then you'll have net income, let's say continuing operations beneath that there'll be one line, which is net income discontinued operations.
And that will be the net result of all of pools activity.
On the balance sheet, so you'll have a continuing as soon as discontinued S to get to your totally yes on the balance sheet all of pools assets will collapse into one line.
It all up pools liabilities will collapse into one line.
That's how the accounting works okay. Good yeah that helps from a modeling purpose. Thanks, a lot for the time. This morning, guys well talk too soon.
Thanks, Todd Thank you.
Our next question comes from the line of Scott Group Wolfe Research. Please go ahead.
Hey, Thanks morning, guys.
On his product.
Just want to follow up on some of the April commentary inspectors and are there.
Are you seeing that improvement at any of the other businesses is pool gone from down 90 to something less than down 90, I don't know if you gave any intermodal update but I just want to see if this is broad based improvement.
So if we go through the modes.
We talked about intermodal, we talked about LTL, we just talked about final mile.
Intermodal will likely not start to improve until we get to the third quarter.
Right now the Dcs are largely full.
Or waiting for the economy to reopen.
We are picking up some storage opportunities.
To help our customers manage freight that they did decide to pull England and don't have storage for.
So we expect that as the economy slowly reopened you're going to need to let those dcs lean down a little bit before you start seeing new sailings out of Asia, and a pickup in the drayage and other activities for intermodal so not so much it intermodal about we're getting inkling.
That by the June July timeframe, it should start to pick up.
Pool is like I said in the cost comments it in hibernation mode.
Georgia opens today, that's where I am right now Scott.
And I think you may have seen an article the largest mall owner.
Indicated they were going to open 49 malls.
40 of those are in our footprint.
Thanks.
46, sorry, 46 throughout our footprint. So we are starting to get some communications.
From our retail customers that they are preparing.
It's likely going to.
Slowly grow over the balance of the quarter as people start getting used to going back to the law.
So why why why do you think the LTL, the only place thing and yet.
Is there something that's unique about the it's being driven by no temporary pick up in ocean import or something or I don't know I'm, just I'm not sure why we're seeing it and newer business not.
Other parts for business and necessarily other parts of freight at least based on what we've heard from.
Are there any so.
Well My guess is you have the modes are going to have different responses to the recovery.
And you know, we still do have large E com customers.
That whose goods are moving in and essential Stan.
We do have throttling between distribution centers.
We do have other freight movements that benefit LTL.
Benefit truckload, whose you know finding opportunities among some of the supply chain disruption.
We've had to bend and flex to need some of our airline customers to.
Our hall and are empty passenger flights with belly space, So LTL and I think truckload or in a different modal position.
Intermodal I think would look to a lag and then pull up to a lag. So I think that's how it at maps out across the modal nature of our footprints. Tom did you want to comment on that.
Scott one phone piece to add I mean, if.
If you look at why on D. LTL side did you see such a steep decline and if you look around transportation spectrum across the U.S. and do you I hate truck conceptually working well right now what's going on it just exactly Scott when you're talking about we do have super heavy exposure.
Non essential goods and many of them Airfreight also ocean freight from Asia that go into our network. If you like to talk to our largest customer industry vertical which is still domestic forwarders, which makes up more than half of our LTL revenue.
They were down more than LIBOR in fact, we were winning with them as we had the best service in support of them. So yes. There is something short term very short term systemic about the nature of business, that's driving our core airport to airport LTL network, which is heavy Asia origin.
Heavy airfreight and our own customers that are relying on those moves.
Suffering actually even more than bieber on the flip side back to Mike to your point you also I think we'll see a recovery in LTL at a faster pace than you would probably see in intermodal as an example.
This is just a random thought you do you know if youre more tied on a on the air freight side too.
[noise] capacity or from terms of stuff coming from Asia belly capacity or cargo, meaning as some of the airlines have added back some sort of.
Yes, running passenger planes, but with cargo only do you think that could be part of this I I don't know.
Yeah, so and that's actually very interesting so I haven't dissected it formally display, but if you're just as real time for a second.
Many of our large.
Airline customers.
Our company's said actually operate passengers air passenger aircraft first and foremost we do have a couple of cargo only customers, but it's it's mostly passenger airlines. So yes as they are going through this temporary process. So so turning passenger airlines and good traders that actually will help us.
All to get the capacity back up again, if that's what you get into.
So a good I expect what I saw the last week or two on the LTL picking up some of that huge gap that we had.
In a lake margin first part of April and closing the gap I expect that to continue as both passenger airlines and integrators are getting extremely creative.
Marketing capacity back up again.
He said Scott getting I couldn't do talking about.
Yeah, I guess, that's right. So you think that Thats one of the factors here is just that you're seeing a pick up with some of those historical passenger airlines.
Yes, they're getting creative and good benefiting from it.
Okay.
And then Mike I, just want to make sure I understand your points about second quarter from a profitability standpoint.
Good.
You think you'll lose money, but that's really driven by pool, which will be in discontinued ops continued ops you still expect to make money is that right.
Yes.
And then any sort of directional thoughts on how to think about the LTL profitability right now.
Low.
[laughter] the <unk>.
Here's here's what's going on I mean look we described the great lengths we went.
To take out variable cost.
Which is essentially preserving.
The contribution margin percentage.
If revenue levels drop really low.
You operate well any preserve the contribution margin percentage, but you just have less contribution margin dollars.
To attend to the fixed component of your cost structure.
And less you make significant cuts to the fixed costs.
Your necessarily going to come under EBIT margin pressure.
We're viewing this primarily as a temporary yeah.
And we cut into some of the semi fixed costs.
But we're not yet ready to cut into bone.
We want could be in a position to respond.
And to remain and grow as a competitor.
When we get to the other side of this.
So we're going to see some EBIT margin pressure not just did LTL, we're going to see it intermodal.
Wall revenue levels stay low.
As revenue level start to pick up than that EBIT pressure gets restored but yes, we're in a different place a month for now than we will start.
Getting deeper into the fixed cost, but that's kind of what's happening in the math in terms of putting.
Pressure on margins at these low revenue levels.
Makes sense. Thank you run it very much for the time guys appreciate it.
Thank you Scott.
And at this time that no other questions in queue.
Well, thank you Roxanne.
Alright, thanks to everyone, we're going to sign off.
And that I get Barnard.
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