Q2 2020 Forward Air Corp Earnings Call

This conference is being recorded.

Thanks 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. So afford airs website at <unk>.

Www Dot forward Air Corp. Dot com with us this morning, our CEO, Tom Schmidt and see a full Mike Morris by now you should have received the press release announcing our second quarter 2020 results, which was furnished to the FCC on form 8-K and on the wire yesterday after the market close.

Please be aware that during this conference call, we will be making forward looking statements within the means over the private Securities Litigation Reform Act of 1995, including statements among others about the effects of our business efforts in response to the covert 19, including the impacts on each of our business is the future plans for.

Our pool business steps to bolster our Luke 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 the 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 expectation 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.

These Securities 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 Smith CEO of forward Air.

Thank you, Greg and good morning to all of you on the call out our last call what a less than three months ago and it feels like an eternity.

Some things all the same in fact, there steadfast the first and foremost is our commitment to our people safety and the safety of all those around us.

C D C plus no.

And the second thing that's steadfast and firm is our execution of out beyond 2019 strategy. The same strategy that we unveiled last year in June.

In New York precision execution for.

When it matters and it's bigger than the box thing forward to rock star segments, expedited freight and a into more drayage.

And profitable organic and inorganic growth with a medium term double double destination.

Other things, our wallboard tough team and that's a termed as one of our teammates coin.

And a lot since our call in May and I mean, a lot Mike and I discussed in our call at the time, how we flex down cost very quickly how we raised liquidity and how we made smart adjustment.

We've gotten closer to customers the last few months than ever in fact, I personally have talked to more customers in the last three months that didn't any three month period and my history of.

Doing business.

And thank God, we put a organic growth focused go forward program in place 15 months ago.

Finding keeping expanding good volume, but high velocity airline cruise lines trade shows conferences concert.

Temporarily depressed we had to dial up other levers and we did very very quickly.

Correct. We turned all go forward program to last several months into a go forward intense program.

Talking about essential we dialed up with our lever.

Typically those guys I see codes that are essential goods into our sales professionals called cycles.

Resulting in significantly more business in those spaces for all my 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 for continued operations came in comparatively.

June of 2019 getting towards what we call eight zero plots, meaning at least as good as last year and better.

And remember in April just tuna amongst the go with three months ago, our LTL tonnage actually had gone down by 26%.

And some of that business that went out west our highest margin high precision high velocity business.

Our incoming CCOH Chief commercial officer, Scotch era, He's got a track record of building high growth sales teams very very surgically, making sure that you that he focuses and refocus on those parts. So the vast LTL industry or 40 billion in the U.S. that our sweet spot.

For our type of LTL and quantifying how high is up for that is central business is one of our top priorities body 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.

Tremendous team our customers back up.

Making these businesses all they can be I personally when shopping too many stores over the last few weeks and months and saw safe bright experiences and frankly out we've got a few could deal first cloud companies that are doing a great job and I personally pick up the volume, let those companies know how tremendously effective.

Our bringing that business back up we are investing in our pool business I T., we bought back as senior operations leader Robert Norris.

We're diversifying beyond retail looking into home delivery, we want to make sure be graduate this business at the top of its class to a new owner, who will make a healthy business even better.

It's all fiduciary responsibility to make dismisses all you can be is all the 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 springing, our step and making us even more confident that the investments we are making into our LTL business are the right wants to make you probably saw investment.

Announcement in Savannah, where we actually very great. If we are expanding our LTL footprint outside major airports and we're doing it on the back of our final mile presence.

Always talked about as the reason why expedited freight segment.

This is why LTL and final mile locally and truckload and LTL over the road to collaborate Savannah is a great example of that and Thats more so than us to come more network terminal expansions to come this year.

You also saw earlier this week, our investment announcement Columbus hub, our biggest top already it's in the center off the economic activity over the country and reinvesting into a significant expansion 35 more doors 30 plus million dollar investment over next several years, it's our commitment to our belief.

Weve that we will be getting more sweet spot LTL business in a huge addressable market that's actually growing.

Bottom I was thinking already you saw 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 teams led by land small Mike print that old Dennis Slide Angela teams are doing a true tremendous phenomenal job and Scotch era. When he comes in but I'll just add to that the key focus for us will be to capture that right fit transportation that $40 billion LTL industry.

We make sure we find the sweet spot and we also operationally.

Great synergies like truckload and LTL over the road as I mentioned, all find them out LTL local.

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 three acquisitions last year and I expect 2020 not to be a pause here I expect more.

We are close to our customers I could not be more proud of our team we do not wait when we see something they act within power team.

And we removed ceilings your move ceilings by industry I talked about more essential and quantifying how high is up there. We also will ceilings may come to geographies Savannah is a great example, last as an expansion so with a clear eyes to our medium term milestones on one 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 Cobot 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 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 1.1 times to 0.8 times EBITDA.

We will also resume quarterly share repurchases at a level consistent with our historic activity.

And of course, we remain committed to our dividends.

If trouble Resurfaces, we believe we have ample liquidity to support our operations our credit line or increased credit line has committed and we expect to remain in compliance with its covenants.

Before we go to Q and 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 the pool will generate.

Small operating profit.

That Greg let's open the line for QNX.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press one than zero on your telephone keypad. You mean withdraw your question at any time by repeating the one zero commend if you're using the speakerphone. Please pick up the handset before pressing the numbers. Once again, if you ever question. Please press one than zero at this time.

And one moment. Please for your first question.

Your first question comes from the line of Jack Atkins. Please go ahead.

Greg Good morning, Hey, Tom here, Mike Thanks for taking my questions.

Morning, Jack.

So.

I'll say the questions around what's happening in July for somebody else will the call, but I'm sort of more curious and the recent press releases that announcements you guys when 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 higher was very intriguing and so.

As usual look forward.

About where you want to be positioned within the LTL market.

Basically over the next several years.

What is the sweet spot reported within LTL and sort of what what sort of investments you need to make to better position are really capitalize on that.

Yeah, I mean does up Jack there's a couple of things.

I think come together here and that's our job, we always talked about double double.

And.

The the last few months were tremendously focused on the first stop all of 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 people have job.

And that we serve our customers saw a lot of that dialing up was focused on that first double the.

Secret will be NDC. Good success sauce will be to make sure that second up what we're trying to is more important one is our number one focus that's more important perhaps perhaps it was maybe a little bit less urgent the last two offering bumps, but it's more important.

And this is where the investment Jack did you mention comes in.

Strongly believe if I look at the fact that we have to fastest planes.

Were built on chasing airplanes from one airport to another over 20 years Thats, all we did and that's still in our DNA. So if I look at S&P codes essential as I see codes medical supplies. Some household goods that are in high demand in that 40 billion dollar LTL industry.

We're going to get extremely surgical making sure we find high velocity extreme heating of tight time windows low damage ratios lowest in the industry and we look for those guys I see coach those lanes and those customer requirement that actually fit that bill I'm, a very strong believer that into 40 billion dollar.

The LTL industry significantly more than $700 million worth of that type of.

Well file where we are by far the best to satisfy that demand.

Scott share a higher is a tremendous addition to our team.

Scott If you look back over his tenure track record just the most recent period add Coyote logistics way helped a company profitably grow by more than Fifteenx, that's exactly what he and his team. It's looking for rightfully transportation in a very very surgical way and Thats 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 us and our network serve our customers get our people back into into job safely. The more important double is the margin double and everything we're doing right now with Scott Scherr also adding to that surgical.

Our approach is getting is going to get us more of that type of LTL I just described.

Okay. Okay. That's helpful. Thank you and pull my second question.

When we think about the third quarter guidance broadly you referenced June by the time, you've got to June you saw revenue growth and.

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 filled out pretty significantly year over year. So can you kind of talk about maybe some puts and takes why 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.

Hey, Jack its Mike I'll I'll take that if you want to Tom and 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 daily tonnage through the LTL network since I get asked that so much as highlighted in yellow online talking points.

So in April we were down 26.6% 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 weve inflected, we've turned a corner.

Our base case, when we spoke to you last.

From the depth of this was a slow steady sequential recovery.

We've picked up.

This 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.

Mark the revenue growth that you're seeing in our guide is coming Inorganically. It is nearly all from the acquisition of Landstar in January and there is a little bit of growth from the FSC acquisition.

So clearly expanding the topline through our strategy with respect to sign a mile and then continuing to recovery path.

Hopefully, there's some conservatism in this outlook, but I think you'll admit there is is that quite a bit at 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 ed.

Your next question comes from the line of Todd Fowler from Keybanc. Please go ahead.

We are.

Hey, guys.

[music].

Is that warning Zack.

Just want to ask about just kind of going back again to the third quarter guidance and just thinking sequentially you know what are.

I guess the puts and takes.

Yes, I'll kind of from a cost perspective that we should be thinking about.

Yes, just send into the third quarter. Thanks.

Yes, I think I think the key issue is the rate of recovery in the overall tonnage landscape.

Our fleet is in good place it's in a great place.

To give you a perspective around our biggest cost item, which is purchased transportation broker power last quarter was 7.1% of miles.

It is 8.4 in the prior period quarter.

So we've got the fleet and a great position.

The overall tonnage.

Is what were.

Doing our best to forecast in our outlook fuel.

Plays a role in this as well pretty steep drop in diesel price March April as Kobin 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.

Our outlook.

We do have some cost that has not come back in continuing operations PT is flexing back with tonnage.

We have no maintain.

As a run rate of about two and a half million of controllable variable costs out expedited freight.

Salaries wages and benefits is down in 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.

Visibility around.

Recovery in the tonnage landscape.

Okay understood Thats helpful and then I guess just.

With that tonnage and you mentioned.

April some of the higher margin tonnage.

Without the network I guess, where we are with.

With regards to that.

Where's the profile the tonnage look like.

Thats currently.

Yes, I know, it's clearly come back and I mean the question.

You know is where is the so called airport to airport in comparison to door to door. You know if you look at the earnings release Theres 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 trop in April which was starting to come.

Sure 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 today.

Which 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 from me.

Yes.

With regards to yield.

Yes.

Overall pricing environment look like.

Right now and what do you guys expecting just going in the third quarter and is probably the back half of the year.

It's rational.

We have kind of two dynamics going on or 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 tied 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're seeing now being would be like gas you're going to see some.

General tailwind from the overall tightening in the truckload market and the tonnage environment continuing to improve with a little bit a headwind from the strategic mix shift as we go into new addressable markets.

Just.

Two.

Going to summarize this we've been very very clearances.

As 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.

Ironman dead, we are shaping hard off over next several months actually should help to be disciplined.

Give us some additional tailwind.

And all that ex fuel just to clarify.

Understood. Thanks.

Thank you thanks Zack.

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

Okay. So you really likes the answer to my question.

Well, yes, sorry about that my biggest work from home my phone my phone line dropped off so thanks, Let me jump back in question in the queue to ask your other question here, but I just kind of wanted to go back to.

I guess it dovetails your last comment on the truckload market, we are seeing tightening they're seeing spot rates rise.

I would think that would be good for us will spill over break down the road.

On the tonnage side, but how are you guys thinking about.

Right, so you're owner operators.

Are you worried about some inflationary costs there.

And.

In the last couple of cycle truck cycle, you guys have been squeezed on the purchase transportation side, how do you how do you maybe avoid that.

Over the course of the next 12 months.

Absolute huge focus of the management team and I'll I'll, let Tom chime in I mean look we're going to remain market competitive.

We are much smarter about this we were in the last upturn.

Tom is enjoying.

Since that last upturn and the analogy.

Cultural.

And financial.

Improvements that we've made.

To help ensure we retain the best fleet is has been a very significant investment.

I think Jack we talked about this in person then also in previous calls before.

I know money is tremendously important.

We had a year I think was 2018, just before I joined where there were like free increases to drivers.

12 month period.

To be competitive we will be competitive but to mikes 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 loads somewhere else.

Then frankly, even the personal connectivity I know a lot of them and indirect the whole time.

There's a lot of them, who actually are best recruiting ambassador, saying. This is the best professional home as a driver do you can possibly have come join this team and so yes. That's.

Qualitative.

At the same time, you should not underestimate the power.

I was really looking out for our independent contractors as saying maybe look look out for our teammates.

Okay Gotcha.

I guess just to kind of follow up on that so I mean is there a way to perhaps.

Good day, 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 where.

Need to do some some driver wage increases. The you also go hand in hand back to the shippers and asked for some.

Some shorter term price increases.

Yes. This is a great point and Jack you should buy join our team because these are the exact conversations between our commercial team our people team our operations team are having.

On ongoing basis, so right now we do have record retention rates of drivers.

Chief people Officer, Carl mentioned at Ivy talk six months ago like at what point in time, not just sitting and went back in my point of late not just sitting on grade retention rates, but looking around the corner as the market gets tied or how do we actually extended stay ahead of that so we are looking at what does it take in addition to what we have in place.

And with our drivers and then beyond where exactly are we are we are very very articulate with our customers that we continue making investments into safety technology that actually drives and hence the safety like in cap cameras as an example.

And that we do have to recover those investments. So that's an okay that you're talking about in terms of staying having grade retention rates now terrific looking around the corner what does it take more entirely to make sure that adds to those qualitative connectivity points I mentioned and then third is the feedback loop to our customer.

So that they are not going to be surprised that we are in fact needing to recover the investments that we're making that's new Jack is happening we all time.

Okay. Okay, great what last question for me and I am.

Now I'll turn it over but.

The supply chains, I think are going to change coming out of Cobot 19, I don't think there's any question that E commerce is going to be a bigger.

So overall retail sales going forward you guys have this expedited network.

Yes.

Seem to really work.

Well it 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 about what that would bode really well for demand for your service.

Yes. This goes back check them into I think we alluded to that but at the same time when you talk about surgical that's one off the top priorities over the next few months is putting numbers too.

Of that $40 billion LTL market.

Doesn't believe that a third of it is more expedited and that gets you to 13 than some fraction of that this is at the high end of velocity in kind of customer service is that we billion EUR 5 billion, we need to get more surgical in sizing you'd how wise up there wasn't as I see codes make.

You should be pounced, those types of customers and prospects into our sales professionals call cycles that we get that again, the Scott share a piece of the equation fits in perfectly having someone who has done this type of surgical right the transportation matching and quantifying the how high is up questions that'd be.

No to your point is 3 billion auto 40 billion LTL is it five what I'm extremely confident about.

700 million.

Theres ONTAP right.

Yes, Okay, I think thats right well, thanks again for the time guys.

Thank you Jack Jack.

Next time.

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

Hey, good morning, guys.

Morning.

Just.

So little bit of feedback here.

Could you talk a little bit about about what Scott brings.

So what the cadence maybe in terms of.

Have a building out this more traditional to reveal 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 to our sales team and our sales leadership that we have in place.

As mentioned Ben before data in the last four months I talk more to our customer base going to have in.

In any form month period and.

It didn't happen in person, but it happened very personally over the zoom calls Microsoft teams whatever.

Bluejeans I mean that you name it be used to it.

So and many times with us they were the same customers, we really got closer but I also learning those conversations how close are sales leaders. Our sales professionals are to those same customers I didnt have to fish for compliments in fact, those customers complemented our sales team so.

This is also why we were able over the last two or three months dial up the tonnage as significant as we've talked about and back to Mike to your point in July is ahead of last years. So far July to date and tries almost over.

So the key addition of Scott. This is again this is the second DAPL right. So now now we know with our go forward program that we put in place that I used many times in the past before we also hired to lead to a drug that are used before and DB schenker to foreign profitable growth growth programs, we die.

While the up the volume levers quite a bit the last few months, we didnt see the idle on the quantum quality of revenue levers, but now those are going to become the prime focus.

The fact that that Scott's joining the team is going to be tremendously helpful. There because because again, if you look at kind of DNA strands.

The thing that.

Logistics.

Figured out over a decade, plus and made that made it so attractive as a.

Member of the enough that you guys families affected they knew how to look for these wide fit transportation kind of sweet spots and Scott's been commercial leader.

Along the way so if you want to kind of articulated in the most profound way.

I think I would say what is going to add is is that that capability and track record.

Surgery coal.

Binding of right fit transportation, we know how to find volumes, we know how where to look.

He's got to track record and expertise to actually make it happen and these cards.

And the he'll do the same thing with our teams here.

Good thanks.

On more the legacy side of the business with an expedited freight could you talk a little bit about any sort of puts and takes so there may be with regard to the airline customers that you, but you do have given capacity cuts and the like what are those.

Those flights in those routes remain limited.

Finish out the year, what type of impact coming from this going forward.

It does mean bends got a significant impact at the same time.

I mentioned before that we are very close the way we work with our customers. The one thing that I'm that I've been.

Informing and pushing constructive by hopefully our own sales leaders, but also our customers at some of the large airlines is.

Desk jet fuel and obviously, we all know that has been.

Stripped down significantly so certain routes they don't fly I mean like.

We have to go from hub to hub in any go from we'll have to spoke to get to a place that view in the past when to directly.

So the one thing that I did I've been pushing on as like so if you have good freight business.

Airline why don't you keep that schedule from afraid perspective opened why don't you continue taking that business because we can still movement and until we have seen some lanes, where there is actually weren't so my appeal.

To our airline customers is I mean help yourself here by.

Riding yourself axis, two good revenue by saying hey customer of mine.

Imagine that the schedule that we had is still in place still buy that by that freight because we know how to move it and Thats, where we come in as good part the airline so some of that we've seen happen, but you're right. It's a bit of put and take were somewhat lanes that are down dose 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 there are some of our best customers and investor 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 again, which is why we're dialing up other IC codes essential business.

Medical supplies groceries and again. This is also why we are quantifying how rise up in those areas and is also why we're getting a leader in place that that will help us get the more precise in our attempts of doing so and that's also why we're actually building out on network, because we know that there's more good volume transportation.

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

So.

Just curious about how you think about.

Your initiatives.

Today.

We've got the macro obviously, but you've got a new new chief commercial officer employees, you talked a little bit about some of the terminal expansions that are still to come.

So the point now where you think you've got the organization largely said and you can really George forward as it relates to.

The market expansion strategy or Theres still a few more pieces that you need to really put in place before you can.

Really make the full for push toward.

[music].

Yes, 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 can do it in years and your sleep as well.

The structure that we have with consistent operations and commercial principles across all of our business units.

I mean place the leadership at the table I think.

I don't think I know I feel extremely strong about.

Key addition, last year with J. tomasello into technology side, T. Council of Fedex repligen background, knowing how to connect different pieces in the forefront and in the background, both customer facing and back office with you've done the same thing across several business units.

Within Fedex on the commercial side now we have someone business in Logan ability to match right fit transportation to the demand.

So I feel good about the strategy destruct, the operational principles commercial principles and structure that we put in place execution, we were firmly underway.

We put a go forward program in place the last few months I mean, let's no 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 behavior. So we don't wait we remove ceilings come in and we.

Dialing up those levers fast and so what you'll see on the terminal expansion, you're probably are guiding those things up faster.

You see in the investment commitment we made in Columbus, you'll see us make moves that show rightfully show constructive in patients. Because we are basically are in catch up mode, because something happened to black Swan happened that we did not expect as part of our execution game plan and we want to make up for that and making up.

We need to be faster than some of the execution of a very very well founded strategies structure and execution blueprint. It just needs now some pace.

We didn't anticipate perhaps until four months ago.

But the blueprint in place so the terminal expansion you won't see happen.

You will see happened 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 two focus on that more important second double the more rigor.

Because we have two because of what we saw happened over the last several months in terms of a high velocity very attractive margin business that we have to replace Ashland. When over next several years, we bring us back without great relationships than we havent and and between the things we created in the meantime, and things that we bring back together with.

Customers.

Great appreciate the time.

Thanks Ben.

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

Hi, This is take on for Scott.

Good morning, good morning.

So I think we talked about purchased transportation a bit on a cyclical level, but when we look on a percent of sale.

Basic and held pretty steady over the past several years, so yes, the path that drive the lower.

Yes, good question and you correctly phrased it with on a consolidated basis.

[music].

The impact to pool distribution on the math.

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 in the most leverage we have to offer is purchased transportation at core LTL.

As Jack mentioned earlier, you know we definitely in the last cycle had some lessons learned of there and we talked about what we've done to try to improve upon that.

As a percent or revenue that P.T. and kind of core LTL actually from 18 to 19 guide.

Almost 300 basis 0.3 percentage points of revenue better inside of core LTL.

We did grow final mile last year through the acquisition of Fs say Fs say.

Really stepped up the revenue size of expedited freight it is largely a bump the dock organization relative to a terminal organization. So it has a greater mix of purchase transportation.

Inside of its revenue currently that'll change as we integrate it further with Landstar and our legacy operations, but that P.T. as a percent of revenue is 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 ethic gutsy. Your question. The key is to both leverage PT and core LTL as hopefully were troughing in this cycle and hopefully we're starting back.

Up and at the same time continue to integrate truckload continue to integrate final mile to let the leverage benefits of that.

In nor 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.

Thats really the that's really the guts of it.

When you unpack that a little bit.

Understood. Thanks.

Turning to the LTL expansion plan.

Did you mentioned, how many terminals you're planning to open.

I did not but.

A handful would be good for this year.

All right that's it for me thank you.

Thank you.

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

Hey, good morning, Tom Good morning, Mike.

Beat a dead horse a little bit here, but I just wanted to go back to the Threeq guide and make sure that.

Understanding things correctly.

So you're expecting some good revenue growth and tonnage as inflect positively but.

Mike to take it that it's some of the mix shift between the door to door in the last mile business versus some of that eight a., that's maybe coming back a little bit more slowly lets that's driving the lower earnings relative to the revenue was that is that right. Yeah. I mean, you've got a landstar acquisition.

That closed in January.

That's not in the prior period.

Olin stars revenue run rate was like 90 million Bucks.

That's the biggest piece of the year on year revenue growth until we lap that acquisition, we picked up good organic growth on Fs say, which we lapped late April.

But the main driver around the year over year revenue growth is inorganic growth at final mile from Landstar.

If you go to the organic side.

We're continuing to kind of climb out of this covance.

Rich 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 and 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 curious just keep an eye on fuel you know it makes a difference if see what diesel rates did in March and April you can see where they are now hopefully as the macro comes together.

I'll start to see some recovery there.

Boost the way you delay you summarized at the beginning of overcome and you're spot on so our job number one for us is to do better than what that actually lays out by I can only repeated by surgically going for that right good transportation to compensate and overcompensate.

Missing, which is coming back obviously over months in some cases years that high velocity airline cruise line Tradeshow conference confidence on business, where we were the fast.

Provider by delays summarizes exactly right now the good news is we know exactly.

We have to do from a tools perspective team perspective process perspective, additional leadership now coming in.

To be at a maximum reasonable pace to capture that rightfully 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 other things that you can do within your control to juice that 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.

Im not relying on that so if if in fact.

We get back to those glory days, that's kind of icing on the cake rising on top of the blueprint.

We are executing.

The word that that has become much more relevant in everything we do.

And in our vocabulary and more importantly, how action is essential.

And then so kind of you're going to see you guys talked a lot about sizing.

Allied is up by as I see code inside the essentially industries. We did I look at my Green Arrows over next couple last couple of months, we did upsize and some of these essential industry has already again I mentioned grocery chains and.

Medical supplies that we actually captured.

So I want to size and and then capture significant portions of that knowing that that airport to airport business again 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 globally.

The much for base views of the rural weight, we don't right.

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 breakout of where that a business is trending in July versus where it may have been through.

Through the quarter.

I think we're we.

The best clue I'll give you is that tonnage as inflected positives. So a lot of that tonnage relates to pay today I mean.

It is still a big part of who we are and we're ready to serve that.

That customer.

Now in for the long haul.

You kind of follow the tonnage trend and you're kind of on the path of where eight 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 the update on your tech initiatives and your tech investments where are you with your Tms rollout in Europe 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 ita.

Organization that is keeping very very busy.

I would say, there's there's I put them in two buckets. So there is turning on new capabilities.

[music].

We recently stood up Salesforce dot com, we called it project Atlas, we've got a lot more transparency into our sales and customer relations actions.

We as you know had been working on and if stood up cost accounting tool.

It's called TCG anymore, but thats, 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.

Get our financials off of kind of an in flexible but very stable.

Legacy system.

You guide investments and final mile that help make us interface for their customers more effectively.

We have.

Brokerage capability is that we're developing a truck load.

In intermodal.

You see a lot of investments across the business and across the surf.

Cost the corporate functions Bruce that are being turned on that are being refined.

But you also see ITC, making an effort.

Two untangle our systems.

And to turn this into something far easier to use.

Okay I asked all righty DMP, if established called and data Lake and he told me that was so 2005.

[music].

But you get you get the picture right like let's 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 frozen back to the comment we had.

On drivers and my very very strong confidence that our driver retention is terrific right now and bill remain very good estimate it's tied or a lot of our investment focus rightfully is on.

Doing the right things in support of our independent contractors acquiring and retaining them. So in cap cameras huge deal great coaching tool for them.

Collision mitigation saves lives more of that gets gets installed and then we actually our launch launching our driver App menu of our drivers are using that that's basically them putting them in control of managing their own business that the tip of their fingers.

So there's a lot we are doing two again going back to our aspiration is is that this plays is the best professional home for those drivers and we want them to be our evangelism ambassadors are best recruiting source you couldn't other drivers to drive to join us on technology 90.

Has its home in all the places might that you mentioned and certainly also to us as a significant driver traction and retention tool because we are making is the best home for them.

Great terrific well really appreciate the time.

Thanks, Chris Thanks, Bruce.

That concludes forward Air second quarter 2020 earnings Conference call. Please remember that this webcast will be available on the Investor Relations section afford airs website at Www Dot forward Air Corp. Dotcom shortly after this call.

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