Q4 2020 Forward Air Corp Earnings Call
Okay.
Thank you for joining forward Air Corporation's fourth quarter 2020 earnings release conference call the.
Before we begin I'd like to point out that both the press released and the webcast presentation for this call are accessible on the Investor Relations section of forward Air's website at Www Dot forward Air Corp Dotcom.
With us this morning are CEO, Tom Schmitt and CFO, Mike Morris.
By now you should have received the press release announcing our fourth quarter 2020 results, which was furnished to the S. D C and form 8-K and on the wire yesterday after market close.
Yeah.
Please be aware of that dairy and most 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 each of our businesses the future plan of.
Our pool business steps to expand our operations organically and Inorganically, the company's outlook for first quarter and physical year of 2021, including expectations for revenues tonnage net income per diluted share free cash flows and operating.
Margins, the expected impact of growth and strategic initiatives.
And those other forward looking statements identified and the presentation.
These statements are based on current information and our current expectations and as such they are subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the forward looking statements for additional information concerning these.
Risks and factors please refer to our filings with the Securities and Exchange Commission.
And the press release and webcast presentation relating to this earnings call.
The company undertakes no obligation to update any forward looking statements, whether as a result of new information.
Future events or otherwise.
And now I'll turn the call over to Tom Schmitt CEO of forward Air.
Thank you Grace and good morning to all of you on the call with Us high volume.
And go with the first things first and that's a heartfelt. Thank you to all of our teammates drivers of customers and other business partners.
And you all celebrated the holidays this year, a little bit differently from a normal and ex natural fact, you brought all of our business back from and invasive cyber attack and made very certain that we still kept all of our customer commitments. So thank you for that and for our customers and team forward.
Growing side by side, making for a clean entry ramp into 'twenty and 'twenty one.
Before I go into that 'twenty, and 'twenty, one and pre ramp just briefly back. The last time you were on this call in the October I made six commitments and talked about how we are keeping those commitments along density more essential freight and in fact and December 20% of our new closed space and as <unk> was medical support.
<unk>.
The pricing actions, we took a number of temporary and permanent ones.
<unk> expansion and number five was no pause and accretive M&A and non.
<unk> was the authorization of execution with record service levels, and a very tight holiday periods.
Let me take commitments this time and take that and pre ramp into 'twenty and 'twenty, one and share of five observations with you did make me very very confident.
For our journey towards our double double double digit annual growth rate and double digit margins.
The first observation is a strong off ramp for you to have a strong the on ramp into 'twenty and 'twenty. One you need the strong off ramp up of 'twenty and 'twenty. If you look at our fourth quarter and the first 10 weeks of the out of that fourth quarter of Cleveland They weren't the operational beat and that's the type of clean operations performance, we are taking to.
2021.
Secondly, we have early momentum January is very strong we showed in our core <unk> business daily tonnage 10, 9% up year over year and January LDL shipments up 14, 4% over 'twenty and 'twenty.
Three we had a very very strong general rate increase.
Oftentimes day, there's three things that are certainly every year of Christmas Easter and the rate increase and our Christmas might've been of be different this year as I mentioned before but we did have a rate increase and across all of our lines of business and and the LDL. Just 10 days ago on February one two drivers the first Monday, and Fabry, which makes it the bright.
The predictable for our customers it allows us to invest and our driver safety customer service to keep those customer commitments I talked about earlier.
This year, we had of 6% rate increase in the L. T L and the strongest capture rate that I've ever seen which means minimum exceptions and exemptions.
For the.
And the observation around continued organic momentum beyond those volume as I mentioned and beyond the <unk> I just mentioned, we added six new terminals and LTE all of last year, we're going to continue investing and our LTE all of core footprint and it's more than six debt, we will be adding on this year, making sure we provide more accidents.
Points to our current and new customers.
All of our other business units are organically doing extremely well and final mile continues to be on the terror and we have strong truckload and intermodal momentum also when you look around collect and line it looks like it looks like Chinese new year's.
This year as more of like a working period versus a period of and then you look outside the L. A port and you see 200000 containers.
Waiting to even get onto the pool. So the tied to volume saw the strong volumes will be going on for quite a while.
Number five and the last observation and I wanted to share in terms of of strong entry ramp into 'twenty and 'twenty, one is inorganic precision execution.
We signed as you saw and the release of another strong intermodal tuck in giving us more access to more geographies and the Midwest proficient is a great company first class service and Thats, what they are known for which is the exact DNA that we want to have one of our team and they're going to be a great addition to our team.
Inorganic also mean, sometimes the graduation as we're sitting here right now we actually did close the sale of our pool business pool.
And that's with our narrative is very tight time windows.
And service handling that must be perfect.
And what did not fit with the pool business was the acid likeness debt, we have across our portfolio poorly heavier.
And I had almost always made the commitment to our team and to our customers that we're going to graduate pool, only if and when we have a and owner whose main show that will be and who will actually be fully investing into this business. We found just that owner.
And we closed the sale of the last night.
And I'm Super confident that the team will continue doing what they've done so far which is being the best in the retail distribution business getting into other verticals and they're going to do exactly what our customers expect and more.
Finally, before I turn it back over to Grace the operator.
I wanted to say our entire forward team and I personally.
We will be laser sharp keeping the main thing the main thing price.
<unk> the execution of a very clear beyond 2019 roadmap double double for maximum shareholder value.
And as I said, we're going to mix it up a little bit we wanted to make sure. There is maximum time foreign exchange here.
We kind of go straight to Q&A and with that Grace, let's let's do that and open the lines.
Thank you the floor is now open for questions and comments if you wish to ask a question. Please press one and then zero on your telephone keypad.
You may withdraw your question at any time, Barra PD and the one zero command.
If you are using a speaker phone please pick up the handset before pressing the numbers.
Once again, if you have a question you May press, one and then zero at this time.
And our first question is from Bruce Chan with Stifel. Please go ahead.
Tom and Mike Good morning, and really appreciate the format here.
I want to start off with the pool, it's great to see the sale of there, but when I think back to the acquisition of that business or of <unk> and I think some of the motivations and the outlook for diversification and growth was the same as you know maybe it is now for the final mile business and I know it wasn't during your tenure, but when you think back to USA carriers of pool and.
And when you think back to Tty, what were the differences with those businesses.
Versus kind of what Youre doing now with some of you and other growth strategies and and final mile and I know Tom you already addressed some of the asset heavy nature of pool, but is there anything that you learned with those acquisitions that you can kind of taken apply to lessons now and final mile.
Yes, I think Bruce first of all good morning, and good to have you with us.
I think fundamentally there are if you look at final mile is by itself of high growth business Gardner actually says, it's going to grow into high single digits for many years to come.
We are participating in that growth.
And also I think do have a special sauce with final mile rail and the revenue capture side, the working with some of the best retailers and.
And we kind of make very smart and Bruce when you order that the fridge debt at the kitchen flow will not be scratched and we're going to maintain and enhance net customer relationship that you have with that world class retailer and theyre paying us the premium for that as long as we can do that and then operationally we get synergies out of our local L. T.
L team and final mile, which often times day. They use the same buildings oftentimes day KOL route on a light installation day, you might sometimes see.
The installation crews picking up or dropping off a few LDL pellets. So it was once you see that revenue capture and of premium level and once you see the operational synergies with the <unk> business locally you've got the secret sauce, we're very I'd say like I like those types of margins on an ongoing basis.
So that's what's special about the final mile business truckload by the way same over the road synergies with our <unk> business. One fleet, that's bearing being recruited for for two sets of services, sometimes and LTE L drive out and and and as truckload drive back.
And the lots of synergies there also on the intermodal rail side are strong the second leg. Some back office synergies SG&A also some customer sharing where we actually cross sell between intermodal and some of the other services and to be very blinded by the intermodal and I belief in terms of odds towards the double double.
The odds for the intermodal team every single year, and it's a business that actually returns.
Sure.
The return to our shareholders way above our cost of capital so.
And those other things you have to look at and then Bruce when you do a.
And kind of all good old school, Michael Port of analysis in terms of customer passion and supplier pressure future of the break more of the retail industry.
We have the best and the business I do believe they will be growing successfully foreign owned and Thats fully focused on it.
There is still market share and untapped upside, but in terms of what I just talked about secret sauce.
The the risk reward profile and double digit territory and.
Of the acid likeness of our entire portfolio, we got with the pool business thats something that fit the narrative, but that did not fit the profile of financially.
Okay, Great. That's good color and then just to be very clear you are keeping the truckload business, that's getting integrated and you're finding synergies there of the line haul side.
Are there any other levers that you can pull to right size and improve that business outside of the integration of the of the long haul networks.
Yes.
Bruce to be very clear the expedited freight business is a wonderful beautiful into play more and more between as I said final mile and the LTM and mostly locally and truckload and ldls futures debt Bruce over the road.
On the recruiting side and on the on the selling side TLO and LDL and benefit from each other a lot and we are also getting more and more and to the truckload brokerage space another hugely asset light space with tremendous margin potential.
Okay, Great and then just one last one here before I turn it back to the queue.
Tom really since you started at forward air.
And kind of made it the mission of at least part of the emission too.
You know kind of move me of the notch up on pricing and you said to expect.
<unk> would you expect Christmas and Easter.
And the.
That's been great, but certainly from a premium product forward air might be able to exact or extract even more pricing. So as you think about some of the new technology tools that you're implementing as you kind of wrap up with TCG and is there.
There are more opportunity to get even more aggressive there.
To us and I hope I can do that legally without getting slapped on my hand, Nike's terms. This is gone and b being.
Excellent and pricing is going to be of race without the finish line.
And so.
We have gotten much better at Bruce you mentioned the tools. We also are hiring significant expertise by getting great experts in the <unk> class space on our team.
And so between the tools and and the people, we're getting better and better and maybe if you take pricing LDL over the last year and we got much more sophisticated way does it take special handling, which geographies are congested and and we need to make sure we get an extra premium through and investing to drivers and in that area.
And then we also looked at specific customer segments very different airport to airport door to door customer segments, and I'll be getting heavy into the length of haul to make sure that we actually equally competitively pricing no matter, whether it's the short move or whether to move all the cost of country from Atlanta to Seattle and Washington.
And that type of ongoing consistent dynamic pricing discipline.
We need to make sure we actually keep ramping up pricing is one of the core disciplines that we have to be perfect and all close to perfect I was very very fortunate.
Going back to my of Fedex days, and deploying the parcel side and.
And even the Mckinsey days before that from some of the railroads I learned about the horsepower and and the absolute must of being terrific and pricing, we're getting better and better but as I said this untapped upside and we're going to get make sure we are going to tap that upside.
Okay, great. Thank you for the time I'll hop back in queue.
Hey, Thanks, Bruce and thanks for the conference this week.
Thank you and next we'll go to the line of Jack Atkins with Stephens incorporated. Please go ahead.
Good morning, Tom and Mike you've got wage shallower on for Jack. This morning, Thanks for taking our questions and that's what I call and the upgrade Wade.
And I won't tell him that.
On the LPL network I believe you mentioned at least six terminals. This year, how many of those are new markets. How many of those are additions to bolster density and existing are underserved markets and what do you expect the impact of those additions to be this year, yes.
Yes.
This is a math exercise.
A large part of a lot of what you're doing now precision execution business is a math exercise. So what we're doing here so and the answer is weighted very specific news is going to be a combination of of.
The Greenfield locations like last year, we had in Ontario, and inland Empire, which is doing terrifically well, it's already up to a significant portion of our southern California, California of volume.
And begun and do some agency into one operation conversions, we are going to do some final mile LDL of co locations and the way I just talked about a few minutes ago.
So if you think of eight or 10, new locations. This year, it's going to be a combination of those now how do we get to them.
Also math exercise the first thing is our current customer base, especially and telling us.
We have origin freight in the following locations, where there is no forward air presence.
Secondly, if you look left and right to some of the the large class freight LDL players of day.
And in some cases twice and some cases two five times the number of access points that we have.
There is certainly the sometimes you learned from people when you look left and right third we do have access to LTE L class for a data. So we know the flows across the U S and across Canada.
And so we also know where we frankly are less present and we should be and then once you see those shortfalls against current customer demands Oregon's possibility of trade flows and then you say, okay, let's look around our network. The easiest ones are the co location with them with the final mile location, we have almost 105.
And our locations some of them in cities that we don't have the LDL terminals and Thats, an easy add because you basically utilize the space. That's already there agency conversions, telling you, but how much volume and can actually start with so that's another easy one the greenfield ones like the inland Empire and Fontana of last year. Those are the ones that are a bit harder.
But again between those demand points from our current customer base and exit the accessible freight data and our ease of implementation between agencies Colocation with final mile terminals, it's a fairly easy to.
To do math exercise and the ancillary back to your initial question is it's going to be a combination of those three things agency conversions co locations with a final mile and thirdly Greenfield.
Okay, Great. That's very helpful. I wanted to switch gears to intermodal if I could dig in on proficient and more broadly I guess the work that you've been doing over the last year and the intermodal piece of the business could you speak to the strategic importance or value of a national intermodal Drayage network and what sorts of.
Scale benefits you derive from that.
Yes. So in the model is for the most part a regional and and a multi regional business. Some of our customers do ask us to be more nationally presence. So you have a bit of deadweight, where some of the decision making is truly national and the more national presence helps for instance, and the northwest is something where we would love to be a bit more present.
And certainly of our looking towards that.
But fundamentally of dealer more on drayage business for us is very similar and very much and fit for the forward DNA. When you talk about forward DNA and Thats, what I call precision execution of something Thats because of the box and what does that mean it means fastest strength at times. It means best sensitive handling and lowest damage ratios now when you.
Think about intermodal drayage you may not initially think about those exact adjectives by the ones who actually understand these are premium products were hauling and day came typically over the Ocean 14, 15, and 16 days and Oops. It took two days longer this time and they sit and the poured wait for a few more days get out of the railcar and you may end up being six days' worth of.
For once it gets into that railhead.
All of the slack and that supply chain is more than used up debt.
Those goods need to be going to the Dcs and ultimately to the stores because the extra day last is another day lost in the selling season for that particular product. So in that particular way our intermodal drayage is a premium service that fits that exact precision execution DNA for something thats bigger than a box net of those adjectives.
Actually required and frankly, where customers are paying for the premium service, which is going back to what I've said the.
And the odds of debt being a above cash.
Capital costs of ROIC business at a permanent double double our tremendously high and that's our job to deliver that.
Awesome that's it from me. Thanks, so much okay. Thanks Wade.
Thank you next we'll go to the line of Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, guys and good morning, Scott I want.
Want to ask about the margins.
And the expedite the business so youre at EM.
I guess, the 7% last year and and you're saying you can go to of a 10% and you've got someone out there, saying that it should be closer to 20%.
I know theres been a lot of mix changes and the business from 10.
10, 15 years ago, I guess, what do you think is possible here in terms of where these margins can go and maybe help us think about how the mix has changed and what that means for L. T. L margin non LTC margins.
And within the business.
Yeah, Scott and I think you summarized it quite well, let me start and then I'm going to ask Mike to tag team here with me.
So when you go back to like 50, and 20 years ago, when our business was exclusively and airport to airport business. We had the types of margins that you're referring to the Tam the total addressable market of airport to airport.
Actually gotten smaller over the last two decades, not bigger some of our core customers actually did a smart thing to build out their own lanes, where there were dense and then that is also of competitors that actually started showing up quite visibly.
India of airport to airport space. So that was the wonderful market and we will always remain the core because that's frankly, where we trained debt muscle of precision execution, and that's where we still are shooting for the types of margins that you described we're augmenting it with the door to door stretching into spaces.
And where our customers are asking us to go to <unk>, where we also believe double digit margins are possible to answer your question very specifically LTE L. I believe and Mike you should either confirm or correct should be a mid double digit of 15 percentage of business for us So, we're actually getting better better and better on value.
Creation and value capture for the stretches beyond the airport to airport because we have a strong belief that in that $40 billion plus <unk> market debt at least 10% of that 4 billion and probably more than debt. That's the type of premium <unk> that fits those criteria I talked about before and sensitive handling.
<unk> fastest transit times and lowest damage ratios and those are the ones who stretching into without grow forward program debt finds keeps and expense beyond the airport to airport in margin territory that should get us to that 15% margin and I've been talking about.
Mike and anything you want to add.
Yeah, No I mean, I think you hit on it Matt.
Scott some of the math just unpack it as we've done in the past.
And my career here L. T L has been <unk>.
2014, 13, and a half type percent margin business, obviously 2020 was rough with Covid.
We ended 2020 rough with the cyber but getting that back two of 15, and then looking north of the 15 is really critical to hitting the double double and getting expedited freight as a whole two of 10% margin.
Truckload needs to get in the five plus percent margin range.
And we feel like final mile.
And can be and that.
Seven to 10, 8% to 10% margin range, which is where it's been.
If you were to.
And just doing some sort of math not making excuses just explaining if you were to add back the effect of the cyber impact and the fourth quarter and the FSA earn out accrual and try to look at a more steady state expedited freight margin would be 9% for the fourth quarter non.
Not there yet a lot of work to do.
But it does seem like something that we can certainly get to and if you marry that up with intermodal and if you stay safe, which is where we have some of the insurance impacts and other operations. Then you can kind of have the whole thing add together for that second double.
Okay. That's helpful I'd like to just stay on this because I think it's like I think it is the important thing right. Now so you mentioned so L T O.
Is that where is that today.
And where where do you think that can go truckload. You said you want to get to five where is that today final mile seven or eight where is that today I'm, giving you a general sense of direction, because we disclose the eased as one SEC segment we.
We don't breakout the margins of the individuals but in order and in general direction trending back where we've been historically on L. T L.
Getting there on truckload to the numbers that I, just described and probably closer if not already there on final mile. If I can offer you that.
Transparency.
Okay, and then just on the L. T. L side can you is there a reason why we're talking about 14 or 15 from <unk> and not that historical.
20, I understand the mix shift we've got more truckload and final mile now, but why do you think the <unk> business can it get back to the 20% that it used to be a yes, just to be clear that that's kind of where we need to get to to get to the next level.
So once we're standing on that platform at a 15 ish percent margin then we kind of take the next step to the summit if you will.
But I'm just trying to communicated in terms of well what do you need to do to get expedited trade to Ted and I got to get at least here.
And that doesn't mean, we have to stop there.
And the meters to add to that Scott.
It takes.
It is what we're shooting for and Thats. The next level as Mike talked about a double double is a milestone and other destination.
And if you define double double is 10 debt.
And as an interim step, but it would be very clear. We it takes a lot of position of execution work by customer segment stretches by door to door as a longer line the longer haul.
If you do the math and say, we like the airport to airport the 18% margins range was the $350 million business and multiply by six and all the all we do is that that's not going to work. So we have to stretch and skilled and capture the slides of the value that we're creating that has the same type of premium profile debt.
The core of airport to airport business always has and will have for us. So.
But clearly Scott what you're aspiring to is where we are heading towards and Thats again, a 10% for expedited freight and for the company overall is a milestone not the final destination.
Okay, Great and then just my last one.
Pricing is certainly going to help what about on the purchase transportation side is that that's that's where you've seen the biggest sort of margin pressure over time, what what if anything or are you going to do differently on the PT side, yes.
Yes, so, whereas the whereas that or is there another driver of the margin expansion on the cost of <unk>.
So those are the two questions at the end so the yesterday our other drivers of margin expansion PT is the big one of those gotten you noted and as well as I do.
So just to be very key over the last several years purchase transportation with the exception of 2018, which was the small spike up I just talked yesterday with our G people off the call mentioned about the stats over the last several years we were in the.
E the single digit territory or in low and the low teens.
Why is that because we actually make every single day driver of appreciation day, what I mean by that is we engage them we manage for their priorities like predictable of one times likes short distance wait times short dispatch wait times and when they call.
And we make this lack of great professional home, which helps tremendously for our driver of traction and our driver retention with the exception with the exception of Southern California, and California. Overall, we are still and single digit territory from purchase transportation, we need to make sure we can fully compensated for the congestion and.
The difficulty of getting drivers in California, we're all over that.
But at the same time the.
The big steps that we have made with the driver board and.
And I mentioned this before debt like 12 representative drivers who represent thousands of our own independent contractors, we meet with them regularly and the next meeting is next week and we listen to their concerns and we did a survey with 4000 of them a couple of years ago, and we are managing towards the things that are a matter of most of them every day as driver appreciation day. So.
And the PT is and the single digit territory and has to be and for that margin expansion to become a reality that the that we talked about and we are on a very good path. There. The team has done a tremendous is from operations to safety.
To the.
Of people team has done a tremendous job, making this a first class professional home for our drivers.
Okay. Thank you for the time guys I appreciate it thank.
Thank you Scott.
Thank you and next we'll watch the line of Tyler Brown with Raymond James. Please go ahead.
Hey, good morning, guys good morning, Tyler.
So I agree with Scott It does feel like margins are the key here, so and I just want to be clear.
But when we try to build that bridge to the mid teens. So the the drivers of really one managing PT, two probably going through another robust year of pricing and you mentioned some other things can you give a little more detail there when we tried to build that bridge.
Yes, I think.
And if you look where the.
And the costs are going to numerically pop up you know so it is hard and things like utilities and whatnot.
Operating safely and having more technology and data driven decision, making around safety at the front end and recruiting coaching and forming because.
And our history some of the margin pressure has been related to incidents.
And when I joined we had a half million dollar of <unk>.
Our self insured retention.
And I think it was lower prior to that it's 10 million Bucks right now and Thats, the insurance market and Thats not our decision we would love to buy the type of insurance, we used to be able to buy and so that hits, our P&L and not and insurers P&L.
And that has been a big number we don't like non-GAAP at or anything because it's our responsibility.
But nonetheless, that's an important component.
Also an important component and as some of the integrations that we've described the.
And the <unk> fleet grew by the truckload fleet and the truckload fleet grew by the <unk>. When they became one of the degrees of freedom that that offers us not only in terms of avoiding outside miles, but in terms of the recruitment and retention and operating efficiency. Yes. These are we are able to give our drivers.
And as points of flexibility that they may not find elsewhere and that helps us recruit and retain them and Tom gave and an example, <unk> truckload back.
There's lots of ways, we are using that we saw that and Covid, we were able and we didn't have loads for drivers and truckload and LCL and we were able to give them truckload.
The brokerage kind of playing a role along with core line haul right at the number one cost lever that we've been talking about on PT. The.
The final mile we are.
Co mingling pickup and delivery and 15 markets currently that is growing rapidly.
And that gives us the opportunity to kind of have the best of both on <unk> and final mile pickup and delivery as we have more terminal cohabitation and youre able to spread the fixed cost of that terminal between the two modes that helps lower unit costs for both of Cdos and these are some of the other things operationally.
Which are happening in the world and that's why we report the segment as we did and because it is how the business is being run.
Are treating this and operating this has and integrated combination, but the benefits of these should and nor to L. T. L. Given the greater variable cost model of the other modes and the Tyler Let me just add and then.
And then the back to you in the moment setup.
We mentioned or you mentioned actually purchased transportation, the big lever of pricing and I cannot I cannot overstate the importance of making sure we captured a slice of the value of that we're creating for our customers and this is going to be that range without a finish line. Mike you added safety of obviously, because it's the right and the first important the most important.
The thing to do it's also has also has not only human which is the first job, but also financial consequences operation's efficiency and you got to some of that by the Commingling, we talked about the.
The co routing on the final mile and LTE outside locally.
The operational efficiency is something that we are always stepping up on inside our buildings and across the road.
And I did the does helps debt we have the team Chris <unk>, our COO and the very very seasoned team that knows how to go after these efficiencies.
And you have quite a background and is it.
And my previous employer, we ran a global Gulf of performance of operations enhancement program that ended up making the contract logistics unit there of the most profitable and fastest growing of the large ones and the world. So.
We do have to pull that lever, obviously also aspiration without the finish line. So but you mentioned the first two and I would just add to in addition to purchase transportation and pricing safety and operations efficiencies.
Okay, and then you talked about integration so is town adequately integrated.
Yes, I mean.
There isn't the town anymore.
But does it feel like that got fully completed.
Sure.
Okay.
It's it's forward air it's been forward air for Awhile and dosing sample Tyler. The Best example is actually final mile.
<unk> came with a few final mile locations.
Which are very much part of the of our final mile business today and no one would actually even I mean.
Historically, the some people know, but nobody would even think of these location of that power.
And locations versus other final mile locations. It's one business. Okay. Okay. That's helpful. And then I do want to talk about the cohabiting I know I know youre doing and expansion and Columbus, Youre, adding facilities, but I am curious about the network from a door pressure perspective, I mean, particularly as you trend back over 4 million shipments of year.
Do you feel that your door constrained maybe.
And maybe said another way how much latent capacity do you think you have and the real estate and then does the co locating.
The bring fencing, let's say the end of the dock on the traditional airport to airport terminal does that cause more door pressure in the existing expedited LTR and the existing airports of airport business.
Well on the last one the cohabitation is kind of done eyes wide open.
Where there is sufficient capacity between the two modes and of particular territory, where they can.
And make the conscious decision to to join together if you think of the evolution. They will use Savannah is an example, and.
Savannah final mile is the.
Part of the point for LCL freight selling into.
And the dozen or so zips around the terminal and able to pick up some business that really final mile is essentially an agent for <unk> line, even though it's at where all of the same of.
I mean the goal there is actually to create some pressure for final mile. So they can kick us out and we can go get our own terminal and Savannah, maybe.
And maybe maybe of stand it up as an agent until it gets to like $1 million.
The year type of revenue and then if you're lucky you take that agent over perhaps.
So the asset light model offers and the ability to kind of.
Dial up and down your degree of intensity Fontana and southern California that was no brainer like we're going to go in with Max intensity, there and sign a lease and.
Set up of terminal, but the.
And depending on the market you can kind of go light go media and go heavy in terms of of how much intensity around.
The cohabitation.
There is.
There is pressure in tight logistics areas.
Driven by ecommerce and we tend to be and a lot of those office parks.
Notice of Chicago, and Atlanta, There are places and some in the northeast.
Just in general of real estate constrained situation.
But we are operating and we have room to grow sometimes it's not so much the terminal itself. It's like do you have enough parking for the drivers sometimes of some software stuff.
One of the nice things that the CMA H, the Columbus, sorry expansion will do for us.
And because of that terminal is already at capacity, where zone skipping and we're doing some things that we probably normally wouldn't do if we had that capacity back and so as we make that investment and again.
<unk> been there and you recall this terminal it's the most significant and our net right.
Alright.
To grow its capacity.
The 30% with this investment and expand the yard.
That should bring a lot of freight flow efficiencies on line haul because of the more were flow and through the central hub, we're getting lower line haul costs better load factor better transit times of better ability to blend the fleets as.
As we bring that back to its historic recent historic like 40% type number that audit ease pressure and some other terminals that might be receiving that inbound that don't need to receive that inbound anymore. So there's ways to work within the network to adjust and modulate pressure.
Fontana is a good example, southern California congested a lot of action.
<unk> is growing staging pud on the Doc can hit the operational efficiency and the way Fontana lets of stage Pud and kind of bring the flow in and of more controlled way Waller of growing organically. So part of the revenue equation flows through to the ops equation that can get.
Of that pressure.
Pressure that might exist as your question suggests.
Okay I've got a couple of couple of more.
And quickly.
2020, there are a lot of things out of your control, but I am curious, though if you looked at it if you looked at the freight book pre Covid.
How much of the book was call it cruise lines conferences concerts.
And in a holistic sense does that extremely high service vertical Carrie and above average margin profile.
So all of the latter question Tyler first the answer is yes.
And the matching them and if you've taken the extreme example.
Setting up a <unk>.
The Taylor Swift concert, probably gets you better margins than the delivering salt to a retailer.
If you're doing your job halfway competently and redo.
So.
It does and the entity of mathematical question is is it not.
And our numbers and in essence 20.
25% to 30% and anymore and our most profitable business LDL and Thats to your point about margins went temporarily to sleep in may of last year.
Our company because again, we have of grow forward program debt.
The gentleman, who did a similar program together with me of my previous employer.
<unk> Stefan version of Myer wherever you find keep and expand other SAIC cause other verticals. So that's a program we had before COVID-19 broke out so we couldn't foresee something called Colby and in fact, you and I couldnt spell it.
But we were prepared for.
For ex.
Salaries and dialing up what's today call. It the essential freight I mentioned. The example medical supplies makes up 20% of our closes in December so when you fast forward to a year of two from now this company forward Air will be a better company because we will help those customers bring back overtime. What you just mentioned title those crews.
<unk> conferences tradeshows.
And in some cases by the way, it's the same customers and that we also now are getting essential freight from the I just have a business units debt thats those types of events. So we keep the strong customer relationships. We bring that back you will have a much more stronger multi leg forward air where we were a bit of into one trick pony 15 years.
And now we're getting premium freight and more spaces and on Covid did was at Wassa and I'm not trivializing the human tragedy surrounded.
A huge accelerator of a great program that we had in place anyway to find keep and expand within grow forward additional legs.
So I love, where we are going to be heading I wish it would have been a bit less painful in 'twenty and 'twenty for all of us to kind of make debt.
Path, even faster, but I love that multi.
Legged stool that we're creating as a company.
Yeah, Okay, Great and then my last one here and Mike We can maybe go kind of quickly here on this one but on the earn outs. So how much was the earn out.
Was it in the other Opex line and do you think any additional accruals are over or are we done there.
And you're talking about the final mile and our final mile correct, Yes, yes.
Yeah that was inside of.
The it was inside of the expedited freight it was not below and other operations.
The amount of the accrual and the current quarter was $2 6 billion box. It is the end of that but one of the things I will note is that in the prior period because of the kind of pre COVID-19 fluctuations of this business.
We actually had an earn out.
Release.
Relative to and accrual so the period over period of swing is actually like three and a half million box, but it is it is maxed out contractually it cant go any higher okay, and it and it settles in April and it's over.
And then on the pool earn out.
So what's the marker there do you what do you have to hit to get that earn out and as that of one time earn out or is the call like a multi year earn out.
It's a it's of we'll provide a lot more disclosure and the K.
About this transaction, which closed the 12 O one.
And in the morning.
But it is a it is a one year earn out and.
And that is when it's as Mark is determined.
So one thing I'll mention is.
<unk>.
And with that earn out as long as it exists.
Would mean that we would continue way at the bottom of the P&L to keep a disc ops, even though the business is not ours anymore.
Because of the earn out is still an open saying any of its fluctuations per the GAAP rules would have to go through.
Disc ops, so we hit the bottom and we're just going to have this little disc ops number which is any change and the value of the earn out.
We also have of six months TSA.
And to help.
And then OS gets stood up.
From a P&L of back office perspective.
Okay, Alright, guys very generous with your time thank you.
And I'll look forward to your conference and a couple of weeks share. Thanks.
Thank you and extra work from the line of Todd Fowler with Keybanc capital markets. Please go ahead.
Hey, great.
Thanks, and good morning.
I think the Tyler and Scott, we're kind of on the right being you know with some of the questions around the margin profile and maybe just one last one from a history lesson standpoint.
How much do you think the mix of business within the airport to airport business is impacting the margins and I think historically that was of business that you know a lot of flat screen Tvs pretty easy to handle.
As you've shifted to more of E commerce and some of the.
Bulky size items Theyre moving through the network how much impact has that had on the margin profile and airport to airport yes.
Yes, good morning, Todd and the Great question, So as I said before like 10 minutes and so.
One thing we cannot afford to do this we have to be.
Good day kind of thought partners and debt.
And drivers of.
Of our smart action plan, if you took.
The almost like early E commerce or to some extent even pre E commerce.
Airport to airport business and you like the margins and dessert, okay, and multiply them by six and just two six times as much that's not going to work so that because some of the E. Commerce side that you just mentioned occupancy has dominated.
The airport to airport segment and some of the FSIC codes. So we have seen revenue per shipment challenges, we have seen the weight challenges and this is again, where and what we are doing or need to be doing is looking at all available premium LDL freight airport to airport as the core.
As always will be and then the the door to door stretches of that fits those profiles that we love the profile that would be all of our referring to the profiles of that we did actually generated those types of margins that Mike just talked about a few minutes ago debt, we're going to get back to beyond the 10 and 15%.
But yes the weight.
It's going down to E commerce of domination going up certainly has tremendous the impact.
And the margin profile of debt airport to airport business, but that to US is of challenged because of again desert Big Sea of profitable <unk>. That's looking for the requirements that we are the best debt, providing all we need to be doing as being extremely surgical and and our precision execution to go after the caps.
Right and then again get our fair slides of debt value, but it is something that like everything and business has probably gotten harder not easier and you just have to be at your best being extremely surgical and again.
And do the work and that's what the team is doing.
Yeah got it that makes it a lot of sense and that's helpful context there.
Just a couple of quick follow ups and a few things first with the the January tonnage.
Some of that some catch up from December or can you speak to and maybe some of the strength that youre seeing within in January and then how do you expect that to continue the time you made the comments about not seeing a big all around the the Chinese new year. So can you talk a little bit about your expectations for tonnage and <unk> and the drivers behind that and how your strength in the the.
Conviction that that's going to persist.
Todd The January tonnage is January tonnage I think of our type of freight is it doesn't have the luxury of a if you don't move it on December 22nd day Youll move it on January 4th.
So we do release January tonnage and then the second pointed and perhaps equally or more important we see that momentum continuing.
I think somehow Todd it almost seems like between the slowing of freight environment. In 2019. If you remember go back 2018 was boom of 2019 slowed down second half of 2019 really slow down and you go into Covid.
Spring of 2020 somehow it almost feels like between the slowing down of the economy and the freight economy, and 2019 and Covid, you've got a very contracted recession and a very short amount of time.
The out of that the whole bunch of pent up demand unleashed and the second half of 'twenty 'twenty and.
And it seems like 'twenty and 'twenty, one as boom times its more of like 2018, and what we're seeing right. Now January February makes me believe that even more.
Got it okay and.
And then maybe just my last one Mike with the additional cost for.
The additional IP around the cyber attack that you've got your first quarter guidance is.
Is your expectation that that's going to be something that continues through the year or is that kind of an amount for <unk> and once you've incurred debt expense youre going be able to put that behind you and move forward.
Yeah no debt.
It's the latter.
And we're just calling it out only because.
It relates to.
And that event.
Obviously beneath that we continue to make investments and and those.
Some of those are related to enhancing cyber but this is more focused on.
And closing out that of the closing out that event from an it perspective, we're up and running and whatnot, but.
As it wraps up.
The postmortem on that and said there is that and to the roadmap going forward and those are just related to that.
Okay.
And for instance that have and endpoint and that endpoint is clearly in Q1.
Okay, it's not a higher run rate its just some additional costs that you incurred related to everything and December.
Yes.
Okay guys. Thanks, so much of the time this morning, Thank you Todd.
Thank you I have no further questions in queue.
That concludes forward Air's fourth quarter 2020 earnings call. Please remember that this webcast will be available and the Investor Relations section of forward Air's website at Www Dot forward Air Corp, Dot com shortly after the call.
You may now disconnect.
We're sorry your conferences ending now please hang up.