Q1 2021 Forward Air Corp Earnings Call

April 30, 2021

[music].

Okay.

Thank you for joining forward Air Corporation's first quarter 2021 earnings release conference call.

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

And with it this morning is CEO, Tom Schmitt by.

By now you should have received the press release announcing our first quarter 2021 result.

Which was furnished to the SEC on form 8-K and.

And on the wire yesterday after the market closed.

Please be aware that certain statements and the company's earnings press release announcement and on this conference call are making forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Including statements, which are based on expectations intentions and projections regarding the company's future performance.

Anticipated events or trends.

And other matters that are not historical fact.

These statements are not guaranteed of future performance and are subject to known and unknown risks uncertainties.

The uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such 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.

True events or otherwise.

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

Yeah.

Thank you Tony and good morning to all of you on the call.

I think it's fair to say, we are hitting our stride.

And our last call, which was February 12th assured five observations were reached.

So and pointed towards momentum.

And this momentum is continuing and it's accelerating let.

Let me double click on those observations and refreshed from the.

The first one I shared was we were looking at Q4, and we said this actually looked like and operational beat.

Not for the cyber attack and are actually up being.

And being a miss.

Now you fast forward to Q1. This was a beat it wasn't beat despite significant professional services fees and the week after cyber attack and.

So making sure we had a strong roadmap in place.

Adding up to a comparison with our activist shareholder, which we by the way and developing a great cooperation agreement with <unk>.

But still despite all of that Q1 was a beat.

And then secondly, the observation and I shared in February was we actually had good momentum also going from Q4 into Q1, and I pointed specifically to the month of January and the double digit tonnage increase over January and previous year.

If you look at the momentum in the quarter January was supposed to start March and our <unk> core business strongest March ever record revenue record operating income. So we clearly continue with that momentum if I look at the first month and Bureau by April 32 day to first month of Q2.

Two continued very very strong tonnage there were several days and the month of April tonnage wise and our <unk> business that we had an average seen at those volume levels before.

The third observation I share gross about disciplined pricing and if you remember on February 12 from he talked about the rate increase to annual rate increase we actually activated on February 1st.

The capture rate of debt rate increase was at record levels and <unk>.

Exceptions, no exemptions, we needed to make very short and we put in place the technology.

The drivers and the teams to make sure we keep our customer commitments and we needed those rate increases for that and we got them.

That disciplined pricing will be a hallmark of our company and it continues in March we had to adjust for long haul distances above 2000 miles in our core <unk> business again to make sure we can invest and getting the teams to keep our customer commitments so that discipline.

<unk> continues that momentum is actually accelerating.

The fourth.

The observation you made was about continued organic momentum if you remember last year, we actually added six more access points to our core <unk> network.

And we have now more than 100 locations and our <unk> business and one of those six access points. We added last year from Pat and 90 inland Empire is already and the top 15 of our volume.

Across our entire LDL footprint and so these are significant additions to our network.

Far from guidance next week, we go and add another access point Wichita, Kansas again out of our final mile location, and making sure we actually take advantage of our footprint across our business units and next month, we're going to add.

And <unk> access point, and the Pacific Northwest and Spokane, Washington.

The fifth and final observation I shared and February was the continued momentum also on the inorganic side, adding tuck in acquisitions and our final mile Intermodal Drayage business. This particular time last time and talked about proficient a great addition to our intermodal business.

Already contributing a couple million dollars of revenue in our Q1.

And this week on Wednesday, we announced actually and acquisition in our core LDL space, we hadn't done this in years.

We actually used organic growth, primarily and exclusively over the last five years in our core <unk> business and I'll be using the same recipe that we used for final amount intermodal also for LPL. We added great company JMP haul express to our family and to make sure we get more capacity.

And <unk> to serve our customers in the Atlanta area, and very tight market and southern Georgia and in Northern Florida markets.

One of the analysts actually talked about.

Acquiring a baby forward air So that's enduring when you look at it that way.

So when you look at these five observations together.

This momentum that's actually continuing and accelerating.

So the question is where does it take us going forward. So Q1 was a beat.

With a run rate March that's easy and double digit margin territory.

We take this momentum into Q2, we are guiding for a record Q2 way ahead of our Q2 debt, we had and the peak economy year 2018.

Right now we are seeing double digit growth rates and margins in a few of our months throughout the year and.

And I expect to see those double double numbers on a full year basis fairly soon next year is actually a distinct possibility.

That momentum gives us confidence.

We are doing good things faster and Thats I think one thing that is forward tough team has been just tremendous at if youre doing good things faster.

And also I should never forget that we have and amazing set of drivers. They are our heroes every single day driver appreciation day. If you look back to February the second half of February almost across the country certainly from the Midwest.

Midwest and.

And Texas, all the way up to the northeast our drivers once again went above and beyond to deliver on our customer commitments. So with that I am thrilled about the momentum we're having we're far from done.

And if you remember we also over the next level of weeks and months and years.

Work with our customers to bring back.

The business debt when temporarily to sleep last year the events business, that's still coming on top of the momentum that we already are seeing so I feel very good about where we are we're doing good things faster and as I said at the top of this call.

We are hitting our stride.

So with that back to you Tony.

Thank you the floor is now open for questions and comments.

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Our first question comes from the line of Jack Atkins with Stephens. Please go ahead.

Great. Good morning, good morning, Tom and congratulations on a great quarter.

Thanks Jack.

And if I could start just talking about the.

Our business for a moment.

Curious around the longer term plans for network expansion there.

And that you are at 100.

Terminals or access points to the network today.

Planning on adding a couple of more that you referenced in the prepared comments.

Where do you think you stand in terms of the number of terminals at the at the end of the year and when you look out over the next two to three years.

Where do you think that number is going to end up.

Please.

Yeah.

And.

And just to be also very clear.

From them.

Access points, where we can.

Tours and both.

Moving to it.

The access points deliberately because right.

No.

Yeah.

Eight out of more than 10 final mile low.

Okay.

Got.

And most importantly, it's and act.

Okay.

And today I said, Jack we did six editions last year I expect this is doable.

Or did she.

Yeah.

If I look at.

And freight across a billion dollar of and addressable market there are significant or destination points.

Debt sometime.

And sometimes we don't it's good to know and to remind ourselves we do not have any wisdom to we look left and right.

Okay.

The players, having 200 terminals or even approaching 300.

So I would expect Jack debt when you have the same conversation and three years, you'll have 30 or 40, and perhaps even 50 more access points and me.

Good day.

No.

Many of them will be agents that we convert to our own terminals and some of them like Fontana, which is now a top 15 volume location will be greenfield debt was the greenfields that we put in place and the fourth quarter of last year. So expect us to add at least 10, a year and I think that momentum will probably accelerate and the number will probably be.

Hi.

Okay.

Really interesting and that's good that's great to hear.

When you think about the network as it stands today you referenced.

Levels of tonnage during surgery.

And weak over the last few months.

How much available capacity would you say, you've got and the network today from a terminal door perspective is there a way to kind of quantify that the amount of weight and capacity available to you.

If you look at capacity bottlenecks.

And.

And are getting close and capacity and as a good example.

Okay.

Acquisition, Great company, we actually competed against him and and we know that can be noted that day.

Okay.

That was also to lift the debt.

From the past.

And the greater Atlanta Metro market, and one of our largest terminals as well.

Flatter. So that's also a way to.

Perfect.

The other relief in a tight market same in essence was true with Fontana inland Empire, which provides.

Okay.

And congested and southern California market.

Thank.

Thank you.

From a bottleneck in terms of making sure.

We have enough capacity to buildings is one thing I am looking at debt, referring to more importantly, we're looking at the actual.

Qualified labor in the buildings just in Nevada and.

And the last months be filled half of our open positions because we had to and quickly 148, new jobs and a very few weeks secondly.

And most.

And the scares capacities, obviously always going to be on the driver front and between two mendes strive to embed tremendous work, both replacing the need for team drivers, which are the hardest ones to recruit by introducing more relies more meat and swaps where we can.

So well.

Teams. We also are using some of the company.

And we actually see teams, which help us to get to go longer distances and we also recently like many of our competitors did adjust driver pay but there is short and Jack.

Okay.

As a teen buildings, we have multiple ways to get our debt, including using our <unk>.

Okay.

And <unk> acquisitions like JMP halt secondly, we offer our chief people officer and his team are all over making sure that our open positions in our operations are actually filled and then we are getting very very creative both replacing demand for team drivers and also adding team drivers.

Okay.

And I guess from my final question before I turn it over and when we think about the intermodal business.

There's been some margin erosion and here over the last the last couple of years. Obviously, there are a lot of different things going on within the broader intermodal market, but it certainly feels like there is great momentum and and then there.

There's quite a bit of incremental demand coming from.

And congestion has been a headwind how are you thinking about.

The direction of your own intermodal business here through the balance of the year, both from a pricing perspective, and and the ability to sort of improve the margins and get it back low double digit margin level.

Mhm so.

Jack in my mind, and I was very vocal about this on and I think also and the last call intermodal from me is the double double business double digit annual revenue growth double digit margin.

Look at the first quarter. We finished the first quarter February was a difficult month for all of our business units.

Okay.

And which I'm not going to find any excuses for.

And sometimes have to remind myself and we have a perfect September October with no hurricanes or tornadoes, we hardly ever say, Oh, and we got a tailwind from exceptionally good weather, so I hate to actually pointing out exceptionally bad weather, but sometimes like February was extreme having said this intermodal and March.

To give you one specific data point was a double digit margin business I expect the same for Q2 and for me intermodal with premium intermodal that we do and with a experienced top notch team that we have in place. There. We are overcoming those two challenges that you actually put forward the congestion and.

The driver shortage.

Its hard but again I think we have it and absolute terrific team and a premium intermodal drayage business that in my mind, you set up for double digit margins for a long long time I expect it to happen this year.

Okay, that's great to hear and thanks again for the quarter and thanks again for the time and congrats again on a great quarter.

Thanks Jack.

Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please go ahead.

Hey, good morning, Tom.

Good morning, Tyler Hey, you can hear me, it's breaking up a little bit but I just.

Couldn't tell just my phone or not but.

Anyway, just real quickly on the.

March margins. So you noted that day, we were above 18, but I'm, a little unclear that stripping out final mile.

Between here and there you have added a couple of hundred million dollars of final mile revenue that would be dilutive to that segment and I was just kind of curious on the details there.

Sorry, and that color I want to make sure I answer the question the debt.

You're actually asking deductible and directed at them and we actually are you talking about March yes.

Yes.

Okay. So.

<unk>.

If you're talking about <unk>, specifically and you always have to look back to last several years versus say for argument sake 20 years ago, when and why so much much much smaller business.

Margin for the <unk> business for the month of March was 15, 6%.

And that number is higher than any March March and number for Alitalia and recent history like revenue growth a door to door and and airport to airport company.

And my commitment always was we're going to keep debt airport dual going I am thinking of the airport to airport <unk> business is almost like a value stock.

It's four or $500 million, perhaps sofa LDL premium airport to airport business, where we strive to be the best and sensitive handling hitting tight time windows and we are preserving that value stock with those high single digit margins I'm talking 18, and 19% margins that was the air 15 20 years ago debt.

Still there today the challenge we had was when we expanded our total addressable market and premium freight from $6 $700 million.

Two seven or $8 billion 10 exiting debt total addressable market.

And to go premium freight from anywhere to anywhere door to door. There initially lost our shirts, we actually lost money and and over the last two or three years got really good really fast and we're still quite a bit of untapped upside that was initially.

Money, losing half of our <unk> business to address debt.

<unk> and expansion and make it also.

And our growth stock in addition to the value stock that debt airport to airport represents.

And we lost money initially blocked adapting to the single digit margin territory in the month of March we've locked it up into double digit margin territory. So Tyler and you do the math to 15, six roughly speaking half of debt as the value stock of airport to airport debt and the high single digits, sorry high high teens.

819, and the other half is the door to door, which is the growth stock and LDL. So to speak that helped us and XD Tam and that's in the low double digits getting us to a 15, 6% average okay.

Is that clear, yes, that's very helpful. Yes. Thank you for that so can you talk a little bit.

As you mentioned it I think January tonnage was up something like 10%.

And as February was way off and then March really bounce back, but can you give that tonnage by month.

Sure.

First of all and you say February was way off lay up is all relative.

So lay off was still up.

I said January was up 10% double digits, that's what we said and our last earnings call February was still up five 7%. So that's not nothing and.

March was such phenomenal it was 32, 6% up over last year now having said that.

You will see us do exactly what we did and the earnings release. This time, we will do a year over year.

But we also build to something that's much more meaningful we typically will take you back to kind of a better comparison a year, maybe 2019, maybe 2018, it's one of those two day.

32, 6% margins this year over last year debt.

A lot of that is kind of record goodness and lot of it also starts being the fact that the second half of March last year was the beginning of noticeable COVID-19.

So the when we talk about Q2 and three months you will see us do a lot of mental income back and forth and few guys to make sure that you have comparison and sets that actually are meaningful which is not going to be against 2020 is going to be against other benchmarks.

Right. So as we think though as we think about and I know you haven't given Q3 guidance, obviously, but im thinking about this just conceptually I think usually your earnings are relatively flattish sequentially from two to three but you've got this vaccine rollout I think New York City announced they want to reopen and July it just seems like.

That could be a sign of things getting better.

You mentioned the event business is still largely asleep, but does it seem crazy that the second half sequentially.

Could be may be betters, and what would be quote unquote normal.

Yes, so if I look around and this is why I mean, I tend to listen to people, who kind of look at.

The environment for living and.

I do believe it is a pretty good shot that he have a weird set of waves of freight peak kind of one following the other initially that was always pent up demand and the second half of last year and then you went into this year with e-commerce, keeping going and now we are having basically are getting into.

If you look at the Q2, a lot of the discretionary spending all goes into.

Appliances into things that actually will be move not into events and travel yet that's probably going to switch our fortunately team forward, we actually sitting at a point where.

And if theres lots of appliances, and lots of heavy goods and our high value that people buy it because they are all stuck at home good for us if there's more travel leisure events activity and suddenly the Taylor Swift concepts coming back good for us. So we actually will take it on both sides. So it has a good chance that that wave of economic peak will be <unk>.

Shifting towards a different set of activities as you just pointed out like more events more opening up more hospitality.

And to be in a space, where we can actually gain from that because that fits our precision execution DNA the same way the high value clients do.

Right and so I want to kind of just my last question and I hope I'm not being too leading here, maybe you'll indulge me, maybe not but we'll see and I kind of wanted I wanted to come back to 2018. So if you think about it as a more cleaned up year.

And I think and <unk> you did and this is going to be my number, but let's just say about $150 million of EBITDA ex pool.

But since then again you've acquired I think if you take intermodal and final mile. You've added almost $300 million of revenue acquired since then you've added a handful of terminals that you talked about with Jack.

It sounds like Youre, even running at a better level at a core level and 2018, so but why wouldn't that and jumping off point into next year be at least a couple of hundred million dollars of EBITDA.

So.

You said, one thing upfront Hollywood and not to beat we haven't gotten full year guidance yet.

But let me discuss peacock.

A couple of points back to you and then make a statement out of that so the first thing is is when you compare 'twenty one to 'twenty and I just talked about two minutes ago with you about March where we set a march tonnage for <unk> was 32, 6% up versus March of last year.

That's not really a good comparison because at the beginning of COVID-19 notice ability last year and second half of March So better comparison would be and 18 relative March tonnage was even up 10, 8% versus March of 18. So this is boom times right now and then to your comments about the second half.

And we're going to bring.

The events business back together with our customers again as a reminder, these are still the same customers that I talked to every single day recharged and unfortunately.

Had to focus on more essential goods with them, but to see the same customers. So we're talking with and the same customers on a very collaborative way.

And when we can let's do a bang up job to bring up debt bring back that event business.

So if I add all this up.

And we have not done a forecast for full year, nor do we take our guidance for full year, but looking at where we're sitting right. Now there is a distinct possibility that we should be beating 2018.

Okay, all right Tom. Thank you so much thank you.

Thank you next we go to the line of Todd Fowler with Keybanc capital markets. Please go ahead.

Great Tom and good morning, good morning, Todd.

So I wanted to spend a little bit of time on the margin progression both on kind of what you've got embedded in your guidance for the second quarter, and then and you gave some comments about getting back into the double digit range into next.

And next year, but just just starting with <unk> and kind of seems like youre, implying a low ninety's or for the combined company. We know that there were some costs and.

<unk> can you talk a little bit about what youre expecting from just the seasonal standpoint into the second quarter and maybe why margins would it be a little bit stronger based on some other trends that youre talking about and Youre seeing currently.

Yes so.

And just to confirm it back to you I do believe there is debt.

These and change that we are getting close to a double digit margin in Q2 as a company.

So and.

But we do have to look at seasonality a little bit March is typically a very very strong month.

The second quarter overall is typically a very strong quarter, but margins one of our strongest months.

So I do believe there is a chance of sequential improvement Q2 over Q1, and certainly I mean, thats, what our guidance suggests.

And go to 98, and Thats, our midpoint and client six to a $1. That's a record Q2 never had that.

How high is up we will see I love our April.

And April is over and 10 hours or something.

<unk>.

Again, I think right now the team is really getting better at a record pace.

I do believe there's a good chance for double digit margins in Q2, that's a bit of a stretch, but we can get there again month by month, there are certain months, where we already have it easily and the back theres other ones, where it's where we're still getting there.

But I wouldn't be surprised Todd if you and I are positively surprised but you may have.

Have another call in three months.

Yes, Okay, Tom and that's kind of what I'm gathering so that that makes sense and then.

Looking beyond.

Yeah.

What's the right way for us to think about a reasonable cadence of margin improvement for the business going forward.

And I know that.

Growth is a key component pricing is a key component, but as you look at the business and you think about over the next.

Couple of years two to three years is 100 to 200 basis points the right cadence.

Or do you feel like that Theres, a step function as you some of the core business comes back.

Some of the growth.

The mechanisms are put into place something else that drives that I'm, just not looking for guidance, but just what do you feel is realistic with other businesses positioned right now.

So and then start kind of with the complementary businesses talk first and then I'm going to go back to the main.

The core business <unk> to kind of top it off.

Intermodal Drayage I was very clear back office synergies.

Selling synergies with the other business units and by itself a very very focused of high value kind of double double business by itself. So I almost would put that one a day.

Ron <unk> and his team do an amazing job and they're just using the same precision execution DNA and that business. So im not concerned about them Todd I would think about them as a double digit margin business and can you go to the expedited freight business truckload and final mile.

Both of them are very complementary we talked about this a lot in terms of.

The operating locally with the same buildings and in many cases with the same drivers, sometimes doing local pickup and delivery for <unk> and final mile deliveries.

Over the road to be higher for one fleet.

And so you use backhaul, sometimes one service and lay out and other services <unk> and <unk>, respectively. So I use that I look at final mile and truckload and <unk>.

Themselves high single digit margin businesses.

Double digit, but high single, but very complimentary and helping out its big sister LTE L. L. T L. The way I look at it. This is goes back to what I said before we have two halves of debt <unk> business, we have debt value LDL, which is airport to airport, it's not going to be super high growth, but it's going to be very high.

And so think of that airport to airport. The same thing. It was 15 20 years ago, and 819% margin business. That's my expectation certainly not worse from that.

And then what we are doing is the other half day from anywhere to anywhere surgical pricing by geography by length of haul by customer segment, and we're getting better and better. So if you take that half up from 10, and 11% to 12, 13 and 14% the weighted average for our <unk> business might vary.

Well and up 15%, 16% if you remember last time on this call and you still had a full time CFO Gwen.

And stopping for right now.

And Mike actually talked to that kind of average going towards 15 and 16. So that's what I would be expecting as a company.

<unk> 15, and 16 over the next several years TL and final mile and very complementary with <unk> and the high single digits and intermodal.

Good banking on a double double by itself with a intermodal drayage team's actions to first class.

Okay great.

Helps.

And you are the full time CFO at this point you still have a full time CFO just wearing multiple hats I got so.

And Tom My last one Jack asked about latent capacity on the physical terminal side can.

Can you talk a little bit you guys have done just a great job this cycle and managing your PT cost you know as we think about volume coming back I think that you did some pay actions with some other owner operators recently can you talk about your view and keeping outside miles manage to this cycle, particularly as we see kind of the strength and in tonnage.

Coming back right now and the network and so.

Some of the tightness, we're seeing overall in the spot market. Thanks.

Yeah, Todd one of the toughest jobs, we have and.

And Carl mentioned, and our Chief people Officer, and I'll talk about this if you could talk about my mind share and energy.

Supporting our team and I'm and team and customer support that's my job.

Lots of Mindshare and energy spent on that topic like this across the industry right now and the U S alone desk about 100000 truck drivers missing not they're needed, but not there that number and the next five years will double.

The challenge for whoever you talk to is going to get harder not easier. When you talked about the war for talent 510, 20 years ago, we were thinking about executives and Dwight White glove people. The war for talent right now is on the frontline on multiple that I mentioned, but certainly anything from dock labor to truck drivers to that challenge is going to get hot.

And I mentioned before how we have become very creative.

But it's something that may not be so creative lack something and as mundane, but important is making sure we're competitive and paying our drivers, but also making sure we actually figure out where it can be used <unk> and community use meat and swaps and do solos vs teams, which soldiers are easier to get whether it can be used company drivers and key domestic.

<unk> into our own trucks to do doing more and more and more of those things I also you should never forget retention of your existing drivers is job number one the easiest driver to have tomorrow to do a great job with our customers because they know our customers is the one that we already have on board that we.

Should be keeping.

And we are spending a ton of mindshare and energy with our drivers and I talked about as many times before to make sure. We make this the most desirable home our retention rates for drivers are about twice as good as the industries, because we listen to them. We did a survey with them and we make sure that is predictable home times.

And short waiting times, when they call dispatch and these things matter next week, we have a driver board, we talked to 12 of them and Davao broadcast to 4000, how we're making progress with them. So we have we don't have a magic bullet here. This will be one of the toughest shops for us and for the industry I do believe debt team for team here is doing it through.

Marketable job both in terms of managing supply and demand as well as truly going above and beyond with good intentions and competence to make this and the number one choice forward for those drivers that behalf, but low no mistake Youre Todd This will be one of the toughest jobs for us over the next several years and.

Far from perfect, but we are pretty darn good at it and a number of slides just to give you. Some calibration here, we're still and outside miles in the high teens and unfortunately.

Half of debt. Thank you, Frank and more than half of that is California. So that remains an issue for the industry. So on the positive side you can see we're actually in single digits outside miles and can California and Thats. The same statements you made last time, but including California debt number goes to the high teens.

Yes that helps and we know it's a tough job and it seems like you've been managing it a lot better. This go around and then some previous rodeos. So Tom thanks, so much for the time and the thoughts.

Thank you Todd.

Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks morning.

Morning, Scott.

Did you say what April tonnage and how it's tracking.

I don't think I made that statement, but.

If you I mean, so I can tell you the number but that and then I'll tell you the second thing which is a day.

The meaningfulness or lack thereof. So we believe tonnage for April will be 56% higher in 2021 day and 2020, 56%.

And again, that's where we do the review Scott about how we actually really performing and Q2, we will make very certain debt. We will provide meaningful benchmarks to you because that number is factually correct that just mentioned, 56% up over last year and is not really fully meaningful.

Understood what.

How are the yields trending in in April.

Got you.

You guys had a record cri the yields were up 3% ex fuel and the and the first quarter or are we seeing that momentum build as we head into the second quarter.

Momentum is building yields I mean, it's obviously also a function of what it is we're moving primarily right. So as we obviously also have some of the higher value e-commerce and our mix some of the weight per shipment go down. So you do have actually have an issue there, but overall and we now look at all of the core metrics.

Of revenue per shipment revenue per mile. We feel very very good about those numbers, but we do have to realize debt.

And high growth exponential growth of E. Commerce has happened and it's here to stay and debt will have an influence of delay on the weight per shipment and that's I think exactly what you're referring to right now with what you've observed.

Maybe can you talk about pricing renewals and I know, it's a different business but.

This week talked about.

9% pricing renewals and the quarter what are you guys seeing.

So b perhaps.

Perhaps two somewhat different terminology, so pricing renewal is not a metric that you measure but.

When you target, that's probably kind of the ink the average increase from one contract with <unk> and I guess how are they defining it.

What we do see is limited and say if this way when we did the general rate increase of 6% in February we had the highest take rates ever. So the take rate was five 4% and the only exceptions for October we're basically.

Grandfathered contracts for the most part everybody debt actually where we had an option to put the 6% and we put <unk>, 6% and no question and ask.

And some of our other businesses actually dose increases from contract to contract are probably very close to what you're describing so we have some of some of those in and.

And intermodal business, where we see those types of increases.

When you look at the.

The combination of.

Some of the surcharges ex California above 2000 miles, 15% by itself or about 15.

2000 miles you get to double digit renewals that way you call. It fairly quickly between a across the board and 6% and then on top of debt surgical surcharges for specific in this case length of haul. So at the 9% don't surprise me and I think if you aggregate our cri actions.

And with our accessorial surcharge actions you'd get into double digit territory. So I am not surprised about that 9%. If that's the same different definition of that I'm using.

Okay, and then I know theres been a bunch of discussions about the margins but.

And to your point, maybe year over year comparisons arent, all that meaningful and so if we look at the guidance for second quarter and.

And compare it versus second quarter of 19, it doesn't seem like there's any implied margin improvement and the expedited business.

<unk>.

Within the guidance.

I guess why aren't we seeing that margin show up yet and given the pricing you talked about.

Leverage to some really strong volume.

Well couple of things one is.

And I do expect the expedited freight business for the second quarter to be and double digit margin territory.

That's <unk>.

Fairly good India also you won't you have to see.

And the.

And Scott the business debt most of the highest margin business and you. Even went back to 2019 is the one we're going to bring back second half and and third third quarter, specifically for some of our customers that events I call. It event spaces, but I think think anything from trade shows conferences cruise lines and.

People basically moving around for events.

Debt was a significant and if youre talking 20% or so of our overall portfolio of business and our highest margin business. So that we will bring back that will help our margins Q2, I'm not sure, but Q2 will be double digit. The other thing you should PC and when you look at expedited freight our final mile business is significantly bigger now than it did.

Two years ago, it was almost nonexistent and two years ago. So that helps out the <unk> business, but by itself Thats a high single digit business not a double digit margin business for <unk> specifically.

And I do expect.

The second quarter to be in the double digit margin territory and close to 12% so that number should be moving up.

I actually like the momentum we are having I like the math I just did five minutes ago about ESCO and <unk> specific to free up 15%, 16% over next several years.

Double digit margins and the 12% range for <unk> second quarter, No question and ask.

And again as we bring back the highest margin business with our customers to kind of the same customers that we work with on other business over the next several quarters that number will go up not down. So Scott you keep me honest, but I do believe that.

And line Youll be seeing unit, both will be liking to watch that.

Okay sounds good. Thank you guys appreciate the time and thanks Scott.

Thank you. Our next question comes from Bruce Chan with Stifel. Please go ahead.

Hey, Good morning, Tom how are you Laurie and Bruce how are you.

Okay. Good just a few questions from my side here and maybe the first one on door to door, obviously you inherited.

A lot of let's call it less and favorable door to door.

Business and in terms of the margins, yes acquisition.

And as you think about.

And I think fixing some of that legacy business.

Maybe give us some color on what.

And is there and then really what the problems are so is it more of a commercial issue, meaning that customer pricing negotiations.

<unk> and you need to replace some of that book.

Or is it more of and operational problem, meaning that you just need to improve the density maybe on the P&C side there.

It's more of a dish as commercial and we have taken a significant amount of actions, but I mean limited perhaps characterize as one more time and I know Bruce this is.

As well as I do.

So when we went.

Five six years ago from.

Almost exclusively airport to airport to door to door.

And we certainly dealt with very different customer segments, and very different freight and very different mechanisms of buying freight <unk>.

<unk> is our fastest growing segment three pls is now 20% of auto and <unk> business when.

And when you don't know how to price origin correctly and.

In essence and and algorithm.

Might get stuck with a piece of business, where you suddenly have to find outside miles, which take service down and cost up.

When you don't know debt.

And you get all the long haul lanes and you lose out and all the short haul lanes and then you basically cannot service them with solo drivers who will be back home day next night and it gets harder and it gets more costly and so.

And I think earned ourselves 543 years ago, a lot of scars in something that was tremendously useful which is can we actually tap into premium freight that is exactly the core of our DNA precision execution by going from anywhere to anywhere in Asia.

Since adding these.

Gross stock LDL to this value stock called airport to airport <unk> and we brought we got burned because we got into robots, we got into the algorithms and we didn't know how to price for geography length of haul customer segment, and Thats, where we got better and better and better and we still have ways to go to I believe you also have.

Opportunities operationally to kick the tires to make sure we have extra efficient debt. We route correctly that we do have bypasses where we should be doing that Chris ruble and his team are all over that right now so our COO has taken on and making very very certain that operationally we are as efficient as we need to be so if you ask me.

And Bruce <unk>.

<unk>, we had to do a lot of catch up we did a ton of debt already unintended and there is more untapped upside for us to go to.

More runway.

And no and the operational side, Chris ruble is matching what Scott and Scott <unk> debt on the commercial side, which is making sure we get better and better but if you ask me. If you went back two years and I would say to much larger untapped upside was on the commercial side.

Picking the right freight and pricing it correctly now a lot of work has been done on that side Thats why you see double digit LDL and margins in the door to door business now.

But there is still more to be done we are far from done.

And and then on the operations side again, Chris ruble and his team are making very certain we are equally honing in on to excellence on that side, but it's probably two thirds commercial one third operational and W. A forward will be on top of both of those.

Okay, No that's great color and.

Yes, certainly sounds very encouraging.

Second question here on <unk>.

Our recent acquisition.

JMP Hall, just down the street from you and Atlanta, obviously, they've been around for a long time, and so I'm sure you've been aware of their presence.

You talked about not being in the M&A game for quite a while.

And.

Is that part of that at least it's probably due to the difficulty of overlapping network integration, but when you think about getting back into the.

M&A game and what gives you more confidence now that you can do kind of a better job of it.

I think the fact that over the last.

Five six years between final mile Intermodal, we did 13 acquisitions.

And I think we are 13 and though.

Each one of the most accretive and that's a good kind of mechanism. We have of M&A leader calorie kits, that's part of Michael Hance his team.

Who frankly over the last several years together with the operators figured out a little bit of a machine kind of how we look for things, how we great things and we just frankly.

And we stretched ourselves over the last year, we said like a <unk>.

And how can we actually apply this magic formula to our core business and can meet and JMP Hall is a first class company debt actually for US is also a great exploration areas like Hey, that's the same magic formula work and our core <unk> business that we actually made work and intermodal and final mile. So.

And the confidence Bruce is specifically.

Earned confidence based on the track record of a formula that our M&A team together with our operators made work and final amount and the morals rage and more than 10 cases over the last five years and we will be looking to do is copy paste use the same principle and our core business and I believe it should work and I'm.

And I'm very hopeful that this will not be the last time and time that we actually also grew inorganically and our core <unk> business.

Okay, Great and then maybe just one last question here and a quick one on capital allocation.

Typically when you think about where your stock is trading now what are your thoughts around that.

Backs versus.

And some of the M&A that we just talked about and others.

So I mean this is and then.

We're going to be a bit generic here, but we obviously have.

A number of debt we project for our <unk>.

Weighted average shares outstanding at the end of the year debt number actually is exactly.

<unk> 6 million and 900000 so.

But if you issue and Peel, the onion and what's behind this number and we obviously have a priority debt. We always go after the first priority is invest in our core business.

And one is obviously.

And if you invest and on top of debt Inorganically.

Please look for opportunities first and now once we satisfy those.

Enhancements of our existing business and new business that we go after and then the App as you get into repurchase territory. So we are wide open to do that.

And again, we have been doing this and we will continue doing that.

But I also want to believe that our profitable growth pattern that we put in place over the last several years gives us a lot of opportunities to actually use our capital.

Building out our existing business and building out on the inorganic growth side, we just talked about it and with JMP Hall and our.

Our core business.

But repurchases will continue to play a role.

At the same time whenever we find more accretive ways to expand our business, we obviously will do that.

Okay, great well, thanks for the time I'll turn it over and I appreciate it as always thanks Bruce.

Thank you that concludes forward Air's first quarter 2021 earnings conference call.

Please remember that this webcast will be available on the Investor Relations selection section of forward Air website at Www forward Air Corp, Dot com shortly after this call.

You may now disconnect.

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Okay.

Thank you for joining forward Air Corporation's first quarter 2021 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 <unk>.

Investor Relations section of forward Air's website at Www dot forward.

Forward Air Corp, Dot com.

And with it this morning, and CEO, Tom Schmitt by.

By now you should have received a press release announcing our first quarter 2021.

Which was furnished to the SEC and form 8-K and.

And on the wire yesterday after the market closed.

Please be aware that certain statements and the company's earnings press release announcement and and.

This conference call are making forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Including statements, which are based on expectation.

And pension and projections regarding the company's future performance.

Anticipated events or trends.

And other matters that are not historical facts.

These statements are not guaranteed performance and.

Are subject to known and unknown risks uncertainties.

Uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such 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.

And the company undertakes no obligation to update any forward looking statements.

Whether as a result of new information future events or otherwise.

And now I'll turn the call over to Tom Schmidt.

<unk> of forward Air.

Yeah.

Thank you Tony and good morning to all of you on the call.

I think it's fair to say, we are hitting our stride on.

And our last call, which was February 12, I shared five observations, where we showed 10 pointed towards momentum.

This momentum is continuing and it's accelerating.

Let me double click on those observations and refreshed from the.

The first one I shared was we were looking at Q4, and we said this actually looked like and operational beat.

Not for the cyber attack, so it and it actually up being a miss now.

And now you fast forward to Q1. This was a beat and was a beat despite significant professional services fees in the wake after cyber attack and also making sure we had a strong roadmap in place standard.

Standing up to a comparison with our activist shareholder, which we by the way. It ended up in a great cooperation agreement with but still despite all of that Q1 was a beat.

And then secondly, the observation and I shared in February was we actually had good momentum also going from Q4 into Q1, I pointed specifically to the month of January and the double digit continent increase over January previous year.

If you look at the momentum in the quarter January was supposed to start March and our <unk> core business strongest March ever record revenue record operating income. So we clearly continued that momentum if I look at the first month and Bureau by April 32 day to first month of Q2.

<unk> continued very very strong tonnage there were several days and the month of April tonnage wise and our <unk> business that we had an average seeing at those volume levels before the.

The third observation I share gross about disciplined pricing and if you remember on February 12 from be talked about the rate increase to annual rate increase we actually activated on February one.

The capture rate of debt rate increase was at record levels No exceptions, no exemptions, we needed to make very short and we put in place the technology.

The drivers and the teams to make sure we keep our customer commitments and.

And we needed those rate increases for that and we got them.

Disciplined pricing will be a hallmark of our company and any continues in March we had to adjust for long haul distances above 2000 miles in our core <unk> business again to make sure we can invest and getting the teams to keep our customer commitments so that disciplined pricing.

<unk> continues and that momentum.

Actually accelerating.

The fourth.

Observation. We made was about continued organic momentum if you remember last year, we actually added six more access points to our core <unk> network.

And we have now more than 100 locations and our <unk> business and one of those six access points. We added last year from antenna and inland Empire is already and the top 15 of our volume.

Of course, our entire <unk> footprint. So these are significant additions to our network.

And again far from guidance next week, we're going to add another access point Wichita, Kansas.

And out of our final mile location, and making sure we actually take advantage of our footprint across our business units.

And next month, we're going to add.

<unk> access point, and the Pacific Northwest and Spokane, Washington.

The fifth and final observation is shared and February was the continued momentum also on the inorganic side, adding tuck in acquisitions and our final mile Intermodal Drayage business. At this particular time last time and you talked about proficient.

Great addition to our intermodal business, it's already contributing a couple million dollars of revenue in our Q1 day.

This week on Wednesday, we announced actually and acquisition in our core LDL space, we hadn't done this in years.

Actually used organic growth, primarily and exclusively over the last five years in our core <unk> business and I'll be using the same recipe that we used for final amount intermodal ultra for LPL, We added great company JMP haul express to our family and to make sure we get more capacity.

And to serve our customers in the Atlanta area, and very tight market in southern Georgia and in Northern Florida markets.

One of the analysts actually talked about.

US acquiring a baby forward air So, let's endearingly look at it that way.

So when you look at these five observations together.

This momentum and that's actually continuing and accelerating.

So the question is where does it take us going forward. So Q1 was a beat.

With a run rate March that's easy and double digit margin territory.

We take this momentum into Q2, we're guiding for a record Q2 way ahead of our Q2 debt, we had and the peak economy year 2018.

Right now we are seeing double digit growth rates and margins in a few of our months throughout the year and.

And I expect to see those double double numbers on a full year basis fairly soon next year is actually a distinct possibility.

That momentum gives us confidence.

We are doing good things faster and Thats I think one thing that is forward tough team has been just tremendous that youre doing good things faster and also I should never forget that we have and amazing set of drivers. They are our heroes every single day driver appreciation day, if you look back to <unk>.

Larry the second half of February almost across the country certainly from the Midwest and.

We'll work with our customers to bring back.

We are hitting our stride.

So with that back to your timing.

Thank you the floor is now open for questions and comments.

If you wish to ask a question or make a comment. Please press one then zero on your telephone keypad.

You may withdraw your question at any time by repeating one zero come out.

And if you are using a speaker phone.

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Once again, if you have a question or comment today.

Please press, one and zero at this time.

Our first question comes from the line of Jack Atkins with Stephens. Please go ahead.

Great. Good morning, good morning, Tom and congratulations on a great quarter.

Thanks Jack.

If I could start just talking about the expedited business for a moment and I'm really curious around the longer term plans for network expansion. There you mentioned that you're at 100.

Terminals or access points to the network today.

And you are planning on adding a couple of more that you referenced in the prepared comments.

Where do you think you stand in terms of the number of terminals at the at the end of the year and when you look out over the next two to three years.

Where do you think that number is going to end up roughly.

Yeah.

So and the reason just to be also very clear.

Hum.

Access points, where we can.

<unk> and <unk>.

Moving to it.

The access points deliberately because right.

No.

Yes.

Right out of <unk>.

More than 10 file and myeloma.

Okay.

Call them and most importantly, it's and act.

Good day to frame.

Since today I said Jack.

Seeks editions last year I expect us to do.

<unk>.

If I look at.

And freight across a billion dollar of and the addressable market there are a significant or a destination points.

That we still need some.

And sometimes we don't it's good to know and to remind ourselves we do not happen and merge them two we look left and right.

Okay.

The players, having 200 terminals or even approaching 300.

So I would expect Jack debt when you have to same conversation and three years, you'll have 30, or 40, and perhaps even 50 more access points and.

Good day.

And we will.

Many of them will be agents that we convert to our own terminals and some of them like Fontana, which is now a top 15 volume relocation will be greenfield debt was the greenfields that we put in place and the fourth quarter of last year. So I expect us to add at least 10, a year and I think that momentum will probably accelerate and the number will probably be.

Hi.

That's really interesting and that's good that's great to hear.

When you think about the network as it stands today you referenced.

Record levels of tonnage during certain.

Certain week.

Over the last few months, how much available capacity would you say you've got and the network today from a terminal door perspective is there a way to kind of quantify that the amount of late and capacity available to you.

If you look at capacity bottlenecks.

Okay.

Keith.

We are getting close to capacity and as a good example.

Okay.

Acquisition, Great Company, we actually competed against him and we know that can be noted debt.

Okay.

And that was also to do that.

And the path with.

And the greater Atlanta Metro market, one of our largest terminal sales.

Flatter. So that's also a way to them.

Perfect.

Relief in a tight market same in essence was true with Fontana inland Empire, which provide.

Relief.

And congested and southern California market.

So.

And bottleneck in terms of making sure.

We have enough capacity to buildings is one thing I am looking at debt is referring to more importantly, we're looking at the actual.

Qualified labor in the buildings just in Nova.

And the last months be filled half of our open positions because we had to and quickly 148, new jobs and a very few weeks secondly.

The most.

And the scares capacities, obviously always going to be on the driver front and between two Mendez.

Try to embed tremendous work.

Both replacing the need 14 drivers, which are the hardest ones to recruit.

By introducing more relies more meat and swaps.

And we can move.

Wow.

Teams. We also are using some of the company.

And we actually see teams average.

Help us to get to go longer distances and we also recently like many of our competitors did adjust driver pay but there is short and Jack.

As a teen buildings, we have multiple ways to get that debt, including using our vital and <unk>.

Efficient acquisitions like JMP halt secondly, we all are.

And our Chief people officer, and his team are all over making sure that our open positions in our operations are actually filled and then we are getting very very creative both replacing demand 14 drivers and also adding team drivers.

Okay. That's helpful and I guess from my final question before I turn it over when we think about the intermodal business.

There's been some margin erosion and there over the last the last couple of years. Obviously, there are a lot of different things going on within the broader intermodal market, but it certainly feels like there is great momentum and and then there's quite a bit of incremental demand coming forward.

And it's been a headwind how are you thinking about.

And the direction of your own intermodal business here through the balance of the year, both from a pricing perspective, and and the ability to sort of improve the margins and get it back low double digit margin level.

Mhm so.

Jack in my mind, and I was very vocal about this on and I think also and the last call intermodal from me is the double double business double digit annual revenue growth double digit margin.

If I look at the first quarter. We finished the first quarter February was a difficult month for all of our business units.

Okay.

From standard, which I'm not going to find any excuses for.

And sometimes have to remind myself and we have a perfect September October with no hurricanes or tornadoes.

Hardly ever say, Oh, and we got a tailwind from exceptionally good weather, so I hate to actually pointing out exceptionally bad weather, but sometimes like February was extreme having said this intermodal and March to give you. One specific data point was a double digit margin business I expect the same for Q2 and for me intermodal with us.

The premium intermodal that we do and with a experienced top notch team that we have in place. There. We are overcoming those two challenges that you actually put forward the congestion and the driver shortage.

It is hard but again I think we have it and absolute terrific team and a premium intermodal drayage business that in my mind, you set up for double digit margins for a long long time I expect it to happen this year.

Okay, that's great to hear and thanks again for the quarter, it's great to hear from the time and congrats again on a great quarter.

Thanks Jack.

Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please go ahead.

Hey, good morning, Tom.

Good morning, Tyler Hey, you can hear me, it's breaking up a little bit but I just.

Couldn't tell for smartphone or not but.

Anyway, just real quickly on the.

And the March margins. So you noted that day, we were above 18, but I'm a little unclear that stripping out final mile.

Between here and there you have added a couple of hundred million dollars of final mile revenue that would be dilutive to that segment and I was just kind of curious on the details there.

Sorry, and that Pal I wanted to make sure I answered the question the debt.

You're actually asking us why and directed I'm imagining you talking about March yes.

Yes.

Okay. So.

And <unk>.

If you're talking about <unk>, specifically and you always have to look back to last several years versus say for argument sake 20 years ago. When there was a much much much smaller business.

Margin forward the Alltel business for the month of March was 15, 6%.

And that number is higher than any March margin number for Alitalia and recent history like a new door, a door to door and an airport to airport company.

And my commitment always was we're going to keep debt airport, you will going I am thinking of the airport to airport <unk> business is almost like a value stock.

It's four or $500 million, perhaps sofa LDL premium airport to airport business, where we strive to be the best intensity of handling hitting tight time windows and we are preserving that value stock with those high single digit margins I'm talking 18, and 19% margins that was the air 15 20 years ago debt.

Still there today the challenge we had was when we expanded our total addressable market and premium freight from $6 million to $700 million.

To $7 8 billion 10 exiting debt total addressable market.

And to go premium freight from anywhere to anywhere door to door. There initially locked our shirts, we actually lost money and and over the last two or three years got really good really fast and there's still quite a bit of untapped upside that was initially.

Money, losing half of our <unk> business to address debt.

<unk> expansion and make it also.

And our growth stock in addition to the value stock that debt airport to airport represents.

We lost money initially blocked it up into the single digit margin territory in the month of March we locked it up into double digit margin territory, So and kylo Ren you do the math to $15 six roughly speaking half of debt is the value stock of airport to airport debt and the high single digits I'm, sorry high high teens.

819, and the other half is the door to door, which is the growth stock and LDL. So to speak that helped us and XD Tam and that's in the low double digits getting us to a 15, 6% average okay.

Is that clear.

Yes, that's very helpful. Yes. Thank you for that so can you talk a little bit because you mentioned it I think January tonnage was up something like 10%.

And as February was way off and then March really bounce back, but can you give that tonnage by month.

Sure.

First of all and you say February was way off layoff is all relative.

So lay off was still up.

I said January was up 10% double digits, that's what we said and the last earnings call February was still up five 7%. So that's not nothing and.

March was such phenomenal it was 32, 6% up over last year now having said that.

You will see us do exactly what we did and the earnings release. This time, we will do a year over year.

We also build to something that's much more meaningful we typically will take you back to kind of a better comparison a year, maybe 2019, maybe 2018, it's one of those two.

<unk> 32, 6% margins this year over last year debt a lot of that is kind of record goodness and lot of it also starts being the fact that the second half of March last year was the beginning of a noticeable COVID-19 right.

So the when we talk about Q2 and three months you will see us do a lot of mental Ping pong back and forth and few guys to make sure that you have comparison and sets that actually are meaningful which is not going to be against 2020, it's going to be against other benchmarks.

Right. So as we think though as we think about and I know you haven't given Q3 guidance, obviously, but im thinking about this just conceptually I think usually your earnings are relatively flattish sequentially from two to three but you have got this vaccine rollout I think New York City announced they want to reopen and July it just seems like.

That could be a sign of things getting better.

You mentioned the event business is still largely a sleep, but does it seem crazy that the second half sequentially.

Could be may be betters, and what would be quote unquote normal.

Yes, so if I look around this is why I mean, I tend to listen to people, who kind of look at.

The environment for living and.

If you look at the Q2, a lot of the discretionary spending all goes into.

Appliances into things that actually it will be move not into events and travel yet that's probably gone and switch our Fortunately team forward, we actually sitting at a point where.

And if theres lots of appliances, and lots of heavy goods and off high values that people buy it because they are all stuck at home good for us if theres more travel leisure events activity and Thats definitely the Taylor Swift concepts coming back good for us. So we actually will take it on both sides. So it is a good chance that that wave of economic peak will be <unk>.

Shifting towards a different set of activities as you just pointed out like more events more opening up more hospitality.

And to be in a space, where we can actually gain from that because that fit our precision execution DNA the same way to high value clients do.

Right and so I want to kind of this is my last question and I hope I'm not being too leading here, maybe you'll indulge me, maybe not but real estate and I kind of wanted I wanted to come back to 2018. So if you think about it as a more cleaned up year.

And I think and 18, you did and this is going to be my number, but let's just say about $150 million of EBITDA ex pool.

It sounds like Youre, even running at a better level at a core level and 2018, so but why wouldn't that and jumping off point into next year be at least a couple of hundred million dollars of EBITDA.

So.

You said, one thing I'll, frontality, where not to beat we haven't gotten full year guidance yet.

But let me just debt.

Pick a couple of points back to you and then make a statement out of that so the first thing is as many compare 21% to 20 and I just talked about two minutes ago with you about March where we set a march tonnage for <unk> was 32, 6% up versus March of last year, and I said, that's not really a good comparison.

At the beginning of COVID-19 notice ability last year and second half of March So better comparison would be and 18 relative March tonnage was even up 10, 8% versus March of 18. So this is boom times right now and then and municipal <unk> comments about the second half.

We're going to bring.

The events business back together with our customers again as a reminder, these are still the same customers that I've talked to every single day recharged and unfortunately.

Had to focus on more essential goods squeeze them, but it's the same customers. So we're talking with and the same customers on a very collaborative way.

And when we can let's do a bang up job to bring up debt bring back that event business.

So if I add all this up.

And we have not done a forecast for full year, nor do we do guidance for full year, but looking at where we're sitting right. Now there is a distinct possibility that we should be beating 2018.

Okay, all right Tom. Thank you so much thank you.

Thank you next we go to the line of Todd Fowler with Keybanc capital markets. Please go ahead.

Great Tom and good morning, good morning, Todd.

So I wanted to spend a little bit of time on the margin progression both on kind of what you've got embedded in your guidance for the second quarter and then you gave some comments about getting back into the double digit range into next.

And next year, but just just starting with <unk> and kind of it seems like youre, implying a low ninety's or for the combined company. We know that there were some costs and.

Yes so.

And just to confirm it back to you I do believe there's a decent chance that we are getting close to a double digit margin in Q2 as a company.

So and.

But we do have to look at seasonality and a little bit March is typically a very very strong month.

The second quarter overall is typically a very strong quarter, but margins one of our strongest months.

So I do believe there's a chance of sequential improvement Q2 over Q1, and certainly I mean, thats, what our guidance suggests.

Go to <unk>, 98, and Thats our midpoint.

And <unk> six to $1. That's a record Q2 never had that.

How high is up and we'll see I love our April.

And April is over and the 10 hours or something.

No.

Again, I think right now the team is really getting better at a record pace.

I do believe there's a good chance for double digit margins in Q2, that's a bit of a stretch, but we can get there again month by month, there are certain months, where we already have it easily and the bag, there's other ones, where it's where we're still getting there.

But I wouldn't be surprised Todd if you and I are positively surprised when we have another call in three months.

Okay, Tom and that's kind of what I'm gathering so that makes sense and then.

Looking beyond.

And.

Yes.

What's the right way for us to think about a reasonable cadence of margin improvement for the business going forward.

I know that growth is a key component pricing is a key component, but as you look at the business and you think about over the next couple of years two to three years is 100 to 200 basis points, the right cadence or do you feel like that there is a step function and it's just some of the core business comes back.

Here are some of the growth.

Mechanisms are put into place something else that drives that I'm, just not looking for guidance, but just what do you feel is realistic with other business is positioned right now.

Yes, so im going to start kind of with the complementary businesses talk first and then I'm going to go back to the main.

Core business, <unk> and kind of top it off.

Intermodal Drayage I was very clear back office synergies.

Selling synergies with the other business units and by itself a very very focused of high value kind of double double business by itself. So I almost would put that one and Ron <unk> and his team do an amazing job and they're just using the same precision execution DNA and that business. So I'm not concerned about them.

I would think about them as a double digit margin business and when you go to the expedited freight business truckload and final mile.

Both of them are very complementary we talked about this a lot in terms of elaborating locally with the same buildings and in many cases with the same drivers, sometimes doing local pickup and delivery for <unk> and final mile deliveries.

Over the road to be higher for one fleet.

And so you use backhaul, sometimes one service and a way out and other services <unk> and <unk>, respectively. So I use that I look at final mile and truckload.

Themselves high single digit margin businesses.

Double digit, but high single, but very complimentary and helping out its big sister LDL LTM <unk>. The way I look at this is goes back to what I said before we have two halves of debt <unk> business, we have debt value <unk> Airport to airport, it's not going to be Super high growth, but it's going to be very high.

And so I think of debt airport to airport. The same thing. It was 15 20 years ago, and 819% margin business. That's my expectation certainly not worse from that.

Well and up 15, and 16% if you remember last time on this call and we still have a full time CFO.

And solving for right now.

And Mike actually talked to that kind of average going towards 15 and 16. So that's what I would be expecting as a company.

<unk> 15, and 16 over next several years TL and final mile and very complementary with <unk> in the high single digits and intermodal.

Good banking on a double double by itself with a intermodal drayage team debt just first class.

Yeah, Okay great.

It helps.

And you are the full time CFO at this point you still have a full time CFO just wearing multiple hats I got so.

And Tom My last one Jack asked about latent capacity and the physical terminal side can.

Coming back right now and the network and so.

Some of the tightness, we're seeing overall and the spot market. Thanks.

Yes, Todd one of the toughest jobs, we have and.

And Carl mentioned and our Chief people Officer, and I'll talk about this if you talk about my mind share and energy.

Supporting our team and I'm and team and customer support that's my job.

Lots of Mindshare and energy spent on that topic like this across the industry right now and the U S alone. There is about 100000 truck drivers missing not they're needed, but not there that number and the next five years will double.

And I mentioned before how we have become very creative.

But it's something that may not be so creative black something and as mundane, but important is making sure we are competitive and paying our drivers, but also making sure we actually figure out where it can be used <unk> and community use meat and swaps and do solos vs teams, which soldiers are easier to get where they can be used company drivers and cheap domestic.

Should be keeping.

And we are spending a ton of mindshare and energy with our drivers and I talked about it as many times before to make sure. We make this the most desirable home our retention rates for drivers are about twice as good as the industries, because we listen to them. We did a survey with them we make sure that is predictable home times.

Marketable job both in terms of managing supply and demand as well as truly going above and beyond with good intentions and competence to make this and the number one choice forward for those drivers that behalf, but low no mistake Youre Todd This will be one of the top and shops for us over the next several years and.

Far from perfect, but we are pretty darn good at it and a number of slides just to give you. Some calibration here, we're still and outside miles in the high teens and unfortunately.

Half of debt. Thank you, Frank and more than half of that is California. So that remains an issue for the industry. So on the positive side you can see we're actually in single digits outside miles ex California and Thats. The same statements you made last time, but including California debt number goes to the high teens.

Yes that helps and we know it's a tough job and it seems like you've been managing it a lot better. This go around and then some previous rodeos. So Tom thanks, so much for the time and thoughts.

Thank you Todd.

Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Hey, Thanks morning.

Morning, Scott.

Did you say what April tonnage and how it's tracking.

I don't think I made that statement, but.

If you I mean, so I can tell you the number but at that and then I'll tell you. The second thing which is a day.

The meaningfulness or lack thereof. So we believe tonnage for April will be 56% higher in 2021 day and 2020, 56%.

Understood what.

How are the yields trending in in April.

Got you.

You guys had a record cri the yields were up 3% ex fuel and the and the first quarter or are we seeing that momentum build as we head into the second quarter.

Momentum is building yield I mean is obviously also a function of what it is we're moving primarily wide. So as we obviously also have some of the higher value e-commerce and our mix some of the weight per shipment go down and so you do have actually have an issue there, but overall and we now look at all of the core metrics.

Of revenue per shipment revenue per mile. We feel very very good about those numbers, but we do have to realize debt.

And high growth exponential growth of E. Commerce has happened and is here to stay and debt will have an influence of delay on the weight per shipment and that's I think exactly what you're referring to right now with what you've observed.

Maybe can you talk about pricing renewals and I know, it's a different business but.

This week talked about.

9% pricing renewals and the quarter what are you guys seeing.

So be.

Perhaps two somewhat different terminology, so pricing renewal is not a metric that we measure but when.

And when you target, that's probably kind of the ink the average increase from one contract with Nexus and I guess how are they defining it.

And what we do see is let me to say if this way and we did a general rate increase of 6% in February we had the highest take rates ever. So the take rate was five 4% and the only exceptions for October we're basically.

Grandfather contracts for the most part everybody debt actually where we had an option to put to 6% and we put <unk>, 6% and no question and ask.

And some of our other businesses actually dose increases from contract to contract are probably very close to what you're describing so we have some of some of those in and.

And intermodal business, where we see those types of increases.

When you look at the.

The combination of <unk>.

Some of the surcharges ex California above 2000 miles, 15% by itself or about $15 above 2000 miles you get to double digit renewals that way you call. It fairly quickly between a across the board and 6% and then on top of debt surgical surcharges for specific in this case length of.

Paul So at the 9% don't surprise me and I think if you aggregate.

Our <unk> actions with our accessorial surcharge actions you'd get into double digit territory. So I am not surprised about that 9%. If that's the same different definition of that I'm using.

Okay, and then I know theres been a bunch of discussions about the margins but.

And to your point, maybe year over year comparisons arent, all that meaningful and so if we look at the guidance for second quarter.

And and compare it versus second quarter of 19.

Doesn't seem like there's any implied margin improvement and the expedited business.

Within the guidance.

Yes.

Why aren't we seeing that margin show up yet.

Given the pricing you talked about just.

Leverage to some really strong volume.

Well couple of things one is.

And I do expect the.

<unk> expedited freight business for the second quarter to be and double digit margin territory.

And that's.

Fairly good India also you won't you have to see.

Scott the business debt most of the highest margin business and even if we went back to 2019 is the one we're going to bring back second half and in third and third quarter of specifically with some of our customers debt events I call. It and event space, but I think think anything from trade shows conferences cruise lines.

And people basically moving around for events.

Debt was a significant and if youre talking 20% or so of our overall portfolio of business and the highest margin business. So that we will bring back that will help our margins Q2, I'm not sure, but Q2 will be double digits. The other.

The thing you should PC and when you look at X drive freight our final mile business is significantly bigger now than it was two years growth was almost nonexistent and two years ago. So that helps out the <unk> business, but by itself Thats a high single digit business not a double digit margin business for <unk> specifically.

And I do expect.

The second quarter to be in the double digit margin territory and close to 12% so that number should be moving up so high.

And actually like the momentum we are having I like the math I just did five minutes ago about ESCO and <unk>, specifically to free up 15%, 16% over next several years.

Double digit margins and the 12% range for <unk> second quarter, No question and ask.

And again as we bring back the highest margin business with our customers to get the same customers that we work with on other business over the next several quarters that number will go up not down. So Scott you keep me honest, but I do believe the trend line youll be seeing unit, both will be liking to watch that.

Okay sounds good. Thank you guys appreciate the time thanks Scott.

Thank you. Our next question comes from Bruce Chan with Stifel. Please go ahead.

Hey, good morning, Tom how are you.

And Bruce how are you.

Okay. Good just a few questions from my side here and maybe the first one on door to door, obviously you've inherited.

A lot of let's call it less and favorable door to door.

Business and in terms of the margins, yes acquisition.

And as you think about.

And I think fixing some of that legacy business.

Maybe give us some color on that.

And is there and then really what the problems are so is it more of a commercial issue, meaning that customer pricing negotiations.

<unk> and you need to replace some of that book.

Or is it more of and operational problem, meaning that you just need to improve the density maybe on the P&C side there.

It's more of a dish as commercial and we have taken a significant amount of actions, but I mean limited perhaps characterize as one more time and I know Bruce this is.

As well as I do.

So when we went.

Five six years ago from.

Almost exclusively airport to airport to door to door.

And we certainly dealt with very different customer segments, and very different freight and very different mechanisms of buying freight <unk>.

<unk> is our fastest growing segment <unk> is now 20% of auto and <unk> business when.

And when you don't know how to price origin correctly, and essence and an algorithm.

And get stuck with a piece of business, where you stop and you have to find outside miles, which take service down and cost up.

When you don't know debt.

And so.

But I think earned ourselves 543 years ago, a lot of scars in something that was tremendously useful which is can we actually tap into premium freight that is exactly the core of our DNA precision execution by.

And by going from anywhere to anywhere in essence, adding this.

Gross stock LDL to this value stock called airport to airport LDL and and we broke we got burned because we got into robots, we got into the algorithms and we didn't know how to price for geography length of haul customer segment.

And Thats, where we got better and better and better and we still have ways to go to I believe we also have opportunities operationally to kick the tires to make sure we have extra efficient debt. We route correctly that we do have bypasses where we should be doing that Chris ruble and his team are all over that right now so our COO.

Has taken on and making very very certain that operationally, we are as efficient as we need to be so if you ask me Bruce commercially we had to do a lot of catch up we did a ton of debt already unintended and there is more untapped upside for us to go to a more runway.

And now and the operational side, Chris ruble is matching what Scott and Scott <unk> debt on the commercial side, which is making sure we get better and better but if you ask me. If you went back two years and I would say to much larger untapped upside was on the commercial side.

Picking the right freight and pricing it correctly now a lot of work has been done on that side Thats why you see double digit LDL and margins in the door to door business now.

But there is still more to be done we are far from done.

And and then on the operations side again, Chris ruble and his team are making very certain we will equally are honing in on to excellence on that side.

It's probably two thirds commercial one third operational and W will be on top of both of those.

Okay, No that's great color and.

And certainly sounds very encouraging.

Second question here on your recent acquisition.

JMP Hall, just down the street from you and Atlanta, obviously, they've been around for a long time, so I'm sure you've been aware of their presence.

You talked about not being in the M&A game for quite a while.

And I.

Is that part of that at least it's probably due to the difficulty of overlapping network integration, but when you think about getting back into the.

M&A game and what gives you more confidence now that you can do kind of a better job of it.

I think the fact that over the last.

Five six years between final mile Intermodal, we did 13 acquisitions.

And I think we are 13 and though.

Each one of the most accretive and that's a good kind of mechanism. We have of M&A leader caloric hits, that's part of Michael Hance his team.

Who frankly over the last several years together with the operators figured out a little bit of a machine kind of how we look for things, how we great things and we just frankly.

And we stretched ourselves over the last year, we said like a <unk>.

How can we actually apply this magic formula to our core business and can meet and JMP Hall is a first class company debt actually for US is also a great exploration area like Hey, that's the same magic Formula work and our core <unk> business that we actually made work and intermodal and final mile. So.

And the confidence Bruce is specifically.

Earned confidence based on the track record of a formula that our M&A team together with our operators made work in final amount and the morals rage and more than 10 cases over the last five years and we won't be looking to do is copy paste use the same principle and our core business and I believe it should work and I'm.

I'm very hopeful that this will not be the last time that we actually also accrue inorganically and our core <unk> business.

Okay, Great and then maybe just one last question here and a quick one on capital allocation.

Typically when you think about where your stock is trading now what are your thoughts around that.

Backs versus.

And some of the M&A that we just talked about versus other years.

So I mean this is and then.

To be a bit generic here, but we obviously have.

A number of debt the project for our.

Weighted average shares outstanding at the end of the year debt number actually is exactly.

<unk> 6 million and 900000 so.

But if you issue and Peel, the onion and what's behind this number we obviously have a priority debt. We always go after the first priority is invest in our core business.

And one is obviously.

And if we invest and on top of debt Inorganically.

Please look for opportunities first and now once we satisfy those.

And the enhancement of our existing business and new business that we go after and then be advocating to repurchase territory. So we are wide open to do that.

And again, we have been doing this and we believe we will continue doing that.

But I also want to believe that our profitable growth pattern that we put in place over the last several years gives us a lot of opportunities to actually use our capital.

And building out our existing business and building out on the inorganic growth side. We just talked about is with JMP Hall, and our core business.

But repurchases will continue to play a role.

At the same time whenever we find more accretive ways to expand our business, we obviously will do that.

Okay, great well, thanks for the time.

Turn it over and I appreciate it as always thanks Bruce.

Thank you that concludes forward Air's first quarter 2021 and earnings conference call.

Please remember that this webcast will be available on the Investor Relations selection section of forward Air website at Www forward Air Corp, Dot com shortly after this call.

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