Q1 2022 Forward Air Corp Earnings Call
Yeah.
Thank you for joining forward Air Corporation's first quarter 2022 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.
Forward Air's website at Ww got forward Air Corp, Dot com with US. This morning are CEO , Tom Schmitt and CFO Rick <unk>.
Becker garb brick by now you should have received a press release announcing our first quarter 2022 results, which was furnished to the FCC on form 8-K and on the wire yesterday after the market close.
Please be aware that certain statements in the company's earnings press release announcements and on this conference call are 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 <unk>.
The companys future performance anticipated events or trends and other matters that are not historical facts are forward looking statements can be identified by the use of words, such as anticipate intend believe.
Estimate plan.
Project expect may will would could or should and the negative these terms or other comparable terminology. This conference call in the company's earnings press release contain forward looking statements, which include but are not limited to statements related to future operations in <unk>.
These statements are plans strategies and objectives of management for future operations, and any statements about future financial and operational targets and the likelihood of achieving the same.
These statements are not a guarantee of future performance and are subject to known and unknown risks uncertainties and other factors that could cause actual results to differ materially from those expressed or applied by.
Such forward looking statements.
For additional.
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 these earnings calls the company undertakes no obligation to ups.
Any forward looking statements, whether as a result of new information future events or otherwise during the call. There may be a discussion of financial metrics that do not conform to U S. Generally accepted accounting principles or GAAP definitions and reconciliations of these non-GAAP measures to their most.
<unk> comparable GAAP measures are included in the press release issued which is available in the investors tab of our website I would now like to turn the conference over to Tom Schmidt. Please go ahead.
Thank you David and good morning to all of you joining us on the call. This morning.
First things first congratulations to all our drivers teammates and our business partners for making our best quarter ever happened Q1, 2022, and finishing the quarter with a March that was the best month in the history of our company.
In March we also had in our core <unk> business three of the highest tonnage weeks in the company's history. So lots of momentum LPL inside our expedited freight segment was actually flirting with a seven.
Seven as the first digit of operating ratio ending up at 85.
And we believe we will get to a oh are in L. T. L that starts with a seven.
Later this year.
Our freight selection pricing and.
Clenched network keep providing.
Providing momentum to us and I want to give you a couple of observation points that show that momentum. The first one has to do with working with our customers and business partners to bring our events business back.
Last year, I said believe 2021 off the 15% to 20% of our <unk> business at events.
Based conferences concerts tours cruise lines.
Last year, we may have had about 20% 25% of that.
Rebecca operating hours CFO and IV actually took one of our shareholders to our Atlanta terminal a few weeks ago.
And I had not seen this much tradeshow business, whether it's Orlando based.
Heading to Las Vegas.
This much conference business Tradeshow business, and also concert business I'm going to get to that in a moment. The other thing that's really encouraging the introduced a guaranteed service last year and we actually from a positioning perspective precision those containers are close to the doors.
And we have a blue ribbon about around them I had not seen as many people ribbons as I saw a few weeks ago.
Concerts AOI.
Walking the floor and I saw a container.
By the band Beach House that.
That was a music equipment that just came from Raleigh North Carolina.
And for the performance here in Atlanta, and then heading to Austin. The beautiful thing is is one it's a wonderful band you should check it out.
More important one for US here is once you actually sell to a band movie.
Moving Derek music equipment with high precision execution, it's one selling effort, which is difficult but once it's done you would literally have 20 plus of opportunities from one leg to the next to create revenue opportunities and one of our most profitable business segments. So lots of momentum there.
Another observation point about momentum is as we told you last year, we started selling to small and medium sized businesses direct.
While in the past, we typically do and two larger companies as customers through our great intermediary partners, we're going to continue doing that and on top of that we started selling direct this is not a huge business yet it may be $20 million or so in revenue this year and but it's highly profitable and we expect this to be a $100 million.
Glass business in the next one to two to three years, that's our intention and we're going to go that route.
That precision execution in support of highly sensitive events businesses small medium sized shippers with our direct selling efforts with no split margins is contributing to our expected 150 to 200 basis points LTM on margin improvement both in 2022 and once again in 2023.
<unk>.
And you see that quality also reflected in some of our stats the revenue per ton mile ex fuel, 17% over same quarter last year revenue per hundredweight X fuel, 16% over last year. So there's a lot of quality of freights that has nothing to do with fuel, which did help us but our volumes.
And our pricing actions helped us more.
One stat about an interesting one also even if fuel had been at the level of last year's first quarter, we still would have exceeded the high end of guidance for Q1.
So.
This drive and penetration into our events business, bringing it back again more small medium sized businesses also means we are building out our footprint because we need to last couple of years, we added terminals in smaller markets and this year later in the year Q3, or Q4, two large terminals coming.
On line Atlanta number two and Chicago number three.
To continue building out our terminal footprint, both in secondary markets and also large terminals in our primary markets, such as Atlanta, and Chicago in Q3 or Q4.
Our supporting businesses truckload final mile inside expedited freight and intermodal also are making our LPL business better, but there's backhaul co locating locally selling complementary services as an example today, 94% of our <unk> customers.
Also by truckload from US two years ago that number was 60%.
And.
Final mile is stepping up in a big way, we already opened three new markets. This year Memphis Richmond Philadelphia.
That home Depot award that's appliance partner of the year truly helping us out as a strong sign of approval as the precision execution company in that space also.
Intermodal is targeting more <unk> customers, meaning also selling more direct which is the more profitable route to go.
And then as a consequence, both truckload and final mile are in the mid to high single digit margin territory inside expedited freight and intermodal is always a consistent double double.
Revenue growth double digit margin.
We will drive discontinued momentum into Q2 and throughout the year and into next year.
If you remember in October we announced a $6 30, EPS for 2023, almost 50% more than in 2021.
And we have one of our leadership imperatives, saying, we don't wait.
So we actually anticipate pulling that 630 EPS forward from next year to make it this year's number.
That enhancement of profitability and growth will continue into 2023 that high end of $6 70, EPS that would be announced in October we actually expect to achieve next year, even without larger acquisitions.
For those of you.
Who are following us on a kind of quarter by quarter basis, you will see that as we put guidance out for a second quarter of this year as we put a target out for the full year of 2020 to pulling forward a 630 from lagging from next year to this year, we did not build in the typical sequential build.
From Q1 to Q2 or it from the first half to the second half, which in essence means for what we are driving forward. We are controlling there's still upside to what we put out there.
Best is still to come so with that I wanted to give it back to you David and opening it up for questions and please feel free to go back and forth because I want to make sure you leave this call without what's most helpful to you back to you David.
Thank you the floor is now open for questions to ask a question. Please press one zero press, London zero to ask a question.
I will now go to Bruce Chan with Stifel. Please go ahead.
Hi, there. Thank you David and good morning, Tom and Rebecca.
Great great to hear about the events business and the direct channel SMB opportunity it sounds like a lot of good potential there.
You reaffirm that 150 basis points 200 basis point guide on the <unk> improvement this year and next and I just wanted to think through.
Maybe what percentage of that opportunity is market dependent and what percentage of that is completely within your own control.
Bruce we believe that we control our actions may go until our outcomes I mean, very specifically I mean, we did this also in.
Presentation Thats on our website when we tend to sell direct to small medium sized spaces is the margin opportunity goes to us entirely versus having to split it rightfully so with our partners when you sell through an intermediary. So the profitability of the small medium sized business is tremendous.
And the profitability also for the events business is tremendous so as we make this.
These lines of business 2000, $500 million plus over the next year or two that will help us drive that 150 to 200 basis points or so I do believe we control our destiny here.
Okay. That's very helpful. And then maybe just to <unk>.
Hone in on that a little bit further when you think about the risk to the macro conditions here I mean, what sort of assumptions underpin that opportunity and I guess more broadly your guidance for the end of the year and next year.
Yes, so we actually were heavily focused on what we believe with our sales machine and sales efforts at <unk>.
Continuous improvement, we're driving in terms of reach out to customers and prospects conversion rates, which are getting better.
<unk> of our lead getting to a close the close getting to activation that we actually assumed that we are driving our success of our business in an environment, which may or may not pull back and we actually also believed it would be if I had mentioned this before Bruce if he can't win what I call a size of pie game because theres.
Less tailwind we are determined and we have the capabilities and then we have the untapped upside opportunity to win a slice of size games. So we actually did in I assume.
<unk> profitable growth based on what we control because there's a lot of untapped upside into high value freight market, even in a high value freight market that may be flat.
Great. That's very helpful. And then just one final question here, maybe on the intermodal side and when you think about the potential disruption on the west coast with upcoming labor negotiations have you been seeing any signs of shippers diverting to east coast ports are trying to secure capacity there.
Bruce I'm actually smiling, yes, we all have so.
It's one of those like.
Squeezing of the balloon business or whatever.
The example, with the Hammer and.
Had coming out of the board and you hate adhere to Pops up somewhere else that's been what's happening with <unk>.
Without the.
Ocean to land movements, yes. So.
They have also shift over the last several months you can see it in Charleston, you can see it in Savannah.
Charleston, and Savannah are high performing ports, so actually we kind of.
Like the idea of them.
Where they can buy that going now which is more east coast based we also have a very strong presence.
South Carolina, and Georgia markets.
Even jacksonville on top of that so.
It's what what you're describing proves is happening and we like seeing it.
Excellent well congrats on the results and thank you for the time as always.
Thanks Rose.
We'll now go to the line of Chad Jack Atkins with Stephens. Please go ahead.
Okay, great. Good morning, Thanks for taking my questions.
Good morning, Jack.
I guess, maybe to start I would love to get an update on.
I missed it very very beginning of the call I was kind of hopping between conference calls and then maybe an update on what Youre seeing in April in the us.
Are there.
Any sense that some customers or maybe some end market verticals are starting to maybe see a little bit of pressure from the macro whether it.
Consumer shift from.
Goods or services or anything like that or are you seeing any maybe cracks.
In terms of what your customers are telling you on the demand side I know the events business is spooling back up and Thats a positive but it would just be curious if you're seeing anything there.
Broadly what what what Youre seeing in April .
Yes, Jack So my sense is on the appliance side.
The kind of hyper growth that <unk> seen over the last two years has been leveling off.
And on the ecommerce side lightweight ecommerce you do see a leveling off now having said this and this is exactly why we are so confident in our strategy.
Those especially the library right ecommerce, that's less relevant to us today than it was a year ago.
Ill shift towards Palletize high value freight and then again against any of our metrics point towards that happening successfully.
Makes us to some extent deliberate less.
<unk> to some of those e-commerce shifts or normalization of Ah.
I call it kind of a home based economy back to more of an experience based argument based economy. So the downside of that shift we see less with our current freight mix than we used to see and the upside of that service and experience in events economy kicking back in is fully hours to take.
Okay, all right got it and then I guess, maybe shifting gears a bit.
How are you guys thinking about debt laden or available capacity available to you in the network today.
Sequential trends fourth quarter to first quarter in terms of the expedited <unk> business were certainly better than what we would've expected to see with normal seasonality.
Do you feel like Youre, beginning to backfill some of that capacity that you opened up through the network changes in 2021 and.
I guess, maybe help us think about how much room, you have to continue to grow with.
With the capacity in the network today.
Yes, Jack I mean, you saw is basically getting ready for some of those larger terminals in our primary markets.
Which makes a ton of sense.
Obviously, when you have a primary terminal that's.
15 to 20 miles south of Atlanta, but there is a significant northern suburb market do you want to have a second terminal there.
But you saw us having to being able to take a little bit of time getting ready for that and that's exactly what the plans enabled us to do.
The fact of giving us 15%, 20% additional capacity without adding one single dollar of Capex.
So.
Definitely would have had to add more capacity to our system in fall of last year already if we hadn't done the claims that we are getting to a point with the sales machine, becoming more and more effective all conversion rates, becoming higher to small medium sized business ramping up the events business coming back at full force that we do.
Belief the capacity, we're bringing on as we get closer to peak Atlanta Chicago are two of the examples that we are committed to.
It will be necessary, so we've kind of bought ourselves.
A year, possibly having to add capacity in fall of this year into peak season versus fall of season fall of last year. So that we are getting to the point, where again the sales machine and its effectiveness is asking us to add capacity. This fall.
Okay got it.
And then I guess, maybe for my last question before I turn it over.
Very encouraged to hear the bottom end of the 2023 guidance getting pulled into 2022.
And the outlook for $6 70.
Being achievable even without <unk>.
Additional M&A, but when I sort of think about the reiteration of the margin target improvement over the course of the next couple of years. It would seem like if you were able to see 150 basis points or more margin improvement this year and next year.
And ex fed Lts, you should be able to significantly exceed 60 70. So I guess is the idea behind not taking that number up or walking that number up that we just don't know what the macro is going to give us over the next 12 months to 18 months and I guess maybe on.
I'm, beating around the Bush asking the question do you feel like you can earn 60 70, regardless of what the macro or the freight cycle throws at you because that seems to be what's implied by the line item guidance you are giving.
Yes in fact, I mean, youll, probably about as a math inclined as I am and both can run the same numbers. So we do believe that with what we control there is significant upside to the numbers that we put out.
Now having said this we have seen pent up demand in the first quarter being unleashed. So there was some.
Perhaps.
<unk> debt that you wouldn't necessarily seen every single first quarter.
And there are some supporting tailwind items fuel is one of them.
That actually has been tremendously helpful to the entire industry, having said all of that if you do the same math, we do we tend to be doing better in the second quarter than in the first quarter. We didn't build a lot of that in yet we tend to do better in the second half than we do in the first half that's untapped upside we're going to go after so it's my expectation that these numbers are.
But it's my expectation that is in our control to get past those numbers and frankly as we get deeper into the year.
We might we might update some of those targets, but I like the momentum I know like the possibility of beating those numbers.
Same here. Thanks, Thanks, again for the time and I'll turn it over.
Thank you Jack.
We'll now go to the line of Tyler Brown with Raymond James. Please go ahead.
Hey, good morning, guys.
Good morning, Tyler.
Hey.
Congrats on the momentum, obviously super impressive to see and want to kind of come back.
We've been talking about here about but really about the durability of the results because I still get the sense. When we talk to investors that there is concern that once the market goals you may have to move backwards on some of these freight characteristic initiatives.
Again, I'll, just kind of hoping if you could talk about the stickiness of the durability around the changes that you've made it wound.
How you go to market strategy would evolve at all change if things do slow down.
I'm actually surprised Tyler.
You would even consider for us to them and that means it's very non tracked mentally for for us to work our cleansing efforts back with vivo continue with an exclusive focus on high value freight whether it's at the appliance business and final mile or whether it's the <unk> business with medical devices.
Industrial goods.
Spare parts.
All of the things that would be brought on in addition to the events business that we talked about so.
And frankly, we talked about it I think one of the.
Earlier calls this is a operational.
Efficiency issue. It's also a safety issue when you're 100% Palletize everything can be done with a forklift.
Everything can be.
The safety and health and safety first.
Forklift driver only has to leave as forklifts and her forklift when he or she needs to take a break not to readjust some loose freight.
As a talent attraction and retention issue in a time of more of talent, where it's hard to recruit and keep people I think I mentioned on one of the calls earlier, Chris ruble COO and I, we've got a standing ovation by our forklift drivers in California last week last year, but once we actually improved the quality of the <unk>.
And these people told us and they are wonderful teammates that theyre actually going to become great ambassadors for this being a better place to recruit into so theres, absolutely, 100% certainty that we're going to.
Take paths one path one is let's deeper penetrate the high value freight that we owning now.
We are in the most attractive space of what I believe are the three most valuable laterals and U S ground transportation <unk> and we are we are in high single digit market share. So that marching order processes, all the NRG positively towards deeper penetration in this goodness and certainly not walking.
Back to something that would be far together with our customers.
Positive collaborative way to enhance last year, so that goodness, we will propel and if I've got a choice between deeper penetration of goodness all walking back that's an easy call.
I will love it. Thank you for that so much.
I do have to ask about the 8-K that came out the other day about Scott share, leaving the organization, though obviously commercial success has been T. Can you just talk about back filling that role.
Yes.
First of all.
Scott did a tremendous job here over the last two years.
Tag teaming frankly with me and many of us sales and marketing professionals, making this place kind of more robust and getting more of a sales machine in place it's.
It's in Scott's background and his DNA, it's in my background and my DNA Tag team here and I will definitely.
Keep working with the sales and marketing professionals the same way Eni did over the last two years.
We want to be known as a company that attracts great people stretches great people, mostly internally and then sometimes we have to high quality problem, where unfortunately or Fortunately that next great opportunity for someone is external Scott's Scott has got a great opportunity where you can combine his two passions of leading a sale.
For us.
And leading a brokerage business and again I want to be known as a company that stretches the professional franchise of our talent.
Because that's when people see that that people advance inside forward air and sometimes to advance to the next opportunity somewhere else, they're going to point to us and say like that's the place I wanted to be part of because they are stretching people and they actually are not.
Putting hurdles in the way of their people that actually are encouraging and cheering people when they actually get a chance to extension of professional franchise. So the short answer is I'm happy about people stretching sometimes it's a high quality problem that that next stretch happens to be outside and still I want to be known for that to the specific point that you made about how are you going to succeed here.
I'm working directly with the sales marketing pricing communication sales support leaders, we've got a tremendous set of leaders in displays in these spaces.
And in those next few weeks, we'll get a pretty clear picture.
That next commercial chief commercial officer, whether she or he I need to have a digital access spend where we actually go more digital SCO SCM looking for business or should have a more data driven kind of sales machine bend.
Working with those leaders even more directly than I did in last two years puts me in a very good position over the next few weeks to really.
Get the specs for that success profile as close to perfect as possible.
Okay extremely helpful.
Very helpful.
But your asset light model is kind of in an interesting part of the cycle.
So your expedited gross margins if I just look at revenue less PT I think they were the best since 2019, when things were a bit looser is it right to think that we're the truckload market can continue to cool that you might actually see some gross margin expansion from that that could offset any weakness as well.
Tyler well put this is have puts and takes game obviously debt.
That particular, part, which is purchased transportation going down yet seen.
$3 20, a mild even $3 30, a mile now we're starting to see something that starts with a $2 and something not $3 something so clearly.
This is also why I'm, so bullish about kind of the numbers, we put out and the upside on top of those numbers because we actually even in a loosening market have puts and takes that actually are on the positive side of the ledger for us like the one you just talked about.
Okay. Okay, Great and then my last one Rebecca can you just refresh us on where you think capex will shake out this year.
For modeling purposes.
Sure. So I think it's going to shake out around 40 40 million this year.
Up a little bit late.
And I think the breakout of that would be about a third.
With equipment about a third for technology and a third for kind of our Columbus facility, which we just announced ended into most of the Columbus has already been spent at the remainder of those other two.
We will come out for the rest of this year.
Okay perfect. Thank you so much great quarter.
Thanks Tyler.
Our next question will come from the line of Todd Fowler with Keybanc capital markets. Please go ahead.
Hey, great Thanks, and good morning.
Thanks.
Good morning, Tom I wanted to come back to Jack's question around the guidance and I guess I'm, a little bit unclear kind of what the messaging is both about the second quarter in the second half of 'twenty two.
Prepared remarks that commentary is very very positive certainly what you saw in March continue in April not a lot of movement into the second quarter. So is the message here that we're really just trying to be conservative and you think that theres upside is there something else. That's holding you back and I guess I'm just trying to understand what you're trying to set expectations for both for <unk> in the second.
Yeah.
Yes, Todd I mean I'm looking at this.
Perhaps similar to the way you are aware.
We are getting better and better with precision execution and ramping up the type of high value freight that we're going after exclusively.
You're absolutely correct.
I mean, the first quarter was spectacular and everything we see would tell us that our momentum is continuing so as in different vendors does.
Might come back and say you know what.
These numbers were conservative we can actually opt them. If you remember last time, when we had our call we said likely a one on one or two months into two.
2022 that may not be the time to update and upgrade some of those targets yet clearly.
In the release yesterday and as were talking right now we have updated some of our expectations.
But the pull forward of the <unk> story to 2022.
Everything we're doing would indicate to me momentum is still there we like what we see more and more importantly, we like what our teams do and Thats upside to what we put out there.
So Tom if we think about the upside versus your initial guidance for the first quarter is there a way to bucket how much of that was a better freight environment fuel kind of what drove the difference between your initial expectations in your.
Where you ended up for <unk>.
Yes, So let me let me give you a couple of.
So the first one is if you and a very rough sense say the upside that we saw Q1. This year over Q1 of last year and you put this into three buckets. One is in the wider sense volume related.
One is pricing actions and one is fuel as a percentage of the cost of freight.
The first two are larger than the third one in terms of impact.
So the majority not the vast majority, but the majority of our impact is actually earned.
Its tonnage and the ability to actually.
Capture the fair value of that opportunity and that value that we create.
I E pricing.
But there is 30% to 40% or so of that.
<unk> that comes from fuel.
One different way that I think I put it a half an hour ago. If you said, let's take fuel all the way back to first quarter of last year's levels.
And.
Just assume hypothetically that the fuel level that you would've had in the first quarter of this year, we still would have exceeded the top end of our Q1 guidance.
So we are very very very grateful for the <unk>.
Tailwind, we're getting and at the same time the majority of the impact we are actually achieving on the basis of actions that we're taking.
Yeah got it all of Thats helpful. I'm, just trying to I think on one hand. It is helpful to have guidance, that's realistic, but not overly conservative and so just trying to get a sense of the things that are different versus your initial expectations.
So that helps just one last clarification on that.
The margin improvement that you are talking about 150 to 200 basis points annually is that just for the <unk> business within expedited freight or is that for the entire expedited freight segments on a consolidated basis.
<unk> specific Todd.
So Tom do you have a number that you could share for the expedited freight segment, what you would expect the margin improvement there to be.
We haven't.
<unk> calculations and that we have over 23 model that tells us like how we get all of our businesses to be better.
So we havent itemized, the truckload to final mile intermodal drayage numbers.
All of these margins, we expect to go upward.
That's for certain they may not go upward quite as intensely as we expect the LDL to go upward.
Okay.
It's a little bit tough because we don't see the individual line items, we just see that consolidated piece. So maybe sharing that could be something that would be helpful. Going forward. Thanks for the time.
Okay, Hey, Thank you Todd.
Yeah.
We will now go to the line of Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks, good morning.
Todd Let me just share that can you share the monthly tonnage trends and what youre seeing in April .
We have some initial numbers, obviously, because we're almost through the month.
April is up.
As we had expected it.
Now the one thing you do have to see and I'm going to turn it over to Rebecca here in a moment.
Last year in April we still had all the.
Lower weight.
Luiz non Palletize e-commerce freight in our business. So the <unk>. So we are back filling this with higher value freight we expect more of that to come as we get into spring, even more but tonnage in April is up year over year.
Yes, Scott.
Scott just to give you some specific numbers January our tonnage was up daily kind of stepped up five 5% February was about 16, 5% in March was about 5% and we're seeing the same trend in April that we saw in March.
Okay. So April is up in that mid single digits.
Okay great.
Talked about the events business I apologize if you've given this before but can you just put some perspective what percentage of the total revenue is that business today, and where was it. So we have a sense of where it can get to.
Yes, it can be.
My estimate and it is an estimate this sounds bizarre Scott reason why it's an estimate we do a lot of business.
Obviously, the vast majority through intermediaries.
You have to classify some of the business to us, especially if it's like hazmat, but they don't have to classify all most of the other business now we obviously when we look at the containers, we have a pretty good sense. My estimate this event space business can be 20% of our portfolio. It is an estimate.
And last year, we had only about 20% to 30% off that.
And this year, we expect to have about 70% of that.
And when you say, 20% you are talking about a total revenue are you talking about.
20% of what.
Roughly speaking the $1 billion <unk> business that we have.
Okay.
20% of the <unk> okay.
And so that's what is that that's why it was thats what it can be and last year, we probably only had 20 plus percent of that number so call. It $40 million and these are estimates and this year, we should have 70% off those numbers call. It 140.
Helpful. And then you had a comment that there's puts and takes of spot rates falling and but the net of it should be positive for you.
I just wanted to get your perspective, because clearly if you look in a really tight market you guys have seen a headwind from PT, but.
Overall.
Pretty clear benefit for you. So what gives you the confidence that loosening market ends up being.
Sure.
Had positive as well.
Did you get positive on both sides.
We love and that's a service proposition in support of our customers first and foremost we love using our independent contractors for the vast majority of our moves they know our customers they know us.
Our service levels are better.
Demonstrations go down because we can rely on these people and they've been working on our behalf for a long time. If you remember Scott we had in 2019, we had single digit purchased outside miles like third party miles PT miles and those numbers went up all the way into the high Twenty's.
So service levels cost.
Damages everything.
That's on our Kpis, let's get significantly better.
Loosening market and by the way also with our recruiting team doing a phenomenal job of attracting and keeping drivers. We believe our churn rate of drivers is half of the industry and we are on track this year to a growing fleet.
We are ahead of you.
More ceded drivers and it's either trucks now than we had at the beginning of the year that was not the case last year. So the confidence I'm, having service comprehensive cost confidence.
PT in the in the high single digits third party miles or low teens is a huge benefit.
<unk> wise and cost wise.
Okay, and then just last thing I think you've addressed this I'm talking about like the.
The full year guidance commentary, but your <unk> guidance of margins that may be come down a little bit from <unk> that you would just say that that's conservative or conservative and you think you'll do better than that.
That's one person's opinion, that's my opinion, but it's somewhat experienced and fact based yes.
Okay great. Thank.
Thank you guys appreciate it.
Thank you Scott.
We'll now go to the line the best <unk> majors with Susquehanna. Please go ahead.
Thanks, Tom I wanted to go back to the sales questions from earlier can you talk a little bit about where you are in the evolution of your sales incentives and and as far as how far along you are as getting the the <unk>.
Profit driven incentives into the system and what's left to go on that and maybe tie in.
What skill sets or or or any other sort of thing you're looking for in the next leader of that group to kind of take you to the natural evolution of what you've done here. Thank you yeah.
Two things one is on the sales side specifically.
And this was not externally communicated, but it's worth pointing it out.
In sales one of our long standing 23 years, he corrected me recently.
Serving.
Our company lands small he was our senior sales officer working for and on Scotch Eros team as did the head of marketing or the head of communications.
Or the head of sales support land small test retired.
And but here's the beautiful thing on sales execution and think of that.
Kind of getting.
Salesforce Dot com based machine in place, where we have a book of business. We have call cycles, we track kind of conversion rates close rates activation rates, we help each other and peer to peer discussions all of this our sales leaders over the last two or three years without a sales support team led by Keith cartridge ski have done it.
Beautiful way kind of getting better and better at this so that's what I talk about when I talk about getting the sales machine to be more precise and to be more effective we have sales leaders that know excited after the last two obvious who know extremely well how to do that land small is hanging off the baton to our next sales leader, who actually is on our team already.
We have tremendous kind of next generation sales leaders to be stretch. Our people. We are one of our leadership imperatives as we enable our teammates to move forward.
So we have to sales head on the team already in over next few weeks, we're getting land small successor in place. The second question is to one that I think bascom youre, referring to across all of the commercial as I mentioned, the chief commercial officer that also has marketing communication sales support.
<unk> under her or his kind of scope.
There is where I'm going to spend a few weeks, making very certain that I understand whether it's a heavy digital access spend so that we can access some of the micro companies or whether it's more off the sales machine. So that we have a kind of a sales machine expert.
On top off in tag teaming with our sales leaders.
That profile I'm going to be getting a bit more specific about over the next several weeks. So short answer would be sales just pure sales leadership. We are tremendously good place with a first class leaders land small leftist place better than he found it and we're going to get a successor from inside our team Chief commercial officer.
Specific specs being refined over the next several weeks and.
Again, I have no monopoly to wisdom here, but it may be worthwhile mentioning my own background.
In sales marketing pricing and that's what I spend most of my focus over the last two decades in the transportation industry. It doesn't give me any monopoly to wisdom, but that's put me in a good position as a mental kind of Ping pong partner trying to figure out exactly what the success formula for the next chief commercial office. It looks like I do believe thats going to be quite a bit of a digital.
Access.
Marketing getting to micro accounts expertise, that's going to be part of that profile.
Extending the sales discussion at the presentation that you referenced a few weeks back you put out some numbers basically suggesting that you were earning 10, 15% better margins on this much smaller pie of SMB business that.
We're growing very quickly compare to your traditional <unk> business. That's the bulk of what you do in L. T. L. Can you talk a little bit of I mean, I think the number you said was that was only $10 million or so revenue can you give some context on how big that pie is in and how big it can be 612 18 months out if you hit the targets.
Yes, so couple of things I did say earlier bascom that this could be this is going to be still.
Very small.
<unk> right now because we literally just started getting into this last year. So.
Expecting somewhere around $20 million or so in high profitability revenue this year now.
Now what's possible here and this is where we believe there's $10 billion plus in high value freight <unk> out there that we should be the most compelling provider for off that about 30%. We estimate are expect to be in the SMB space. So theres clearly multiple billions two 3 billion.
<unk> of potential there so the upside is huge.
Now what we are still doing as part of our forward 2003 effort is putting specific multiyear targets in place how we get from zero a year ago to $20 million this year to a kind of high growth.
Outcome. So I said in my remarks upfront at this call I expect this to be $100 million plus business within the next one to three years, but the sky's the limit here SMB as part of high value freight is probably about 30% of the total high value freight market and therefore, we're talking several billion dollars so and at the March.
Expectation matches our reality.
What we see and what we've seen so far and basketball it makes logical sense right. I mean, if you believe that take all dominion.
First class company in our space data is put our Q1 out there I think that will allow us around 72, you guys probably are watching it even more closely we're watching it that is our experience when you sell directly to people you have the opportunity of a 30% margin or a 70 or and if you obviously sell to <unk>.
<unk>, who will do a first class job working with us and our customers you somehow have to take that 30% opportunity.
And split it somewhere in the middle of 15% for them and for the intermediary 15% for us. So clearly old Dominion is a data point more importantly, our own reality. So far is telling us there's a 30% of opportunity. When you can actually work with those customers directly so significant upside still to be Kwan.
<unk>, what we expect over the next several years I do believe there should be $100 million plus LCL business in the short short to medium term future I E less than three years and they are significantly more opportunity on top of that I will do everything possible together with his team to tap into this at maximum plausible speed.
Thank you for that Tom just one last one I'd be remiss, if we didn't ask about opportunities to both.
<unk> the part of the portfolio liquidity that you're leaning into particularly in <unk>, you've talked a little bit about it.
Adding to the footprint and I'm just curious how that process is going if it's changed.
Break market expectations have shifted in the last couple of months and number two are you maybe Conversely is there opportunity to simplify the story.
Bye bye potentially monetizing some assets that are less a part of the transition that you've made a social successfully over the last couple of years.
Yes, Bascom completely fair.
Fair questions obviously.
You know us increasingly well.
So the first thing is we're playing this game for the long haul.
So building out the footprint is something that we know for a fact, if youre going for a significant leadership share off a $10 billion plus LTE the high value freight market, we need a bigger footprint. So I said last year at the JMP All acquisition, maybe an advertising there should be a main course, that's still the case, but we are obviously doing the right thing at the right.
<unk> for the right price and frankly with the right company the right partner, but I still expect there to be the possibility of inorganic LDL on top off organic <unk> E Atlanta, Chicago coming up in the next few months.
In terms of the flip side of that we believe at this point there is a tremendous collaboration.
On the <unk>.
Operational side between final mile and <unk>.
Co locating we have 20 locations, where we actually run both businesses out of the same location.
Co routing.
There's tremendous collaboration I mentioned, 94% of LTR customers now also buying T L.
And helps us to with backhaul helps us recruiting.
So we believe that the portfolio. We have right now is a good combination now having said this we are.
With the board together consistently reviewing our portfolio absent if and when we belief that somebody is not core anymore to helping the main show which is <unk>.
And then maybe graduation time, we had graduation of a great retail support business, because frankly, we did not see the pulp business to be essential to making our <unk> business better.
And the main show here is we are the best.
Expedited high value <unk> company in the business, we have significant upside here and as the main show and <unk> needs to get supported by the other business lines.
As long as they do that in a way where they actually contribute significantly they're good member of our portfolio.
Thank you for the thoughtful answer Tom.
Thank you Pascal.
Yeah.
There are no further questions.
Well Dave.
David I think its time to wrap up I want to be respectful of everybody's time. Thank you to all of the business partners for playing great mental Ping Pong with us.
As I said we.
We like our untapped upside than we like our odds of being charged in charge of our control and.
With the possibility of even beating the numbers that you put out so thank you David I think you can close the call. Thank you. Okay. Thank you that concludes forward Air's first quarter 2022 earnings call. Please remember that this broadcast will be available on the investor relate.
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