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Forward Air Corporation (NASDAQ:FWRD)

Q1 2010 Earnings Call Transcript

April 22, 2010 9:00 am ET

Executives

Bruce Campbell – Chairman, President and CEO

Rodney Bell – SVP, Treasurer and CFO

Analysts

Todd Fowler – Keybanc Capital Markets

Ben Hartford – Baird

David Ross – Stifel Nicolaus

Alex Brand – Stephens

Matt Brooklier – Piper Jaffray

Nate Brochmann – William Blair & Company

David Campbell – Thompson Davis & Company

Mike Addeo – Wolfe Trahan

Operator

Thank you for joining Forward Air Corporation's first quarter 2010 earnings release conference call. Before we begin, I'd like to point out that both the press release and this call are accessible on the Investor Relations section of Forward Air's website at www.forwardair.com. With us this morning are Chairman, President and CEO, Bruce Campbell; and Senior Vice President and Chief Financial Officer, Rodney Bell.

By now, you should have received the press release announcing first quarter 2010 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after market closed. Please be aware this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding the company's expected future financial performance.

For this purpose, any statements made during this call that are not the statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing words such as believe, anticipate, plan, expect, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in our filings with the Securities and Exchange Commission and in the press release issued yesterday. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statement, whether as a new result of new information, future events or otherwise.

And now, I’ll turn the call over to Bruce Campbell, Chairman –.

Bruce Campbell

Thank you, operator. Good morning and thanks to each of you joining us this morning. Allow me to begin by addressing the logistics of this call. I’m currently in Houston. And Rodney and the balance of our team are in Greeneville. So bear with us, especially during the question-and-answer session.

Overall, we are pleased with the results of the first quarter. I want to address each of our operating segments separately. First, our airport-to-airport group continued to experience good volume growth on a year-over-year basis, as we saw these volumes improve throughout the quarter. We are pleased with the hard work of our team professionals to once again grow our business.

Additionally, our push to grow the other areas of revenue opportunities within this operating segment continued to meet success, led by outstanding growth in our Forward Air Complete product, which provides pickup and/or delivery services for our Forward Air customer base. We expect this product line along with our normal network volume to continue to grow throughout 2010.

Our Solutions group business went to an operating loss for the quarter, struggling through January and February on low volumes, only to see reasonable growth return in March, which allowed us to generate a profit for the month. While we are never happy with the loss, we are pleased with the progress, as we continued to tighten on the cost side of this model and are hopeful the return of the consumer, as reported, in fact is true and our revenue continues to be at least at levels sufficient for us to generate profits.

I would like now to introduce Rodney Bell, our Chief Financial Officer, for his comments.

Rodney Bell

Thank you, Bruce. Information, please be aware that my commentary ignores the impact of the Q1 2009 impairment charge in our Solutions segment. Operating revenue for the first quarter was $107 million, an increase of 10.7% from the first quarter of 2009.

In our Forward Air, Inc. segment, airport-to-airport revenues were $70.9 million, a $7.8 million increase or 12.4% as compared to last year. This resulted from a 11.8 increase in total tonnage and 0.5% increase in yield. The yield increase consisted of a minus 3.6% from linehaul crossing, a positive 1.9% benefit from net fuel surcharges along with a 2.2% positive impact from Forward Air Complete, which grew 47.8% compared to the first quarter of 2009.

Logistics revenues were $13.9 million, an increase of just over $800,000. This 6.2% growth is the first quarter-over-quarter growth increase since the first quarter of last year from the logistics group. In our Forward Air Solutions segments, revenues were $16.4 million, an increase of 10.8% compared to Q1 2009.

Turning to expenses for the first quarter, our operations and linehaul teams did another outstanding job managing load factors and network miles, matching last year’s solid performance on a percentage of revenue basis. Salaries and wages were up $1.6 million or 5.5%, but were down 140 basis points as a percentage of revenue. The dollar increase resulted primarily from $1.1 million increase in first quarter performance based incentives along with $600,000 charge for developing workers’ compensation claims as well as increased health claims.

In the aggregate, the expense line items of operating leases, depreciation and amortization, and insurance to clients, which include components that are fixed in nature or $654,000 less than Q1 2009, a 210 basis points improvement as a percentage of revenue. Other operating expenses, which are mostly variable in nature, were $728,000 more than the prior year quarter, sliding 20 basis points as a percentage of revenue.

Our operating ratio was 94.3 for the first quarter compared to 97.7 last year, resulting in a 340 basis point improvement. Net CapEx for the quarter, which consisted primarily replacement power units, was up (inaudible). Cash increased in Q1 $2.6 million during the year at $44.6 million. We ended the quarter with $50 million outstanding on our line and $38.2 million available.

Lastly, as reported in our earnings release, effective May 1, 2010, there will be a general rate increase on the linehaul portion of our airport-to-airport business. Since our significant revenue components within the airport-to-airport line item that are not affected from this – not impacted from the rate increase, the easiest way to address the magnitude of the increase is a percentage applied to the entire base. We currently estimate the percentage to be approximately 3.5% of the airport-to-airport line item. Inclusive of the partial quarter benefit of the GRI, we anticipate our Q2 2010 revenues will increase in the range of 13% to 18% over Q2 2009 and expect income per diluted share to be between $0.20 and $0.24 per share.

That concludes our comments. Now back to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question is from the line of Todd Fowler with Keybanc Capital Markets. You may proceed.

Todd Fowler – Keybanc Capital Markets

Hey, good morning, everybody.

Rodney Bell

Good morning.

Todd Fowler – Keybanc Capital Markets

Rodney, back to the general rate increase, so what you are saying there is that 3.5%. That’s not the general rate increase. That’s what we should expect airport-to-airport revenue to increase as a result of the general rate increase?

Rodney Bell

That’s correct, Todd.

Todd Fowler – Keybanc Capital Markets

Okay. (inaudible) And then – okay. So let’s see then. And then on the cost side, it sounds like cost came up here a little bit really related to incentive comp. What would be the thought process with where tonnage is trending? When would you actually have to start adding some personnel and bringing in some additional people to handle some of the growth that you are seeing in the tonnage right now in the airport-to-airport business?

Bruce Campbell

Todd, first of all, we want you to understand along with everybody else that the incentive compensation and our overall compensation program worked exactly the way we wanted it to work. We were able to grow our business, and as a result pay out incentives that we haven’t been able to pay out in the past. So we have been able to retain that variable portion of the pay-out package. We have indeed started adding on the airport-to-airport side people. But what we do initially is we bring back part timers and we work through our volume uptick, and we don’t make them permanent employees until such time as we are comfortable that our volume levels would sustain that. On the salaried side, we will see some additions, again, what we would call normal additions simply to handle the volume. But in terms of the leverage there, it continues to be greatly in our favor.

Todd Fowler – Keybanc Capital Markets

Okay, good. Sounds good. And then just talking about the visibility and the trends, can you talk about what the tonnage trends were during the quarter and where you ended March? And then, Bruce, you obviously have some comments that you feel pretty good that this is sustainable going forward. What gives you that confidence and what are you seeing that makes you feel good that this has some legs to it?

Bruce Campbell

You know, I’m not sure I can give you a 100% confidence on that because all of us were a bit jaundiced by the past two years. But over the past six months, we’ve seen a pretty good uptick in our volumes on that business, and obviously we are happy about that. If you want the exact numbers in tonnage per day, February was 6.1 million pounds per day. February jumped to 6.5 million pounds per day. And March jumped to 6.8 million pounds per day. That’s a fairly normal first quarter, so in terms of the volume buildup, with March being the better month out of the three. So it’s nice to return to normal volume flows. So in turn hopefully from that and not only just looking at numbers, but in talking to our customers, we are seeing more activity, we are seeing more opportunities than we’ve seen in quite a while. And we are happy with that.

Todd Fowler – Keybanc Capital Markets

And then, have those March trends continued into April?

Bruce Campbell

They have.

Todd Fowler – Keybanc Capital Markets

Do you have an April number right now?

Bruce Campbell

I don’t want to release that. And let me tell you quickly why. It’s not because we are afraid to share it, but we are half way through the month, and the month gets – depending on how many weekend days you have in there, it gets – that number gets strong around. So until you get actually 30 days of good sample, it’s a number that you have to kind of watch before you commit to.

Todd Fowler – Keybanc Capital Markets

No. I think that we have a holiday shifting some other things as well. So that makes sense. Okay. The last one and I’ll turn it over to somebody else, but looking at the balance sheet, pretty good cash flows during the quarter. What’s your thought as you make it through this year? What becomes some of the things that pop up on a use-of-cash basis? Would it be looking to do some additional things in the airport-to-airport now? What are the opportunities there? Or would it be going back and looking at growing to pull distribution network either organically or through acquisitions?

Bruce Campbell

Our number one goal of cash is we surely want to get it built back up to even a higher level that is more in the norm for Forward Air. We didn’t – number one, we don’t like that although our debt is such a good price. It’s hard to not deal with it. But we do want to build our cash back up. And then that in turn, Todd, gives us the opportunities that if something comes along, and we are always looking for what’s the right next step. And that may be an airport-to-airport segment. It may be in the Solutions segment. We will just have to wait and see which opportunities come up and which ones we consider to be better. Our preference as always with cash is to make acquisitions as opposed to – and I might add, accretive acquisitions as opposed to other uses of cash at this point.

Todd Fowler – Keybanc Capital Markets

Okay. Sounds good. Nice quarter. Thanks for the time.

Bruce Campbell

Thank you.

Operator

Your next question comes from the line of Jon Langenfeld from Baird. You may proceed.

Ben Hartford – Baird

Good morning. This is Ben Hartford in for Jon. If we could just turn back to the GRI and the pricing comment, I guess, why implement that in May? Was there initially some talk about implementing that in the first quarter? Is that correct?

Bruce Campbell

Typically – and let me say, typically it dates back four to eight years. So it’s been a while. We do a rate increase, we announce it in March and make it effective on April 1. This year, we thought it was best to go ahead and give. Because we had some other projects going on, we thought it was best to implement the rate increase effective May 1 with the announcement going out on April 1.

Ben Hartford – Baird

Okay. Obviously the environment is working in your favor, but have you had conversations with shippers about that? What is your confidence level that this GRI is going to stick?

Bruce Campbell

Well, obviously, we’re hopeful it sticks pretty solid, as I look across the table at our Senior VP of Sales. But in all truth, the response we’ve received from our customer base in the most part has been that they understand, number one. Number one, nobody likes a rate increase, including us. We don’t like people to increase rates on us. But at some point, you have to understand your business model and you have to understand we haven’t had a rate increase. And that for us to sustain all our initiatives going into the future, everything from IT to other projects, new traders, et cetera that require capital, at some point, we have to be able to up that rate. We did not do it across the board in terms of our product lines because our other product lines have acceptable gross margins, so there was no need to do it there. But in our airport-to-airport, where again we have been almost four years without a rate increase, it was the right thing to do. And in the long-term, it’s the right thing for our customer base.

Ben Hartford – Baird

Yes. Good. And so the other side of the coin with purchase transportation with rates moving higher broadly, how long until you think you have to give some of this rate increase back, or if you are unable to get it, to what extent can you kind of restrain any sort of growth in cents [ph] per mile to your owner-operators?

Bruce Campbell

The answer, I think, Ben, throughout this period of time where we did not have an increase, we continued to take care of our owner-operator. I think if you talk to any of them, they will tell you that they are well paid, they are well taken care of. We will look hard at the environment, and the environment being what the other carriers do and what kind of competitive pressures are we feeling on the owner-operator side. As we always do, that’s nothing new. And if we see something where we need to increase that rate down the road, we will. But it’s important to remember that our people, our independent contractors who do such a good job for us are extremely well paid from an industry comparison standpoint today. We like that. But we also don’t see need today to increase that number.

Ben Hartford – Baird

Okay, good. And then aside from that, are there initiatives that you have internally in 2010 that can allow you expand gross margins, either on the linehaul business or other?

Bruce Campbell

It’s a continual process to keep our cost in line. One of the beauties of – when you have the return of volumes is your cost improved units. If you don’t do a whole lot about it, because all of a sudden you can take a trailer load average from 24,000 to 24,500. You basically just moved 500 pounds for what you could argue is for free. So you get some natural benefits from volume increases just like to get whacked in the head when volumes are going down. And there is little you can do to offset some of those increased costs. So as we go forward, we are going to work hard on keeping our cost in line, but that’s a Forward Air tradition. That’s what we do. That’s what our people do. They understand the value of productivity and the value of making us better than others. And so we will continue that push.

Ben Hartford – Baird

Okay, good. And quickly on the Solutions side, all in, a tough quarter, but certainly improved through the quarter. When you look at it in aggregate the first quarter, a loss of $1 million in that segment, is that entirely unexpected given your expectation heading into the quarter?

Bruce Campbell

There are a couple things there. One was, we probably listened to some people going into the first quarter. In other words, during December, they said volumes were going to be at X level and then in fact that came in to X minus a considerable amount. And so we made a management air there, and simply because revenue – I know everybody is hearing that retail sales are up, but people tend to – in this business, tend to remember things over the last 15 days and not over the last three months.

In January, the retail sales for our specialty companies, our customers, were not good. As a matter of fact, they may have been the worse that we’ve ever witnessed. Now, fortunately, we were able to really curtail our cost side and then had the good fortune to see our customer revenue base come back really mid-February and then throughout the month of March. The great thing about March was (inaudible) in our model, we can make money. We know at what revenue levels we can make money and we were happy with that. And while we have much work to do, we think we’ve got solutions just about where they need to be.

Ben Hartford – Baird

Okay, great. And organically, do you think you can get Solutions to the point where it doesn’t lose money in the first quarter?

Bruce Campbell

Yes, I really do, and I’ve said that before. And unfortunately, I haven’t been proven true yet. I truly believe that. I told somebody the other day, the month of March, with our additional revenue there, the leverage there was somewhere in the 50% range. And we are extremely happy with that. So our push will be not only throughout this year, but we are already thinking about first quarter next year. I do not want to be on this call a year from now discussing a loss in Solutions.

Ben Hartford – Baird

Okay, great. Thanks for the time, Bruce.

Bruce Campbell

Thank you.

Operator

Your next question is from the line of David Ross with Stifel Nicolaus. You may proceed.

David Ross – Stifel Nicolaus

Yes. Good morning, gentlemen.

Bruce Campbell

Good morning.

David Ross – Stifel Nicolaus

Back on the Forward Air Solutions issue again on customer pricing, if the customers are telling you that they were going to give you a certain number of certain volume and sell-through, are there any volume price breaks or minimums for certain price levels you have with customers, or do you need to kind of re-address how pricing works, you know, you’re trying to match with the volume?

Bruce Campbell

Yes, we would love to be able to do that, David. We have a typical – what I would call a typical LTL pricing scheme, which is common in the industry. So depending on the shipment size, it drives what your rate is. We do not have a floor rate with any customer. In other words, we don’t require a customer to give us $10,000 a week [ph] revenue. And if they don’t give us $10,000, we make up – they have to make up the difference. So it’s strictly a variable situation there.

David Ross – Stifel Nicolaus

Okay. And then on the airport-to-airport side, could you talk a little bit about the cost trends as it relates to purchase transportation? I think that you are probably still able to get good rates in the open trucking market in the first quarter. Has that changed in the last month or two?

Bruce Campbell

Without question, we probably get more, David, on the – our truckload brokerage. I mean, the capacity has begun to tighten. And one of the things we did throughout the past years or so is our team of experts in that area have done a really good job of establishing good reports with certain carriers so that we weren’t such ignorant [ph] to the wins of the pricing market. But – while we all want to keep – we want to take advantage of any situation we are in created by the environment, we have just good relations with our carrier base that we think we can hold that cost in line throughout the quarter.

David Ross – Stifel Nicolaus

And on truckload brokerage, you’ve always had more of the niche approach to the market. Has that changed at all? And given that focus, what do you think is the target growth rate is going to be in that business? How big do you think it should be?

Bruce Campbell

Well, I think you will not see us unless something dramatic was to happen. You are not going to see us change our niche in entirety there because we don’t want to compete hauling it out [ph], but we want to compete where we can bring value to our customers. And in most cases, our customers demand this value, which is expedited team service for the most part. We are just simply not going to change that. We actually over the past month, month-and-a-half, have seen a really nice uptick in demand on this business, and our team has responded very well to it. And we are coming into what will be a pretty good comp quarter for our truckload brokerage group. So we are expecting big things out of them this quarter.

David Ross – Stifel Nicolaus

Great. And last question is just on the overall margins, you’ve talked earlier this year about 2008 being the goal and not 2009. 2008 business ran at (inaudible) if you look at the kind of airport-to-airport side. How soon do you expect to get back to there? And is that just a volume issue?

Rodney Bell

I guess, to answer that (inaudible) wouldn’t have called. Our goal is to – our goal – and we talked about this at your conference. While it’s important for us to shift gear in 2010 compared to 2009, the true perspective that we have to adopt and we have adopted as a company is to look at where we were in 2008, and that truly is our comparison. Otherwise, you get caught up on, gee, we’re better than we were in 2009. But the fact of the matter is, we are not as good as we were in 2008. We are finally seeing volume levels that are starting to push where we think we can get our operating ratio back down into the low-80s. Exactly when that’s going to occur, we’re not sure. But we’re hopeful it does occur in the second quarter or at least one month out the quarter where we again feel good about this is the best operating ratio in the industry.

David Ross – Stifel Nicolaus

At least you are not getting whacked in the head anymore on volumes. So thank you very much.

Bruce Campbell

You are welcome.

Operator

Your next question is from the line of Alex Brand with Stephens. You may proceed.

Alex Brand – Stephens

Hey, good morning, guys.

Bruce Campbell

Good morning.

Alex Brand – Stephens

I’ll just follow on the margins in there. Bruce, it’s – linehaul PT looked pretty good in the first quarter. And I’m assuming that as the volume ramps up, you can get that back into the upper 30s where it was a couple of years ago. Is that a fair assumption?

Bruce Campbell

It is.

Alex Brand – Stephens

Okay. And is there going to be any need do you think that your per-mile costs are going to go up in the near future?

Bruce Campbell

We don’t see that. What you will see occur a little bit, and this is on a minimal amount of the traffic, a year ago, Alex, because volume levels were low, we were basically able to handle 97%, 98% of our miles were on our fleet, our independent owner-operators. And they are cheaper than when we go to the outside world. So what happens when volumes increase is we will start, by necessity, pushing some of that to outside carriers. And that will get into the 7%, 8% range of business contracted to the outside world. So that by itself would drive the cost per mile up a little bit. But the benefits there obviously is increased revenue.

Alex Brand – Stephens

Independent business, Bruce, I feel like you guys had a good fourth quarter, but now are back to, we are optimistic, we think it’s going to get better. And I’m wondering – and I can accept [ph] you’re a little frustrated too. Can you be more specific about something maybe that cropped up in the first quarter you didn’t expect? Was it planning on the cost side that didn’t happen? I mean, what gives you the confidence that it’s going to work itself out in the near future?

Bruce Campbell

Well, I think there are a number of – number one, not only am I a little bit frustrated, but I think our entire team is. And part of the issue and what causes frustration are the things that you can’t change. And one of them is you go into the January month thinking that volume levels should be at, and again they were X minus 15. That business model, our Solutions business model, when it gets hit hard on revenue, remembering that we are still going – running the same routes and going to the same stores and having the same frequencies as required by customers, we get into a very tough situation.

Without question, we should have done a better job especially during January in this operating group, and for that, I’ll take the blame. But we are not going to make that mistake again. We implemented a number of measures that probably should have been implemented in late December, but again relying on projections from the customer base. We didn’t do that. And so we relate to the gain. Again, nobody blamed at me. And we go forward with that. We are happy that they have revenue levels today that we can live with and that we can continue to improve the cost side of our model. And again I point out the leverage impact of this business. We were pleasantly surprised with that in March and we are hopeful that that continues into the rest of the year.

Alex Brand – Stephens

On the positive side in pool, have you had some meaningful new customer wins or moved into any new verticals or anything like that?

Bruce Campbell

On the customer wins, most of them are coming in this quarter. And we will talk more about that later. I really don’t want to get into it at this point into the specifics, but some nice wins on that side of the coin. On the new verticals, we are working very hard with an outside group to help us establish who those verticals are to penetrate those verticals and to diversify the Solutions group business. We are comfortable – and comfortable is a bad word. We are working hard to where within a six-month to a year period, Solutions business is not dependent. Not that we don’t like the retail business, we simply want to broaden the verticals and give them more of a year-over-year leveling, if you will, of their business. And we think that’s doable, and we are working hard on giving that.

Alex Brand – Stephens

Just one more question, is it too early in the recovery here for you to be thinking about your goals and what you think is achievable for the various lines of business to grow sustainably? Or do you have some pretty good ideas of what’s possible there across the business?

Bruce Campbell

Across each product line?

Alex Brand – Stephens

Yes, because I’m assuming you think linehaul will not stay in the mid-teens growth rate, but the other ones maybe grow faster.

Bruce Campbell

Well, I think our linehaul had better stay there and had better variable [ph] because again let’s remember the perspective. As we look at a year ago, it was up 15%. If we look at 2008, it’s still trailing. So we’ve got work to do there and will continue to have work. The good news there is a lot of progress has been made. In our other product lines, we have opportunity for good continued growth. Our Forward Air Complete goes anywhere on a weekly basis from 30% to 50% revenue growth. That will start to get tougher in June, but it’s still a very doable growth. Our truckload brokerage actually enters into an easy comp in the second quarter. So we should continue to see good growth there. And in Solutions, has had some wins. We are expecting more wins. And we think we can continue to grow that business too.

Alex Brand – Stephens

Thanks for the time, Bruce.

Bruce Campbell

Thank you.

Operator

Your next question comes from the line of Matt Brooklier with Piper Jaffray. You may proceed.

Matt Brooklier – Piper Jaffray

Thanks, guys. Good morning.

Bruce Campbell

Hey, Matt.

Matt Brooklier – Piper Jaffray

Hey. Just to go back to the pool business, I know that you guys had a customer leave, I believe, in fourth quarter realizing that customer (inaudible) the business was profitable, but did that customer leaving, that has an impact on profitability in the first quarter or was that not a factor in terms of you guys kind of missing your target for profitability?

Bruce Campbell

Yes, just accept the circumstances properly. The customer is in the process, as we speak now of leaving.

Matt Brooklier – Piper Jaffray

Okay.

Bruce Campbell

That is a – even though we talk about revenue, trust me, that is a good thing. It is – when you – it is business that we inherited in our last two acquisitions that was improperly priced. It was improperly operated from a standpoint of the requirements that the customer put on us were simply not tolerable. We made a decision after much discussion and after attempting a rate increase with this particular customer where it would make it more reasonably attracted to us that the two of us, the customer and Forward Air, decided we need to part our ways. It has been a – so far the things have been well in the separation, which we want to do professionally as we always do. But the good news is, they affect four of our larger terminals. In two of those terminals, we’ve already replaced the business or in the process of replacing the business with a much more suited customer who understands the value that we bring to them. So we are okay there.

Matt Brooklier – Piper Jaffray

Okay. It doesn’t sound like that. Probably [ph] the customer hasn’t lost any. It doesn’t sound like it was a factor in terms of hindering profitability in the first quarter. What’s your target for profitability? How should we think about the pool business in the second quarter? Do you think it’s breakeven, it is in the modest profit, it is in the modest loss? How are you guys looking at that business?

Bruce Campbell

Well, this year we’re going to look at it as a modest profit. But in the second quarter and as we go forward, we really need to have it below 95 (inaudible) in the second quarter. And as we’ve said before, in the third quarter, knocking on the door of 90 and in the fourth quarter, which they have done before, we can operate it in the 80s.

Matt Brooklier – Piper Jaffray

And switching gears to your deferred airfreight business, you guys are pushing through GRI already announced expecting to – like we garner about 3.5%. What’s then kind of the marketplace response from a competition perspective, whatever your direct competitors have done from a pricing perspective? Are they matching that rate, or are they planning on quoting through increased pricing going forward?

Bruce Campbell

Well, we actually, in this case, which is unusual for us, we followed our main competitors with the rate increase. They actually announced earlier than we did. So I would say overall that the market, our competitors are firming up on pricing, as they should, during this time period.

Matt Brooklier – Piper Jaffray

Okay. That hopefully will be a benefit. Last question, looking out, capacity getting tighter across the board, what’s kind of the situation with respect to owner-operators and availability there? Are you guys – do you guys have enough capacity going forward where you can keep your PT down, or do you need to kind of go outside the network to brokerage capacity to service the linehaul business?

Bruce Campbell

Well, it’s a great thing to not have enough owner-operators because that means we have more business.

Matt Brooklier – Piper Jaffray

Right.

Bruce Campbell

So far we are in good shape. We are running right around 800 owner-operators today. We continue to add owner-operators. The market is not great, but not bad. Lot of trepidation over the new regulations that are coming in to play, we happen to think because we have such a stringent safety department that that will play to our benefit because we are already there for the most part. And we do a good job there. So the market is tight. Will we have to go outside for additional carriage? Yes. But there is nothing wrong with us running between 5% and, let’s say, 8%, 9% of outside carriage because that means, for the most part, that our business levels are really good.

Matt Brooklier – Piper Jaffray

Okay. Thanks for the time.

Bruce Campbell

Thank you.

Operator

Your next question is from the line of Nate Brochmann with William Blair & Company. You may proceed.

Nate Brochmann – William Blair & Company

Hello, gentlemen, nice quarter.

Bruce Campbell

Thank you.

Nate Brochmann – William Blair & Company

Hey, I just wanted to talk a little bit more at a time and ask question about competitive dynamics out there in terms of – what you are seeing in terms of maybe getting a little bit of market share, particularly in this earlier period of maybe some inventory restacking and some expedited shipments. Maybe if you could just talk about that. And then also secondarily, maybe if you could talk about like any particular end markets that you’re seeing particular strength.

Bruce Campbell

Well, across the board, I think we are seeing strength. It’s difficult, we’ve said in the past, for us to identify a one particular area where we see more strength than in other, because the customers are not required to identify that. So when we say we think this area of business is maybe we’re moving more laptops is stronger that strictly because we’ve looked. It’s not because we have empirical (inaudible). What we have told people, Nate, almost the entire first part of the year is, what we see is the business-to-business portion of our business in the airport-to-airport segment, it appears to be very good. What we did not see in the first quarter was the consumer side of our business. So hopefully, in March we saw that turn and the consumer returned to buying. But there was a clear dichotomy between the two.

Nate Brochmann – William Blair & Company

Okay, great. Thank you very much.

Bruce Campbell

You’re welcome.

Operator

And your next question is from the line of David Campbell with Thompson Davis & Company. You may proceed.

David Campbell – Thompson Davis & Company

Hi, Bruce. Just wanted to ask you and Rodney about the CapEx. I couldn’t hear what you said about capital expenditures in the first quarter and whether you have – can you give us an estimate for the year?

Bruce Campbell

Rodney, would you?

Rodney Bell

Sure, thanks. David, CapEx for the quarter was $5.4 million. CapEx for the year will be between $11 million and $12 million.

David Campbell – Thompson Davis & Company

And that’s relatively normal expenditures for – there is nothing special in the $11 million to $12 million?

Rodney Bell

The $11 million to $12 million is cumulative, including what we spent in the first quarter, and that’s just maintenance CapEx. It’s replacement power units, trailers, forklifts and some IT spend.

David Campbell – Thompson Davis & Company

Right. And Bruce, you said that the – you talked about the pounds per day in the first quarter. Does that include linehaul or is that just airport-to-airport that you were giving us the 6.1 million and 6.5 million and 6.8 million per day?

Bruce Campbell

Yes. That’s our airport-to-airport linehaul business, David.

David Campbell – Thompson Davis & Company

Okay.

Rodney Bell

David, on a percentage basis, it might be helpful that January was the weakest month obviously at about – first is January of 2009, it was about 5% up. February was up on a percentage basis about 15%, 16%, and about the same for March.

David Campbell – Thompson Davis & Company

That’s good. That’s good. But I guess on doing something because when I divide the 378 million pounds in the first quarter by 63, I get six, is –

Bruce Campbell

Yes. Why don’t we have Rodney call you after this call, David, and we will walk through that?

David Campbell – Thompson Davis & Company

Okay, great. Thank you.

Bruce Campbell

Thank you.

Operator

Your next question is from the line of Edward Wolfe from Wolfe Trahan . You may proceed.

Mike Addeo – Wolfe Trahan

Hi. This is Mike Addeo in for Ed. Good morning, guys.

Bruce Campbell

Hey, Mike.

Mike Addeo – Wolfe Trahan

Could you just do the same with the yield channels throughout the quarter and how those trended through January, February and March, as you did with the tonnage?

Bruce Campbell

It was pretty consistent, Mike. It was pure yield without the impact of Forward Air Complete and without the benefit of fuel as well. It hovered right around the negative 4% range.

Mike Addeo – Wolfe Trahan

Okay, great. Thanks. And then I guess how should we think about Forward Air and how pricing is tied kind as a TR and LTL industry, I know outside of the GRI? Do you guys need to see LTL pricing to really have this GRI stick as you hope, or is it kind of separate at this point?

Bruce Campbell

It’s really separate. I mean, if you – because I have it the right way. We really do not pay attention to others. We pay attention to both our needs and then what within the industry, which is really different than either LTL or truckload, what the current environment is there. Obviously we are experiencing some volume growth, and we have not had an increase in a while. So we believe that based on our parameters, the rate increase should hold. And again, that is warranted.

Mike Addeo – Wolfe Trahan

Okay, thanks. And then just looking forward as demand improves and you are up mid-double digits, where could you see some cost inflation pressures at this point moving forward, whether it’s bringing some employees back on or some other line items? Well, typically we look at our employee cost as variable outside of our management group. So we adjust that to whatever the needs are, if we see (inaudible) and obviously they are going to add variable costs. Obviously we’ve been impacted by yield as it goes up. We’ve been impacted – I mean, this sounds crazy, but it’s a bit cost to us by increased paid expense, which went from a low of about $80,000 a month to a high of $150,000 a month. We are – other areas that again are not major areas but impact us the cost of replacement tires, things of that nature that you basically see in a company experience.

Mike Addeo – Wolfe Trahan

Okay. And then just last, was that $11 million to $12 million CapEx a gross or net CapEx number?

Rodney Bell

That’s a net CapEx number.

Mike Addeo – Wolfe Trahan

Okay, great. Thanks, guys.

Operator

Your next question is from the line of Ken Hoexter with Bank of America. You may proceed.

Unidentified Analyst

Good morning, gentlemen. It’s (inaudible) sitting in for Ken. Most of my questions, I think, have been answered. But I just dig a little bit deeper within the Solutions business. What should we think about how your team is approaching looking at ways to just level – as you put a level the Solutions business over the year? I assume that you kind of need just to look at different end markets perhaps, looking at maybe more of an industrial base or even a manufacturing base.

Bruce Campbell

If you look at the product line today, it is all retail especially. We love those customers and are happy to have them. But it’s important for us to diversify that and get us into other verticals which will allow us more level volume throughout the year. Those exact verticals is the area we are working on very hard now. We have some ideas. We have some initiatives going on in that area. But as we sit here today, we can’t tell you that we’ve had success in area or another. As I stated earlier, we are in an arrangement with an outside source to help us in this area so that we get there as quickly and most efficiently. And we think that’s going to happen. The exact area, I can’t answer that as we sit here today.

Unidentified Analyst

I understand. And just to wrap it up, just one housekeeping item, I’m just looking back at your expected tax rate going back a couple of years? What was that in ’09 that I just ran almost basically over a 40% tax rate or that you guys (inaudible) at least looking at the last four or five years seemed to be at 39%? Any reason why going forward that – or at least starting at ’09 that this tax rate jumped over that 40% hurdle?

Rodney Bell

There is a couple of reasons for that uptick. We had our cash invested in option rate securities, which were tax exempt. Obviously we are not in that anymore. That was driving it down. Obviously in the impact of our share-based comp, which is non-deductible, is driving that up as well. We see that tax rate being in the 40% to 41% range for the foreseeable future.

Unidentified Analyst

Great. Thanks for the insight. And thanks for the time.

Operator

At this time, there are no other questions in the queue. And ladies and gentlemen, thank you for joining us today for Forward Air Corporation’s first quarter 2010 earnings conference call. Please remember the webcast will be available on the IR section of Forward Air website at www.forwardair.com shortly after this call. You may now disconnect.

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