Forward Air Corporation's (FWRD) CEO Bruce Campbell on Q2 2014 Results - Earnings Call Transcript

Jul.23.14 | About: Forward Air (FWRD)

Start Time: 09:00

End Time: 09:39

Forward Air Corporation (NASDAQ:FWRD)

Q2 2014 Earnings Conference Call

July 23, 2014, 09:00 AM ET

Executives

Bruce Campbell - President, CEO and Chairman

Rodney Bell - CFO, SVP and Treasurer

Analysts

Alexander Vecchio - Morgan Stanley

Jack Atkins - Stephens Inc.

Vanck Zhu - Wolfe Research

David Ross - Stifel, Nicolaus & Co., Inc.

Todd Fowler - KeyBanc Capital Markets Inc.

Kevin Sterling - BB&T Capital Markets

Benjamin Hartford - Robert W. Baird & Co.

David Campbell - Thompson, Davis & Company

Art Hatfield - Raymond James

Matthew Young - Morningstar Inc.

Operator

Thank you for joining Forward Air Corporation’s Second Quarter 2014 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 CFO, Rodney Bell. By now you should have received a press release announcing second quarter 2014 results, which were furnished to the SEC on Form 8-K, and on the wire yesterday after market close.

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 statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing words such as believes, anticipates, plans, expects 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 result of new information, future events or otherwise.

Now, I’ll turn the call over to Rodney Bell, Senior Vice President and CFO. Please go ahead, sir.

Rodney Bell

Thank you, operator, and thanks everyone for joining us this morning. The second quarter marked a first full quarter for Central States Trucking which we purchased in early February of this year. As has been previously discussed, CST will be reported within our Forward Air, Inc. operating segment.

For the second quarter, CST had operating revenues of $18.1 million, operating income of $2.3 million and an 87.4 operating ratio. They contributed $0.04 per share to our income per diluted share.

Staying with our Forward Air, Inc. segment, airport-to-airport revenue inclusive of Forward Air Complete increased 11%. This resulted from 4.6% increase in tonnage for the quarter and a 6% increase in overall yield.

Average weekly tonnage which on the same number of business days was up 4.6% for the quarter progressed as follows. April with the impact of Easter coming at the end of the month was actually down 2.2%, May started off slowly but picked up as the month progressed was up 3.4 and June was solid throughout the month with a 13.3% increase in tonnage.

Thus far into Q3 volumes have remained positive as compared to last year with tonnages up in the upper single digits thus far into July. The 6% yield increase was from linehaul processing which was up 3.2% as a result of our March general rate increase. Increased net fuel surcharges contributed 0.7% while the positive impact of Forward Air Complete accounted for 2.1% of the increase. Complete revenues were up 22.4% as a result of greater demand for the service within our core business as well as greater distribution activity.

Revenue in our Solutions operating segment grew 10.7% as a result of customer rate increases as well as new business wins. TQI, which was acquired in March of 2013, grew 12.3% against its first full quarter comparison since we purchased it.

Moving on to expenses. Purchased transportation in total was up 17.8% but down 130 basis points as a percentage of revenue. The 60 basis point increase in airport-to-airport PT was primarily due to the high reliance on more costly third party miles to service our network. Our team continues to work hard recruiting quality owner-operators to offset those miles and reduce expense.

Within our Forward Air segment, this was primarily offset by CST which has a lower PT component as a percentage of revenue. To a lesser extent, TQI solutions PT had that same effect.

Salaries, wages and benefits increased $8.4 million and 23.3% with expenses as a percentage of revenue up 40 basis points. $4.4 million of the increase in dollars is a result of our acquisition of CST. $2.2 million was from the higher wages paid primarily due to the higher cost of increased volumes. And there was a $600,000 increase due to higher employee incentives as well as higher healthcare costs.

Operating leases were up $1.3 million and down 10 basis points due to the additional facility leases and equipment rentals resulting from our CST and our solutions group. Depreciation and amortization was up 1.8 million and 30 basis points as a percentage of revenue. This resulted from the acquisition of CST and higher CapEx spending last year.

Insurance and claims expense decreased $100,000 and was down 40 basis points as a percentage of revenue. Fuel was up $1.5 million and 40 basis points as a percentage of revenue, as a result of higher diesel prices and additional company-owned units resulting from the purchase of CST.

Other expenses were up $3.6 million and 70 basis points; 2.3 million of this increase was attributable to the purchase of CST and the balance coming from various volume-driven expenses.

Income from operations increased $5.1 million and 22.6% compared to Q2 a year ago and again $2.3 million of that increase was due to the acquisition of CST. Our tax rate was 37.8% compared to 38.2% a year ago and we expect our Q3 2014 tax rate to be approximately 38%.

Net CapEx for the quarter was 13.5 million and year-to-date that’s $33 million on an approximate budget of 35 million, so we’re essentially down with CapEx through the first half of the year.

During the quarter, we spent approximately $20 million repurchasing 447,000 shares of our company stock at an average price of $44.71. The weight of the effect to the buyback came to approximately 100,000 shares as they were repurchased late in the quarter. We ended the quarter with $25 million in cash, essentially no debt and $140 million available on our $150 million line of credit.

Lastly, we anticipate that the third quarter revenue growth to be within the range of 18% to 22%, income from diluted share is expected to be between $0.57 and $0.61 compared to $0.46 a year ago in Q3.

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

Question-and-Answer Session

Operator

Thank you. The floor is now open for questions and comments. (Operator Instructions). Your first question comes from the line of Bill Greene of Morgan Stanley. Please go ahead.

Alexander Vecchio - Morgan Stanley

Good morning. This is Alex Vecchio in for Bill. So it sounds like the ATA tonnage is accelerating through the end of the quarter; 13% growth in June is pretty solid and July sounds pretty solid as well at the high single digits. Is that something you sort of expect to continue through the third quarter and into the fourth, these sort of high single digit volume growth rates or would we expect that to sort of maybe decelerate a bit as the comps maybe get a little bit tougher?

Bruce Campbell

I think, Alex, you can expect that to go on through the balance of the year.

Alexander Vecchio - Morgan Stanley

Okay.

Bruce Campbell

We’re comfortable with where we’re at and the growth we’re seeing.

Alexander Vecchio - Morgan Stanley

Have you guys seen any impact from the potential strike on the West Coast ports? Is that impacting your business at all one way or another?

Bruce Campbell

Probably the only lagging part of our company is the West Coast and it’s not bad, it’s not a big deal. But we attribute that to uncertainty on the West Coast.

Alexander Vecchio - Morgan Stanley

Okay, great. And then maybe can you just talk a little bit about the current competitive dynamics in the ATA market? You’ve sort of frequently talked about competitors and irrational pricing and I just wanted to get an update on that, and if you’re still seeing sort of that irrational behavior and the extent to which it may or may not be impacting your guys’ business or strategy?

Bruce Campbell

Well, it has no impact on our business’ strategy because we run our company the best way we see fit. We still see the irrational pricing, whatever you want to call it, out there and basically we ignore it.

Alexander Vecchio - Morgan Stanley

Okay, great. And then just lastly, the Forward Air Complete looked pretty solid in the quarter as well, the attachment of 19% is bumping up close to I think what you had previously guided for the year end of 20%. Are you still sort of expecting 20% by year end or there may be more upside to that figure at this point?

Bruce Campbell

We’d be happy with 20%.

Alexander Vecchio - Morgan Stanley

Okay. That’s all I had. Thanks very much.

Bruce Campbell

Thank you.

Operator

Thank you. The next question comes from the line of Jack Atkins of Stephens. Please go ahead.

Jack Atkins - Stephens Inc.

Good morning, guys. Thanks for the time. So just kind of focusing first here on the core linehaul yield, I think that was a little bit better than you guys were expecting in terms of capturing the GRI. Do you feel like that that level that you saw in the second quarter is sustainable as you move through the remainder of this year? And given the strength that you’re seeing in your core markets, to what degree are you all contemplating maybe putting in a second GRI this calendar year?

Bruce Campbell

Let’s talk about the yield that we’re experiencing now, Jack. First of all, part of that is due to the GRI, part of it is due to the fact that we have additional complete shipments and part of it is due to our discipline on our daily spot rates. So if you compare our spot rates this year versus last year, they’re down considerably. So we’re attempting to manage the capacity in the freight available and then match the price to that. So all three of those components are really important terms of the yield and we’ve had a lot of success there and we will continue that as we push on through the balance of the year.

Jack Atkins - Stephens Inc.

Okay, that’s great. And then just to follow-up there as far as the potential for a second GRI later this year. Do you think that could be in the cards just given the high single digit level of tonnage growth that you’re seeing in airport-to-airport?

Bruce Campbell

Jack, I’m getting older but I didn’t forget that. I was trying to ignore it.

Jack Atkins - Stephens Inc.

Okay, point taken.

Bruce Campbell

Thanks.

Jack Atkins - Stephens Inc.

Okay. And then just kind of moving on here just in terms of the overall tightness that we’re seeing in the truckload driver market and we are seeing increases in, significant increases in truckload rates in the spot market. Are you all seeing any pressure from your owner-operators to get increases in the rates that you’re paying them per mile? And would you expect to see that maybe in the next several quarters or is that not something that’s on the horizon?

Bruce Campbell

Well, that’s something very, very hard to predict. And what we implemented a few years back was our owner-operators get newer equipment. We do reward them for that, so they get an increased rate per mile because they deserve that when they have to go out and buy more expensive equipment. As far as anything across the board, we don’t contemplate that today.

Jack Atkins - Stephens Inc.

Okay. And then as far as the owner-operator recruitment initiative that you all highlighted on the last quarter, I think it was 60 owner-operators in 60 days. Could you maybe give us an update on where we stand in terms of how that’s progressing?

Bruce Campbell

Yes, they did really, really well on that. They’re up 52 tractors. Chris Ruble led that fight to get additional owner-operators. The big dilemma we face today is we have enough single owner-operators, single driver owner-operators. Almost all our efforts are focused on additional teams and they’ve had success but that’s by far harder. But we will continue to push that. We just brought on a new VP of recruiting for us, recruiting and retention. He’ll do a great job for us and so we’re amping up that area as we speak.

Jack Atkins - Stephens Inc.

Okay, great. And then last question from me is on the M&A side and, Bruce, I know you don’t like to talk about specifics on M&A, but just curious maybe from a high level if you could maybe talk about the M&A pipeline that you’re seeing and maybe what sort of bucket in terms of part of the business that you see the most opportunity to maybe add complementary businesses to the Forward Air family?

Rodney Bell

Sure, Jack. This is Rodney. We’ve got more active M&A opportunities right now that I can ever remember and it’s really across the board. We took on the initiative when we bought CST recognizing what a great platform that is and we’ve got half a dozen active deal there that we would have hoped to have had closed in the second quarter and I think you’ll see a deal or two getting closed certainly in the third quarter if not the fourth. But beyond that we’ve got deals in the core business that would be tuck-ins and we’ve got other service type offerings that are kind of intriguing. So a lot going on, on the M&A front.

Jack Atkins - Stephens Inc.

Okay, guys. Thanks again for the time.

Operator

Thank you. The next question is from the line of Scott Group of Wolfe Research. Please go ahead.

Vanck Zhu - Wolfe Research

Hi. This is actually Vanck Zhu for Scott. Good morning, guys.

Bruce Campbell

Good morning.

Vanck Zhu - Wolfe Research

Just wanted to ask you a question on the Forward Air Complete. It seems like you have a lot of strength in that business segment. Just wondering what’s driving that strength? And also at the same time it seems like linehaul shipments were down in the quarter, and was wondering if you had any view on what’s going on there?

Rodney Bell

Sure. The first question on the Complete, the one thing that’s a little hard to predict on Complete is the business had come from nontraditional linehaul sources, distributions. I think I talked a bit with Scott about that yesterday evening and distribution activity was down quite a bit in Q1. That may have been weather-related but it really picked up in Q2 probably beyond sustainability to a certain extent. So Complete revenues ought to grow in the balance of the year and in excess of 15% is based on what we’re seeing right now. But that’s the reason for the pickup in Q2.

Bruce Campbell

The shipment count is actually up, so I’m not sure where you’re getting that the shipment count is down in our linehaul business.

Vanck Zhu - Wolfe Research

Okay. Sure, I guess I’m looking at operating statistics and…

Rodney Bell

In Q2 of this year we did 731,000 shipments versus Q2 of last year 714,000.

Bruce Campbell

So that’s up 2.3%.

Rodney Bell

Yes, we’re happy to send this to you if you’d like this information.

Vanck Zhu - Wolfe Research

Okay, that sounds good to me.

Rodney Bell

And the difference to revenue, Van, is the average shipment size is up 2.2% so that’s the delta between the shipment count and the revenue increase as far as volume.

Bruce Campbell

Does that make sense?

Vanck Zhu - Wolfe Research

Yes. Okay, thanks for your time, guys.

Bruce Campbell

Thank you.

Operator

Thank you. The next question is from David Ross of Stifel. Please go ahead.

David Ross - Stifel, Nicolaus & Co., Inc.

Good morning, gentleman.

Bruce Campbell

Good morning.

David Ross - Stifel, Nicolaus & Co., Inc.

On the core segment, the FAI, the operating ratio deteriorated year-over-year, 50 basis points due to the CST acquisition. And then the other 80 basis points, I know you talked about higher PT costs. Was that accounting for all of that delta or was there something else going on there?

Rodney Bell

Yes, that’s the lion share of it, Dave. While we did make great strides in bringing on owner-operators, we still have some work to do. Typically in an environment like today, we’d like to see our PT miles to service the system being somewhere between 10% and 12%; 17%, 18% today. So there’s some really – I won’t say it’s low hanging fruit, but it’s something we can continue to roll up our sleeves and chip away at.

Bruce Campbell

I think what’s important there, David, is sequentially month-over-month we have made strides almost every month of the year, but we have more work to do. We were as high as 21% outside miles. Now we’re down to fairly consistently between 17% and 18%. We want to get that number down to somewhere between 12% and 14%. We will always have outside miles because of balance issues.

David Ross - Stifel, Nicolaus & Co., Inc.

Of course. And then kind of continuing on, I guess with the owner-operator mileage. If you look at the TLX segment, owner-operator mileage is down about 24% year-over-year. And I didn’t know if that’s because some of them were being used in the airport-to-airport network or if they just weren’t attracted to that segment? Any color there would be helpful.

Rodney Bell

It’s primarily because we moved them over to the airport-to-airport. We also had some retention issues there. And then one of the pushes that our group is making, our TLX group is making is finding better and more plentiful outside capacity because for their business that’s a good thing. So this is a point that we’ll work on through the quarter, but it’s not alarming to us. And one of the things we offer owner-operators is that if you’ll start at TLX and kind of earn your keep at Forward Air, we’ll find you a dedicated route as they come open on the airport-to-airport side.

David Ross - Stifel, Nicolaus & Co., Inc.

Sounds like a good deal for the driver. Also, the TLX overall mileage was down 8% year-over-year and I noticed that revenue per mile was not going up as fast as cost per mile. So was that a conscious effort to trim the mileage of that segment because of the dynamics?

Bruce Campbell

I think what happened is kind of a shift in business and the shift in business was a longer haul, basically a dedicated type of business. So what happens in that is you have a lower rate. It’s okay, it’s not a bad thing, but it does drive your rate down a little bit.

David Ross - Stifel, Nicolaus & Co., Inc.

It also drove – the costs were higher.

Bruce Campbell

You also have some short haul where we’re paying minimums and so that will drive that.

David Ross - Stifel, Nicolaus & Co., Inc.

Okay.

Rodney Bell

Right now it’s a focal point for us. I mean your points are well made that we had to kind of clean this one up a bit.

David Ross - Stifel, Nicolaus & Co., Inc.

Okay. And then last question is on the acquisitions, the CST and TQI. Are they still performing as expected? Are either of them better than expected? Now than you’ve owned both of them for a little bit, any color there.

Bruce Campbell

Sure, Dave. CST is actually a bit better than expected. Some of that’s operationally, some of it is the allocation of the deal cost came in a little bit better in terms of wasting and non-wasting than we thought, but it’s a bit better. I think I said it was 87.4 (indiscernible). We had that pegged coming in 88, 89, so we’re really pleased with that. As far TQI, Bryan Grane and his team did a wonderful job helping us to bring that into the fold and really pleased there. TQI with Jeff Woods leading that charge, they’ve done an excellent job bringing on a new operating system. So they’re operating in the 80s now which is where they should be, so you’ll see them operating in the high 80s and we’re pleased with that as well.

David Ross - Stifel, Nicolaus & Co., Inc.

Excellent. Thank you.

Operator

Thank you. The next question is from the line of Todd Fowler of KeyBanc Capital Markets. Please go ahead.

Todd Fowler - KeyBanc Capital Markets Inc.

Great, thanks. Good morning. I just wanted to come back to the tonnage comps during the quarter and I guess I’m curious kind of what drove the volatility during the quarter? Is that a function of timing and comparisons in the year ago? And then the expectation for kind of the – it sounds like mid to high single digits persisting into the third quarter against more difficult comps. What’s driving that? Is that business wins? Is that just the marketplace? Just some thoughts around that would be helpful.

Bruce Campbell

Well, I think there’s a bit of an unusual occurrence in that Easter hit us in April. So the comp there is automatically thrown off. But beyond that, the rest of the quarter went pretty much as we planned and built to crescendo in June and we had a really great June, probably the best June we’ve had ever and things are very positive from that. We are not experiencing a July drop off.

Todd Fowler - KeyBanc Capital Markets Inc.

And Bruce, I mean I guess what do you attribute that to? Is that demand within your end markets? Is it capacity issues with some of your competitors or in the broader truckload space? I guess I’m just kind of curious what you think is driving the strength?

Bruce Campbell

Well, I think there are a couple of things. One is in general business is better, it’s not great, but in general it is better. But then secondly, our teams have done a really good job of grabbing those opportunities that we want. And they’ve just done a great job throughout the quarter and again, that continues into July.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay. And then just with the airport-to-airport network, can you just give some comments on where it’s at from a capacity standpoint and any concerns? I mean, from the increase in tonnage, I mean do you have the capacity at this point if you continue to see favorable volume growth to handle that volume.

Bruce Campbell

We’re confident we can handle volume. Obviously on owner-operator front, we’re pushing really hard to increase that fleet. Again, as I said earlier, we made a number of steps to make sure that happens. But one way or the other we always find a way to move freight.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay. Rodney, in the prepared remarks you had a couple of comments about costs related to CST and I guess what I wasn’t sure is were there still acquisition or integration costs here in the quarter? And if there were, can you give a ballpark for what those numbers were or are we at a point where the second quarter is kind of a clean run rate from an expense standpoint without assuming additional acquisitions going forward?

Rodney Bell

For the most part, Todd, it’s pretty clean. My intent there was to, and I won’t do that in subsequent quarters, to make sure everyone understands that those numbers are inclusive in the Forward Air, Inc. segment as far as reporting goes. So those are just – in dollars that was just my expansion of why the total dollars were up to give everyone a frame of reference. In terms of deal costs, there are some ongoing deal costs but they’re not material.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay. But in the current quarter there wasn’t anything unusual related to CST? Those were just the increases in those line items related to the acquisition?

Rodney Bell

That’s exactly right.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay, thank you. And then just the last one I had on CST, the revenue run rate here for what you have broken out is intermodal and dray. I guess how do we think about that just from kind of a higher level? We’ve heard a lot about intermodal rail service during the quarter and some issues that the rail carriers are having, the impact on volumes and we’ve also heard that dray capacity has been tight. Are those things that CST benefits from and they’re able to take advantage in the marketplace or is that something that can impact their revenue and their volume going forward?

Bruce Campbell

I think CST is very similar to our Forward Air airport-to-airport network. They don’t want to do drayage business for everybody in the world. They’re very specific about the customers that they sell to. They’re very specific about once they’ve made that sell that they’re going to cover that volume. And so the broader intermodal trends has a little impact on them but not a lot, because of their customer base.

Todd Fowler - KeyBanc Capital Markets Inc.

So we shouldn’t start talking about CST like we talk about airfreight volumes with airport-to-airport?

Bruce Campbell

Agreed.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay, but the revenue run rate here in the second quarter that’s a good baseline to use with some seasonality going into the back half of the year?

Bruce Campbell

Yes, and their seasonality is exactly as you would expect. It will still ramp up, not crazy but it will ramp up throughout the third and fourth quarters.

Todd Fowler - KeyBanc Capital Markets Inc.

Okay. Nice quarter. Thanks for the time.

Bruce Campbell

Thank you.

Operator

Thank you. The next question is from the line of Kevin Sterling of BB&T Capital Markets. Please go ahead.

Kevin Sterling - BB&T Capital Markets

Thank you. Good morning, Bruce and Rodney.

Bruce Campbell

Good morning.

Rodney Bell

Good morning.

Kevin Sterling - BB&T Capital Markets

Bruce, what are you guys doing in TQI? You cited some pharmaceutical distribution opportunities that emerged during the second quarter. Can you kind of elaborate on that a little bit more and tell us exactly kind of what you’re doing, the opportunities you see, and maybe even some growth you see going forward?

Bruce Campbell

Yes, they continue – and they’re doing a really good job. They continue to push to expand not only their existing pharmaceutical customer base but also new opportunities with different pharmaceutical companies and biotechs. They’ve really done a good job of pushing that forward. It’s a very long sale, takes a while to get it done, but as you know we’ve owned them now a year and we’re starting to see the fruits of that. They also have their operating system in and implemented, so a lot of positives going on there. They operate it the month of June in the 80s, so we were happy with that. So both from a customer standpoint and our ability to handle the business on a profitable basis, they’ve done a really nice job.

Kevin Sterling - BB&T Capital Markets

Okay, great. And I think there’s a lot of growth opportunity there because you look – the integrators are making a big push in the pharmaceutical. Is TQI working with the integrators or competing against the likes of FedEx and UPS? How should we think about that?

Bruce Campbell

It’s a little bit cloudy. We do business with the integrators but they’re also certain occasions when we compete with them. So it’s very similar to airport-to-airport in that manner.

Kevin Sterling - BB&T Capital Markets

Okay. Thanks, Bruce. Rodney, you talked a little bit about M&A being strong. I think the strongest you’ve seen it in quite some time. But I know you guys are very price disciplined. If valuations get out of whack, will you continue to buyback your stock? How should we think about that going forward?

Rodney Bell

Right now we’re happy with what we’re seeing as far as valuations. We’ve found kind of a sweet spot in terms of deal size that doesn’t get crazy with stupid PE money coming in and driving multiples up. I think we talked about this before, Kevin, with our free cash flow in our build and our availability to debt, there is no reason that we can’t do both. But if things really heat up, you’ll see us buying fewer shares back. If things slow down, you’ll see us buying more shares.

Kevin Sterling - BB&T Capital Markets

Okay, great. That’s all I had. Thanks so much for your time this morning.

Bruce Campbell

Thank you.

Operator

Thank you. The next question is from the line of Ben Hartford of Baird. Please go ahead.

Benjamin Hartford - Robert W. Baird & Co.

Hi. Good morning, guys. Quick question, Rodney, when you think about incrementals within the core linehaul business going forward, I mean they’ve been all over the place with some of the volatility. How should we think about that in the back half of the year? And then if we can project out to 2015, now that the mix of the business has changed a little bit with some of the acquisitions, I’m just trying to get a sense for how you guys are looking at incremental margins in the core business?

Rodney Bell

That’s a good question, Ben, because that’s been tough and it has been somewhat all over the board primarily due to PT being out of whack. But in a normal world which we think we’re headed that way back to a normal world, incremental volumes in airport-to-airport ought to be somewhere between 20% and 25%.

Benjamin Hartford - Robert W. Baird & Co.

Okay. And 2014, 2015 CapEx, I’m not sure if you provided an update in terms of CapEx for 2014. Could you give us a sense there what you’re thinking and then also 2015 at the moment?

Rodney Bell

Sure. For ‘14 I think I said that we were $32 million or $33 million into a budget of about $35 million for the full year. We’re currently discussing 2015. We’ll have that finalized probably by the third quarter call, but we’re actually working on that now.

Benjamin Hartford - Robert W. Baird & Co.

Okay, good. That’s all I have. Thank you.

Operator

Thank you. The next question is from the line of David Campbell of Thompson, Davis & Company. Please go ahead.

David Campbell - Thompson, Davis & Company

Hi. Good morning, everybody. The CST revenues, 18.1 million, I assume that’s – there’s 14 million of it in the other line – excuse me, $12 million in the other line. Intermodal has 14 million and then the rest of it is in other. Is that correct?

Rodney Bell

That is correct, David.

David Campbell - Thompson, Davis & Company

And that’s the kind of – is the other line relatively stable or would that go up?

Rodney Bell

It will go up. For a little further clarification, that 14 million in intermodal drayage is both some legacy intermodal business, drayage business we had in the port of Houston and the balance of it – the majority of it is in fact CST in the end. And under the other Forward Air services there was some LTL business as well as some container freight station business. And both those line items shouldn’t grow in the 8% or 10% range.

David Campbell - Thompson, Davis & Company

Right. And your tonnage numbers that you mentioned, the minus 2, plus 3, plus 13, those are all – those are airport-to-airport tonnage. Is that correct?

Rodney Bell

That is correct.

David Campbell - Thompson, Davis & Company

It does not include CST?

Rodney Bell

That is correct. It does not include CST.

David Campbell - Thompson, Davis & Company

Right. And the capital expenditures is 35 million for the year. And you’ve already got 33, so why the – is there some terminals that you opened up the first two quarters?

Rodney Bell

David, it’s primarily revenue equipment; tractors, some forklifts as well as city tractors. We just decided to take delivery in the first part of the year as opposed to the second half to get it on board in time for busy season.

David Campbell - Thompson, Davis & Company

Okay, great. Thank you very much for the help.

Rodney Bell

Yes, sir.

Operator

Thank you. The next question is from the line of Art Hatfield of Raymond James. Please go ahead.

Art Hatfield - Raymond James

I’m going to apologize up front for either my stupidity or my age, but I must have missed when you gave monthly volume numbers for the quarter. If you did, can you get those again?

Rodney Bell

Sure can, Art. April was done 2.2%, May was up 3.4% and June was up 13.3%. And we actually mentioned going into Q3 thus far we’re up high single digits.

Art Hatfield - Raymond James

Okay. So as I look back on my numbers, I remember on the call for first quarter you had mentioned at that point in time April was up about 8% or 9%. One, are my notes right from back then? And if so, was it the Easter holiday hadn’t occurred yet in April when you had given those numbers?

Rodney Bell

That’s exactly right.

Art Hatfield - Raymond James

Okay.

Rodney Bell

So you’re okay on the age thing, Art.

Art Hatfield - Raymond James

Yes, I thought Alzheimer’s was kicking in and thanks for diagnosing me as not having it yet.

Rodney Bell

My pleasure.

Art Hatfield - Raymond James

On Forward Air Complete, real good shipment growth. Just a question about that so I understand better. Two things – actually two questions. One, I know in the past you’ve talked about kind of where you would like that to get as a percent of linehaul shipments. And if I recall, I think maybe recently you had mentioned maybe 20%. Is that still kind of where you think it could go to or do you want to get beyond that number?

Rodney Bell

I think 20%, Art, if I remember is our target for run rate by the end of 2014. Longer term, call it three years out, we’d like to get that number to 50%.

Art Hatfield - Raymond James

Okay. And now again this question, as you add Forward Air Complete shipments, obviously the incremental dollars from that are positive, but is that detrimental to the overall airport-to-airport margin?

Rodney Bell

It actually complements the margin. Complete has the highest even margin of any of the service offerings that we have.

Art Hatfield - Raymond James

Okay. Perfect. That’s all I have today. Thanks, guys.

Bruce Campbell

Thank you, Art.

Operator

Thank you. (Operator Instructions). You have a question from the line of Matt Young of Morningstar. Please go ahead.

Matthew Young - Morningstar Inc.

Good morning, guys. Thanks for taking my question. Just a quick question on the Solution segment. I think if I have it right, last quarter you mentioned there were several competitors that went out business and you were seeing some benefits from that. Are you still seeing that now? Is that something that you’ll see in the future? Is it profitable business you’d want?

Bruce Campbell

Basically yes to all of that. The number of failures has slowed down, which is typical once you get through the first quarter, but we understand a number of our competitors are struggling but nothing has happened there. We have seen some growth because of both some of the failures and then some of the shippers are anticipating perhaps their current carriers aren’t going to make it. So a lot of positives going on Solutions. They pulled a profit in the second quarter even though they were hit with a really hard healthcare month – quarter I should say. So again, they’re just doing such a good job and really making solid progress both in terms of revenue growth and in the ability to deliver a profit.

Matthew Young - Morningstar Inc.

Great. That’s good color. Thanks.

Bruce Campbell

Thank you.

Operator

Thank you. The final question here comes from the line of David Ross of Stifel. Please go ahead.

David Ross - Stifel, Nicolaus & Co.

Yes. Just wanted to follow up on Solutions real quick about the improvements that we saw in the quarter. Is that coming just from more volume, better balance, better contract pricing?

Bruce Campbell

Pretty much yes to all that David. They were a success on implementing price increases in the beginning of the year that actually took effect throughout the first quarter. What we’re really concentrating on and Roger and his team are the controllables, so the driver expense, the dock expense, making sure our routes are as efficient and profitable as possible. So just overall a really good job by them.

David Ross - Stifel, Nicolaus & Co.

And at what operating ratio would you start growing the business again, either via acquisition or expand into new territory organically?

Rodney Bell

We need to get them consistently down into the low 90s and hopefully a little bit better than that. But when that happens, you’ll see us make growth be a priority.

David Ross - Stifel, Nicolaus & Co.

Excellent, appreciate it.

Rodney Bell

Thank you.

Operator

Thank you. There are no further questions. Thank you for joining us today for Forward Air Corporation’s second quarter 2014 earnings conference call. And please remember the webcast will be available on the IR section of Forward Air’s website at www.forwardair.com shortly after this call.

That does conclude our conference today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.

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