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Edited Transcript of FWRD earnings conference call or presentation 25-Oct-18 1:00pm GMT

Q3 2018 Forward Air Corp Earnings Call

GREENEVILLE Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Forward Air Corp earnings conference call or presentation Thursday, October 25, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Joseph Morris

Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer

* Thomas Schmitt

Forward Air Corporation - CEO, President & Director

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Conference Call Participants

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* Benjamin John Hartford

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Jack Lawrence Atkins

Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst

* Jizong Chan

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst

* Kevin Wallace Sterling

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

* Ryan Greenwald

Wolfe Research, LLC - Research Analyst

* Seldon T. Clarke

Deutsche Bank AG, Research Division - Associate Analyst

* Todd Clark Fowler

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and thank you for joining Forward Air Corporation's Third Quarter 2018 Earnings Release Conference Call. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website at www.forwardaircorp.com.

With us this morning are CEO, Tom Schmitt; and CFO, Mike Morris. By now, you should have received the press release announcing our third quarter 2018 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market close.

Please be aware that during this conference call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's outlook for the fourth quarter and fiscal year of 2018, and those forward-looking statements identified in the presentation. These statements are based on current information and our current expectations. As such, they're subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the forward-looking statements.

For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

And now, I'd like to turn the call over to Tom Schmitt, CEO of Forward Air. Please go ahead.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [2]

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Thank you, Leah, and good morning to all of you on the call. My name is Tom Schmitt, I recently became the CEO of Forward Air. And I can tell you, I'm pumped to be here.

Since I joined in early September, I've been immersing myself in the culture, the operations of Forward Air, meeting our teams, going across the country visiting our facilities and learning what makes this great, great company tick.

I've been around this industry for 25 years, and I can tell you, I'm incredibly impressed by the capabilities, the commitment of our people and our underlying growth potential.

Our core competencies in premium service offerings and our operational excellence position us well for both sector growth in Expedited and other value-added segments as well as in new businesses.

Forward Air has a lot of runway to go across the increasingly optimized supply chains of both retail e-commerce and the industrial complex. What are we up to in the next few months? In the upcoming months, our leadership team will be focused on becoming an even larger asset-light freight and logistics company. We have a terrific business model and a very, very solid core strategy, and we will be somewhat aspirational in our thinking about ways we can accelerate our growth. We will ask and answer the how high is up question and there's tons of untapped upside.

We will review our portfolio to ensure we have the right offerings for the future. We will consider organic and inorganic investments to achieve our objectives with a careful focus on returns; results matter, and we will not confuse efforts with results. And along the way we'll also have some fun as a team of 5,000-plus teammates.

As a continuation of our strategy to grow Intermodal, we are pleased to announce the signing of a definitive agreement to acquire the assets of Southwest Freight Distributors for $16.25 million, that's a good example of our inorganic growth strategy in places where it matters. Southwest is a Dallas, Texas-based premium drayage provider. We expect the transaction will close in a few days, and we anticipate that Southwest will contribute about $20 million of revenue and $3 million of EBITDA on an annualized basis.

I truly look forward to bringing you strategic updates, such as this one, in future calls and as we execute on our growth strategies. Before we go to Q&A, 2 important points. The first one -- first and foremost, a big thank you to Bruce Campbell, who got this great place to where it is today and enables us as a team to really make a remarkable reality happen going forward. And the second point before we go to Q&A, let's get some meat around the bone and get some more specifics from our CFO, Mike Morris. Mike?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [3]

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Thanks, Tom. Our quarterly results were adversely impacted by vehicular claims-related expenses, which we recorded in other operations. Specifically, we saw these costs rise $1.4 million more than we had expected, which was worth roughly $0.03 to $0.04 per share.

Let me take a moment to explain the nature of these charges. GAAP rules require that we recognize expenses today for future costs that we may experience related to our current vehicular claims. These expenses are predictions of future losses on these claims as the claims develop over time.

We, therefore, refer to them as loss development charges and they are a noncash expense for the period. As we've discussed in prior calls, we are now self-insuring to a much larger extent.

We anticipate these loss development charges in our forecasts; however, last quarter, the actuarial estimates of these expenses came in $1.4 million higher than we had expected.

We've subsequently improved our forecasting process to better project these charges. Our greater challenge, however, is to keep claims from occurring in the first place with safe operations. Since last year, we've made significant strides in our safety initiatives. Our safety culture is very strong. Even in this tight driver market, we will disqualify an owner-operator, who does not meet every one of our safety standards. On a year-to-date basis, our DOT accidents with recorded injuries are down 71%. And barring any severe incidents, we don't expect further vehicular claims surprises like the one we experienced this quarter.

Regarding capital allocation, we repurchased roughly $17 million of stock during the third quarter and have reduced our year-over-year share count by 2.8%. We did not incur any additional debt during the third quarter, and our leverage remains at roughly a quarter turn of EBITDA.

Finally, we're pleased to announce a 20% increase in our quarterly dividend from $0.15 to $0.18 per share. Our dividend is an important component of our capital allocation philosophy, and we believe it should rise over time commensurate with increases in our earnings. Between share repurchases and dividends, we've returned over $0.25 billion to shareholders over the past 5 years.

And with that, Leah, let's open up the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Jack Atkins with Stephens.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [2]

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Tom, congratulations on your new role at Forward Air.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [3]

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Thank you, Jack.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [4]

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So Tom, I'd like to start off asking you a sort of a broad question. I mean, you touched on this too to some degree in your prepared comments. But if you could, I'd be curious to hear you sort of speak about your vision for the company as you look out over the next 3 to 5 years. Do you see the growth coming in the existing sort of core business lines around Intermodal and Expedited LTL? Or do you see Forward Air expanding into other parts of the asset-light logistics network? Could you see Forward Air expanding internationally? I'm just curious to know sort of what your focus will be as you look to put your stamp on, on this company over the next several years?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [5]

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Yes. First of all, Jack, thank you for the question and for the interest. And I think, the quick answer would be, yes. And more specifically, yes, we will be, obviously, be focused on the 2 businesses that have had a remarkable close to double digit or in some cases, actually consistent double-digit margins, Expedited LTL and the Intermodal business. We've got the machines going there, which my experience, my background of driving profitable growth, really just makes me excited about how fast, how high is up for those places, and we only own a limited share of the market in those 2 spaces. So there's much more untapped upside in those spaces. So the answer is yes, we will be doing more in those 2 businesses. The second, yes, Jack, is also we -- I'm very, very confident, and this is also where kind of the value focus comes in, we can bring more value to the other offerings and business segments that we are in. Good example is the Pool Distribution business. We've been focusing a lot on maximizing and optimizing this business for our retail customers. We continue and will continue doing that. And at the same time, whether it's spare parts, whether it's medical, whether it's telecom, there should be other segments where we can bring the same value to the table. So I believe we're far from done there either. And as you can tell, Jack, I'm a proud US citizen, but I wasn't born and raised here, so I also know how to look across borders. We bring here the world to America moving America forward with Forward Air. And at the same time, I think, we can and should stretch a bit more north and south. As you may know, we actually do have stations in Canada. We do have a partner in Mexico and obviously, NAFTA and the future of those 3 countries will play a big role. But again, it's a bit early for me to say. I still believe we will be looking left and right, but at the same time, I do want to also make sure we're going to keep the main thing the main thing. So what you've been relying on in the past, you will see going forward also, which is going to be a highly rigorous focus on results. And we've seen them in some of our businesses. We're going to keep driving that. I've grown up in a culture of precision, and we're going to bring that precision to those businesses. But at the same time, yes, we will be looking to more from the core businesses. We're going to be looking for add-on and value creation in the other 2 businesses beyond Expedited and Intermodal. And yes, we're going to also stretch and see where there's more upside, bringing more of Forward Air excellence to more people even beyond our borders.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [6]

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Okay. And I guess, sort of shifting gears and sort of looking back more towards the third quarter. Mike, maybe this one is for you. Is there a way to think about the purchase transportation costs in the quarter, particularly with an Expedited LTL, what percentage of your miles were outside miles versus owner-operator miles? And I guess, you guys have been sort of grappling with how to get those costs under control for a while now. At what point do you think we're going to be able to start making some progress there?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [7]

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Thanks, Jack. First, the numbers answered your question, the broker power was 28.3% of miles in the third quarter of '18 compared to 13.9% in the third quarter of '17. It's still a tight market, that's the first challenge we've been facing. It's not just rate in this market, there's a lot of other softer factors around attracting and retaining drivers. But Jack, when you peel back on recruiting and look inside, we've actually been making good traction on solos, where we've fallen short is teams. And to be an expedited service provider, we need teams to be around 40% of our fleet so that we can service long-haul lanes within the service requirement standards that we have with our customers. So a generally tight environment coupled with an even tighter environment for recruiting teams is the first place where we ran into some challenges this past quarter. But I will note my prepared remarks that as part of our safety initiatives, we're not going to let anyone into this fleet that we don't think will operate to our safety standards, even if that means we have to have some higher PT for a period of time. We're chopping away at it, Jack. We're making some progress. We're up a little bit from the end of the quarter. But we're also trying to reinvent how we recruit -- offering different features, different amenities, different incentives, and we will just keep at it.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [8]

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Jack, let me -- this is Tom, let me just add a couple of points, Mike, to your points. The first one is, when we look at growing this place, we know, obviously, that there is a one-two punch between kind of commercial prowess in terms of sales, marketing, revenue management on one side and the second leg that needs to go equally strong is, obviously, what we kind of dubbed people forward, which is being extremely first class and focused on attracting and retaining talent and that obviously includes the driver pool. We have had, as Mike said, we've had actually a good trend over the last several weeks, now a few weeks don't make a trend yet. But at the same time, we're going to be extremely creative. And I'm -- I've grown up also with FedEx 12 years in a people intensive culture. We're going to be extremely creative about how can we get really first-class in finding ways to make it appealing to people to make Forward Air a top-notch people-focused company their professional home.

So more to come, obviously. We're not going to confuse efforts with results here either. But be very, very certain that people forward for us is kind of a core thing to make sure we can service that growth that we're going to be acquiring.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [9]

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Okay. That helps. And I guess, just following up on that, I mean, obviously, the need to recruit more drivers that, obviously, means that you're having to pay your owner operator capacity more, you're certainly having to pay more when you go into the outside or broker market. I know you put 2 GRIs through in the last 13 months, but you were sort of behind from a pricing perspective going into this year or going into that period. I mean, do you feel like there's more to do on the pricing front, Mike and Tom, as you look out into the next couple of quarters, just given how tight the driver market still is?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [10]

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Jack, we knew this one would be coming. So -- but we also have an answer that's an answer beyond this call. So in my mind, and we've had the same conversations here as a team, every year there's something called Christmas, or if you are of a different denomination, then there's another event that's like that, every year there's Easter and every year there is a pricing review. And we're going to actually get into that good habit of having annual pricing reviews. As and if and when there's extraordinary circumstances, there may be supplementary reviews. By the way, a pricing review doesn't always mean a significant increase, but again, very predictively for our customers, for our partners, for ourselves and our drivers for planning -- drivers exactly, for planning purposes, there will be a certain date. On that date, there will be a pricing review every single year. And yes, I think we're -- we need to get the same discipline, predictability for planning, execution and, frankly, for making a livelihood purposes available to our drivers, to our partners, to our customers. So you should be expecting annual rate reviews the same way as many of our other competitors have done it for a long time. And frankly, the same as is customary in many other industries.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [11]

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Okay. Got you. Makes sense. Mike, one more question on the Expedited LTL business. There was a fairly sharp slowdown in growth range from a tonnage perspective. Is that just because you guys were tapped out from a capacity perspective? I mean, how -- the overall macro, it sounds like it's still fairly, fairly strong. How should we be thinking about tonnage growth at Expedited LTL moving forward here?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [12]

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Yes. Tonnage growth was a little slower in the third quarter. I think there was on a relative basis a little bit of a macro slowdown from a comp standpoint, as we lapped the tightening that began last year. We did have some capacity allocation issues, which would also impact tonnage as we look to preserve capacity for some of our more important customers. On a go-forward basis, we still are looking forward to a solid peak. We think that peak will be higher than last year's peak, I can't say by how much, but we are anticipating a good fourth quarter. We think it will have the usual shaping of an e-commerce start and a rush into December. I think one question, Mark, that I would look to the research community to answer is will we see any pull forward into December if there are tariffs looming in the new year. But that's some commentary about our outlook for tonnage on LTL, Jack.

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Jack Lawrence Atkins, Stephens Inc., Research Division - MD and Airline, Airfreight & Logistics Analyst [13]

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Okay. One last one, and I'll hand it over. But within Expedited Truckload, obviously, we were trying to see some stabilization from a profitability perspective there, but we're still well below prior levels of profitability. I mean, what's the strategy there over the next couple of quarters to get that business back to where it should be from an OR perspective?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [14]

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Yes. Jack, I'd say there is 2 prongs to that strategy. And you have to acknowledge the progress the team has made over the past several quarters, coming out of a difficult reaction to the tightening that began this time last year. The over-the-road driver is a difficult one to recruit. And we continue to focus on recruiting and building back our owner-operator fleet. But in parallel, the Truckload group has done a fantastic job of somewhat reinventing itself around the broker model and working with customers to have the ability to broker transactions. They've added nearly 1,000 broker -- brokered carriers to their database. And we've had a lot of success restoring profitability and growing our spread between revenue per mile, cost per mile, while still using brokers. And I think those are going to -- those strategies are going to continue in parallel. We'll see when the tightening cycle around driver starts to loosen to the point where we could pick up more owner-operators, but at the same time, we'll continue to leverage our capabilities around brokers. How those 2 paths play out, Jack, will kind of determine the OR you land at. You're not going to get as much leverage off of a brokered load as you will one run by an owner-operator, but we do believe, however, we can continue to grow top line revenue and profit, but margin will depend on how much leverage you can get on your owner-operator fleet.

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Operator [15]

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Next we go to the line of Scott Group with Wolfe Research.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [16]

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This is Ryan Greenwald on for Scott. Tom, congratulations on the new role.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [17]

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Thank you, Ryan.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [18]

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Are you guys able to share monthly tonnage trends and what you're kind of seeing so far in October?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [19]

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Sure. So in Expedited LTL, tonnage per day for the quarter was up 1%. In June -- I'm sorry, July, it was up 0.7%. In August, it was up 2.9% and in September, it was down 0.2%. And thus far, in October, tonnage per day is down 2.8%.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [20]

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And do you have any thoughts on the deceleration?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [21]

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We've anticipated the deceleration in our outlook. We still, however, to my earlier comments, are anticipating a strong fourth quarter peak season.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [22]

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Got you. And as the spot market softens, you touched on this a little bit in your commentary, but should we start to expect meaningful LTL margin improvement? Or are there kind of enough other factors in there between tight driver market that you might not see meaningful improvement in the near term?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [23]

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It really depends. I mean, we're cautious in our outlook. We are expecting margin improvement in LTL, but I think, kind of how the fourth quarter plays out in from a tonnage perspective will probably be more of a driver of margin improvement relative to recruiting. We are making traction on the recruiting, though, and we do anticipate continued year-over-year margin improvement at Expedited LTL.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [24]

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There's a second part, Ryan, to add to Mike's answer. The second part really is, we're continuing to actually complement and to some extent actually complete the services that we are offering in Expedited LTL going from what used to be an Airport-to-Airport model to a more complete origin to destination model. So as we actually are being more complete with the value that we create with the offerings that we have, with the value adds to the accessorials that come with it. This goes back to my earlier point. We also, obviously, will be extremely precise with our customers when we create value for them, when we add services, when we articulate that value, when we quantify that value and frankly, when we also capture our fair share of that value. So when it comes to rigorous surcharge accessorial management for services we actually provide to our customers that they value, we'll be all over that.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [25]

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Right. And is that kind of higher margin business than your legacy?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [26]

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So above all, 2 points, right? One, is it's more sources for margin because there's more services. And the second part is, once you actually provide those services, you also need to be doing the commercially smart thing, which is actually charging for them.

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Ryan Greenwald, Wolfe Research, LLC - Research Analyst [27]

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And then lastly for me before I pass it off, are you guys able to give us a sense for the margin targets for each segment looking out to next year?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [28]

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We're not going to give guidance into next year for margins per segment.

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Operator [29]

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Next we go to the line of Seldon Clarke with Deutsche Bank.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [30]

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I just want to get a little clarity on the deceleration in LTL tonnage. I think on the last call you talked about being more selective, and like some of this is your initiative taking away volume, and then some of it is a capacity constraint. Could you just help maybe quantify how much volume was constrained by capacity and then maybe just give us a sense of what some of those initiatives are and what exactly do you mean by being more selective? Are you kind of leaning into the more industrial heavy goods and walk away from some retail business, just some color there would be helpful?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [31]

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Seldon, thanks for joining the call. So I want to make sure I get the time frame of your question understood. When you talk about deceleration, I assume you're speaking towards the end of the third quarter?

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [32]

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I guess, really just from the second quarter, because I think you're up over 8% to -- yes, really just kind of from April or May?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [33]

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Part of it is just a comp standpoint. We did see in the legacy backdrop a bit of a slowdown notably on the airlines. Airline tonnage was down in the third quarter, pushing against that have been growth initiatives. So our door-to-door offerings are growing. Our -- within that our 3PL offerings are growing from a tonnage perspective. And it was a bit of a push when you put it all together. On the capacity side, there is a capacity angle to this. There's certain business you're not going to win unless you're pricing it off a owner-operator fleet. And if that fleet is a scarce commodity, then you have to decide where you allocate it and you lose some business opportunities like distributions or things like that. So I would say, Seldon, it's a mix of all that stuff, kind of coming together in the third quarter.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [34]

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At the same time, I'm very, very confident that us going after additional segments very rigorously and with precision and to some extent, completeness. International Forwarders flying goods, and they're oftentimes high-value, very time critical, that leave us a lot of runway for growth. So the initiatives, Mike, you mentioned some of them, 3PL, International Forwarders, there's a lot of untapped upside for us. The -- for the best company in many aspects of what we do, having a market share that we have that's in most cases single digits, frankly, makes me pretty excited about what's possible.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [35]

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Okay. That's helpful. And I was just continuing on that longer term, and you don't have to give -- I'm not asking for particular numbers on guidance or anything, but what's the right way to think about your Expedited LTL business from a top line perspective longer term? Like is this in terms of growth, are we thinking about GDP plus e-commerce, freight forwarder, but what's just the right way to think about the longer-term run rate for revenue?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [36]

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Yes. I mean, so revenue, which is going to be different than profit. From a revenue perspective, you know, it's the GDP plus to an e-commerce type of growth rate would be my expectation, ex fuel. And then you have to have a view on the macros and how fuel is going to behave. Because the fuel surcharge plays a role in the change in revenue. But we do feel longer term, we continue to have a secular tailwind around e-commerce type offerings. I mean that in a broad sense, not necessarily going to your front door, but kind of that whole expedited nature of the supply chain, we think we have a role there. And then, you got to remember fuel, and wherever you think diesel is going to go.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [37]

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Let me -- Seldon, let me say, I have 2 data points, and this is perhaps a bit more forward looking over a longer period of time. If you look at Forward Air, today, 2018, and where we most likely will end up, and I'm referring to revenue the same way you do, Seldon. And if you look at the company 5 years ago, Forward Air more than doubled. And then you could take the remarks I made over the last few minutes about untapped upside, single-digit market share, operational excellence in what we do. Just at a headline level, I've got every reason to believe that what we saw from 5 years ago to today, and what we're going to be seeing between today and 5 years from now will be somewhat very similar. So we're far from done, and I also would have to believe that if you're the best at what you do, that you should be able to outpace the growth of the industry. So some of the comments that Mike made here in terms of industry behaving a certain way, but then we behaving in a certain way, that certainly should set us apart from that. The second point I want to make is there's organic growth and there's organic growth. I talked earlier about the acquisition in the Intermodal segment with Southwest. Even on that front, with the inorganic growth, I believe, we are far from done.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [38]

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Okay. That's very helpful. And then just kind of a quick housekeeping question. Are there any one-off items like similar to the vehicular charges or maybe the acquisition of Southwest that are impacting the fourth quarter guide?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [39]

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No. Not that I would call out. Our outlook -- I mean, it isn't already baked into our guidance. I mean, what caught us off guard was the unexpected nature of that charge.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [40]

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So that should come back to like $1.5 million or whatever it is...

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [41]

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Well, we'll see. But yes, I don't want to -- I'm not calling anything out for you.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [42]

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So there's nothing in your guidance related to it?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [43]

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Whatever's in our guidance is what we believe is going to happen.

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Operator [44]

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Next we go to line of Todd Fowler with KeyBanc.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [45]

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Tom, welcome.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [46]

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Good to be here. Thank you, Todd.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [47]

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Good. Tom, maybe just a follow-up on where Jack started the Q&A. What would the thought process be and sharing some of your strategic initiatives with the investment community. What should we expect as far as how you map out where you want the company to be? What are you going to lay out for us in terms of some things that we could -- we should be following and what should we expect from a timing standpoint?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [48]

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Yes, great question, obviously, and this is one of those things where it's better to be somewhat solid, rigorous, precise than to be fast. So at the same time, I'm very kind of constructively impatient and the team is constructively impatient, I think, together with me in tandem with me. So what does that mean? We have, I think, good observations. We just had our board and committee meetings earlier this week about, again, some of what I talked about the upside in specific spaces. Obviously, what we will be doing, Todd, is over the next few weeks and months, when I say few weeks and months, I'm talking about not 12 months and I'm also not talking a week or 2 from now. But over the next few weeks and months, we need to be taking those observations, some of the initiatives that we -- that Mike and I just touched -- talked about the headline level and articulate them and quantify them. And obviously, you and the investor community will be part of that communication process. So I think, we've made good progress, making strong observations on kind of what the excellence that we can build on, how can we make more out of this good news and how over the next few months we're going to turn this into specific initiatives with meat around the bone and numbers next to it.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [49]

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Okay. So sit tight for now, but stay tuned maybe?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [50]

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Yes. I think it's fair for us. I mean, in all fairness that's a good way of putting it. I mean, this place didn't start with me joining 6 weeks ago but in terms of assets, that team creating joint initiatives with numbers behind it. Obviously, we have to be somewhat, again, as I said before, precise, rigorous, rather than being weak or so quicker. So there's going to be a precision and rigor, but yes, you should expect to see something over the next few months.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [51]

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Okay. And then just a couple of ones on the numbers and this has kind of been asked and answered a couple of different ways. But with the Expedited LTL results here this quarter, yields did take a nice step up and I know that, that's a function of some of the pricing initiatives, but then tonnage, decelerates and I know that's comparisons, but at a high level, we think about if you're pushing price, do you lose a little bit of volume. Do you have a sense if there was any share shift because of some of the pricing or do you think that, that's the tonnage change is more just a function of the comps and what's happening in the macro environment?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [52]

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I think the bigger picture was the latter part. I mean, obviously, when you adjust price, it has impacts on tonnage, sometimes those are impacts that you desired to occur based upon the way you designed your price increase. But I would not look at price as the driver on that. I think it's more of the bigger picture commentary that you provided in your question, Todd.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [53]

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So you don't feel like, Mike, that you overshot on price and that you lost some share because of that?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [54]

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No. I think to the -- someone's earlier, I think it was Jack's comment, I think we're a little behind. And so no.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [55]

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Okay. Fair enough. And then, Mike, in the fourth quarter guidance, just to be clear, are you -- you are anticipating tonnage to be positive in 4Q?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [56]

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Yes. Yes. We're anticipating tonnage to be positive in 4Q, and we also anticipate a shaping of the peak similar to what we're seeing historically.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [57]

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Got it. Okay. And then you commented that there's some puts and takes. I mean, the airline tonnage was down, that the door to door is growing, and the sort of the 3PL initiatives are also growing. Is the 3PL initiative at this point, I mean, is it enough to move the needle? I mean, is it contributing percentage point of tonnage growth? Or is it still too early to really quantify or put some numbers around what you're seeing from that?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [58]

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Yes. I don't have the math as to how much it moved the needle, but it is growing nicely. But we have a ways to go. We're still coming off a small base, we're still building our brand, but we are tracking with our goals internally.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [59]

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Okay. Got it. And then just maybe the last one that I have, the Intermodal margins have been very strong for the last 2 quarters, actually getting to a level where the legacy LTL business has been and that's kind of perceived as one of the industry leaders from a margin perspective. Is the margin level in Intermodal sustainable as you continue to grow? Is there a leverage in that business, if you layer on more of the small tuck-in acquisitions that you see more margin improvement. I mean I understand that if you don't want to put out guidance for 2019, I'm just trying to think about what is the margin profile of the Intermodal business because it's a little bit different from what we see from some of the pure IMCs in the space?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [60]

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Yes. So as we've talked about in the past, think about the Intermodal business as a series of layers, and its bottom is the platform, the CST platform, and that's tended to operate at a 10% to 12% margin. And then the layers are all the subsequent acquisitions that are getting stacked on to the platform. If it's a small acquisition, it will get absorbed into the platform very quickly and whatever the margin of that target was, it would get brought up to the margin of the platform. If it's a big acquisition, then it's mathematically going to be dilutive and then it'll take a while to fully integrate and that's what we experienced with Atlantic. The Atlantic margin has been improved dramatically since we did the acquisition, but it took a year because it was a rather large one. So if you were to stop, Todd, and just let things run forward, you'd see it walk itself up on a full Intermodal segment P&L up to a 10% to 12% steady-state margin. But then, you have to overlay your M&A thesis to see what type of dilution would happen and where you are in -- the process they call it is top grading, of bringing that target margin up to the platform margin. So if you're looking for something longer term, it's a 10% to 12%, but we're going to bounce around quarter-to-quarter based upon M&A and where the overall macro environment is.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [61]

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But the machine that you're describing, Mike, has been working actually almost, almost scientifically well and then to your point, if you have a bigger item on the menu, it just takes a bit longer to digest, but the machine works, and it's been working very,very precisely to actually get the acquisitions to perform at the platform level, and that's more in the 10% to 12% range.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [62]

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Okay, that helps it. Help us in the context of it if there's a period where you've got a big acquisition that there would take some time to get it back to that platform margin and some of the smaller ones would perform in line, be probably sooner than the bigger ones. Okay. Good.

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Operator [63]

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Next, we'll move to the line of Kevin Sterling with Seaport Global Securities.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [64]

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Tom, congrats, let me share my congrats with you. You're joining a great organization.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [65]

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Thank you. That's you and me thinking the same thing, yes.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [66]

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Well, good. And Mike, maybe this question is for you. You kind of talked about the vehicle claims, were it just more severe this quarter? Or did you have more accidents? Maybe you could share just a little bit more color, I know you're self -- largely self-insuring, but was it just kind of -- was it a little bit more -- sounds like it was obviously a little bit more severe this year.

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [67]

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Well, we didn't actually have any severe claims. Where we had a gap in our forecasting process was anticipating the amount of this noncash actuarial adjustment called the loss development. So if you have an existing claim, you paid out a certain amount on that claim. And then the actuaries would come in and predict how much you'll ultimately pay out and you have to book that. So we had anticipated what that incremental expense would be, we just fell short because we had a gap in our process. So we didn't actually have any claims, it's older claims from last year that kind of start working their way through the data set that the actuaries use to make their future predictions. We've actually -- and this is me knocking on wood, we've actually done a fantastic job this year in reinventing ourselves from a safety perspective and beginning that long-term safety journey.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [68]

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Let me just -- and I'm going to tag-team here because this is a great example of the rigor and precision that I've talked about. So on the safety front, obviously, we had some tragic events in 2017 and to Mike's point, we took it and Matt Casey on our team, and his team just did a fabulous job with that. We took a set of initiatives and really turned them into a safety culture, where we want to be the best in our industry, and frankly, also looking at other industries, had a safety and a top-notch noncompromised no options level. 2018, this year, has been a great example of that becoming actually a remarkable reality. We've had a tremendous year. What's catching up with us is exactly what Mike's talking about, we're now having to account for some of the challenges that we had in prior years, specifically in late 2017. This year has been remarkable so far and that's a testament to turning a set of initiatives into a true pervasive safety culture, and that's what Matt Casey and his team have been doing.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [69]

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Okay. Great. And as I look at the operating margin in Pool Distribution, it looks like it dipped this quarter about 1.6% after running north of 3% the first 2 quarters of the year. And with your comments around you're expecting a strong peak season, should we see it pick back up in Q4 as the retail peak season kicks in? How should we think about that in Q4?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [70]

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Well, we're certainly going to anticipate a better margin in Q4 at Pool as they have their biggest quarter of the year. We had some headwinds with respect to purchase transportation and labor cost and there's been some very public wage increases out there that we've had to contend with. But yes, Kevin, we would anticipate margin improvement coming into the fourth quarter.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [71]

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Okay. Got you. Obviously, I mean, like, the Intermodal acquisition, you guys are just continuing to consolidate that drayage industry. Tom, and maybe as we think about this, you guys, I believe, you're now a top 10 drayage provider, which is quite impressive, how fast you've grown in the past couple of years. Is your goal from here to be a top 5 drayage provider? And then maybe along those lines, how does the pipeline look as we head into 2019 for future M&A?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [72]

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Yes, Kevin, so good news is that the questions you're asking and the conversations we're having are consistent. So -- and it goes back a little bit to an untapped upside to being constructively impatient. Everything we're doing with Matt Jewell and his Intermodal team is looking for exactly what you're describing. We've got a great thing going, we've got a machine going. We just talked about this 5 minutes ago, how we actually walk the acquisitions up to a level of precision and profitability that the platform had and continues to have. And obviously, when you've got a good thing going, you do think through how can you accelerate this, and that's exactly what we're doing right now. And there's 2 dimensions to accelerate: one is getting more deals worked in the pipeline at the same time; and the second dimension is obviously the size per deal. We are with the CST team, where Ron and Matt and the entire team, were all over making sure that we are looking at both dimensions, getting more deals into the pipeline and looking at the size of deal at the same time. Knowing full well what Mike mentioned a few minutes ago, obviously, as and if and when we have bigger acquisitions like Atlantic, then we do have obviously the digestion timing consequences that we talked about. But be assured, I mean, we really got a good thing going, we are very constructively impatient to get more of that going faster.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [73]

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Great. One last question here. And Mike, you touched on this, obviously with the broker miles seem to be high and the difficulty of recruiting team drivers, just the challenges there, and Tom, you touched on some of the things you're doing outside of driver pay. But I've got to imagine as we think -- you head into 2019, it's going to be a tough row to hoe to really recruit team drivers. And as we think about 2019, is it fair to say, given your safety culture, that purchase transportation is still going to remain relatively high in 2019, just given the difficulty we're seeing in recruiting team drivers?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [74]

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Kevin, we're going to have to see how that plays out. I don't want to drift into the territory of guiding to levels of purchase transportation for next year.

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Kevin Wallace Sterling, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [75]

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Okay, I got you. I was just trying to -- just kind of thinking about conceptually but I don't want to pin you down or anything.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [76]

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Kevin, on the conceptual front, I do want to reiterate, though, and again this sounds like a somewhat aspirational statement, but we are very, very nerdy about turning that aspirational statement into specific initiatives, plans, goals, numbers, building on the most recent trends of actually turning around the driver count. We've been growing the last few weeks. That's obviously going to have to be months and year-plus trend, not just a few weeks. But again, to me, the very simple statement needs to be if you're one of the best, if not the best, professional home for these drivers, we should find ways, and we will find ways to make more of them choose our professional home to be their professional home.

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Operator [77]

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Next, we'll go to the line of Ben Hartford with Baird.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [78]

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Maybe tell us, start specific to 2019, are there 2 or 3 key focal points on your behalf as you look at '19 and the composition of the business, growth in specific areas, anything with specificity as you look at 2019 that is high on your priority list as you start at Forward Air?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [79]

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Yes, great question, obviously the same thing, Ben, that we've been talking internally about and focusing our energy on. So I'm going to be somewhat, I guess, conceptual but as specific as I can be. So we have 4 lines of business that we report. We actually are continuing looking for accelerated growth in all of those and obviously in the best way it makes sense. We've got the Expedited LTL and the Intermodal business, which we've just spent quite a bit of time on, which, frankly, at a headline level, they've been working tremendously well. And we want to get more of that organically and inorganically. Some of that is a, what we call, a commercial forward -- kind of a very, very intense sales and marketing and revenue management effort, going also after segments, International Forwarder, as we mentioned before, 3PL initiatives we mentioned before, that we certainly have quite a bit of untapped upside and where we are underpenetrated. So you should see a lot of focus on continued organic and inorganic growth in those 2 businesses, Expedited LTL and the Intermodal. For the other 2 businesses, it really is about scale. It's about looking also for value-add. We mentioned Pool before. We've done a remarkable job, I think, of providing first-class service to retail customers. We're looking to also bring this to other industry segments. I mentioned as examples, spare parts, medical, telecom, there may be other industrial segments that we should be going after. So -- and in TL, obviously there's synergies between TL and LTL. They are different segments. They will remain different segments, but still be looking for synergies. And also to some extent, we need to check out to what extent we can actually get more scale to translate better into a bottom line. If you look at what does this mean if you want to accelerate that growth across all 4 business segments, we obviously need 2 things driving that. One is a truly first-class commercial. And when I say commercial, that's sales marketing and revenue management prong. I've had the good fortune of spending the vast amount of my professional energy, over the last 2 decades, in building growth machines for different great companies. And the second piece is obviously what we call people forward and making it more logical, more apparent, more appealing to the best talent to come here because, obviously, we can only grow this place to what's possible if we have first-class people wanting to come here, develop here, grow and stretch their franchises here. So if you look at it's almost like, I said, a house, the whole thing gets bigger, but it has 2 big prongs, the commercial prong and the people prong, not in that sequence priority order but people obviously always first. Underlying that, you have rigor and precision with the customer level profitability, with obviously making sure there's a purpose, why this place exists in the first place. And then lastly, and most importantly, and this is going back to what we talked about before, this has got to be a safe place. And that's the single most important thing. Everything starts and stops with the safety culture that's pervasive. I've been in transportation for a long time, like in every industry, but in ours perhaps even in a pronounced way, safety always comes first. All people need to come to work the same place, in the same way they go home, which is in one piece, in good shape and that's underlying everything. So this gives you a bit of a concept, accelerated growth being extremely value-driven and then obviously making sure that commercially and people-wise, we've got the horsepower to satisfy that accelerated growth.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [80]

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That's really great. Mike, just coming back on the PT question within Expedited LTL. Obviously, it's been a tight environment for some time, but as you see it, is there any reason why the model shouldn't behave as it typically does through cycles? And that if and when supply and demand in the industry reaches more of an equilibrium and capacity does loosen that, that Expedited LTL would benefit in terms of the reduction of outside miles and some normalization on that PT line? I know you've avoided specificity, but just conceptually, is there any reason why we should think that the model behaves any different than it has in the past when capacity does loosen?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [81]

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No, I don't see any reason to think that way.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [82]

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Okay. And then on the guidance, the fourth quarter guidance, does it include any contribution from Southwest?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [83]

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The contribution from Southwest this year is tremendously small, given the timing of the acquisition. So there will be a little bit, it's not in the guidance. It's going to be very small. Given the expected timing of the closing, we might have a couple hundred thousand bucks to EBIT.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [84]

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Okay. But to be clear, there is nothing in the guide as it relates to that?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [85]

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No. We didn't know if we'd signed it.

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Operator [86]

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And our final question is from the line of Bruce Chan with Stifel.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [87]

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Tom, welcome. It's nice to meet you. You're certainly joining the company at a very, I should say, interesting and dynamic time of the company's history.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [88]

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Thank you.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [89]

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But maybe just a question, starting out with you, Mike, here on the Intermodal side, I just want to follow up on some of the margin questions. I know you've got the sort of layer cake dynamic as far as the margins are concerned with that 10% to 12% base. But it seems like we've done materially better than that here in 3Q. So I just want to unpack that margin performance a little bit. I mean, is that kind of what we should expect to see from a fully unencumbered, I guess, Intermodal margin where everything is kind of buttoned up and running at that base margin level as it should be? Or is there something specific or peculiar to this environment that's really helping to juice that drayage margin?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [90]

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There are a few specific things in the third quarter that aided the margin. So the first that I'll note, and you can see this in our cash flow statement, is we had a release of an earnout related to the Atlantic acquisition. We relieved ourselves of that liability and that means it goes through the P&L. So that was about 100 basis points roughly of margin. So if you back that out, you're at, let's say, 13.5. The other thing I'll note about the quarter is -- and you may remember this from prior calls, in the Intermodal premium drayage space, when volumes are high and customers are busy, they're more likely to use CST for some assessorial services, like chassis rentals or storing of boxes -- their boxes on our yard. So those assessorials were strong in the third quarter and have a higher-margin profile than the base product of a premium dray move. So they're -- unpacking it, there was a piece that came from Atlantic. And the earnout, there was a piece that came from incremental volumes and assessorial revenues. But I still think with -- to our earlier comments, when you peel those back, we're still at a solid platform margin. And I would expect that platform margin to behave as we mentioned earlier on the call.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [91]

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Okay, great. That's super helpful. And I guess, just continuing for a moment here on Intermodal, I guess, on certainly the positive side, we're seeing a nice revenue run rate. Growth in that business has been very impressive, and we're closing in on that $250 million revenue run rate that you'd kind of laid out almost a year ago, I guess, now pretty closely. But I guess on the other side, I've also heard some rumblings from other companies and other carriers out there about M&A growth in that kind of drayage or Intermodal space. And I guess just thinking about that in terms of your pipeline, have you seen any more competitiveness in that kind of small company market? Is there maybe less kind of favorable properties out there in terms of that top-grading of the pipeline?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [92]

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Well, it's a big market for starters. And we're keeping our pipeline of opportunities full. Each deal is unique. It has to be a good fit for the seller. It has to be a good fit for us to buy. But within that criteria we continue to maintain a strong pipeline of potential revenue, and we'll keep working through it. There's always been competition for assets of various sizes in the space. I don't think anything's changed there.

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [93]

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And let me boost that -- just add one piece. I mean, we have a lot of, I guess, credibility and goodwill here. So Bryan Grane, one of the family members of the company that got us into the Intermodal business, CST, is very much still on board with Forward Air today, driving, co-driving this business together with Ron and with Matt. And when these companies that are in the space and in our pipeline, when they obviously talk about potentially graduating from the business and passing it on to someone outside the family, it counts a lot when you actually have someone sit at the table on our side, who says like, "I've done this. We, from CST are now part of Forward Air and it's turned out to be tremendous for us." So when you are one of these small, medium-sized family founders of a drayage business, having this type of a conversation with a former founder also still sitting at the tape on being a very happy member of a very well-functioning Forward Air team, I think it gives us a leg up. So I feel very, very positive about many of these companies. There's many, to Mike's point, out there coming to the conclusion that this is going to be a great professional home beyond what they founded and built to take into the next level.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [94]

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Great. That's really helpful color. And just one final question here on the Pool business because I just can't help myself. But I know that, that's a tough business. It's tough to penetrate new verticals. And I know there's a fairly long sales cycle with some of the new businesses that you've been targeting. But is there any indication that your sales force has been making progress there? Any updates as far as efforts to kind of diversify that business away from the traditional retail, anything that you can offer there?

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Thomas Schmitt, Forward Air Corporation - CEO, President & Director [95]

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So we've had focus, Bruce, on obviously those additional verticals and that's not instead of retail, that's in addition to retail. We've had, I think, a very successful close just recently, and more in the pipeline. And again, Roger and his team, they are tremendously focused on making this an end proposition, end meaning being first class for our traditional retail customers, taking some of that profitability and efficiency and customer value up, so that we will see better margins than we saw, for instance, in the last quarter, in the Pool business, in retail and I'm very confident we will be seeing better margins there. But now we cracked the first door open for a nonretail customer. And I think that crack will lead to more entries coming in here from nonretail, in addition to what we've got in retail. So we have a first close there. We're activating it, I think, still in this fourth quarter. And that pipeline is very, very closely watched and managed.

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Jizong Chan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP & Equity Research Analyst [96]

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Okay, great. And is this sort of first crack, first foray outside of retail something that we will begin to see in kind of the volume and margin progression through the first kind of 3 quarters of next year? Or is it still very much, I guess, a seedling at this point that still kind of needs to be nurtured?

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Michael Joseph Morris, Forward Air Corporation - CFO, Principal Accounting Officer, Senior VP & Treasurer [97]

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It's a small first step that we're still standing up. But it is progress.

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Operator [98]

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Ladies and gentlemen, that concludes Forward Air's Third Quarter 2018 Earnings Conference Call. Please remember, the webcast will be available on the Investor Relations section of Forward Air's website at www.forwardaircorp.com, shortly after this call. Thank you for your participation, and you may now disconnect.