Thank you
for joining Forward Air Corporation's First Quarter 2019 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 Schmidt and CFO, Mike Morris. By now, you should receive the press release announcing our Q1 2019 results, which was furnished to the SEC on Form 8 ks and on the wire yesterday after the market closed. Please be aware that during the 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 Q2 fiscal year of 2019, the expected impact of growth and strategic initiatives, the expected impact of organizational restructuring, the expected impact of FSA acquisition and those forward looking statements identified in the presentation.
These statements are based on current information and our current expectations. As such, they are 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'll turn the call over to Todd Schmidt, CEO of Forward Air.
Thank you, Bob, and good morning to all of you on the call. Before Mike gives us some facts and figures around our record Q1, let me give you some context for 2019 beyond. The last couple of calls, if you remember, I talked about 3 priorities. The first one was a successful finish of 2018. 2nd 1, a continued profitable growth pattern in 2019.
And then 3rd, a multi year, very compelling strategy beyond 2019. So, the first one, 2018, obviously, a check mark, a record year, and it almost feels like a bit in the distant past already. So, let's spend the focus of this call on Q1 and on the Allied 2 priorities. So, 2019 first, we just finished a record quarter, as you saw in the release. We did see the expected headwinds of slowing economic growth, in addition to worse than normal Q1 weather.
When you see a foot of snow in the ground or on the ground in Greenville, Tennessee, you know it's not typical. So, it was more than usual. We did do what we do. We kept the main thing. The main thing is control what we control.
We executed with spectacular precision for our customers. In fact, our on time records in the toughest months, thanks to our thousands of people in our buildings, on the road, were absolutely remarkable. When I talk with customers, they told me that and that's the most important sign for precision execution. We also compensated for those headwinds through active revenue management, we talked about this, and through very disciplined operations. And we became very, very consistent in adding to our high quality driver pool.
And we are using both traditional hiring methods as well as more scientific SEO, SEM type methods to do that. So, this sets us up perfectly now for a profitable business growth pattern for the balance of 2019. Just again, if you look at the intentional moves over the last 6 months, we got extremely scientific understanding what good business looks like. We drove up the driver count. And we also made sure we actually got fairly compensated and fully compensated for the business that we are delivering at high precision.
Now it's time now that we know even better what good business looks like and having a higher consistent basis, it's now also time to drive up the value of volume and good business, profitable growth using those levers, anything from doing more with large underpenetrated accounts, executing retention and win back programs and also walking up or out low margin business, using a very rigorous enterprise selling approach where it's beneficial to our customers and doing that on a consistent program that we are launching, Go for Business, that's a company wide Forward Air program. So, now a quick update on the 3rd priority beyond 2019. As I just mentioned several times, again, we are a precision execution company. And if you remember, 30 years ago, this company started with grounding airfreight moves going airport to airport and, for 20 years, trained that muscle of precision execution of doing on the ground less expensively, even more reliably what otherwise would have been airfreight. Over the last 8 years, we stretched that muscle of grounding airfreight.
1st, to attaching pickup and delivery to those expedited LTL moves, picking up the freight before the origin airport or delivering it past the destination airport and increasingly actually going door to door. And then, over the last 5 years, we actually also stretched that precision execution of hitting tight time windows for high value goods into our other modes. This precision execution is at the core of who we are and we're stretching those capabilities to all that they should be. And in essence, we have evolved beyond our roots in airfreight and beyond the air in our name. It will always be our base, but it's an end, not an all.
We have stretched beyond it. We now have applied that precision execution across industrial and retail freight markets, including e commerce, basically saying when the shipment is bigger than a parcel and absolutely has to get there on time and damage free, we want our customers to think forward. Choosing us and, frankly, making them stand out in the eyes of their customers in a value game, not in a lowest cost rate engine wins game. You do what you do best. We got you covered.
Think forward. Think forward for freight moves, think forward for intermodal moves, and think forward for direct moves, like we currently perform with our final mile truckload and pool distribution services. To better enable that future, we are also realigning our sales and our operations units. We actually are standing up a shared sales and marketing effort, which allows us to compete collectively where our customers are asking us to do that. And with a tailored menu, sometimes pulling the best from one business unit, sometimes actually giving a value meal to our customers that leverages all of our company.
Separating sales from operations in a focused way also allows the operating teams to do what they do best, maximizing their single-minded focus on precision execution, taking up that on time service level even another couple of notches by flawless execution of focusing what they do best, in essence, being focused factories at world class levels. And finally, we're also investing in the people and systems needed to make this future a remarkable reality. With a renewed focus on our culture and our purpose, we want to be the best in class workplace that supports our people as well as the communities we serve. We are standing up more comprehensive talent acquisition, stretching development, assessment, reward systems across all of our company to really be the best professional home for all of our employees and teammates that we've got across the US and in Canada. And last but not least, we also want to be a great in the communities we serve.
We have thousands of us on the road, in buildings, and we're going to make that presence count, whether it's by recently joining Tractors Against Trafficking or whether it's reducing carbon emission, which if you think of it 30 years ago, that was the very essence of Forward Air, taking airfreight onto the ground, reducing carbon emission. And, obviously, we're doing this on an ongoing basis, trailer skirts, a whole bunch of initiatives to getting better and better on that coming too. So, I've been here for about 8 months and just love how we're doing the right things the right way. And we are far from done. More coming actually on June 25 on our Investor Day in New York and more coming right now from our CFO, Mike Morris.
Over to you, Mike.
Thanks, Tom. On a year over year basis, our sales, operations and support teams had some notable achievements last quarter. We grew revenue and increased its quality by bringing on a mix of higher yielding freight. We improved the size of our owner operator fleet, importantly, in driver teams. Our LTL fleet count was up 17% at the end of last quarter and is up 24% through the Q2 to date.
Our intermodal fleet count is up 15% over these same time frames. But we also generated leverage on this improved fleet. Broker miles were 19% of LTL miles during the Q1 versus 25% a year ago. Through the Q2 to date, LTL broker miles are down to 13% of total miles. This leverage translated into lower purchase transportation costs, which as a percent of revenue fell 160 basis points at LTL, 4 50 basis points at intermodal and 140 basis points on a consolidated basis.
Our improved gross profit was dragged by weather and self insurance costs last quarter, which tempered our operating income growth. That said, our consolidated results set records for any Q1 in the company's history, and our free cash flow was the highest of any quarter ever at Forward Air. With an improved fleet to support the revenue initiatives that Tom just described, we're confident that our sales, operations and support teams will have more notable achievements as we go through 2019. Let me cover a few additional housekeeping items before we go to Q and A. We implemented lease accounting this quarter.
You'll note the new lines added to our balance sheet related to right of use assets and operating lease obligations. In total, this new accounting standard added $133,000,000 of assets and liabilities that had no impact on equity. There was also no impact on our income or our cash flow statements. This pronouncement was considered in our credit facility and our borrowing costs will not rise as a result of the new standard. We've also made a slight change to our LTL operating statistics.
Historically, we have shown an attachment rate, which was the percentage of our shipments that had a pickup and or a delivery leg. We included this disclosure to provide visibility into our growing pickup and delivery capabilities. Since these shipments increasingly involve door to door moves, we'll begin referring to them as such. But we're also modifying this disclosure to make it a revenue based concept since we typically earn more revenue on door to door shipments. Our new disclosure shows the percentage of our network revenue that came from shipments with a door to door lag.
And by network revenue, we mean all revenue related to moving the shipment through our LTL network, which includes fuel, but does exclude accessorial revenues. And we're also excluding revenue related to heavy, bulky, final mile installations from our definition of network revenue. During the Q1, 38% of our LTL network revenue a door to door component, which was up 12% over the prior year quarter. Regarding our recently announced acquisition of FSA Logistics, this transaction closed last weekend, and we're thrilled to have the FSA team officially join the Forward Air family. On a run rate basis, we expect FSA will generate $75,000,000 in annual revenue, $4,500,000 in annual EBITDA and $3,000,000 in annual EBIT.
We do expect FSA to generate revenue growth in the Q2, but we do not expect it to be accretive to our 2nd quarter EPS given the transaction's timing and our anticipated closing and integration costs. For the full year 2019, we expect FSA to be roughly $0.04 accretive to EPS. In anticipation of the FSA closing, we ended the quarter at a higher than normal level of cash despite repurchasing $14,000,000 worth of stock during the quarter. We did not incur any additional debt during the quarter, and we still intend to optimize our capital structure by carrying a more permanent level of debt over time, which we do not expect will exceed one turn of EBITDA. Finally, as Tom mentioned, we are planning an Investor Day to communicate the future of Forward Air.
It's scheduled for June 25 and will be webcast live. A link to the event will be made available on our website in the coming weeks. That's all I have. So Bob, let's open the line for Q and A.
Thank And we go to the line of Seldon Clarke of Deutsche Bank. Please go ahead.
Hey, thanks for the question. Just in terms of your guidance, you're guiding to 6% revenue growth at the midpoint. I think it basically implies negative EBIT growth in the quarter. Can you just walk through some of the moving parts there by segment and just give some color around what the whether this includes or excludes the impact from the FSA integration?
Seldon, it's Mike. Thanks for your question. So, in terms of the guidance, we do have an estimate of FSA's revenue in the outlook. However, we're not expecting it to have any incremental EBIT given the timing of the transaction, given the legal and integration costs. And we've also just completed the initial purchase price allocation study where we're going to pick up some intangible amortization.
So, we're thinking that's basically a neutral to EBIT for the Q2. When we get into the Q3, I think we'll be more fully integrated and more stood up, and that'll be a contributor. But we do see revenue growth pretty much across the board, driven by our strategic initiatives, some of which Tom talked about. We think we'll continue to see good yields and improvement on our fleet, but we are being cautious amid kind of a slowing macro, a slowing tonnage environment. We've got stiff comps through next quarter.
They abate as we get into the second half of the year. And
one of the headwinds,
which was an intentional headwind that we hit in the Q1, which are corporate investments that we're making to help enable and
in terms of what's in
our guidance. I in terms of what's in our guidance. I don't think it's actually totally flat EBIT growth, but that's a little bit of what's going on.
Okay. I guess just like if we dug in a little on the LTL specifically, I mean that's where the FSA acquisition is, right?
Correct.
And so I understand a couple I mean a number of your initiatives and I think like that's clearly putting you guys in the right direction. I'm just curious, like why wasn't the operating leverage better in the quarter? And what do you expect, I guess, organically going forward? Yes.
So now okay, so your question is now actually back to the Q1?
Yes. And I guess like I mean is the and should that kind of trend continue if we just exclude FSA in the Q2? I'm kind of just curious if
Yes.
No, I don't think the trend will continue. So let me unpack a little bit the Q1 and then I can connect the dots to what we would think would carry forward.
Got it.
As we talked about in the prepared remarks, we had good performance in revenue. We had good performance on the fleet and good performance on PT. So our gross profit, if you will, performed nicely. Not all of it obviously fell down to EBIT. And the 2 buckets that I would put those items in, 1st bucket was unexpected stuff and the 2nd bucket, I'll call expected stuff.
In the 1st bucket, in the unexpected bucket, we did have weather that was more severe than the prior year. We had a bad debt related to one customer. There was a default. We incurred some legal fees related to the FSA acquisition. And period on period, there's the absence of fuel credit we had in the Q1 of 2018 when the new tax legislation was enacted in December of 'seventeen.
If you add all that up, that's somewhere between $1,000,000 $1,500,000 We don't expect those things to repeat in the next quarter. So that was the unexpected bucket that had a drag. The expected bucket is the investments that I described. There's not dollars going into like one particular area that's consuming it. It's actually pretty well distributed across the corporate landscape, IT, safety, legal, HR, recruiting.
That's the other bucket that was probably 1,200,000 dollars on the LTL P and L. That bucket will probably will continue into the 2nd quarter as we continue to make these investments. We're trying to get a lot of these investments in corporate capabilities out of the way before we get to peak. It's kind of hard to stand up a new corporate capability when you're running around moving freight during peak. So I think that $1,200,000 type number will carry forward into the next quarter.
Does that give you a little more clarity?
Yes, it's helpful. I'm curious as to I mean, I understand like some of the so excluding FSA and you're concerned about the macro, if you have those kind of costs rolling off in the second quarter, it just feels like you're baking in another quarter of EBIT decline in LTL. And I just feel like you're gaining some traction on initiatives, weight per shipment is up, you're getting some leverage on the PT side. Like why shouldn't we see EBIT return to positive growth in the 2nd quarter at LTL?
I think we will, but maybe it's not as in your model as remarkable as you would hope. We are being cautious around the tonnage environment, which has slowed a little bit coming into April. And we do have to recognize some of these corporate So I think you're going to see net net EBIT growth. But remember to pull out the run rate FSA revenue in terms of calculating how much of revenue is going to drop to profit.
The one Selwyn, the one thing on a somewhat longer term basis, this is a marathon that we are in, not a sprint. We do have obviously this beyond 2019 picture. We are extremely mathematical about this in terms of top line disciplined operations and what moves down to the bottom line and how much corporate support costs we have. It's our strong expectation that corporate cost as a percentage of revenue, I. E, your margin question, will significantly actually improve over the next few years.
What we are doing right now is very, very intentional, whether it's on the road, whether it's in our buildings, whether it's in decision support, the exact areas that Mike that you talked about, that's very intentional. And yes, you probably will rightfully see that in Q2 as well. What we're doing, I think, is standing this company up for remarkable performance on a multiyear trajectory. And obviously, quarter by quarter needs to look solid or better, which it is, but we're running this thing for the long term.
Okay. I appreciate the color.
Thanks, Phil.
And next we go to the line of Jack Afton of Stephens. Please go ahead.
So Mike and Tom, I appreciate all the additional color there on operating leverage. I think that was very helpful. I guess, Tom and then for Mike as well, as you think about when you should start seeing some returns on these investments that you're making to sort of bulk up and stand up back office functionality and sort of improve the performance of the business. When do you think that's going to start sort of showing up? Is that something that could maybe start yielding results this peak season?
Do you think you're going to start seeing some more leverage then? Or is that really more of a 2020 type event?
Tom, I'll go first and you can chime in. It's a good question, Jack. I think on a lot of this corporate stuff, we're going to see quick returns because frankly, we're a little choked right now. And so as you bring in more capabilities from a systems perspective, from a people perspective, your throughput is going to go up. Your ability to you name the back office process, onboard a driver, qualify a safety requirement, you're going to see throughput pick up very quickly.
And so I think as this I think we'll feel positive effects of this in peak and I think it will just kind of continue into 2020. None of these investments are super major like where it's 1,000,000 of dollars in a system that's going to take years years to pay back. A lot of these are kind of already needed and the return should be relatively quick. Tom, any?
Yes. I mean, so first of all, on your first statement, Mike, the speed of return,
we are I
mean, certainly, I am and that's getting into the DNA of our entire team here. I'm very constructively impatient, Jack. So, we are going to go at a pace that's stretching us, but we are obviously going to be reasonable about it. But having said this, having done several of these profitable revenue and profitable growth initiatives in the past, I kind of have a sense that we're talking about months of them kicking in, not years. So, that's to your specific question, Jack.
And the second thing, some of those investments, just to put a little bit more light behind it, they are just about making us absolutely 1st class in all areas that we need to be 1st class. Simple example would be something like making sure that we provide our drivers on the road with the best technology. It helps them actually understand what's good and safe behavior looks like, including cameras. So, we are, obviously, making sure we're getting all of them in place. That's a great coaching and teaching device.
And that's an investment we're making, which, obviously will go through CapEx and then through depreciation through our P and L. So, some of this stuff that you don't see when you look at the earnings release, that's happening in the background because, again, I have only one aspiration that this place is all that it can be and this place can be world class. But to your specific point on the revenue, on the profitable revenue, Yes, it is a marathon, but you should see the first results in months, not years.
Okay. That's great to hear. And then I guess for my follow-up question, I think it's very exciting to see the FSA acquisition and nice to see that going to have that will have some a nice impact in the second half of the year. Could you just talk more broadly, Tom, when you think about your Final Mile strategy over the next couple of years? I know you got a little bit of Final Mile capability when you closed the Towne acquisition a couple of years ago.
FSA obviously adds a lot to that. When you think about the opportunity set there over the next call it 3 to 5 years within Final Mile, can you sort of talk about your vision for that slice of the business?
Yes. So it's a bit like in the best possible way, it's a bit like making Groundhog Day happen, which is we had a great day and now we're making it happen all over again. What I mean specifically by that, 5 years ago, February 2014, Forward Air, we bought a platform company with CST in the intermodal playage space. Then in the subsequent years, Jack, we figured out kind of what exactly do these assets look like that we should be looking for, we should be going after, we should be integrating, we should be standing up quickly. And we came up with a grading sheet.
That team around Ron Wales did an amazing job making that happen. And now they've done it 8 times, where they actually bought a platform, saw 8 specific tuck in acquisitions, some bigger than others. Atlantic is the best example for bigger one. And now we are literally on a we have a machine going. And that machine, we're going to expand.
We're going to look for more deals at the same time, even slightly bigger ones as long as they fit those criteria. So you take that example of that perfect day in the movie Groundhog Day, and now we're actually making it happen again here in the B2C space, where we have the same DNA of stretching our muscle, of hitting tight time windows for a very critical delivery. In this case, it's into your home. And then, having a value added service around it. In this case, it's installation.
So, we just bought a platform company. So, 5 years later, new Groundhog Day, new movie, and we bought a platform company in a space that stretches our muscle that we trained for 20 years in airport to airport, hitting tight time windows for something that's bigger than a box with a value added service at world class execution levels. FSA, I can tell you one thing. I just went to one of our largest customers with them this week. They are tremendous at what they do.
And again, the most important testament is not me saying that. It's one of the most challenging best companies on earth telling us that we have the best scorecard, the best track record in that space for them. So, we bought a terrific platform company and now we're going to do the exact same thing that we did before. We used our muscle now in that space and we're going to stand it up. So, what should you be seeing, Chuck?
You should be looking at the movie that played out over the last 5 years in CST and then 8 tuck in acquisitions and you should expect an encore here. And it's a bit like Godfather where I think Part II was the one that won the Academy Award. So, it's going to be a race between the 2 of them, which one is going to be the more beautiful story. But it's the exact same thing, platform, tuck in, more of that where we basically look for a pattern and we're standing up that pattern.
That makes a lot of sense and appreciate the movie references, Tom. That's great. Thanks again for the time guys.
Thank you, Jack.
And we go to the line of Todd Fowler of KeyBanc Capital Markets. Please go ahead.
Great. Thanks. Good morning, everyone. Tom, to your comments in the prepared remarks about how you view 2019 for profitable growth, to me, it sounded a little bit like there was going to be a bit more of a focus on volume growth going forward. It sounds like that you've done some yield work over the past several quarters and identified where you can grow profitably.
Is that the right takeaway from your comments? Or am I maybe misinterpreting what you were explaining for this year?
Yeah. I think, Todd, you were on the same page. You picked this up correctly. The only thing I would want to qualify, this is an and, not an or. So, that a yield management focus, we're not done with that yet.
So, we stood up. Obviously, some of the surcharges, we're becoming more surgical. There's 2 more adjustments coming up actually in 2 weeks. And so, that's going to continue. We're going to be extremely focused on providing value that makes our customers in their NPS scores with their customers stand out, but we're also going to be extremely tough in those conversations, making sure we're actually going to get our fair share of that value that we help them create.
So, that's going to continue, to your question. At the same time, we literally this month, we are launching a go for business initiative, which is not entirely, but is more focused on the quantity of business in addition to keeping going with the quality of the business. So, this is where, from a timing perspective, we intentionally sequenced it that way for the reasons I mentioned in remarks upfront. We wanted to make sure we understand almost like scientifically what good business looks like, which we do better now. We wanted to make sure we have the high quality drivers in sufficient numbers, which we now do.
And now it's time to basically double team and add the volume focused initiatives to the quality of business initiatives. And again, as I said before, when Seldon asked his question, having done some of these before, they don't kick in overnight, but they're also not years away in terms of impact.
Okay, good. Yeah, that's helpful. Thank you for the clarification on that. And then, just a follow-up. I think that a couple of the questions seem to be getting at kind of the margin profile for the expedited LTL business on a more normalized basis.
And when I think about that business, Tom, I can't go back 30 years, but I can go back period of time with Forward Air. Historically, that has been the hallmark where that business operated very profitably, kind of a low ADOR. In the last several years, we've seen that OR move higher. And I understand that there's some transitory costs, weather and some other things in the 1st part of this year. But how do you think about the profitability of the expedited LTL business on a normalized basis at this point?
Todd, I'll start with that and, Tom, you can chime in as you see fit. Yes, it's true when you look at the data that the profitability, the margin of LTL has come down over the past several years relative to the longer term history, particularly if you look back to the 2,004, 2005 Hay Day, often get the question of has something structurally changed? Is there is it impossible for the business to put up that type of performance again? And I honestly went looking for the answer to that question and couldn't come to the conclusion that it was no longer attainable. Okay.
What has happened though is that the business has gotten bigger and has gotten more diverse and has made some investments to grow in different capability sets while continuing to serve the freight forwarder community. And as you see those investments taking root, they'll take some time until they fully mature and have the effect on margin. But you also, as a bigger company, it's my opinion that you become a little more exposed to the macro. And it's a as a bigger firm, these tonnage dynamics, these macro dynamics have a greater effect. We have a nice tailwind to the business in retail oriented freight.
That's my language, a retail descriptor. And e commerce and some of the secular trends around retail freight tuck in very nicely with an expedited LTL company with service characteristics as outstanding as ours. But I think to really help get that margin profile back, we're also looking to bring in some heavier dense freight and we've talked about this on prior calls. Bringing in some of that heavier dense freight and feathering that density on top of the density that we already have, I think would really make a difference in terms of the probability of the LTL company putting up the kind of numbers that you saw in the mid-2000s. I'll point to the Q2 of 2016 when the LTL company put up, I believe it was an 82.8 OR.
That shows it's possible. That was not that long ago. So with the revenue management initiatives, as Tom's talked, with the better mix of freight, with the solid cost controls, if you get a good driver market and you don't have 12 storms in the quarter, yes, it's possible. I don't think it's impossible.
Okay. No, Mike, I appreciate that. And we've thought about that. I know we've talked about all of those things too. And it is helpful to get the perspective that, yes, it's not a structural thing, but understanding some of the pieces that are different today than what they were 15 years ago and also the timing of when you can see some of that improvement.
So I appreciate the perspective there. I'm going to pass it along. Thanks for the time. Thanks, Todd. Thank you, Todd.
And next we go to the line of Ben Hartford of Baird. Please go ahead. Hi, Ben. Hi, Ben.
And next we go to the line of Ben Hartford of Baird. Please go ahead.
Hey, good morning, guys. Interested in obviously the moderation in purchase transportation expenses this quarter. In your mind, Tom or Mike, to what extent was it just the broader spot market softness that we all are aware about now versus some internal progress that you guys have been making from an owner operator recruitment point of view? What do you think was the dominant contributor to the moderation in PT, particularly, I guess, specifically referring to expedited LTL?
Ben, I'll start there and Tom can chime in. I do think we've changed our game from a recruiting perspective. We've adjusted our tactics and taken a new approach, not a completely new approach, but we've modified the goodness in our existing approach and put a few other things on top of it to be more
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Sure.
So, I'm not sure where I cut off, so I'll just rewind one second. Better recruiting, loosened capacity in the truckload market certainly helps us with better recruiting to increase the driver count. But some increased work on the front end from safety and qualifying drivers. I've heard from the teams that the quality of the owner operator relationships we have right now is some of the highest it's ever been. And so you have a very high quality driver taking extra good care of that freight.
That I think was a big part of it. Something else to keep in mind is a chunk of this is related to pickup and delivery. As you recall, we were standing up a modified pickup and delivery model using owner operators. We'll lap that initiative towards the back end of this year. And so quarter on quarter, we're getting leverage on pickup and delivery as well as line haul.
Okay.
And let me actually add a couple of points because I'm really, really proud of what we're doing here on the driver front, not only recruiting, but everything around making this a great professional home for them. Because I think, Mike, the way you answered the question hits the point precisely. When you ask about PT going down, I would exactly start where you start, Mike. This is about our driver count of owner operators going up, therefore, us requiring less PT. And for instance, we just did an employee engagement survey, but we also did a survey of all of our independent contractors.
So, we actually literally asked all 2,500 of them how they feel about this professional home of theirs and serving us as a forward air. And the number one positive is we like our jobs. And so, they like being an owner operator. They like serving us as their customer. And then, we are standing up.
Our HR team is doing that with Kyle and Ryan and team. They are standing up a driver board where we actually, on a regular basis first session is coming up in a couple of weeks actually, I think next week we're asking our drivers, help us make this the best possible place for you, whether it's our own company drivers or, for the most part, our own operators. So, there's a tremendous focus, both in terms of recruiting, but also making it an ongoing great home, where they're telling us back, we like, we love the predictability of our home time. We love several other aspects. And so, frankly, PT going down is all about us making it a great professional home for owner operators and our company drivers.
That's why PT is going down.
I know you're 8 months in at your tenure, Tom, at Forward Air. So some of this probably predates you. I mean, the Towne acquisition from our standpoint or at least our understanding is that Forward Air service levels had been kind of forward air like since that. And I know weather was a challenge this quarter and you've been dealing with elevated outside miles over the past year. So as it stands today, what is your perception around service within expedited LTL?
Is it good? Is it insufficient? Is it great? How does that tie in with owner operator recruitment? And I guess when you talk about Forward Air being a precision execution company, having high service levels is existential to that.
So could you provide a little bit of perspective around where service sits today? How important the owner operator recruitment initiatives are and is there opportunity to improve service with an expedited LTL and then perhaps that's an accelerant to some of the longer term growth initiatives that you've been touching on?
Yes. Ben, actually, it almost seems like you've been sitting in our leadership team meetings. So, just this past Monday, Chris Ruble, our COO, the executive leadership team and I, we had this exact conversation looking at the correlation between on time service and our driver count, owner operators as well as employee drivers going up. So, there's a beautiful direct correlation of us having a much higher chance of providing near record level or even record level on time service with companies, drivers and owner operators who know us better, right, rather than having to go to purchase transportation. To be very clear, these people that we sometimes access and tap into are doing a very, very good job, but it does help to understand as well as our loan operators and our company drivers do.
So, specifically, if you look at the last several months, us having gotten better with a higher driver count and looking at our on time service levels, the Q1 service levels as well as Q4 are some of the highest in our history. And the good news is always, when we look at our dashboard, which we do on a weekly basis and to look at on time service, obviously, in those dashboard sessions, that our numbers are telling us that. But frankly, Ben, what's much more important to me, I see customers every week and sometimes several of them. And consistently, they have been telling me how much of a difference the on time service level feels to them, how much different it feels to them now versus, for instance, a year or 2 ago. So, I can't replay the past, but I can certainly make very certain with the team here that's doing a first class job of that pride that we have in that precision execution actually translates to what our customers perceive and it clearly is happening.
So, the stats are telling us on time service levels Q4, Q1, remarkably high level, near record. And I'm not satisfied. I think that move that we are making towards focused factories that actually just nail that conditions that we've seen in a while. And we talked about the Q1 weather, the stats and, most importantly, our customers are telling us that we actually have been performing phenomenally.
And then to kind of bring that all together, the GRI strategy, the consistent pricing strategy that you introduced or are introducing to customers. Can you talk a little bit about the receptivity to that? How the conversation has gone? What have been the points of pushback? What is your level of confidence now that you can institute a regular pricing methodology to customers?
Yeah. Hey, Ben, this is we should probably hire you. This is great thinking. So, that beautiful kind of cycle between having our stable, high quality supply of first class drivers, our on time service levels, and then our ability, frankly, to your point, having these types of tough conversations with customers saying, we are creating value for you and your customers by delivering those service levels at another 2 percentage points higher and further apart between us and the next best competitor. And that's exactly that investing in those types of service level capabilities and these types of high quality drivers enables us to say like, hey, we're creating value for you.
We're investing in that. So, we do need to actually also make sure that we get our fair share of that. That's a beautiful virtuous cycle that we are creating, which makes me extremely confident in those conversations. Specifically, Ben, I would say and I haven't done the counting on a piece of paper, but roughly speaking of the top 20 customers over the last 6 months, I probably have seen 12 to 15 of them. And we've had this exact conversation about GRI.
And remember, this is one of those and I say it like this whether you're religious or not, but every year, there's a certain number of milestone events. 1 is called Christmas, 1 is called Easter, 1 is called the GRI. And these are certainties. And now, we have to earn those certainties. And that's exactly what we're doing with this on time service level.
So, the conversations have been very positive. I mean, customers would love to get more for less, but they do understand that there's something about investing in that type of high quality service. And it frankly also helps them. If they know that the GRI every year and it's at the same time of every year, it helps them also plan. So it makes it actually more predictable for them for planning and budgeting purposes also.
These conversations have been tough conversations. Our sales team is doing a phenomenal job of articulating that value proposition, getting through these tough conversations and frankly ending up with a GRI that is coming in on May 6 this year. So, we're talking about 10 days from now. It's going to have a very, very high take rate because FrankTV earned it.
Good. I appreciate the perspective. I'll turn it over to somebody else.
And we go to the line of Bruce Chan of Stifel.
Just a couple of quick questions here on FSA. I guess right now the plan is to run the last mile portion and then your traditional LTL business out of a different network footprint. And I'm wondering, as you look out into the future, whether you have any plans to merge those 2 together and how you sort of balance the potential density synergies of a combined network against maybe some of the potential service degradation or dock congestion issues from doing so?
Hey, Bruce, it's Mike. Let me start with that question. Right now, the real estate that you run the business out of is often dictated by the customer contract itself. And some customers want a dedicated facility and other customers give you the flexibility to commingle. I think there's an opportunity currently where commingling is allowed to explore it and perhaps pursue it in certain markets where operationally you're not going to clog up the dock or create inefficiencies.
But I think there is a viewpoint that over time as this service requirement grows because more and more people are ordering things online or whatnot, that you'll invariably see more flexibility around commingling, which fits in nicely with the locations of our terminals near population centers given our airport footprint. Another synergy that I would like to point out comes from pickup and delivery. The delivery for our LTL freight, if you look at during a week, certain days are busy and certain days are less busy. That overlap with the final mile delivery, they don't land on the same times. And so there is some opportunity to have a broader relationship around pickup and delivery with some of the contractors in markets where we have a lot of volumes.
So I think you've got an operating leverage potential over time with respect to the density running through your real estate footprint, but I also think there is a pickup in delivery synergy that could generate some purchase transportation leverage as well.
Yes, that's an interesting point. And I'm just wondering in terms of having a 2 man team delivery or liftgate delivery, how that changes your, I guess, mix of P and D service providers or does it?
Well, I mean, yes, I mean, a lot of the P and D we do right now is going to be in a straight truck. It really depends on the freight characteristics. The point is, if that owner operator who's doing final mile work is really busy on a Thursday or a Friday because the appliance buys that were made over the prior weekend are now showing up for installation. If that owner operator is less busy on a Monday and that's when we're delivering a lot of freight that got line hauled over the weekend, that's good business potentially for that owner operator and it strengthens our professional relationship with them.
Okay. And then, on the CapEx side, I don't know if you gave a number, for the year. And then, just in terms of the allocation between the existing business and what might need to come from FSA, any breakdown there would be helpful as well.
Yes. So, you may recall, if you look at the earnings release way in the back on Page 11, in our additional guidance data, we've indicated full year projected CapEx of $34,000,000 It's not envisioned that FSA will require hardly any CapEx. They are and now we are an extremely asset light operation. Facilities are stood up as needed to serve a contract and stood down if that contract concludes. So, in terms of the distribution of our CapEx this year, it's the bulk of it is probably split between trailers and normal trailer replenishment of the fleet to keep the fleet at our optimal age.
And we've got a lot of technology investments taking place at LTL and at corporate. That's both systems themselves and the capitalization of the salaries of the people that build those systems.
Great. Thank you.
Thanks, Bruce. Thanks, Bruce.
We'll go to the line of Scott Group of Wolfe Research.
Thanks, Scott.
Good morning, Scott. So I'm not sure if I missed this. Did you give the monthly tonnage and April tonnage?
No, I can do that right now. So, for the Q1, daily tonnage was down 0.5%. In January, it was up 0.6%. In February, it was down 1.0% and in March, it was down 0.8%. And then with respect to April to date, tonnage per day is down 4.2%.
There's a little bit of Good Friday noise in there because Easter was in Q1 last year. If you kind of calibrate for that, the tonnage is probably down 3.1%.
So, what's your take on the deceleration in April?
Things have slowed down. I mean, I think it's more of a macro sense. We hear it from our customers. We've seen a little tonnage deceleration and we've been adjusting to it. We are hearing that the pipeline could build into May June.
We need to see it happen. But I think there has been some softness in the marketplace at the start of the quarter.
And let me just add one piece, Scott, to that. Two parts to that. The first one is, we are, as I said before, we are very intentional about selecting and growing with good business. So, in some of these cases, the quality of the business, if it's not good enough and if we can't work with the customer showing them the value proposition, We actually whether it's in some form of 3PL process, more automated or whether it's a conscious conversation, there is business that we're actually saying this is not good business for us. And so, you see probably some of that happening also.
The second point I want to reinforce is, again, we are starting up an engine where we are very consciously ramping up the volume that we're going for, finding, keeping, growing good business now that we have the confidence level that we understand what goodness looks like extremely surgically and that we also understand the kind of those levers that we can be pulling. Again, I've been doing this in the past. It's not rocket science, but there's a little bit of a machine to it. And that machine, we are deploying going forward. So, I think there's yes, there's a market happening around us and there's also a lot of intent from our side, what we're actually deselecting and now increasingly going forward what we are selecting.
How big is the GRI in May?
It's up to 4.9%.
Okay, great. And then just lastly, just strategically, as I think about M and A, what do you think is more likely, intermodal or final mile deals? And then any update on the plans for pool?
I'm sorry, Scott, the line was maybe it's on our end. We're on phone troubles. It was kind of breaking up. Just want to make sure I heard your question. I think your question was M and A intentions at intermodal and final mile.
Yes. I guess what's more where is your focus more on intermodal versus final mile for future deals? And then any plans on the pool?
Yes. So I think there is no intermodal and final mile are both a focus. The transaction sizes that we currently have on our radar screen aren't going to be so capital intensive that we have to pick. We think we can fund a lot of this as it arises with free cash flow. We have a lot of dry powder from a liquidity and a leverage perspective if we need to go there.
So I wouldn't say one's going to win out over the other. If the scorecard is met, if a transaction can be done, then we're going to do that deal. I think the next part of your question was, is there any update on pool? We don't have any actions in place for a transaction related to pool. But what we do have is all business units have to present business cases around growth and around return.
And as Tom's joined and as we've gone through strategic reviews over the past 6 months, the entire portfolio comes under a lens. And we're looking at each business unit and making sure it fits the return criteria that we expect to be in this portfolio. Pool is no different than any other business unit in that regard.
Great.
Okay. Thank you for the time, guys.
Thanks, Scott. Sorry for the line trouble. Thank you, Scott.
And there is no one else in queue at this time. Please continue. There is no one else in queue at this time. Please continue.
Bob, I think we're good.
Okay. That does conclude Forward Air's Q1 2019 earnings Call. Please remember that this webcast will be available on the Investor Relations section of Forward Air's website atwww.forwardaircorp.com shortly after this call. You may now disconnect.