Forward Air Corporation (NASDAQ:FWRD) Q3 2023 Earnings Call Transcript

Operator: Our final questioner for today will be Scott Group with Wolfe Research.

Scott Group : Follow-up. I just want to, again, follow up on a few things I heard today. So Tom, when you talked about a mid-80s OR in the last couple of months, is that the whole expedited segment or just a piece of that?

Tom Schmitt: That’s just LTL, and that’s the type of OR view and mindset that you’re going to be seeing next year starting Q1 systemically.

Scott Group : And then — so within LTL, can you — maybe can you give us a sense of if it’s at a mid-80s OR, what’s the Airport-to-airport OR doing versus what’s the Door-to-door OR doing right now?

Tom Schmitt: Yes. So we have not made that public. And — but again, this may be something we may want to do for those dashboards that we’re going to be developing. We’re obviously tracking both of them separately. Our Airport-to-airport always was the most profitable part of our business. And again, it’s our efforts. So if you think of one more in the high teens and perhaps the other one more in the low teens that directionally gets you there. But we need to clearly get better and better with direct and Door-to-door. Some of the class rate companies are clearly demonstrating that it’s possible to get into 85, 80 and sub 80 ORs when you sell Door-to-door. So there’s certainly a discipline that we still need to get better at but it’s certainly not rocket science to get there.

Scott Group : Right. I mean, I guess, ultimately, what I’m trying to get to is you keep saying you really, really want to grow this LTL business, the Door-to-door business. But you said multiple times on the call like that you still haven’t figured out the sweet spot of volume and price in this door-to-door business. So I guess, strategically, I’m just sort of struggling a little bit, like if it’s a business we haven’t figured out yet, why are we so [gongo] about growing it? I’m — just like I said, I’m a little confused.

Tom Schmitt: Yes, it’s — well, let me give the opportunity people choose to be confused. So let me take that opportunity away. the Door-to-door business, when we went into that 6, 7 years ago, the main reason to go into it was that the TAM is at least 10x of airport to airport. So in terms of just the addressable market, it’s a much bigger pond in which we can fish in. Secondly, when you sell direct also to people who do not use forwarders, we also potentially deal with a much larger margin potential because there is no other group in between that’s also looking to make a margin off of that opportunity. And third, we do have some verticals, and we have some customers in the direct space that margin-wise work beautifully. So we know it’s vast in terms of the TAM.

We know that the margin potential and look at some of the best class rate companies, also look at the pure math formula of not having an intermediary in this case. So there’s — it’s a vast market. It has huge margin potential. And in pockets, Scott, in pockets we are seeing that we actually can make very, very good margins with it. All we have to do is just to make it the main priority for us to do it more comprehensively across the board.

Scott Group : And then just the last thing, if I may. So assuming you’re able to get out of this Omni transaction and obviously save a lot of capital, do you think about deploying that capital to — there’s a whole lot of Yellow terminals about to come to market, like if you want to actually become an LTL, maybe we need some of those terminals. How do you think about that?