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Forward Air Corp (FWRD) Q2 2019 Earnings Call Transcript

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Forward Air Corp (NASDAQ: FWRD)
Q2 2019 Earnings Call
Jul 26, 2019 , 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for joining Forward Air Corporation's Second 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 Schmitt and CFO, Mike Morris. By now you should have received the press release announcing our second quarter 2019 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after 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 second quarter and fiscal year of 2019, the expected impact of growth and the strategic initiatives, the expected impact of organizational restructuring, the expected impact of the FSA and OFT acquisitions 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 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 Tom Schmitt, CEO of Forward Air.

Tom Schmitt -- CEO

Thank you, John[Phonetic] and good morning to all of you on the call. Before I turn it over to Mike Morris, our CFO, I do want to give a quick check in on our profitable growth journey. If you remember on our last call, I talked about how priorities and two that stand out are nailing 2019, and the second one is getting a compelling beyond 2019 multi-year picture together and getting ready and in game shape for that picture.

So last month, many of you were actually there, we had our Investor Day in New York and we gave specifics on that beyond 2019 picture and I want to give you just the headlights -- and the headlines and highlights of that. So the first thing is strategy. We were very explicit about our strategy in essence saying, if it's bigger than a box think forward, when it really matters to you think forward, it's a bit like the UPS Golden package or the FedEx absolutely positively overnight. We want to own the space for that type of critical shipments for everything that is bigger than a box. And we were very explicit about that, we started this company 38 years ago, airport-to-airport hitting that tight time window every single time with precision execution and then we took it to pick up and delivery, and we're going to talk about that a bit more today and then into other modes also. Into distribution centers, malls and more recently also into homes.

The second thing we talked about in Investor Day in our beyond 2019 picture is a clean structure. Companies expect, our customers expect to deal with one Forward Air and we put a compete collectively sales and marketing organization together, it's all under one Chief Commercial Officer, Matt Jewell. And we did the exact same thing on the operation side where we do have focused factories. However, they do adhere to one consistent set of priorities and principles under our Chief Operating Officer, Chris Ruble. -- The third thing that you saw real time in New York, we had a four-hour Investor Day, was our leadership lineup and I couldn't be more proud of that team. Obviously Mike Morris here is with me. I mentioned Matt Jewell and Chris Ruble. We also had our General Counsel, Michael Hance; our Chief People Officer, Kyle Mitchin, and our new CIO, Jay Tomasello with us. So very proud about having the right strategy structure and the right leadership lineup in place and the most important part obviously is we are tag teaming with thousands of our teammates on that journey and I know how they are delivering every single day.

Finally, this is an earnings call, so we also made a commitment in New York to a top and bottom line growth. We said, in essence, what we expect and what you should expect is a CAGR of GDP plus 10% roughly both on top line and bottom line for the medium term. So that's an aggressive continuous profitable growth journey that we expect.

Now, if you ask yourself, how so, well that's the theme of untapped upside that we put forth at that Investor Day. We believe, based on a lot of research that we have access to and that we have done, that off the addressable market that we are operating in, we only own about 5% share today. So there is a lot of untapped upside, a lot of runway and we're going after it organically, primarily in the LTL space and inorganically, as you have seen recently, intermodal and obviously also B2C final mile.

So having said that's the picture going forward with a commitment to double-digit beyond GDP top and bottom line growth, how are we doing right now. Mike is going to give us a bit more details, but let me just give you a couple of headlines. On the organic growth side with LTL, we're doing exactly what we said we would be doing, our door-to-door shipments that's stretching our muscle into pickup and delivery beyond airport-to-airport, those shipments have been up 14%.

Our door-to-door revenue is up to 40% of our LTL network revenue and we are growing with a new vertical 3PL standout international forward to standout and if you just take the 3PL's shipments are up 65% and billable weight is up 100%. So we are continuing to rely on domestic forwarders and we are building out segments such as international forwarders and 3PL's as I just mentioned. When we talk about our shipment characteristics, they are also improving, door-to-door weight per shipment is over 700 pounds now and the average length of all is almost a 1,000 miles. In very simple terms, heavier and longer is better.

On the inorganic side, we are obviously committed to continued and accelerated M&A. And just to give you a couple of specifics on this one. As you know, we just closed OFT, that's getting us into the Baltimore market, gives us more presence along the Atlantic Coast in the premium intermodal trade space and we're actually just thrilled to have the OFT team members join team Forward Air and make them part of our family.

And on the FSA side, this is the B2C M&A deal that closed in Spring. This has been a beautiful story, since we closed. In fact our joint file mile team has won four new markets, totaling over $10 million in run rate revenue since that close of FSA. And I like saying it is where we are far from done. We remain active on M&A, and we also have to -- if you look at -- yes, as and when freight cycles slow down there are actually also some advantages to that, we may not like all of that slow down, but it actually should help us on the M&A front with some of the evaluation multiples compressing.

And we do see that slowdown in some areas. On the organic side intermodal, clearly we're seeing a slowdown, airport-to-airport we are seeing a slowdown and still what we also are seeing, especially in the most recent weeks and days, when we don't see a pie that's increasing in size, well, then we got to do what I talked about doing, which is increasing profitably our slice of that pie. And that's what we are doing with our grow forward initiative where we very surgically going after profitable business in the segments that we for instance mentioned with VPL's and International Holdings specifically.

So in some we got a strategy, we got a structure that makes sense, competing as one operationally and commercially. And we have the right leadership team, and most importantly thousands of us executing with high precision every single day. So I like where we headed and I like the momentum we've got and with that a few more specifics on both the results for the second quarter and the first half, the momentum especially also on the inorganic side and then also some logic that we deploy, when it comes to our capital that we allocate across our businesses.

So let me take this to Mike Morris, our CFO, who is the expert in most of those areas. Mike?

Mike Morris -- Chief Financial Officer

Thanks. On June 25th, we filed an 8-K describing a $5 million vehicular reserve that we recorded in the second quarter under our self-insurance program. For your modeling purposes, let me provide some clarity as to how this reserve hit our P&L, on a consolidated basis, the entire $5 million is captured in the insurance and claims line on our income statement.

From a business unit perspective, LTL recognized $1 million in its insurance and claims line since this is the self-insured retention level or the effective business unit. LTL pays corporate and internal insurance premium for coverage above $1 million, which is why the remaining $4 million was recorded in corporate. The impact of this $4 million corporate reserve can be seen on the income from other operations line on page 4 of our earnings release.

In every case, consolidated business unit or corporate insurance and claim activity unrelated to this reserve would impact the final amounts reported for the quarter. Without minimizing the severity of events that can lead to this level of reserve, if one wanted to understand our second quarter performance excluding the reserve, our operating income would have been about $4.1 million higher, which is adding back the $5 million reserve net of its impacts on incentive compensation. At that level of adjusted consolidated operating income, our operating margin would have been 10%, our incremental margin would have been 12%, our year-over-year operating income growth would have been 5.5% and our EPS would have been $0.89, up 7.6% from the prior year quarter.

Let me continue by providing a quick update on our integration of FSA. As you recall, we closed this final mile acquisition in April. Overall, the integration is going very well. On the revenue side, the combined sales team hit the ground running and you heard Tom mention some of our recent successes. From an operations perspective, our teams have continued to provide high levels of service during the integration process with no major hiccups. One operating item worth calling out, which we discussed during our last earnings call, is the synergy we're starting to realize in pickup and delivery. In three markets, our LTL organization has begun using final mile contract service providers to help handle peak LTL pickup and delivery needs, particularly on busy Mondays. This strategy provides additional revenue to our final mile providers while helping us maintain operating leverage on this LTL freight. We expect to expand these combined pickup and delivery activities into more markets in the future. On the corporate side, our integration of FSA is taking a bit longer, which we expected, given that we are a public company but overall, is progressing on target.

While we're on the subject of acquisitive growth, let me provide a few comments about our acquisition of OST. As Tom mentioned, we're thrilled to have the OST team join Forward Air and open up this key port for our drayage customers. On a run rate basis, we expect OST will contribute $32 million of revenue, $2.5 million of operating income and $3.5 million of EBITDA.

For the third quarter, we expect OST will contribute $6 million of revenue, but no additional operating income given closing and integration costs. Finally, regarding our second quarter capital allocation, we spent $27 million to acquire FSA and repurchased $24 million of stock.

Our share repurchases have reduced our year-over-year share count by 3.1%. We incurred $10 million of additional debt during the second quarter and our leverage at the end of the quarter was roughly one-third of a turn of EBITDA. Overtime, we intend to optimize our capital structure by carrying a more permanent level of debt which we do not expect will exceed one turn of EBITDA.

With that, John, let's open the line for Q&A.

Questions and Answers:

Operator

[Operator Instructions]. And first, the line of Jack Atkins with Stephens. Please go ahead.

Wayne Thomas -- Stephens Inc -- Vice President

Hey guys, good morning, Wayne on for Jack, thanks for taking the questions. First of all, great job in a tough environment out there this quarter. First couple on the LTL segment, tonnage comps on LTL are getting a little easier in the third quarter, but the yield comps are a little harder. What are you guys seeing thus far in July for both metrics and then maybe could you talk about what the guidance it seems for both in the third quarter ?

Mike Morris -- Chief Financial Officer

Good morning, Wayne. I think you're asking the question of what's been the tonnage today in July for LTL, that's the first part of your question?

Wayne Thomas -- Stephens Inc -- Vice President

Yes.

Mike Morris -- Chief Financial Officer

Tonnage per day has been down negative 4.4% thus far in July.

Wayne Thomas -- Stephens Inc -- Vice President

Okay.

Mike Morris -- Chief Financial Officer

The comps do abate relative to the stiff headwind we've had in prior quarters. In the third quarter of 2018, overall tonnage per day was up 1%, that's a much easier comp than what we faced in the past couple of quarters. In terms of the tonnage that we're anticipating, I think it goes back to some of Tom's comments where we'll continue to push on the growth on door-to-door and we'll have to see where the macro takes us in terms of some of the legacy airport-to-airport business which Tom mentioned in his opening remarks, has been a little under pressure. From a yield perspective, I think we'll see -- probably less on the yield side than we have in the past couple of quarters, it will still be positive. But, yes still we have some mixed shifts in our business. I think you'll probably see a little less yield growth than we have in the past couple of quarters.

Wayne Thomas -- Stephens Inc -- Vice President

Okay, that's great. Thank you. And then following up on LTL, you kind of already touched on it. Excluding that charge, looks like margins would have expanded year-over-year there. We've would have seen higher single digit EBIT growth. Is that the right way to think about it? And then is that the right way, we should be thinking about it, in terms of run rate headed into the third quarter?

Mike Morris -- Chief Financial Officer

Yeah. The charge definitely impacted LTL, to the million dollar SIR that they took. Some of those compensation effects -- the good -- I shouldn't say, it's a good guide, but since it's lower comp -- lower incentive compensation would actually accrue back to them. So net-net, the marginality is not very much changed at LTL, as a result of the million SIR that they took.

I think in terms of what to expect going forward, it's really going to be driven by your view of the macro and I'll tell you this is a challenging environment to forecast into. We feel very confident that we're going to get growth in door-to-door and the initiatives that Tom described. Remember, we've got some final mile growth in there. FSA's revenue is a big part of the revenue growth that we're forecasting in LTL, and as a consolidated entity. It is not at the marginality that it will be in the next couple of quarters. We're still integrating and standing the up -- that's going to pressure margins a little bit and then where we see the macro take us with respect to airport-to-airport and airline can put a little pressure on margins as well. So I think it really comes down to your view of the macro and whether you think things are going to abate in terms of the overall market and overall macro or whether you think there is going to be continued pressure, that's kind of the vectors of play, if you will.

Tom Schmitt -- CEO

Let me -- Wayne, let me just add two points to the ones that are Mike made, the first one is a somewhat tactical point but reinforcing something we talked about in the last few earnings calls, we've gotten very, very rigorous with understanding the profitability of our customers of specific industry segments and also of specific lanes, so while we getting a lot of headwind and that's the unknown is a lot 5% down, is a lot 15% down in specific pockets where people shift modes, where people consolidate and take service degradation temporarily for cost gains and -- but, so we do know we can make up some of that by very surgically pricing for lanes where we underutilized and that's exactly what we're doing with some of the customer segments that we're talking about also, 3PL is the one that stood out most. We're watching obviously wait our tonnage day-to-day and we are seeing some of the fruits of that dynamic pricing that we're doing.

The second point, frankly is a much more-in a bigger sense much, much more important point. We did talk and Mike you talked obviously in your opening comments about our reserves we took. I mean, the one thing that everybody on this call and most important to everybody on the Forward Air team needs to understand and does understand, when we're talking about a reserve, when we are talking about taking a few million dollars and putting them aside, this gets you to the topic that's most important and that's safety. We're spending rightfully tremendous amount of energy, led and orchestrated by a Senior VP of safety, Matt Casey, on making sure every single person comes to work safe and goes home the same way they came to work, save and frankly we are just somewhere between frustrated and just shocked when we have a slip and out. It doesn't work out perfectly and we actually are not 100% safe, so let me just make very certain. This is an earnings call, but the single most import thing and the thing we always talk about first is safety and we spend even with our Board earlier this week, that was the number one deep dive. So we can talk about financials and customer service profit for the rest of this call and we should. We are a full profit enterprise, but I do want you to understand that there is a human component that always comes first and foremost.

Wayne Thomas -- Stephens Inc -- Vice President

And real quick, last one, could you talk just a little bit about what you're hearing from customers as far as how peak season can look?

Tom Schmitt -- CEO

Sorry, wait that what we hear from customers about outlook?

Wayne Thomas -- Stephens Inc -- Vice President

About how peak season could look?

Tom Schmitt -- CEO

Yes, it's actually interesting. So the general statement -- and again we are basically taking a bunch of impressions and I probably do about as many customer calls as you could possibly imagine. I think last week between three or four customers, we went some one-on-one, some in groups. There is 10s of them that be covered. The short answer would be -- and I'm not sure it has precise logic behind this Wayne, the Q3 sentiment is much more cautious and much more kind of conservative than the peak season in Q4 sentiment.

So if you want to get it in the headline, people are kind of hesitant about Q3, perhaps a dip, perhaps that's just a very, very short term dip and fairly positive and bullish about Q4. So perhaps if you want to put it this way, somewhat moderate Q3 and pretty solid Q4, that's the sentiment that I am picking up from customers in different segments.

Wayne Thomas -- Stephens Inc -- Vice President

Okay, great. Thanks, guys.

Tom Schmitt -- CEO

Thanks Wayne.

Operator

The next question is from Scott Group with Wolfe Research. Please go ahead.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks, morning guys.

Tom Schmitt -- CEO

Good morning, Scott.

Mike Morris -- Chief Financial Officer

Morning, Scott.

Scott Group -- Wolfe Research -- Analyst

We got the July tonnage. Can you give us some months in 2Q for the LTL tonnage, just so we have it.

Mike Morris -- Chief Financial Officer

Yes. In April, we were down 6.1% tonnage per day. In May, we were down 7.5% and in June, we were down 4.8%. (multiple speakers)

Tom Schmitt -- CEO

This is -- Scott, just to run at the answer [Indecipherable]. As a point of comparison, in the second quarter of 2018, the comp was up 8.6%.

Scott Group -- Wolfe Research -- Analyst

Okay, helpful. Okay. So I want to understand the guidance for the third quarter a little bit. Because if you back out that charge in 2Q and then the charge in 3Q, sort of you're going from a high 80s set range to a high 70 set range, 2Q to 3Q, we don't typically see that drop off? Is that just what you were talking about customers being cautious in about the third quarter or is there something else from a cost standpoint or something changing 2Q to 3Q?

Tom Schmitt -- CEO

Yeah. So let me start with a very specific items and and then Mike, I think we are going to tag team this one. So Scott, the first thing is they are all very specific things that we -- I think also pointed out that are happening, so if you look at the guidance where we have revenue going up by 9% and the EPS if you look at the $0.76 versus last year being flat, that doesn't sit right, right; so now a couple of items that make up a good part of that is the one that Mike talked about just a few moments ago. Whenever we have an integration of an acquisition, in this case it's OST, the first and it[Phonetic] depends on whether there on the same operating system or not. The first 2 to 6 months is when you run the cost of integration and when you incur kind of the dip that gets you to a better place ultimately. We have that in Q3 full force and so you get some revenue lift from OST and you get 0 profitability in Q3.

We expect quite a bit of profitability as Mike mentioned, obviously in the medium and long term, starting in Q4. The second thing is that we also pointed that out in Q3, we are, -- we have over the last several months done a review and to some extent also on reset of making sure we have the right structure and then the right people in those seats going forward. There is still -- if you look at the notes that we send out, there is still transition and severance-related charges that are in Q3.

I expect that we -- that the team that we have in place now is our team that we're taking forward and that's what I mentioned also when I talked about the Investor Day, I feel extremely confident and proud about this leadership team. So -- but we do have costs so far transition that also go into Q3, and then the last point before I turn over to Mike, so between the OST integration that's revenue accretive but not profit accretive yet in Q3, between the transition cost on the leadership front and what we just talked about overall as just having to be realistic about the size of pie short term, frankly hitting us to some extent where our slice of pie, our market share game, our dynamic pricing game still is catching up with a negative headwind, which will lead to somewhat of a cautious Q3 outcome.

So, again between very specific activities and initiatives that we are taking very consciously and between tailwind with our initiatives not quite fully compensating yet for the headwind that we are seeing, the math adds up to what you just pointed out, and what we are just -- what we've just published so that's my take on kind of putting of puts and takes together anything else from Mike that I didn't say.

Mike Morris -- Chief Financial Officer

No, I'd where we've got acquisitive revenue driving a lot of the growth that is not at the product characteristics that will be going forward. We've got growth in door-to-door that's still building density and then some caution in the guidance around the macro climate which is going to target other parts of our business.

Scott Group -- Wolfe Research -- Analyst

So that's all really helpful. You guys just gave us in long-term double-digit annual earnings growth. So, you must have some visibility to when it's coming. When do you think we get there is it? If not third, do we get there in fourth, do we get there next year ?

Mike Morris -- Chief Financial Officer

We gave a medium term outlook Scott, I mean a lot of it, as we said during the meeting. A lot of it will depend upon the shaping of the overall macro climate over the medium term. But we do definitely feel like we are heading down the right path, which is building density in verticals that let us exert our operating leverage in LTL, that's a key part of it and then as Tom talks about building share in other verticals and other modes that give us an inorganic growth push.

Tom Schmitt -- CEO

We also should look at. Scott, I mean, we were last year at 9.2% and we're going to go to a GDP-plus 8% to 12% going forward in that medium term perspective. So I mean we are within fairly limited range, is not like we're looking to go from the low-single digits to double digits. We're looking to go from 9.2% to GDP plus 8% to 12%. So that's the journey and we do have and that's the DNA trade that we share here, we are very constructive to impatient, so soon is better then later.

Scott Group -- Wolfe Research -- Analyst

Okay, very helpful and just last one quickly, so on the truckload side the RevPAR mile and cost per mile both fell sequentially from the first quarter, any signs of either of those starting to move in the higher direction in third quarter ?

Mike Morris -- Chief Financial Officer

Yes, with truckload spot rates down percent, it's a pretty difficult operating environment. I think it's really just going to depend on where the overall truckload macro evolves and as we mentioned earlier, we have some caution in our guidance around that aspect of the macro.

Tom Schmitt -- CEO

The one thing in this -- this is more a qualitative thing, but it's important Scott, having all four kind of operations factories in the same operations team does help. So between specifically truckload in the LTL, whether it's on covering loads or other operating synergies, I mean there are things that we are obviously looking to do, while we are experiencing those very soft spot rates.

Scott Group -- Wolfe Research -- Analyst

All right. Thanks so much for the time guys.

Tom Schmitt -- CEO

Thanks, Scott.

Mike Morris -- Chief Financial Officer

Thank you, Scott.

Operator

Next, we go to Todd Fowler with KeyBanc. Please go ahead.

Todd Fowler -- KeyBanc -- Analyst

Great. Good morning. I guess just going back and looking at the second quarter, adjusting for the insurance reserve, you would have been above the high end of the guidance and the revenue trends were a little bit of lower end and the macro didn't feel great. Do you have a sense of what was different in the actual 2Q results versus your initial guidance when we adjust out the reserve and was there anything unusual there that benefited you that and we wouldn't see going forward?

Tom Schmitt -- CEO

No, I think -- I think a part of -- I'll be completely transparent in the answer. Part of the variance that you're touching upon was our success in guessing what the decline in the overall range would be. We did our best with the information we had, but as we got into quarter end, we learned a little more. The other part of it is, as we did have stronger LTL performance than we expected and we had a couple of good guys on other insurance related matters, not related to this reserve, other matters that were helpful.

Mike Morris -- Chief Financial Officer

The one thing I should say in terms of perhaps also kind of guessing correctly, on the actual business side, on the revenue growth side, we kind of executing the game plan that we talked about where we said like, we've got to put kind of find key big spend initiatives going more business in other industry verticals, doing more with underpenetrated large accounts, going for smaller accounts that are actually highly profitable and do more with them, retention programs, cross selling in some cases, which we're doing much more. So this is a playbook that I know how to kind of use and we are using it. And we do know pretty exactly, I mean, when it comes to getting compensated fairly on a surcharge fund or with TRIs kind of what the take rate will be, that's more almost like a scientific math exercise. With those initiatives that I just sketched out, we kind of know the speed and pace with which they'll take. And so it may sometimes be a month or two slower versus faster, but they are working and so that's why I'm also very, very bullish on -- when we talk about top line growth going forward. These initiatives and what I call the slice of the pie game is going to be very effective, it's the playbook that you are putting in place is being executed very well by our sales teams and we do have a program manager with our VP of growth also has done this before. So again, I feel very, very good about, we're not in the surprise business, we actually executing precisely what we, what the game plan and the playbook tells us.

Todd Fowler -- KeyBanc -- Analyst

Sure, now understood. In terms of that point in your prepared remarks when you talked about the pie shrinking, you know it's the higher level way to think about that, that you're trying to -- the tonnage environment isn't as conducive, you're focused on more profitable freight and so if we see tonnage declines, we maybe wouldn't see as much variability in the margin as what we've seen historically, is that ultimately kind of the end game with what you're going out with that comment.

Tom Schmitt -- CEO

Yeah, it's a bit -- this is a bit of a sausage making, Todd, where I can't exactly tell you kind of at what pace which of the impact is going to kind of add 2 percentage points here or take 2 away. So what I mean specifically, -- some of our customers are giving up service that they medium and long term need for their kind of value proposition with their customer for cost savings because they are cautious in the current environment. In some pockets that costs us 5%, 10%,15% and in some cases even up to 20% of the current business.

So that I do know -- I just don't know whether it's 5% here, 8% there, or 12% there. I also do know that the pricing initiatives are worth a certain number of percentage points and I know these grow forward to kind of find keep expand initiatives are worth double-digit percentage of revenue over the one to two-year term. I just bid between those different pieces, it's just a bit of a -- that's why it's called a guess or a guide or forecast.

It's a bit of a mathematical assumption game, is this going to be minus 8% and that's going to be plus 6%, this is going to play 2 months to kick in or is going to be 3.5 months. Over all the guidance that we put forth on the Investor Day, something that Mike and I are very, very confident in, because it's a math game that we know how to play out and we have a team that executes tremendously well.

So I'm not sure that gives you much more color, but the only thing I'm telling you back is we know the impacts the puts and takes. We just don't know the exact percentages going this way and that way respectively and the timing of those and that's where for Q3, we had to be somewhat cautious because we are seeing the headwinds. We are seeing the tailwinds and the fruit of the labor that we are putting in we just know it's going to take a few months for some of them to bear full fruit and that's why Q3 we are a bit more cautious. And in the medium-term guidance that we gave on the IR day, we are rightfully very, very confident because we know it's going to play out that way.

Todd Fowler -- KeyBanc -- Analyst

No, understood, and that's helpful. I mean, I guess I'm just trying to put together in the context of what we're seeing with tonnage and then, I think what most people would agree was a relatively strong margin performance here in the second quarter so I'm just trying to square some of those things. Just for my follow-up, Tom, in your response to the previous question about the sequential cadence with the third quarter. I'm sure you don't want to give fourth quarter guidance at this point or any thoughts into 2020 or your specific thoughts into 2020. But for some of the things that you laid out, are those things that you see is impacting 3Q. And I'm not talking about the macro things, I'm talking about some of the company-specific integration and costs or do those have tails into the fourth quarter and you get beyond those into 2020. Just how long do we expect some of these integration costs to be in the numbers. Is that something that's going one quarter or do we have more of a tail in that?

Mike Morris -- Chief Financial Officer

I'll start, Todd and Tom...

Tom Schmitt -- CEO

I can correct you afterwards.

Mike Morris -- Chief Financial Officer

Okay, great. The one cost that we talked about last quarter, we indicated would carry through the year if the investments we're making to upgrade our corporate capabilities. We pegged out a quarter million and a half[Phonetic] a quarter something like that and that's going to carry through the rest of this year, as we upgrade our systems and build out our platforms to accommodate our future growth and play a little catch up relative to our past investment.

The acquisitions tend to have an integration cost of a quarter. Especially if you do the transaction in the middle of the quarter, you're going to pick up some legal fees and things like that. Some integration costs and then you'll will pick up some incremental amortization of intangibles, once you figure out that math. The acquisition related ones, FSA is largely done, they cleared that hurdle last quarter, actually produced a little margin that will start to get ramped up. OST last a quarter and then that should start to get ramped up. So those are the acquisitions we've done, barring any new ones, I think all of this should be cleared out by the end of the year. Did I get anything wrong?

Tom Schmitt -- CEO

The only thing I would be -- no, I mean, obviously when it comes to numbers, I'm not going to do a beauty contest. I would say specifically to the integration of the of OFT and FSA. I think Mike it's fair to say that Q3 should see the bulk of that be like...

Mike Morris -- Chief Financial Officer

Yeah, OFT for the third quarter and FSA is done.

Tom Schmitt -- CEO

Yeah, so Q4 and with that's really tied to that part of the question of what we did so far acquisition wise, that should be processed so to speak within Q3 and should not impact negative to Q4.

Todd Fowler -- KeyBanc -- Analyst

Okay, got it. So we can make our assumptions about what the environments going to look like. But it sounds like from a company cost standpoint, it's more of a cleaner sequential ramp going forward after 3Q at this point?

Tom Schmitt -- CEO

Perfect. Yes.

Mike Morris -- Chief Financial Officer

Yes.

Todd Fowler -- KeyBanc -- Analyst

Great. Hey, thanks a lot for the time today and all the detail.

Tom Schmitt -- CEO

Thank you, Todd.

Operator

Next, we go to Seldon Clarke with Deutsche Bank. Please go ahead.

Seldon Clarke -- Deutsche Bank -- Analyst

Hey, thanks for the question. I just wanted to ask a longer-term question. Are there any other logistics services that you're considering offering, whether it be share distribution model or postal injection anything on those lines? Whether you do it through M&A or by leveraging your existing infrastructure?

Tom Schmitt -- CEO

So I'm going to go first and then Mike is moon lighting as the Chief marketeer sometimes also, so you can go second. But seriously on the -- I do believe and this goes back Seldon to what I talked about before. But which you also saw on the Investor Day, after markets that we actually defined as the space that we are addressing today, we believe, in the US, we have 5% market share. So that's airport-to-airport getting stretched into pickup and delivery, that's where I said we have 40% of our total LTL network revenue today in a door-to-door environment. However, collectively between our Intermodal, between our LTL [Indecipherable] business, in the premium space we only own about 5% market share.

So there are extensions within that shoe box that we are definitely going to get into. I mean, for instance, we have been saying there is nothing that tells us that our terminals in the LTL should be confined to airport or near airport locations. And you will see some of that playing out where our lanes and beginnings and endings of journeys could be outside airport areas and will be at some point soon. So that's definitely a stretch that we feel very, very comfortable with. But again, if we have a profitable business model with a double-digit margin commitment in spaces that we know how to tremendously execute and we only have 5% of the market share, my sense is, that we should be going for these other 95%. But as much [Indecipherable] and constructive impatience as possible and that's the best way to create maximum share holder value and again, I mean we have made quite a bit of stretches with the B2C space now being tripled in terms of our own presence with the FSA acquisition, I believe, let's focus on keep the main thing to the main thing, build out from 5% to 10% to 15% to 20% market share in the areas that we know to nail at double-digit profitability levels. So the short answer would be, I think we got enough goodness to go after within the space that we started occupying and that we started sketching out on Investor Day a bit more detail.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay, that's helpful, thanks. And then, getting back to LTL, if you go back and look for the last several quarters, your tonnage growth has significantly outpaced the industry and I realize the characteristics and mix characteristics are a little bit different, but obviously more recently started to see a little bit steeper declines and you talked about growing with international 3PLs in your door-to-door service, like what is the kind of key reason for that driving the recent weakness like what's offsetting the growth you guys are talking about and when do you think you should expect to get back to positive LTL volumes ?

Mike Morris -- Chief Financial Officer

I'll start and Tom you can chime in there. I think Tom touched upon it earlier is, we obviously have the growth initiatives in door-to-door, we're still building density in that, it's important to note, and I think this goes back to an earlier question, we're not compromising the freight characteristics to get that -- get to that objective. I mean, we're going after heavy dense freight but we're in the early innings of that growth initiatives, making a lot of progress. The broader macro can tug at some of the legacy businesses, it can tug at the domestic forwarder, it can tug at airlines and so it's really a tug of war between the two.

One, the legacy business has a bigger base, so if it goes down a few percent that mathematically is a larger number than a smaller base which is growing more than a few percent so it's really that tug that's kind of the challenge in terms of looking the third quarter in particular. I think that's a little bit [Indecipherable] of what's been going on over the past quarter.

Seldon Clarke -- Deutsche Bank -- Analyst

So it's nothing to do with freight collection or anything like that, it's just underlying demand.

Mike Morris -- Chief Financial Officer

I'm sorry, nothing to do with?

Seldon Clarke -- Deutsche Bank -- Analyst

With freight collection and calling freight anything like that, you're not foregoing your existing business to pick up some of the other heavier goods.

Mike Morris -- Chief Financial Officer

Not in a material respect, I mean sometimes when you -- you know we did some GRIs and we had some targeted price actions around odd-sized freight and what not. But no big picture, it's just the macro pulls at certain parts of our business, while we're growing others. Looking through the cycle, we think they're going to be additive to each other, as we put density on top of density and grow as a network.

Tom Schmitt -- CEO

I mean, perhaps if you step back a little bit Seldon, the one thing I would say is, so we are making conscious decisions to focus on kind of premium services that we provide and get compensated fairly for that. As and when in the short term some of our customers, as I said before, choose to forgo service precision for lower cost. We are holding firm and we are surgically looking for profitable business to complement and fill out capacity that we still have available. At the same time, we are doing what the best companies in our industry and other industries do, which means we hold firm when it comes to pricing. We want to be compensated fairly for the service that we provide.

And again, even if you just look at this earnings call cycle and you look at the types of companies that actually did what they said they would do, and they made or beat consensus. There is something that's common to us and those companies, which is we're very disciplined about sticking to our playbook, sticking to firm pricing and getting compensated for the level of service that we provide, making sure that we work very closely with our customers so that they can actually also get compensated from their customers for that service.

So you will see some of that going on and when you have macro headwind, yes, that's sometimes putting short term into a little bit of a challenging situation. But I'm very, very confident that we are playing that slice of pie game extremely effectively and we will see that build.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay, that's helpful. Mike this is kind of a quick one, my last question. Given all the moving pieces on insurance, how should we think about just corporate costs from the back half of the year?

Mike Morris -- Chief Financial Officer

I would just keep in mind the incremental spend that we've talked about a $1.5 million a quarter as we round out the upgrade in our corporate capabilities, like we talked about in prior calls.

Seldon Clarke -- Deutsche Bank -- Analyst

Is that incremental or just the run rate?

Mike Morris -- Chief Financial Officer

It was year-on-year growth, so incremental. But it's kind of -- it's not going to be repeating at that level, it's just a one-time step up relative to prior year. And then growth is more -- driven type of stuff and after that.

Tom Schmitt -- CEO

Let me build that out perhaps building on Mike, what you just said. So over time, to be very clear, we expect corporate cost as a percentage of total revenue to go down, not up.

Mike Morris -- Chief Financial Officer

Yeah, that's the, -- that's the point.

Tom Schmitt -- CEO

But I guess stay at a similar percentage for remainder of this year and then come down in 2020.

Mike Morris -- Chief Financial Officer

Yeah, once we stand out the automation and get process improvement and things like that and we can grow without adding more cost.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay, Tom, that's it from me. Tanks

Tom Schmitt -- CEO

Thanks Seldon.

Mike Morris -- Chief Financial Officer

Thank you Sheldon.

Operator

Next, we'll go to Kevin Sterling with Seaport Global Securities. Please go ahead.

Kevin Sterling -- Seaport Global Securities -- Analyst

Thank you, good morning, Tom and Mike.

Tom Schmitt -- CEO

Good morning, Kevin.

Mike Morris -- Chief Financial Officer

Good morning Kevin

Kevin Sterling -- Seaport Global Securities -- Analyst

Tom, can I ask a big picture question for you if you don't mind. You know I hear you on the macro and you talk about the slowdown and we can all see that and you stop a little bit of further in your core airport-to-airport business. But if I step back and think conceptually of that business and kind of what we're seeing going on in the marketplace with this move to expedited freight with this move to supply chain speeding up, Amazon obviously continues to push the envelope for speed conceptually I would think that business should do well because essentially is an expedited service offering that would be attractive to a lot of your customers, maybe that's on the com but could you kind of help me bridge the gap conceptually how I'm thinking about that business. Your expedited service offering. As supply chains get faster, I would I think over time that business might be able to [Indecipherable] some of the general freight weakness or maybe I'm not thinking about it right, but if you could help me there I'd appreciate it.

Tom Schmitt -- CEO

Actually that's a very quick answer. Yes, you are thinking about it right. So the -- perhaps a bit more color on that answer is what's happening with supply chains in terms of kind of more transparency, like, I mean, you and I all we look at kind of our smartphones and we see exactly kind of where something is along the way and then we get the picture confirmation of like -- Oh, here's the picture of where it was delivered. So that level of transparency, the level of reliability and the level of speed, all moving in direction that actually is working very, very well for us. So, I mean what you do typically is seen, especially when there is conservatism hesitation about the robustness of the economy, this is where people make trade off's that I believe given where our supply chains are headed which is exactly Kevin what you talking about, it is that faster, it is that more visibility where my shipment, it is that higher reliability where what do you expect to happen actually happens every single time. This precision execution at a high speed level, which is the supply chain trend overall, is playing exactly toward our strength. So yes, do you see a little bit of a peak in value with the economy getting more hesitant and slowdowns happening, yes, you do. However, these medium term trends that you sketched out that I just reaffirm are playing to our strengths in a tremendous way.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay.

Tom Schmitt -- CEO

I like where we're sitting and like where we are heading with that.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. Yeah, now that makes sense. I was just thinking big picture. I don't see this dynamic change at all and with you're expedited service offering and imagine longer term we are just going to be well positioned. Okay, thank you.

Tom Schmitt -- CEO

You and me share that belief.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. Great minds think alike, right?

Tom Schmitt -- CEO

That maybe a presumptive, but I know where we are taking... (multiple speakers)

Kevin Sterling -- Seaport Global Securities -- Analyst

Yeah. And I'm sure Mike is chuckling when I say that. The door-to-door initiatives that you've talked about in your local pickup and delivery that you are now offering. Are you able to cross sell these services and actually be able to maybe win new business, you hadn't won before, maybe pick up new customers and even grow the existing customers? How is the cross-selling activity looking?

Tom Schmitt -- CEO

Yeah, it's a great question. So in our -- there's two things that work well toward more cross selling. One is actually the content focused on it. So I mentioned before these are grow-forward initiatives that our VP of Growth, Matt Jewell, is working with the operations, the sales teams, the finance team, the pricing team certainly that is part of his small group. The cross selling is an explicit part of expanding business. So again grow-forward has a find, a keep and an expand portion, cross selling is part of the expand portion with the dashboard and the expectation of the outcome. We have our top 25 largest customers where we have strong relationships in one business unit and we're building it out to include also other business units. We have conversations very much kind of planned and executed with those large, medium-sized accounts about what Forward Air overall can offer to them.

So content wise very much on it with an expectation and a dashboard and a metric that actually supports that. Structurally this goes back to what I said in my opening remarks, the way we put all of our sales and marketing acumen together under one Chief Commercial Officer area, actually makes that cross selling easier. Because now we have all the sales and marketing team members being part of the same team with Matt Jewell having the lead. So again, both the content focus and the energy is there, mind share is there and the structure now supports that more and very specifically, there is a cross-selling list of targets. There is a cross-selling list of services that go well together and there is a number that we are shooting for.

Kevin Sterling -- Seaport Global Securities -- Analyst

That's it, Tom thank you, Tom and Mike thanks for your time that's all I had. I appreciate it, you guys have a great weekend, thank you.

Mike Morris -- Chief Financial Officer

Thank you.

Tom Schmitt -- CEO

Thank you. Thanks, Kevin.

Operator

And we have a question from Bruce Chan with Stifel. Please go ahead.

Bruce Chan -- Stifel -- Analyst

That's, good morning, appreciate the time as always. Just a question here on FSA. I know it's still early in the process, but maybe you went through this and the diligence and got a better feel for it as you've been integrating the business, but what kind of long-term margin levels are you expecting out of that last mile, we don't really have a lot of public comps to really look at ?

Mike Morris -- Chief Financial Officer

LTL like ?

Bruce Chan -- Stifel -- Analyst

Okay.

Mike Morris -- Chief Financial Officer

That is what we had on our Investor Day, Bruce. LTL like margins, that's how we operated the business that gave us conviction to grow with the FSA.

Bruce Chan -- Stifel -- Analyst

Okay, that's helpful and then it just remind me, do you have any plans to integrate those two networks down the line in terms of your facilities ?

Mike Morris -- Chief Financial Officer

Yes, it is obviously subject to the customers' requirements, but I think looking medium term it makes a lot of sense for us and for the customer to get the scale economies of having this freight be shared with other freight through our terminals and through our pickup and delivery, but that requires the customers agreement. We believe over time, that's where this market will evolve, but right now it's per the customers' requirements which does not have a lot of that going on. But that is our intention and hope going forward.

Tom Schmitt -- CEO

And I mean, in addition to that hope, it's an expectation we have. So there is a boost, there is opportunity intent why the B2C business, why we actually put this mentally and also financially for a reporting segment perspective together with the LTL business. There's a reason for that. Also, I can assure you that our operations team and our CEO, Chris Ruble, is equally fascinated as I am about synergies. So, we put all of these operations' eggs in one basket for that reason, also, so the answer is yes, we should go and we will go there.

Bruce Chan -- Stifel -- Analyst

Okay, great, that's helpful appreciate the time.

Mike Morris -- Chief Financial Officer

Thanks, Bruce.

Operator

[Operator Closing Remarks].

Duration: 58 minutes

Call participants:

Tom Schmitt -- CEO

Mike Morris -- Chief Financial Officer

Wayne Thomas -- Stephens Inc -- Vice President

Scott Group -- Wolfe Research -- Analyst

Todd Fowler -- KeyBanc -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Kevin Sterling -- Seaport Global Securities -- Analyst

Bruce Chan -- Stifel -- Analyst

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