Forward Air Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.22.13 | About: Forward Air (FWRD)

Forward Air (NASDAQ:FWRD)

Q3 2013 Earnings Call

October 22, 2013 9:00 am ET

Executives

Rodney L. Bell - Chief Financial Officer, Senior Vice President and Treasurer

Bruce A. Campbell - Executive Chairman, Chief Executive Officer, President and Member of Executive Committee

Analysts

William J. Greene - Morgan Stanley, Research Division

Jason H. Seidl - Cowen and Company, LLC, Research Division

Jack Atkins - Stephens Inc., Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Kevin W. Sterling - BB&T Capital Markets, Research Division

Scott H. Group - Wolfe Research, LLC

David P. Campbell - Thompson, Davis & Company

Matthew Young - Morningstar Inc., Research Division

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Operator

Ladies and gentlemen, thank you for joining Forward Air Corporation's Third Quarter 2013 Earnings Release Conference Call.

Before we begin, I'd like to point out that both the press release and this call are accessible on the Investor Relations section of Forward Air's website at www.forwardair.com.

With us this morning are Chairman, President and CEO, Bruce Campbell; and Senior Vice President and CFO, Rodney Bell.

By now, you should have received the press release announcing third quarter 2013 results, which were furnished to the SEC on Form 8-K and on the wire yesterday after market close.

Please be aware, this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected future financial performance.

For this purpose, any statements made during this call are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in our filings with the Securities and Exchange Commission and in the press release issued yesterday. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

And now, with a summary of 3Q results, Rodney Bell.

Rodney L. Bell

Thank you, operator, and thank you all for joining us this morning. Starting with our Forward Air, Inc. operating segment, which we break out on Page 7 of the earnings release, total segment revenues increased year-over-year by $4.3 million or 3.5%. This increase was in spite of the loss of a major customer that represented approximately $6 million in the prior-year quarter.

Airport-to-Airport revenue, inclusive of Forward Air Complete, was up 4.2%. This resulted from a total tonnage increase of 5.5%, offset in part by a 1.1% decline in overall yield.

1 additional business day, average weekly tonnage was up 3.8%. By month, this quarter progressed as follows. July was up 1.5%, August was up 5.5% and September was up 10%.

The yield decline consisted of negative 0.8% from linehaul processing, a positive 0.2% from net fuel surcharge and 0.5% negative impact from Forward Air Complete.

Complete's revenue increased approximately 1.6% in spite of the previously mentioned loss of a large customer. This prior year comp will persist through the end of October this year.

Forward Air, Inc. logistics revenue, which is primarily TLX-expedite truckload business, declined $525,000 or 2.5%. This result was due to a lower demand from our core customers. Logistics gross margins did improve 140 basis points compared to Q3 of a year ago.

Other revenues increased approximately $600,000 or 9.1% for the quarter. Operating income increased $1.1 million or 5.8%, improving our OR by 30 basis points to 84.1.

However, on just over 1.3 million additional shares outstanding, our EPS was flat with the prior-year quarter.

Moving to our Solutions segment. On the strength of new business wins, Solutions grew revenue by $10.3 million or 52.8%. The majority of this new business startup and related expenses completed in the quarter operating income increased $1.2 million and EPS increased $0.03 per share from $0.01 in Q3 of 2012.

Lastly is our TQI reporting segment. On revenues of $12.4 million, we converted $534,000 to the operating income line, posting a 92.4 -- pardon me, a 92.5 OR, compared to a 93.4 in Q2 of 2013.

While we're pleased with the continued operating improvement, we are anxious to get our operating system up and running in order to maximize profitability on both the existing as well as new business coming on line. We expect to go live in the next 30 days.

Wrapping up my final comments on the consolidated level. Pardon me. Our tax rate was 37.6% for the quarter, compared to 31.1% Q3 a year ago. Net CapEx for the quarter was $4.7 million and $31.6 million year-to-date against the full CapEx budget of approximately $35 million. We end the quarter with $98.6 million in cash, essentially no debt and $138.4 million available on our line of credit.

Lastly, we anticipate -- pardon me, we anticipate third quarter revenue will be in the range of 17.21%, approximately 9% of that growth coming from TQI. Income per diluted share is expected to be between $0.53 and $0.57, compared to $0.54 in Q3 2012.

We feel that it is meaningful to note that the prior year quarter -- prior year Q4 quarter included a onetime tax benefit that have had a $0.04 positive impact on the quarter. Also impacting the comparison is an estimated $1.8 million of additional shares outstanding with approximately $0.03 negative impact on Q4 2013.

While our outlook for earnings per share is essentially flat compared to Q4 2012, we anticipate operating income growth of approximately 15%.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of Bill Greene with Morgan Stanley.

William J. Greene - Morgan Stanley, Research Division

Rodney, I'm wondering, can you comment a little bit more off or a little bit more color on some of the macro comments you've made? Because a number of the transports have actually given us a little bit more of a moderate kind of outlook, even sort of suggesting that demand is a little bit tepid among some of the trucking names. So maybe you can comment a little bit more about what you're seeing there?

Rodney L. Bell

Sure, Bill. It's kind of hard, but with the insulation between us and the actual shipper with a freight forward a bit, our sense is that typically our demand runs 2x to 2.5x domestic GDP. With tonnage in excess of that, we think we're winning share for the balance of that, so it's about a 50/50 split between that. But again, versus folks that are hauling general commodities were high, we're hauling high-value freight, stuff that going into the Christmas season, whether it be electronics or what have you, seems to have a higher demand.

William J. Greene - Morgan Stanley, Research Division

Then, do you have a sense that you'll get a pretty good fourth quarter peak because of what you're hauling?

Rodney L. Bell

Right now, that's our sense. And thus far into Q4, that's what we're seeing.

William J. Greene - Morgan Stanley, Research Division

Okay. And then when you look at some of the strategies you apply, owner-operators and that sort of thing, is hours of service having any significant impact on your ability to achieve your goals?

Rodney L. Bell

Not as much as it would some folks, simply because we run a large majority of teams, which the hours of service has diminished the impact on.

William J. Greene - Morgan Stanley, Research Division

Okay, fair enough. And just last question, M&A, when you look at some of the targets -- Because I know you say, you've looked at it a lot from time to time. What are the key attributes you are really trying to solve for? A lot of your sort of peers in the logistics space have done a lot of acquisitions. You guys have sort of said, "Hey, it's been tough with valuations over there" and what not. So what's the difference between their strategies and yours?

Rodney L. Bell

Sure, Bill. We stick with the asset lot model. We want to achieve double-digit margins, either immediately, if not, then in very short term. We're cognizant of channel conflicts with our customer base. That's a big attribute there. And we look into areas where we can provide value. I mean, we don't want to be a general commodity -- we want to differentiate ourselves through service. So that's really the attributes.

Operator

And we do have a question from the line of Jason Seidl with Cowen and Company.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Guys, the first question, you said you're going to get your operating system live here by the end of the month. Can you talk a little bit about what you see the impacts from both the cost-saving side and actually potentially a revenue side with customer facing?

Bruce A. Campbell

The main reason we're going to implement the system is simply for additional controls over the business as we see today. And the reason for that, the paramount reason is we're not hauling dog food. We're hauling refrigerated loads of pharmaceuticals, et cetera, that require extreme temperature monitoring, extreme security measures, et cetera. And so as they -- our friends at TQI hit a certain level of business, it becomes paramount that they have an operating system that they can rely on to run their business every day. We're very close to having that implemented. And when we do have it implemented, I think you're going to see us pushing really hard to improve the revenue from their current business plus additional opportunities that they have. On the operating side, you're just able to better track the equipment. You're better able to track the various experiences that go along and you want to make sure that we're doing everything the best possible way.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Okay. On the Airport-to-Airport side, could you guys talk a little bit about the pricing environment? It sounds a little bit from your -- I guess your lack of commentary that it's gotten little bit better than it has been sort of than some of the prior quarters?

Bruce A. Campbell

The volume cures a lot of pricing issues. So we're able to -- we approach this in a 2-step manner. One is we'll slow down spot rates, what we call spot rates, which are temporary rates that the field gives to our various customers. And that has been implemented for the last 3 weeks, and we're seeing very positive results on that. Assuming that volumes continue and we think they will, then you'll see us taking additional steps in the near term.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Okay. And piggybacking on one of the prior questions here, obviously, you do have a little bit of a different outlook than some of the other transportation providers I guess that are more direct, if you will, with some of the customers facing. Are you seeing some of the impacts at all from some of these electronic rollouts that are -- that have been coming along here in the quarter? Or are you guys sort of a little bit immune to that?

Bruce A. Campbell

We actually seem [ph] really closely. So one of the ways we can look and see that firsthand is via our distribution business, which has been extremely busy for the last -- we're experiencing that. We like it.

Operator

And we do have a question from the line of Jack Atkins with Stephens.

Jack Atkins - Stephens Inc., Research Division

I guess to start off with, Rodney, if you could kind of go back to the volume progression through the quarter, it seems like volumes really ramped in the second half of the quarter. Could you maybe talk about what was driving that? I know it seems like a mix between the macro and taking share, but could you may be highlight a couple of the items that's helping you guys to take share in the current market?

Rodney L. Bell

Sure, Jack. Going back starting with July, it was up 1.5%. It went to 5.5% in August and then 10% in September. Thus far through October, we're seeing weekly volumes up anywhere from like 6% to 8%, so it's remained good. From the macro standpoint, again, we think it's -- to the previous question, we think it's the type of goods that we're hauling that's helping us, where somebody with a focus on general commodities may not be getting that benefit. And the other thing, Jack, is we hear from our customer base that some of our competitors are not as good as securing capacity as we are and they're not providing the level of service that we are. So with these high-value goods, service is paramount.

Jack Atkins - Stephens Inc., Research Division

That makes a lot of sense. Just to kind of follow up on that, we've heard of some international freight forwarders who are maybe looking to get bigger in the domestic market by offering some time-definite door-to-door wide globe services. I guess our first sense when we hear that is maybe it's an opportunity for you guys, just given your national footprint, to take more share in the deferred air freight market. Is that something that you think is an opportunity for you guys over the course of the next 12 to 18 months?

Rodney L. Bell

Absolutely.

Bruce A. Campbell

And let me put this color on it. We've been in business for 23 years. And probably for 22 of those years, we hear this over and over that the internationals are going to get into the domestic market. That does occur on some occasions, but typically it's not a long-term project. There are exceptions to that and certainly we support them and it's good for our business. But it's nothing that we're going to jump up and down about until we see their total commitment to it.

Jack Atkins - Stephens Inc., Research Division

Okay, that makes sense. And then Bruce, just following up on your commentary on the competitive landscape and pricing. It sounds like things may be getting a bit better on that front. Would you expect core line all yields to stabilize in the fourth quarter? Or given that you're lapping your GRI, maybe you'll see those linehaul yield declines accelerate a little bit in the fourth quarter? How should we think about that?

Bruce A. Campbell

We're looking strictly at stabilizing them now and then we'll have a second step in the near term.

Jack Atkins - Stephens Inc., Research Division

Okay. That's also very encouraging. Last question from me, Bruce, your cash flow remains very impressive. You guys are almost back to $100 million in cash on the balance sheet. I understand that M&A remains the top priority for your cash. But is there some thought maybe just given how difficult it can be to find source and close acquisitions, not to mention integrate them, maybe looking to step up your share repurchases or maybe increase the dividend, just maybe to pursue both avenues, I think you got the cash flow to support both.

Bruce A. Campbell

Well, that's our exact strategy as we go into the fall and we prepare for 2014 is to look at those various options. So as you stated, number one is anytime we have a good acquisition target, we're happy to spend money on it. Number two though would be what are the other alternatives, and that's basically what the management group and the board will decide in the near term.

Operator

And we do have a question from the line of Todd Fowler with KeyBanc Capital Markets.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Just a question on the Airport-to-Airport business, the purchase transportation costs, the net revenue contracted a little bit on a year-over-year basis in the core and both sequentially. Is that a function of the reacceleration in volumes and having to rely more on third-party capacity to move some of the freight with the pickup that you saw in the quarter? Or is that something more on the cost side with your owner-operators?

Rodney L. Bell

You answered the question, Todd. That's exactly what it is.

Bruce A. Campbell

The other thing that jumps in there, Todd, is we talked about distributions earlier. Sometimes they will occur in an area of the country that will drive the PT to be a little bit higher for that business than the normal Airport-to-Airport. So not to confuse or to get too far in the weeds, when you have a lot of distribution business, you will see our PT in most cases skewed up just a little bit.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And Rodney, how long does it take you then to get your arms around that? Is that something that you're going to see this big increase in volumes in September that it normalizes as you move into the fourth quarter? Or is it going to be a quarter or 2 impact to get the network back to where you need it to be?

Rodney L. Bell

It will impact the fourth quarter but just about the nature of the business in the first quarter will come down. But it's really just a simple -- I say simple. It's simple. But displacing those third parties miles with recruiting owner-operators. So...

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then do you have any concerns on the capacity side, either your access to capacity or what you're paying for capacity, based on what we're seeing kind of in the broader truckload market at this point?

Bruce A. Campbell

The quick answer is no.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay, I'll take the quick answer. On the pool distribution side, Bruce, I guess I'm curious, we've heard some very mixed things about more of the specialty apparel retail environment going into the fourth quarter. My impression is historically that business has been dependent on that. But I know you've done a lot to improve the mix. How do you feel about that, I was about to ask how confident -- how do you feel about that business into the fourth quarter, just given what we've heard on more of the apparel side of the retail world?

Bruce A. Campbell

Well, number one, we're extremely pleased with the progress that they've made. We've got more work to do. We're confident that they're going to do that work and get this business exactly operating the way we want it to. On the various retailers, you almost have to look at each one individually. Some are doing very, very well and some are doing okay and a few are not doing well. So we can't tell you probably anything that you haven't read about the retail market. You know who the good ones are and who the ones are that are struggling.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then what would the expectation be for Solutions as you move into '14 at this point? I mean, do you think the business is to the level where you can see profitability every quarter during the year? Or is there still seasonality in the first half of the year and expectations for profit in the second part of the year?

Bruce A. Campbell

We -- as we said from the beginning, our base thought on that is breakeven Q1 because it's an extremely tough quarter. Retail business, an operating ratio of 95 in the second quarter, an operating ratio of 92, somewhere in that vicinity, in the third quarter and then a normal, strong fourth quarter, which overall gives us an operating ratio we're hoping low 90s.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then the last one I had, do you have a growth rate for TQI year-over-year in the third quarter? And I know that there was some business that you didn't take when you made the acquisition -- the plan that you were going to walk away from. But I guess I'm trying to get an idea for what that business is growing year-over-year. And then I think somebody earlier asked about the ability to grow that business going into '14, and I just wanted to get a sense of how you think about the growth rate for that going forward?

Bruce A. Campbell

Our market position there is we think we have a true leader in terms of quality of service. We don't have a true leader in terms of percentage of the market share. So we think there is obvious opportunity to grow. So we'll go out in 2014 at a minimum of 15% year-over-year improvement, but we actually think we can do better there.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

And from a comparable business standpoint, do you have a number for the third quarter?

Rodney L. Bell

I'm not being -- this is really fuzzy because of the business that we knew going in before we consummated the deal that we already knew was off the table, it was going out the door. It's flattish.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Flattish with the business or flattish if you adjust for the business that you were going to take?

Rodney L. Bell

Flattish with the business going out.

Operator

And we do have a question from the line of David Ross with Stifel.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Active pool distribution, looking at the 55% growth there, how much of that was from new customers versus existing business? I knew you've had some big new business wins earlier in the year.

Bruce A. Campbell

Almost all of it, David, was from new customers.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then back to TQI, we saw the margins improved a little bit sequentially from 2Q to 3Q, the seasonality in that business. What's kind of the most profitable quarter of the year for those guys? Or are all 4 quarters relatively within 100 basis points of each other?

Bruce A. Campbell

Relatively within 100 basis. They go through flu season. They go through allergy season, those types of things. But it's not anything radical.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then the volume growth that you're experiencing Airport-to-Airport side, is that coming from any specific geographic region? Or were there any patterns to develop throughout the third quarter in terms of demand?

Bruce A. Campbell

Our answer to that, David, would be pretty much across the board. If you pushed us to give a stronger region, we would probably look at both the Midwest and the West as being the 2 strongest. You can even throw in the East a little bit.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then the last question, why were there no share buybacks in the third quarter? Acquisitions weren't done. There is still a good amount of shares remaining under authorization. Just curious to why nothing was...

Rodney L. Bell

Really just a matter of valuation, Dave.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. What valuation do you think share buybacks increase?

Bruce A. Campbell

The answer to that question is it's a decision made by the board in conjunction with us. So we're meeting Thursday. And hopefully, we'll have something come out of that. We may or we may not.

Operator

And we do have a question from the line of Kevin Sterling with the BB&T Capital Markets.

Kevin W. Sterling - BB&T Capital Markets, Research Division

You talked a little bit about -- you're always looking for acquisitions. What are you seeing out there in terms of opportunities? Are multiples still too high in your opinion?

Bruce A. Campbell

Let me put it this way. The few that we've looked at recently have been very realistic, have been very good opportunities for us and we're pleased with that. At the same time, there's probably countless others that are at best severely overpriced. So we're just not interested in doing that type of deal. We are interested in buying a quality company. TQI is an example of that. But there are other opportunities as we move forward this year. So overall, the market I would say is okay. It's nothing special. It's nothing bad.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay. And Bruce, you talked earlier about winning back some business because of service. When that happens, do these customers that come back to you, are they a little more sticky when that competitor maybe comes around with a rate that just doesn't make sense, so that basically, what I'm asking, maybe the next time that customer may not jump ship so fast. Does that make sense?

Bruce A. Campbell

Your thesis is sound, but we also know that if somebody comes along 3 months from now and hits them with the gutter rate, they'll probably take it at least once.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Right. So they have a short-term memory, but once service fails, they come back to you is what I'm hearing.

Bruce A. Campbell

Correct.

Operator

And we do have a question from the line of Scott Group with Wolfe Research.

Scott H. Group - Wolfe Research, LLC

So Bruce, I think you mentioned that step 2 on pricing is coming in the near term. So should we be thinking about a GRI? Do you think that's realistic in the first half next year? Or do we have to wait more towards the back half next year?

Bruce A. Campbell

First half.

Scott H. Group - Wolfe Research, LLC

What's that?

Bruce A. Campbell

First half.

Scott H. Group - Wolfe Research, LLC

Okay. And do you think that could be similar with what we've seen in past years, just from a percentage standpoint?

Bruce A. Campbell

I'm sorry, Scott, yes, that's a fair assumption.

Scott H. Group - Wolfe Research, LLC

Okay, great. So now that we're lapping the kind of the back step that impacted Complete. How should we think about growth in Complete shipments going forward? Do you think that's a big growth opportunity? Or is that going to be kind of just track more in line with kind of the core Forward Air business?

Rodney L. Bell

Scott, it should be a bigger opportunity than the core business with the customer that we've talked about, the attachment of Complete was 100%. So the impact on the prior-year comp was pretty dramatic. With that out of the mix, starting first of next month, Complete should grow in the 15% to 20% range.

Scott H. Group - Wolfe Research, LLC

Do you think that's where you've been seeing the past few quarters access [ph] this 1 customer issue?

Rodney L. Bell

Yes, Scott. Certainly in Q3.

Operator

And we do have a question from the line of David Campbell with Thompson, Davis & Company.

David P. Campbell - Thompson, Davis & Company

I just wanted to ask you on the TQI business. Are any of that use -- can use network capacity in the airport side?

Bruce A. Campbell

We typically, David, have been working for the last month, 6 weeks, utilizing some of the TQI business to backhaul in and we put them into the Forward Air system for a lag or for a one lane. So they may end up and this is -- I am just making this up. They may end up in LA with a load of pharmaceuticals. And we'll load that truck at our Airport-to-Airport facility back to Columbus. So as we get more and more into the integration, we are seeing some big positives out of that. So that's a good pickup on your part.

David P. Campbell - Thompson, Davis & Company

And I'm -- given the fact that your operating ratio or your purchase transportation percentage of Airport business is -- I thought there would be more leverage. I thought that percentage would go down as the network revenue went up. And now you're adding TQI in some places. Is the 42% -- I mean, 42% I think it was, I'm not sure, quite sure -- it seems high. I remember when it was below 40% for a while.

Bruce A. Campbell

I think what you have to do there, David, is break it out. What you're looking at is a combined PT. If you look at just our Airport-to-Airport segment, it runs somewhere between, on a really good quarter, 36, and on a not-so-good-quarter, 38, on just Airport-to-Airport. Does that make sense?

David P. Campbell - Thompson, Davis & Company

Yes. So some of the business is not at the traditional lower...?

Bruce A. Campbell

What happens is when we -- part of that PT reflects our TLX charges and our Complete charges. So purchase transportation for our truckload is a higher component than for the Airport-to-Airport. Now what you'll see in Q1 of 2014 is we'll break that out differently so we don't have that confusion.

David P. Campbell - Thompson, Davis & Company

So you're going to have that broken out next year? Okay. And the Logistics business seems strong. Any reason for that or anything you've changed?

Rodney L. Bell

David, on the consolidated level, that's the impact of TQI rolling up under that Logistics line item.

David P. Campbell - Thompson, Davis & Company

That's right. And your labor costs seem relatively high in the quarter, of course, your revenues were, too. Is profit sharing and bonus provisions adding to that cost?

Bruce A. Campbell

I wish they were .

Rodney L. Bell

Really to the greater extent, David, it's labor to service that increased Solutions business as well as higher in the prior year group insurance costs and just a little bit of higher field incentives to your point.

David P. Campbell - Thompson, Davis & Company

So we should see more leverage there in the fourth quarter when the Solutions business peaks?

Rodney L. Bell

We should.

Operator

And we do have a question from the line of Matt Young with MorningStar.

Matthew Young - Morningstar Inc., Research Division

Just again regarding the cross-selling opportunities at TQI. I think you've also mentioned in the past that some customers have a material amount of drive and freight as well. I don't know if that's what you were referring to before with some of the opportunities. But just wondering if you've been able to capitalize on that for the TLX business or if you see -- still see that as an opportunity?

Bruce A. Campbell

It's still a big opportunity. We believe a lot of changes are going on at the various pharmaceuticals companies that will help us with that. We've had some of it but minimal at this point. It's definitely a goal as we move forward.

Matthew Young - Morningstar Inc., Research Division

Okay. And then just quickly on the Airport-to-Airport business, have you guys been increasing the driver pay at all? I know in the past you mentioned increasing pay for drivers. I think it was for those that purchased new tractors to help them out. Have the increases moved beyond those kind of...?

Bruce A. Campbell

No. They've remain the same, that if you do purchase a new tractor, we up your rate.

Operator

And we do have a question from the line of Ben Hartford with Baird.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

First, can we get just a little bit more granularity in terms of the 4Q dynamics? I guess first from the government shutdown perspective, we've been hearing about some ship delays that had started early in October because of the shutdown. I'm just wondering if you're seeing any uptick in expedited related demand as a result of that toward the end of the month, as you work through the backlog or if there's any concern about the impact of the government shutdown and therefore, greater utilization of air freight as a result of it. That's kind of point one. And then point two, I'm just wondering if there's any impact whatsoever from the 6 fewer selling days from a retail perspective between Thanksgiving and Christmas on behalf of your customers and the need or the demand for expedited services as a result?

Bruce A. Campbell

Answer to Q1 is we have not identified that phenomenon happening. And that's not to say that we necessarily would either because that would be a customer-specific thing. On the second question, which is really an interesting one this year, in our discussions with the retailers, obviously, they're well aware of it and truly don't have -- what I would say, a really good grip on how they're going to handle it. I think you'll see that as we play through November, depending on who the retailer is and how their business is. You're going to see them respond in ways that they haven't in the past, but that remains to be seen.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then on TQI, as you get the system rolled out, I know you'll have it done by the end of the year, should we expect the margins in that segment in '14 to be full-blown? By that, I mean representative of what you guys can do? Or is there still more work to be done from an integration standpoint, and we should look to '15, all things equal, before we see whatever OR level you have targeted for that unit?

Bruce A. Campbell

We'll be good in '14.

Operator

And at this time, there are no further questions in queue. Thank you for joining us today for Forward Air Corporation's Third Quarter 2013 Earnings Conference Call. And please remember that the webcast will be available on the IR section of Forward Air's website at www.forwardair.com shortly after this call. That does conclude your conference for today. Thank you for your participation and for using the AT&T Executive Teleconference service. You may now disconnect.

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Forward Air (FWRD): Q3 EPS of $0.46 in-line. Revenue of $170M (+18.5% Y/Y) beats by $7.9M. (PR)