Forward Air Corp (Delaware) (FWRD) 2021 Q3 法說會逐字稿

Thank you for joining Forward Air Corporation's Third Quarter 2021 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, Rebecca Garbrick.

By now you should have received the press release announcing our third quarter 2021 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed.

Please be aware that certain statements in the company's earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. Forward-looking statements can be identified by using -- by the use of words such as anticipate, intend, believe, estimate, plan, seek, project, expect, may, will, would, could or should and the negative of these terms or other comparable terminology.

This conference call and the company's earnings press release contain forward-looking statements which include, but are not limited to, statements related to future operations and results, any statements of plans, strategies and objectives of management for future operations and any statements about future financial or operational targets. These statements are not guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such 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 related 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.

Thank you, David. And also, and most importantly, a big thank you to all of my Forward Air teammates and our independent contractors who made our record third quarter possible, a record quarter that actually culminated in a record month for our company, the month of September. And let me just take a moment to go inside our businesses for the quarter and give a little bit of a sense.

Intermodal, one of our 2 segments, had a very, very consistent 3-month period, producing the expected, what we call, double-double, a double-digit margin and a double-digit growth rate. They are very consistently producing those types of numbers, and I'm very proud of our team there.

Then when we go into our other segment, Expedited Freight, 2 of the 3 lines of business, Final Mile and Truckload, also were very consistent throughout the 3-month period.

Now the third business inside Expedited Freight, our LTL business, was a different story in a very good way. We executed a transition throughout that quarter. And I mentioned on our last earnings call in July what that transition would be about. We are working, and we did work very closely, with our LTL customers, eliminating inefficient freight, inefficient meaning loose, oversized, non-palletized from our system, to ensure one thing and one thing only, that our network is unclogged and delivers the speedy, no-damage, on-time service our customers expect.

July and August inside that quarter were a bit of a handoff of the baton from that inefficient freight, which we dialed down and out, to dialing up more dense, high-value freight. That baton handoff was superb. It also, frankly, caused us coming in on the revenue side slightly below guidance.

Now in September, the whole thing came beautifully together. Inefficient freight gone, dense or high-value freight dialed up, resulting in a September 2021 over a September 2020 in our LTL line of business where the weight per shipment was up by about 30%. Our revenue per shipment year-over-year September was up by about 50%. And in LTL, operating margin for that line of business for the month of September of 17.5%. We're getting there.

So let me put where we are with the third quarter and with September into context. Let's go back a couple of years. On Investor Day in New York 2019, we announced a double-double in the medium term. We are prepared to go for a double-digit margin company and a double-digit revenue growth on an ongoing basis. We had a grow-forward program to go after more high-value freight.

Now that's when luck means preparedness meets opportunity. We were actually prepared to dial up higher-value freight. We didn't know that last year, the opportunity that actually came ringing was called COVID. Now all we did with all the events business temporarily gone, we used our grow-forward program to dial up high-value freight faster, just doing good things faster. So again, luck is when preparedness meets opportunity. We were prepared. We just didn't know what opportunity would cause us to run even faster.

So we dialed up high-value dense freight at record speed. And that resulted in a first set of double-double months in April and June of this year, so less than 2 years after our double-double announcement in New York. It resulted in a full quarter double-double in the second quarter of this year. Again, a double-double in this quarter we're just talking about here, Q3.

And then obviously, having dialed up our high-value freight at record speed allowed us to go ahead with that exact cleansing that we just talked about of our lower-value, inefficient freight out and higher-value freight in. That got us to our record quarter and to the September that we just briefly discussed.

So where do we go from here? October continues to be very, very strong. In fact, again, for the LTL line of business, the first 2 weeks of October were the highest and the third highest tonnage week in the history of our company, with revenue about 35% over the same 2 weeks last year. We expect that strength to continue, putting us into a position for another record quarter.

We expect Q3 -- sorry, Q4 to come in at an adjusted EPS of $1.27 for a full year EPS of $4.32. We also expect, looking forward to next year, 2020 (sic) [2022], we won't do just double-double months or double-double quarters. 2020 (sic) 2022 clearly will be a double-double year for our company.

That takes us to 1 year further out to 2023. To give you a sense there, we are targeting revenue for 2023 between $2 billion and $2.6 billion, and EPS between $6.30 and $6.70. That's comparing to the $4.32 that we expect for this year.

Now, let me talk briefly about that revenue range from $2 billion to $2.6 billion that I just talked about. The high end of that range will be achieved only if we step up significantly with more focus on brokerage, making sure we have controlled access to high-quality outside mass when we have to flex up in support of our customers. The lower end of that range is when we keep growing organically the way we have, with small tuck-in acquisitions the way we have. But it's still going to be significant organic growth, on the LTL side, for instance, including a handful or so of terminals that we're going to roll out next year, secondary terminals that are of significant size in primary markets.

So organic growth will happen. That's getting us to the lower end of that range. If we do more aggressive M&A, specifically also enhancing brokerage organically or inorganically to secure the access to our driver pool that we need to support our growth, that's what will get us to the higher end of that revenue range. We still feel very, very comfortable with the range of EPS between $6.30 and $6.70 for 2023.

So stepping back, before I turn it over back to David. If you think of the last 2 earnings calls, in April, we talked about hitting the stride. In July, we talked about running. I can say today, we're actually at a point where it's stretch time.

So with that, David, I'll give it back to you and you can open up the lines for Q&A.

(Operator Instructions) Our first question will come from the line of Todd Fowler with KeyBanc Capital Markets.

It's Zach on for Todd. Tom, I appreciate the detail you gave on the 2023 target. So sounds like the high end is a bit more inorganic. But just looking at the EPS range at $6.30 to $6.70, is that also an inorganic number at the high end? Or is that organic for both? Because when I put in the high end for the EPS, I'm coming to a margin that's more in line with where you guys are at. So just some additional color on the '23 targets would be helpful.

Yes. Let me start, and I'm going to ask Rebecca to add to that. So we feel very, very strong that on the organic side, we're going to continue expanding our margins. So whatever we saw in Q3 and whatever we saw specifically in the month of September, I used inside the Expedited Freight segment the LTL margin as a comparison point, we're going to continue seeing improvement there.

We always said, even back to last year's calls, for us as a company to have a comfortable double-double LTL inside Expedited Freight has to be in the mid-teens or better. So that's what we expect for 2023, to be in the mid-teens or better.

Let me just leave it there and Rebecca, if you can perhaps add on to that.

Sure. So just adding on a little more to what Tom said. So if we kind of back up a little bit and just talk through our revenue mix in the inorganic space that Tom talked about, so I just want to add and unpack that for you.

In terms of where we've been, right, so if we think back to 2014, we've done 12 Intermodal acquisitions that have been true tuck-in acquisitions. We've gotten attractive multiples, and they've certainly been accretive to our business. So we believe that those tuck-ins certainly will help us in terms of growing our margins as we head into 2023.

Then if we take a look at our Final Mile acquisitions in 2019 and 2020, they certainly indicated that we are capable of extending beyond those tuck-in acquisitions. And we believe, as we look through our research, that our inorganic growth can continue to extend and stretch us more beyond those tuck-ins. We believe that our corporate development team is comprised of highly skilled professionals that have a proven track record. So we plan to use our capital in a way that will focus on achieving a high return on our investment.

And then if we look at our organic growth, as Tom has previously mentioned about, focusing on specific SIC codes, like our automotive, industrials, and health care and where we can capture the high value of that higher-quality freight. So as we look to our organic growth, we will certainly focus on capitalizing on the growth levers for our LTL business, which is a higher incremental margin business. And then that strength of our LTL business will help to support our solid operating margins from our Final Mile, Truckload and Intermodal lines of business.

And then as we holistically think about it, we have not made any radical shifts in our tax rates when we came to our EPS range and we didn't change any of our significant lever ratios. We have thought about these 2023 targets, and we believe the targets are reasonable. And we think that based on our strategy that we can achieve those.

Okay. I appreciate all the color there. And then I guess just more of like a near-term question.

Zach, did we lose you? (technical difficulty)

(Operator Instructions) We're going to go on to the line of Jack Atkins.

Okay. Great. Tom, Rebecca, congrats on a great quarter.

Thank you, Jack.

So I apologize if I missed it, I've been kind of hopping between calls this morning. But I guess I would just love to maybe dig in a bit on some of the longer-term targets that you laid out with the 2023 outlook. If I understand it correctly, the revenue range has some acquired revenue in there, but the bottom line range is more organic. I guess can you maybe help us think through some of the bigger pieces that are going to be moving in there from a core business perspective? I think it's really encouraging that you're talking about earnings growth into 2023. But would just like if you could maybe kind of expand a bit on the strategy to drive that core earnings base higher in 2023.

Okay. Thank you, Jack. And I'll do it in kind of broad strokes, but hopefully I think that will give you a pretty good sense.

So again, you pointed out correctly that revenue range is pretty broad. That's between $2 billion and $2.6 billion. The only difference on the revenue side, and that's a significant difference, it's like a $0.5 billion difference, is if we do things beyond the execution of the current business model, which is high organic growth complemented with tuck-in style acquisitions, so if we did brokerage, like super high organic and/or an acquisition of a brokerage.

Just to make very certain, we are both ROIC friendly and we also have access to our quality drivers at all times so that we can flex up our LTL and TL volumes the way we would need to. We might do a brokerage acquisition or we might just organically, and Scott Schara has tremendous experience in growing brokerage businesses organically. That's the difference between the $2 billion and $2.6 billion. It's brokerage-enhanced one way or another. And it's also -- what we did, we changed the haul on the LTL side, if we actually want to -- in addition to building out significant sized terminals, which we will do over the next year. If you, in addition to that, want to do a bigger LTL acquisition, that's considered there.

The quality of the revenue is tremendous, inside kind of the low end of that $2 billion $2.6 billion range. So that's kind of $2 billion, $2.1 billion. And that would assume, from what we're ending up this year, $1.6 billion or so, that we have high organic growth, that's high-quality organic growth.

And this is where I said I fully expect us, with the high value of freight that we have right now, that we're going to continue moving up the LTL margins into the mid-teens and perhaps even slightly above the midpoint of the teens over the next couple of years. What we did in Q3 and in September, specifically to me, is the clean starting point for where we are at right now.

The quality of the freight, even in a looser environment, allows us to actually price in a very disciplined way. When you do a relatively kind of low-value, low-density e-commerce products, if the market gets softer, I think it's going to be harder to maintain pricing discipline.

When you do high-value dense freight, and Rebecca mentioned some of the industries like medical equipment, high tech, industrial parts, spare parts, for those types of higher value moves, I like our odds tremendously of having the same pricing discipline or better in the next 2 years that we had in the last 2 years.

So that hopefully gives you a bit of a flavor where that $2 billion to $2.6 billion comes from and the increasing quality of what's inside the lower end of that range organically.

No, it absolutely does. Thank you for that, Tom. So I guess maybe shifting gears a little bit, and I'd like to talk a bit about your vision for your LTL network as you look out over the next several years. I think historically, the expedited LTL business that Forward Air has operated has been heavily reliant on 3PLS as the principal customer base there, with some airlines and some of the integrators as customers as well. As you look out into the future, Tom, is that still the way you think the business should be structured? Or do you think that also there's a role for working directly with the actual ship or the beneficial cargo owner would make sense over time as well?

Yes. So the first thing I should say is -- and this is, Jack, not the question you're asking directly, but I do want to give you a little bit of a broader sense. In our other lines of business, so inside Expedited Freight, take Final Mile, even Truckload, or certainly taking Intermodal, in those lines of business, we have a tremendous amount of experience today already working directly with BCOs, with people who actually make stuff or ship stuff directly.

So LTL, to your point, that's going to be different in that way. The vast majority of what we do is through third parties, domestic forwards, international forwarders, airlines, 3PLS. Going forward, this will be an and, not an or. So we are building out, selling directly to BCOs, to commercial shippers. We also are working very closely with our kind of forward or 3PL partners.

They tend to go after medium-sized, large complex shippers, and there's a vast space available to us in the small, medium-sized business arena, where we actually complement what we do with our middleman-type customers versus stepping on their toes. So this could be an and, and an or.

And by the way, those domestic forwards, international forwarders, they will always be super important to us. And now especially that our freight is higher-value freight for them, we're going to continue working with them on that. Because they, frankly, want the type of service we provide, the reliability, the speed, the no propensity to damages for those types of moves. And they're going to continue using us. And we're going to do everything possible to be, by far, the most compelling partner for them that makes them win.

At the same time, there's ample space, ample space, selling more to BCOs directly in the SMB space, where we are complementary to what I just said about the forwarder customers. I like our ability to grow on both fronts tremendously and, frankly, doing this in a very, very complementary partner-based way.

Okay. That's exciting to hear, and it really opens up a pretty significant portion of the market to you as well. I guess, maybe, again, staying along the lines of the -- thinking about the longer-term nature of the LTL business, but how are you thinking about the ideal asset intensity of that business over time? As you look to sort of grow your network, add more terminals, does it make sense to remain principally a non-asset-based business when you think about the trucks that sort of move the freight around your network? Or do you think about maybe having more company-controlled, company-owned equipment make sense over time as you add capacity to your network?

Yes. To me, this whole game is about access to high-quality resources. So when I talked before, enhancing our focus on brokerage, think about it this way. So in a soft economy, we have a very small but superbly qualified, stable of employee drivers. We always did have that. We always will have that. We have our core roster of independent contractors who, frankly, have been tremendous with us for decades.

Now, what we've seen the last year, there are cases, there will be cases where our customers are calling on us and they will want to rely on us that we move their freight and they're asking us to flex beyond those 2 sources of power.

Enhanced focus on brokerage means finding access to quality power that allows us to flex up in those situations. That's what we're going to be doing. That does not mean, Jack, that we should be buying a whole bunch of trucks. It just means that we should have quality access to high-quality drivers, and brokerage allows us to do that organically and/or inorganically, depending on what gets us there better.

The same with terminals. The vast majority of our terminals are on long-term leases. We do own a few. And as we build out strong kind of second terminals in primary cities and primary locations, we'll do whatever it takes. And if that, in some cases, means actually owning a piece of property, we can do that. We are very much in the asset-light spectrum. Leasing some and buying 1 or 2 will not get us out of that asset-light spectrum.

Remember, Columbus, we are doing a significant expansion. This is actually a terminal that we own. So that is our own capital that we're putting in there. To me, the go-forward picture is high organic growth with access to quality resources. In some cases, it might require capital.

Again, think of Columbus, and it may be that 1 or 2 of our terminals that we're going to be expanding into requires that. In most cases, it's ensuring access and does not require buying something. Good example is the brokerage business that just allows us to flex up and down in a high quality way.

Okay. All right. That's helpful. And then last question for me, and I'll turn it over. But as you think about doing more with these BCOs versus 3PLs or freight forwarders, obviously those are going to remain a very key customer base for you, how do you think about the final mile attachment? I'm not thinking about B2C final mile, but B2B final mile, taking that cargo to your customers in location versus having them coming to your facility to pick it up. Where is that attachment rate today? I think that's the way we long time ago talked about it, is that final mile attachment. Where is that today? And where do you think that goes over time? And do you need to make investments in that local cartage network to make that happen?

So first of all, I mean, if you look at the way we actually -- Jack, and you know this as well, the way we typically tend to talk about it is airport-to-airport versus door-to-door. That has gotten from a -- take 20 years ago, even like 12 years ago, where it was 100% airport-to-airport. It has gotten to roughly 50-50. And my expectation is as long as we keep doing more premium freight from anywhere-to-anywhere, that attachment rate is most likely to go up.

Our next question will come from the line of Scott Group with Wolfe Research.

So lots of mix changes in the quarter. Maybe can you just help us with the monthly cadence of tonnage and shipments throughout third quarter? And if you had some thoughts on October?

Sure. Scott, I can tell you. So for the quarter, our daily tonnage was up 8% year-over-year. So for the month of July, it was 7.5%. In August, it was 7.7%. In September, it was 9.1%. As we look kind of quarter-to-date in October, our year-over-year daily tonnage was up 13.1%. So we are certainly seeing a growth and an increase in that daily tonnage. And as Tom mentioned earlier in the call, we've seen some record tonnage come in, in October.

Curious, do you have the same thing on that from a shipment basis? And what I'm trying to understand also is with this mix shift and shipments down, with tonnage up, do you feel like you have excess capacity in the network or not?

Yes. Actually, that's -- Scott, what you're actually pointing towards is exactly what we intended to achieve. So we, roughly speaking, tonnage wise are in a small to medium growth space. I mean, what we just talked about, 13% up October year-over-year. On a shipment basis, as you point out, we're down.

So these are much frothier, heavier, more dense, higher-value shipments that we are actually delivering for our customers. That's exactly what we want to do.

At the same time, with shipments being fewer, our floors look so much cleaner. And that, I mean when you walk into one of those terminals, to you it will actually look emptier. They have more space. So what that allows us to do is, as we grow, and again I said organically, we're going to grow significantly double digits in LTL, 12%, 14%, 16% every year in revenue. This gives us actually room to stretch into.

We would have been -- if we had not adjusted the mix the way we did over the last several months, we would have been running out of space in some of our core terminals. And this would have been -- screwed up the exact customer base with the exact high-value freight that we actually want to move. Where the on-time performance, including damages, would have gone up, on-time performance would have gone down.

So there's a significant upside on capacity that the cleansing of the freight that really allows us to do. We still believe that the way we intend to grow that those second terminals in primary cities, a handful of them over next year will be something that we will be putting in place and need to be putting in place. At the same time, across our network, it almost feels like we have 15%, 20% more capacity.

Last point to that, Scott, when we did project Eagle Eye in collaboration with Oliver Wyman, we actually guesstimated like how much additional capacity the cleansing of the freight gives us. And again, 20% is not outside the realm of possibility here. So we, in essence, created 20% more capacity without changing any brick-and-mortar component.

Okay. Helpful. Can you talk, Tom, about underlying pricing trends and expectations going forward?

So we have a pricing discipline. I think today and perhaps going back over the last couple of years, great team, Stefan Bersama, Kati Fox and a group of now 9 people that used to be 3 people 2 years ago, with tools that they should be using and are using in a very, very surgical way.

And pricing, actually, in a way that makes sense for us and our customers, longer lanes differently from shorter lanes because of team driver demand versus solo demand, certain destinations, very different.

We had a very aggressive price increase, GRI earlier this year, which we needed to take to make sure we invest in the drivers, and technology, and safety that our customers expect of us. And that we actually always make the moves for them and not punt. We're going to do the same thing again next year. I feel very bullish about the price increase, GRI in February. It's going to be necessary, but it's also going to be what actually puts us in a position to be the best possible provider for our customers.

The take or acceptance rate next year will be similar to what we had this year. But the beauty, Scott, is again, I mentioned this a few minutes ago, with the high-value freight, the MRI equipment that goes to a hospital. When we do this, the best possible way, and we are the most compelling provider with the fastest service and hitting the tight window, and make sure that it's actually not damaged, we can ensure that pricing discipline much better than if we moved a whole bunch of rugs.

Okay. And then just last thing, where are we from an events projects business today versus where we were? And what have you assumed in terms of the '23 guidance in terms of how much that comes back?

Yes, great point. So I'm not sure about you, Scott, but the last couple of weeks, I went to a conference, actually, was the South Carolina International Trade Conference, which in 46 years of its existence had the highest in-person attendance last weekend. So that was promising.

I also went to my first couple of concerts the last few weeks. Having said all of that, if you look at the overall stats, and I'm not trying to trivialize that, we planned our Q4 pretty much with a very, very sporadic at best events based business. There's no cruise lines built in there.

We do believe that in 2022, a good fraction of that will come back. Percentage-wise, it's kind of hard to express. If 2022 is like 60%, 70% of what it was before COVID that may be realistic and everything else on top, I think, gives us upside against what will be our plan. So we are planning very conservatively and expect to probably beat those estimates, but we do not want our business success to be dependent on kind of COVID disappearance rates.

(Operator Instructions) We are going to move on to Bruce Chan.

I want to talk about the B2C final mile a little bit. When you think about the motivations behind your freight cleansing, it makes a lot of sense, right, higher value, denser, easier to handle, but that also seems a little bit at odds with what we traditionally think of as final mile delivery freight, especially when you start to think about integrating those facilities into the network.

So we haven't heard a lot about final mile this quarter. Maybe you could offer some comments around the strategy there? Is it unchanged? Are we going to see a little bit less focus on that segment? Are you still pursuing M&A growth as aggressively there? Are you going to be more focused on other acquisitions in business lines like brokerage?

Yes. I mean, first of all, I mean, final mile has been a tremendous part of expedited freight. And I can't overemphasize, Bruce. I mean when you look at the last 2 years, how much kind of local collaboration between the Final Mile business and LTL business has helped us. Final Mile actually helped us launch LTL service in some secondary markets for us because Final Mile already was there and LTL was not there. Savannah is a good example.

And then also, we talked about this before, we do route together in some cases. We also, in some cases, hold kind of inventory in each other's facilities. So there's quite a bit of goodness where Final Mile by itself is a very, very good, high-growth business for us. It actually helps us with our EPS tremendously, and at the same time, makes us, frankly, do the LTL business a bit more successfully in the situations I just mentioned.

From a focus perspective, Bruce, I did mention before, we have in essence, 4 primary focus areas on the inorganic side. 2 of them, you are very familiar with. Over the last 2 or 3 years, we built these platforms in Final Mile and in Intermodal, and we then put tuck-ins on top of it. Intermodal, as I give you another example. Very, very helpful to us. When we talk about EPS, more than 20% of that e comes from our Intermodal segment.

So we will keep doing these tuck-ins, both in Intermodal space and Final Mile space. Having said that, and it goes back to the earlier part of this conversation, for us, getting more access to more drivers in a high-quality way is becoming tremendously important. And that will guide us more towards doing more of what we started with J&P Hall, considering LTL acquisitions.

This will also guide us to doing much more in the brokerage space. And again, having a leader in Scott Schara that actually has tremendous experience in that space will help us whether we move organically, inorganically or both. So this is one of those where what we have done, what got us here, the tuck-ins, Intermodal, Final Mile, are tremendously important.

What will get us there will also have additional focus on what I just mentioned, more LTL, organic and inorganic, as well as more focus in brokerage, which could be organic and/or inorganic. So there's a bit of a shift where 2 other areas are becoming more important.

And then maybe just a follow-up question on the driver comment. Where are you in terms of the IC versus brokered fleet? Where did that mix shake out this quarter? And how is it trending?

Yes. So we certainly -- as we saw, as we cleansed our freight, as Tom mentioned earlier, our use of outside power, ebbs and flows, depending on the tonnage that's coming through. And so our shipments, our tonnage was a little bit lower in the month of July and August, we used less power.

And then as we ended the quarter in September, we used a little more power. So we're trending back up as to probably where we were, although it's lower year-over-year from an outside use power standpoint.

Got it. So as we think about a number for next quarter, is it likely to be in that sort of sub-10% range?

It's certainly not going to be sub 10%. It's going to be somewhere between 10% and 20%. And again, the way -- just to be very clear, the way we're looking at this is there's nothing wrong about outside power. There's everything wrong about outside power, power that's not the quality and not the cost effectiveness that we expect, hence, the enhanced focus on becoming more present in the brokerage space that you will see us play out.

We do believe that we will always have Flex situations where the staple of employee drivers and IC roster, we shouldn't have them kind of on our roster indefinitely just for the highest peak week or peak month. We will have to access that first source of power outside miles. The only thing we want to make very, very certain, we're doing it in a high-quality and high kind of controlled access way. So that's where brokerage comes in.

I don't have a problem with that number being between 10% and 20%, as long as it is cost-effective and the same quality that we would be getting from our ICs and employee drivers.

Our next question will come from the line of Tyler Brown with Raymond James.

Tom, I joined about 25 minutes late. So if you addressed any of these questions, please just tell me to read the transcript. But from a modeling perspective, where did you guys exit the quarter in terms of weight per shipment? Was it higher than the 814? I mean I assume that mix shift didn't occur day 1 of the quarter.

The mix shifted was actually kind of throughout the quarter. Rebecca is actually making sure that I don't screw this up too much, but we have seen those numbers going up month by month. We had instances and weeks where that number started with a 9 towards the end of the quarter. So that number keeps going up. Do you have any more specific?

No. That's exactly right. As Tom mentioned, it certainly -- we could see it progressively getting better and better. So on average, that's where we landed, within the 800s. And so yes, to answer your question, September was better than the average, given the fact that it was a slow -- we saw the slow progress coming from, and I wouldn't say necessarily slow, but the progress coming from the month of July, August and then culminating to September.

And then you mentioned that pricing is strong. But just to be clear, so your revenue per hundredweight, ex fuel, I think, rose sequentially despite being significantly heavier. That would have depressed yields, at least revenue per hundredweight, right?

Not sure.

Can you repeat the question again?

Would the heavier weighted shipments reduce or depress your revenue per hundredweight?

I think it certainly puts pressure on our yields. Yes, it certainly does. But there's also benefit from having a heavier denser freight in the network. So certainly, we did see some pressure on that. But yes, we did actually see the benefits of that heavier denser freight coming in.

Right. Right. Revenue per shipment was up huge. Okay. I get that. Right. Okay. And then you guided to, call it, $430 million, just round numbers for '21. You gave '23 guidance of $650 million at the midpoint. But can you kind of bridge those 2 incremental dollars? Just what were the key -- or what are the key drivers there? Does that assume the Events business comes back? Are you assuming a rollover in the truckload spot market? Do you have a buyback in there? I'm just trying to understand what the buckets are and what is idiosyncratic versus maybe just market driven?

Yes. I think at this point, we certainly are willing to share some of our strategies as we get there. At this point, we talked a little bit about the mix earlier in the call and the mix between the organic and inorganic growth. So certainly, focusing on both of those as we think about it, shifting in our -- where we land on the organic inorganic kind of based on where the freight cycle is at that point in time as we get there.

I think as we think ahead in terms of our operating margins, we are certainly focusing on something that's better than it double, and that's driven by our LTL line of business. We plan to capitalize on those growth levers since that is a higher incremental margin business. And that LTL strength of that operating margin is supported by our final mile truckload and intermodal lines of business.

As Tom mentioned earlier, we do plan to scale our brokerage business. We believe that, that will help us to provide some synergies. And then as we think ahead, kind of below the line of operating margins, we're not expecting any radical changes in the tax rate. We certainly believe that there are forthcoming tax rates changes coming. And we don't believe that -- we didn't model in any significant changes in our leverage ratios.

So that's as much information as today as we're willing to provide in terms of that bridge between where we are today and where we plan to be in 2023.

Yes. The only thing that I would add to that, and that is in big strokes, the single biggest part is going to be growth of revenue in LTL and the quality of the revenue, i.e., margin in LTL, that's the single biggest driver of those 2 dollars.

Okay. So it seems like the revenue quality is improving quickly. So how do we think about cadence? Does it get $1.22 and $1.23? Or is this more earlier? Or is it back-end weighted?

There's nothing wrong about thinking about $430 million, $530 million, $650 million.

Okay, that's helpful. And then obviously, you guys have been generous with the guidance. But your free cash flow has converted over net income, I think for the past 5 years. I'm sure it's deal amortization. But you've got this asset-light model. Columbus is sunsetting I would assume that there's some leverage on the CapEx line. So is it reasonable to assume that the free cash flow outlook could be maybe even better than earnings? Or is it just too soon?

It's a little bit too soon. The one thing I will mention, just to clarify, on the Columbus, this, we complete phase 1 this year, but we do enter into a phase 2 next year. So you will continue to see some of that CapEx for that Columbus Phase 2 into next year as we kind of think ahead. And you won't...

But not '23?

No. By '23, we will be done with our Columbus expansion. That's right.

Okay. Yes, but overall, the free cash flow profile here could be very strong?

It could be. Yes, that's what we're -- that's right. I think directionally you're heading in the right place.

Ladies and gentlemen, that concludes Forward Air's Third Quarter 2021 Earnings Conference Call. Please remember that this webcast will be available on the Investor Relations section of Forward Air's website at www.forwardaircorp.com. That will be shortly after this call. Thank you. You may now disconnect.