TFI International Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Further instructions for answering the queue will be provided at that time. Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. All dollar amounts are in Canadian dollars. Lastly, I would like to remind everyone that this conference call is being recorded on Friday, October 23, 2020. I would now like to turn the call over to Alain Delors, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead.

Well, thank you very much for the introduction, operator, and I appreciate everyone joining us for this morning's call. Yesterday, after market close, we released our third quarter results. If you need a copy of the press release, please visit our website. TFI International had a very strong third quarter. As I mentioned on our last call, we had seen several positive developments that bodes well for our performance going forward. These played out as expected during the quarter and our strong financial and operation results came despite of the ongoing pandemic and despite our continued focus on the health and well-being of our employees and customers. As you frequently hear me mention, a hallmark of TFI International's operating philosophy is our relentless focus on the fundamentals of the business, consistently getting the details right. We constantly seek opportunities to enhance efficiencies and increase returns on invested capital. We also look to optimize our free cash flow and our earnings per share, adding to our strong financial profile. This position of strength then allows us to strategically expand our business with a long-term goal of creating shareholder value, and this includes returning excess capital to shareholders whenever possible. During years such as this, when macro uncertainty is elevated, we believe that maintaining our culture and adhering to these principles is even more important. You see it in our quarterly results that I'll next walk you through, and you also see it in our continued identification of strategic accretive acquisitions opportunities to expand and enhance our platform. During the third quarter, we completed four acquisitions, and we agreed to acquire an additional business expected to close during the fourth quarter. In addition, subsequent to September, we completed two additional acquisitions In total, that's seven well-timed and highly strategic acquisitions since our last call. I won't walk you through the compelling rationale for each, but I do invite you to read more in our recent press releases as we extend our long and successful track record in this regard. Turning now to TFI International's third quarter results, let's start with our higher level performance. And as a reminder, these Results are despite the continued absorption of COVID-19-related costs and our continued focus on health and safety. Our total revenue of $1.2 billion was down 4% compared to the prior year's third quarter. This was a significant improvement over the second quarter's negative 17% year-over-year growth. More importantly, our operating income increased 18% to $156 million last And our adjusted EPS on a diluted basis expanded 20% to $1.25, up from $1.04 a year earlier. Our net cash from continuing operation activities was a healthy $190 million, and that was up slightly over the prior year. We view cash flow as strategically important as it allows us to invest in our business and seek expansion opportunities. Overall, we were very pleased with our performance. More specifically, let's look at how each of our four business segments perform, beginning with our P&C, Package and Courier. Our Package and Courier represents 14% of total segment revenue and saw a 5% increase in revenue before fuel surcharge versus the prior year. Operating income of $28.5 million was up 1% as the segment operating margin of 17.5 compares to the 18.2 the prior year. These year-over-year P&C results were much improved over our second quarter performance. Throughout the third quarter, we saw a pickup in B2C activity, and even B2B, which has slowed significantly due to the effect of COVID-19, improved as the quarter progressed. Going forward, we believe our P&C segment is emerging even stronger from the pandemic with a more balanced mix of B2C and B2B demand that we are well prepared to accommodate. Moving to LTL, this segment represents 16% of our total segment revenue and generated revenue before fuel surcharge of $177 million down from $205 million the prior year. That rate of Year-over-year decline is much improved, and in fact, half of that was during the prior quarter, reflecting a rebound in demand. Importantly, our operating income grew 36% to $35 million, and our operating margin expanded more than 700 basis points to 19.7. This 36% year-over-year growth in operating income was a result of not only the Canadian wage subsidy of $8 million, but our significant success driving operating leverage, for example, by merging our Canadian Freightways and TST Overland Express operating companies in May. These ongoing efficiencies significantly benefited our margin and more than offset the weaker demand environment. Next, turning to truckload, this is our largest segment representing 47% of our total revenue. Revenue before fuel surcharge declined 2% year-over-year, which was a sharp rebound from the 17% decline in the prior quarter. Truckload operating income declined just slightly to 75 million from 76 million in the year earlier quarter, and our operating margin was up slightly. It should also be noted that we had 6.4 million of higher gain on sales of real estate in the year-ago quarter. Within this segment, Our U.S. truckload operation grew revenue 2.5% over the prior year period, while our Canadian and specialized businesses each saw a single-digit percentage decrease in revenue, which led to a Canadian wage subsidy of $11 million. Rounding out our segment discussion, logistics is our second largest segment at 22% of total revenue. We saw year-over-year growth of 9% in revenue before fuel surcharge. Our operating income more than doubled in the quarter versus a year earlier at $30 million compared to $14 million the prior year. Our operating margin came at 10.7, well above the year-ago 5.4% as our margin improvement initiatives have produced solid improvement on the bottom line. E-commerce and same-day package delivery demand remains a powerful organic growth driver for us. Turning to our balance sheet, it remains a meaningful source of strength for us, allowing us to execute on our business plan. We further strengthened our financial profile in August with a share offering that provided growth proceeds to TFI of approximately $290 million Canadian. Our strong liquidity benefited from our strong cash from operations during the quarter. All in, we ended September with our long-term debt down 27% since the start of the year and a total of $1.5 billion of liquidity. Given our continued strong operating performance and very solid financial position, I'm pleased to be announcing today that our Board of Directors has announced a sizable 12% increase in our next quarterly dividend payable in January. In addition, I'm pleased to report that as business conditions have improved and TFI International has continued to perform, during the quarter we reinstated full five days work week for 486 employees and we re-hired 298 employees full-time who had been furloughed. Lastly, wrapping up my prepared comments today, I want to update you our full outlook for 2020. We now expect diluted earnings per share to be a minimum of $4, up from our previous range of $340 to $375. And we expect our free cash flow, which is a non-RFRS measure, to be a minimum of 600 million, up from 425 to 460 million previously. On summary, as I mentioned at the start of the call, at TFI International we focus on the fundamentals of the business and optimizing our capital allocation regardless of constantly changing macro conditions. Specifically, we invest in a highly disciplined manner where we see the best risk adjusted return while also paying our quarterly dividend. On a day-to-day basis, our entire team looks to drive efficiencies and produce not just growth, but profitable growth. Our ultimate aim is to create and unlock shareholder value, returning excess capital to shareholders whenever possible. I want to thank the entire team at TFI for generating the results I just outlined and for their continued dedication to this unprecedented year. And with that, operator, if you could open the lines so we can begin the Q&A session.

Thank you, ladies and gentlemen. To ask a question, you will need to press star 1 on your telephone keypad. To retry a question, please press the pound key. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Again, that is star one plus a question. Please vote while we compile the questions. And your first question comes from the line of Ravi Shankar with Morgan Stanley. Please go ahead.

Morning, everyone. Morning, Ellen. Thanks for taking my question. So I want to start out with two kind of longer-term questions. First, on M&A, obviously you guys have been super busy this year, even with everything going on, and you've just made what one would consider to be a fairly sizable acquisition. Can you remind us again kind of what your pipeline looks like? Are you guys taking a little bit of a break here? And also kind of with the market, where the stock market, where it is, do you feel like valuations out there are compelling for you to go offer new targets?

That's a very good question, Ravi. I mean, I mean, M&A has been the secret sauce of TFI for the last 20 years. So, I mean, what we've done so far this year is just some small tuck-ins that we do every year. We invest about $200 million. So far, we've invested only $100-some million, $110, $115 million with some very nice, small, strategic acquisition. But for sure... I mean, we're going to be closing the DLS acquisition, which is the significant one for us. We're going to be closing that sometime early in November. Okay. Everything is done. So that's going to be a great acquisition for us. Now, in terms of the pipeline, our pipeline is always very full. You know, in Canada, if someone wants to sell his company, the first call is always TFI. Why? Because we have a strong track record of closing transaction. Number one. And number two, I mean, we create an environment where someone sells his family-owned company to us. I mean, we keep the value, you know, this kind of environment that is proposed to growing the business. We've done well. In the U.S., we're new players, okay, for sure. What we've done so far is, you know, some significant transaction. The CFI won like three years ago. now the DLS one. We've done Dynamics in 2011. And, you know, our future for significant transactions, for sure, we've said it many times, it's got to be south of the border. It cannot be in Canada because, you know, we're such a dominant player in Canada. If we try to buy a company with revenue that is a little bit more than $90 million Canadian, then we have to sit down with the Competition Bureau in Ottawa. And, you know, it's a It's a long, long process and takes an awful cost with lawyers and things like that. So, I mean, yes, we've been really busy, but this is normal for us. What is a little bit less than unusual is that every three years or about, we do some significant transactions. So this is why DLS is a significant transaction, not that big, but it's important to us. I mean, we're going to be investing $225 million U.S., on this acquisition. It's a strong team led by Tom and we have a lot of faith in the future in that business. It's our first step into the US LTL market through this asset-like kind of acquisition. We're going to use that to really understand the market drivers of this LTL market in the US, which is a little bit different than probably the one in Canada. Now, that doesn't say that we're going to be stopping. If you look at, we've got $1.5 billion of liquidity available for us for M&A. We're going to be spending, in Canadian dollars, about $300 million on DLS. So we still have a lot of dry powder. If we find the right acquisition, the right fit, absolutely, we're going to jump on it. We have a deep bench. In Canada, our team is second to none. And in the U.S., we're beefing up the team. I mean, again, this DLS acquisition is going to beef up our team. All these small acquisitions that we've done in the U.S. through our specialty TL, now we're running probably like a little bit more than 1,000 trucks in our specialty truck load, which three years ago we were, well, zero. So we've got a lot of faith in this economy in North America, U.S. and Canada. I think that once this election is behind us, you know, some concern will probably evaporate, you know, and then 21, we see a lot of tailwind for transportation, lots of potential. Now, in terms of evaluation, I think that there's still ways to do a transaction that is accretive day one. You know, doing a transaction that's accretive after 10 years, well, this is not my bag. We're not really in that business. You know, accretion has to be like day one, and normally without any synergies because day one you don't have any synergies. You know, you start the business and here we go. So if you look at DLS, if you look at everything that we've done over the last 20 years, that's how we were able to build this TFI, which we're really proud of today and very proud of our people, our team. Great color. Thanks, Alan. Pleasure, Ray.

And your next question comes from Jason Silver, Cohen. Please go ahead.

Thank you, operator. Good morning, Elaine and team. I wanted to focus a little bit on some of the trends you've been seeing across your different business lines as we sit here in 4Q. I'm curious to know sort of the rate of recovery you're seeing there and then talk about how that's going to impact the bottom line profitability, especially with the Canadian wage subsidy eventually going away.

Yeah, well, absolutely. Very good question, Jason. So if you look at our Q2, the subsidy in Canada was about $22 million. The forecast for us in Q4 is going to be about just a few million dollars. Our P&C, if you look at what we've been doing so far, is our mix of B2B versus B2C has changed in Q3, but our profitability has not changed that much. So if you look at our P&C in Q3 and going into Q4, Our B2B is still down year over year, okay? If I look at ICS, if I look at TFIS, which are our specialty PNC guys, mostly B2B, ICS is still down about 5%, 6%, 7%, okay? TFIS is still down about 20%. But globally overall, our PNC is up a bit, okay? So that means that we've replaced a lot of our B2B with B2C without affecting our bottom line too much. If you look at our adjusted EBITDA, it stayed about the same. So that's our goal going into Q4 and into 2021. Okay, we'll keep growing this B2C. Hopefully, all of our B2B comes back. probably there's going to be some leakage because as we know e-commerce is eating a lot of the lunch of the brick and mortar guys so maybe there's a permanent okay impairment in some of our b2b business uh we'll see i mean but you know we're back so we're replacing b2b with b2c without affecting the bottom line because we're focused we have a very solid plan Okay, to replace, you know, the B2B that is gone and also growing the global revenue of our PNC, which I think in 21, you'll see even some better organic growth. Now, going into e-commerce, then it brings me to the next sector, which is our logistic. Logistic is on fire for us. I mean, if you look at our last mile operation in Canada, I mean, we're doing so good, so good in terms of increased revenue and so good in terms of bottom line. But Canadian market is small. So if you look at our U.S. market, okay, one of the main drivers of our bottom line improvement in our logistics is our U.S. last mile operation, okay, which, okay, the top line has not grown, okay, because we're still getting new business in of quality. And at the same time, we still have some business that are, let's say, 2%, 3%, 4% bottom line and And Cal and his team are saying, you know what, 2%, 3%. Sorry, guys, we can't service you for 2%, 3%. So you guys have to walk. So what you're going to see in 20 and into 21 is that the bottom line of our U.S. operation is going to keep on growing, getting closer to a double-digit EBIT. That's the goal. Top line will grow, but not by much because we're still replacing 2%, 3%, 4% bottom line, guys. with better quality of bottom line. Now, if you look at our LTL, here's the problem in Canada. Okay. Most of the LTL is retail. So this is why you see us in Ontario and in Quebec. Okay. Not so much out West because the West is a small. But, you know, there was never any industrial LTL out west. So there's nothing to lose there. But, you know, this industrial LTL in Ontario and Quebec keeps on coming down. So this is why revenue, you know, keeps on going down, okay, year over year organically. And at the same time, some of our brick and mortar guys, LTL guys, customers are also losing to the e-commerce. So this is why You know, we're still down big time in our LTL. But at the same time, okay, all the right moves that we're doing and focusing on the right lane, the right customer, the right weight break. So, you know, we're not in the business of hauling freight for $40. I mean, leave that to the other guys. But our LTL for sure needs to grow through M&A. So we're looking at all kinds of opportunities. What can we do on that? We were trying to buy apps. We announced this acquisition, but finally there was certain closing conditions that were not met, so we had to say, well, okay, we'll look at something else. But the LTL, it's going to be organic growth into 2021, yes, but I think that we're going to keep growing the dollar at the bottom line through our efficiencies, and hopefully we're working on on different scenarios to keep growing the top line on our Canadian LTL. Now, if you think about our truckload, our US truckload operation has done okay in Q3. Yeah, revenue is about stable. Our CFI operation did a little bit better than TCA. Our MCT acquisition is doing really, really well. Our specialty truckload is still affected in Canada. You know, some of the mines are coming back. Construction is okay, but, you know, the automotive business is still not where it should be. So steel, aluminum is affecting us a bit. But I see 21, you know, like our USTL will definitely improve. Absolutely. I think our Canadian specialty and van division also will get to see some improvement there. So overall, I'm very confident. So this is why when we give guidance for 20, we say EPS is going to be a minimum of $4. EBITDA is going to be probably a minimum of $900 million Canadian. But I think that 21 is really going to be a lot of these small acquisitions that we've done in 20 plus the DLS one that's closing at the end of the year. It's going to help us into the 21 year And I think that TFI will, again, produce even better results in 2021 versus 2020, even without the Canadian subsidy.

That's fantastic, Collar. Elaine, if I could sneak this last one in. CapEx, I mean, obviously you had CapEx deferred. And then in 3Q, you had lead times go out on equipment, which everyone's been experiencing. How should we think about CapEx for 2021?

Yeah, so on Q4, our CapEx for sure, you'll start to see, you know, CapEx, net CapEx probably going to be like between $50 and $60 million Canadian, okay, into Q4 because some of the lags, some of the CapEx that were put on all will be taken care in Q4. But if you look at 21 globally TFI net of disposal in Canadian dollars, we should be running around the $200 million mark.

Okay, that's great. Listen, I appreciate the time as always, Elaine. Nice job, of course.

Pleasure. Thank you, Jason.

And your next question comes from one of Allison Landry with Credit Suisse. Please go ahead. Thanks. Good morning.

Good morning, Allison. I'm good. How are you? Some of you guys could speak to the US TL segment. Um, and, and specifically what your expectations for, um, contract rate increases might be for, for 2021. Um, and do you see an opportunity to maybe price a little bit higher than the market given, um, you know, your, your yield improvement initiative?

Yeah, very good question. So what we're seeing as of now, okay. Is that contract pricing is up by about five, six, seven, 8%. Okay. Depending on the customer. We all see the spot rate going through some good levels right now. So we believe that the quality of revenue for our USTL operations for 2021 will definitely improve. But even more importantly for us, Alison, is always what can we do us to reduce our cost? So one significant thing that is one of our projects for us in 2021 which we've put on hold in 20 with the COVID, but it's back on track now, is it's our TMS. Our guys are doing a fantastic job today with tools of the 80s in terms of IT. So the discussion that we had with Greg and the rest of the team there is that, guys, we need tools of the 21st century, not the 20th century. So this is why we picked McLeod as a new TMS And we're doing right now the study phases, okay, of all that. And we should be in a position, according to what the guys are telling me, to start looking at implementation sometimes in 21. So that's one thing that it's got nothing to do with the market, okay? But it's something that us, we could do to have better tools to our management team to do a better job, okay? So bring better efficiency, okay? And, you know, the motto at TFI has always been, guys, we have to do more with less. So, yes, I agree with you. I mean, we have a tailwind in 21 with, you know, the quality of the revenue. Rates should start to improve. But, and the freight is there. You know, we're always pre-booked every morning now. We're pre-booked. You know, six months ago, guys, or a year ago, guys were saying, well, we got drivers, we don't have the freight now. Well, the problem is, is the opposite. We have more freight than we have drivers. So, you know, it's, it may be a nice problem to have, but at the same time, as I, as we say to our team guys, we have to work on our cost basis. We have to be the tiger. The, the tiger is always the last one to survive in the jungle. So low cost, Okay, always help the company. So we have to bring, and it's the same thing with our Canadian truckload. We're always working to bring our costs down and improve our efficiency. But 21, for sure, like you said, tailwind for us in terms of pricing improvement.

Okay, great. Maybe in terms of capital allocation, great to see the dividend hike. Could you speak to how you're thinking about the buybacks going forward?

Yeah, well, buyback is for us always been seen as M&A, right? So it's either you buy something outside of TFI or you buy your own stock. So right now, it's always a balance between, okay, it's adjusted return. Okay, so what can we buy versus, okay, buying TFI? Right now, our pipeline is, like I said earlier, is full. We've got lots and lots and lots of opportunities. It's just a You know, which one can we do and which one's got the best returns? So what we've been doing, if you look at earlier in 20, when our stock dipped, when the COVID thing hit and our stock dipped, we bought back about 1.5 million shares at the time. Okay, I think it was Q1 or early into Q2. So we took that opportunity at the time. So, okay, fine. Right now, our focus is more on M&A. Okay, but it's always a balance. Depending on what the stock reaction is going to be, I mean, like I said, we've got $1.5 billion in liquidity. Okay, so yes, through the DLS transaction, that's going to come down to probably $1.2 billion Canadian. But this is always the question. Okay, what is the best adjusted return? Is it buying back TFI's shares or, you know, investing in growing the company through M&A, right? So it's a balance. It's always... You know, my number one job as a CEO at TFI is to control the cash. And you control the cash by, you know, what's our policy on dividend? 20% to 25% of our free cash flow goes back to our shoulder. That's our policy. That's why we're able to increase it by 12%. And then you've got reduction of debt, which we did this year. Okay. And then, hey, M&A. Okay. Yes, we always invest about $200 million a year on M&A with small deals. And once every three, four years, we do something significant. DLS is important, significant. CFI was significant because it was $500 million invested. DLS is important, but it's not $500 million. So for us, Right now, TFI, if you want to talk a significant transaction, it's $500 million. So DLS is important, but it's not the size of the big whale that we always talk about every three or four years.

Okay, excellent. That was a helpful framework. Thank you.

It's a pleasure, Alison.

And your next question comes from the line of Scott Group with Wolf Research. Please go ahead.

Hey, thanks. Morning. So, Elaine, I just wanted to check something on the guidance. So $4, you've done, I guess, 310 or 311 year-to-date. Should we be expecting a drop-off in the fourth quarter as the subsidies go away, or is there conservatism here? Just help us think about what this means for fourth quarter.

Well, you know, We are very conservative, us at TFI. You know, our motto, one of our motto is, you know, under-promise and over-deliver, you know? So, for sure, that's why we're saying a minimum of $4. Now, you could say, well, if you say a minimum of $4, that means it's a minimum of about 90 cents for Q4. Is that because the subsidy is going away? Subsidy is going away, absolutely. Subsidy for us in Q4 is probably like a few million dollars. But our $0.90, okay, if you say minimum of $4 versus $3.10 is $0.90 compared to $1.20 something today, oh, that means that they believe that this is going to drop like $0.20 to $0.30. Probably not. But we want to be conservative. Remember, our last guidance was $3.40 to $3.60, right? And now we're saying $4. So, I mean, we... We always like to under-promise and over-deliver. So this is why we say a minimum of. So that could be 4, it could be 4.10, it could be 4.15. Now, we know October. We have an idea of what's going on in October, but we don't know anything about November and December. So this is why we're careful, but we have confidence because if we don't have any confidence in 2021, Why would we raise our dividend? I mean, we know our team is solid. We have a fantastic plan, okay, for now and into 21. But we want to be conservative.

Okay. Makes sense. So with DLS, just because it's the larger one, maybe just help us a little bit more with just the strategic rationale here. I think it was running around a 5% margin business where you think you could take it and then – Maybe just the grander plans for LTL in the U.S. would be helpful.

Yes, yes, yes. That's a very good question. First of all, when we look at DLS, 5% for sure, we believe that we could do better than that. Working with Tom and the team over time, it's not going to happen overnight, but over time, if one in the same kind of business as DLS is, is a 7% bottom line guy, well, why are we not seven? Okay, so over time, we'll work with Tom and his team to get from five to six, six to seven, and maybe seven to eight or wherever. I mean, we don't really like being a 5% bottom line, guys, but hey, it is what it is today. Now, what we believe is good is that we know the LTL business in Canada inside out, okay? We know this business really, really well. We know the market, we know the players, et cetera, et cetera. Now this DLS acquisition help us understanding better. Okay. The will help us understand better. Okay. The players in the U S the market in the U S because when we look at the U S LTL market for us, it's like a gold mine and the Canadian LTL market is a sand mine. In Canada, you can't improve pricing because there's too much overcapacity. You know, that's why our revenue is down every quarter. You know, market is shrinking. And our competition is not adjusting. So they're always chasing volume, okay, and trying to survive. The US LTL market is different. I mean, you've got some fantastic company, okay, that one of them is running a sub-80 OR. and then you've got others that are family-owned that probably run in the 80 to 90 ORs. You've got some public one, non-union, that run 90 OR, and you've got the unionized guys. Okay, that's a different story, but not to say that union is bad because if you look at the largest trucking company in the world, they're unionized with the teamsters, and they do a fantastic job. But I'm just saying us, we're also, some of our operation in Canada is unionized, and we do very well. We work with the union, not a problem at all. So it's one way, it's like we're going to school. We're just trying to understand the different drivers in this U.S. LTL market, because DLS is about 70% to 75% LTL and 20% truckload, and the rest is freight forwarding. So it's like going to school. We want to understand this market better because we believe that, you know, the LTL in the U.S., between you and me, is a much better business than the one in Canada. But, hey, too bad. That's where we started us is with the Canadian LTL business. And we've been, you know, working day and night to improve this. But if you look at our results, yeah, revenue is down. Bottom line is up, though. Even if you exclude the subsidy of $8 million in Q3, I mean, our revenue went down big time, but exclude the subsidy, our bottom line is still up $2 million. And we're stuck with all kinds of fixed costs, the trucks, the terminal, and all that. So that tells you how efficient we can be. Or we are.

Thank you.

And your next question goes online of Walter Strackling with RBC Capital Markets. Please go ahead.

Thanks very much. Good morning, LA. Morning, Walter. I'd like to focus a little bit on your margins here because you brought back a lot of costs and still got the operating leverage, right? I mean, you brought back all your employees, a lot of A lot of other companies saw a lot of cost creep come in, but you were able to actually improve your margins as the volume came. So the operating leverage looks pretty attractive. I want to ask you, Elaine, you gave us good color into the fourth quarter here, but when we go into next year, if we back out the Q's impact, looking into next year, do you think that your margins for next year can hold in at the level that you did in 2019? And therefore, with the acquisitions you've done, you know, can you give us a little bit of indication as to, you know, kind of order of magnitude, the improvement that we could see next year? I don't know if you're prepared to give us directionally some guidance in the next year or not, but that would be very helpful if you have it.

Yeah. Well, you see, Walter, we can't give guidance for 21. But what I could tell you is, like I said earlier on the call, is that our PNC in 21, which PNC, the subsidy, like, it was chicken shit. I mean, it was, like, very insignificant in a sense. Yes, for ICS and TFIS, but Camp Arlumis, there was no subsidy at all. We believe that in 21, excluding the subsidy, there's no subsidy for us, I think, in 21 for our PNC. We're going to do better. We're going to do better because... even with our B2B down a bit, okay, because we're still going to do some catch-up of our B2B in 21, but our B2C is going to keep on growing, okay, at a reasonable rate, not going crazy, but a reasonable rate, okay, that we could sustain at the same time our bottom line. Our truckload in the U.S., there was never any subsidy, but our Canadian truckload, most of our subsidy came to our special TTL, okay, and and we're gonna this will be probably eliminated in 21 but we believe that we can sustain the margin because some of the market that we've been affected badly are coming back and some of the small deals that we've done like the keith hall okay and and others that we've done in canada okay is going to help us beef up this this margin and we have some very very nice project uh in montreal okay with our contrast division there we have some nice project in in the port of hamilton with ttl uh we have some nice project also with uh you know gorsky and and um and uh well what's the name of that uh gusco gusco that we just bought about a few months ago so i believe that even 21 steve and his team there are gonna yield a fantastic 21, even if you exclude this COVID subsidy there. And then, you know, if you think about our logistics, there's no subsidy there. Our logistics will be up big time at the bottom line because of what I just explained. And then we're left with the LTL. So the LTL, that's why we were trying to buy this apps company, but finally we can do it. LTL is an issue because we think that organically the LTL is negative in 2020 and in 2021. The market is shrinking. So we have to do something in M&A to help us support. The subsidy will probably go away sometimes in 2021. And the guys are working hard. We are in discussion right now for something significant in terms of a contract with a carrier. okay, that maybe could help our LTL business in Canada. It's still early in the game. Maybe we'll be in position to announce something sometimes before the end of the year, maybe into next year. But the LTL in Canada will have to grow through M&A. Perhaps we can do the deal. Okay, we're working on plan B right now.

That makes sense. And just a quick one on your M&A pipeline in the U.S., any risk that that gets affected by a U.S. election that sees, you know, for example, a higher capital gains tax come in? Is there any risk around an election that would affect your U.S. pipeline at all?

I don't think so, Walter. I mean, we don't know what's going to happen there, you know, in two weeks. But we believe that, you know, this U.S. economy is going to stay strong whoever runs the country. I mean... But we're no magician. I mean, our goal is that we adapt. So we adapt and we adjust and we work for the future of our shareholder. Don't forget, TFI is in business, number one, to create value for shareholder. That's our goal.

And just one more housekeeping for me. Tax rate, you've been guiding us, I believe, at 25%. Is it still around that level?

Yeah, yes, yes, yes, Walter, yeah.

Thank you very much. Keep safe. Thank you.

Okay. Thank you, Walter. The same to you.

And your next question comes from Wade Witts with QBS. Please go ahead.

Yes, good morning. Morning. I wanted to speak back a little bit to U.S. truckload. I think you were asked a little bit earlier about, you know, kind of pricing in 2021. You know, it seems like the setup's pretty powerful. The biggest U.S. truckload name said they, you know, they expect double-digit pricing in 2021. So, you know, it's an unusually strong framework. What do you think the OR in your conventional U.S. truckload business can be? I think, you know, kind of best-in-class is 80, high 70s, low 80s in a strong cyclical environment. You know, do you potentially get to that in 21, or is that kind of a multi-year cycle?

potential for uh for your u.s truckload yeah very good question so what we keep on saying is that you cannot be in the truckload business if you don't run a 90 or and better on average okay over 10 years so that means that you know if you have tailwind like we will probably have in 21 it's it's impossible to run a 90 or you get to run better than 90 So if you look at what we've been doing in the last quarter, we're running about a 90 war right now, 90 point something, which is for sure the guy will say, well, we've been affected with the equipment. The profit and equipment is gone because the market has not been so good. But for us in a tailwind situation like we anticipate in 2021, I think there's no excuse to be running a 90 OR. You have to be focusing on something sub 90 OR because on average, okay, you're going to have maybe some bad years at a 93 OR. So when the good years are coming in, you got to be a sub 90 OR. Now, I've been seeing our plan, our budget for 21 yet. Okay. So Greg and his team are working on it and we can really provide guidance for 21 so far. But I would be really disappointed to see a 90 OR in our plan for 21.

Right. Okay. And then the second question is in logistics. So your logistics margin improved pretty dramatically. Can you just give us a little perspective on what drove that and, you know, kind of the forward look do you sustain at that level or, you know, how do you think about the margin looking forward as well? Thank you. Yeah.

Yeah. Well, most of the improvements So if you look at our improvement, there's about $4 million of bottom line improvement that came from Canada. Canada is small. But the majority of the improvement came from our U.S. operation in the quarter, in Q3. And you'll see us improving in the U.S. even more as the time goes by. What we've done a year ago, if you remember what I said a year ago, I said, guys, we're making a change in leadership in the U.S., so So what we're doing is Cal, which is our EVP that was responsible for Canada, now oversees our U.S. operations since last summer, 2019, okay? And we've been rebuilding the team. So the sales team now is under the leadership of Dean. Okay, Dean is overseeing our North American, okay, last mile operation, both U.S. and Canada. So we just signed, we just started, Okay, servicing a $16 million account in the US with some interesting and fair margin. So our US Q3 last mile operation had the majority of the improvement. Absolutely. And you'll see that improving over Q4 and into 21. Like I said earlier, The top line of our U.S. operation will probably not grow that much because we're still replacing 3%, 4% bottom line guys with better margin. That's our goal. We're not in business to practice delivery. We're in business to create shareholder value. A guy that gives me a 2% bottom line, deal with someone else because for 2%, my shareholder will say, why would I buy TFI for 2%? Bottom line, I'm just going to buy shares of a North American bank and I'll get a 3%, 4%, 5% dividend. So stupid, right? So that's our goal. And you'll see us in Q4 again. Now, the average with DLS, like we said earlier, DLS is adding a lot of revenue to our logistics at only 5% margin. So globally, it will reduce our percentage, but we'll work on that in the months and the quarters to come.

Right. Okay. Thank you. Pleasure.

And your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

Hi. Morning, everyone. Morning, Jordan. Good morning. I have a question for you. On the LTL, I know you mentioned you'll need organic, you know, it'll be organic growth and you might need some M&As to support it. I'm assuming you're talking about the top line there. I'm just curious because you're LPL margins, even without the wage subsidy in the third quarter, were quite good. So putting the top line aside, do you think you could hold or improve upon the efficiencies to the LPL margins?

Well, we still have plans, okay, to improve the margin, Jordan. But the top line, like I said, without M&A, is going to shrink, yes. So dollar-wise, I think that we could sustain the dollar-wise even with some revenue leakage, okay, because of the market. But for sure, our approach is to do, you know, some M&E activities in Canada, okay, to beef up the top line, and it will also have an effect. But I'm not saying that without the top line growth, okay, it's not sustainable. Our margins, no. Our margins are sustainable because we still have some stuff that we could do to keep on improving what we're doing today.

Great. And then just a bigger picture question. On M&A, as you guys have gotten larger as a company, I know historically the strategic deals were every three, four years apart. Do you think there's a need to make them Will you need or would you want to have them come more quicker as you've gotten larger? Is that something that might need to happen?

You know what? That's a good question, Jordan. This is based on the deep bench that we have. So in Canada, we have a very deep bench, a team that's second to none. But the problem we have is it's a small market, okay, and we're already really, really big. So our plan has been to beef up our U.S. team because the future is in the U.S. for us to to grow our business significantly. So that's been the focus of ours. So DLS, okay, we'll add, we'll beef up our team in terms of market intelligence in the LTL. So if ever, if ever there's a transaction possible in the LTL in the US, you know, I don't know, maybe a company that becomes for sale, whatever. So now with DLS, at least we, before buying an asset-based company, we'll have some market intelligence. We have a team. It's the same story with our specialty TL in the U.S. So what we've done so far is small acquisition. You know, we bought, you know, a 200 truck operation here to another 200 truck there. And now we're up to a little over a thousand trucks. So if a deal comes to us, let's say for a thousand trucks, now we could do that easily. You know, so, you know, our strategy has always been small step, but I agree with you that the bigger we get, the larger the small steps becomes, right?

Yeah.

So our focus really has got to be for us small deals in Canada. Okay. Small, nice tuck-ins, which we're doing now. And hopefully we can find the right transaction after DLS of size in the US, maybe in the special TTL, maybe in the last mile. And we never know. Maybe in the LTL. We'll see.

Great. Thank you.

You're welcome.

And your next question comes from Mona Nassir with Laurentian Bank. Please go ahead.

Good morning, Ellen, and congrats on the fantastic quarter.

Thank you, Mona.

So I'm just going to keep it to one question, but when I'm thinking about your tenure at TFI, future performance and the legacy you want to leave, I'm just wondering what is your ultimate guiding principle or metric that is weaved into every decision you make or that mentally you keep reverting back to and has it changed over time? I mean, just even on the call. Yeah. Yeah. Go ahead.

Yeah. Yeah. Well, you know, our religion is, like I said, for years and years, we're in business to create shareholder value. This has been Our number one rule at TFI, okay, and how do we get this done is by focusing on free cash flow. You know, some of the guys say they talk about EBITDA this, EBITDA that, us, we say, okay, EBITDA, fine, we understand that. But for us, it's what's the free cash? What's left? Okay, because you could have $100 million of EBITDA, but if you have $98 million of CapEx, okay, to sustain the business, well, there's not much to do. So if you look at our track record of 20 years, that's how we've been able to build TFI. It's based on the focus of creating shareholder value. That's never changed. Because don't forget, I'm an important shareholder of TFI from day one. And also, how do we get there? It's through people. Team, team, people, and focus on free cash flow and the payback. So someone comes to me and says, Alain, we... we have to invest a million dollars for this customer and the return is going to be one point. Well, find somebody else because we're not in the business of one point, two points, three points. That's not us. So that's always been the focus at TFI. Everything is about creating value for our shareholders. Yes, through servicing customer and focusing on the team, team, people, the right guy, You know, we've built a fantastic team of EVPs that are doing a great, great job, and we're beefing up the team. You know, this acquisition of DLS is going to have, you know, another significant player to our team, and we're really proud of that.

Thank you. I'll leave it there. Thank you. And your next question comes from one of Sanjay Ramaswamy with Bank of America. Please go ahead.

Good morning, and thanks for taking my question. I'll also keep it to one here, but maybe just talking about B2C and the shift that we did see in 2Q, maybe how do we look at the right mix between B2B and B2C maybe over the next couple of quarters? And is there a specific kind of business, whether it's in the US or Canada, that you prefer here? Any other details would be great there.

Yeah, very good question. So for us, B2B is really you know, what can we do and how much can we do? So our focus always been to keep growing B2B, but it's tough to do be in the market environment because our customers are being, you know, uh, use the word attacked by, by the e-commerce. Okay. So what we're trying always to, to protect our B2B and to try to, to grow the B2B, but we live in a world in 2021. ecommerce is growing so we got to be part of the solution and that's what we're doing okay so we're growing now in terms of the mix is the mix 50-50 is the mix 60-40 I don't know okay what's the the best mix is but one thing I could tell you is that we're trying to protect and grow our b2b because that is you know the coincidence of delivery is always more and versus b2c which is one stop one parcel normally now we know that e-commerce is growing and b2b is not growing as much so this is why we came with a solution that really focus on not just growing e-commerce all everywhere and anywhere with any rates our focus has been guys let's grow where we can protect our margin and keep growing the revenue of the company. If you look at our Q3, okay, this is what we've been able to attain. Now, if you ask me about future, you know, probably in two to three to five years, we're going to see more, okay, of this growth in e-commerce, B2C, than we're going to see in the growth of B2B. But we are also controlling the growth, okay, of our P&Cs. uh solution okay because you know we don't want to offer more capacity and come up with a three percent bottom line solution so our most efficient solution okay to the e-commerce is our last mile operation and and this is what we've been growing okay the the in a very important way in canada not so much in the us for now okay but that's going to be a real focus of ours in 21 in the U.S., but in the U.S., like I said earlier, we still have some small margin accounts that needs to be adjusted or changed or replaced, and that's why we believe that in 21, our top line in the U.S. is going to improve a bit, but most importantly, the bottom line will keep on improving a lot. And I don't know if this answers your question 100%, but our focus is bottom line. And how do we get that? Right now, we know that B2C is part of the solution.

Perfect. No, that's great, Kala. I did lie. Maybe I'll ask one more follow-up question. But just in terms of the freight cycle, obviously, we're seeing a very, very strong freight market right now in the U.S. Just potentially, could you comment on how you're kind of navigating these driver shortages right now and maybe talk about the wage inflation you're seeing? You know, we're hearing a lot of truckers just really struggling to fit drivers. And, you know, the wage inflation is quite hefty. So could you give us some comment on that?

Yes. Yes. Well, you see, that's always... You know, the problem with the trucking industry is that a year ago, we had tons of drivers and not so much in terms of freight. Now we have tons of freight, and it's tough to find the drivers. So for sure, we came out with a salary review for our drivers, and I think it took effect just lately because it's a problem. So it's the same story all over again. Okay, so freight is... It's plenty, shorter the drivers. So this is what we're going through right now. It's the same story for us and the rest of the industry. It's always a battle. You know, what we're trying to do in a situation like that, our experience in Canada has always been, you know, when there's a shorter driver, our approach in Canada, okay, over the last 15 to 20 years, what I said to my guys, guys, how about if we buy a trucking company, okay, with 200 drivers? So, you know, you buy the company, you keep the good accounts, and, you know, you get rid of the bad ones, and also that gives you a little bit better capacity. So that is, in our mind, a solution to that we may start to think about the U.S. domestic market. So if I explain myself correctly, is you look at a 200-truck company like we just bought MCT a few months ago. It's about 200 trucks. And I'm looking at the results of MCT and it's very impressive what Greg and the team has done there. And maybe there's another MCT that we could buy, you know, in the next three to six months to beef up our human capital, you know, our driver fleet. And in those small trucking company, they have some good accounts, but sometimes because they don't know what the market is, they have some not so good account. And our approach has always been, you know, what you do is you just get rid of the ones that are not good and then it leaves you capacity. to service your good account in your existing business. I don't know if I'm explaining myself correctly. I don't know if you understand what I'm saying.

Yeah, no, that makes a lot of sense. Okay. I appreciate the call. Okay.

And your next question comes from one of Conor Gupta with Scotia Capital. Please go ahead.

Thanks, and good morning, Alain. How are you? Good morning. How good are you? Perfect, perfect. Great, thanks. I hope you're keeping safe and healthy. Just a few quick ones from me, Alain. On the wage subsidy, I'm not sure if I heard you correctly. Are you expecting the government to extend the wage subsidy into 2021?

Well, no. What I'm saying is that our wage subsidy for our Q4 is going to be minimal. Because our revenue is coming back slowly. So I was saying that In Q4, okay, our wage subsidy is going to be minimal, just a few million dollars. And for 21, it's probably going to be zero for us.

I see. Makes sense. Thank you. And on free cash flow guidance, so the minimum you announced today is $600 million. Obviously, that implies relatively less cash generation in Q4. I'm curious as to if it's all pertaining to cap tax and tax payment perhaps?

Yeah, well, CapEx is going to be more important for us in Q4. Like I said, net CapEx is probably going to be like in the $50 to $55 million, okay, because we have to do some catch-up because Q2 was light and even Q3 was light, okay? And then, yes, you're right, we got some tax payment. But like I said, this is a minimum of, right? It's like on the EPS. it's a minimum of four. So what is it exactly? We don't know, but we say it's a minimum of four. So it could be maybe it's four and a half, not four and a half, but let's say 405, 415. We'll see. It's the same thing with the free cash. So it's a minimum of six, 600. So it could be 650 or it could be 675. You know, it all depends. But at least this is a minimum.

Right, right. No, I understand that, Oleg. And then I think not a lot of discussion on package and courier. So just want to kind of dig in a few things there. There was, I think, a margin contraction in Q3 versus last year, despite volumes being almost flattish and pricing being quite positive. What led to that margin deterioration? And then is there any room for margin improvement from where you are today?

Yeah, there's been, if you look at our adjusted EBITDA as percentage of revenue, I mean, there was no real margin issues. But what is affecting us, like I said, is our ICS, okay, and our TFIS, specialty P&C guys, which are mostly B2B. The revenue is still down, excuse me, year over year. So ICS is down 5%, 6%, and TFIS is down like 15% to 20%. And this is, high quality margin business, okay, that we're now. This, if you look globally, our PNC revenue is up a bit, okay, because we replace those B2B revenue lost, okay, because the customers are still not completely reopened, et cetera, for whatever reason, okay, by B2C with our 10th bar Loomis operation, okay? And if you look at most of the e-commerce business Okay, and you listen to what's going on. Guys always have pressure on the margin. We were able to do it at a kind of similar kind of margin like we used to do with our B2C. So that's what we're saying. We're saying also that e-commerce in our packaging courier business will keep on growing, and we're in business to protect our margin. So we've got lots of demand. I mean, we could grow way more than what we're doing now. But we are controlling our growth or our capacity offering to our customers.

Right, right. That makes sense. Thanks. And last one for me before I turn it over. All the acquisitions you have closed or announced this year, they add up to almost, call it, a billion dollar in revenue. Maybe you optimize some of those businesses, right? But what kind of margins do these businesses on a cumulative basis generate today and where can they be in a year?

Yeah. Well, the biggest one is DLS that we're going to be closing, uh, you know, in November. So yeah, DLS is 550 us. So if you could convert that into Canadian dollars, it's about, uh, let's see $700 million Canadian. And that is a 5% bottom line company today. Uh, you know, we believe that 5% is, is okay, but it's only average. And you know, we're not in the business of average kind of return. So we believe that over time, this five will become six and maybe seven and eight. It's still very early to say, but we look at peers and we have peers at seven right now. So one will be talking with Tom, our leader there, says, hey, Tom, if the peers are at seven, what can we do to get closer to six and then seven and maybe get better than seven? But it will take time. It's not going to happen overnight. Now, the other small ones, like Keith Hall, like Gusco, like the DSN, all those small, the CCC that we bought in the U.S., the MCT, those guys are running, some of them a 92R, some of them a 98R, and the proof is in the pudding. If you look at our track record, I mean... Over time, these guys will get closer to, on a specialty TL, an 85 or. But it takes time. It takes time, absolutely. So, I mean, we don't give guidance for 21 because our budget planning is not completely done for 21. But as soon as possible, we'll give guidance for the way we think 21 is going to be. But I could say my first feel about 21 is, is we're going to do better than 20, even without the subsidy.

That's perfect. That's all from me. Thanks so much, Alain, and stay safe.

Thank you.

And your next question comes from the line of Jack Atkins with Stevens. Please go ahead.

Hey, Alain. Good morning. Thanks for taking my question. So just kind of going back to the P&C business for a moment, we're certainly hearing about quite a bit of pricing power from the large U.S. parcel carriers. When you think about that, especially as we go into 21 with B2B hopefully recovering back to more normalized levels, there's obviously going to be sustained B2C demand. How are you guys thinking about the pricing power in your business there and just sort of normalizing for the the subsidies, is it right to maybe think about a real step function change in profitability from a margin perspective in PNC next year?

Well, you're absolutely right, Jack. For sure, I mean, we're following in the steps of the big guys like the FedEx and the UPS. So for sure, the only difference between us and them is that those guys were ahead of the game and us were following them. So us, it will take effect only in November, okay, which is next week. uh absolutely uh but i i agree with you b2b is slowly coming back so that's going to help us in in 21. now are we going to be back to the same level as we were pre-covered on b2b it's hard to say probably not okay but also our our b2c is also improving in terms of demand and you know the name of the game in transportation has always been density You have to build density and the more density you have. So on e-commerce, because one stop is one parcel at 99.9% of the time, what you have to do in order to get the density is to pick the zip code, pick the right zip code. So I'll give you an example. If you want to do B2C in the small northern town of Ontario, 20 miles north of Sudbury, Well, you want to have a lot of density there, right? So our option to us has been, well, let's pick the right zip code, like the GTA, the Greater Toronto Area, the same thing with Vancouver, the same approach with Montreal, et cetera, et cetera. That is the way to create density in an environment where one stop is one parcel. So you say one stop is one parcel, that's true, but if you deliver... into a downtown condo tower in Toronto where there's about 300 apartments. Well, maybe one stop is not going to be one parcel there. Maybe one stop is going to be 15 parcels because there's 300 apartments. But a tower with 300 apartments in Sudbury, there's none. So this is why our approach has been Vancouver, Calgary, Montreal, Toronto, Ottawa, those cities where we could do more density, okay, per stop, okay, even in the e-commerce world.

Okay, that makes a lot of sense. Maybe just one quick last one for me. How are you thinking about your available capacity, you know, to be able to grow with the market there in 2021? Do you need to maybe add some capacity at the margin within the P&C segment?

Yes, yes. What we're doing, Jack, is we're increasing our capacity at Loomis Kemp on a monthly basis, but we are not going to be like, you know, Canada Post or others in Canada that are just growing out of control. Us, we are growing in control because we don't want to come up to our shoulders, okay, in Q1 or in Q2 next year and say, well, guys, we've grown PNC 15%. But the bottom line is down 20%. No, no, no, no, no. We don't want to do that. That's why us, we go ahead and we grow top and bottom line, you know, accordingly. So that's the focus. So when I talk to Brian and his team, guys, absolutely. I mean, we got a full pipeline of customers that want to deal with us on e-commerce. But we got to go step by step. We got to pick and choose the right customer, the right zip code. and where it fits. And we don't want to blow out on the top line and a disaster on the bottom line.

Okay, that makes a lot of sense in my book. Thanks again for the time. Thank you, Jack.

And your next question comes from the line of David Ross with Steve Hall. Please go ahead.

Yes, good morning, Elaine. Happy Friday.

Thank you, David. Good morning.

So when you talk about the logistics and last mile division, you know, specifically as you trade up in customer accounts to get more profitable business, where are those, you know, you call them like three, 3.4 point accounts going, are they able to find somebody else to haul it at those low prices or are any of them coming back to you and paying the margin that it takes to run that business?

It's a mix. Uh, it's a mix, uh, Dave, uh, You know, they say in transportation there's a sucker born every minute, right? So there's always someone stupid enough to say, oh, I'm going to do it for this kind of money. But, you know, our focus to us is that we've got so much capacity growth for our last mile in the U.S. with e-commerce at good margin. Why are we going to service this guy like a pay less something, you know? If this guy sells assets for pay less, for sure he wants to pay less for freight too, right? So that's not my cup of tea. So we've got so much demand right now in the U.S. with the e-commerce. So what I'm saying to Cal and his team is that, guys, I mean, let's bring this new e-commerce business. As I said, we're just starting to do business with one customer that's going to be $16 million for us. on a yearly basis and okay take this guy on but get rid of those two three percent guy now some of them are are saying oh no no we can't find another sucker okay so we'll stay with you guys but can we do it for eight percent bottom line so we say okay we'll we'll live with that but the guy comes back to us with can we do it for three and a half i said no no no get out

And just quickly on the trucking side of things, given that it's tight but also rates are up, do you expect that CFI and TCA to have any organic truck growth next year, or is any of the growth in the truckload segment in the U.S. likely to be M&A?

That's a tough question. I mean, for sure the freight is there. The The freight is there. The issue that Greg and his team have is the same as everybody else has, is people, is driver, right? So what do you do, okay, in a situation like that is, like I said to David and the team, is the guys, can we find a company, okay, that's got asset, which is people, and they don't know what to do with it. So this is why we bought from this guy that was under the protection of the court, Comcar, We bought MCT from him, we bought CT from him, and we bought the triple C from him. So we got assets, people, okay? And with that, we'll be in a position to create value to our shareholders. As I was saying to Greg the other day, I said, Greg, yes, we're busy, okay? Yes, we're trying to hire a driver, but is there a small company in your neighborhood? Is there something? of size, size which for us is two, three, 400 trucks that we could buy. And those guys are not bankrupt, but those guys are okay, but we can improve them through cost and through quality of revenue. Because it's very hard because every transportation company is looking for a driver. So, and it takes time and it costs money. So what we're saying is that guys, How about if we buy a small, and that's what I've done for 15, 20 years in Canada, is when the shortage was there, oh, let's buy a company. And a company, you know, it's not that expensive. If we can strike the right deal, okay, perfect. So we beef up the team like that. So this is, you know, it's been like a little bit under the radar, Dave, is when we bought those three companies from Comcar, Okay, we didn't get a lot of good quality rates from customers. Okay, because the reason those guys were bankrupt or under the protection of the court. But we got the good asset, which is the people. And now we're working with customers and market and we are improving. So this is why we're saying MCT, what the guys have done there is fantastic. I mean, Gramer, CCC, CT is still an ongoing process. But it's going to be the same story. So it's going to be hard to grow organically, okay, through trying to find the drivers. But if we could find the right company, okay, small, that's how we get the drivers.

Makes sense. Thank you. You're welcome, Dave.

And your next question comes from one of Brian Osenbeck with J.P. Morgan. Please go ahead.

Hey, good morning, Elaine. Thank you for taking the question. Good morning, Brian. So just a couple quick ones here. I understand you're using DLS, you know, kind of the foothold similar blueprint you've done in the past to scale DLS. to new businesses in the U.S., get some market intelligence as well. Would you consider bolstering just the overall brokerage platform more so to the TL side, where you're primarily focused on LPL? And you would typically have seen a higher level of investment, especially from the technology side, in brokerage just overall. I understand LPL probably doesn't have the same sort of driver's competition behind it, but how do you think of just the level of investment and what type of platform – on the athletic side that you're looking to do with DLS?

Well, DLS, if I listen to Tom and the people that are talking to the guys, I mean, we could grow that fast. But, you know, our message to Tom and the team there is going to be, guys, focus number one, yeah, we want to grow the top line, mostly on LTL, absolutely. But the most important thing to us, like I said on the call, is that we have to bring this 5% bottom line company closer to 6% and to 7% and maybe to 8%. To us, it's more important to grow the bottom line than to grow just the top line. But we believe that, as an example, when we talk to Tom at DLS, say, Hey, Tom, do you guys focus on transborder LTL? He said, No. Oh. Wow, that's a new thing for you guys. That's something that Tom and your team have to focus because the rates, the quality of the revenue on transporter freight between U.S. and Canada and U.S. and Mexico is even better than the U.S. domestic rates. So, guys, that's a new area of focus of theirs. So that's one area that we think that Tom and his team could immediately start to focus on. So we believe that DLS will grow the top line over these, for example. We believe that DLS can grow the top line in Concur with our truckload operation in the U.S. We could do probably better with that. And absolutely, that's the way to go for us. And it gets us market intelligent in the LTL market, which is something that right now, today, We know the Canadian market really, really well. But the U.S. one, we know it through our partners, but only on the trans-border freight. But when we look at the other LTL company, I mean, some guys are doing a fantastic job in the U.S., a fantastic job. And there's way more consolidation that's been done in the U.S. on the LTL side than in Canada. Yeah. In Canada, there's still way too many small players, not about making money. Now, that's a big difference if you compare that with our truckload market. The truckload market in Canada is way more consolidated than the one in the U.S., right? But the LTL is different. The LTL is, the guys, it's a much better market in the U.S. than in Canada. So this is why for us, when we look at DLS, it's fantastic in the sense that Oh, this is going to give us the opportunity to really understand what's going on there. What are the drivers? And then, you know, like I said earlier on the call, we've got a billion dollars Canadian to invest. Okay, so it could be a specialty TL. It could be another last mile. It could be, you know, maybe one day it could be an LTL company in the U.S. We don't know. Okay, we're working on something important in all those sectors. Okay, but we'll see. But at least on the specialty TL, we've done many small deals that now give us, you know, what the market is all about in the U.S. Okay. On the van side, through CFI, TCA, we have a good understanding on the market. Now on the LTL with DLS, over time, we'll get a great understanding on the market. Fantastic. And then we can start growing. Because in Canada, we're such a huge player that something of size, tough to do for us.

Just in terms of the technology investment, we typically hear that with brokerages, LPO, maybe not as much. Do you think you need to do just from a visibility perspective or anything on the tech investment side as you bring dealers on board? Yes.

Yes, yes, yes, yes, yes. You know, when we talk to Tom, for sure. Okay, right now, if I remember correctly, they're using Mercury Gates and SAP. Us, we run Oracle, so first step for us is going to move, because we have a TSE agreement for a year. So step one is to move those guys from SAP to Oracle. TFI, we use Oracle. And then the next discussion is going to be around Mercury Gates. I mean, is that the right tool for growing this division, or do we have to do something else? I don't know. It's too early to say, but absolutely. That's one area that we want to invest is tools for our people to do a better job, like I said, for our truckload guys. You know, we're in the phase. We're looking at McLeod. Okay, we're doing the study right now, the first phase, and then probably the implementation will take effect in 2021. We need our people to have the right tools to be even more efficient. Same story with our LTL. Our LTLs, we're looking at TMW. If you look at our LTL operation out west, mostly run on TMW. In the east, we have QuickX now that's run TMW. We're going to be probably moving TST, CF on TMW in 21. It's all about the tools. We have A team that is second to none in Canada, but we can always improve the results by giving those guys better tools, and that is the goal for us.

Understood. One last quick follow-up on the driver market and the labor market. more inclination to buy assets to get drivers. With MCT, and CT sounds like it's going pretty well so far, what's your ability to hang on to the people when they come over and the market is tight and you need to perhaps call some of the freight to bring up the profitability? Are you seeing kind of historical levels of turnover and retention, and does that make you more or less confident to do more of these in the future?

Yeah. Yeah. Not so much, Brian, not so much. I mean, I know it's always been an issue in the U.S. that you buy a company, and after a year, all the drivers are gone. I mean, our approach has been quite good. I mean, if you look, if you would talk to Greg at MCT, he would tell you that, no, there was no real turnover. The same thing at CT with Steve and the team there. Not an issue, but we don't come in there and say, well, you guys have to change. This is the recipe, and this is the way to go for the future. No, we don't do that. I mean, the way our approach is, hey, guys, let's keep on doing what we're doing, and now we're working with the customer just to make sure that the rates are fair, that the rates are market. Also, if you look at the stuff that we bought from Comcar, I mean, the trucks were terrible in some of the divisions. So we're investing in CapEx. We're buying the equipment so that the guys, you know, could be proud of their equipment and their company. So, I mean, we've been very, very successful in Canada, you know. And if you look at what we've done so far in the U.S., it's working well.

All right. Thanks for your time, Alain. Appreciate it. Pleasure, Brian. Take care.

And your next question is also on the line of Cameron Darkson with National Bank Financial. Please go ahead.

Thanks. Good morning.

Morning, Cameron.

Yeah, so just a quick one for me. I just want to get your thoughts around M&A and the specialty truckload area in the U.S. You've talked about that, but I'm just wondering if there's any sort of specific sub-segments of specialty TLs that are more attractive? I mean, I guess, you know, flatbed versus dry bulk versus, versus liquids. Is there anything there that is better from an operational point of view or from a competitive landscape point of view that, that would, would allow you to focus on one of those, those three?

Yeah. Yeah. That's a very good question, Cameron. So flatbed, I mean, CT is a flatbed company, so it's really the first transaction that we do in the flatbed world. Okay, so it's probably not going to be something for us important in 21 in M&A. But in terms of bulk, okay, with the stainless steel, okay, everything that relates to chemicals or food, okay, that's very important to us. So triple C is like that. When we bought chili, when we bought holic, okay, Absolutely. For us, really, the tanker world is, for us, priority number one. We are the largest player in Canada on the full-grade stuff, hauling, you know, whatever, wine, juice, sugar, et cetera, et cetera. So we believe that, for us, on the specialty TL, full-grade chemicals on the bulk side, liquid, and dry, okay, not so much the cement. Cement is okay in some areas of North America, you know, but it's really the focus of ours. Flatbed, yes, we did CT. It was a good opportunity, and we'll keep on looking at that, but really our focus on the specialty is more in the tanker world.

Does that include petroleum products?

No. No, no, no, no, no, no, no. Petroleum is no, not for us.

No, and you don't do much of that in Canada anyway, in specialty truckers, right?

No, very, very small. I mean, this came to us, it's a small operation we have in Montreal, about 15 trucks on the petroleum. It's mostly for the ships. You know, when they dock in Montreal, they need... So, yeah, it's for the ship. It's a specialty petroleum business that we have that is very small, but absolutely not. I mean, if a company was up for sale, let's say with, I don't know, $300 million revenue hauling petroleum product, no, not for us. We'll leave it to the other guys. Us is more food, chemicals. Yes, we're in.

Okay. Makes sense. Thanks very much.

Thank you, Cameron.

And your next question comes from Kevin Chang with CIBC. Please go ahead.

Thanks for sending me in here, Elaine. I know it's been a long call. Maybe just a follow-up on this DLS acquisition. And you mentioned you have a lot of cross-border partnerships. I think one of them with TST, CF is SEA. Just wondering, as you think of DLS longer term, would you look to eventually in-house all your cross-border LTL projects I guess your cross-border LTL network and eventually these partnerships? No. No, okay.

No, no, no. I mean, what we're saying to DLS is that the trans-border business is huge. And you guys, you know, you're doing a good job on the domestic side. Hey, how about if you start looking at the trans-border business, which is something that those guys never really looked at. But, no, we're really proud of our partnership with SIA right now. And for sure, we would never do something like that. I mean, this would be very unprofessional on our part. So, no, no. The relationship we have with SIA is we want to protect that and we want to grow it, but it's got nothing to do with DLS. And as a matter of fact, you know, between you and me, Kevin, DLS deals with SIA in the U.S. on the domestic side. Yeah.

Perfect. Well, you, me, and everybody else on this call. Thank you for the clarification, and congrats on a good quarter. Thank you, Kevin.

And your next question comes from Benoit Poitier with Desjardins. Please go ahead.

Hey, good morning, Alain. Good morning, Benoit. And congrats for the results, and glad to see that Cal's efforts are paying off on U.S. last mile.

Yes.

Alain? Looking at Last Mile, a great network in the U.S. There's been a lot of investment, if we think at Shopify, Shibbop. Just wondering whether you see some opportunity to partner with some warehousing fulfillment companies as you don't want to go through real estate. So I'm just wondering if you see some opportunities to partner up with some guys eventually.

Well, that's a good question. But so far, I mean, no. Okay. But we're having a lot of discussion. This is like, you know, the drone thing there. I mean, are you guys thinking about that? Yes, we are. Okay. It's the same thing with this partnering with someone that's got the coverage. Okay. Because like you said, I mean, we're not in the real estate business and we don't want to be in the real estate business, industrial real estate at all. So, yes, but right now we have so much demand without going through that, okay, that right now Cal's team in the U.S. are really focused on just answering the demand that we're getting. It's unbelievable, okay? But we've got to do it step by step, you know, one step at a time. And, you know, we're getting on board a $60 million account, like I said earlier, right now. Okay, it's fine. Okay, but $16 million in the US is big, but it's not that big. So we're testing also with another customer in California right now or very soon. And this could be just for California, another $15 million account. So huge potential for us in the US. But a year ago, Cal's mission in the US was, guys, we cannot build if the foundation are not solid. Okay, so step one, let's make sure that our foundation in the U.S. is solid, which now, okay, we can say yes. Get rid of all those 2% guys. Okay, step number two. Okay, let's build a sales team that is North American. It's done with Dean. Okay, fine. And then let's start growing organically with the e-commerce solution that we have, which is fantastic lean and mean solution that today we're growing big time in Canada, but not so much in the U.S. because we are replacing those 2% guys with better quality revenue, right? So we've got an eye on sport right now, Benoit.

Okay, okay. That's great, Father. And the other question I had was around the TL market. We are all aware about the positive market condition Obviously, the biggest question is around the duration of the cycle. But when we look at the Class A orders, yes, they pick up over the last three months, but we are still well below the historical average. I'm looking also at the implementation of the driver's license drug and alcohol clearing out that remove almost 30,000 drivers. We also have the ELD implementation that will be mandatory in June 2021. Yes, in Canada. So do you see some long-term tailwind or structural changes that might make this positive cycle maybe longer than usual, Alain?

I think so. And also the leadership in the truckload world in the U.S., like the good companies like Knight and Heartland and Warner and all those good companies in the U.S., They have a great influence now about, hey, guys, this is how we can sustain this growth, okay? And we're in business to serve customers, yes, but we're in business to make money as well. So I think that the macro is changing to the advantage of the trucking company right now. Okay, fine. How long this is going to last? Maybe, like you said, longer than ever before because of the clearing hours, because also... It takes a lot of capital now to, okay, interest rates are low, but still, I mean, it's not as easy to buy a truck like it was like 10 years ago, maybe. And also, customers are getting, you know, pressure to be more, I would say, professional in the sense that you can't give a load to, you know, a non-professional driver anymore. It looks bad. So I think that you're right. Now, things are changing, slowly changing. To be more professional, yeah, it may cost a little bit more money, but we are in business to create value for our shoulder, but we have to do it in a safe manner. We have to be safe on the road with drivers that are safe as an industry. So this is why I agree with you. Probably... a little bit more stronger tailwinds than we've ever seen before.

That's great, caller Alain. Thanks very much for the time. Pleasure, Benoit.

And there are no further questions at this time. I will turn the call back over to Alain for closing remarks.

Okay, well, thank you very much, operator, for facilitating our Q&A session. I also want to thank everyone for spending time with us this morning. You can rest assured that everyone at TFI International will continue working hard for our shoulders, creating and unlocking value and returning excess capital whenever possible. I hope everyone stays safe and I look forward to providing another update on our next call. In the meantime, please don't hesitate to reach out if you have any questions. Have a great day and a wonderful weekend. And thank you again.

This concludes today's conference call. You may now disconnect.