TFI International Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's first quarter 2021 results conference call. At this time, our participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and one follow-up in order to keep to as many callers as possible. Further instructions for entering 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. Also, as a reminder, TFI changed its presentation currency at year-end, and all dollar amounts are in U.S. dollars. Lastly, I would like to remind everyone that this conference call is being recorded on Wednesday, April 28th, 2021. I will now turn the conference over to Alan Bedard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you very much for the introduction, operator, and I'm pleased to welcome everyone to this morning's call. Yesterday, after the market closed, we released our first 2021 results. First quarter, 2021 results. So TFI International had an exceptionally strong quarter to begin the new year, a quarter that marked the one-year anniversary of our listing on the New York Stock Exchange. During the height of the pandemic, we made the right moves to preserve our long-term growth opportunities, and we are beginning to see the benefits. We maintain a relentless focus on the fundamentals of the business and on getting the details right. We look for opportunities to enhance efficiencies as we do in good times and bad. And as always, we look to increase returns on invested capital, optimize our free cash flow, and grow our earnings per share. This, in turn, places us in a position of strength with a strong financial profile that allows us to strategically expand our business with the ultimate goal of creating long-term shareholder value and returning excess capital quickly. to shareholders whenever possible. The identification of strategic accretive acquisition opportunities is another important part of our strategy. In a highly disciplined manner, we have continued to selectively seek acquisition candidates that are both accretive and strategic to extend CFI International's long and successful track record growth through M&A. As you know, in January, we announced an agreement to acquire UPS Freight, in one of the most strategic transactions in our company's history. The acquisition immediately propels TFIs International to become one of the five largest North American LTL carriers. It will strengthen our service offering, accelerate our strategic expansion across the U.S., and fortify our ongoing relationship with UPS. This transaction is on track to close this quarter. Now let's turn to our first quarter results. That includes strong year-over-year growth in both revenue and operating income, despite very solid results a year ago. Our total revenue for the quarter, for the first quarter, of $1.1 billion was up a very robust 24% compared to the prior year's first quarter, again, despite much of the prior year's quarter being before the pandemic. Just as important to us, given our focus on profitability and despite significant one-times items, I'll discuss our operating income grew 17% to $102 million, and our adjusted EPS on a diluted basis expanded 26% to 77 cents. Our net cash from operating activities was $155 million, up 13% over the prior year. As you know, we consider this strong cash flow to be strategically important, allowing us to invest in our business and seek out attractive expansion opportunities. Regarding those one-time items, the first relates to the mark-to-market of our cash-settled director shares unit, or DSUs, due to the rise in our share price during the first quarter. This had a $0.07 impact on our adjusted diluted EPS, which was further impacted by a cent per share of transaction expense related to the acquisition of UPS Freight. In total, that's $0.08 of combined one-time cost. Let's now take a more granular look at the operating results for each of our four segments, all of which contributed to our strong overall performance, starting with our package and courier. P&C represents 13% of total segment revenue and saw a 26% increase in revenue before fuel surcharge versus the prior year. Operating income of $18.3 million expanded an even greater 58% with an operating margin of 13.9% up 280 basis points. This strong growth was driven by improved yields on both B2C and B2B activity, which have continued to rebound this year. We're pleased with our more balanced mix of B2C and B2B following the pandemic and see additional growth opportunities ahead. Our LTL segment, also 13% of total segment revenue, generated revenue before fuel surcharge of $132 million, especially flat compared to the prior year quarter. While demand is still feeling the effect of the pandemic, most important to us, our LTL operating margin expanded more than 700 basis points to 16.8 from the less than 10% a year earlier, driving a nearly 70% increase in operating income to $22.1 million. This strong growth in operating income benefited from strategic consolidation in our over-the-road operation, as well as a $2.7 million contribution from the Canadian wage subsidy. Next is our truckload segment, which represents 41% of total segment revenue. Revenue before fuel surcharge was up 7% year-over-year, while operating income was up 8% to $50 million, reflecting a slightly higher operating margin of 11.8%. Our growth in this segment was driven mainly by business acquisition, as well as strong spot pricing and tight capacity in the U.S. market, offset by severe winter weather. Within truckload, our U.S. operations saw a 1% decline in revenue before fuel surcharge, while our Canadian operation grew 6% and our specialized business grew 13%. We also had a $2.7 million overall benefit from the Canadian wage subsidy. Rounding out our business segments, logistics represent 33% of total segment revenue. Our revenue before fuel surcharge jumped nearly 90%, driven by e-commerce strength in Canada, as well as acquisition over the past year. Our operating income was up 52% to $29.1 million, reflecting a margin of 7.7%. Now turning to our bond sheet, it remains a significant source of strength for TFI International. It allows us to execute our growth plan by making disciplined investment both in organic growth and attractive M&A opportunities. Our strong free cash flow of $143 million allows us to end the quarter with more than $1.3 billion of liquidity benefiting from January's private placement of $500 million in senior notes which also substantially extend maturities to between eight and 15 years at fixed rate. Lastly, I wish to provide our outlook for the year, a range which include a range of $3.80 to $4 of earnings per share and 475 to 525 millions of free cash flow. In addition, despite the anticipated closing of the UPS freight acquisition, we expect our leverage to remain below two times next quarter and for the rest of 2021. Please note that this leveraged calculation refers to the funded debt to EBITDA ratio as calculated in accordance with our debt covenants and as set forth in our quarterly MD&A. In summary, the past 12 months have been like no others. but at TFI International, we stuck to our game plan throughout. We focused on the fundamentals of the business to maximize profitability and cash flow, and we carefully considered capital allocation to further enhance value. The economic outlook remains fluid, but you can rest assured that we will stick to our approach no matter what the future holds. Today, we're in the best position in our company's history, and the pending acquisition of UPS REIT will make us even stronger. Together, we look to create additional shareholder value by constantly driving efficiencies and focusing on profitable growth. Ultimately, our goal is to create and unlock shareholder value, returning excess capital to our shareholders whenever possible. And with that, operator, if you could please open up the lines for Q&A.

Ladies and gentlemen, To ask a question, you will need to press star one on your telephone keypad. To withdraw your question, please press the pound key or hash key. Calls will be limited to one question and a follow-up in order to get to as many callers as possible. Again, that's star one to ask a question. Please stand by while we compile the Q&A roster. And your first question is from the line of Scott Group with Wolf Research.