TFI International Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International for Quarter 2021 Results Conference Call. At this time, all participants are in a lesson-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 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 changes presentation currency at year-end 2020, and all dollar amounts are now in U.S. dollars. Lastly, I would like to remind everyone that this conference call is being recorded online. Tuesday, February 8, 2022. I would now like to turn the call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you very much, operator, and welcome everyone to this morning's call. Yesterday, after the market closed, we released our fourth quarter 2021 results. TFI International completed a very strong year And that will be remembered as a pivotal in our history with the successful acquisition of UPS Freight. Our strong fourth quarter results demonstrate the sound rationale behind this transformational event, which drove much of our outperformance along with continued strong execution across all of our business segments. All four segments generated growth in operating income, contributing to full year adjusted diluted earnings per share of $5.23, which easily exceeded the high hand of our guidance that we provided in October. What we found most compelling is that while UPS Freight, rebranded T-Force Freight, is already playing a large role in our outperformance, We still see much upside ahead as we continue to integrate driving both revenue and cost synergies. It is this ongoing upside combined with our consistent focus on the fundamentals of the business that provides us with confidence that we will continue to successfully navigate the road ahead with TFI International now in the strongest position in its history. This focus of the fundamental for TFI International means that getting it right on the details of our business. It means striving for operational efficiencies and selectively capitalizing on strategic acquisition opportunities. Over time, this approach allows us to generate strong returns on invested capital, optimize our free cash flow, and grow our earnings per share. And with the overreaching goal of creating long-term shareholder value, we also aim to return excess capital to shareholders whenever possible. Importantly, you will notice that before, during, and after the global pandemic, this has been our focus. Regardless of lockdowns, ongoing supply chain disruptions, and labor shortage, and any other changes in operating condition that 2022 may have in store, we are confident that our operating principles will continue to help us succeed. Looking into the new year, in addition to integrating T-Force Freight, we plan to especially focus on improving density, increasing our service level, optimizing our pricing, increasing driver retention, and the concept I mentioned last quarter, Freight That Fits. This means taking on the right freight for our valuable network. Turning to our fourth quarter results, our total revenue climbed by more than 90% year-over-year to $2.1 billion. During the quarter, we continued to strategically price in order to capitalize on rebounding freight volume across B2B and e-commerce. Given our focus on profitability rather than growth for growth's sakes, I'm pleased to report our operating income climbed to $215 million, which was up 84%, and our adjusted fully diluted EPS of $1.57 was up a very healthy 60%. Similarly, we had a longstanding focus on net cash from continuing operating activities, and I'm pleased to report an increase in this measure as well to $190 million. This cash flow strength is strategically important, allowing us to appropriately invest in our business, seek attractive acquisition opportunities in a disciplined manner, and return excess cash to shareholders when possible. Each of our four segments perform well during the quarter, with all four producing an increase in return on investment capital versus the prior year, which is a metric that we track closely. Let's now take a look at each. Beginning with PNC, this segment represents 8% of our total segment revenue and saw a 3% decline in revenue before fuel surcharge versus the year-ago quarter, but a 25% increase in operating income to $36.7 million, with the operating margin up a very strong 540 basis point to 24.5%. This improved profitability was the result of strengthening yields for both B2C and B2B. Our return invested capital for PNC was very strong as well at 25.3%, which was up from 18.2% a year earlier. Turning to our LTL segment, which is 44% of total segment revenue before fuel surcharge was $823 million. as compared to $141 million a year earlier, with the increase largely due to the acquisition of T-force freight. Operating income of $103 million was up from $24 million, and our operating margin of $12.6, as I referred to earlier, has significant upside potential as we continue the important work of optimizing our newly acquired operation. Digging in deeper on the LTL, our Canadian business grew revenue before fuel surcharge 3% and delivered a remarkably strong adjusted operating ratio of 78.3, representing a 440 basis point improvement versus the prior year. Our return invested capital for the Canadian LTL was a strong 17.8, up 420 basis points. Our USLTL business, newly formed with last year's acquisition of UPS Freight, produced revenue before fuel surcharge of $680 million, with an OR that improved another 130 basis points sequentially to 89.4. Our return invested capital for USLTL was once again exceptional, but we will continue to wait until we have a full year's worth of T-force freight performance before reporting this measure. Turning to our truckload segment, which represents 27% of total revenue. Our revenue before fuel surcharge of $506 million was up 16% over the prior year for a quarter, and our operating income of $62 million was up 15%. Our truckload operating margin was unchanged at $12.2. In addition, the newly acquired T-Force Freight Truckload Division continues to operate at a modest loss of $2.4 million, a sequential decline. improvement from a loss of 4.6 last quarter, and we expect continued near-term improvement. So taking a closer look at truckload revenue before fuel surcharge for U.S.-based conventional operation grew 16%, with an adjusted OR of 95.5% and a return on invested capital of 5.3%, flat year-over-year. Our Canadian conventional truckload operation grew revenue before fuel surcharge a very strong 26%. The adjusted O.R. was 88.4 versus 85.2 the prior year, and the return on invested capital was 10.9, down 50 basis point. Lastly, within truckload, our specialized operation grew revenue before fuel surcharge 13%, with an adjusted O.R. of 84.6 and a return on invested capital of 11.2%. up from 9.9 a year earlier. Rounding out our discussion by segment, our logistic business represents 20% of total segment revenue. Our revenue before fuel surcharge jumped 33% to $428 million, with operating income up 24% to $33 million. Logistics operating margin was 7.7 relative to 8.2 the prior year. and return invested capital was a very strong 19.9 up 460 basis point. This overall strong performance was led by our same-day package delivery business in the U.S. and in Canada, and by the addition of U.S. LTL brokers TFWW, which remains a strong performer. Shifting gears, TFI International Balance Sheet remains a source of strength. During the fourth quarter, we produced free cash flow of $121 million, allowing us to end the year 2021 with a debt-to-adjusted EBITDA ratio as calculated in accordance with our debt covenant of 1.51. This low leverage and continued strong cash flow is what allows us to strategically grow the business through prudent internal investment and our long-standing discipline acquisition strategy. Turning to the outlook for 2022, today we are issuing our initial full-year guidance. These initial range assume that operating condition remains relatively stable, and most importantly, reflect our own confidence in our ability to capitalize on the favorable opportunities ahead based on what we at TFI International can control. This includes the compelling opportunities to optimize recently acquired key force rate operation, and as always, our emphasis on strong execution, getting the fundamentals of the business right, including our focus on freight that fits, and our preference for cash flow and profitability over growth for the sake of growth. With this in mind, our initial 2022 outlook calls for full year earnings per share are to be in the range of $6.25 to $6.50, reflecting a potential growth of over 20% at the midpoint. We expect net capex to be in the range of $325 to $350 million for the full year, and we also expect our pre-cash flow to exceed $700 million. Throughout the year, we expect our leverage again defined as funded debt to EBITDA ratio as calculated in accordance with our debt covenants to remain at around 1.5 times. In conclusion, before we open the call for your questions, TFI International finished the year on a very strong note, and we're now in the best position in our history to navigate what's ahead, and capitalize on the many opportunities that are within reach, especially the compelling opportunities to optimize deforce rate. We therefore see continued operating opportunity to create and unlock shareholder value, returning excess capital to shareholders whenever possible. And now, operator, we can begin the Q&A session. If you could please open the lines.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star one on your telephone keypad. To withdraw a question, press star one again. As a reminder, callers will be limited to one question and a follow-up in order to get as many callers as possible. Again, that's star one to ask a question. And please limit yourself to one question and a follow-up. Please stand by while we compile the Q&A roster. Your first question comes from Scott Group from Wolf Research. Please go ahead.