TFI International Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International Second Quarter 2023 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. Again, that's one question and a follow-up so that we can get to as many callers as possible. Further instructions for entering the queue will be provided at that time. Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, August 1, 2023. I will now turn the call over to Alan Burdard. Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you very much, operator, and thank you, everyone, for joining us this morning. Yesterday, after market close, we released our second quarter 2023 results. During these tough times for the freight market with lower volumes industry-wide, it was critical that we abide by long-term operating principles, and we did just that. We again demonstrated the quality of our operation and our team's ability to quickly react to changing market conditions by focusing intensely on the fundamentals of the business at all times. Speaking of our team, I'm pleased to announce that just yesterday, our T-Force Freight unionized employees ratified a new agreement with an 81% vote in favor, which we view as favorable outcome for everyone involved. Throughout our organization, we recognize the importance of profitability and cash flow. This is what allowed us to produce solid results during a difficult quarter with solid operating ratio across all four of our business segments. In turn, This focus on profitability and cash flow, as I've mentioned many times, allows us to steadily invest in the business, take a disciplined and strategic approach to M&A, and as always, return excess capital to shareholders whenever possible. We produced just over $200 million in net cash from operating activities during the second quarter, with free cash flow of $138 million, despite the industry-wide weaker freight environment and other factors I'll outline in a moment. Our operating income during the second quarter was 192 million, reflecting an operating margin of 12.4. This compares to the prior year's quarter of 391 million with a margin of 19.7. Our adjusted net income of 139 million compares to 241 million, and our adjusted EPS is $1.59 compared to 261. We view these as solid results under the circumstances supported by our team's ability to protect margin by quickly reacting to changing market conditions, changing market dynamics. Our success in this regard is best reflected by the strong returns on invested capital across our organization. When comparing to prior year, I point out that our results reflect not only our sales of CFI last August, but last year's sizable gain on the sales of real estate in both LTL and truckload segments. In addition, similar to last quarter, foreign exchange fluctuations hamper the year-over-year comparison. And similar to last quarter, we incurred costs associated with the transitioning of our IT system from UPS to help enhance efficiency going forward while providing better controls and insight and allowing us to exit our TSA with UPS. TFI reported results are fully burdened as we are not adjusting this year nor did we in the second quarter of 2022 for any of these items that worked against our year-over-year comparison. Let's turn to the performance of each of our business segments, starting with our P&C, which represents 7% of our segment revenue before fuel surcharge. We saw an 8% decline in both the numbers of package and revenue before fuel surcharge. Our operating income came in at 27 million relative to 37 million the prior year with a margin of 23 relative to 29%. However, our return on invested capital actually improved to 28.8% from 27.6 a year earlier. Next up is our LTL, which is 43% of segmented revenue before fuel surcharge. Shipments were down 18% and our revenue before fuel surcharge was down 23%, also reflecting the unfavorable FX impact. Operating income of $81 million compares to $187 million in the year-ago period, and again, we do not adjust for the IT system transition, nor our sales of real estate at a gain in a year-to-go period. Digging deeper within LTL, Canadian revenue before fuel surcharge was down 14%, but our operating ratio remains strong at 73.7 compared to 69.1 the prior year. At the same time, our return on invested capital for Canadian LTL actually improved to 21.1, up 70 basis points versus a year earlier. Turning to U.S. LTL. Revenue before fuel surcharge of $550 million compares to $725 million the prior year due to volume pressure. However, reflecting our continued progress with our turnaround plan to streamline the operation of T-force freight, our adjusted operating ratio of 91.5 reflects relative stability versus 88% reported a year earlier, and importantly, our work is not done enhancing the efficiency of acquired operations. Return on invested capital for USLTL was 16% compared to the prior year's quarter at 24.5%. All right, let's move on to truck low, which represents 26% of our segment revenue before fuel surcharge. Revenue before fuel surcharge was down 26%, reflecting not only weaker volumes but our sales of CFI last year and unfavorable foreign exchange translations. Operating income was $66 million relative to $127 million last year, reflecting the same factor plus our sales of real estate in the prior year period, and our margin of $16.1 was down from $22.9. Within truck load, revenue before fuel surcharge for our specialized operations, which benefit from our diversity and exposure to niche markets, performed relatively well. at $335 million versus $353 million the year prior, despite FX. Our operating ratio also held under the condition at 83.9 versus 77.1 the year prior, and our return on invested capital actually improved to 12.7, up 150 basis points over the past year. This is yet another business where TFI has what we refer to as self-help opportunity, regardless of the macro environment. Next is the Canadian-based conventional truck low, which produced revenue before fuel surcharge of $77 million, down from $88 million, a comparison that would have been stronger on a constant currency basis. Our 84.3 adjusted operating ratio, which compares to 73.4 a year earlier, is impressive under the circumstances, benefiting from our continued focus on network density and cost control. Our return on investment capital once again showed improvement despite industry headwinds coming in at 17%, up 30 basis points. Finally, let's discuss our logistics segment, which represents 23% of segment revenue before fuel surcharge. We've reduced $362 million of revenue before fuel surcharge, reflecting both volume declines and foreign exchange when compared to the year ago, $454 million. Logistics... Operating income of $33 million compares to $42 million a year earlier, and our operating margin actually held nearly flat at just above 9%, reflecting our team's success in reacting to market condition, as well as the relative strength of our same-day package delivery operation. Rounding up our logistics discussion, our return on invested capital was 17.9 versus 1.1 a year ago. Shifting gears. Strong free cash flow across our business, totaling $138 million, I mentioned, continues to benefit TFI International balance sheet. We ended June, okay, with a funded debt to EBITDA ratio of 11.11, at 1.11. And as a reminder, our debt is almost entirely at fixed rate at a weighted average cost of just under 3.5. This financial strength is an important pillar of our strategy, allowing for smart investment in the business, regardless of the cycle, while continuing to return capital to our shoulder whenever possible. During 2023, we have now completed seven small tuck-ins acquisition, including one completed subsequent to the second quarter. Our ability to take a disciplined approach to M&A stems directly from our strong balance sheet and the patient allows. We also announced on June 15 that our Board of Directors approved another $0.35 quarterly dividend, which is 30% higher than the year-ago quarter. Turning to our updated full-year outlook, we are updating our guidance provided in April to a range of $6 to $6.50 for 2023 EPS. We maintain our free cash flow at $700 to $800 million, which is based on net capex of between $200 to $225 million. In terms of capital allocation, given the strength of our current M&A pipeline, we expect that for the full year, we will now allocate a total of approximately $500 million to a combination of acquisition and share repurchases. With that, operator, we're now ready to move into Q&A. If you could please open the lines.

Excuse me, ladies and gentlemen. To ask a question, you will need to press star 1 on your telephone keypad. To redraw your question, please press star 2. Colors will be limited to one question and one follow-up in order to get to as many colors as possible. Again, press star 1 to ask questions. Please stand by while we compile the Q&A holster. Our first question comes from Havishankar with Morgan Stanley.

Morning, Alain. Thanks so much. Thanks for the update on the numbers. Would love to get your thoughts on some of the strategic changes taking place in the US LTL industry. Obviously, one of your large peers has kind of temporarily stopped taking on new businesses. What do you think the near-term implications are for TFI? Kind of are you seeing that, seeing some of the benefits of that already? How do you think this industry evolves in the coming days and also the coming years?

Well, thank you, Ravi, for the question. I mean, I think this is a very good question. And, you know, the first thing that was important to us is to get a long-term agreement with our employees, okay, which we did very successfully. You know, they just ended voting on the weekend. and we got the result and it was very well accepted, okay, this plan for the next five years. Now, in terms of what's going on in the industry, you know, we're looking at, you know, it's a very special situation. You know, a few months ago, we were looking at it and saying, hmm, don't know, don't know what's going to happen there. And over the weekend, we were updated. Now, what I could say is that, for sure, if I look at the average volume of TFI, T-Force Freight Division, okay, in the US LTL, prior to all these things going on right now, you know, we were doing about 23,000 shipments a day, very steady since January of 23. And then, whoops, now we're running more like 26,000 shipments a day lately, right? And also, more importantly, is the quality of revenue. If we look at the improvement of quality of revenue, we're doing better. So if you look at my Q2 year-over-year, my quality of revenue is down a little bit, like 2.5% down. And now if I'm looking at, let's say, the last shipments of July versus the earlier shipments in July, my average revenue per shipment is up about 3.5%. So I think that this is going to be really, really good for the industry in general. But for sure, like our team is really looking into deep into this, we need the freight that fits our system. Now, the good thing at T-Force Freight is that I've got 4,000 doors to many, right? So we could run a 40,000, 45,000 shipments a day operation within T-Force Freight. Real estate is not an issue. The other thing also that's not an issue is our drivers and our dock workers because a year ago, okay, we were running about 28,000 to 30,000 shipments a day. Now, before all these changes in the industry, we were down to 23,000. So we had a lot of people on layoff. And now we're calling back these people slowly, okay? So we have the capital. We have the equipment. We have the employees. We have the real estate. to benefit whatever we can get from this major changes in the market. Now, if you also look at our Q2 numbers in terms of OR year over year, last year was our best quarter ever at 88 OR. Now, in a very difficult environment with 18% less volume, with price pressure a little bit like minus 2.5, We were able with our team, okay, that are doing a fantastic job slowly, okay, to get to a 91.5 war, which is not great, okay? But under the circumstances, I think that the guys did a fantastic job. The other very important point to notice on that is that slowly, for the first time, we're going to be moving with P&L by terminal before year end, okay? So our thermal managers now will be able to manage dollars, which they've never done in their life, right? And this is the key if you compare that with our Canadian LTL in a very difficult market. If you look at our Canadian LTL-OR, last year we were sub-70. We're at 69. Now this year we're at 73.7. Not great, but, I mean, it's a very difficult market in Canada, right? And, you know, the reason, the main reason, okay, why we're doing so well in Canada is because our guys have the financial information. They can't sit on their hands, okay? They have the tools, they have the info, and they take action. In the U.S., okay, slowly, now that we've moved away from the UPS financial system, now it's on the TFI financial system, now slowly we're going to be moving financial information to those managers, okay? Those RDOs, those regional directors of operations, so that they can, you know, take action and reduce costs and do more with less. So, to me, it's fantastic what's going on right now.

Wonderful. Thank you, sir.

Pleasure, Ravi.

Our next question comes from Walter Perkling with RBC. Please go ahead.

Thanks very much. Good morning, Alain. Morning, Walter. Congratulations on the union deal. Certainly that's an important milestone given everything going on. I was wondering if you might be able to give us any terms of the deal so we can look at how that figures into our forecast for your LTL division going forward.

Yeah. So in general, Walter, this is about a 3% increase to our costs on every year, okay? Okay. So on this global deal. So if you look at year one of our contract, which starts August 6th, right? So August 6th, our employees in general, okay, will get $1.70 an hour more, okay? And that was difficult to explain to our employees because if you remember, one of our peers just signed a contract with them, with the Teamsters and their employees a month ago. And day one, the employees got $3.50. Now, what we have to explain to our employees is that, yeah, yeah, guys, okay, $3.50 is not the same as $1.70. But don't forget that at the peers, these guys are getting on average about $4 less an hour versus us. So our peers is catching up to us. At the end of our contract, the Delta salary, base salary, between us and the peers will still be about $1.75 to $2 an hour difference. We are paying more base salary than our peers five years from now. But on average, okay, Walter, to put in your model, I mean, the inflation on salary is going to be about 3% on average for five years, every year for five years.

That's great. That's great, Collin, and I appreciate that. Next question is just on M&A in general. I know you said $500 million combined M&A buyback. I don't know if you have any – is that something that you just are holding on to see how M&A develops? And you'll adjust as you go through the year and perhaps any commentary on the ARCBEST divestiture of that stock and what it means for any large deal timeline into next year.

Yeah, yeah, yeah. Very good question, Walter. You know what – Let's start with the divestiture of our best. I mean, we looked at this situation, okay? We had to go through our contract, and then we saw what was going on with one of our peers that was going through a very difficult period. So we said, if this happens, I mean, we're going to be too busy. We're going to be way too busy, us and them, okay, to go through all these changes in the industry. So the timing is wrong. So that's why we sold our positions. Right. And then we'll see in 24. Now, in terms of M&A, for sure, Walter, I mean, I think that pretty soon we'll be announcing a fantastic transaction. And that's the reason why we sold our position. OK, so that we don't leverage our balance sheet more than because right now we're at one point eleven. You know, we think that by the end of next quarter, Q3, with a transaction that we think that's going to happen very soon. our leverage is going to go all the way up to 125, right? So nothing major, but thanks to the sale of our investment in ARCBEST, I mean, we are able to get this leverage keep really, really low. Now, this is not going to be a major year for M&A, okay, in 23, but we're getting ready for 24. Got it. Okay.

Last question here on coming back to the yellow. Do you think that the opportunities might present themselves for you to go into new markets through the purchase of terminals or assets, or is densification and repricing your main objective? And a little bit more of a longer-term question, investors are starting to change their view on LTL to the positive and you know, many compare even to the railroad pricing. Is that something that you think is going to develop? And would you look at LTL longer term as something that we can price, whereas we haven't in the past in our models, but we can with good comfort put in some notional pricing increases because of the added the added quality and fundamentals of that sector.

I think you're right, Walter. I mean, us, our goal number one, okay, with everything that's going on right now is to increase our density, not to grow our network. I mean, like I said, we got 4,000 too many doors to today, right? So we could all a lot more freight, but really what we're going to be really strategic in what we take on as customers that has to fit our network and increase our density, because that's the name of the game. If you want to reduce your cost, okay, per shipment, I mean, you can't drive 10 miles between each and every stop. I mean, in Canada, we drive about five miles between each and every stop, and in the U.S., we drive 10. It doesn't make any sense, right? So that's our focus, and, you know, we're lucky. I mean, you know, sometimes you need to be lucky, and with the demise of one of our peers, I mean, this is really a lucky event for us, It helps us build density, and that's going to be great. Now, in terms of the industry, I think that the U.S. LTL is day and night versus the Canadian ones. I mean, in Canada, we have lots of competition, okay? And, you know, we have one smart competitor, yes, okay? But, you know, we just acquired an LTL company in Saskatchewan, and let me tell you, those guys are not running at a 75 OR or a 90 OR, right? Okay, so we'll change that. But in the U.S., it's a very different story because one of the weakest player now is gone, right? So that's going to change. And already you can see over the last 10 years, you know, if you look at the superstar of LTL in the U.S., okay, I was looking at the results. Their volumes were down more than 10%, but their pricing year over year was up 7%. So that tells you that these guys are really smart, right? And the industry in general also, if you look at another of our peers in the U.S., their volume was down like 3% or 4%, okay, but they did well. Just a few guys sometimes, you know, chasing volumes up 4%, but always down 40%. Well, that's not us, right? So I think that the U.S. LTL industry is really getting closer and closer to, okay, to what you could compare to the rail. Absolutely. I mean, we have one player, the best LTL guy in the U.S., he's running a 70 EOR in that neighborhood, right? So, you know, I think that the industry will benefit from all that and, you know, So it's the place to be. This is why, you know, with everything that's going on right now, we think that from 23,000 shipments, we get to 25, 26, 27. Hopefully by the end of the year, this is going to be great. But more importantly, like I said to my guys, guys, we got to work on the cost. We have to be closer to the tiger in the jungle, not the big fat elephant, right?

Okay. Leave it there. Thank you very much, Eli.

Pleasure, Walter.

Excuse me, as a reminder, please link it to one question and a follow-up in order to get to as many colors as possible. And our next question comes from Jordan Ariger with Goldman Sachs.

Yeah, hi, morning. Morning. Morning. The fairly rapid, I guess, pickup in volumes here in the near term with yellow in the US LTL business, is that enough? to mitigate the cost of your new contract and perhaps do an OR better than, I think, the 92 you talked about in the last call?

Well, I think so, Jordan. I think that, you know, what's going to help for sure? I mean, running at 23,000 shipments a day when you have a network that could do 40,000 shipments a day, right? So, I mean, 26 is better than 23. But at the end of the day, with the new contract, okay, where it provides us inflation to our costs, we have to be more strategic and work with our employees in a way that reduces our cost per shipment. What I could tell you is that right now, our average cost per shipment year over year, okay, versus 22 a year ago, I mean, our average cost per shipment is down about 15%, okay? So we did really well in Q2 last year with an 88 OR, but, okay, with less volume, we have a less labor cost per shipment this year versus last year. Now, for sure, we have all these other costs, but really the main cost in an LTL operation is your labor and your fuel. So yes, I think that even with this inflation on our labor costs, our OR will keep improving. And don't forget that slowly, We built a 23,000 shipment base, okay, that is quite solid, and now we're building on top of that. So, you know, at 26, we're not at 30, and we're not at 35. But slowly, we'll get there. And in the meantime, like I said on the first analyst question, is that by moving financial information to our terminal manager, this is going to be, you know, a fantastic tool for those guys to, to do more with less. And that is the key success for TFI and its Canadian LTL division. We have managers that manage people, manage costs, manage service, not just manage service.

Great. And just as a follow-up, you know, the new earnings guide, I think 6 to 650 is less than the other one, the previous guide. Obviously, I'm just trying to understand, is it the non-LTL businesses? I'm just trying to get a sense for what sort of directionally is why the new range is where it's at. Thank you.

Well, you know, a year ago, our friends at FreightWave said, oh, there's a freight recession in April of 22. I mean, I think these guys were right, but not 22. It was really 23. And, you know, if you look at all of our sectors, right, our Canadian LTL, I mean, revenue is down big time. Our specialty truckload down 5%. Our Canadian truckload down 12%. Our logistics down 20% on the revenue side I'm talking about. So our PNC down about 6%, 7% on the revenue. So we never anticipated such a major, major disruption in the market in Q2. So this is why we're going ahead and reducing again, because this is the second time we do that, right? so we're reducing that again okay but we feel pretty good that this is attainable and and this is a major disruption in this market in q2 if you look at all of our peers that came out okay uh in the us or in canada i mean everybody's going to a very tough soft patch in the freight environment now when we look at the summer of 23 it's still quite soft okay but when we talk to our customers And they say, you know what, inventory are starting to get low. We're starting to get, you know, some issues here and there. But then we got a stupid strike in the port of Vancouver. That affects our Canadian operation big time. You know, there's always something that happens, you know, the flood, the this, the that. So I don't want to give any excuse. But, you know, 23 was really a year of a lot of things that were a lot of headwinds, Canadian dollars being, you know, To buy a U.S. dollar now costs $1.32 Canadian. That affects our profitability as well. So to me, I think $6 to $6.50 is now attainable. Sad to say that we were doing $8 in 2022 down to $6 to $6.50. It's a huge drop. But this is reflecting the market condition. And don't forget that at TFI, the culture is we protect the margin. So you've got two options when you have a soft market. You could chase volume, but to us, this is a chase to the bottom. And some of my peers are doing that. I've seen that. So revenue is up, but profit is down 40%, 50%. We're not that. I mean, us, we're more like, okay, guys, okay, we'll have less revenue, but we protect the margin. Because every dollar is revenue, there's a risk. A risk that you can get involved into an accident. A risk that your employee can get hurt. A risk that... You know, you're not being paid because this customer could be, you know, having some tough times too. So we don't like taking stupid risks like that. So this is why our revenue is down. Okay, but, you know, when market condition changes, we'll be there. And our base rate is solid. And we're not going to have to be chasing customers all over the place. No, I mean, we're ready.

Thank you so much.

Pleasure.

Our next question comes from Cameron Dorsking, National Bank Financial. Please go ahead.

Thanks very much. Good morning. Good morning, Cameron. So just a question on Canadian LTL. I know Yellow had some operations in Canada. I don't think they were that large. I'm just wondering if there's any impact, do you think, positively on the Canadian LTL operations?

Yes. I mean, the yellow operation in Canada was mostly transporter freight from U.S. to Canada or Canada to the U.S. So for sure, all the shippers that were using yellow from U.S. to Canada, now they have to find a different provider. So if you look at our transporter business between TST and SIA, SIA is our U.S. partner with TST, I mean, the volumes are up like 15% to 20%. So that freight that used to be serviced by Yellow Canada, now Yellow being out, has to go through some of my peers or some of my partners, and that's the way it's going to be fed into the Canadian market. Now, they were also doing a little bit of domestic freight in Canada, so that will probably go to us or to some of our peers.

Okay, that's helpful. And second question, I guess sort of related to the LTL segment, just on the ground with freight pricing, a pretty significant drop year over year in that business. Can you just talk a bit about that? Why was it so down so much, and what's the future of that product?

You know what, Cameron, that's a very good question. Yeah, we're down big time on that. So there was an issue with some customers saying, okay, that were cheating the system at UPS, right? So this is why UPS took action. I don't want to go into all the technical details, but this was a few customers, four or five customers that were a reseller, okay, that were cheating the system. And, you know, the UPS reaction was, no, we can't deal with those guys, right? So that's why our revenue dropped like a rock. okay in that sector absolutely now okay we are rebuilding that as we speak okay but that that is really one of our diamond that got cut in half okay so you still have a you know i believe that's going to be a good long-term business for you oh yeah absolutely okay that's great i appreciate the color thanks very much thank you thank you cameron

Our next question comes from Tom Wade with UBS.

Yeah, good morning. Elaine, I wanted to ask you a little bit about the guidance. I know you talked about it before. I'm wondering if you're factoring into that 6 to 650 improvement in US LTL or if that guidance reflects more what the run rate was in 2Q for US LTL. It does sound like the recent kind of end of July trend in both shipments and in price is pretty favorable. So I just want to get a sense of what your assumption is for that business in the guide. No, no, no.

All the changes in the last week of July are not reflecting in the guidance because it's so new, right? So that's why we went very conservative. So it's not included. So whatever benefit we get, from the 23,000 shipment, if 26 or 27 sticks, 25, 26, 27 sticks with us, okay, over the long term, it's not in there.

Right, okay, so that would be upside to what you've said for the guys. Great, thank you for that. I want to ask a little bit about 2024 view on US LTL. So, you know, when the, I guess using your words, when the elephant becomes a tiger, you know, could run a lot faster. So I think that was referenced to the cost side, and you got a number of cost drivers. But obviously, it looks like the revenue side is, you know, really stepping up nicely, too. So how do you think about where the US-LTL operating ratio could potentially go in 2024? I mean, I think the obvious macro assumption, but assume that you get some modest improvement in the freight backdrop, You know, can we see a really big change, 300 or 400 basis points, or would you keep it more moderate, 100 to 200? Yeah, yeah.

You know what, Tom? I would be very disappointed if in 24 we're not running a sub-90 OR operation in our US LTL. Now, one thing that's also very important to mention is I was talking to our board yesterday about a little bit of a change in our structure in our executive team. So one of the changes that will be happening for 24 is that one of our EVP, Bob McGonigal, that takes care today of our package business in Canada, which is only 7% of our revenue, my friend Bob now will take over the responsibility of the USLTL, working with Keith. Keith is the president of T-Force Freight. I'm still going to be involved, okay, but to a lesser degree. And his package business will be taken over by another one of our EVP, Chris Trakus. And there's other changes also that's going on. So we're going to be putting even more effort, okay, from some of our Canadian team players supporting our U.S. team. But, you know, at the end of the day, Tom, my philosophy has always been if you can't measure it, you can't manage it. And by providing financial information to investors, to our terminal managers. I think that that's been the success of our business in Canada. And those poor guys right now at T-Force Freight, terminal managers, they have no clue. They have no financial information. We're just providing them for the last few months, okay, their average labor cost per shipment, okay? And that's how we were able to improve that by about 15% year over year. And this is not over. I mean, we got a lot of work to do on fuel management Okay, MPG on the trucks, idling time on the trucks. I mean, there's so many leverage that we could, you know, tweak and reduce this cost. So I'm very confident, okay, and I would be very disappointed if that 24 were not the sub-90 OR. Now, I mean, if you look at some of my peers, okay, non-union, okay, they're running an 85 OR in a tough environment, okay, like we are now. these guys will probably do better than that. And also, we should be doing better than 91 or 92 OR like we have now in Q2. So I think that with a little bit of a weak player gone, okay, the market probably will start to recover. I think that the pricing also will improve with everything that's going on. I would be so... We'll fill up my chair if we're not running something like an 85 to an 88 or an 24.

Okay, great. Yeah, that's very helpful. Thank you, Elaine. Pleasure, Tom.

Our next question comes from James Mornigan with Wells Fargo. Please go ahead.

Hey, good morning. Just Just to follow up on some of the US LTL questions, I guess, what's the right amount of capacity to actually release out into the market? I understand you have a lot available, but what's the right amount that you can release without disrupting the OR plans that you have?

We have the team, we have the equipment, we have the infrastructure to do easily 30,000 shipments a day. Like I said, over the last few days, we're running 25,000, 26,000 shipments. So when we bought the company, James, the company at the time was doing 32,000 shipments a day. The network that we have can support easily 40,000 shipments a day, 40,000 to 45,000. But that's real estate. In terms of people, we could easily do 30,000 shipments a day, 30,000 to 32,000. This is what the company was doing three years ago. But then we went from 32 down to 23, like I said. Now we're back up to 25, maybe 25, 26, 27. Okay, we'll see where we end up. And, you know, but we still have lots of capacity within our system. And we have also the people to do the job because, you know, when we start to reduce the volume, we also lay off a lot of people, right? So... Also, what we did in Q1, we retired also about 150 people that were good for retirement. So I think that we could do very well, but we're going to be smart in terms of the volume that we're going to get from our customer because our rule number one is to increase our density, not to enlarge our network or add roots and this and that. No, no. Let's increase our density because I've said it many times. We can't run a P&D operation in the U.S. with 10 miles between each and every stop. I mean, it doesn't make any sense. But that is what we're doing now. And I use the Canadian comparison in our business. We do five miles between each and every stop in Canada. And Canada is not U.S. I mean, the density is not the same. You know, dense areas, we have Vancouver, Toronto, Montreal. That's it. The rest is there's no density in Canada.

Got it. And then, well, I understand that on a year-over-year basis, everything is down quite substantially, and USLTO does have a catalyst in front of it. Some of your peers did call out some sort of green shoots across freight generally. Just wanted to see if you were seeing any sort of similar trends in the business, like part from USLTO of positive trends sort of sequentially.

Well, absolutely. I think that what we're seeing now is, you know, with the fact that yellow is not going to be there tomorrow, right? So I think that this is a huge benefit for the industry in terms of... I think yellow was doing 40,000 shipments a day. Maybe not last week, but, you know, normally two, three months ago. So this is really a huge benefit for the industry. And I think that everybody knows that... Yellow was a very low-cost, not low-cost, but low-revenue provider of service. So it was very cheap pricing compared to the average, compared to the market. Those guys being gone, that's going to help the industry overall.

Thank you.

You're welcome.

Our next question comes from Ken Huckstert. Bank of America, please go ahead.

Hey, great. Good morning, Elaine. Good morning, Ken. Hey, good morning. Can you talk a bit about the path and process to remove some of the UPS costs, so the timing and scale of those duplicate costs? I just want to understand your goal of 85, 88 OR next year, how much of that is the yellow benefit of scaling up your network from 23 up to 26 or wherever it settles in, and then how much of it is self-help? And then are you done getting rid of the lower profit business? Obviously, that gets paused now as you take on a lot of business in this interim. Was that process complete?

Yeah. Okay. So in terms of the freight that don't fit the network, I mean, Ken, we've done everything except rural. We still deliver freight that is way too far from our terminal, and that is still an issue. So we still have that. okay we don't have the freight that doesn't fit in the high density areas but in rural rural freight we still have that okay so so we're not going to address that right now in 23 we may address that in 24 and in terms of you know what's going to be the leverage that we're going to use our TSA with UPS we're going to be done by the end of 23 so coming into 24 So all the duplication that we're going through now, all the professional fees that we have to pay, etc., etc. So what's left is our fleet management today. That is really the big issue in our platform. We're still running edge onto the UPS platform. So we're going to migrate that before the end of the year. Fleet is done in the fall. We just finished the HR platform. We went from Workday, UPS, to Oracle HR, TFI Oracle HR, like just a few weeks ago. So all this is going – so into 24, okay, all these duplicate costs, all these professional fees will disappear. For sure that's going to help our OR. Absolutely. But more importantly, Ken, is I think that – The self-help that we're going to bring to that business is providing financial information to our terminal managers. I mean, this is not the decision, the improvement are not going to happen overnight once we provide them the information. But over the period of six to 12 to 18 months, I mean, we anticipate that these guys will be able to do more with less. Because, you know, you can't fix something that you don't know, right? So that's always the excuse that we get from when we talk to those guys that, oh, I didn't know. Well, okay, you didn't know. Fine. Okay, so we'll provide you the information now that you know. You're not going to sit on your hands, right? No, no, no, no. I'm not going to sit on my hands. I'm going to take action. Okay, good. So what we've done so far, okay, with those thermal managers, as an example, we said, you know what, day one when we acquired the company, we said, grievances, it's your responsibility now. No, in the old days, you used to send that to lawyers. No, no, no, no. This is over. You fix it yourself. We, labor relation, T-Force Trade, will help you fix the issue with the employee, with the grievance and all that. But it's your action, okay? You have to fix it. Claims, okay? Again, oh, claims, not me. No, no, claim is you, okay? So if you look at dollars, claims per dollars revenue, okay? I mean, we were at 1.5% of revenue. Then they say, well, we're well because we used to be two. No, no, no. You guys have to be 0.5% of revenue. So now we're getting very close to the 0.5%. And this is the thermal managers because now we're getting them involved. They have the information, et cetera, et cetera. all the financial system that we've put in place with TFI Oracle, okay, slowly we're moving all this information to them. And then we'll see, because we'll have managers that will perform really well with all this information. Some, you know, may be not able to perform well because they're used just to service rate. Because us, we want them to manage costs, manage people, you know, manage the relationship with customer, you know, et cetera, et cetera, being a real manager. not just a guy that's making sure that the freight gets delivered.

Thanks, Alain. And just to clarify, you mentioned the M&A before. Is that, I presume now, not LTL, just given you were talking about maybe come back, revisit ARCBEST at another point? Is that a different sector you're focused on?

Well, you know what, Ken? We've said many times, in the U.S., our focus is going to be LTL and logistics. But in logistics, we have to be very careful because we don't want logistics at 2%. If you look at our logistics, our revenue is down big time, right, because of the market, like TFWW. We're down like Q2 this year versus last year. We're down like 20% revenue. But our margins is still 9%. So if we buy a logistics business at 2%, that's not us. We're not in the business to buy a logistics company for big dollars and 2%. Because 2%, you know what? We'll buy shares of Canadian banks or a U.S. bank, and we'll get 4% dividend. So there's two major sectors that we're focused in the U.S., LTL and logistics. But logistics, that makes money. Not logistics, that 2%. Wonderful.

Thanks for the time, Ali. Appreciate the thoughts.

Okay. Our next question comes from Jason Seidel with TG Calling. Please go ahead.

Hey, thank you, Arpiter. Good morning, Alain.

Hey, good morning, Jason.

I wanted to focus a little bit on T4 straight some more here. Can you talk about the potential for a GRI in the back half of the year as capacity starts filling up in existing networks?

Yeah, very good question. So I could tell you that Keith and Bob are already working on it right now. Uh, so the discussion, uh, that we're having is that this will probably take place in September. Okay. Uh, and, uh, you know, for sure, uh, we're not leaders in the U S okay. So probably we'll have to wait and see what the leaders are doing. Okay. Leaders. We know that leaders in the U S is FedEx rate and OD, uh, but you know, OD, those guys are very smart. So I think that, uh, Those smart players will address the GRI not in January of 24, but I think it's going to get addressed right now.

Okay, that's good color. And the other thing, you talked a little bit about some of your customers seeing some low inventories. I wonder if you could add a little more meat on that bone and then maybe thoughts on peak season this year.

Yeah, well... You see, 22 was like, in my mind, a party because all the supply chain mess, I mean, then the supply chain mess was fixed, and then the guys got lots of stuff coming in. And, you know, sometimes they order once, then they order twice, they don't get the stuff. Now, everybody got the stuff late 22. And in 23, we're stuck with, oh, nobody's ordering anything because the inventory are too high. But when we're talking to our customers right now, okay, Inflation is coming down slowly. Okay, not bad. Interest rates are going up. Disposable income, okay, is okay. You know, labor situation is okay. The problem is that most of the consumer are saying, you know what, we've been tied up because of COVID. Now we want to travel. So this is what we're seeing now is that a lot of people are traveling. They're not spending as much on the home. or buying a TV or patio furniture, whatever. So this is why we still believe that 23 is going to be a little bit difficult for us, okay, because of – but it's slowly getting, you know, cleaned up, all this excess inventory. So it's not going to probably help us in 23 in general, okay, but coming into 24, I think we have a better feeling now The Fed, the U.S. Fed is now saying, you know what, the risk of recession is becoming less and less in the U.S. So, okay, fine. Consumer confidence, you know, is okay. So, to me, I feel pretty good, not so much in 23, but going into 24, that the market slowly, for freight, will start to come back to normal. You know, those guys at Freightway said there's a freight recession a year ago. We didn't feel it a year ago. We didn't feel it in Q2. We start to feel it a little bit in 3 and 4 of 22. One, but big into Q2. I mean, Q2 was terrible for us. Very tough.

Alain, appreciate the call as always.

Thank you. Thank you, Jason.

Our next question comes from Jack Atkins with Stefan Inc. Please go ahead.

Okay, great. Good morning. Thanks, Elaine, for taking my questions. My pleasure, Jack. If I can maybe kind of start with service, you know, obviously that's critically important in the U.S. LTL market, as I'm sure it is in other parts of the U.S. as well. How are you protecting the network? I know there's probably plenty of freight to be had, but how are you protecting the network so that, you don't encounter any service issues as you're onboarding this incremental freight here that's kind of coming at you pretty quickly.

Yeah. Well, you know what, Jack? Like I said earlier, I mean, we've got capacity. We've got people. We've got equipment. We've got everything. So it's just a matter of our sales team and our leadership in the operation to really say, well, this is the freight that we want. This is the freight, okay, that, you know, we have and we keep. Because don't forget, that until just two months ago, we had customers saying, you know what, you got to lower your rate because I've got a carrier here that says, hmm, I'm going to have to move with this guy. And now, whoops, you know what, I'm going to stay with you now, right? So you've got that going on, plus you've got the new freight coming in. And for sure, what we're trying to do is to protect our existing customer by adding new lanes, lanes that were with the competition, and now the competition is gone. And we're saying, you know, instead of going with new customers all the time, what we're trying to do is increase our volume of business with existing customers that we already have, but we were doing only 10% of their business or 15%. Now, okay, so that's our focus so that we provide customers you know, a good level of service. Now, the other thing also, Jack, that's very important to mention is the atmosphere at T-Force Freight, okay? If you think about our labor force accepting a new deal at 81%, the fact that we've invested in the equipment, the fact that we are investing millions of dollars in the real estate that was abandoned, okay? I mean, so our employees, how would you say that? I mean, their morale, okay? It is great. I mean, they're seeing that, okay, so the owner of the company is investing. So now, okay, we have a better deal for them for the next five years. Everybody's happy about that. So I would tell you that if you look at the morale of our team two years ago, a year ago, today, and a year from now, okay, that morale, that pride of being part of T-Force Freight is like changing like there's no tomorrow. You know, if you look at the pride of our guys in Canada is second to none. In the U.S., we were not there, okay? So if you look at some of my peers, okay, the best of my peers, you see a lot of pride. You know, their terminal is spick and span. Okay, ours were just abandoned terminals, right? Our trucks were terrible. So the morale of our guys, and we're saying, guys, we got to do more. We got to pick up more freight. You know, we got to stop driving all the way around, okay, and spend money driving a truck. We have to pick up more freight. So all this culture is taking place. So this is why, going back to your question, that's our focus. And our focus, for sure, is not to go up to 26,000, 27,000 right now and then back down to 24,000 because, you know, all the freight that we picked up didn't make any sense, didn't fit. Or, you know, we didn't provide the right service to the customer.

Okay. So that makes a lot of sense and it's helpful. I guess from our follow-up question, I'd like to go back to your comments on the improvement in revenue per shipment that you have observed in the U.S. LTL business from the beginning of July to the end of July. I think you said it's 3.5% better. Yep. Could you talk about is that from higher weight per shipment? Is that from improved sort of core pricing? What's driving that? I'd just love some more detail around that if possible.

Yeah, you're absolutely right. Weight per shipment is up, absolutely. Weight per shipment is up, and the quality of revenue has also improved a little bit, right? And I haven't seen my cost per shipment of – because today is Tuesday. I get that on a Wednesday of last week. But I'm anticipating that my cost per shipment, because my salary increases August 6th, so I'm still with the old salary scale for last week of July. So I'm anticipating that my labor cost per shipment is going to be down. I haven't seen it yet. So it's a combination of more weight, a little bit improved in the quality per hundred weight, So it's a combination of all this and the fact that I think that now moving from 23 to 26, 25, 26, I think my labor cost per shipment is going to come down too. So it's going to be a double whammy, if you want to say.

Okay, absolutely. That's great to hear. Thanks again. Thank you, Jack.

Our next question comes from Kevin Xiang with CIDC. Please go ahead.

Thanks for taking my question, Elaine. If I go back to your last call, I think you talked about normalized earnings for your portfolio of businesses around $8 to $9. And I'm just wondering, as you look at the M&A you've done, I know a lot of them are tuck-ins, but you've done quite a few, seven already this year, more to do later this year, plus maybe the accelerated benefits within your US LTL from the demise of yellow. Just wondering how you think about that $8 to $9 moving forward. Should we think of that being a higher number, just given some of these tailwinds and recent acquisition activity and buyback activity?

I think it's a little bit too early, Kevin, to talk about that now. Because when I said $8 to $9, I think that this is the capacity of TFI in a normal environment. Right now, we're not in the normal environment. All the small tuck-ins that we've done so far are really, really small. But we anticipate that between now and the end of the year, we'll do at least two of a normal size with revenue of more than $150 million each. So that really is going to help us into the end of 2023 and into 2024. The other ones that we've done so far is just some small tuck-ins that we've done, small truckload guys in Ontario or in Quebec. I mean, this is not going to move the needle. It's good when the market gets better, absolutely. But in an environment like we're going through right now, it's not really a big help. So I'm still convinced by the end of 2023, we'll have a clearer picture of where we're at for 2024. I still believe that it's got the capacity to be between an $8 EPS minimum to $10 with what we're doing. Now, for sure, the demise of one of my peers is going to help us. Absolutely, it's going to help us. If we could get this volume steady at $26,000 to $27,000, And by providing financial information to our guys, they'll be in a position to make better decisions, reduce costs, being more efficient, et cetera, et cetera. I think that this is really going to help us in 2024.

Right. You know, I'll leave it there. Thank you very much for taking my question, Elaine.

Pleasure, Kevin.

Our next question comes from Konar Gupta with Scotia Capital. Please go ahead.

Morning, LA. How are you?

Hey, I'm good. How about you, Kornak?

Great. Thanks, LA. So just wanted to understand, LA, pretty good margin progression at T4s. And given the situation in the US LTL market, certainly seems like the volume and rate environment is getting better for you guys here in the second half. Can you talk about how you are ensuring the pricing discipline and onboarding this new LTL volume so that, you know, your efforts are not diluted to get to the 20% margin that you have sort of aimed for the next two years?

Yeah, yeah, yeah, very good question. I mean, that's for sure. And this is why, you know, like I said earlier in the call, I mean, we're moving one of our EVP, Mr. McGonigal, okay, working day in, day out with Keith and the rest of the team there. is we're not in the business of practicing delivery freight and not making any money. So, no, absolutely you're right. We're taking very important measures. And every week I get the reporting on the pricing and what's going on with the average revenue per shipment. So it's very important to us that we're not just taking freight just to match the other guy's rate. Well, because the other guy's rate, the guy went belly up. I mean, why would we do it the same rate now? The rate is 30% less than the market. So, Mr. Customer, sorry to say, but we have to adjust the rate to the market. So that is what we're doing at Cornac.

Okay, that's great, Alain. Thanks. Good to hear. And then if I can just follow up, I think the industry you are in the U.S., it's very concentrated, very few unionized players. And like with Yellow's exit, you'll be one of the few unionized companies there. Is there any main lessons learned for you guys from Yellow's repeated bankruptcy process, considering that? their exit would leave you as one of the only few unionized players, and then hopefully you will see more sort of employees adding up there, right? So what do you learn from that process? How is the unionized business doing in the U.S.? Is it good business to be in? Is it something that concerns you? Any thoughts there?

Hey, listen, I mean, the benefit of a unionized environment is you have a contract that you have to abide by, okay? But it also could be an excuse for poor results by the management or the executive team. So if you look at what we're doing in Canada in a unionized environment, we're doing really, really well because we have managers that are managing everything, cost, service, et cetera, et cetera. So I think that the perception in the U.S. has always been that, oh, it's a unionized operation. It must be bad, right? So I think that we're trying to work, us as TFI and T-Force, right, to change that perception, okay, that, you know, if you manage the business, for sure. I mean, the base salary of a union and non-union environment are about the same, okay? Maybe 15 years ago it was different, but today the base salary of a guy that works, let's say, on the west coast of the U.S., union or non-union, base salary is about the same. Well, the big difference is on the fringe benefits, okay? So pension, for example, which is a huge cost for us. So if we're competing with a non-union guy and he's got no pension, for sure, that is a disadvantage, okay, for a unionized environment. Now, the fact also that the turnover normally is less in a unionized environment because those guys understand that they are very well cared for. Now, if you look at T-force rate, it was partly true because the trucks were bad, the environment was bad, the terminals were bad, so that was not the case. But we're changing that. So at the end of the day, there could be a few points of OR that could explain, okay, if you got the superstar in the U.S. at a 70 OR or 75 OR, well, If you're a union, guys, you could say, well, you know, because of pension, because of this, because of that, blah, blah, blah. I cannot be as good as the superstar. Okay. Maybe. But the delta cannot be 20 points. The delta cannot be 15 or 10 points. The delta could be 4, 5, 6, 7, 8 points, but no more than that. So if the superstar in the U.S. is a 75 or 70, okay, And for sure, the superstar is going to be much closer to 70 now that one of our peers is gone, okay? So, okay, fine. So our goal is to get closer to the top guys in the U.S., okay? And we'll get there. We'll never be as good as a non-union superstar, okay? But we could be really, really good. If you look at our unionized environment in Canada, which is a depressed market compared to the U.S., a depressed market if you look at the quality of revenue. I mean, we're running mostly unionized operations with a 74R and Q2 in Canada. So to me, union, it's sad to say that over the last 20 years, they went from 60% or 65% of the market. Now with yellow being gone, probably the union will be 15% of the market. So I would say it's sad to see. It's a reality. It's our goal, us, to make sure that we can grow in a unionized environment by paying our employees well, but also by making sure that they are efficient at what they do and productive. And that's our job as management, to make sure that they don't drive their trucks 10 miles between each and every stop. So we have to change, okay, and that is our job as management.

That's a very good perspective, Alain. Thanks so much. I appreciate the time.

Pleasure, Cornel.

Our next question comes from Brian Ozingback with J.P. Morgan. Please go ahead.

Hey, good morning, Elaine. Thanks for taking the questions.

Good morning, Brian.

So just wanted to come back to your comments on cost per shipment trends within T-Force Freight. I know there's probably some fuel impact in there, but you also mentioned unit costs were down pretty notably on the labor side. Is So maybe you can expand on that and then also touch on the benefits of the new trucks you're getting. It looks like you actually shed a few trucks sequentially, but I'm assuming they're all getting newer. So maybe you can elaborate on how that's impacting the cost structure there.

Yeah. Yeah. So on the truck side, I mean, for sure, I mean, we're getting, by the end of October, our 23 orders going to be completely done. Okay. So the average age of our fleet will come down to about, just shy of four years old, which is now going to improve our MPG. The only thing we haven't really worked on on the trucks is the idling. The idling, this has never been managed. It's still not managed today. So that's something that we have to work on. And for sure, the fuel management, we could do a little bit better job. We're working on it right now. In terms of the cost per shipment, this is labor cost per shipment that I'm talking about, Brian. So our labor cost per shipment is down year over year, okay, with volume down like 17%, 18% before what happened last week of July, right? So what have we done, okay, is first of all, in the fall of 22, we provide them the information of, hey, listen, this is your labor cost per shipment for P&D and DOC, I said at first, is that real? We never saw that. Yeah, it is real. Okay, and then we identify, you know, the stars and the dogs. And right now we're working on the dogs. So this is why by improving the dogs, okay, labor cost per shipment, now we're able to look at what happened in 22, okay, and now I compare that and my labor cost per shipment. for P&D and DOC is down by about 15%. And I'm paying my employees a little bit better this year than last year. Now, for sure, when August 6 hits, okay, now I'm going to be paying $1.70 more an hour. Okay, so we're working on what is this going to be the effect, okay, on my labor cost for shipment. So this is, now, this is where we have to be very aggressive and even more aggressive now with what's happening with YELLOW. okay, that, guys, we need to drive less miles and pick up more freight because now our labor cost per hour is even more. And it's just normal because inflation, okay, as we all know, got all the way to 6% to 7% or 8%, now down to 3%, 4%, okay? But it's still. So average contract, like I said earlier on the call, is about 3% a year, okay, average, okay? So it's reasonable. It's fair. It was very well received by employees. As a matter of fact, like I said, 81% said yes to this new contract. So, I mean, this is an ongoing thing. But this is just labor cost per shipment because now we're going to be working on everything else, maintenance cost per shipment, okay, everything. And now because we're going to be providing all this financial information to our thermal manager, They're supposed not just to work on labor. They have to work on every cost that we have in our business to reduce that because that's the only way, in my mind, yeah, the market will help us. Yeah, the volume will help us. Yes, the improved pricing in the industry will help us. But at the end of the day, us, we have to reduce our cost because we're like, I would say, the elephant right now on the USLTO. We're big. We're fat. Okay, but we have to trim down. We've done some good stuff so far in two years that we own the company, but on the cost side, we haven't done enough. No way.

Just to follow up on that, it sounds like perhaps you get more benefits later this year and into 2024 from the fleet and from fuel efficiency and maintenance and service reliability. Is that how to think about the...

That's absolutely right.

Have you seen some of that already?

No. You know, the fleet side, the MPG, we were getting it. That's not an issue. Idling, we're not. The other thing, too, is that we had to shut down about 80 shops. Don't forget that in the old days, these guys used to manage 120 shops with 300 mechanics. So think about, this is a nightmare. This is... Now, by the end of August, okay, we're going to be down to 16 shops and 200 mechanics because the age of our fleet went from seven years old on average down to less than four right now. Now, our fleet guy, the guy in charge of our fleet, Eric, you know, he's been tied up for 22 and two because he was hired in the fall of 22, fall of 22 all the way to 23 now. The guy has been stuck with shutting down shops and letting go staff and people and all that. So we're still not doing a good job on our maintenance cost per shipment, okay? We're still not doing the job there, but we have the excuse, ANA, we have to do this, we have to do that. Okay, fine. Now, at the end of August, we're all done by cleaning up the mess of the past. We had a ton of spare parts removed. that were obsolete related to the old trucks. Okay, we're cleaning that mess right now as we speak. It's costing me about $400,000 a month to clean up all this obsolete stuff that was there. Okay, fine. But that's going to be done by, let's say, September. We're done. Okay, so now fuel economy, okay, we're not doing bad because we have the new trucks. Idling, we have to improve that big time. We're doing about 35% to 40% idling. Nobody knows exactly how much, I mean, because we don't track it, right? So now we're going to start tracking that. Maintenance cost per shipment is too high, right? Because the warranty, we have new trucks, but, you know, you have to claim the warranty. If you do the work, you have to claim it. So we hired a warranty manager just a month ago, right? Because, you know, in the past, warranty, well, what's that? I mean, we buy trucks with no warranty, so we don't have to worry about warranty. No, no. We buy trucks with warranty. We have to claim, right? So, I mean, you'll see us improving on all aspects of our costs slowly into 24. All right.

Appreciate all the details. Thanks, Salim.

Right. Pleasure.

Our next question comes from Benoit Poirier with Desjardins. Please go ahead.

Yeah, good morning, Elaine. Morning, Benoit. Yeah, you provide great color about 2023, but I was wondering what kind of market condition do you foresee so far in 2024? Is it kind of overall major rebound or slight improvement? And is the $8 rebound, still achievable given what you foresee, the positive impact from yellow and all the action taken to improve the OR at the force rate?

You know what, Benoit? I think that if market in 24 comes back like normal, not like great 22, because we believe that 23 was a terrible, very tough year for us, for the industry in general. So 22 was the party. 23 was the after party, okay? So, you know, we had some headaches and all that. And I think that 24 will probably be slowly going back to normal. Now, in a normal environment, can we do $8? Okay, with everything that's going on at T-Force Freight, everything that's going on with our later M&A in 23, I think that going back to 8 in 24, I would say it's very early to say that But, you know, I would tend to agree that I think $8 for 24 should be attainable with everything that we're doing. And if our guys at T-Force Freight are able with the new volume coming in, okay, the focus on reducing their costs with all this financial information and getting closer in 24 to an 85 to 88 or as a first step sub 90 you are, Okay, I think $8, we should be back on track for $8 in 2024. Now, that's very early, okay, because we're just in August right now, okay, but my feeling, because our guys will start working on the budget in September, but my feeling is that would be really, really, really nice because don't forget, every part of our business has been affected in 2023. We were able to protect our margin, yes, okay, in general, but the revenue is down big time, right? So we need the revenue to come back. And then our logistics, think about that. Our logistics, we're able to protect the margin at nine, but the revenue is down like 20%, right? So this is tough, right? So if revenue is not down 20%, but let's say down only 5% versus 22, I mean, the bottom line will follow. Our PNC, the same. You know, our Canadian LTL, it's the same story. But T-force rate is really the key in our specialty truck load as well to get back to $8 and above into 24 and going into 25. I still say that this company today, okay, with the M&A that we're going to do between now and the end of the year, I mean, in a normal environment, it's between $8 and $10. $10 being, you know, a great environment like a 22, okay, and $8 being a minimum. in a normal environment.

That's really great, Collier. Alain, just in terms of follow-up, obviously you mentioned good details about the M&A strategy, obviously focused on US LTL and logistic. But when looking at valuation multiple, even on the logistic side, we've seen an expansion in valuation multiple. So I was curious, given your discipline, you're a discipline acquirer, what kind of valuation multiples... uh, do you see these days and whether, uh, transformative deal, there are still two or three opportunities out there as you discussed in the past?

Well, you know, by the way, I've been saying that, uh, all the time is you always make your money on the buying, never on the selling. So you got to buy, right? You buy that. You have to buy at evaluation that makes sense for your shareholders. And, and, and you'll see, I mean, uh, hopefully we can announce something in the next few days, next few weeks about a transaction that is going to be really, really, uh, very interesting for, for all parties involved. Uh, I really like this company. I like the management team. It's not a fixer hopper. I mean, those guys are doing a very good job and, uh, you know, we'll just work with them and, and, and, you know, it's going to be really fantastic. So, um, No, I mean, we have to be cautious for sure. Valuation is always important when you do a deal. And, you know, we've always been very cautious with that because, you know, if you overpay, I mean, you're stuck with that rock in your shoe for a long time.

Okay, okay. That's great, Collier. And I assume given the robust M&A environment, buyback might be less a priority in the short to medium term given the M&A environment.

You know, by the way, it always depends on the opportunity. If our stock goes back down to, I don't know, $140, $130, I mean, we're going to be active. Canadian dollars, I'm talking here. So, for sure, we'll be back on the M&A of our stock. Right? Our leverage is still very low. It's at 1.1, you know. So, I mean, we could do one, two million shares easily if we want. If we see... the price being very, very low, okay, we'll be opportunistic and we'll be, again, active on the buyback. I mean, it's not because, you know, we're doing some nice M&A in the latter part of 23 that this will, you know, impede our, you know, our possibility to do buyback. Because I think that by the end of this year, You know, with all the M&A, everything that we're looking at doing, our leverage is going to be about 1.26 at the end of Q3 and 1.05 at the end of the year. So, I mean, this is chicken shit in a sense that we could buy back at least one or two million shares if the price is right.

Okay, perfect. Thanks very much for the time, Mene.

Okay, pleasure, Benoit.

Our next question comes from Scott Wilkes with Wolf Research. Please go ahead.

Hey, thanks, Elaine. So you've said the word fantastic now twice with respect to near-term M&A. I just want to understand, are we talking about a major transaction or just something that's, you know, bigger than –

No, something of good size. Because what we've done so far this year, Scott, is very small transactions, small deals. And I think the latter part of 2023 is going to be more like medium-sized deals. So when I say fantastic is the company that we're looking at acquiring, to me, it's a fantastic transaction for many reasons. Reason number one is... is the market that these guys serve is really second to none. Their market share is what we like is really interesting. So I say fantastic because the valuation is also very accretive for our shareholders. I say fantastic because with these guys, we're going to learn something that will help us in all of our business segments. I say fantastic because I really like the management team over there. I can see that we could help them on a few aspects of their business, saving costs. So that's what I'm saying. In a difficult environment like that, I mean, this is one of a gem that we're able to pick up, hopefully. And that's why I'm saying fantastic, Scott.

Okay. And then... Someone asked you earlier about buying terminals from Yellow. I'm wondering if they were trying to sell one of the regional brands or the regional brands in total or maybe even the whole thing. Is that something you'd ever have interest in?

Well, for sure we're having discussion with the people in charge of the process. There are some areas that, as a matter of fact, if you look at Florida as an example, I mean, we are tenant in one area. They have their own one terminal that could make sense for us. So, for sure, we'll have some discussion, okay, with those guys. But to say that anything big will come out on the real estate side or employees or equipment, I don't think so. Okay.

All right. Thank you, Elaine. Appreciate it. Helpful call for this.

Pleasure, Scott. Yep.

Our next question comes from Vasco Majors with Susquehanna. Please go ahead.

Following up on that last question, I believe at the Investor Day you talked about maybe one to two points of long-term opportunity from real estate in the US LTL business. If we look to next year, it's pretty clear that there's going to be more real estate available than maybe had been anticipated at that point, as well as more freight available near term. I'm just curious how your calculus may change where there's more freight and more supply of industrial real estate and how you play that to best drive value for your shareholders longer term. Thank you.

Yeah, that's a very good question. So what we've done in 23 so far is we've done deals with other carriers where it made a lot of sense for them and a lot of sense for us. We still have some deals that are going on into 2023. Now, like I said, we've got lots of capacity within the T-Force freight network. So for sure, by moving from 2023 to 2025 or 2026,000, that's going to take a little bit of capacity. But still, we have a lot to do. So in terms of shedding this capacity or finding tenants or doing some M&E, that's going to help us. okay, fill those terminals that are costing us a fortune. And some of our terminals are running half-empties, right? Now, the fact that YRC is going to be liquidating their assets or something like that, I guess, that's going to bring a lot of real estate to the market. Agreed, okay? But I don't know exactly. I mean, some of the real estate that Morrissey was utilizing was a lot of that was leased. So we'll see. I mean, that may affect the market, okay? But really for us is most of the transaction that need to happen within what we had to get rid of or sell, okay, it's ongoing right now. So I don't think it's going to affect us in 2023. Could that change in 2024? I think that the cleanup of the real estate for us at T-force rate, I would say, is mostly done. And then what's left is our 3,000, 4,000 doors. Okay, we're going to have to fix that over time with volume through M&A or through organic growth, slow organic growth.

Thank you.

You're welcome.

Excuse me, there are no further questions at this time. I would like to turn the floor back over to Alan Bedard for closing comments. Please go ahead.

All right. Thank you, operator, and I want to thank everyone for being with us. If you have any follow-up questions, please don't hesitate to reach out. I hope you enjoy the rest of your day, and we very much appreciate your interest in TFI International, so thank you again, and we'll speak soon. Thank you. Bye.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.