TFI International Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's third quarter 2023 results conference call. At this time, all participants are in listen only mode. Following the presentation. Pardon me. 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 cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, October 24, 2023. I'll now turn the call over to Alan Bidnord, Chairman, President, and Chief Executive Officer of GFI International. Please go ahead, sir.

All right. Thank you, operator, and thank you, everyone, for joining us this morning. Yesterday, after market close, we released our third quarter 2023 results. With weaker demand conditions persisting throughout the quarter, we're proud of our solid execution which reflects continued adherence to our operating principles. As I mentioned before, our talented team understands the importance of profitability and cash flow, reacting quickly to market shifts and focusing even more intensely on the fundamentals when trade volume weakens. We view this underlying focus on profitability and cash flow as strategically important to the TFI international growth story, allowing us to consistently invest in the business and pursue M&A always in a disciplined manner, and return excess capital to our shoulders whenever possible, which, as you know, is one of our guiding principles. Taking a look at our third quarter results, we generate operating income of just over $200 billion, reflecting an operating margin of 12.3%. This compares to the prior year's $318 million with a 17.1% margin. Adjusted net income of $136 million compares to $181 million per year, and adjusted EPS of $1.57 was down from 201. Regarding net cash from operating activities, we generated $279 million during the second quarter, and in terms of free cash flow, which we view as strategically important, we produced nearly $200 million. Given the softer market condition, these solid results along with strong returns on invested capital across all of our business segments, reflect well on the hardworking people of TFI and the importance we place on protecting margins, especially when the freight demand weakens. It's also important to point out that when comparing to the prior year, our results reflect not only our sales of TFI last August, but the associated $76 million gain on sales along with costs incurred to transition our IP system from UPS, which will provide long-term efficiency advantages. In addition, we continue to face modestly unfavorable move in foreign exchange. I'll emphasize the results of our reporting are fully burdened, not adjusted for any of these items that affect the year-over-year comparison. All right, so let's review how each of our business segments perform. PNC, which represents 7% of our segment revenue before fuel surcharge, saw a 7% decline in revenue before fuel surcharge, with the number of packages also down 7%. Operating income of $25 million compares to $34 million the prior year, with a margin of 23 relative to 28% the previous year. Our return on invested capital, while down from 31% a year earlier, came in at still solid 27.6%. Overall, our P&C business is operating well given the weaker demand environment and with less contribution from fuel surcharge, benefiting from our unique market exposure and ability to control cost. Moving on to LTL, which is 44% of segment revenue before fuel surcharge. Our revenue before fuel surcharge was down 12%. on a 4% decline on shipments. Operating income of just over $100 million was virtually flat year-over-year. Within LTL, Canadian revenue before fuel surcharge increased 5% on a 5.3% increase in shipments. In addition, the quality and profitability of our business has been given difficult market conditions with our operating ratio of a solid 77.2% compared to 72.8% the prior year. Similarly, our return invested capital for Canadian LTL was 19.6, relative to 23.1 a year earlier. Within the U.S. LTL, results clearly reflect our margin resilience, especially given an important 5% wage increase to our labor force during the quarter. Revenue per shipment before fuel surcharge remained flat year-over-year, while our number of shipments were down 7.5%. Our revenue before fuel surcharge of $581 million was down from $687 a year earlier, and we were able to keep our operating ratio flat at 90.8 year-over-year and improve it sequentially. Return on invested capital for USLTL was 15.2 compared to the prior year at 25.2. Now let's turn to truckload, which is 24% of segment revenue before fuel surcharge. Amidst a very weak market condition with lower demand and weaker rates, we believe that we were able to outperform the broader market, benefiting from our specialized Canadian exposure. Our truckload revenue before fuel surcharge was down 21%, reflecting not only the weaker demand, but also the sale of CFI in August 22, and to a lesser extent, unfavorable foreign exchange. Truckload operating income was $50 million relative to $97 million last year, and our operating ratio came in at 87.5 versus 81.1 a year earlier. So, taking a closer look within truckload, although our specialized operations continue to benefit from self-help opportunities, along with our diversity and exposure to better performing niche markets, we were still impacted during the quarter by volume and pricing pressures. This is reflected in our new disclosure of weekly revenue per truck, which declined year-over-year. As a result of this, as well as a slight FX in width, revenue before fuel surcharge declined 8% year-over-year to $325 million. Our operating ratio was 87.8 relative to 79.9, and our return on invested capital was 10.1, down from 12.7. Taking a look at our Canadian-based conventional truckload business, we generated revenue before fuel surcharge of $79 million, almost entirely flat year-over-year, and actually up on a consistent currency basis. However, our adjusted operating ratio was 87.8 relative to 75.5, and our return on invested capital, which was 20.6 a year earlier, came in at 13.8%. This reflects a decline in both revenue per mile as well as number of miles partially upset by our ongoing focus on network density and cost control. Wrapping up the business segment discussion, logistics represents 25% of segment revenue before fuel surcharge. Our solid results of this quarter reflect our operational strength and ability to control costs. We generated $416 million of revenue before fuel surcharge, which was down only 2% year-over-year, benefiting from our recent acquisition of GHD, while also facing modest FX ed wins. However, on this relatively flat revenue, we were able to drive a greater than 40% increase in operating income to $41 million on a much stronger operating ratio of 9.8, up a full 300 basis points. Our logistics return to capital was 15.5, down from 21.1 the prior year. Overall, solid performance of our logistics segment benefited from better cost control, the strength of our same-day package delivery operation, the GHT acquisition, and our team's ability to successfully navigate changing market conditions. Turning to our strong balance sheet and liquidity, which is always a focus at TFI International, we were able to further enhance our financial position both during and subsequent to the quarter. First, we generated a free cash flow of nearly $200 million, as I mentioned, and we ended up September with a funded debt to EBITDA ratio of only 1.39. Second, Subsequent to the quarter, we were able to further strengthen our balance sheet with a private placement of $500 million of fixed-rate interest-only debt, bringing our overall weighted average interest rate to 4.5% entirely fixed, with an overall weighted average duration of 9.5 years. As I've mentioned many times, this financial strength is core to TFI International Strategy's giving us the flexibility to make smart investments regardless of the cycle, while pursuing strategic M&A and returning excess capital to our shareholders whenever possible. Speaking of M&A, during the quarter, we completed four additional token acquisitions, bringing our year-to-date total to 11. I'm also pleased to announce that our board director has raised the quarterly dividend by 14%, and that the share repurchase program, RNCIB, has been renewed for an additional year. I'll now conclude with our updated full-year outlook before opening up to Q&A. Today, we are reaffirming our 2023 EPS guidance provided in July of a range of $6 to $6.50. We're also maintaining our full-year free cash flow outlook at $700 million to $800 million, including capex of $200 million to $225 million. In addition, we have already exceeded the combined total of $500 million this year of capital deployed in M&A and share repurchase, given our very strong financial position. And with that, operator, if you could please open up the line so we can move to the Q&A portion of the call.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone keypad. To withdraw your question, please press the pound or hash key. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Again, that's star 1 to ask a question. Please stand by while we compile the Q&A roster. The first question comes from Ravi Shankar. of Morgan Stanley. Please go ahead.

Thanks. Good morning, Alan. Would love to get your thoughts on where you think we are in the cycle right now. Obviously, a very interesting time, kind of bouncing on the bottom, but maybe some signs of life. When do you think the upcycle comes in? Is it late 23, early 24? How powerful is it going to be? Just your overall thoughts would be very helpful.

Yeah, you know, Ravi, what we're starting to see in Q4 is improvement, okay, versus our Q3 numbers in terms of activity. But, you know, small. Excuse me, small. We anticipate that 24 is probably still going to be a transition year, okay? There's a lot of things that are, you know, in terms of the politics, there's an election in the U.S., There's issues in Europe with war and things like that. So I think that, I mean, that's what we're doing now. We're just going through our budget. And I think that I'm convinced that 24 will be a better year than 23 for us, okay? But it's hard to have a good feel about how good is this going to be. Is that, are we going back to normal 24? Or is it still going to be more towards kind of a transition towards better days, if you want to call it like that?

Carter, that's helpful. And for my follow-up, kind of just given some of these structural changes in the LTL market in the U.S. and some of the, I mean, just with the benefit of three months of hindsight and settling down, kind of how do you think the whole post-yellow situation has played out so far versus your expectations? What do you think happens in the near term, in the medium term? Do you think it can kind of set you up pretty well for 24?

You know, the fact that, you know, there's been some major changes in our industry, And I think that the US LTL industry is very well disciplined. Okay, so we went through some, you know, tough times in 23. The fact that a significant player, okay, that was probably a very low margin player has gone from the market. I think this bodes well for the LTL industry. But notwithstanding that, Ravi, our focus is at TFI with T-Force Rates. is really, it's on cost. I mean, yes, our market share could increase, our volume will increase slowly, but our major, major focus is we need to be leaner and meaner over there, and that's what we're doing. So we're providing the team over there with better information, financial information. During the course of Q4 and into 2024, We will be providing what we have in Canada with all our LTL operations and package, financial information by terminal so that the manager could start doing a better job of managing costs. Because right now the excuse is, well, I don't know. I don't have the information, so I can't do anything about it, right? So the excuse will be gone. Now, okay, the training and the education about all this financial information at the terminal level will be top priority for us. Our EVP, Bob McGonigal, and Keith, the president of T-Force Freight. So just to make a long story short about that, our focus for us is really we have to be more efficient. We have to do better. We have to do more with less.

Very helpful.

Thanks a lot.

Pleasure.

The next question comes from Tom Redewitz of UBS. Please go ahead.

Yeah, good morning, Elaine. Wanted to see if you could talk a little bit more about kind of how yellow, the business from yellow coming over affected performance in the quarter. I think we were anticipating maybe a sequential lift in price, but I don't know if there's like a significant mix effect within that. And then also just, you know, when you have kind of a disruptive step up in activity, that can cause some inefficiency. So I wanted to see if you could provide a bit more perspective on how that affected your results in 3Q. Yeah.

Yeah, very good question. So, you know, what you could see is that if you look at our average weight per shipment, I mean, it's up, I think, 7%. Okay, so this is thanks to a little bit of change in our – you know, ship it, okay? So for sure, the fact that this player has disappeared helped us improve our weight per shipment. In terms of pricing, our pricing and revenue per shipment ex-fuel is about flat year over year. So we were not really helped with that. Now, don't forget, we used to run 23,000 shipments before what happened to YRC. We went all the way to 26, but now we're back down to more like 24 and a half to 25, okay? And during the quarter, we went through increased costs, in a sense, because with pickup in volume, we had to bring back people, bring back people cost money. And then, whoops, again, okay, we went back closer to 20.5, 25,000 shipping. So then we have to readjust our labor force again. And as I said, the problem we have at T-force rate is when you don't have financial information at the thermal level, the reaction times, Okay, with all this variation, the volume is too long. Okay, and this is what we will be correcting in the future when we provide those guys with financial information, accurate financial information by the day, okay, by the week. So all in all, if you look at our operating ratio, okay, we're about flat year-over-year in Q3 for USLPL. One thing that we have to keep in mind is that our GFP operation is excuse me, was down on the revenue big time, okay? So, but we're coming back. I mean, our sales team is working on that, so that should improve for 24.

Sid, I guess as a follow-up question, do you have any thoughts on how we should, you know, what we should consider when we're modeling 4G OR and also when we're modeling 2024 US LTL OR?

And you know what, Tom, excuse me. I think that 24 US LTL should be less than 90. I'm just losing my voice, too bad. Yeah, so we should be in that neighborhood of 87, 88 to 90. Okay.

Great. Thanks for the time, Elaine. Okay.

Glad you're done.

The next question comes from Ken Hoester of Bank of America. Please go ahead.

Great. Good morning, Elaine. Thanks for taking the questions. So just maybe a follow-up on that for a second. You know, lots of puts and takes in US LTL. This quarter, there was the $5 million. I guess you've got the ongoing charge. Maybe you could talk a little bit about when you start transitioning from the UPS network and then you start eliminating those contractual charges. The ground freight pricing, is that something that continues to fade away? I just want to be able to step back and understand how we should think about the USLPL and then your your near-term target of moving sub 90 and your long-term target of getting to the, you know, as much as 80%. So maybe just talk about what's in the number, what's the clear and then, and then what's the go forward.

Okay. So the transition from UPS at the latest, I mean, we've done by Q1 of 24. Okay. So what we've done so far is financial. So we move Oracle to our own Oracle financial system. We did HR as well. We did HR in the summer. We also did the fleet in September. So we moved from UPS fleet management to our own Sitara system. So the only thing really of importance that's left is the housing of our edge system. Excuse me. So that's the only thing really left with those guys. So to me, all these transition costs, all these excess costs should be things of the past now. probably into 24. But for sure, you won't see anything like that after Q1 of 24. Now, in terms of our GFP, so last year we were just flying with that, doing really well. This year, okay, starting Q1, I mean, our revenues start to drop. I mean, we had some customers issue, okay, that we had to fix, which we I've been fixing and working on, and now we're starting to see revenue of GFP slowly picking up again. Our volume at GFP is down, like I said, big time, like 40%, and this is not normal. So we had some issues with some certain customers, but we're working with them and we're going to fix that. And it's coming. Now, in terms of the LTL, like I was saying to Tom, I haven't seen the plan. I'm going to be with the guys tomorrow, okay, and talking about their plan for 24. But I can't see us coming up with a plan with an OR of 90 plus, okay? I think that the market is still going to be soft, okay? But we can't blame the market for that because us, we have a lot of work to do on our costs. So even if the market stays soft like it is now, I think that T4 straight team will definitely improve. So this is why, to me, when we have a target for 24 to be in this 87, 88 range, okay, I think it's reasonable. But this is me talking before meeting those guys tomorrow. I hope that's their plan because, to me, that is a reasonable plan. That's a reasonable target. We'll see. But the fact that this market probably will stay soft, okay, even with the disappearance of a major player. That's the best that we can read so far. If I'm wrong and the market improves, even better. But the focus, and I'm repeating that at T4 Straight, we have to be more efficient. We have to reduce our costs. We're going to be providing them financial information now by terminal, which they never had, which we have in Canada. So think about it, Campbell. Look at our OR in Canada. I mean, in a very difficult market in Canada, we're able to come out in Q3 with less volume with a sub-80 OR. Why? Well, because our guys are very disciplined. They manage the cost, notwithstanding the market conditions. They do a better job than our U.S. teams. But our U.S. team, you know, they don't have the financial information. They will have that by term, and we'll start to see some improvement 24 and on.

Great. Alain, I'll ask a follow-up, but I'll keep going so you can get a sip of water there. But, you know, maybe you kind of reiterated your full-year target, right? But yet that's a pretty wide range when we're looking just as we move into fourth quarter. Maybe can you talk a little bit about what gets you to the, the bottom end versus the top end or, or is there, is your thoughts still some decent rebound into the fourth quarter? I mean, you look at that Canadian LTL, I agree, you know, staying in the seventies amazing, but yet, you know, with the deterioration of 400 basis points. So I don't know if there are thoughts you want to throw out there about what gets you bottom end versus top end of the range, given where we're close to that, that you're on number.

Yeah. Good question, Ken. You know, If you look at logistics in Q3, what you see in there is only six weeks of our GHT acquisition. So for sure, I mean, GHT is going to be there for the full quarter. So that's going to help us. I believe that T4 straight will do better in Q4 23 than Q4 22. Okay? So that's going to help us to get to our target. Now, you know, first, we got to work hard. because we missed consensus two quarters in a row, Q2 and Q3. Out of 25 years, we missed guidance about five times. I've been involved with trucking, so I don't like that. This is why, believe me, we're going to work very hard to be closer to $6.50 than to $6. First result that I'm seeing from October are very encouraging. So that's why I feel pretty good of just reaffirming our 6 to 650, but we'll probably be closer to 650 than 6. Great.

Thanks for that. Appreciate that. Very good, Ken. The next question comes from James Monaghan of Wells Fargo. Please go ahead.

Hey, good morning. Actually, I just wanted to sort of follow up on the broader LTO discussion and kind of get a better understanding of the volume and pricing trends you're seeing. It seems like there was a surge or break to pull back. Just kind of want to get some context around that as well.

Okay. Okay. So, I mean, the forecast we have for Q4 and into the new year, I mean – Our forecast is based on about 25,000 to 26,000 shipments a day. That is where we are seeing us going into 24. So that to me should be normal for the company of our size for the next years to come. And Tom, what was your next question?

Yeah, but certainly the trends you're seeing in October, and then you mentioned that there was a spike up in volume and a spike down, just what was driving that during the quarter.

Well, it's just adjustment from shippers, right? So, you know, when YRC closed their doors, I mean, for sure a customer called you, and then there's an action and reaction, and there's been an adjustment. So this is why we went from 23 to close to 26 and back down to 24, 25 as we speak now. But there again, the story of T-Force Freight, it's not about volume for now. It's about cost. So what we're saying to our sales team, guys, try to get better freight. 26,000 shipments is normal for us in 24. That's our goal. Okay, fine. Get better shipment because we keep improving that. And the ops guys have to work on the cost. So that's how we're going to bring... We're not focusing on getting more money from the customer. If we can do that, fine. If the market allows us to do it, fine. But our focus is not that. Our focus is really bring the cost down. Be more efficient. Do more with less.

Got it. Then on Canadian LTL, you're doing much better than the long-term guaranteed given market. at the investor day and it seems like we're in terms of it. So, like, how should we think about, like, essentially, was that number conservative or is that actually sort of how you still think about the business? And if not, like, what do you actually do think the long-term margin can be in Canadian LTL? Thanks.

Well, I think Canadian LTL, if you look at that Q3 with volume and pressure on the Canadian market, we're able to come up with a sub-80 ORR. And don't forget that we also made an acquisition in the Canadian LTL market, the Kindersley Group, and these guys are 2% bottom line guys, right? It's going to take us a year to bring those guys closer to 15% bottom line guys, right? So, I mean, to me, we've always been more focused on bottom line than top line. So Kindersley is going to help us with the volume. So this is why when you look at a Canadian volume, Q3 over last year, our volume is up because of Kindersley, right? But, you know, that's good in terms of volume. But the profit margin is really, really like 2% with these guys. So it's going to take us a little bit of time. But I think that the Canadian market, Canadian LPL market is way more difficult than the U.S. one in terms of market condition, quality of revenue, etc., etc., So this is why when you look at all sort of Canadian LTL, a lot of our freight is, is intermodal. Okay. So probably like 40% of our revenue runs on rail. Uh, so to be able to come up with a sub ADR using the rail, this is like, uh, close to a miracle. Okay. But again, I'm always, always emphasizing this is that our Canadian team has information that, to act and react every day. And this is what's lacking in the U.S. Those guys have the excuse today of not knowing anything about costs. The only thing that now they know is their labor cost per shipment since October of last year.

Thank you.

Welcome. Welcome.

The next question, Mr. Jordan Allinger of Goldman Sachs. Please go ahead.

Hi, morning. You guys made some pretty good cost improvement. Morning, looking at things like cost per shipment, which is down quite a bit year over year and flat sequentially despite the labor increase. I'm just curious if you could provide a little more color on where you think you've made some of that progress and how do we think about cost per shipment from here? Thanks.

Yeah.

Yeah, so those guys today with the increase in salary to our union labor force, we are a little bit ahead of our target. So our target should be in a neighborhood where we're right now about 5% or 6% more than that. But the target for 24 drops again. So the guys will have to do a better job. So how can you do a better job? It is you have to act and react okay, in a much faster way. We're also providing our team for the Lionel of a software of the 21st century, right? So this is going to be up and it's in the trial, okay, phases right now. And based on what the guys are saying is that this is going to be fully implemented into 24. So there again, with better information, better tools, to our line-all guys, I mean, they'll be in a position to shave costs. So I can't really tell you what our labor cost per shipment is, but what I could tell you is that even with more, paying our employees more, our labor cost shipping today is less than a year ago.

Got it. And then just as a follow-up, I know we've talked about yield and mix and what have you. I don't recall you touching on sort of like core pricing, actually effects of fuel and mix, and just as contracts have come up, what you're seeing, especially since the yellow bankruptcy. Thank you.

Well, I think that for Q1 and Q2 of 23, we were starting to see a little bit of pressure on rates in the U.S. LTL market. Now, with the fact that this thing happened, okay, with WRC, the pricing pressure has alleviated. I'm not saying that GRI and all this is going to be great in 2023-2024, but at least the pricing pressure because of too much capacity in the market start to alleviate in Q3. And I think it's going to be a thing of the past, okay, for Q4 and into 2024. Thank you.

The next question comes from Kevin Chang at CIBC. Please go ahead.

Hi, Elaine. Thanks for taking my question here. Maybe just looking at the U.S. LTL division, after 2024, it feels like the 87-88 OR that you think you can get next year is burdened with a higher wage rate in the first year of your new deal. I think it's 5% and it steps down. Just as you kind of roll through that wage, it feels like you have a good line of sight to get to that 85. Maybe it's more of a 2025 story. Is that kind of the right way to think about the OR cadence, just as wage growth steps down and you continue to get yield growth and I presume unit cost declines?

Yeah. Yeah. Well, absolutely, Kevin, because you know, It's a huge hit. I mean, when you have to give 5% more to your employee right there, okay, an employee cost is a big component of our cost, right? So you're absolutely right. I mean, that 5% is really a big hit for year one. But then when you get to a new contract with year two, three, and four, I mean, we're not talking about 5%, right? So I think it's about 2%, something like that, because overall the contract is just under three over five years. So that's a huge headwind for us now because all these costs, we have to manage them. We've got to try to pass on more in terms of pricing, which we haven't done because if you look at average revenue per shipment, we're flat year over year. So really, this increased cost per hour, we have to swallow it within our operation. So again, it's by being more efficient that we're able to come up with an OR that's about stable year over year with 5% more money to our employees, right? So time is on our side, okay, for sure, because down the road, we will not raise the salaries by much as 23, and we're still going to be working on, you know, reducing the miles, reducing the hours, having a better planning, talking about my Lionel operation. That's going to help big time. I mean, it's new tools with AI that's really going to help our Lionel division to be in a better position to forecast because every day it's a different story, right? So I'm convinced, okay, that 24 will see major improvement versus 23 in our USLPL operation. Okay, so that's why I'm convinced that we could get to the 87, 88 alarm, and then we're on track to be closer to 85 in 25. Our goal has always been to be closer to 80, but we've got to go step by step.

That's helpful. Maybe just my last question here. You've talked about normalized earnings for your company, and you mentioned this on the Q2 call, kind of between 8 to 10 earnings. I know you're looking at 24 being a transitionary year, but does that get you within that range? Do you think you can get to the bottom end of the 8 to 10 normalized earnings in 24, even if it's a transition year, or is it still a pretty challenging market out there?

Our truck load is really killing us, right? If you look at the star in the U.S., okay, the best truck load company in the U.S., they had a very difficult Q3. Us, we're the same, really. really for us in 24 is how is our truckload, okay, specialty truckloads going to come back? To me, if our truckload is coming back slowly, okay, to a more normal environment, I think that 24, we should be in a position to get closer to 8 than 650, right? So truckload is a big story for us this year. LTL, US LTL volumes in Canada, if we could start to see a little bit of growth there. And M&A, too. I mean, for sure, GHD will help us big time to get closer to eight, right? And we have other things in the pipeline that could be also interesting for 24. So, I mean, let's talk about 23. Get to 650 in 23. And then, guys, we've got to get closer to eight in 24. Now, we did eight in 22. But, okay, so, I mean, that's a nice target to be an eight in 24.

I agree. That's it for me, Alain. Thank you for taking my questions.

Thank you. Thank you. The next question comes from Brian Osdenbeck of J.P. Morgan. Go ahead.

Hey, good morning, Wayne. Thanks for the question.

Morning, Brian.

Hey, just wanted to follow up on the M&A and maybe get your thoughts on capital deployment and sort of the rationale and timing behind the private placement. What are some of the best opportunities to deploy capital? You see right now there's some bigger deals maybe getting a little more interesting as the frequent session lingers. And then, you know, comments on the last time you said you had enough doors, enough doors now in USLTFs, maybe yellows, oxygen doesn't interest you, but commenting that'd be helpful.

Yeah. Yeah. You know what, Brian? I mean, the reason we did that 500 million placement is because it's not because we don't know what to do, right? It's just, we're just getting ready to do something, right? So if you look at what we've done this year, I mean, we've done about $100 million of investment in terms of M&A. I think that we're going to do more than that in 2024. So this is why we got set up with this private placement, just in order to get a little bit more dry powder for us to be in a position to do the good things that we want to do in 2024. In terms of our pipeline, our pipeline is really strong in terms of M&A.

Hello. Any quick follow-up? Any thoughts on the yellow bankruptcy option? Anything? It seems like you have enough doors in the U.S. now, but I wanted to see if there's any particular assets you'd like to of interest to you, and then maybe this is a quick follow-up at the same time. Can you just give us a sense of how density is tracking in T4 straight? It's always a big part of the story here. Some comments on stops per truck or miles between stops now that you have a big step up in volume in the third quarter. Thank you.

Yeah. Yeah, you know what, Brian? We've said it many times. I mean, our focus in the U.S., okay, has always been logistics and LTL, and to a certain degree, specialty truckload, if there's something that makes a lot of sense for us to do. In terms of improvement, okay, at T-force rate, our miles per stop between each and every stop has improved, okay? This is helping us reduce the cost, okay? But we're still a far cry from what we do in Canada. So as an example, if we do Let's say the Canadian story is we do about five miles between each and every stop. In the U.S., we used to be doing double-digit miles, over 10. So now, with less volume than two years ago when we bought the company, our average mile per stop is not five in the U.S., but it's not 10 anymore. So it's single-digit now. So slowly, we're doing more in terms of having drivers picking up freight and driving less. And when they drive less, well, they cost less money because they don't spend on fuel. There's less risk of accident because they're not driving, they're picking up freight. So we are on the right track, but we're still far from the efficiency that we have in Canada. But this is work that needs to be done between our sales team and our ops team so that the sales team really understands what we're looking for. So T-Force Raid used to be a sales-oriented company when it was owned by UPS. When it's owned by TFI, it's not a sales-oriented company. It's an operational-oriented company. So the operation talks to sales about what they want, what they need to improve density. It's not the other way around where it says, oh, this is a customer, this is the shipment, and now you've got to take care of that. No, no, no, no, no, no, no. This company is moving into an ops-driven, okay, environment, and it's the operation that works with sales and say, hey, this is what we want. This is the area. This is the kind of freight we need, okay? And don't bring me something that I don't want, right? Because I'm not Jack of all trade masters of none anymore.

All right, Wayne, appreciate it. Thank you.

Very good, Brian.

The next question comes from Scott Group, Oval Research. Please go ahead.

Hey, thanks. Good morning, Elaine. Just want to follow up on the M&A. Just want to follow up on the M&A discussion. So it sounds like more M&A next year. Should we be thinking about a sort of a larger, more transformational deal? Is this more, just more of the tuck-in deals? And how do you balance M&A with the potential for a big buyback? The stock's now basically back to pre-yellow levels right now. How do you balance M&A versus buyback?

Yeah. Well, buyback, we really love buyback. I'll give you an example. We just renewed our NCIB, Scott. We have an order to buy a million shares depending on the price. This is You know, this is the focus, depending on the price, we're in there, we've renewed our NCIB, and we're going to be, you know, now. If there's a major transaction, okay, and I think that if you look at history, normally you have something of size in 24. We did a lot of nice tuck-ins in 24. We're probably very close to being done for 23, I mean 23. We're probably close to being done in 23. We got this $500 million placement just to get ready to be in a position, okay, in a better position. Our leverage is 1.39 right now. We should be closer to 1.2 at the end of the year. So we have a lot of dry powder on our line of credit with our bankers. Now we have cash. We have, what, $300 million, $400 million of cash at the end of the year, okay? So we're well positioned to do something of size in 24. Now, it's always the same story with TFI. There's always one, not just one file that we're working on. There's always more than one. So I think that the possibility of doing something of size in 24, I would put that at 65%, 75%.

And then at times, though, you've actually gone the other way and you've sold assets or spun assets. Is that something you're thinking about right now? Are there assets potentially worth monetizing?

No, not in 23 or 24, Scott. Maybe that's something that may happen in 25, depending on what happens in 24. We'll see.

And then just lastly, you made a comment earlier that you're not sure if it's the right environment for big LTL GRIs or something like that. And I know the GRI you announced earlier this month was a bit lower than last year's GRI. We just had SAI announce their GRI this morning, and it's actually a point bigger than last year. So maybe just I want to understand why you think it's not an environment more supportive for LTL GRIs and pricing.

Scott, you can't compare OD, SARIA with T-force rate, right? So our reputation is not the same, you know, so we have to gain reputation. We have to improve our service. We have to improve our costs, but we also have to improve our service because for years and years, we were hiding the truth, right? So this is why us, in Canada, we could do these kinds of things. We could be the leader. But, Scott, I'm sorry, but in the U.S., we have to be followers today. We have to follow O.D. and Sia. And can we be in the same league as those guys? No. I mean, we were not as good as them. We'll be, but we're not today. So this is why when we talk to our teams as guys, Let's be cautious on that, okay? And, you know, SIA and OD are, you know, the big guys. You do really well, fine. Us, we still have lots of work to do in terms of service, in terms of cost. And maybe next year we'll be in the same league. Maybe it's going to take us another year or two. But we're not there, Scott. So we cannot be as aggressive on pricing anymore. as these guys are. Us, we have to be very aggressive on our cost. Makes sense. Thank you, Elaine, for the thoughts.

Pleasure, Scott. The next question comes from Conor Gupta of Scotia Capital. Please go ahead.

Thanks, Officer. Morning, Elaine.

Morning, Conor.

Morning.

Elaine, I just wanted to

I'll circle back on T-Post, where it's yield, X field in the third quarter. It seems to have come down sequentially. And I'm just curious, you know, the yellow bankruptcy situation definitely created a more sort of balance between demand and supply. The LTL market is already pretty consolidated and concentrated. So I'm just curious, what would have contributed to that yield decline in Q3 versus the first six months of this year?

Well, I think that if you look at the revenue per shipment, I mean, it's flat. The yield is lower because the shipments are heavier. So there's a little bit of a trade-off. So really, what we look at is hey, what's the revenue per shipment? And our goal is always to increase the weight because we are being paid by the weight. Now, when you increase the weight, you have to reduce a little bit the rate, okay? So it's a balancing act, okay? And like I said with Scott earlier on, I mean, we're not perfect. I mean, we're, you know, it still needs some improvement. Our pricing team, you know, it's, You know, we lack a lot of discipline in the past, okay, that we're trying to correct. But that takes time, you know, with customers. So we want our customers to have a great experience when they deal with T4 straight. And, you know, we had a lot of issues in the past with the service. Our equipment was so bad, okay. I think that for the first time in the MDNA, we're showing the age of our trucks at T4 straight. So... Now we're down to about 4.6 average age versus when we bought the company, we were closer to 8. I mean, that's issues with service, for sure, I mean, with old trucks. So slowly, I mean, we're going to get to better quality of revenue, but we have to improve our service. We have to improve our customers' experience with us. And this is why, you know, it's a little bit of a balancing act, okay? This is like when you're trying to buy, let's say, a car. So you can't sell a car that is not at Bentley's price.

Right. No, it makes sense, Alain. Thanks for that, Kalar. I think I'll follow up on the operating ratio. So I heard you saying 87% to 90%-ish almost, right, next year for U.S. LTL. You guys are at 90% today, so that's a decent improvement, clearly. But I think previously you kind of alluded to, you know, probably at 85%. I'm just wondering, like, is it market-focused or is it market-driven? that you're not expecting 85 in the next year maybe? Or is it something else in that equation that has changed?

Yeah. No, you know what, Conard? It's a soft patch for the volume right now. So for sure that the fact that YRC is gone has improved. But the market is still in an overcapacity situation in the U.S. Not big, but still is. So this is why we have to be careful. We see 90% in 24 should not be our target. It's got to be closer to 87, 88. Keep improving that. And as I said it, with minimal improvement on volume because our targeted volume is to be closer in the 25 to 26 range shipments per day. So a little bit of improvement in volume. A little bit of improvement maybe on the pricing, okay, with the GRI, fine. But the big improvement has to come from the operation in terms of the Lionel cost, in terms of our P&D cost, in terms of our, you know, that's how we're going to get to 88 and 85 and hopefully one day get closer to 80. Now, we also have to live with the environment, right? So what we've seen so far is in Q3 – One of my peers came out non-union with an 85 OR. So us, unionized in a difficult environment because T-force rate has been abandoned, not really invested a lot by the previous owner because that was not their focus. So we're going to a lot of improvement and changes. So to me, when you look at the U.S., At the 90-something OR for us in Q3 in a soft market, yes, YRC is gone. Okay, that helps. But still, I mean, my GFP logistics operation is down big time. Okay, that's going to come back in 24. But still, I mean, I'm really proud of what the guys have done so far at T-Force Freight. You know, we bought this company two years ago. Okay. Okay. At the time, it was losing money. Today, it's close to making 10 points in a softer market versus a year ago.

That's great, Elaine. Thanks so much for the color and all the best for the 2024.

Thank you, Kunar. We're going to need that for sure.

The next question comes from Bastian Majors in Susquehanna. Go ahead.

Thanks for taking my questions here. There's been a lot of talk on USLTL, understandably, given how much you've improved and driven value from that business. But if you go back to the truckload segment a little more in detail, how comfortable are you that this kind of $100 million adjusted EBITDA level is close to the bottom? Should we see some negative seasonality into the fourth quarter and Are we at a floor there where we feel pretty good about where we're bottoming? It's really just a question of how long it takes us to get better and how quickly that can happen. Thank you.

That's a very good question. I think that if we're not at the floor, we're very close to the floor. The truckload world, our specialized truckload, is very disappointing in a sense because Because, you know, we're coming out with an 87, 88 award. But then we take comfort when we look at the van world in the U.S. where most of the guys are coming out with a 95 award. Okay, in Q3. So what we've seen so far, you know. So it's very disappointing when I talk to Steve, okay, Brookshaw, the guy, our leader over there. And the feel is that I don't think we're going to see some major improvement in Q4. And it's probably going to take us all the way to somewhere in 24 before we start to see improvement, okay, in the specialty truckload. But, again, I haven't talked to the team there. I'm going to be with the truckload team next week to see what the plan is for 24. But my feeling right now is that 23 – It's been difficult, okay, for truckload. And we're probably at the floor, but we're going to stay on the floor probably for at least the next 6 to 12 months. Maybe I'm wrong. Maybe things will improve faster than that. But us, we're always very conservative, okay? And fuel is an issue. Fuel surcharge is an issue. When you have a soft market, okay, shipper to get advantage of you. by trying to squeeze you on fuel surcharge as well as rates. So this is what we're going through now. It's not so much the rate. It's the activity level that's down for us in our truck load. Our revenue per truck per week is down. Our miles are down because the activity is down. The rate is not so bad, but it's the fuel surcharge squeeze that we're getting from shippers that is affecting us more significantly.

than the rate the base rate right so there's two things activity okay number one revenue per truck lower and number two the squeeze on fuel surcharge so higher fuel is helpful next year and you know it's profit improvement is not purely a function of the bid season for you it really can involve utilization as well is that fair

It's fair. Yeah, absolutely. So utilization is too low, okay? So that's number one. And number two, rates are about okay, not so bad, because, you know, we hold on to the rate, okay, and we get less volume because we hold on to our rate, but then we also get squeezed on fuel surcharge. So instead of getting the fair fuel surcharge because the market is soft, we get a discounted fuel surcharge from the shippers today, right? So before things start to get better for us, we need more volumes so that the market conditions starts to change with the shipper. Okay. And it's, it's a kind of a cycle thing, right? So some people are dropping from the market right now because, you know, they come to the shippers with fuel in price and then, oops, they lose their fuel card because they can't pay their fuel bill. So, I mean, the demand is still weak. And the offer is still more than the demand, but you're going to see some truckers slowly getting out of the business because they get with the shippers with stupid pricing. So that's what I'm saying. We're on the floor. Are we going to stay on the floor for three months? Absolutely. Is that going to last for nine months? I don't know. But one thing is for sure, I don't think that we're going to see worse condition than what we have today. And I also listening to what the way our peers are looking at the market, you know, and I think it's basically the same message is that we're on the floor and it's just that how fast can we get up from the floor? It's hard to say.

Thank you.

The next question comes from Elliot Alter at TD Cone. Please go ahead.

Great. Thank you. This is Elliot Onford, Jason Seidel. Maybe over on the logistics side and the GHD acquisition, I guess how's the integration going so far? How does their margin profile maybe compare to your core logistics margin? Maybe how we should think about that in Q4? I know they're a pretty niche player in the auto space. Curious if they're being affected by the auto strikes as well.

Yeah. Yeah, very good question. So, no, they're not affected by the auto strikes at all. Okay, number one. Number two is their profile of margin is similar to ours, right? So they're not in the business of 2%, 3% bottom line because we're not a big fan of that. You know, we're not a big fan of 2%, 3%. So they're close to ours. And, you know, I think that GHT will do better than the average TFI. okay, logistics earnings in 24-25. We see probably in 24 a little bit of a dip in volume, okay, at GHT versus 23. But we see a major improvement for 24 according to the forecast that I've seen so far. In terms of the integration, I mean, this is so new to us. I mean, we're just learning, okay, with the team there. I mean, GHT is a fantastic company. It's a great acquisition for TFI, a group of companies. As a matter of fact, after this call, I'm going to be with the management team of GHC to talk about their plan for 24. And, you know, I think that even with less volume, I think that GHC will do as well in 24 as they did in 23. So very happy with this transaction. And this is the kind of deal that's going to help us create value for our shareholders. long-term.

Got it. Um, and then maybe separately on the logistics, um, you know, as a whole, I mean, you had some organic, uh, operating income growth, I believe in the quarter, I think you called out some strength in the same day package business. Um, any other color there on this would be helpful. Thanks.

Yeah. You know what our logistics, uh, arm, uh, our last mile operation in the U S is doing really well. I mean, Our volume is about stable year-over-year in a more difficult market. We're down a bit in Canada because one of our customers, we just cut him off because of issues with credit. So this is why in Canada our volumes are down a bit year-over-year in Q3. But we have a new business coming on stream for Q4. So probably Q4, we're going to be flat year over year in terms of volume. Again, in a softer market, okay, in 20 versus 22. So we're doing well on the medical side of things. The e-commerce, for sure. I mean, e-commerce is not as good today as it was two years ago. So it's a little bit of a fight, but we have a fantastic team over there that's doing a great job. So Volume is about stable, but profit is up. If you look at year over year, I mean, GHC is helping. U.S. logistics is also helping. Our volume is down at WW, quite considerable, okay, because of market condition. But the bottom line is down just a few points. So, I mean, all in all, our logistics is performing really well. And I think that... We're going to do even better in 24. Great.

Appreciate it.

You're welcome.

The next question comes from Cameron Dordson of National Bank Financial.

Please go ahead. Yeah, thanks.

Good morning. Good morning, Cameron. So maybe just a quick couple of questions on the packaging courier business. Just wondering if you can talk a little bit about the outlook as we head into kind of the peak volume period for that business. I mean, what does it look like this year, year over year? And maybe secondly, just on the margin, some pressure year over year. I mean, how much of that is maybe a little bit lower volume environment, but how much is also perhaps the benefit from or the lack of benefit from fuel surcharge revenue?

Right, right. Absolutely, Cameron. I mean, our volume is down 7%, right? So if you look at our piece count and all that, if I remember correctly, I mean, we're down about 7%. On revenue, we're down $8 million. And basically, we're down $8 million on OE, Q3, year over year. And some of that is attributable to less volume, okay? Our cost is about stable, okay? But the volume is just killing us. And Because we're so dense, because we're so good, okay? When fuel is expensive, we make a little bit of money on fuel. When fuel is not expensive like it is now, that profit is gone, right? So that is a little bit of a headwind for our Canadian LTL in our package. When fuel is low, I mean, we don't have a little bit of profit from fuel. When fuel is high, we do well on fuel because of our density, which is very different than a U.S. LTL operation because we never make money on fuel in the U.S. LTL world today. Now, that's going to also help us because our MPG, because of the new equipment, is doing way better. There's about a 17%, 18% saving on our new trucks versus the old trucks that we used to run. So, over time, I mean, when fuel is going to go back a little bit higher, that should help us in the U.S. as well. But that's the story. The way we see Q4, Cameron, into the volume for our P&C, volume will not improve year over year. The market is too soft. And us, we're focused on bottom line, like we've said many, many times. So... I mean, this is why, guys, let's protect the margin and let's not fight this fight with customers that don't want to pay the fair price.

Okay, that's helpful. And maybe just a quick follow-up just on, I guess, how we should think about CapEx for 2024. Obviously, you haven't set your budget yet, but just kind of framework. Is there anything, I guess, direction that you can tell us about CapEx as we look into next year?

I would say about the same as this year, Cameron, so far, what I could think of. Okay. So, you know, for sure, we did a lot of capex in T-force freight. That was well warranted. And we will continue to make sure that the average age of our fleet keeps going down closer to four versus 4.7 it is right now. Our trailer fleet is, you know, needs some improvement too. So it's on the way. So I would say overall for TFI, CapEx should be in the same league as what we've seen in 23.

Okay, that's great. Appreciate the time. Thanks.

Thank you, Cameron.

The next question comes from Bruce Chan of Stifel. Please go ahead. Hi, good morning. This is Andrew Cox on for Bruce. Okay, morning. Oh, sorry. Make sure you got me. Hey, I just wanted to get a new color on hiring and retention, acknowledging that the facility managers are still lacking the necessary IT and systems to react as rapidly as you'd like. I think I want to know if there's been any impact of the tens of thousands of teamsters becoming available on the market. It's been easier to add post-yellow, and do you feel you need to add a need to manage the targeted 26,000 shipments per day next year? Thanks.

No, we don't need to add any management, that's for sure. And your question is really a good question, and we can't really answer that. So those managers have not been trained in managing costs, right? So that's what we're going to do in 24. Once we provide them the financial information, we're going to train them. Now, if you ask me what's going to be the success ratio between of those managers that have never done that. Um, hard to say. Uh, so we know one thing for sure is that no, it's not going to be a hundred percent. So we, we will have guys that are going to make it. And probably we have guys that are not going to be able to make it and, and pass the test of being able to manage costs. It's, it's a, it's a transition year for these guys over the course of 24. And, uh, To tell you what the success ratio is going to be, I don't know, okay? One thing we know is that they've never done it before, so we'll see how good these guys could be. Now, hey, listen, I mean, if you look at T4 Straight two years ago and T4 Straight today in terms of the executive, Paul, the president, has retired. The pricing guy, David Myers, has gone away. Eileen, the sales leader, has been replaced, okay? So the fleet managers, okay, is new. So at the top level, we have a lot of new blood here. New, blue, and sweet, clean, right? And, you know, if we need to do the same kind of adjustment in the people at the terminal level, that's what we'll do.

Okay, Lane, that's very helpful. Thank you. Can I just ask a bit about the volume churn? There was some intra-quarter swings throughout the quarter, and I just wanted to know if you think that was more a function of just normal seasonality or if it's more a function of Yellow Freight finding a home? We've heard from other executive teams that there's been kind of waves of Yellow Freight go from one carrier to the next, depending on service levels. Just wanted to get a sense of whether that's functionality of seasonality or of finding a home for Yellow Freight. Thank you.

I think that we've said it. I mean, day one, the shippers, okay, they go wherever they can. And then they start reacting. And that is probably, I don't think that is seasonality so much as just shippers trying to find a home where they feel that it's a better deal for them.

Thanks a lot.

Pleasure. The next question comes from Benoit Poirier of Desjardins Capital Markets. Please go ahead. Benoit, your line is open. Please go ahead.

Okay, so sorry I was on mute. So just looking back at US LTL to get toward the 80%, 85% or longer term. Just wondering if you need to get rid of railroads similar to the best-in-class players in the U.S., and what about the pricing and the service these days?

Yeah. Good point, Benoit. So for sure, okay, we will do more with the rail, okay, because the service with rail is always an issue. and the customer cannot blame the rail. They talk to you, right? So there's, again, I mean, we have to bring our cost of our own fleet down, okay? So then there's no real benefit to move freight on rail. So this is, there's two things that's going to happen. The improved, okay, fleet that now our guys are working, better trucks, okay? That's number one. Number two, better management systems okay, for our Lionel provider, I mean, our Lionel team, with this new software that we are implementing now that's going to be fully implemented by the end of 23, that's also going to help us. For sure, I mean, if you look at our Canadian operation, we run road and rail, and the only reason we run rail is because some customers want it cheap, but they know that their service is never going to be the same. And We have to, you know, fight with the rail because the service is not there. But we say to Mr. Customer, you want a cheap deal? Well, you're going to live with cheap service, right? U.S., it's a little bit different because, you know, customers are not really always saying, I want it on the rail. And then the rail is not successful. They don't deliver. And then so it's a transition, okay? And like you said, the best... of class in the U.S., LTL world, don't use too much rail. So, yeah, it's the trend that you're going to see us moving slowly, okay, away from rail as much as we can and to service us through our own team directly.

Great. Thank you very much, Eli. Pleasure, Ben White.

This concludes the question and answer session. I would like to turn the conference back over to Alain Bedard for any closing remarks.

Well, thank you. Thank you, everyone, for being on this morning call. We appreciate your interest in TFI International. And as always, if you have any follow-up questions, please don't hesitate to reach out. Please enjoy your day, and we'll speak soon. Thank you again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.