TFI International Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's second quarter 2024 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 one follow up. Again, that's one question and one 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 the 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 Friday, July 26, 2024. I will now turn the conference call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you, operator, and welcome everyone to our call today. Our results released yesterday after the close were, again, very solid with a year-over-year increase in both revenue and operating income. In all of our segments, outperforming is still a very lackluster freight environment. Our results reflect the hard work every day of our skilled and dedicated team members, as well as strong management and our many other self-help initiatives that will continue to benefit us going forward. Our overreaching focus as a company is on the long-held operating principle that got us here. We're focused on the details, including quality service that drives volumes. We're focused on on freight quality, maximizing weight and revenue per shipment, and always striving for cost management through greater efficiencies. I believe that especially during weaker freight cycles, it's this adherence to the fundamentals that helps us perform. All the while, we maintain a solid financial position that allows us to seek highly strategic and many opportunities to intelligently invest in the business, and to return excess of capital to shareholders whenever possible. During the second quarter of 2024, our revenue before fuel surcharge was up 27% to $1.96 billion. We generated operating income of $208 million up for $192 million in the second quarter of 2023, with an operating margin of 10.6% relative to 12.4%. We also produced adjusted net income of $146 million up from $139 million a year earlier, along with adjusted EPS of $1.71 up from $1.59 the prior year. Cash flow generation, as you've heard me say in the past, is always a focal point of ours, and during the second quarter, we drove nearly $250 million of net cash from operating activities, well above the year earlier $200 million. We also generated free cash flow of $151 million, which was up from $138 million. Before moving on to consolidated results, I want to summarize how the Dasky acquisition completed April 1st affected our reporting. Dasky added $329 million to second quarter revenue before fuel surcharge and over $23 million to our operating income, both reflected in our truckload business segment. In addition, our consolidated corporate level results reflect a non-recurring restructuring charge of $20 million related to the Dasky acquisition, which I'll touch on in a moment, and which we've adjusted for the consolidated results I just reviewed, specifically adjusted net income and adjusted EPS. Let's talk overall strategy. Our second quarter results, and in particular our robust cash flow generation, even during this slow stretch of North American freight, reflects a number of positive factors. In addition to the hard work of our team and our laser focus on getting the fundamentals of the business right, our financial results should continue to benefit from as I referred to last quarter, the very tangible opportunity to drive even stronger LTL results. We will continue to extract costs while at the same time driving top line expansion through service quality. On both counts, we still have a lot of work to do. Similarly, our recently completed Dasky acquisition brings opportunities on which we've already started executing to reduce costs and improve performance. Now turning to our business segment, we've now aggregated P&C into our LTL. Over time, P&C has become a smaller portion of our overall business, especially following the Dasky acquisition. So we will now report as three segments, and we believe that this move will help simplify and add transparency to investor understanding. All the operational details are still in our quarterly report, and we can discuss anything you'd like during our Q&A. So with that, let's start with LTL, which was 40% of segment revenue before fuel surcharge during the quarter. We drew our revenue before fuel surcharge 1% year over year, while our operating income was up 2%, reflecting a slight increase in our operating margin. So within LTL, starting with U.S.-based operation, our revenue before fuel surcharge was $548 million, essentially flat relative to the prior year period. while our operating income climbed to $51 million, up from $47. Our USLTL tonnage was up 8% and our revenue per shipment was up 7%, reflecting our focus on quality of freight and quality of revenue. Our operating ratio for USLTL was 90.8, 70 basis points better than last year, and our return on invested capital was 15.4%. On the Canadian side of LTL, we generate revenue before fuel surcharge of $144 million, up 12% the past year, with operating income of $35 million, up from $34 million. Our numbers of shipment was up 14%, although weight per shipment and revenue per shipment declined 4.5% and 1.2% respectively. We had NOAA of 75.6% and our return on invested capital for Canadian LTL was 19.1%. Lastly, with LDL, our P&C operation drove $109 million of revenue before fuel surcharge, compared to $116 million the prior year period, with operating income of $24 million relative to $27 last year. We had a return of $77.9 million. Our return invested for P&C was a very strong $24.2 million. Turning to truckload, this business segment was 37% of segment revenue before fuel surcharge. Dasky integration is off to a fast start with a quick reduction in cost resulting to the one-time charge during the quarter. We produced truckload revenue before fuel surcharge of $738 million as compared to $411 million the prior year benefiting from the Dasky acquisition. Our truckload operating income of $83 million was up from $66 million. Also worth noting, our truckload OR came in at an impressive $88.7 million given where we are in the freight cycle. An indication we're executing well and that our unique specialized end market are proving more resilient. Digging deeper into truck load within specialized operation, we produced revenue before fuel surcharge of $665 million up from $335 million largely due to the Dasky acquisition with operating income of $75 million up from $54 million in the prior year period. We saw increased productivity with revenue per truck per week up 2% before fuel surcharge while growing our truck count more than 70% with the acquisition. In addition, our specialized truck load OR was 88.7%, as I mentioned, and our return invested capital came in at 7.3%, which I'll remind you includes only one quarter of contribution from Dasky and therefore should strengthen over the coming year. Turning to the Canadian-based conventional truck load, we produced revenue before fuel surcharge of $76 million, down just slightly from the past year, while our operating income of $8 million compares to $12 million in the year-ago quarter. Our Canadian NOIR was $89.3 million, while our return on investment capital was only $8.9 million. And wrapping up our business segment discussion, logistics was 22% of segmented revenue before fuel surcharge and is performing well. very well. Our revenue before fuel surcharge was up 22% the past year and operating income was up 54%. In the second quarter, our logistics operating margin was 11.4, which is improved from 9.1 a year earlier. And our return invested capital was a very solid 20.5. So let's move on to our liquidity and balance sheet. So during the second quarter, we generated free cash flow of $151 million. That's up from $138 million a year earlier. And we end up June with a funded debt to bid ratio of 2.15. This strong financial position is a key start of our approach to the business that allows us to strategically invest regardless of the economic cycle while also returning capital to shareholders whenever possible. Speaking of investment and returning capital during the second quarter, in addition to DASCI, we made four other smaller acquisitions and another small acquisition subsequent to the quarter. Also in June, our board declared a quarterly dividend that is 14% higher than a year earlier at 40 cents per share that was paid on July 15. Before opening the Q&A, I'll provide a quick review of our full year guidance, which is unchanged. from what we provided on our last call. Specifically, we look for EPS to be in the range of $675 to $7. We expect full-year free cash flow to be in the range of $825 to $900 million, with net capex of $275 million to $300 million. In addition, we still intend to pay down $500 to $600 million of debt this year, and we repaid a little over $100 million in Q2. With that, operator, I'd be happy to take questions. If you could please open the lines.

Thank you, Mr. Bédard. Ladies and gentlemen, as stated, we do ask that you please limit yourself to one question and one follow-up so that we can get to as many callers as possible. Should you have any questions at this time, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. And if you would like to withdraw from the polling process, please press star followed by two. And if you are using your speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from Ravi Shankar at Morgan Stanley. Please go ahead.