TFI International Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's third 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 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 can cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, October 22, 2024. I will now turn the conference call over to Alain Bedard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you, operator, and thank you, everyone, for joining today's call. Yesterday, after market close, we reported quarterly results that reflects industry-wide challenging condition. We generated strong free cash flow, which has always been one of our primary areas of focus, with a year-over-year increase of 37% to more than $270 million. This continued strong cash flow as I've said many times, allows us to opportunistically consider strategic M&A, intelligently invest in the business, and return excess capital to shareholders. We do this while maintaining a conservative balance sheet, and indeed, during the quarter, we were able to significantly pay down debt, as I'll discuss later on. Let's begin with a review of our consolidated results, which, as always, reflect the skill and hard work of our team members, especially during cyclical challenges for the industry. During these times, we collectively redouble our focus on the important details of the business, striving for added efficiencies through quality of freight, optimizing weight and revenue per shipment, and other important operating fundamentals that have served us well over time. For the third quarter of 2024, our overall revenue before fuel surcharge was up 17% year-over-year to $1.9 billion, benefiting from the April acquisition of Dasky. Operating income of $203 million was up slightly from $201 in the prior year quarter, and this equates to an operating margin of $10.7 versus $12.3 a year earlier. Note that last year's operating income included higher net gains on sales of assets held for sales of $15 million. We generated adjusted net income of $137 million, up slightly from $136 a year earlier, along with adjusted EPS of $1.60, up slightly relative to $1.57. In addition, as reference, we have strong cash flow with $351 million of cash from operating activity, well above the $279 million in the year-ago quarter, and free cash flow of $273 million, also well above $198 million of the previous year. Big picture on the quarter, our logistics segment performed well. really well and our truckload operation held their own as did our Canadian LTL and P&C operation. Going forward, the hardworking men and women of TFI International will continue to focus on improving operating performance while working to get the most out on recent acquisition. This will be our focus regardless of broader market condition as we see long-term opportunities ahead. So with that, let's discuss LTL, which was 40% of segmented revenue before fuel surcharge during the quarter. Relative to a year ago, revenue before fuel surcharge was off 7%, and operating income was down 24%, although this was largely due to higher gains on last year on asset L for sale. In addition, in the year-ago quarter, we had benefited from an early spike in freight from yellow, which also weighted on the year-over-year quarterly performance. For USLTL, our revenue before fuel surcharge was $531 million relative to $581 million the prior year, and operating income was $40 million down from $68 million. This performance reflected a 2% drop in tonnage, a 3% increase in revenue per shipment excluding fuel, and a 35% decline on GFP revenue. Our operating ratio for US LTL was a 92.2 compared to a 90.8 a year earlier, and our return on invested capital was 15.4%. Turning to our Canadian LTL, our revenue before fuel surcharge of $138 million was down 2%, while our operating income rose slightly to $33 million. Our number of shipments was up 3%, although our weight per shipment decreased 7%, and revenue per shipment decreased 5%. Our Canadian LTLOR came in at a 76.3, an improvement relative to 77.2 a year ago, while our return invested capital was 17.6. Wrapping up our LTL discussion, P&C operation also saw a slight decline in revenue before fuel surcharge to $109 million from $112 million, with operating income off slightly as well at $24 million versus $25. Our PNCOR was $78.2, which was up 80 basis points, while our return invested capital was $22.2. Moving on to truckload, this business segment was 38% of segmented revenue before fuel surcharge at $723 million, as compared to $402 million a year earlier, reflecting the April acquisition of Dasky. Truckload operating income of $72 million was up from $50 million, and our OR was 90.3 compared to 87.7 in the third quarter of last year. Taking a look within truckload, specialized operation generated revenue before fuel surcharge of $648 million, up from $325 million, and our operating income of $64 million was up from $40 million a year earlier. In terms of performance metric for specialized truckload, our revenue before fuel surcharge per truck per week was up 5% over the prior year at $4,453, and brokerage revenue more than doubled to $94 million. Our operating ratio was 90.4 compared to 87.8 the prior year, and our return invested capital was 7.9%. Overall, we see room for operational improvement within specialized truckload following the DASKI acquisition. Switching to Canadian-based conventional truckload, we produced revenue before fuel surcharge of $77 million, down slightly from $79 million a year earlier, with the brokerage portion increasing 20% to $30 million. Our operating income of $8 million compares to $10 million as mileage and revenue per miles were under pressure. Our OR for Canadian truck low was $89.9 and our return investor capital was 7.7%. Lastly, in our revenue by business segment, logistic was 22% of segmented revenue before fuel surcharge and continues to perform. While revenue before fuel surcharge was up just 2%, operating income was up 19%. Our third quarter logistics operating margin was 11.4, which was up from 9.8 the prior year, and return investor capital was 17.4. With that review by segment, I'll next provide an update on our balance sheet. As I referenced earlier, we had a very strong free cash flow of $273 million during the quarter, well above the $198 million a year ago. We used our strong liquidity to pay down $130 million of debt during the quarter, and ended September with an improved funded debt-to-bid-dollar ratio of 207 versus 215 as of the end of June. Our solid financial footing is an important aspect of our approach to the business, allowing us to strategically invest regardless of the economic cycle, with Dasky as a good example by returning significant capital to shareholders whenever possible, which has long been one of our guiding principles. In terms of capital allocation during the quarter, in addition to debt reduction, we completed two small Bolton acquisitions, and last month, our board declared a quarterly dividend of $0.40 per share, paid on October 15. I'm also pleased to announce that just yesterday, our board of directors both raised our quarterly dividend by 13% and authorized a renewal of our share repurchase program, the NCIB, for an additional year, subject to the approval of the Toronto Stock Exchange. I'll wrap up with an update on our full-year outlook that reflects the continuing challenging market condition. Year-to-date in 2024, our performance has been largely consistent with the prior year, and we expect this trend to continue throughout the year-end. As a result, we also expect our full-year performance to be largely similar to 2023. And now, operator, if you could please open the line. I'll be happy to take questions, please.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. And just a reminder, callers will be limited to one question and a follow-up. Our first question comes from the line of Ravi Shankar from Morgan Stanley. Go ahead, please.