TFI International Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's fourth 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 could cause actual results to differ materially. I would also like to remind everyone that this conference call is being recorded on February 20, 2024. I will now turn the conference over to Alain Bedard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you for the introduction, operator, and thank you, everyone, for joining our call. So yesterday, after market close, we reported quarterly results reflecting the industry-wide slump in freight volumes, as well as the ongoing effort by our team to make the most of the challenging conditions. We again produced strong free cash flow of more than $200 million during the quarter. This brought our full year total to more than $750 million, the third year in a row that we've achieved this mark despite the prolonged weak stretch for the industry. This directly reflects our long-withstanding focus on optimizing free cash flow so that we can strategically invest in the business, consider attractive M&A, and return excess capital to shareholders. We did all three during the fourth quarter, while also reducing our debt to further strengthen our balance sheet. With that, let's have a look at our consolidated results. For the fourth quarter, our total revenue before fuel surcharge grew 9% over the corresponding prior year period to $1.8 billion, which benefited from our acquisition of Dasky last April. However, operating income of $160 million was down from $198 million, reflecting an operating margin of 8.8 versus 11.8 previous year. We did have unusually high accidents-related expense that were about $9 million higher than prior year period. Our adjusted net income of $102 million was down from $148 million the prior year, An adjusted EPS of $1.19 compares to $1.71. I would also note that the impact of foreign exchange fluctuation, which during the quarter reduced reported EPS by $0.03, as every one penny fluctuation of Canadian dollar per U.S. dollar tends to impact either positively or negatively our annual EPS by about $0.02. So again, we produced solid cash flow, as I mentioned, specifically $262 million of cash from operating activity and free cash flow of $208 million. However, both were down from the prior year figures of $303 million and $244 million, respectively. I want to again call out that our ability to produce very respectable cash flow during a prolonged slump for the industry is a direct reflection of our team's effort to focus on the details of the business regardless of market condition. This includes concentrating on quality of freight and other efficiencies. Let's now turn to a review of our three business segments, beginning with LTL, which was 40% of segmented revenue before fuel surcharge during the fourth quarter. LTL revenue before fuel surcharge of 737 was off 10% and operating income of 70 million which had an $8 million impact from higher accident-related costs versus the prior year period, was up 34%. Our adjusted LTL operating ratio was 90.3 as compared to 86.1 a year earlier, and return invested capital was 16.3. So next up is our truckload. 38% have segmented the revenue before fuel surcharge at $693 million, which was up from 3%. $399 million in the prior year period, benefiting from the Dasky acquisition. Truckload operating income came in at $60 million, which was up from $51 million. We produced an OR of 91.5 relative to 87.3 a year earlier, and our return invested capital was 8.4%. Our third business segment to review is logistics, which was 22% of segmented revenue before fuel surcharge, or $410 million for the fourth quarter, down from $472 million the prior year. Operating income of $43 million was down from $55 million. This equates to a logistics operating margin of 10.5 relative to 11.6 last year, and return on invested capital was 17.1. Turning to our balance sheet during the quarter, we again benefited from our solid free cash flow of more than $200 million. We reduced debt by $156 million, and as a result, ended the year with a funded debt-to-bid ratio of 2.11. In addition to allocating capital to debt reduction, we completed one bolt-on acquisition during the quarter. Also during the quarter, our board declared a 13% increase in our quarterly dividend to $0.45 per share. That was paid on January 15. We also repurchased $42.4 million worth of shares during the quarter. And you'll recall that in October, the renewal of TFI International Nomar Coast issuers bid or NCIB was approved for an additional year. So before I wrap up, as you may have seen in our press release, we plan to re-domicile TFI from Canada to the U.S. to better align with our shareholder base and commercial presence. With that, operator, if you could please begin the Q&A portion of the call, and I'll be happy to take questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. And to withdraw your question, please press the star followed by the number two. And again, in order to ensure that everyone has a chance to participate, we would like to request that you please limit yourself to asking one question and one follow-up. Your first question comes from the line of Ravi Shankar with Morgan Stanley. Please go ahead.