TFI International Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's second quarter 2025 earnings 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 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 July 28, 2025. Joining us on today's call are Alain Bedard, Chairman, President, and Chief Executive Officer, and David Saperstein, Chief Financial Officer. I'll now turn the call over to Alain Bedard. Please go ahead, sir.

Well, thank you very much, operator, for the introduction, and thank you everyone for joining today's call. Within the past hour, we reported our quarterly results that demonstrate solid margin performance across all of our business segments. This reflects the artwork of the talented team members across our organization, even as economic uncertainty continues to weigh on industry-wide freight volumes. As you've heard me say, strong free cash flow is always a top priority at TFI International, and I'm pleased to report that we had yet another strong quarter in that regard, producing $182 million of free cash flow. As you know, we use excess cash flow to return capitals to shareholders whenever possible. Thus, we repurchased a significant number of our shares both during the second quarter and into the third. This while maintaining a strong balance sheet, which has long been a pillar of our strength. In fact, we further strengthened our balance sheet during the quarter through a private placement bond offering that I'll discuss in a moment. So let's begin with a quick review of our consolidated results. During the second quarter, we had a total revenue before fuel surcharge of $1.8 billion compared to $2 billion a year earlier. As I mentioned, we had strong margin performance across the board, and we generated 170 million of operating income, representing a 9.5% margin of just a percentage point compared to 2.5 in the prior year period. We also produced adjusted net income of 112 million relative to 146 million last year, and our adjusted EPS of $1.34 compares to $1.71. In terms of net cash from operating activity, we generated $247 million, which was virtually flat with the prior year period. And free cash flow, as you heard me say, was $182 million, and that was significantly above the second quarter of 2024, results of $151 million. That's up 20% due in part to favorable working capital dynamics, as well as moderately lower capex relative to last year. We owe these solid results to the dedication of men and women of TFI International who really focus on the executions during the quarter, taking the opportunity to strive for quality of revenue and improve efficiencies, including at acquired operation, while maintaining a keen focus on cost control. Let's turn to the next second quarter results for each of our three business segments, starting with LTL. This quarter was 39% of segmented revenue before fuel surcharge and down 11% year-over-year to $704 million. Operating income of $74 million compares to $110 million in the year-earlier period. The LTL operating ratio of 89.5 compares to 86.2 in the second quarter of 2024. However, this represents a 360 basis point sequential improvement relative to the first quarter of 2025. Our LTL return invested capital was 12.9%. Next up is truckload, which was also 39% of segmented revenue before fuel surcharge, which came at $712 million compared to $738 million a year earlier. Operating income was $71 million versus $81 million in the prior year period. And our truckload OR of 90.1 is relative to 89 in the second quarter of 2024. Tariff-related uncertainty continues to wait on industrial and market demand. However, this quarter's OR also delivered 250 basis points sequential improvement relative to the first quarter of 2025. Wrapping up, on truckload, our return invested capital was 6.4%. Our last business segment to review is logistics, which at $393 million was 22% of this quarter's segmented revenue before fuel surcharge and down from $442 million the prior year. Logistics operating income was $38 million compared to $51 million representing a 9.6% operating margin as compared to an 11.4% in the prior year second quarter, and our return investor capital was 15.7%. In terms of the balance sheet, we benefited from the $192 million of second quarter free cash flow and ended June with a funded debt to EBITDA ratio of 2.4 times. As I mentioned, we also eagerly repurchased shares during the quarter, $85 million worth, and also paid out another $39 million through dividends for a total of $124 million of excess capital returned to shareholders. fulfilling one of our long-standing important commitments. Subsequent to the quarter end, we have repurchased in excess of another additional 475,000 shares. I'll wrap up with our outlook for the third quarter of 2025. We currently look for an EPS in the range of $1.10 to $1.25, and this assumes no significant change, either positive or negative, in the operating environment. In terms of net capex, we continue to expect approximately $200 million for the full year. All right, so with that, operator, if you could please open the line. Both David and I would be happy to take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. A reminder, please limit yourselves to one question and one follow-up. Your first question comes from the line of Ravi Shankar from Morgan Stanley. Your line is now open.

Great, thanks. Thanks for the time. Thanks, Alan. Great to see the turnaround and margins here. I assume that this was all idiosyncratic to the actions you have taken and not really helping the cycle. Can you remind us what is the margin ceiling you can achieve with further internal actions before the cycle starts to help you out on the LTL side?

Yeah, you know what, Ravi? It's always been a big discussion at TFI. I mean, we are very cost-sensitive, us, and what these guys were able to accomplish in Q2, okay, in a very difficult, still difficult market condition, okay? Now, if you look at all the tools that we've implemented so far, one IT, one technology tools is Optum. We've implemented Optum for our line-all. Now we're in the midst in 25 to implement Optum, that software, to help us on the P&D side. So our Lionel, we're very proud with what happened there. If you go back four years ago, we used to run Lionel miles on the rail for about more than 30% of our miles. Now we're down to closer to 20% of our miles, and we'll probably drop that. And this is all because Optum is helping us do a better job on the Lionel. We believe that the next thing that's going to help us reduce our costs is going to be on the P&D side, okay, where we're going to do more with less. So that's one area that we feel good about, and we're implementing that. As a matter of fact, this week, I think, David, if I'm right, we're implementing two terminals, smaller terminals, okay? So that's the first of those 100 and some terminals that we're going to be moving towards with Optum. And over and above that, I mean, we still have lots of work to do on claims. If you look at our claims ratio, I mean, we're not good. I mean, yeah, we're better. Okay, we're at 0.7% of revenue. We used to be at 0.9%. I think T-Force rate best result has been 0.4%. If you look at our Canadian operation, we run 0.2%. And I think the best beer in the U.S. runs 0.2%. So this is, again, a huge cost for the company. And the same is true of accidents. So we just hire a guy, okay, Mark Fox, that's going to help us, you know, improve our safety. You know, he was the president of Matrac, okay, when we used to own Matrac some 10, 15 years ago. And Mark has done a fantastic job in terms of changing the culture and improving the culture of safety. So claims and accident, okay, I think that we need to improve that like 100%. That's going to help us big time. Also, new technology in terms of AI. You know, David, maybe we could talk a little bit about that, what we're looking at doing on AI to help us reduce the labor intensity of our operation, you know, maybe on the collection side, maybe on the appointment freight side. I mean, we're looking at all kinds of stuff to reduce, reduce, reduce our costs and be the tiger, lean and mean.

That is really helpful. Yeah, absolutely. I mean, the ARA game. Go ahead, Evan. Please go ahead, Ravi.

Sorry. So thanks for that. Maybe as a follow-up question, if you can give us a little more color on just how customers are talking to you about the tariff environment, especially Canada, U.S. Are there any structural changes in supply chains and kind of any impact on you guys long-term, if you can tell at this point?

Well, that's for sure. If you look at our Canadian LTL, we're down, okay? We're down, okay? I mean, we're still doing really well, but we're down, right? And one of the reasons we're down is because all the trade between US and Canada on the LTL side is down. And this is the most profitable business that we have on the LTL is the trade between US and Canada. So for sure, normally the flow is two north, one south. Right now, okay, the two north are down to about one, okay? So We are losing. Now, the minute the tariff is settled with Canada and Mexico, I mean, we should do fine. I mean, things will come back. It's just like this kind of instability right now, okay? So this should be fixed probably before, well, August 1st. Maybe it's going to be fixed or later on. But for sure in 25. So, yes, we're a little bit affected. We're mostly affected by the instability in our industrial truckload base in the U.S., where a lot of our customers are just waiting on the sideline to say, hey, where are we going? Where is this going to happen? Okay, where is this going to end? So, because our miles in our specialty truckload are down like around 10%, which is not normal. I mean, it's just like it's quiet. It's very quiet right now. Hopefully with this big, beautiful bill, that should help investment. And that's what the investment we made on Dasky a year ago, that was because we thought that the industrial, okay, business in the U.S. will start to grow again. Okay, well, we missed the call. Maybe we were maybe one year too early.

Very good. Thank you. Thank you, Ravi.

Your next question comes from the line of Scott Group from Wolf Research. Your line is now open.

Hey, thanks. Afternoon. Maybe if you can just give us a little bit more color on the Q3 guidance, $1.10 to $1.25, maybe some of the margin assumptions there. You know, it's probably a little bit of a steeper decline, Q2 to Q3, than we typically see. So just any thoughts there? Thank you.

You know, Scott, this is really based on just the historical seasonality of the business. If you look last year, Q2 to Q3, we dropped 11 cents of EPS and margins contracted pretty much across the board, across the divisions and the segments. And so that's all that we're forecasting there is just normal seasonal sequential declines. and the extent to which we're able to continue to drive these idiosyncratic opportunities that we have over the course of this quarter will, of course, come to offset some of that.

Okay. And then maybe just a little bit more specifics on how you think about the progression of U.S. LTL margin Q3, if you have any early thoughts on where you think this should be going in Q4.

You know what, Scott? I think that our guys at T-Force Freight will do a great job again in Q3. I would say that, you know, again, I mean, our volume is still too soft. So the guys, you know, what they've done so far is they've improved the mix of our freight, okay, year over year. And when you talk to our team here, the thing that, you know, Our focus is a 94 OR like we've done in Q2. 94, 95 OR, I think that that is the goal that is attainable today with the kind of volume we have, right?

So you're saying 94, 95 in the back half of the year is sort of what you would expect?

Yeah, yeah.

Okay, that's helpful. Thank you, guys. Thanks, Scott.

Your next question comes from the line of Walter Spracklin from RBC Capital Markets. Your line is now open.

Thanks very much. Good afternoon. Just on the guide in the back half, I know you're not, or I guess implied guide for the fourth quarter. Are you giving any indication as to what we're going to see for the full year? And are you seeing, I know you've been right in terms of what you've seen in the in the general macro environment saying that it, you know, we're not seeing much relief or is there anything that would suggest to you that is this, are you seeing any signs that this could start to improve front half of 26? Are you thinking now or back half of 26, just curious your view on, on the overall macro here from the signals you're getting?

Well, in terms of the industrial freight in the U.S., Walter, we believe that this new budget that the Trump administration came up with, I think it's going to revive the investment in the industrial sector, maybe the housing, maybe school, maybe all kinds of investment. Okay, so this is why, you know, since we saw this new plan of the U.S. administration, we feel way better that we're finally going to get out of this freight recession that's been stuck in the mud for close to three years now. Now, we haven't seen anything yet, okay, but it's just like what we're reading, what the guys are talking about, when we talk to our customers. I had a meeting with our specialty truckload fleet a week ago, and for the first time, I heard those U.S. guys saying that, you know, we feel better. We feel good when we talk to our customers. Hopefully, you know, things will start to roll, right? So... We haven't seen anything yet concrete, Walter, but all the signs are there to say that I don't know when, but we're going to get out of that mud of that real estate, not real estate, but this terrible recession that we went through the last three years. Late 25, maybe? Okay, early 26, because don't forget, these projects sometimes take time, so we'll see, but at least the confidence Okay, when I talk to the guys in the U.S., it's coming back. On the Canadian side, I mean, there's a lot of instability. Once we know what's going to be the deal with the U.S., I mean, then the Canadian will be able to say, okay, this is what we need to do now, right?

Yeah, and I think what underpins that is really being able to see the effects of the cash tax savings, right, and thinking about how that flows through the economy. I mean, just us, our cash tax savings in the U.S. this year are going to be $20 million, and next year it's going to be another $20 million. And think about that throughout the economy, and this is really going to go towards companies that are doing CapEx, right? And these are the companies that are our customers. I mean, now that we own Dasky... 72% of our specialized operation in the U.S. is flatbed. We have $1.3 billion of U.S. flatbed exposure revenue. That's this year based on today's depressed dollars. When you think about rates coming down and you think about all of this cash tax savings coursing through the economy, that's what gives us a little bit of confidence in there really being a catalyst for a turn, in particular for our business units, which is our specialized truckload and our LTL.

There's a selling more confident than I've heard you in a while, so that's great. My follow-up question is on M&A. Can you talk to us a little bit about how you're looking at tuck-ins, what your budget would be, over the balance of the year and into next for just tuck in M&A and then what your thoughts are toward a larger deal? I know you pointed to 2026. Is that still in the cards?

Yeah. So for 25, Walter, it's pretty simple. The M&A activity is buying back TFI, right? That's what we're doing. That's what we'll continue to do in 25 because we – We cannot find another opportunity that cheap. It's impossible. With so much free cash flow, there's no company that we can buy today at a reasonable price that is better than buying back TFI. So that's what we're doing. Now, in terms of larger transaction, I think that probably you could see us getting involved into something of size in 26th. Don't forget, the last deal we did was late 23 into 24. So that was like two years ago. Mr. Brookshaw and his team, slowly we're digesting Daski. It's more and more every day under our control. We're transforming the good Daski truckers. The role that Steve has is to change these guys from good truckers to good business truckers. So A good business trucker is there to make money. A good trucker is there only to service the customer and hopefully makes money. That's the difference between the two.

Thank you very much, gentlemen. Pleasure, Walter.

Your next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is now open.

Yeah. Hi, everyone. Yeah. I was wondering if you give a little more color on the USLTL side and some of the other things you've been working on, such as the sales force, you know, rejiggering penetration efforts on the small to mid-sized businesses, you know, some of that other initiative stuff that maybe lifted margin better than expected in the second quarter. Thanks.

Very good question, Jordan. And, you know, I have to tell you that sales has been, since we bought UPS Freight, T-Force Freight now, it's been a rock in our shoes. I mean, we've never done well. Okay, we've tried everything, but I think that now for the first time in, since we bought the company, in Q2, we're starting to have a good sales team on the small, medium-sized account that is highly motivated and getting results. Okay, so the number of shipments, okay, that went down like crazy about six months to nine months ago versus the total shipments, Okay, now it's coming back, and the guys are very motivated, so we feel really, really good that finally, through Chris's leadership, I mean, now we are kind of regenerating this sales team. And also, at the same time, one thing that has always been an issue with our customer is that, you know, billing customers, Okay, it's like, you know, we always had problems with that. Hey, David, could you talk a little bit about that with Prism? Okay, this new software.

Yeah, for sure, especially now that we've corrected the problems, we can explain exactly what they were. Prism is a new billing software, which is helping us with our billing and our billing accuracy. We've also changed our processes so that we no longer deliver information until you have an account with us or we have your credit card. And this caused DSO to go down at T-Force or in the US LTL, which is primarily T-Force. DSO went down from 43 days a year ago to 35 days. It's very rare to see such a dramatic reduction. And why is that? Well, it's because of the software and it's because of a better process, which is a basic one, which is don't deliver the freight until you have an account and then you get paid quickly. So this also helps the customer service. This also helps the customer experience because there's no running around afterwards trying to figure out the billing.

So that also helps the motivation of the sales guy because now they don't get calls from customer and your billing department. They don't know what they're doing or this or that. I mean, it's smoother. It's getting easier to do business with T-Force Freight today than in the prior times, and we'll keep improving that.

Exactly, and you see it in also the quality of the revenue. So you'll notice that our length of haul is down a little bit. The SMB mix has improved. The big problem that we had over the last several quarters was a three-point reduction in the SMB mix as a percentage of our total revenue. And we've now reclaimed two of those three loss points. So we're two-thirds of the way back to where we were, let's say, about a year ago. And that's important. That's contributing to the results. And then the last thing is the GFP. We've now put up our third sequential quarter of GFP stability. We're up a little bit. But stability for three quarters now is something that we have not seen in a while. And those two go hand in hand, the local, the SMB, and the GFP sales.

Great. Thank you.

Your next question comes from the line of Tom Wadowitz from UBS. Your line is now open.

Yeah, good afternoon. Wanted to ask you a little bit more on USLTL. I know you guys have been kind of peeling back the onion for a number of years, you know, getting the billing right. I'm sure it sounds like a big positive. What else do you think is left? I guess I was surprised when you said around 20% of line haul miles outsourced rail. I thought you were like up in the mid 30s, but I don't know, is it, you know,

insourcing more line haul is it you know other things but just kind of where you're at in in your journey of you know getting to have the ltl operation and service that you want to have well you know what um i mean for sure from day one we were not able to move away from rail because you know our fleet our trucks were so bad that it was just a problem so we've invested tremendously into the asset the trucks And also the software. So right now we are running about 20%. And, you know, we didn't add that many road drivers within T-Force Freight. I mean, it's just like those drivers are doing more, okay? So we've also introduced sleeper trucks, okay? So now I would say we're just a little over above 100 sleeper trucks in our, okay, line-all fleet at T-Force Freight. And this is also helping us on the long haul, okay? Okay, because now running Sleeper, we beat the service of Rail, okay, and the customer satisfaction is like much, much, much improved, right? So it's a change, and we'll continue to improve that. Now, can we go less than 20%? Well, it's something that we're looking at right now, okay, but it's way better in terms of our service on the – you know, the three or four days service, right? Because now we move more and more freight on the truck instead of the rail.

So are you kind of where you want to be then in terms of your service, or are there other kind of big things that you need to do? And then I guess just maybe related to that, it seems like the pricing is still showing some pressure. I think you had some improvement in shipment sequentially, but you're still kind of down in terms of revenue per hundred weight sequentially year over year. So how do we think about that equation of getting to improvement in the price?

Yeah. So our service on the next day, okay, is comparable to our peers. We know that. Where we are not up to par is when it's a two-day or three-day or four-day service. four days now we're getting closer to our peers because now we move more away from the rail okay and with our own trucks now on the two to three days this is what where the guys are working on so our service is not where it should be i'm not saying that our service has improved okay on the next day we are comparable to our peers and until such time that our service is comparable to our peers our rate okay cannot be as good as our peers right so You know, you have to provide the service first, and then your sales team could say, hey, you know what? This is the market, and this is what we would like to have in terms of rate. So we're not there yet, Tom, but the guys are working on, and we've made some major improvements over the last, I would say, year and a half, and even more lately. Our missed pickup, okay, which was a cancer for us, a cancer, because like... Nobody cared, okay? We were all the way up to 4% three years ago. Now, we're hovering around one. Okay, still too much because in Canada, we don't have missed pickup. I mean, we're zero, right? So guys, one is better than three or four, but one is not good enough. So we have to keep improving this service metric, right?

Yeah, for sure. It's something that we're very focused on because, as we talked about before, a missed pickup is the worst because it's bad service and you lose the revenue. Our missed pickups are down. The missed pickups, pure missed pickups, are down over 50%, maybe 53%, something like that, year over year in the quarter. And then when you add missed pickups plus reschedules, because sometimes, you know, ah, I didn't miss it, but I rescheduled it. Ah, you missed it. Then you add those together. we're down like 42%, 43% year over year. So it's a major, major improvement.

Okay. Yeah. Great. It's good to see the improvement. Thank you. Thank you, Tom.

Your next question comes from the line of Brian Ossenbeck from JP Morgan. Your line is now open.

Hey, guys. Thanks for taking the question. So maybe just to follow up on that last question, Trying to thought, when does that start to translate the better service, the consistency? How long does it take for those conversations to result in better yields, bringing it back to the market? Is this something you can see towards the end of this year? Is it really going to take a little bit longer, considering it has been such a big change in a short amount of time? Are shippers going to want to see that for a longer period of time before they start paying you in a commensurate rate?

I think you're right, Brian. I mean, one quarter does not make a year, right? No. So for sure, the shippers, they're smart, okay? And for sure, they look at us and they say, well, okay, guys are doing better. But, okay, let's wait and see if this is not just a blimp of improvement and then those guys fall back in the same kind of rut, right? Okay. You're right, Brian. It's going to take more time. Now, is it another two or three quarters? I think also when the market starts to firm up, that's going to help us down the road. But if things stay the same, I would say that to bring the confidence to our customer that T-Force freight service is up to par to the peers, it's going to take a few quarters. to build that confidence. But we'll continue to improve.

Okay. And then at ASCII and the flatbed side of things, maybe you can just go through more detail in terms of, I think at one point you needed to get rid of some equipment, you had too much trailing equipment, maybe some other operational changes to get these to be business truckers instead of what they were before. But some updates on the asset side and then just the processes. in terms of where you are now and what that could look like when the volumes do get better?

Yeah, yeah. So very good question on Dasky. I mean, you know, I think as I said on the call of Q1, by the summer, okay, all of Dasky will be running our own financial system. The same with fleet management, okay? And now we have visibility about what's going on in terms of the asset base. So if you look at my trailer count at Dasky or specialized truck load, I'm down. If you look at my truck count, I'm down, but not enough. So I got way too many trucks sitting idling because my miles are down about 10% year over year because my industrial customers are not that busy. So you'll see us improving. If you look at my OR of Q1 of my specialty truck load versus Q2, I wouldn't say that the market is better. I mean, I wouldn't say that we have more activity. We just did a better job on the cost side of it, right? So revenue per truck, you know, we're doing okay, but the rates is improved, but it's the velocity that's not there. So overall, after buying Dasky about a year ago, I'm very proud of what these guys have accomplished so far, but we have a long way to go because I think I've said it on the last call, It's not normal to run a specialty truck load with a 90 OR, okay? It's not normal. So we got to bring those guys back down to an 85. Probably, hopefully, early 26, we'll be running an 87, 88 OR, and then continue the improvement in a normal environment, okay? If market starts to help us, well, for sure, we'll be way faster going towards an 85 or an 82 over time. Now, the market is very difficult. If you look at, there's not that many peers that came out, okay, so far in Q2. But you could see that when you have one of my peers losing money in truck loan, okay, I mean, that tells you, and these guys are good, that tells you how difficult it is in today's market. So I'm really proud of the guys improving, what, 200 basis points? quarter over quarter on the OR. I mean, so the guys are working really, really hard. Now, in terms of capital, I would say that to run the business today, okay, we have to shed about $20 million of capital, okay, in excess equipment, trailers and truck. And this is what we're doing. Now, for sure, the pre-owned market on equipment is not that great. But if you look at... We're not losing money by selling the equipment right now. We're making a little bit of money, okay? But this is where the guys were slow. I said, guys, we got to, you know, be a little bit more active.

Okay. Thanks very much. Appreciate it. Okay, Brian.

Our next question comes from the line of Daniel Imbro from Stephens. Your line is now open.

Yeah. Hey, good evening, guys. Thanks for taking our questions. Elaine, I want to follow up on the USLTO pricing discussion. I think it makes a ton of sense. You're improving the missed pickups and service, and that'll take time to show up in price. But I think the magnitude of the decline down almost 7% year-over-year, can you just walk through or unpack what the headwinds to yield were this year? Considering service is better, I would have thought maybe we saw a little bit of improvement, but was there a mix? Is it just competitive pricing? Kind of what's happening with core yields there?

You know what? I would say that number one is that the market is soft. I mean, what I've seen so far is that some of my best beers' volumes are down, okay, 5%, 6%. Okay, not the one that came out last week, but, you know, so there's price pressure a little bit. Okay, not disastrous, but there is some. Okay, and for sure the mix is, The minute that we start gaining more in the SMB where the profitability is better, okay, we should come up with, you know, better revenue, okay, per shipment, et cetera, et cetera. So it's a transition, okay, to move away from the corporate account and the 3PL as much as we can and to get to a goal where maybe 40% of your shipment are with the SMB.

Yeah, and also, Daniel, our weight per shipment went up by almost as much as the yield went down. The weight per shipment was up over 5%. So carrying heavier freight yields down a little bit. It's the weight in the soft market that we're working to kind of preserve that revenue per shipment. And we've been able to do that while reducing the length of call a little bit, which takes a little bit of the cost off. So it's – but the real – the main driver of the yield decline is the growing weight per shipment.

Great. Helpful caller. And maybe one not on the US LTL, just on the PNC side. I guess how much benefit, if at all, in the quarter was there from the partial Canadian postal strike or, you know, the other competitor strikes, any surcharges we saw up there? How much should we extrapolate the two key results into the back half? Thanks.

There was nothing there. I mean, this potential strike didn't help us at all. Very minimal, okay? And it seems like this is not going to be another strike, so very, very minimal. What's killing us, okay, on the PNC side, although our results are fantastic compared to our peers, is on the Canadian side, Carney, the Prime Minister, decided to go away from that carbon tax there, so... fuel price went down, and us, fuel has always been a tailwind for us because of our density. So this is the effect of that carbon tax. But no, nothing specific to the potential strike. There was nothing there for us there.

Great. Thanks for all the color and best of luck. Thank you.

Our next question comes from the line of Kevin Chang from CIBC. Your line is now open.

Hi, good afternoon or good evening, and thanks for taking my question. Maybe just when I look at your OPEX within your U.S. less than truckload, for the past couple of quarters, you're down, you know, 56, 57 million year over year, both in Q1 and Q2. Just wondering, is that a trend rate you could continue for the rest of the year? So if I look at OPEX, can that be down another, you know, 50 plus million in Q3 again, or Or are you starting to lap tougher comps? But it does feel like you had some excess OpEx in 2024 in the back half of last year.

Yeah, for sure.

Yeah, I don't know. We'd have to look at some of the details to get back to you on those numbers, Kevin, separately. But, yeah, I mean, we've been taking out costs. You can see that the truck count is also down. in the US LTL. We're trying to adjust the cost to the demand while at the same time we're investing in service. Part of the reason that we're missing less pickups is that we're staffing a little bit more. We're working the overtime as well. We're making sure that there's guys there. So there's the two pieces of it. It's not just about cutting. It's also about making some strategic investments And certainly picking up the freight is a very high return on investment. Yeah, right. That makes sense.

Maybe just a clarification, David. I think you mentioned the Q3 guide of 110 to 125 just assumes normal seasonality. I guess if I ask it this way, would that assume then any incremental seasonality? success you have on your self-help levers outside of what you've realized in the first half of this year. That would be additive to that guidance? Correct.

That normal seasonality would be we continue to operate the same way that we're operating now. We maintain that. Then we just have the seasonality apply to it. Perfect. Thank you for the clarification.

Thank you very much.

Your next question comes from the line of Adi Rasa from Citigroup. Your line is now open.

Hey, good afternoon, Alain and David. Congratulations on the nice turnaround here. I was hoping you could talk about the sustainability of the free cash flow. Alain, you opened your comments just talking about free cash flow. I think that's such an important part of the story. Just talk about, you know, can you sustain these levels and where does it go to if we see a little bit of improvement in the macro? Thanks.

Yeah, you know, that's a very good question. But, you know, I've always said the proof is in the pudding. So you got to look back, okay, five years. And don't forget the last two or three years has been very difficult in terms of the macro, right? And we still generate a lot of cash. You know, TFI is a cash cow. And this is, and I've said it many, many times, this is the golden goose of TFI is the cash because cash permits us Excess free cash permits us to reduce debt or give more to the shareholders or do M&A. And if you look back 30 years of TFI, that's how we've been able to grow. I remember when we turned the company into an income trust in Canada in 2002. People said, well, you give all your cash away. You're not going to be in a position to grow the company. But we've grown the company from 2002 to 2008 when we reverted back into our corporation. at the same time that we had the financial crisis. Bad timing there. But, I mean, this has always been the focus. So, as an example, we just give the example of Daski, where these guys were good truckers, but we're changing those guys into good business truckers. So, you'll see us brokering more freight to the market and driving less miles with our own assets to have the proper balance that we have in Canada. Right? So... If you look at the revenue in Canada of our specialty, if you would look at the revenue in Canada of our specialty truckload, the balance between the revenue from our asset and the revenue from our brokerage is not the same as the U.S. Because in the U.S., the Daski guys, their thinking was, well, we got to run it ourselves with our own asset. Yes, we do a little bit of brokerage here and there. So we're changing that in the U.S. So again... asset from the other guys, not your asset, improve your free cash flow, right? It's the same revenue, okay? Maybe not the same margin, but you're not stuck with the capex or the accident, right?

So I'm sorry, Alan. So in terms of the sustainability of this level, like what's your thought on that? It sounds like there's opportunity for it to step up from here or, you know, what is it?

Oh, yeah, for sure.

You can be a little more explicit on that. For sure. Thanks.

Yeah, because if you look at what we do in Canada, I mean, my PNC and my Canadian LTL are really very running light in terms of assets, and this is what we're trying to do with Dasky and our specialty truckload in the U.S., the same kind. It's harder to do for us in the U.S. LTL because it's a unionized labor force, a little bit more difficult. So this is why, to me, by switching revenue from asset to non-asset, it's going to help our free cash flow down the road. So to me, in a normal environment, can TFI, with the business we have today, can we do close to a billion dollars U.S. in free cash flow? And the market is helping us? Absolutely.

Yeah, because when you think about it, what's the first contributing element to the free cash flow? It's the net income. Okay, so as the environment recovers, everything recovers, net income goes up. Perfect. Okay, then what? Well... When we start making a lot of money, we're not going to go out and celebrate and buy trucks. That's not us. We're not going to buy trucks with excess free cash flow. We're going to buy the trucks that we need while continuing to migrate towards this more asset right model in the recently acquired businesses that Mr. Bedard went through. And so the incremental earnings drop straight to the bottom line of the free cash flow. And the only thing that you have to kind of look at to offset that would be working capital needs, which might increase, you know, as revenue goes up. But that's it. So you should expect the free cash to go up along with earnings. And you will not see any sort of large step up of adding capacity through assets. Yeah.

And also, we have a few one-timers on the real estate side. We have a few one-timers on the real estate side because we're also adjusting our real estate portfolio to the reality of the world today. So this is also something that is going to help us in 25, 26, 27, down the road. Yep.

Got it. That's wonderful color. And then I just wanted to stay on the point about the service in the LTL business. I was hoping you could go into a little bit more detail on what are the actual steps that you're taking there to improve the service and get it to look a bit more like peers. Some of your peers have been pretty open about the steps that they take to step up service, whether that's putting airbags around the freight or dimensioners and that sort of thing. Just talk about kind of a little bit more detail, a little more color around how you're actually, what's the progression to get that service improvement?

Yeah, yeah. Here are the things that we're looking at. The first is billing accuracy, okay? And as it relates to that, we've talked about the software and we've talked about some of the success that we've had there. The second is cargo claims. And there, yes, we're using straps. We're experimenting with cardboard bags. And so we are looking at various consumables to be able to improve the cargo claims. The third is missed pickups, which we're addressing through, first of all, better systems. We're using, you know, the more advanced Optum P&D systems. But we're also really making sure that we're staffed appropriately and making sure that the culture at the terminal level, at the dispatcher level, is that missed pickups are not acceptable. And then, of course, the last is on-time delivery. And as it relates to that, there's a culture element to that, and then there's also a line hole element to that.

Got it. Okay, wonderful.

Thanks for the time. Thank you.

Your next question comes from the line of Ken Hoekstra from Bank of America. Your line is now open.

Hey, good afternoon, Alain and David. David, good to hear you on the call again. I just want to come back to the second quarter outlook, right? So it's a big pullback. And I know you said it's a normal seasonal drop. But I guess if we go back two years ago, we didn't have that drop. So maybe, David, if you can just kind of walk us through what drops off, right? Because Alain already mentioned LTL margins at U.S. should stay low. basically flat into 3Q, 4Q. So is it truckload? Is it logistics? What falls off? Or is it just freight in the third quarter?

Yeah, listen, I think so. You know, we said, you know, 94, maybe 95. So if we end up in the 95, that would be a point on the LTL. I think the truckload last year compressed a bit as well. The logistics could also compress a bit with the lack of truck deliveries in our truck delivery business as just the industry pulls back on CapEx. And then I think there's a question mark that we have that we don't have the answer to, and we won't until the court is over, which is, How much of the freight dynamics that we're seeing right now are related to this stop, start, stop again dynamic related to the tariffs, right? We saw that imports into the west coast of the U.S. were way up in June, right? So we're benefiting from those freight flows now. What's going to happen when those are done? But then at the same time, you've got peak season coming. So we are just conscious of the fact that it's difficult to extrapolate what you're seeing right now out to the future because of the start and stop nature of the imports that have been coming into the country as a result of the tariff stuff, which it looks like maybe the worst of that volatility is behind us.

And, David, can you just remind us what percentage is related to West Coaster imports?

Oh, boy. Well, it's probably – so on our LTL, around half of it is retail. And I couldn't tell you how much of those are related to West Coast imports, but I think a lot of that retail stuff is coming from China.

Yeah, because don't forget, we used to be part of UPS, and UPS is a retail machine. So it's a transition more and more into industrial imports. Great. And this is maybe one thing that we forgot to say, David, is that now more and more we are introducing our LTL salespeople to our industrial-based customer that we have at Dasky, right? Because, again, UPS was a retail machine. UPS rate was the same. We said, no, no, no, no, guys, let's move more into the industrial environment. Okay. And through the Dasky sales team, we're opening doors to our LTL team to see, hey, can we do something with you guys, right? Like a Carter Pillar, like a John Deere, all these major industrial customers that we service on the industrial side, but we don't on the LTL side.

Wonderful. And then my follow-up, I guess, Elaine, if you think about shipments down 10%, tons down six, you talked about the competitor that's already reported, but What's your big picture on the capacity or the cycle here? I don't know if you want to throw in English language proficiency impact on the trucking side, just the cycle on the tonnage sign being done much. Do you think you're losing share? Have you stabilized? Maybe thoughts on the backdrop.

Yeah, I think that the English thing there is just maybe for the truckload guys. In the LTL world, I mean, so when I talk to our truckload guys, they believe that, yeah, there could be some effect to that, but I'm to say that we've seen something so far. I would not say that. But in terms of our volume, okay, I mean, we've been going down for the last two or three years, okay, in terms of volume. And now, a little bit like David was saying about the GFP, where finally we have some stability, I think that the next few quarters, we're going to start having some stability and maybe coming back into some kind of a growth mode, nothing big, but again... This is also related to improving the service. This is where the guy now understands that it's the chicken and the egg, right? So what comes first? Well, we know what comes first is the quality of service. If you don't have that, I mean, and you're competing with good peers that provide a good service, well, good luck. I mean, it's going to be tough. So this is why the team is really focused on like what David was saying about improving all the different factors. So you've got to be stupid to miss 3% of your shipment, missed pickup, because that's 3% of shipment that you're not going to have because you just missed it because you're stupid. So now we're down to one. Okay, we should be down to zero. So, again, this is all things that, you know, the guys are focused and it's like a religion. But, again, like I was saying earlier to a different analyst, I mean, it's not one quarter that's going to convince us the industry, the shippers, that, oh, maybe it's a blip. Maybe it's like, oh, it's the flavor of the month now, right? No, no, no, no. We have to prove that this is going to be consistent, sustainable, and this is why, you know, when we go back and talk about USLTL Q3 at 94, 95 OR is because we want to be cautious. We want to be prudent. I hope that we do better than that, but I mean, this is the minimum goal for us.

Appreciate your thoughts and insight as always. Thanks, Lane. Thanks, Dave.

Thank you, Ken.

Your next question comes from the line of Bascom Majors from Susquehanna. Your line is now open.

Thanks for taking my questions. David, we go back to the cash flow discussion from earlier. You talked about, I think Mr. Radar talked about getting close to a billion in free cash flow in a more normalized environment. Do you have a sense of where you might shake out this year? And just to clarify on the quarterly outlook, I know you're optimistic that U.S. industrial can improve later in the year, but if we're kind of bouncing along where we are and that doesn't happen before next year, can you just help us frame your view of seasonality in the fourth quarter as well? Thank you.

Yeah. So I think that free cash will be probably in the 700 range for the year. And as it relates to the industrial piece, I do think that stimulus takes time to course through the economy. And this big tax break for CapEx is going to take some time. So I think that's really a 26th when we start to see those projects, you know, really, you know, in motion. Exactly. It takes shape. So, you know, as it relates to seasonality in the fourth quarter, the best way to look at that would be, if you're asking about the truckload, to look at what we did between Q3 and Q4 last year. Because we had Daski in Q3 and in Q4 last year, so the whole kind of picture is apples to apples. And, you know, give you a sense for the sequential movements that we would expect to see. I think that on the LTL side, it was a bit of an aberration in the U.S. What happened to us in Q4, that is not normal seasonality. That was related to us losing a lot of SMB, and so that will not apply. That trend between Q3 and Q4 in terms of the margin compression that we saw last year. That will not be repeated. It is a more difficult quarter, so it's normal to have some pullback in Q4 relative to Q3, but certainly not like what we saw last year.

Thank you.

Your next question comes from the line of Benoit Poirier from the Jordan Capital Markets. Your line is now open.

Yeah, good morning, Alain. Good morning, David. Just looking at the financial leverage, you've been a disciplined capital allocator. You ended the quarter with a leverage of 2.35. Mentioned a clear desire to pursue buyback given where the stock is. Just wondering what could be the targeted leverage by year-end, given the comments about free cash flow generation, and where would you like to be before sizing a more transformative deal?

Well, I think our plan, if I correct me if I'm wrong, David, is that based on our plan, we're going to end up the year around 2.1 leverage, right? Let's say 2.1. We're at 2.35 now, 2.1. So this is the way we see it. And now in terms of a deal of size, you know, the approach that we have is that we could live all the way up to three, okay, because we generate so much cash. But we're not going to go above three, that's for sure. Okay, so up to three. And then very fast that year is we want to bring that leverage down. Okay, to more like under the 2.5, the 2.2, 2.25, 2.35, in that lead.

Okay, that's a very good caller. And Alain, you mentioned great caller about the industrial, your exposure to industrial, the comments, positive comments about the potential recovery in 2026. Obviously, logistic is also depressed this year, but there's a pickup expected in 2026. So I'm just trying to figure out what could be the normalized earning in 2026 with those positive comments. How much upside could we see next year in terms of earning powers, whether we could see a $6 VPS and maybe 90% OR for US LTL, whether it's doable?

Yeah, it's still too early for us to talk about 26 because we are having a tough time just to talk about Q3. But going back to logistics, I mean, logistics, okay, our GHT division is going through some tough times right now because nobody's buying trucks, right? So, you know, the OEMs are down 15%, 20%, 30%. But that will correct itself probably in 26, according to the forecast we have from the OEMs. Okay. That being said, our U.S. logistics are the, you know, not so good first six months of the year. Okay. So we were running at about 95% of plan. Now, okay, we believe that the last six months of 25, we're going to be closer to a 98, 99% of plan. So that should help us because In a normal environment, if everything runs normal, the OE of our logistics before tax should be between 200 to 220, okay, with the business we have today. And I think we're going to end up the year probably like 160 or something like that. So GHT is a big, big thing there. But according to GHT and the truck OEM, I mean, because of this new engine thing there in 27, those guys will be pumping a lot of trucks in 26. And with this CapEx thing there with the new plan of Mr. Trump, okay, probably, okay, GHG will be back to being very busy in 26. So that's going to help us.

Thank you very much for the time.

Thank you, by the way.

Your next question comes from the line of Konark Gupta from Scotiabank. Your line is now open.

Thanks, and good morning, Ali and David. Sorry, good afternoon. In fact, just wanted to get back to the SMB mix here. Can you help us understand what made these SMB accounts, whichever you got back, what made them come back, and what was the reason in the first place they left here?

Because we're focused on them now. You know, we care about them. You know, we are really, as an example, David was talking about missed pickup. I mean, we really focus on missed pickup for those guys even more than the general freight that we service. So we care about those guys because these are the best margin account. Instead of just not caring, okay, now it's a real focus of ours. They didn't come back because of rates, because we cut rates and this and that. No. They came back because we made them a proposal which is fair, reasonable, and we told them, listen, we'll provide you with good service. This is why going back to an earlier comment, my next day, okay, service is comparable to our peers. Where we are not comparable to our peers is the second day, the third day, and the fourth day. The fourth day, we're getting closer to our peers. So this is where the third and the second and the third day, this is where we need to make major improvement, okay, to correct our service to be closer to our peers. But small, medium-sized account is mostly next day. So now my service is up to par to our peers on the next day.

Makes sense, makes sense. So it's a service-based vending back, not a price-based vending back. Yeah. Thanks, Ben.

No, no, no, not the price.

Glad to hear. And then just my follow-up would be on the capacity side. I think you laid out some capacity numbers for the truckload business, Podesky, et cetera. What about US LTL and Canadian LTL? How many doors, how many trucks or trailers you're operating? you know, maybe way too much in the US and Canada on the LTL side. I mean, do you need to rationalize some or you still need to add more for the future?

No, the Canadian side, we're done because, you know, we've just acquired Kindersley about a year, year, year and a half ago. So we're done with Kindersley. We've acquired also Hercules in Canada and in the US. So Hercules, we're done in Canada. We're not done in the U.S. yet. So the guys are working on the U.S. side right now. But the rest of our business in Canada is okay. We have no issues. In terms of U.S. LTL real estate, we still have about 3,000 doors too many, 3,000 to 4,000 doors too many. So you should see us during the next six months do some trade, okay, some swaps, with some of our peers that we do all the time. So that should help us reduce the carrying costs of those real estate that we have no use for it. So on the truck side, we've talked about truckload. On the LTL side, what we're selling is the old UPS freight trucks. okay, with very little value. So there's not much capital to regain from the cell, but we still have way too many trailers over there and too many trucks, but not a lot of capital tied up there.

Okay, that's very helpful. Thank you.

Your next question comes from the line of Elliot Alper from DD Coven. Your line is now open.

Hey, great. Yeah, this is Elliot. I'm for Jason Seidel. Maybe just follow up to the last question on T-Force. Are you seeing some of these SMB customers feeling more of the tariff pressure? And then a number of carriers are also going after the SMBs. Is the pricing a little creative to maybe the total book? Is it seeing incremental challenges given some of these players are looking to grow share?

I think on the tariff side, I don't see any issues with the small and medium-sized account with the tariff.

No, we haven't seen that. In terms of your other question about pricing and other people going after SMB, it's a market. It's a market. We all know LTL has good characteristics. good market structure, which makes it a very attractive segment within transportation. And it's a market. It's a market that operates within those parameters.

And, you know, one shipment could be good for me, and one of my peers, not as good for him, depending on where the customer is, where my terminal is. You know, so what is good for me is not necessarily – As good or what is good for my peers is not necessarily good for me. So just to say that everybody is going after this kind of business, I mean, sometimes it fits better me than the other guys or maybe the other guys versus me. So it's just to play it smart.

And then just bigger picture, I mean, any indication of how peak season may shape up when speaking with some of your customers, maybe any pockets of strength or weakness?

yeah so far i mean uh it's like more of the same guys god thank you you're welcome your next question comes from the line of cameron lorickson from national bank your line is not open yeah thanks uh good afternoon maybe

Just a couple of quick, I guess, modeling questions for David. You mentioned, I guess, some of the tax rate changes or cash tax changes from the new U.S. legislation. I guess, what's your expectation for, I guess, effective tax rates going forward with that?

Tax rate won't change. It's just a cash tax benefit. The cash tax benefit that we estimate based on our CapEx over five years is worth $75 million cumulatively relative to what our tax would have been without this law. And of that $75 million, $40 is realized in the first two years.

Okay, that's helpful. And maybe just, I guess, on the new debt issuance in the quarter, it looks like pretty attractive terms. Are you able to update, I guess, what the kind of average interest rate is now for TFI across the entire company?

Yeah, I think we put it in the MD&A, but I can tell you that the weighted average interest rate on this particular issuance was 4.8% fixed. And we reimbursed debt that was costing 6.1. Yeah.

But I think globally, David, we're under 5.

Yeah. Oh, yeah. Yeah, globally for sure we're under 5. And we can follow up on the exact calculation. But this was a great private placement for us. We managed to access the markets at a great window. We reduced our interest expense, as we discussed. We increased the availability on our revolver. We actually pushed the maturity out by a year as well in a separate transaction on the revolver. And we also better aligned our currency mix. with our cash flow, the currency of our debt, with the currency mix of our cash flow. So we're very happy with the transaction.

Great job. That makes a lot of sense. Thanks very much. Thank you, Cameron.

Your last question comes from the line of Bruce Chan from Stifel. Your line is now open.

Hey, good evening, guys. Thanks for squeezing me in here at the end. I just wanted to ask maybe a bigger picture strategic question. You talked in the past about maybe finding some density in LTL via M&A. I know it's still early, but with some of the improvements that you've seen this quarter, is that still on the table, or do you think that you'll be going at organic from this point forward? You know what?

We need to prove to the investor that we are in control at US LTL. We had a lot of Not a lot, but we have a few shareholders that were very disappointed. They made a lot of money with TFI, but they were disappointed that they thought that, you know, we've lost control of T-force rate. So now we're starting to show that, no, no, no, we're back in control. So for sure, to do a deal of size in the LTL right now, it would not be smart because, you know, our investors, we have to convince them that we are in control. So Let's say that we come out Q3 and then Q4 and let's say Q1 of 26. And now we have one year of showing, hey, guys, it's not a blimp. It's not a mistake. It's not something. No, no, it's true. These guys are going in the right direction. Then you could start looking at a transaction of size at that time. But now it would be too early. We have to prove to our investment community that we are in control. They know we are in control of all of our business, but they have a question mark on T-Force Rate or USLTL. So this is what we have to prove. If we would do a deal of size in the tropical world, when we're running, let's say, a 90 OR and most of my peers are running 95 and worse than that, I would say that probably the investor would say, you know, those guys are really in control in a very difficult environment. So they're buying something of size. Okay, they have a great team. They'll fix it. But today, if we do something of size in the LTL, I think it would not be prudent. So we have to show that we are in control, and that's going to take a few quarters. And then, you know, in 26, we'll re-look at that. But for now, it's easier for us to just buy back TFI. We know the company really well. We know the free cash flow per share, the yield is like double digit. There's nothing we can buy today that's cheaper than that with the best potential.

Okay, that's great. That makes a lot of sense. And just maybe a last cleanup, perhaps for you, David, I don't think I heard it, but any color on LTL contract renewals?

Yeah, listen, the contract renewals continue to be in the sort of low to mid single digits. The question is the mix, right? It's of little use if you get renewals that are up, but then the customers that pay you more give you less freight, and the ones that pay you less give you more freight, right? So that's really what we're looking at. But to specifically answer your question, that's where the renewals are.

Good. Okay, perfect. Thank you. Thank you.

There are no further questions at this time. I will now turn the call over to Alain Bidard. Please continue.

All right. So thanks very much, operator, and thank you, everyone, for being on the call with us today. We very much appreciate your interest in TFI International, and I look forward to updating you on how we perform through the balance of the years. As always, if you have any further questions, please don't hesitate to reach out. Enjoy the summer and thank you again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.