Titanium Transportation Group Inc.

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Good morning and welcome to Titanium Transportation Group Q4 2024 conference call. On today's call we have Ted Daniel, President and Chief Executive Officer. Alex Fu, Chief Financial Officer, and Marilyn Daniel, Chief Operating Officer. Before we begin, I would like to remind everyone that certain statements made on this call today may be forward-looking. In that regard, please refer to the risk factors and cautionary provisions outlined in the press release issued by the company yesterday, as well as the filings made by Titanium on Cedar. Please note that this call has been recorded today, Tuesday, March 18, 2025. A replay of this call will be made available until midnight on April 1, 2025. The details of the replay can be found on Titanium's website under the Investors section. I would now like to turn the call over to Titanium's President and CEO, Ted Daniel. Please go ahead, sir.

Good morning. Thank you, Operator, and thank you all for joining us. The freight industry faced significant headwinds in 2024 with one of the most prolonged downturns in recent history, causing downward pressure from industry-wide reductions in freight rates, coupled with increased operational costs and economic uncertainty. Despite these challenges, titanium grew its customer base and volume footprint, moving about 25,000 more loads in 2024 compared to 2023. For titanium, 2024 was a year of disciplined execution as we navigated this negative pricing environment and remained disciplined. focused on what we can control, managing costs, leveraging technology-driven solutions to enhance customer service while developing continued operational process efficiencies. Through this disciplined approach, we strengthened our balance sheet, optimized capital allocation, and paid down debt by approximately $53 million. In an increasingly volatile geopolitical environment, we view this financial discipline as critical in mitigating risks and positioning the company well for sustainability and future emerging opportunities. In the fourth quarter, we generated $114 million in revenue and $11.7 million in consolidated EBITDA, up from $10.3 million in Q3 of 2024. So looking at the full year, the company delivered consolidated revenue of $460 million, an increase of 5% year-over-year, We generated EBITDA 41.9 million with EBITDA margin of 10.1% and cash flow from operations of 27.1 million. I would like to reiterate that these results, though not ideal, are the backdrop of consistently challenging market conditions and once again speak to the resilience of our business model and our team's sales and operational performance. Turning now to our segmented results. Our trucking business delivered revenue of $54.9 million in Q4 of 24. EBITDA came in at $7.6 million with dividend margin at 15.8%. Annually, this segment generated $229.8 million in revenue, a 0.5% decrease over fiscal of 23. EBITDA came in at $31.1 million with an EBITDA margin of 15.6%. Consistent with our commentary over previous quarters, the decline in profitability can be attributed to soft contract pricing reflecting a weak freight market. Logistics continued to drive growth during Q4. and fiscal 2024. In the fourth quarter of 2024, logistics generated revenue of $62 million, up 18.4% compared to Q4 of 23, with EBITDA coming in at $5.6 million. EBITDA margins for logistics during the quarter were 10% compared to 9.9 in Q4 of 2023. On an annual basis, logistics generated a revenue of $220 million, an increase of 10.6% over fiscal 2023, with EBITDA of $15.3 million and an EBITDA margin of 7.2%. While profitability over the period was impacted due to market conditions, as well as the timing of the integration of the crane acquisition, we continue to support our customer base, remain committed to safety, and remain resilient in these challenging times. The asset-light logistics segment continued to be an area of expansion despite weaker margins, particularly in the U.S. freight brokerage market. During Q4 of 2024, we announced two new logistics offices in the US, in Virginia Beach, Virginia, and Irving, Texas. We expect these offices to be officially open in the coming quarter and will further strengthen our footprint in the US marketplace. While integration of the credit acquisition continues to temporarily decrease margins, we remain confident that these assets are central to our U.S. domestic operations in 2025 and beyond, bolstering our freight management capabilities and driving long-term growth. Growing our U.S. business remains a key driver of titanium's next stage of growth. In the fourth quarter of 2024, U.S. logistics revenue grew by 16.1%, reflecting the benefits of our ongoing expansion. Our asset-light model in both Canada and the U.S. uses technology to provide the flexibility to navigate potential disruptions while reinforcing our financial position amid challenges such as tariffs, fuel costs, and market uncertainty. Complementing this strategy, we're also focused on optimizing our fleet, driving operational efficiencies and investing in technology. Our acquisition of crane transport has further strengthened our presence in the U.S. market and, despite contraction, helped us stabilize revenue in our truck transportation segment for 2024. Our young fleet continues to allow for lower maintenance costs, improved fuel efficiency, and reduced capital expenditures. This allows us to allocate more resource to operational improvements and strategic growth initiatives, enhancing cash flow to support both daily operations and long-term financial goals. By optimizing expenditures and strengthening liquidity, we're reinforcing our balance sheet and positioning titanium for sustainable financial performance. To further optimize our trucking operations, we're investing in technology-enhanced road planning, improved truck utilization, and streamlined processes. Leveraging data analytics enables us to monitor market conditions in real time, adjust operations proactively, and maintain a competitive edge in managing trade fluctuations while pivoting to customer needs and opportunities. So as we start at 2025, we are seeing renewed customer interest in a slowly improving rating environment despite the uncertainty of trade wars. Before I turn the call over to Alex, I'd like to add that given current market conditions and ongoing uncertainties impacting the transportation sector, titanium transportation has elected to withhold guidance at this time. We remain confident in the fundamentals of our business and our long-term strategic priorities. We will reassess providing guidance once there's greater clarity in the geopolitical environment. With that, I'll turn it over to Alex for more detailed discussions of our financial results for Q4 and fiscal 2024. Alex?

Thank you, Ted. In the fourth quarter of 2024, on a consolidated basis, titanium generated revenue of $113.8 million compared to $119.3 million in Q4 of 2023, inclusive of discontinued operations. We delivered EBITDA of 11.7 million, up sequentially from 10.3 million in Q3 of 2024, with EBITDA margin of 11.6%, also a sequential growth from 9.8% in the previous quarter. For the full year, titanium recorded consolidated revenue of $460.3 million, an increase of 4.9% over fiscal 2023, again, inclusive of discontinued operations, with EBITDA of $41.9 million and an EBITDA margin of 10.3%. Diving deeper into segmented results, the truck transportation segment saw revenue of $54.9 million in Q4 2024 with EBITDA of $7.6 million and EBITDA margin of 15.8%. On a four-year basis, this segment generated $229.8 million in revenue, a 0.5% decrease over fiscal 2023 inclusive of discontinued operations. EBITDA came in at $31.1 million, with an EBITDA margin of 15.6%. Despite pricing pressures caused by industry overcapacity and weakened end-market demand, contributions from crane transport helped stabilize revenue in our truck transportation sector. Given current market conditions, cash flow projections. However, we remain confident that as industry fundamentals improve and pricing normalizes, cash flow in this segment will recover. Turning to the logistics segment, as Ted highlighted, the segment continues to face pricing headwinds but delivers strong performance with an impressive volume growth of 25% year-over-year. During Q4, compared to Q4 2023, with an EBITDA coming in at 15.3 million. EBITDA margins for logistics during the quarter were 10%, compared to 11.7% in Q4 2023. On an annual basis, Logistics generated revenue of $234.9 million, an increase of 10.6% over fiscal 2023, with EBITDA of $15.3 million and an EBITDA margin of 7.2%. We are encouraged by the continued organic growth of this segment and remain focused on growing our freight brokerage business. In addition to navigating the challenging economic environment, we maintain our focus on strengthening our balance sheet. As part of our shift to a more asset-light model, we strategically sold non-core assets, including older equipment and underutilized properties, generating $21 million in cash flow. As part of this strategic realignment, we ceased operations in Cornwall While all redundant assets were divested in 2024, except for the North Bay Terminal, proceeds were directed towards debt reduction. This additional liquidity enabled us to pay down over $52 million in bank debt and acquisition loans, further reinforcing our financial position. Prioritizing debt reduction not only improves our financial flexibility and lowers interest expenses, but also position us to seize future growth opportunity as the market stabilizes. Through 2024, we continue to emphasize debt repayment to ensure we have the capacity to navigate the economic uncertainties and drive long-term profitability. In 2024, we returned $3.6 million to shareholders through dividends. As previously announced, we have temporarily suspended our dividend to maintain financial discipline and prioritize prudent capital allocation. We will continue to review the company's budget and cash flow forecasts, growth opportunity, and market conditions on a quarterly basis to determine when dividends will be reinstated in future quarters. As we move into 2025, we remain committed to discipline, improve capital allocation strategy, ensuring our financial position is well positioned for long-term success. I would now like to turn the call back over to Ted. Thank you, Alex.

It is relevant to be mindful of current macroeconomic conditions, particularly the impact of tariffs on U.S.-Canada trade. A trade dispute could disrupt cross-border supply chains and trade flows. However, the transportation sector is still a vital and essential service industry. Titanium has positioned itself well with both Canadian and American asset fleet corporations, as well as Canadian and American asset-light corporations. In fact, only one-third of the company's freight moves cross-border. The remaining two-thirds within the individual countries under separate entities. This structure allows us the ability to adjust the weight of the business as it becomes necessary. Freight will continue to move on trucks, but the directions may change. And we are already established and equipped to execute responsibly and effectively in both segments. In other words, maybe a little less north-south and a little more movement east-west. While the impact of imposed tariffs, if sustained, remains uncertain, the trucking industry continues to be the cornerstone of North American commerce. Trucks transport 85% of the freight that moves between the U.S. and Mexico and 67% of freight moving between the U.S. and Canada. I believe the sector will necessarily demonstrate resilience. Operating in this environment, titanium's strategic shift towards an asset-light model, combined with a young, efficient fleet and disciplined capital allocation, positions us to navigate evolving market conditions effectively. Additionally, our truck transportation and logistics divisions are prepared to service any domestic freight should customers pivot toward temporary or long-term onshoring in response to trade restrictions. By reducing debt, enhancing cash flow, and maintaining operational agility, we're well-equipped to mitigate potential trade disruptions and external pressures. As we continue to focus our commitment to sustainable growth, operational excellence, and technology-driven efficiencies to navigate turbulent times in the industry, we recognize that there will be emerging opportunities in the future that will drive long-term value for our shareholders. With that, I'll turn it over back to the operator to open the line for questions.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touch-tone 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 two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from David Campbell with Cormark Securities. Your line is now open. Thanks. Good morning, everyone.

Good morning, David. It does make sense why you guys are refraining from providing 25 guidance just given the changing tariff environment and it changes almost daily sometimes. But thinking just a little bit more near term, especially since we're almost through the Q1 here, I was hoping you guys could provide a little bit more insight into how the quarter is going. Have you noticed customers stalling or pulling forward volumes just to get ahead of tariffs? Anything around that would be great as as we look to model into our Q1 numbers here.

Good morning. From a customer perspective, many of our customers are saying business as usual for the time being. We've only had a few customers that said in a long-term position they may make a change, but really in the short term right now they are looking at business as usual. They'll do what makes sense. Ted, is there anything else you wanted to add to that?

I think your question was along the lines of volume, right, David? Yeah, volume and pricing. So they're not. I would definitely say Q1 is – seems to be a little bit more exciting and vibrant as compared to Q3, Q4 of 2024. It seems like, you know, there's this sort of renewed demand. I would say from – it's pretty sure and steady. We're busy, which is kind of a nice change. So from a pricing perspective as well, what's interesting, we're also feeling the – we're actually finally feeling some tightening in terms of the, you know, call it the elasticity of the rating environment. I would say that, you know, one of the difficulties that I know that we all face in the industry is that we've got commoditized rates in a service environment. It's not your traditional bill of materials. What we're seeing are rates now that are coming back to what makes a lot more sense, and that is actually very refreshing to me, and it does give me a certain amount of confidence and, you know, and belief that, and I've always said this before, you know, mathematics, has to make sense, math will prevail, and it's certainly starting to feel that way, which is, you know, it's good news. Got it. And then just thinking more big picture on just your asset side of the business, do you feel like your mix right now as it stands today between owner-ops is the right mix, or is it going to tilt more one way or the other as we move throughout 2025, maybe even into 2026?

We value our fleet and all our drivers, as you know, but we have shifted to a heavier owner-operator versus company-driver mix. That's been a target for us through 2024 and into 2025, so we'll continue in that direction.

Marilyn, does that change your margin outlook in any way, or does it just make the returns on invested capital look that much better since you don't have the assets on your side?

I'll turn that to Alex or Ted.

Yeah, well, okay, we can, I think we both, there's two sides to it. Yeah, obviously it might, I mean, when you've got an owner-operator on your P&L, yeah, that does change the margin profile a little bit, but on the other hand, it also changes your debt profile, right? So I think there's two sides to that coin. in the operational environment as well. I would say that we are very happy with the size of the fleet that we have right now. There is good demand out there, and our customers are very happy with the service that we're providing them, so we're happy with the level of company trucks that we have. Our growth will be, however, without putting too much strain on the balance sheet, our growth will be more so from an owner-operator environment.

And from a macro... Oh, sorry, go ahead, David. No, no, go ahead. I cut you off, Alex. From a macro standpoint, yes, you're right. The margin will probably drop because the owner-operator takes up more of the margin. But like Ted said, the debt profile improves so that EPS should improve as an ending point.

Got it. And then last one for me before turning the call over. Logistics put up a very strong quarter. I mean, volume growth has been an ongoing theme for 2024, but I guess the biggest surprise was just the quarter-over-quarter inflection on margins. Was there anything one time in there, Alex, that's worth calling out, or do you think this is a level that's sustainable going forward?

So 10% is high. There is some year-end. adjustments in there, but we have seen a pretty significant improvement in the margin profile for especially the American logistics. Not to say that that's going to be a trend going forward, but it seems like the busy season, so to speak, for logistics was there this year compared to previous years. Is it fully there? No, but like Ted said, alluded to earlier, it is a promising sign to see, you know, some sort of uptake in the rating environment, for sure. Okay, that's perfect. I'll hand the call over. Thanks a lot, guys. Thank you.

Your next question comes from Yuri Zorida with Canaccord Genuity. Your line is now open.

Thank you, and good morning. Good morning. Um, could you talk a little more about where your focus is on to match 2025 headwinds and just on 2025 overall. And if you can, and this is related to your last answer perhaps a little bit as well, on how you're thinking about margins in 2025 versus 2024, which also had, it seems like, more of a headwind from integrating crane.

I'll tackle the margin component to the question, and I'll leave the other part to Ted and Marilyn. For 2025, we are expecting the first half to be rather muted and sort of the same as 2024. However, that's given there's no more movement in the tariff environment and the trade environment. That's difficult to anticipate, so I'll leave that out. But from just our business in a bubble, so to speak, we are expecting 2025 to be rather mute in the first half. And second half, we expect some signs of improvement, so margins after second quarter should improve, again, given that there's no movement in the geopolitical environment. And I'll pass it off to Ted Maryland for the first part of the question.

I'm not sure I understood entirely the first part of the question. It's a bit of an unknown in terms of 2025. I think overall we have more confidence in 2025. And as Alex mentioned, the first half of the year we expect to be rather muted, and we an uptick in the second half of the year. We're getting that feed from our customers as well. There's a lot of uncertainty right now, and there's adjustments being made on the customer level in terms of how they're managing the uncertainties right now. So we look forward to seeing sort of how 2025 shapes up, but we see renewed confidence in the market.

Yeah, it's definitely feeling, you know, more bullish this year, which is kind of interesting. And in spite of, you know, the whole, I guess, call it volatility with the tariffs coming in and coming out, coming in, coming the whole thing, I mean, it's interesting in that, you know, we are seeing, you know, a tighter environment that just seems to be supporting a kind of, call it, you know, busier environment, which is, you know, which is good news. And so I think that part of that as well is the fact that there is some tightening in capacity. And I always do believe in the power of the consumers and that they will continue to drive this economy, even if there is a consumer recession. You know, at the end of the day, people still need to eat and they need to exist. And, you know, essentially we are delivering products that require, you know, people to consume. And that's why I believe in the resilience of the industry and the resilience of the products that we're providing.

Thank you. Thanks. That's helpful. And second one from me. In terms of balance sheet management in what seems to be another complex year, how comfortable are you with your balance sheet now? And are there any other levers you could move that you would be thinking of moving?

Yeah, I mean, as far as, you know, as you know, we are in the process of, you know, rationalizing redundant assets. So North Bay is listed, and that will contribute some additional cash. The balance sheet is in pretty decent shape. We are happy with it, but obviously our goal is to continue to grow our asset-like model. So from that perspective, you're going to see, obviously over time, on a relative basis, you're going to see not one necessarily shrink, but one grow more than the other. So I believe that at this point in time, what you're going to see over time is the balance sheet will change only because of the growth of certain product lines, obviously. As Virginia and Texas come online in Q2, you're going to see, again, increased revenues and cash flows that will pay down the debt. And I think that from that perspective, I would like to see it come down quite a bit.

Thank you.

Your next question comes from Gianluca Tucci with Haywood. Your line is now open. Hey, good morning, guys. Good morning, Gianluca. Good morning.

Hi, morning. To start off at a high level, Ted, are you seeing customers rework supply chains in the near term with all this noise going on out of macro perspective? I'm just curious what customers are doing right now to up their defense. No, customers actually aren't. They're just dealing with the situation. You know, if I speak to all the different parts of our business, the feedback that we're getting from most of our customers is either, And for the most of it, it's business as usual. That is what we're getting. That is the majority of our answers, business as usual. You know, if they have to adjust their pricing a little bit, they're going to adjust their pricing, and that's how life's going to work. You know, it's going to be another increase to inputs, and it's going to get transferred into the formulas. You know, think of it as a, you know, it's like any other input on the bill of materials. If that's the way it's going to be, well, add it into math, and it's going to just cost a little bit more. you know, to buy that case of Coca-Cola or whatever the case may be. Right. Okay, well, that's encouraging to hear, Ted. And on the brokerage side of the business, is it the plan still to open up a couple offices this year? Can you update us as to the roadmap on your brokerage business? Yeah, so we're absolutely excited to open Virginia and Texas. Those infills are expected to occur or to be completed by Q2 of this year. So very soon because it's already mid-March. And so that's really exciting. We've already got management ready to go for those locations. And then we're going to grow them, and we're going to grow our existing offices. If we're looking at any other new announcements this year, again, I think that's going to depend on whether or not, you know, the environment warrants any additional offices beyond the existing nine that we currently have. That's really just going to be an economic decision, right? Yeah. Okay. That's good to hear, Ted. And perhaps a question for Alex. Your wages and casual labor really declined sequentially. Is this a new run rate for you guys at this level here for that line item?

No. As we talked about, there is some year-end adjustment. So that number would not be the runway here. It would be the average of the full year. Got it. Okay, thanks for that.

And then just on your CapEx plans, like, you know, it kind of seems like your CapEx cycle is still in the rearview mirror. But can you update us, Alex, on any plans to refresh rolling stock or anything like that for this year?

No, our fleet's pretty young, and we're quite happy with where we're at right now. If we do – so there's no plans to buy anything, but if we do buy something, it's because the market – has made us buy more. That's a good sign. Right. Okay.

That is helpful. And just one final one, perhaps, for Maryland. Like, when you look at the two markets, Canada and the U.S., with all this noise going on, are the economics differentiating right now? Or, like, I'm just curious as to what you're seeing. in these two individual markets, like with all this activity happening? Is pricing stronger in like, you know, the States as opposed to Canada, or how are you kind of assessing the lay of the land right now?

Rather similar, both sides of the border at the moment. We're very fortunate, I guess, that our business model was set up the way it has with our exposure in the USA, Canada, both on heavy and asset light models. From the customer base, I'm really not seeing a big difference in terms of rating between Canadian and the U.S. We are seeing margins, or sorry, carrier costs coming up a little bit on the logistics side, which gives me some renewed hope that the bottom is kind of coming up from where it was last year. But overall, very hard story in the year. The sentiment in the U.S. versus Canada, as you know, is a little bit different. There is some renewed confidence that the U.S. marketplace will thrive in the environment being created with the Trump administration, and obviously on our side we have, just because of the balance of trade, we have a little bit more worry from our population, I guess, and our customer base, but not significant weight differences. It's not like I could turn and say, Yeah, the U.S. market is showing faster growth in the rates versus the Canadian. They're rather similar.

I think that a really important point that Marilyn made was that the spot market has shown more upward pressure. Yeah, so for sure, you're seeing an increase in the spot market, which is actually, that's a really interesting phenomenon at this point in time. You know, we're definitely seeing some meaningful increases in spots, and that's relevant because Particularly in the U.S., the business models there tend to be more reliant on the spot market than the contractual environment that we see in Canada. So we're a little bit more regionalized, and so we tend to have that, you know, kind of more, you know, sort of, I guess, lack of a better term, call it stable pricing. But we're definitely seeing upward pressure in the spot market, actually on both sides of the border. That is very encouraging.

Thanks for the time, guys.

Thank you. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Steve Hansen with Raymond James. Your line is now open.

Good morning, Steve. Yeah, good morning, guys. Thanks for the time. Ted, just curious on just thinking about the Canadian side of the border in particular. I mean, are you seeing from a cross-border perspective anything change in particular? I know you described some of the dynamics earlier, but, like, where are you seeing within your network, you know, any signs of weakness in particular? Just trying to sort of isolate in on where you're most focused on monitoring demand conditions.

We're not actually really seeing all that much because I think that the cross-border that we do is quite essential to really consumer fundamentals. Keep in mind that only about a third of our business is true cross-border. trans-border freight that goes back and forth. The other two-thirds, we are quite well entrenched in both the Canadian domestic and the U.S. domestic environments. So I guess we're pretty steady and busy that way. It's kind of interesting.

The other important part of it is some of our customers may shift in their cross-border freight to more domestic freight. So it's a movement of, as mentioned earlier, it's a movement of the direction of the freight, not so much the volume of the freight, especially in the markets that we're in and the industries that we serve. As you know, we're not dependent on any one sector. We never have been, so it's kind of beneficial to us at this time. Even when we look at some of the core CPG products that we're shipping cross-border, they may change and ship more domestically, as a lot of our customer base does have Canadian and U.S. operations.

Our biggest customer only makes up 6% of our top line. And by the way, that is primarily a domestic, U.S. domestic volume customer. So even from that perspective, I think what we've set up is, you know, call it a very resilient, you know, very flexible, agile model that allows us to, you know, to be, I guess, defensive on the one hand and offensive on the other, right? So I appreciate the call, guys. That was great. Yeah.

Thank you.

Thank you. So no further questions at this time. I will now turn the call over to Ted for closing remarks. Okay, great.

Thank you, operator, and thank you all for joining us today. We appreciate your interest in our company. I look forward to providing an update on our progress and all of our priorities discussed today when we report our Q1 2025 results in May. If there are any further questions, please feel free to contact us. Thank you for joining us on the call today.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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