TFI International navigates freight recession in Q1 2024 By Investing.com

TFI International Inc. (NYSE:), a North American leader in the transportation and logistics industry, reported its first-quarter results for 2024. Despite a challenging freight environment, the company delivered solid performance, although key financial metrics showed a decline from the previous year.

Operating income fell to $152 million from $166 million, with an operating margin of 9.4%. Adjusted net income and EPS also saw a decrease to $106 million and $1.24, respectively. The company’s CEO, Alain Bédard, provided insights into the ongoing freight recession, the impact of acquisitions, and strategies for improving service and efficiency.

TFI International’s outlook for the year remains conservative, with an EPS range of $6.75 to $7 and an expectation of free cash flow between $825 million and $900 million. The company also plans to pay down significant debt in the coming year.

Key Takeaways

• TFI International’s operating income for Q1 2024 stood at $152 million with a 9.4% margin.
• Adjusted net income was reported at $106 million with an adjusted EPS of $1.24.
• Revenue decreased across P&C, LTL, and Truckload segments, while Logistics revenue increased by 24%.
• The company completed the acquisition of Daseke (NASDAQ:), aiming to enhance financial results.
• Full-year 2024 EPS outlook is set at $6.75 to $7, with free cash flow expected between $825 million and $900 million.
• CEO Alain Bédard discussed the ongoing freight recession, anticipated to last until at least 2025.
• TFI International plans to reduce debt by $500 million to $600 million.
• The company’s full-year guidance for 2024 is conservative due to the challenging freight market.

Company Outlook

• TFI International anticipates the freight recession to last until at least 2025, influenced by the upcoming U.S. election.
• The company revised its earnings expectations to a range of $6.75 to $7 per share.
• TFI International’s guidance for 2024 is conservative, not accounting for significant improvement in the freight market.

Bearish Highlights

• Operating income and adjusted net income have both decreased year-over-year.
• The company’s P&C, LTL, and Truckload revenue segments have experienced declines.
• TFI International acknowledges the need for improvement in service levels and revenue per shipment.

Bullish Highlights

• Logistics revenue has shown a robust increase of 24%.
• The acquisition of Daseke is expected to contribute positively to the financial results.
• There is a focus on increasing weight per shipment and improving efficiency in the LTL business.

Misses

• The company’s service has not been at par with its peers, impacting contract renewals.
• TFI International has seen a decline in ground freight pricing revenue and is planning discussions with partner UPS.

Q&A Highlights

• Bédard discussed the possibility of share buybacks in response to Canadian capital gain tax changes.
• The company aims to reduce the underutilization of its LTL network from 35% to around 15% in the next few years.
• TFI International is working on improving its fleet, including changing the linehaul fleet from double 28s to 53s to enhance service.

TFI International, while navigating a difficult freight market, is taking strategic steps to improve service, manage costs, and ensure financial stability. With a cautious outlook for the year ahead, the company is focusing on internal improvements and debt reduction to position itself for future success.

InvestingPro Insights

TFI International Inc. (TFII) has revealed its Q1 2024 results amidst a challenging freight environment, with a notable conservative outlook for the year ahead. Here are some key insights from InvestingPro that can provide additional context to the company’s performance and expectations:

InvestingPro Data:

• The company’s market capitalization stands at a modest 0.77 million USD.

• With a Price/Earnings (P/E) ratio of 24.06 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 24.56, the company is valued above the industry average, indicating that investors may expect higher earnings growth in the future.

• Despite a year-over-year revenue decline of 10.97%, there has been a slight quarterly revenue growth of 1.12% in Q1 2024.

InvestingPro Tips:

• Analysts have revised their earnings estimates downwards for the upcoming period, which could impact investor sentiment and the stock price.

• The stock has experienced a significant price uptick over the last six months, with a 28.89% total return, reflecting investor optimism about the company’s long-term prospects.

For readers interested in a deeper analysis, there are over 7 additional InvestingPro Tips available for TFII at https://www.investing.com/pro/TFII. These tips can provide further guidance on whether TFII is a suitable investment for your portfolio. Don’t forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript – Tfi International (TFII) Q1 2024:

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International’s First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question and a follow-up. Again, that’s one question and a follow-up so that we can get to as many callers as possible. Further instructions for entering the queue will be provided at that time. Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that can cause actual results to differ materially. Also, I’d like to remind everyone that this conference call is being recorded on Friday, April 26, 2024. I will now turn the conference call over to Alain Bédard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Alain Bédard: Well, thank you, operator, and welcome everyone to today’s call. Our results, released yesterday after the close, show continued performance to start the new year in the context of a particularly weak freight environment. Our self-help opportunities, along with the continued hard work of our many talented team members, have again helped TFI International deliver solid performance. Especially during weaker freight cycles, we sharpen our focus on the long-held operating principle that we — that have helped TFI expand rapidly over the years through organic growth and very strategic M&A, while always maintaining a strong financial foundation through our emphasis on profitability and cash flow. We then use our excess cash to intelligently invest and return excess capital to shareholders when possible. Starting with a high-level overview. During the first quarter of the year, we produced operating income of $152 million versus $166 million a year earlier, with an operating margin of 9.4% relative to 10.7%. Our adjusted net income of $106 million was down from $116 million in the first quarter of 2023, and our adjusted EPS of $1.24 was down from $1.33. We produced just over $200 million in net cash from operating activities versus $232 million last year, and we generated positive free cash flow of $137 million relative to $196 million. Taking a step back, I’d like to point on these results. First, they reflect a solid performance given the economic cycle of the US LTL business, which is picking up steam. The ongoing transformation is rooted in our overreaching focus on service quality and revenue per ship. In particular, we saw tonnage inflect positive in the quarter, leading to a 12% increase in revenue per shipment. A second observation is that we see very tangible opportunity ahead to drive much stronger LTL results. There remain much work to do on cost all while being only in the early innings of our service-driven sustainable top-line improvement program. With that overview, let’s take a closer look at each of our four business segments. P&C now represents 6% of our segment revenue before fuel surcharge. As you know, this market is experiencing softer volume across the industry and our revenue before fuel surcharge was down 8%, driven primarily by a lower weight per shipment and slightly fewer shipments. Our P&C operating income came in at $18 million or a margin of 18%, down from $27 million or a margin of 24% in the prior-year quarter on lower operating leverage. Our return on invested capital was still a very solid 25.7%. Moving on to LTL, which is 42% of segment revenue before fuel surcharge, we generated revenue before fuel surcharge that was down 1% over the past year, while our operating income, despite lower gain on assets held for sale, actually grew significantly to $67 million, which was up 15%. This reflects a 140 basis point increase in our operating margin. Looking more closely at these strong results, our Canadian LTL revenue before fuel surcharge grew 8% year-over-year on a 9% increase on shipments and our claim ratio remained low at 0.2%. Return on invested capital for Canadian LTL was 19.1%. Turning to US LTL. Revenue before fuel surcharge of $552 million was down 3% over the past year, with the decline driven by our asset-light operation GFP. In the core LTL business, we drove tonnage up 7%, weight per shipment up 13% and revenue per shipment up 12%. In addition, our operating ratio for US LTL improved significantly, up 310 basis point to 92.6%, and our return on invested capital was 15.2%. Truckload is up next, now 24% of segment revenue before fuel surcharge. This market remains weak and we produced revenue before fuel surcharge of $398 million, which was down 4% year-over-year, reflecting a decline in miles with pricing stable and specialized, but under some pressure in the Canadian van division. Looking closer, within Truckload, our specialized segment generated revenue before fuel surcharge of $321 million, which was down 5%, with an operating ratio of 89% versus 85% last year. Return on invested capital for specialized truckload was 9.5% compared to 14.1%. Moving on to the Canadian base conventional truckload, we slightly grew our revenue before fuel surcharge to $78 million, with an adjusted operating ratio of 91% compared to 81% a year earlier and our return on invested capital was 10.4%, down from 21.3%. Speaking of Truckload, as you know, earlier this month we closed the acquisition of Daseke, a business very complementary to our own, serving many attractive specialized and industrial end markets and providing us even greater scale. You’ll begin to see the Daseke contribution in the second quarter, and similar to other acquisition of ours, we see an immediate opportunity to enhance financial results. Rounding out our business segment review, Logistics is 27% of segment revenue before fuel surcharge and again produced very strong results this quarter, outperforming the industry. Our revenue before fuel surcharge climbed 24% over the prior year and our operating income grew 27% to $40 million. Our acquisition last summer of JHT continues to benefit our results. For the quarter, our Logistics operating ratio was 91% and return on invested capital held steady versus the prior-year period at just 19%. Moving right along, I’ll provide an update on our balance sheet and liquidity. For starters, we generated free cash flow of $137 million during the first quarter. Adding to our liquidity near the end of March, we closed a $500 million term loan at an attractive rate with tranches due March 25 to March 27. We ended the quarter with a funded debt-to-EBITDA ratio of 1.6. This very solid financial foundation is a core part of our strategy, allowing for smart investment cycle in and cycle out. In addition to the fourth quarter acquisition of Daseke during the March quarter, we completed acquisition of Hercules, a well-run LTL carrier that adds to our cross-border capabilities. We also were proud to declare another dividend during the quarter with our Board of Director, again, approving $0.40 per share paid on April 15, a level 14% higher than the prior-year quarter. Wrapping up with guidance, today, we introduced our 2024 EPS outlook range of $6.75 to $7, and we expect full year free cash flow in the range of $825 million to $900 million, with net CapEx of $275 million to $300 million. We also plan to pay down $500 million to $600 million of debt, targeting a fund debt-to-EBITDA ratio under 1.7 by year-end. All right. With that, operator, if you could please open the line, I’d be happy to take questions.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Brian Ossenbeck with JPMorgan. Please proceed with your questions.

Brian Ossenbeck: Hey, Alain, good morning. Thanks for taking the question. So maybe you can just start with..

Alain Bédard: Good morning, Brian.

Brian Ossenbeck: …some of the assumptions under the EPS guidance, because I think last quarter you gave us a little bit of a preview before the Daseke acquisition closed. EPS probably start with a $7, so that’s still within the range, but a little bit lighter than that on the lower end. So just wanted to see what had changed and maybe what you saw with Daseke initially.

Alain Bédard: Yeah, well, Daseke really has nothing to do with that. What we saw is in Q1 has been way, way, way worse than we anticipated would be, right? Because if you look at our EPS of Q1 versus last year, our EPS is down. Why is that? Well, because the Truckload in Q1 was just a disaster, okay, in terms of — just look at our peers in the U.S. or our Canadian peers, I mean, it’s a very, very difficult market right now in the Truckload. So, this is the reason why instead of coming out with $7 — better than $7, I mean, now we have to come to maybe more like $6.75 to $7. I mean, our P&C in Canada has a very disappointed Q1, but we believe that we’ll be able to change that over the next few quarters and get back on track to where we are normally. But our P&C business is really small. I mean, when you think about with the Daseke acquisition, our P&C is going to represent maybe 4% of our revenue. But P&C is not — it’s not going to be the issue for us in ’24. I mean, we’ll get back on track with our P&C. The problem is the market of our Truckload. Now, on the Canadian side, as I’ve said many times, I mean, we’re fighting the Driver Inc. cancer that we have in Canada, whereby, well, we have competition from our — from these guys, that don’t pay — they don’t pay any benefits to their drivers. So that is really killing us. If you look at my OR, I’m down 10 points of OR year-over-year. So, that we don’t anticipate that this is going to improve very much unless the market gets way better in terms of the freight environment. On the U.S. side, I mean, we do pretty well. If you look at — if you compare us with our peers, okay, we do pretty good, but we still anticipate this freight kind of recession will not change probably before ’25. We have an election year in the U.S. I mean, a lot of our customers are just waiting to see what’s going to happen, et cetera, et cetera. So that’s why we had to adjust a little bit from, let’s say, $7 and better to $6.75 to $7.

Brian Ossenbeck: Thanks for that, Alain. Appreciate it. So, the follow-up would be just on TForce Freight. In that backdrop you just outlined with the freight recession continuing, maybe you can talk about some of the momentum that seems to be building there, especially with the weight per shipment moving up? Looks like some nice movement in yields and volume and just things moving looks like in the right direction. So, can that continue even if you do have that sort of backdrop you outlined with the broader us freight market?

Alain Bédard: Well, you see, Brian, we’ve been educating our sales team to bring freight that fits the model, right? So, we’ve been saying, guys, don’t bring us freight that average weight is 1,075 pound per shipment like it was. So finally, for — I mean, don’t forget we bought this company three years ago, right, in May. So, it took us, let’s say, two years just to try to convince these guys that, because you’re paid by the weight, why would you haul light shipment? I mean, this is stupid, right? But it change — it takes a long time to change this mentality. The pricing also was bad, okay, and that puts us in a very non-competitive when the shipments were heavy. So we’ve — we had to change that. We had to change the culture. We have to change a lot of things. Now, we’re not done. Because we still drive too many miles between each and every stop. That kills our density compared to what we have in Canada. We still don’t pick up enough freight per stop, okay? So this is also part of the major improvement that we need to happen for TForce Freight to come into an 85% — 80% to 85% operating ratio down the road, right? So, the job is not done. Now, for sure, we understand that the freight environment, even in the LTL, is soft, right? Our focus right now is, like we just said on these three factors, weight, okay, density, et cetera, et cetera. But also at the same time, we are working hard — very hard at reducing the cost. We say that the tiger is always the last one to survive in the jungle. And at TForce Freight today, I mean, we’re a bunch of fat cows, okay? We are way too fat. We have too many clerks. We have too many — because our technology is old, okay, that it takes an army of people to service our customer. And this is something that is ongoing right now. Okay? So, as an example, we will be improving our freight billing system, our master file, okay, by the end of the year, which is causing us a lot of problem right now with billing our customers, right? We have too many issues with that and we have too many people at the same time. So, this new tool that’s supposed to be implemented by year-end is going to help us with that. Our new tool on the linehaul, because one of the reason that we’re going to be doing better is our services are also improving. So, missed pickup is improving. We put more freight on the road, okay, versus, let’s say, a year ago, on the linehaul, we use less rail, okay? So, rail used to be a big portion of our linehaul. Now the portion of rail is reducing, and our own linehaul is picking up speed. So, I think that pretty soon we’re going to be doing probably like 60% of the linehaul miles will be our own guys, let’s say within a year or two, so — in order to, again, improve service. So, to me, Brian, I mean, we still have a lot of work to do over there, but we know what to do. That’s — the beauty is we have to execute and we’re just starting to see a little bit of improvement of our execution.

Brian Ossenbeck: All right, Alain. Thanks very much. Appreciate it.

Alain Bédard: Thank you, Brian.

Operator: Thank you. Our next questions come from the line of Jordan Alliger with Goldman Sachs. Please proceed with your questions.

Jordan Alliger: Yeah, hi. Good morning. Just to sort of follow up a little bit…

Alain Bédard: Good morning, Jordan.

Jordan Alliger: Good morning. I know you mentioned sort of early innings in service improvements, so it’s good to get a little bit more color on what you feel you’ve accomplished and what’s next to come to get service. And then, even though it’s early innings, are you at the point in service, again, assuming the freight market cooperates, where you could have sustainability in that growth and tonnage after a first quarter that saw an inflection?

Alain Bédard: Yeah. Well, we believe so. And, if you look back that an example of stupidity is missed pickup. So, if you don’t monitor that, you can’t improve. So, this is something that we put in place to make sure that we monitor that. Now, we still have about — around 2% of our pickup that we miss today, okay? Now, depending on the terminal that, we have better ones, we have ones that are not so good. But, the business of freight starts with the pickup. So, if you miss the pickup, you miss the revenue. This is the kind of culture that we are changing, for example, in California, where we can’t afford to miss pickup. So, we’re changing that, and that improves the service to the customer, because then the customer can trust — can have trust in you that you’re going to show up and do the pickup, right? That’s number one. Number two is our billing system. And I’ve been saying that for two years, okay? It’s also a major issue of having, like, sand in the gearbox with our relation with customers. So, we are fixing that during the course of ’24, finally, okay? And in terms of the linehaul, if you rail your linehaul freight, your freight on the linehaul with rail, I mean, don’t expect to be — don’t expect it’s going to be on time. I mean, those guys — their on-time services is maybe not as good as the road. And if you look at my peers in the U.S., I mean, the percentage of freight that’s run on the rail is way less than what we do as today. So, this is also something that we are working on to improve, and we can’t change everything at the same time, but this is an ongoing process in ’24 and into ’25. So, to your question of growing this company, I mean, for sure, right now, what we’ve been able to do is at least grow the weight per shipment, which is, a key to success. I mean, again, if you compare my average weight per shipment to my peers in the U.S., I’m still way too low versus those guys. If you look at my weight per shipping in Canada, there we understand the business, and our weight per shipment is way more than what it is in the U.S. So that is also a trend that we’re going to keep running and improving over the course of the next year or two. So, this is why we’re probably in the second inning of a ninth inning game on that TForce Freight LTL business. I mean, we still have to work on the cost, like I said, our P&D, we still run too many miles, our density is not as good as should be, we don’t pick up enough freight per stop, et cetera, et cetera. So, these are all the different levers that we have to put in place, do what we do in Canada. I mean, we run an OR in Canada that is second to none. If you look at my OR in Canada, sure, it went from 75, okay, last year to 81. But, an 81 OR in Canada in a very depressed market is not bad. Why? Because we have a density that is second to none. And this is what we’re trying also to build in the U.S.; do more with less.

Jordan Alliger: Got it. And just as a quick follow-up, taking all that together, is it still a thought you could do around an 88 OR this year?

Alain Bédard: Well, when I talk to my guys, okay, they are convinced that they could do it. I had a little bit of concern when I look at the environment and the market right now. I would never, Jordan, anticipated that ’24 was going to be so rough in terms of the freight environment. I mean, I’m telling you, if you would have asked me six months ago, what you think about early ’24, I would never have said that it would be that bad. I mean, look at the truckload guys. Some guys are losing money. I mean, this is probably one of the worst market we’ve seen in the last 30 years.

Jordan Alliger: Thank you.

Alain Bédard: You’re welcome.

Operator: Thank you. Our next questions come from the line of Ravi Shanker with Morgan Stanley. Please proceed with your questions.

Ravi Shanker: Thanks. Good morning, Alain. Just on that point, on the LTL side, how much of that path to 88 OR is macro, so, depending on the cycle coming back versus idiosyncratic actions, I mean, best practices from the Canadian operation that are putting into the U.S. operation. And so, how quickly can you implement that idiosyncratic action?

Alain Bédard: Yeah. When we talk about the business, Ravi, we never talk about the market because we don’t control the market. So when we say that we believe that we’ll get to an 88 OR, this is based on market condition that we see right now. I mean, nothing is based on the market that may improve down the road. We don’t budget for that because we don’t control the market. What we do control is our cost and our efficiency and our productivity. And this is what we’re trying to do. Now, in terms of the market is — let’s focus on the freight that fits. Okay, that we can control. Let’s focus on heavier freight versus lighter freight, which is something that slowly we’re starting to improve. Let’s focus on trying to get more freight per stop. That’s something that we can control when you’re having the right discussion with the customer. But this 88, okay, that has to be our target for us in ’24, is based on, guys, we have to do a better job in terms of managing our cost, better productivity, getting more weight per shipment. So if you look at — our revenue is about stable, but our shipment count is down. So it helps us on the cost side because we get the same dollars. Well, we have to do a little bit less work because we pick up less shipments, right? So, this is the trend is based on, guys, we can’t control the market, but what we can control is our cost and the freight that we pick up and deliver.

Ravi Shanker: Got it. Helpful. And maybe as a follow-up, you said earlier that you’re not expecting an inflection in the cycle until 2025. So just to understand, is your full year guidance for ’24 just based on normal seasonality off of a 1Q number, or are you accounting for any improvement at all this year?

Alain Bédard: No. The way we see it, Ravi, is that this is going to be not a great year in terms of the freight environment.

Ravi Shanker: Okay. Understood. Thanks, Alain.

Alain Bédard: You’re welcome.

Operator: Thank you. Our next questions come from the line of Tom Wadewitz with UBS. Please proceed with your question.

Tom Wadewitz: Yeah, good morning, Alain.

Alain Bédard: Good morning, Tom.

Tom Wadewitz: Yeah, let’s see, there’s a lot going on in transports these days. Wanted to get your sense on acquisitions. You’ve had very, very good skill at identifying value and taking out costs, and doing acquisitions. Historically, I think with TForce, obviously, the market backdrop is tough, but it seems like it’s been maybe harder to fix than you might have anticipated or maybe just takes longer.

Alain Bédard: Yeah.

Tom Wadewitz: And then you’ve got a pretty tough truckload backdrop and you’ve got a big truckload carrier you just bought. So, I guess a question is, do you consider slowing the pace of acquisitions maybe the next year or two, and say, hey, we’ve got a lot to digest and maybe even takes longer to kind of separate the truckload businesses, or just thinking about how that might affect the pacing of what you do on the, I don’t know, strategic front?

Alain Bédard: Very good question, Tom. I mean, the UPS Freight acquisition was very difficult to do. Number one, because it’s a carve-out. A carve-out is always difficult because you don’t know exactly, okay, the cost that you’re going to inherit, et cetera, et cetera. And I have to tell you that, one thing that we were not aware is that 35% of the freight was bad when we bought the company. So this is a little bit of some of unknown, okay? And you’re right, it’s taken us a little bit more time. So, it took us two years to unhook from UPS financial system. So, it’s — a carve-out is always difficult to do, okay? But we are — right now, we’re completely out of the UPS environment, right? So, we are standalone and we’re making progress over there. Now, the Daseke one, that’s a different story. Because Daseke, it’s not a carve-out, it’s a standalone business. Number one. Number two is, their head office cost was through the roof, okay? To run the Daseke head office is the cost was about the same as to run TFI head office. Now that cost at Daseke has been reduced by 75%, okay, over the course of the next year or two. So, we’re going to be down to very little cost. And the operating companies at Daseke, you could say there’s about nine business unit that operates, okay, so these operators, I’m looking at the results for ’23 excluding the head office, okay, those guys did a pretty good job in the market environment of ’23. I’m looking at ’24. And if I look only at the operating businesses, these guys are on plan. They’re down versus last year. They’re down versus ’23. But not that much. So it’s a little bit — I mean, they’re very — it’s not like UPS Freight versus us in Canada in the Canadian LTL, which was day and night in terms of results. I mean, those guys are not as good as TFI, okay? But the delta between the operating units and our operating units, it’s not 300,000 points of OR. I mean, those guys, it’s not going to be the same thing. Now the question is, are we going to do something major in ’24? Yeah, you’re right, Tom. I mean, we have to keep digesting TForce Freight and we have to do the same with Daseke. I mean — so this is why M&A side for us, ’24, tuck-ins, yes, in Canada, easy to do, but nothing major except the Daseke transaction. Because as I said on the script there in the call, we’re planning on reducing our debt by between $500 million to $600 million in ’24 to bring our leverage down to something like 1.6, 1.7. Right now, we’re about 1.6, okay, and we believe that by year end, we’re going to be back to 1.6. So, by saying that, I mean, there’s nothing major of M&A that’s going to happen in ’24.

Tom Wadewitz: Okay, that’s really helpful. I just had one follow-up on the LTL — U.S. LTL. How do we think about the improvement in OR and the sensitivity to freight market versus what’s in your control? I mean, there are a bunch of things that are in your control, but it also feels like if you’re going to get paid a higher price, then it would help to have a tighter freight market. And it feels like there’s some sensitivity to pricing and freight market within that improvement too. So I don’t know, how do you think about this year, next year, how much is in your control on or improvement in LTL versus how much is kind of freight market sensitive?

Alain Bédard: Yeah. So, like I said earlier, Tom, I mean, we don’t control the market. I mean, the market is linehaul disappeared, 40,000 shipments disappeared. Now it’s been across all the carriers. We don’t control the market, but what we can control is the freight that we decide to haul, okay? So on that, we’re going to be making some major improvements during the course of the next few years. So, instead of hauling light freight like we used to do, anything that is light, we love that. No, no, no, no. So, we have to change the focus. So this is why we have to move that 1,200 pounds that we have today versus more like 1,500 pounds, like most of our peers in the U.S. are average weight is. That’s number one. So that’s got nothing to do. It’s just a matter of picking up the right freight that fits for us. Number two is, and I’ve said that many times, we have to improve our density because density is the name of the game in the freight environment. So, pick up more freight per stop. That has nothing to do with the market. I mean, it’s just like you have to have our sales team focus on, okay, we get two shipments from this guy, can we get five? Can we get three? Can we get four? , okay? And in order to do that, what do we have to do, right? This culture never existed at TForce Freight or UPS Freight. No, it was a should name, okay? So, whatever freight is there, I mean, okay, let’s pick it up. No, no, no, no. We got to be focused. Try to get more freight from each and every customers that we already go and pick up freight. Also cut the zip code coverage. I mean reduce — improve the footprint, reduce the footprint so that very expensive to do pickups or deliver freight at 75 miles away from your terminal. Because the guy has to drive about two hours to get there. That’s not for us, okay? That’s not for us. The way we do it in Canada is that we keep our network very tight and everything that is outside that network, we give that freight to someone else. Now, any — and we are also unionized and we’re doing that in Canada. Now in the US, it’s a different environment, okay? We get that for now. So the way to serve is just to say, well, I’m sorry, I mean this zip code, I’m going there only twice a week as an example in order to be more efficient. But you see it upfront to the customer and that’s what we’re trying to do, reduce the miles on the P&D side. And at the same time, like I said, something that we can control is our linehaul. Do less miles with rails, because you can’t control those guys. I mean, you get it when you get it, right? But when it’s your road asset, when it’s your own people, that is something that you can control, and provide the service that you have committed to the customer. And when the freight is on the rail and it’s late, you can say to Mr. Customer, well, I’m sorry, I’m using a rail guide to do the linehaul. They don’t want to listen to that, right? So this is why these are all part of what we have to do with what we are doing now to improve the service. And when you improve the service, you could get better shipment and better money for your own shipment.

Tom Wadewitz: Right. Okay. Thanks for the time, Alain.

Alain Bédard: Thank you, Tom.

Operator: Thank you. Our next questions come from the line of Kevin Chiang with CIBC. Please proceed with your questions.

Kevin Chiang: Hi, good morning, Alain. Thanks for taking my question here. Maybe if I could just go back to the..

Alain Bédard: Good morning, Kevin.

Kevin Chiang: Good morning. Just the guidance. So, if I look at Q1 versus the midpoint of your guide, it’s about 18% of your EPS you’re calling for in the first quarter here. If I go back and I know there’s a lot of moving parts when you go back historically because of your M&A track record. But if I go back the last, let’s say, 10 years, that’s been about the average, about 18% in Q1. And I guess I’m just trying to get a sense of maybe the conservatism in your guidance or maybe what you’re building in for certain KPIs. Just I would have thought you would have seen better momentum as we get through the year, even in a tough freight environment, because Q1 was tough. Just with some of the things you’ve mentioned already within TForce Freight, it sounds like you’re doing some stuff in P&C. So maybe you can just frame that a little bit more in terms of where you’re seeing some of that momentum and maybe what some of the headwinds could be to maybe offset that to maybe drive maybe a number not above $7 of EPS this year.

Alain Bédard: Yeah, you know what, Kevin, I mean, you’re absolutely right. I mean, Q1 is about 18% of our EPS on average, okay, so, which is about the same. But when we look at the environment, when we look at our peers, what we’ve seen so far, I mean, we’re very concerned about this freight environment. So this is why, after discussing with our people, our team said, guys, let’s be very conservative, okay? So that we don’t disappoint and come up again with a miss, okay, in the next quarters, because there’s so much. I mean, when we look at the best truckload guys in the US and the kind of numbers that these guys are coming out with, I mean, it’s scary. It’s scary. So this is why I said, guys, we have to be very prudent. We have to focus on free cash flow, okay, which is going to be quite good in a very difficult year, right? And I think that maybe we could do better than $7, okay? But when I look at my peers, what I’ve seen so far in Q1 from those guys, both on the US and Canadian side, when I look at the environment, when I think about the driving situation in Canada, that’s not going to change. I mean, it’s just going to get worse. So I said, let’s be very careful. So, I mean, hopefully, Kevin, we do better than $7, okay? But right now, that’s the best that I could say. I mean, I’m sorry because we said on Q4 that I think that our guidance will be at least starting with a $7. We’re not there. I’m sorry because Q1 was so bad for me, okay? Maybe not so bad for us because we’re so diversified. I mean, our guys are doing such a fantastic job, but when I look at my peers, and I’m saying, oh, boy, this is going to be. We thought that ’23 was a bad year, but when I looked at the start of ’24 with my peers’ results, I’m saying, maybe ’24 is going to be worse than ’23. Who knows? I mean, one quarter is not a year, but, I mean, it’s — this is why we have to be more under promise and over delivered. That’s always been the motto of TFI.

Kevin Chiang: I appreciate that given all the uncertainty that’s obviously facing you in the broader transport space. Maybe just my second question on P&C, you talked about the tough Q1 here, but you’re taking steps to obviously turn this around, and maybe we’ll see something in the next couple of quarters here. I did notice average weight per shipment, I think, it’s the lowest I’ve seen in a long time in the first quarter. Your vehicle count is pretty low. Just maybe any color on what’s happening there? And maybe what are some of the steps you can do to kind of turn that around?

Alain Bédard: Yeah. The killer is the freight that we haul right now on the P&C side is too light, right? So, yes, we have less shipments. We have 3%, 4% less shipment. But the killer is the weight, because, like LTL, we’re paid by the weight. So, it’s a little bit of a change, okay, in perspective. And at the same time, Bob McGonigal that used to run our P&C now is working on the US LTL side, okay? And we have also a new EVP that’s in charge of our P&C. And he came with a plan, okay? And the leadership, [indiscernible], I mean, the guy Jimmy used to run it. He got to drink the Kool-Aid. So, our friend Jimmy did not really drink the Kool-Aid, so we decided to retire and went to work for GLS. So, now we have a new crew. So, Mike Hover that used to run our TForce Freight Canada division, now is in charge, and he’s drinking the Kool-Aid of that new plan of, again, being more picky on the freight. And we can’t haul feathers because when you’re paid by the pound, feathers are not very heavy, right? So it’s a little bit of a change, okay? But don’t forget what we’re getting in Q1, okay, is the action that we took in the summer of ’23, because it takes six months to nine months, okay, of decision that you make and the actual result that you get, right? So, we’ve taken action in Q1, that will start to show results more like Q2 and in Q3, okay? Because it always takes time to implement customers and pricing and things like that. So that’s why I’m saying that Q1 for P&C was not good, right? I mean, our OR is — when you look at the OR of our P&C is 81 or 82, okay? You say, well, 82 is not bad, but we were 75, right? So we got to get back down to under 80. And we have to change the pattern of our freight. So, we need every freight there. And we’ll do that. I mean, we have a plan. It’s going to take us probably into Q3 and in Q4 to see the results of that. So — but I feel good about P&C. My biggest problem is really the truckload, okay, that we have. Now, Daseke is adding to that. But we believe that maybe not in ’24, but in ’25, this market has to change. And with the Daseke acquisition in our specialty truckload, I think we’ll be very well positioned. But there again, if you look at my OR on my specialty truckload, I run an 89 OR, okay, which is winter, okay, not great. And we used to be an 84 OR. We’re now an 89 OR, okay? But when I look at what’s going on in the US, in the truckload world, I feel good about 89. No, I don’t like to be an 89 guy. So now with the Daseke acquisition, like I said to Steve Brookshaw, the guy in charge, I mean, those guys have to be as good as us within a year, right? And the market hopefully improves in ’25. And with Daseke, we’ll be again working on do more with less.

Kevin Chiang: That’s all very great color. Thanks for taking my questions, Alain. Have a great weekend there.

Alain Bédard: Likewise. Thank you, Kevin.

Operator: Thank you. Our next questions come from the line of Walter Spracklin with RBC Capital Markets. Please proceed with your questions.

Walter Spracklin: Thanks very much, operator. Good morning, Alain.

Alain Bédard: Good morning, Walter.

Walter Spracklin: Yeah, I guess going back to some of the self-help and corporate activity that you could look at, and one of the things that you’ve mused about in the past was the spin-off now of the truckload division, I’m just curious, is this something that you want to have Daseke fully integrated before you contemplate that? And if so, is a year the typical timeframe that you would see Daseke integrated and therefore would contemplate something like a spin-off of the truckload division?

Alain Bédard: You know what, Walter, we believe that, if this makes sense to spin up down the road, I think it could be done late ’25 into early ’26. Because Daseke, like I said earlier, I mean, the eight, nine business unit there, they operate really well. There’s maybe one or two that are subpar, okay, that we’re going to have to work on. The head office of Daseke was the cancer was — those guys were costing a fortune and the results were not there. So, we did some cleanup over there. We’ve reduced the salaries of Daseke head office on the yearly basis of about $12 million plus [indiscernible], okay? So, I mean, it’s going to take us a year to really improve, but it’s not UPS Freight. I mean, UPS Freight was — there was a lot of things to fix there. Daseke, if you exclude the head office, I mean, the operation are pretty good. They could — they will be better, okay? But they are pretty good. Now, in the market environment that we’re going through right now in the US, those guys are doing pretty good. Now, for sure, we’ll be working with them, okay, to improve. But I think that to say that are you guys would be ready if you have to do — if you want to do something late ’25 into ’26, I would say, absolutely, yes, we’ll be ready.

Walter Spracklin: Got it. Okay. And building in Daseke, because it’s a larger revenue item, it does affect our models quite a bit depending on what kind of OR we’re assuming. Is there any — yeah, any indication you can give us given that we haven’t had a look at how Daseke looks within your operation? How it is relative to your existing business? What — but understanding that it’s probably a little less profitable. What kind of operating ratio or margin degradation in the sequential, the Q2 — in 2024, should we just get our head wrapped around as we build it into our model and then build the integration synergies after that?

Alain Bédard: Yeah. So what I could say is that if you look at ’23 of Daseke’s result, if you exclude all the craziness of the head office and all that, you’re running ’23 Daseke at a low 90 OR in the neighborhood of 92, 93, 94 OR depending on the quarter. So, it’s not a disaster. It’s not UPS freight where these guys were losing money like crazy. So that is the starting point, okay, that we have over there. So you got some pretty good guys. We got one or two operating companies that are running under 90 OR, okay? But you got one or two guys are running closer to 100 OR, right? But I would say that ’23 average, okay, you think about 93, 94 OR on average, right? So that’s the starting point, okay? So, when we take over, then the head office was the big culprit that was dragging the OR, okay, up or down, I mean, in the worst direction, okay? So those guys, I mean, we’re shrinking the end office cost as we speak. So again, you’ll see that in our Q2 results, what we could say is that it’s not a fixer upper, okay, like UPS Freight was. I mean, we have a good solid base business there. We have good people. We have good teams. But if I compare with our own US operation, they have some improvement, okay? So — but I mean, we know what to do and we’ll work with the guys.

Walter Spracklin: Okay. Excellent. Thanks very much for the time, Alain.

Alain Bédard: Pleasure, Walter.

Operator: Thank you. Our next questions come from the line of Konark Gupta with Scotia Capital. Please proceed with your questions.

Konark Gupta: Thanks, operator. Good morning, Alain.

Alain Bédard: Good morning, Konark.

Konark Gupta: Good morning. My question is on US LTL a bit here. Like what you’re seeing in your space is that the weights per shipment are coming down for the industry, right? Obviously, it’s a challenging environment. Rates are holding up. But for your business, you guys are looking to increase rate which you have done, obviously, in the last few quarters. So that’s great. But you’re also looking to improve the rates at the same time to keep the quality high. So I’m not — I’m trying to just kind of understand how difficult is it to increase your weight while at the same time keeping the pricing up when the industry is kind of losing the weight. Like, is it more like you need to be more competitive on pricing to get that more weight per shipment or you have to go and tweak some other things?

Alain Bédard: Konark, not necessarily. So, one of the reasons, we were not big in heavy shipment is because we were stupid. Our pricing was bad, right? So, one of the first thing that we had to do was to correct our pricing model, which we did about a year ago, right? Because don’t forget, we were tied up with the UPS system. So, it was difficult for us to have some quality information in that regard. And we took over February of ’23, all the financial information. So, at that point, we were able to work with the team that we have there to adjust the pricing so that we can be competitive, okay, on heavier shipment. And by doing that, and also by having our sales team focusing on that instead of focusing on light freight or retail freight, more industrial freight, heavier freight, then, we were able to slowly move the average weight of our shipment, okay, up closer to our peers because like I said, our peers are not hauling at a thousand pound shipping. I mean, our peers are running 1,400, 1,500 pound. And this is where we have to be slowly. Now, by doing that, okay, we just have to be competitive to market rates that are there, right? And, that’s what we’ve done. So, if you look at our average revenue per shipping, it’s down a little bit, okay, because we had to match market rates for heavier shipping. But most importantly, okay, is our revenue per shipment, that is, to me, the key, because if you move a shipment for $300 or if you move a shipment for $400 and the difference is only the weight, everything else is the same, I mean, to move the shipment, you move that on the pallet. I mean, this got nothing to do. The only handicap that you could have is that you could have an issue with weight on your linehaul. But in today’s market, at TForce Freight, we never have an issue with weight. We have issues with volume. Never weight, right? So this is why by moving to heavier shipment that does not affect our cost at all, okay? But it increased our revenue. And that is to be more focused on — for our sales team to be focused on the game. We want heavier shipment. And now we are price competitive, okay, with the market. And we want more shipment per stop. And we want shippers closer to our terminal. That is simple to say, right? That’s what we do in Canada. That’s why if you compare us with the other major LTL carrier that’s public in Canada, I mean, we have different ORs. Why is that? Because our density is probably better than this other guy. It’s not the rate. Because the rate is market, right? Unless you don’t know the market, I mean, the rate — the market is the market for all of us.

Konark Gupta: Right. That makes sense, Alain. Thanks for the color there. And then, if we can follow-up quickly. There’s a bit of a competitive landscape change I think maybe in Canada, but perhaps in the US as well. I mean, there was a big Canadian player that is going through restructuring recently. Any thoughts here on what kind of opportunities that present to you? Like, is it more like a market share grab opportunity to you? Or would you be interested in some of the assets, like trucks or drivers or lanes?

Alain Bédard: No. The guy that you’re talking about is a Driver Inc, guy. He’s a guy — He’s a Driver Inc. So, he’s under the protection of the court right now, but he’s still running the business. I mean, for sure, he’s probably going to have to downsize and do less. But we’re still fighting this guy and him and others, okay, mostly based in Ontario, and those guys — that’s why my OR in my truckload, my Canadian truckload, is like debris, it’s a disaster. We went — now we’re running 10 points behind last year in my OR. Why is that? Because of these guys, right, that don’t pay benefits to the employees, because they run a Drive Inc. model. So this guy, no, it’s not going to help us at all because this guy keeps running and we’ll see. Maybe he’s going to downsize a bit. But these kind of guys will restart in on a — under a different name, whatever. I mean, because their model is so good in cheating the Canadian system, so to the benefit of the customers.

Konark Gupta: Yeah, that makes sense. Thanks. I appreciate the time, Alain. Thank you.

Alain Bédard: Pleasure, Konark.

Operator: Thank you. Our next questions come from the line of Cameron Doerksen with National Bank Financial. Please proceed with your questions.

Cameron Doerksen: Yeah, thanks. Good morning. Just to kind of follow up on that thought — just on the Canadian dry van truckload, I mean, if we don’t see, I guess, a change in, I guess, the regulation or whatever you want to call it here, does it still make sense for you to have a Canadian dry van operation? Is that something that maybe you don’t want to own anymore?

Alain Bédard: Yeah. You know what, Cameron, we’re asking ourselves a question because we believe that our political leaders will act. Now, it’s been years and years and they keep promising, but they don’t deliver. So you’re absolutely right. That’s the question for us is that do we want to have $200 million of assets in a business that we’re competing with guys that are not fair, are not paying any benefits to their employees. And us, our benefit to our employees keep growing because now we have Mr. Trudeau that gave 10 days of sick leave, they gave three times — three days of PTO, which these guys don’t have to pay for, right? So, it’s a very good question. And for sure you will see our asset base reduce. You will see that — because, I mean, if you can’t beat them, join them. But us, we cannot join them. I mean, we cannot be a Driver Inc. company in Canada. Because it’s not fair for our employees. It’s completely unfair. So, we’re not going to do that. So, you’re absolutely right down the road, okay, you’ll see us shrinking. Now, at the same time, okay, we’ve got lots of opportunities to buy companies for about the asset price. Why? Because, the small guy with 50 trucks or [$40 billion] (ph) revenue, that guy, he is dying right now. So there’s opportunity maybe to beef up a little bit our truckload division by doing a little bit of small M&As here and there. That makes sense in those guys that are in niche maybe, okay? But overall, our Canadian truckload will shrink because of the Driver Inc. Absolutely. And people will lose job, good paying jobs at TFI because of that Driver Inc.’s unfair competition.

Cameron Doerksen: Okay. That’s helpful. And just staying with truckload, just thinking about the specialized business, which obviously is a much larger piece of the business now with Daseke, what are you seeing, I guess on market conditions there? I mean, it’s historically been a little more stable from a market perspective. But any signs of a bottoming? Are you feeling more optimistic later in the year? Just any thoughts around the market conditions?

Alain Bédard: Yeah. When we talk to customers right now, I mean, everybody believes that, ’24 is going to be some kind of a steady heady year, not a great year, but ’25 and ’26 in the US will be great years. The reason being is that there’s a major election in the US, right? And the country is divided 50-50. So, you don’t know if it’s going to go left or right. So some guys are just waiting to see. As an example, if you take GE Energy, okay, with the windmills, if it’s a candidate one, he’s against windmills. So that business is going to fall, right? If you take the number two guy, well, he likes windmill, he’s more green. So that’s why we have these kinds of customers are just sitting on the fence not knowing where the ball is going to drop, left or right. So, now the Daseke acquisition in my mind is very well timed because we’re buying that at a very reasonable price, okay, in a very depressed market, right? So the only — I mean, yes, it could still go down a bit, but the probability of going down a bit is way, way less than the probability over the next two, three years to go up like crazy, right? So that is the intention behind, okay, this transaction. And at the same time, like I said earlier, I think the timing, if we do something like a spin-off or whatever, in ’26, I think that the market condition in ’26 is going to probably be maybe not as good as ’22, but way better than ’23, ’24.

Cameron Doerksen: Right. Okay. That makes sense. Thanks for the time.

Alain Bédard: Thank you, Cameron.

Operator: Thank you. Our next questions come from the line of Ben Mohr with Deutsche Bank. Please proceed with your questions.

Ben Mohr: Hi, Alain. Good morning. Thanks for taking a question.

Alain Bédard: Good morning, Ben.

Ben Mohr: Back to US LTL — good morning. Typical LTL industry OR improves from 1Q to 2Q by about 300 basis points. And it’s typically flat 2Q to 3Q and then rises from three 3Q to 4Q, typically about 200 basis points. Wanted to ask you what are the puts and takes to that as a base case? It looks like you’ll need much better than that to get to your guided 88 for 2024. And are you expecting maybe 50 basis points to 100 basis points better each quarter based on your actions, assuming the freight market stays the same and maybe even a little bit better than that into 2Q given the weather in 1Q?

Alain Bédard: Yeah. So you’re absolutely right, Ben. And this is, like I said earlier, I mean, this is a little bit of a concern when I talk to my guys at the US LTL, and I say guys, are you still confident? And they are. And that’s also part of that $6.75 to $7, okay? If the market continues to be difficult, okay, like we’re seeing now, okay, can we get to the 88? We’re still convinced. Okay. But like you said, it’s a tough goal. What I could say so far when I look at April is we are on plan, okay? But our plan keeps improving during the course of the year. So again, I mean, we’ll see. But I mean, our guys are still convinced that we can meet this plan.

Ben Mohr: Appreciate that. And maybe as a follow up again on US LTL, you’ve guided before on a 2024 exit rate of 24,000 to 25,000 shipments a day and averaging 23,000 to 24,000 for this year. With 1Q at about 22,000, that means 2,000 to 3,000 of additional shipments per day to get to that point. Are these all market share gains because we’re assuming zero freight market volume inflection? And if so, are you taking market share from smaller regional players given your service improvement?

Alain Bédard: Yeah, I think on that, I mean the focus is to — also, like I said many times, to get more freight by the shippers that we already deal with, right? So that we don’t add stops and we just add freight, right? So you’re absolutely right that we are running about 22,000 and our goal is to be more like a 24,000 guy at the end of the year. So when — again our service is improving, so we have customers now that, as one example, a large retailer that we used to do very little business with this guy, but now he sees that our service is improving. So it’s not just a matter of us, okay, trying to get more freight is this shipper wants also to diversify is carrier base. So he says, “You know what, now that you guys are doing way better than you used to on the service side, okay, we’ll give you more freight.” And this is one example of, okay, that something that’s going on because we’re not trying to chase volume by cutting rates because this is stupid. What we’re trying to do is improve our volume slowly by improving our service. So then we have customers that want to give us more, okay, versus two years ago when the service was not good and the only way you could get more freight is by cutting rates to someone else. That’s not the goal of TFI. I mean, we’re not trying to cut rates to get more freight. What we’re trying to do is provide better service. And then the customer sees that because he wants to diversify also his carrier base. He says, “Okay, guys, we’ll give you a little bit more.” And this is what we’re trying to do to get to 24,000.

Ben Mohr: Great. Thanks a lot. Appreciate the time and insights.

Alain Bédard: You’re welcome. Thank you.

Operator: Thank you. Our next questions come from the line of Benoit Poirier with Desjardins Capital Markets. Please proceed with your questions.

Benoit Poirier: Yeah, good morning, Alain.

Alain Bédard: Good morning, Benoit.

Benoit Poirier: Yes, okay. So just to come back on the US LTL and following the comments about the volume and really the focus on putting more weight per shipment, dealing with the same shippers, any thoughts about your real estate footprint whether you see opportunity to streamline, given the kind of volume rebound you see out there for US LTL?

Alain Bédard: Well, you see, Benoit, this is an ongoing thing with us. I mean, as an example, we have a lease in York, PA, that’s going to be switched over to another carrier. We have a terminal, okay, that is being sold to another carrier right now. Okay? Because, we have a network that we use on the real estate side, about 65% of that. So we could say, well, we’re going to fill it with growth, with this, with that, but that’s going to take time, right? So this is why we are shrinking our footprint as much as we can, as fast as we can. So as an example, we bought a terminal from YRC. As a matter of fact, we bought two, one in Sacramento, one in Lexington. So the one we bought from our YRC in Lexington is way smaller than ours, okay? So we’re going to be moving in that new terminal for us in June. But at the same time, we’re selling, okay, not to a strategic truckers, but to someone else, the Lexington terminal. Okay? So we should be in a position to sell this terminal by, let’s say, about $20 million. So we are adjusting our footprint all the time. I mean, in TFI, real estate is really the key — one of the key of our success, right? And we know we still have lots to do. So in Sacramento, for example, we have two terminals. We’re moving into one. This is going to be done in about a few weeks. So we’re going to be saving probably the first forecast, we have about $1 million in Sacramento by having one terminal instead of two. And then we’re going to be selling those two terminals. So the question has always been, guys, do more with less, right? On the real estate side, with the trucks, with the MPG, with the idling, everything at TFI is based on that premise. You got to do more with less.

Benoit Poirier: Okay, that’s great. And just a quick follow-up, Alain, when I look at your leverage ratio buyback, you were not active this quarter, obviously, with the acquisition made last December. But how would you look at buyback these days and what kind of leverage would you like to see before stepping in?

Alain Bédard: Well, buyback, for us, it’s always been a way to improve, okay, and to give more cash to our shareholders. So, it depends on the stock price, right? So for sure, I mean, we’ve not been active depending on the reaction, depending on where the market goes, I mean, absolutely, we could reactivate this buyback. Now, as you know, there’s been a change in the Canadian with Mr. Trudeau and all these other guys about the capital gain tax. So, we anticipate that maybe the small investors could divest of their shares in Canada before that June mark. We anticipate that maybe we’ve — we don’t have a lot of options outstanding at TFI, but we have about 600,000, 700,000. So, maybe those Canadian guys will take advantage of exercising those options earlier because of that new tax rule. So we may jump in and buy back maybe 0.5 million shares. Our leverage is forecasted to be around 2 at the end of Q2 and around 1.6, 1.7 at the end of the year. So for sure, I mean, to do buyback at, let’s say US$150 or US$160, we would sit on the fence for now. But if the stock goes down to, I don’t know, let’s say US$125 or US$135 for sure, I mean, we’ll be looking at it very closely — or let’s say CAD180, CAD175. Yeah.

Benoit Poirier: Okay. Thank you for the color, Alain.

Alain Bédard: Pleasure, Benoit.

Operator: Thank you. Our next questions come from the line of Adam Roszkowski with the Bank of America. Please proceed with your questions.

Adam Roszkowski: Hi, Alain. On for Ken Hoexter today. Thanks for taking my question. So apologies if I missed, last quarter you noted..

Alain Bédard: Pleasure, Adam.

Adam Roszkowski: Contract renewals trended in US LTL trended about 5%. That was a little below peers. Could you provide an update in 1Q? And then any update on just month-to-date April trends in that business? Thanks.

Alain Bédard: Yeah, business is doing fine in April, okay? So it’s trending in the right direction. In terms of renewals, absolutely, we could not do as good as our peers. Like I said, because our service is not up to par to our peers, our best peers, okay, have better service than us, okay, but we keep improving. So next year, it could be a different story. But for now, I mean, we had to go on a lower basis. Because, like, again, if you look at our Q1, okay, yes, our revenue per 100 weight is not growing 7% like some of our peers. But the beauty of what we were able to accomplish, though, is that our revenue per shipment is up big time, okay, with some major improvement on the weight side. So this is more of our focus right now is, guys, let’s pick up the right freight that fits us, which is heavier freight, okay? We were in the business to move rates up as much as we can, but let’s be cautious because we still have some issues to fix, right, on our service. So, it’s a step-by-step kind of thing. I mean, you cannot turn the dial from, let’s say, 50 to 100 overnight.

Adam Roszkowski: Got it. That’s helpful. Yeah, I saw that the US LTL claims ratio was up maybe 20 bps from 4Q. I guess first, I guess you’ll be targeting sort of gradual improvements as you’re still in early innings of service improvement here. And then, one follow-up on the — I think you said 65% sort of network is underutilized right now. So, is that implying maybe 35% excess capacity in the LTL network? And how do you look to maybe right-size? What are you targeting kind of over the next couple years? What’s the normal level of sort of excess that you target? Thanks.

Alain Bédard: Yeah, normal excess, I would say it’s not 35%. It should be like 15%, right? So we still have lots of work to do on that. So every time that we are renewing a lease, okay, we’re adjusting the size. And then when it’s come to real estate that we own, okay, so we did some swap with other strategic, one of our peers. We did some swap. We are selling terminals. We’re adjusting, like I said, as an example, in Lexington, we’re switching from 150 doors or 125 doors terminal to more like more of a 60 kind of doors terminal because we don’t have the volume. We don’t have the volume to sustain 120 door terminal over there. So this is ongoing, okay? We’ve made some major improvements since we bought UPS Freight, okay? But we still have a long way to go. Now, at the same time, once you start slowly growing the volume back, okay, so we are 22,000 today. When we bought the company, we were 32,000 shipments a day. So we say, well, by the end of the year, hopefully we’ll be to 24,000 and then we’ll start growing that slowly, okay? Not by cutting rates, because this is not the solution. By improving service and having our customers saying, well, because you guys are doing a better job now, we could give you more, right? So slowly, that gap of 35%, by growing slowly, the company that will shrink and by all the actions that we’re taking in terms of when you — when we renew lease, when the terminal is too big, we’re taking action. It’s going to take some time to get to maybe a 15% capacity from 35% could take us two years to three years to four years, depending how fast we can go, but we’re going to get there.

Adam Roszkowski: That’s very helpful. Thank you.

Operator: Thank you. Our next questions come from the line of Ben Mohr with Deutsche Bank. Please proceed with your questions.

Ben Mohr: Hi, thanks so much for bringing me back to ask the question. I appreciate the time. Just a couple of follow-ups. One is the ground freight pricing, the GFP, in the quarter, roughly a soft $67 million about 14% of your US LTL revenue ex-fuel. I wanted to ask what you’re doing to set that back on a growth core. How should we think about that trending through the rest of the year? Maybe like 15% of US LXL ex revenue, ex fuel, to 20%, 22% as a steady state next year? How should we think about that cadence throughout the year?

Alain Bédard: Yeah. So this is a major disappointment for us. I mean, our GFP revenue is down big time, okay? And for sure, there was some issues that we have with some of our customers that were not acting properly because we are a reseller for UPS, right? So everything that doesn’t fit us, okay, and fits UPS, I mean, we switch it to UPS. And we had some issues with some customers. So that’s why this revenue came down big time. And the team is rebuilding that slowly. I mean, for sure, we’re not on plan on that at all. But there again, I mean, we have to work with our partner, which is UPS on that. And, it’s a five-year contract. We were three years down. We have two years to go. So, for sure, we will have to start a discussion with our partner on that regard because this is a great business for UPS, right? It’s also a great business for us and we would like to grow it. But when you have a partner, it takes two to dance, right?

Ben Mohr: Got it. Appreciate that. Final question, what’s the — how should we think about the timing of the full capture of your volume wins versus your pricing gains as a result of your service improvement? Are you aggressively pursuing price at the same time you’re pursuing new business wins, or is there a lag to the pricing? And how much does that lag, like one to three quarters? I’m trying to compare the runway for new business wins versus the runway for pricing gains.

Alain Bédard: Yeah. It’s all about — you can’t ask more money from a customer if the service is not there. As a matter of fact, if the service is not there, the customer if he stays with you, will ask for a reduction in rates, right? So the step number one, okay, in order to get better rates from customer is service. And service has never been really good at UPS Freight or TForce Freight. And that’s what we’re working on, okay, right now. So biggest issue, okay, with customers is if you’re late and the reason you’re late is because your linehaul is late. And the reason your linehaul is late because you used the rail. Well, you got a big problem. So, how do you solve that? By trying to ask the rail to be on time? Good luck. So, you got to start moving more freight on the road, less freight on the rail. Now, you can’t do that when your fleet average aid is eight years, right? Because you got old trucks, and old trucks, they break down all the time. They’re always in the shop. So that’s why we put in a program, okay, as soon as we were able to buy the company. But the first year we were delayed because of COVID, because the guy could not deliver, et cetera, et cetera. So, now our average age of our fleet is getting close to normal at 4.7, still too old, but we’re on the right track. And by year-end, we’re going to be closer to 4 than we are today. Okay. So then putting more freight on the road, also, you need the proper trailer, okay, to do that, right? So the mix of two 28s — double 28s versus 53s, our mix was completely off. So again, we have to change the linehaul fleet from, let’s see, two 28s, 53s, which we are doing now, as a matter of fact, we’re buying 150 trailers 2019 from the bankruptcy of YRC. Those are 53s to help us accelerate, okay? The transition from two 28s to 53s on the linehaul, right? So again, to provide better service. The key is the service. Once you have good service, the customer will give you more freight, okay, if you ask for, and you are in a position to ask for more money to be closer to the market, because when your service is bad, let’s say the market for this freight is $100, customer will not pay you $100 because your service is so poor. You will try to discount the price because you’re bad, right? So by moving service up, you get closer to the market of the market rate, right? And so this is the direction that we’re going at TForce Freight because our starting point was so bad, old fleet, poor service, using the rail, okay? And we’re changing that slowly and improve our service. The other thing also that was bad for us is missed pickup. So we didn’t really care about missed pickup. No. We do care because a pickup is the start of your revenue. If you don’t pick it up, you’ll never get the revenue. And worse than that, so when you have, let’s say, in a city like LA, 150 missed pickup, then the guy shows up the next day, well, the freight is gone because the customer could not wait. He gave it to someone else. So you got the double whammy of missing the revenue and incurring the cost because you show up there and the freight is gone. So these are all things that you have to work on to improve the quality of service. No, so, I mean, TForce Freight right now is managed by a crew of LTL people. So this is like if you are a general contractor and you give a plumbing job to an electrician, I mean, the results are not going to be so good. So, TForce Freight focus was not leadership with LTL team. Now it is.

Ben Mohr: Really appreciate the additional color. Thank you for your time.

Alain Bédard: Pleasure.

Operator: Thank you. We have reached the end of our question and answer session. I would now like to turn the call back over to Alain Bedard for any closing remarks.

Alain Bédard: Well, thank you, operator, and thank you, everyone, for being on today’s call. So we look forward to keeping you updated as we move through the year. And please don’t hesitate to reach out if you have any additional questions. Have a terrific weekend and stay safe. Thank you.

Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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