TFI International Inc. Q4 FY2023 Earnings Call

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International Fourth Quarter 2023 Results Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Friday, February 9th, 2024. I will now turn the call over to Alain Bedard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you, operator, and thank you, everyone, for joining us today. Our results released yesterday after the close reflect strong performance by our talented team, beating our expectations, and once again, we're entering a new year in the strongest position in our company's history. This comes despite weaker market demand throughout much of the year and is a testament to our adherence to long-standing operating principles, regardless of cyclical freight demand. In particular, I've referred many times to our overarching focus on profitability and cash flow, which is apparent in the fourth quarter results that I'll walk us through. It's this profitability and cash flow that permits us to execute on overarching principles of our growth strategy, which involve investing in the business, pursuing attractive M&A opportunities, and consistently returning capital to shareholders, doing all of this even when the market is weak. This approach to the business is apparent in our fourth quarter results and indeed our performance throughout 2023. In fact, we were able to allocate roughly $2 billion of capital to announce acquisitions and share repurchases during the year. Let's turn to fourth quarter results, which include operating income of just under $200 million compared to $217 million in the year-ago quarter. Our operating margin of 11.8% compared to 13.4% a year earlier, and I should mention that these results include a $23 million reduction in the contribution from assets held for sale. Our adjusted net income of $147 million was down only slightly from $152 million in the fourth quarter of 2022, and adjusted EPS came in at $1.71, down $0.01. Given our intense focus on generating healthy cash flow, we're most pleased with our net cash from operating activity, which was $303 million, sharply up from a year ago, $248 million, bringing our full year total to just over $1 billion, again, up over the prior year despite market conditions. Equally important from a strategic standpoint, our free cash flow of $244 million was up significantly over $188 million in the prior year fourth quarter. For the full year 2023, we produced more than $9 per share of free cash flow, which is remarkable given our company's size, again a reflection of the hard work of our team throughout the year. Now, let's dive deeper into our four business segments, starting with P&C, which represents 7% of our segment revenue before fuel surcharge. The number of packages was down 4% with pricing a little softer as well, resulting in a 5% decline in revenue before fuel surcharge. Similarly, our operating income of $35 million was down just slightly from $38 million in the prior year, and our margin fell by 70 basis points to 28%. Return on invested capital for P&C was 28.1%. We believe this solid performance by our P&C business in spite of the weaker demand environment reflects unique market exposure and our close attention to cost controls. Next, let's discuss LTL now 41% of segment revenue before fuel surcharge. Our top line revenue before fuel surcharge was down 3%, while our operating income of $71 million compared to $88 million a year earlier. This includes a $7 million net loss on assets held for sale. Digging deeper within LTL, Canadian revenue before fuel surcharge grew 12% year-over-year and a 12% increase in shipment benefiting from the STG acquisition in 2023. Return on invested capital for Canadian LTL was 20.1%, relative to 24% a year earlier. Regarding our ongoing turnaround at US LTL, the name of the game for us, in addition to all the cost efficiencies we have discussed over time, is the quality of revenue through improved service. This is evidenced by our last quarter claim ratio of 0.5% for US LTL, down from 1.5% a year earlier, and our second Canadian LTL claims ratio of just 0.1% of revenue. Our revenue before fuel surcharge of $563 million was down from $601 million in the fourth quarter of 2022 and while volumes were down 5%, we were able to increase revenue per shipment as weight increased by 10%. Our operating ratio of 91% compares to 90.4% in a year-ago period, and our return on invested capital for US LTL was 15.1% compared to the prior year at 23.8%. Next, let's discuss truckload, which is 24% of segment revenue before fuel surcharge. Benefiting from acquisition, our volumes were slightly higher than a year ago, while rates were weaker. Truckload revenue before fuel surcharge of just under $400 million was virtually flat with the year-ago period, down just 1%, while operating income of $51 million was down relative to $72 million last year, and our operating ratio of 87.3% compared to 86.1%. Taking a look within truckload, our specialized exposure remains a plus. We were able to capitalize on self-help opportunities and increase revenue per truck. Benefiting from this revenue before fuel surcharge, almost entirely flat at $324 million. Our specialized truckload operating ratio was 87% relative to 87.4% in the prior year period, and our return on invested capital was 10.3% compared to 13.4%. Turning to our Canadian-based conventional truckload business, revenue before fuel surcharge also held almost entirely flat at $78 million. Miles driven were up slightly, while rates were up about 7%. Our adjusted operating ratio of 89% compares relative to 81.1% a year ago, and our return on invested capital was $12.6 million, down from $21.3 million. Let's finish up our business segment review with logistics, which was 28% of segmented revenue before fuel surcharge and turned in a remarkably strong performance during the quarter. Revenue before fuel surcharge climbed 24% year-over-year, while operating income jumped 60% to $55 million. These strong results benefited from our very successful JHT acquisition, along with strong execution by our team, including effective cost control in response to market conditions. Our operating ratio was 88.4%, while return on invested capital was 18.8% versus 21.9% a year earlier. Let's shift gears and discuss our strong balance sheet and liquidity, which we view as a strategic asset. During the fourth quarter, we drove free cash flow of $244 million, as I mentioned, and also completed the private placement of $500 million of fixed-rate interest-only debt as I referred to in our last call. As a result, we ended the year with a funded debt-to-EBITDA ratio of 1.49 and a weighted average interest rate of 4.4%, that's entirely fixed, with an overall weighted average duration of 8.3 years. Looking ahead, it's this strong financial foundation that will allow us to continue to make timely and intelligent investments regardless of the cycle, especially during times of market weakness. An excellent example is our recently announced acquisition of Daseke, which is expected to close during the upcoming second quarter and is one of the 12 announced M&A transactions for 2023. We very much like this highly complementary acquisition as it scales our truckload segment into a leading North American provider while bolstering our capability in the specialized market. Our other major focus this year is the ongoing turnaround of our LTL operation. And longer term, we see the potential opportunity to allow investors to own a separate specialized truckload business, in addition to a very attractive LTL, P&C, and logistics business. Another advantage afforded us by a strong financial position is the ability to return excess capital to our shareholders whenever possible. And we are pleased that during the fourth quarter, our Board of Directors raised the quarterly dividend by another 14%. So, with that, operator, we're ready for Q&A. If you could please open the line. Thank you.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Scott Group with Wolfe Research. Please proceed with your question.

Hey, thanks. Good morning.

Good morning, Scott.

Alain, it's Friday morning, so I may have missed it. Did you guys provide any earnings guidance? I know you typically do?

No, we have not provided any guidance. We plan to do so after Q1. As you know, we are considering the Daseke acquisition, which makes us cautious about discussing 2024. I can say that when we present our guidance in April, our EPS for 2024 will likely not start with a $6 but probably with something around $7. However, due to the Daseke acquisition, we are being very careful about Q1. This is why, like many of our peers, we prefer to remain silent on 2024 guidance for now. We will be happy to give more guidance for 2024 after our Q1 results.

Okay, fair enough. And then I'm guessing there's going to be a bunch of questions on LTL. But we haven't heard from you since the Daseke acquisition, maybe just sort of talk through the rationale of that deal, sort of what you see in terms of the margin potential and how that fits in with some of the stuff you talked about in the release regarding potential spend?

You know what, Scott, we're very happy with this transaction at Daseke. I mean when I look at all the different business units that these guys are operating today, I mean, we're very happy. I mean these guys run a pretty good operation, I'm talking the operation. If you exclude the head office costs, which is a very high burden for the Daseke numbers, if you exclude that, I mean these guys are running a pretty good operation in 2023 when you look at market conditions. If you look at our global specialty truckload OR in Q4, running at 87% in a very difficult environment. Our Canadian van business is running an 89 OR in Q4, again, in a very difficult market environment. Just look at our peers in the US, and you will understand that. I would say that these guys managing the show over their business units, the operations like Lone Star, Boyd, and RMG and all these guys, they run pretty close to what we do. Now, it doesn't show because the overhead is a big burden on the company's results. I'm very happy with this acquisition that's going to close in Q2. And these guys will also help us on our own US operations because now it gives us size. And as we've mentioned publicly, we believe that in the future, the conglomerate discount at TFI that we currently observe is something we need to tackle. If we proceed with the idea of dividing TFI into two business units rather than one, it could present some intriguing opportunities for our shareholders in the future. Daseke enables us to expand our size in the specialized truckload sector of our US operations. We're not interested in the van sector; approximately a year and a half ago, we sold CFI to Heartland for that reason. However, we have a strong interest in specialty truckload, including flatbed and tank operations, where we excel. We anticipate that the US and Canada will experience significant infrastructure investments in the coming years, covering roads, buildings, schools, and more.

Our next question is from James Monigan with Wells Fargo. Please proceed with your question.

Hey. I just wanted to ask one of the questions on the US LTL today. Just can you give a sense of what you're expecting in terms of OR improvement across the coming year?

Yes. Well, James, we mentioned it previously. Our plan for 2024 is to achieve an 88 OR. Currently, we are at a 91 OR in Q4, which is not satisfactory. The team has put in a lot of effort, especially considering where we were two or three years ago. A 91 OR is acceptable now, but maintaining that for 2024 is not. Additionally, we intend to halt the decline in volume. In Q4, our volume decreased by 4%, and year-to-date, it has dropped by 13%. We have taken steps to enhance our service, as noted earlier. Our claim ratio has significantly improved, currently at 0.5% of revenue, which positively impacts the customer experience. We have made substantial upgrades to our asset base and fleet, including driver training. Therefore, we are confident we can achieve an 88 OR in 2024 and stop the loss of volume.

Got it. At this point, do you think you'll be growing shipments in 2024 based off of where you are now?

Well, I don't think that this will come in Q1, Q2. I think that we have a change in leadership of our sales team. We have refocused our people there. So, we believe that this company should be running by the end of 2024, 24,000 shipments a day, right, to 25,000 shipments a day, which is very low compared to when we bought the company. When we bought UPS Freight, they were doing about 32,000 shipments a day. Now, like we said before, a third of those shipments didn't make any sense, right? So, we had to do a lot of cleanup over the years of freight that doesn't fit, freight that was not for us, but that is mostly done. It’s tough for us to start growing again with the market by improving our service. We have more linehauls now on the road than ever. So, we use less rail. So, our road service is way better than rail. So, that's going to slowly help us improve because when we bought the company, a lot of the line haul was done on rail. So now slowly, we're moving less on rail and more road that will help improve our service. The fact that our equipment is in much better shape. Our average age is about a little over four years down compared to the seven and a half, eight years average when we bought the company. We had to make some major investments there.

Thanks very much.

You're welcome.

Our next question is from Ravi Shanker with Morgan Stanley. Please proceed with your question.

Great. Thanks. Morning Alain. If I can just push you a little bit on the guidance commentary or lack thereof.

Yes, the key point for us regarding the Daseke acquisition is that we expect it to have no impact on our earnings per share in 2024. We will have a clearer understanding after we fully take over on April 1st. At that point, we should know whether it will be neutral or if it could potentially add around $0.10 to $0.15 for 2024. We anticipate that the Daseke acquisition will contribute at least $0.50 to our earnings in 2025. As for our earnings per share, we project it will start at $7 organically, independent of Daseke, since we maintain that Daseke will be neutral in 2024. We're currently facing challenges in our truckload operations, particularly in volume and not as much in operating ratio. Our specialty truckload is experiencing significant losses in revenue, even though our operating ratio is nearly where it was in 2022. Given the current market conditions and a tough start to January, we're being cautious like our peers. However, I can confidently say that our diluted earnings per share for 2024 will be at least $7. We will refine these estimates after the first quarter once we have more insights, particularly regarding the volume situation.

Very helpful, Alain. That is understandable. And maybe as a quick follow-up.

Yes.

You mentioned the conglomerate discount earlier in your remarks. Can you just elaborate a little bit more on your thinking there? What does in due course mean? Is that a 2024 event or 2025 event? And kind of how are you looking at the separate businesses kind of together or apart?

Yes. You know what, Ravi, it's not 2024. That's for sure. I mean, 2024 for us is really the year we take over Daseke, and we deliver on our promise of TForce Freight running an 88 OR, right? So that's really the focus. But by the fall of 2024, we start to get ready for 2025 in terms of maybe other significant deals for us. And at the same time, this thing that we call that project, SFI, which is separating the truckload from the rest. We believe that this will create a lot of value. We also believe that this project may not be just for TFI; maybe some other specialty truckload may join this project to create size. It's an open discussion that we're going to have with other parties probably late in the fall 2024 to be ready to do something in 2025, Ravi.

Thanks Alain.

You're welcome.

Our next question is from Jordan Alliger with Goldman Sachs. Please proceed with your question.

Yes. Hi, morning. Can you maybe talk a little bit to the factors that continue to impact US LTL profitability on an adjusted basis year-over-year, that $50 million or so in EBIT, which is down versus a year ago?

Yes, I think that positive growth year-over-year in the US LTL will happen in 2024. In 2023, we had to go through this negotiation with the Teamster contract, which increased our costs per hour by about 7%. We made a lot of progress on the cost side, but we kept losing volume year-over-year. So, I think that this is going to be a thing of the past sometime in 2024. Maybe not Q1 or Q2, but down the road in Q3, Q4, we believe that finally by improving our service, we'll be able to be in a position where we start growing again. Growing top line will help us grow the bottom line at the same time.

Got it. And then just a quick follow-up along all those lines. Can you maybe talk a little bit, again, on the US LTL? I know revenue per 100 weight, probably due to mix, has been down, but can you talk a little bit about the core pricing, contractual, renewals, and what sort of magnitude you're getting?

I think pricing is pretty good. What’s killing us is the volume. I think our pricing, our revenue per shipment is up, our weight per shipment finally is up, because if you look at our weight per shipment, we're still way behind my peers. I mean, we're like hauling feathers compared to what we do in Canada or what my peers are doing in the US. But our weight per shipment is up 10% finally. We're able to do that. But we're still way, way, way below my peers' average. Peers' average is probably like 1,500 pounds, and I'm still stuck at 1,100-something. So we're heading in the right direction. But again, you're paid about 100 pounds on a shipment. So, the lighter shipment that you haul, the less money you make. This is why we've changed the focus of our sales team to try to change the mix, and we're heading in the right direction there. Our revenue per shipment ex-fuel is up and that's the way to go. In terms of pricing, I think our peers are very smart; they understand that everybody is in this business to make money. And that's the beauty of US LTL is that our peers are smart. So, we like to compete with peers that are smart, because they're about making money.

Thank you.

You're welcome.

Our next question is from Jason Seidl with TD Cowen. Please proceed with your question.

Thank you, operator. Good morning Alain.

Morning Jason.

I wanted to stay on US LTL for a little bit. Really nice job in the quarter with that claims ratio. Where do you think it can go from there? And sort of what has gotten us to drop a whole point off that number?

You know what, Jason, we look at that; the culture at TForce Freight at the time was that this 1.5% of revenue was normal. And we said that, no, guys, this is not normal. If you look at our peers in the US, if you look at what we do in Canada. In Canada, we're at 0.1% of revenue, which is acceptable. So, what we did is we took some of our Canadian folks, and they worked with our US team, and we were able to solve the problem at the source. This is an experience where our customers feel dealing with us on the claims side; the experience is way better than it was a year ago. So, we're trying to do the same thing also, like I said earlier on the call, the billing, the way we bill customers. There are way too many mistakes. We make way too many corrections. And this is something that, in the past, in the mind of the management then, it was acceptable. Now, we say no, no, no. That's not the way to do it. So, now, the software that we use, the tools that we have, the people, because there have been a lot of moving parts with people, we lost people that were there 10 years ago. So, this is why we are investing big time in 2024 to improve the experience for our customers on the billing, customer service, and all that. We should see some major improvements during the course of 2024, and that will help us grow our business, grow our volume. Because if you're a shipper and you say, well, okay, I could deal with ABC and then I deal with TForce Freight, and it's a nightmare because those guys bill me wrong, they send me a credit, etc. I mean, this is not professional. So, this is another aspect of improving service with customers that we're working on, over and above the delivery of freight.

I think if you guys improve ease of use and also your claims ratio, that should also help you in the pricing department going forward as well.

Absolutely.

I want to jump on a little bit in near term here, and then a clarification. So, how should we think about the US LTL OR on a sequential basis from 4Q to 1Q, given that a lot of your peers have called out bad weather in January? And then, you mentioned an 88 OR for LTL; is that an exit rate for the year or is that total for the full year?

No, that's full year, Jason. For sure, Q1 is going to be a tough quarter for us. I mean, we're not going to be sub-90 OR in Q1. I don't think so. But I think for the year, okay, that's the plan, that's the commitment of our team to deliver an 88 OR for the year, but not in Q1. Q1 for sure has been terrible.

Got you. I appreciate the color, Alain.

Pleasure, Jason.

Our next question is from Ken Hoexter with Bank of America. Please proceed with your question.

Great. Good morning, Alain.

Good morning, Ken.

So, obviously, significant prices you've mentioned on the 0.5% claims, but noted costs are still too high. So, how much is still from the legacy UPS expense that rolls off? And what is still under your control? And then, just you threw out the 10% increase in weight per shipment. You mentioned last quarter that was something you were very focused on. What do you focus on and how do you change that?

Yes, that's a very good question, Ken. Like we said, in terms of the claim, we have nothing to do with what happened two or three years ago. So, all this is behind us. I mean, when we took over the company, we severed the past. So, our claims today are whatever our claims are based on what the operation is today. Now, in terms of future where we could be and all that, the company is very well positioned to start growing in terms of volume. I forgot what your second question was, Ken.

Just the first one was just how much of the legacy UPS expenses, like what do you still control once that goes off? So, when you stop growing from 91, 88, this has nothing to do with the cost rolling off in April. This is just your own internal cost?

No.

Okay. And then the second one part of that was the weight per shipment focus.

We have been focusing on the average weight per shipment since the beginning. Our peers are not handling an average shipment weight of 1,000 pounds, so we questioned why we were. Historically, our previous owner focused only on retail, but we are shifting our sales strategy to also include more industrial freight, similar to our competitors. The goal is to gradually align our average shipment weight with that of our peers since our earnings are tied to the panel. Additionally, we aim to minimize the distance our drivers travel between stops; currently, they average about 10 miles, which is excessive. In Canada, we maintain an average of less than five miles between stops, despite the lower density compared to the US. We're also concentrating on reducing shipment costs by limiting deliveries far from our terminals. All of this is a process. Since acquiring the company two and a half years ago, we have changed sales leadership and are enhancing our team with members from TFI. We expect to see improvements in growth and service in 2024. We are currently increasing the volume of freight transported by road instead of rail to enhance service, while also keeping costs controlled through better equipment. Our fuel efficiency is now comparable to our peers, as we have updated our fleet, which previously was outdated and inefficient. All these factors contribute to improved service.

Great. And from a quick follow-up on the spin, just want to understand why you chose to spin the truckload as opposed to the LTL into an independent, given the strides, given the peer pure-plays, just wondering your thought on why not that way?

Yes. Because at the end of the day, if you look at what we have, P&C is very small. It's only $500 million to $600 million of revenue ex-fuel. So, it's really small. After truckload is gone, what are we left with? It's really an LTL and a logistics company, which is very different from our peers. Just look at our logistics; we came out with an 88 OR. Most of my peers are down, like, 40%, 50%. One of my peers' OR is 100. That peer has got LTL and logistics; as LTL is great, logistics is running 100 OR. Us, we run our logistics very efficiently, and we make a lot of money at it. Our return on invested capital is through the roof. So, I think that the combination of LTL and logistics make a lot of sense if you make money with logistics. If your return on invested capital is about the same. So, if you're running your LTL at an 85 OR, with a return on invested capital at 25%, and your logistics is running a 98 OR with a return on invested capital at 4%, that doesn't make any sense to have the two.

Wonderful. Alain, appreciate the time and thoughts. Thank you.

Pleasure, Ken.

Our next question is from Walter Spracklin with RBC Capital Markets. Please proceed with your question.

Thanks very much. Good morning Alain.

Good morning Walter.

Going back to the spin and your mention of the conglomerate discount, I understand you've previously indicated that your property and casualty business in Canada has already been consolidated with limited opportunities for growth through acquisitions. It's a valuable asset that would likely be attractive to many other organizations for strategic reasons. I would like to hear your thoughts on the P&C division in Canada in relation to the conglomerate discount.

The issue we face with our P&C is that it's performing exceptionally well, but we can't grow it outside of organic methods. There aren’t significant acquisition opportunities in Canada for us. Looking back at our waste business from 2014-2015, we had a great asset called Matrak, but we couldn’t expand it, despite its estimated worth of $400 million to $500 million. Ultimately, we sold it to GFL for $800 million. Our P&C business is similarly valuable, generating substantial free cash flow. However, just like our waste segment at that time, we are limited to organic growth. Our current strategy for P&C is to focus on organic growth. We are in discussions to enhance our offering, but our main priority for 2024 remains on our US LTL operations. We need to achieve our target operating ratio and successfully complete the Daseke deal in preparation for 2025, which we believe will significantly benefit our shareholders.

Okay. And then my follow-up question is on your reference to the next deal. How much of that is when you're ready as opposed to when there's an opportunity?

But you know what, Walter, the big difference between when we bought UPS Freight and while buying Daseke. UPS Freight was a very difficult deal to do because it was a carve-out and the company was not making any money. The OR was about 110; the fleet was a disaster, etc. Daseke is a different story. I mean, Daseke will run a sub-90 OR within six to 12 months in my mind. The operating groups there are very, very, very good. I mean, there's a few things that we will work with them to fix. But in general, this is an easy transaction for us compared to UPS Freight, which was a very complex one. So with that in mind, what I'm saying is that once we do Daseke early in Q2, if something comes along before the end of 2024 that makes sense, financially even before we do the spin-off, we are in a position to do it.

Excellent. Thank you very much for the time. Appreciate it.

Pleasure, Walter.

Our next question is from Jason Seidl with TD Cowen. Please proceed with your question.

Thanks Alain for taking my follow-up. Along those lines, you made a comment about potentially growing your specialty truckload a little bit before a potential spin. I guess two questions: Geographically, where would you be looking to do that? Number one. Number two, what types of specialties do you think would be additive to make that a more attractive asset on the spin?

Well, Jason, you know what, first of all, it's got to be US. Because in Canada, there's not much in terms of size. So, it's got to be US. What we like in specialty is, we're big fans of tanks; we're a big fan of flatbed and dump operation, right? So, that is really our focus. We're not big fans of reefer. So that's really our focus. And if you look at Daseke, that's a perfect fit for us, right? In terms of, do we have to do P&C, yes, no. I mean, P&C in my mind is maybe something may happen down the road, but right now our focus is really, like I just explained, let’s deliver our US LTL, let’s do the Daseke deal, and if an opportunity comes along in late 2024 into LTL or logistics in the US, we’re ready to look at it.

Makes sense, Alain.

Pleasure, Jason.

Our next question is from Tom Wadewitz with UBS. Please proceed with your question.

Yes, great. Good morning, Alain.

Morning Tom.

I know you've received a lot of updates on US LTL, but I'd like to ask another question about it. The situation with Yellow clearly gave you a boost. Initially, it seemed to play out well for you, but it might have been a bit underwhelming regarding tonnage and shipment retention. However, I see that you're making progress with service improvements, particularly with a significant reduction in the cargo claims ratio. I would like to know how much visibility you have on this improvement and whether you feel things are on track.

My experience with revenue growth at TForce Freight has not been very positive. If you examine our track record over the past two and a half years, we have consistently struggled to grow revenue. This is largely due to our high churn rate and the fact that our service has not matched that of our competitors. Currently, when we discuss the 88 operational ratio, it is expected to be around 80% today, depending on our ability to reduce costs effectively in order to achieve an improvement of 300 basis points compared to where we stand in Q4. We have implemented some changes, such as enhancing our claims process and improving our line haul operations, especially considering that we are transporting more by road than by rail compared to a year or two ago.

Right. Okay. Maybe just a couple more quick ones on that. So, you're saying volume up, I think, for shipments in the second half, would you also expect revenue per 100 weight to be up in the second half?

Yes. So definitely what I could say is that we're doing our own line haul for about 56% or 57% of all miles. So, rail is doing probably like 35%, and third parties are doing the rest. In terms of trying to see where we're going to be in 2024, really the goal on the revenue per 100 weight is to improve that. I mean, our revenue per 100 weight is down a bit. We think that the market condition will support some growth there. If I look at my peers, those guys are up. Us, we're down a bit because our weight was also up at the same time. Our revenue per shipping is up year-over-year. We believe that market conditions in 2024 for the industry in general in the US will be positive.

Right. Makes a lot of sense. Thank you for the timeline.

Pleasure, Tom.

Our next question is from Brian Ossenbeck with JPMorgan. Please proceed with your question.

Hey Alain, good morning. Thanks for taking my questions.

Good morning Brian.

So, just want to follow up on that service point you gave the context of the year-over-year improvements. Can you talk about how that trended through last year and how recent those improvements were? Because it sounds like it might have been more recent events, because that probably has some implications in terms of how fast you can improve the pricing, how much customers trust the level of service. So, maybe you could give a little bit more context around that.

Yes. No, what happened, Brian, is that these are improvements that happened during the course of 2023. If you look at the claim, it’s something that we just woke up one morning and said, hey, our claim ratio has improved so much. This is something that we should talk about, and this is why for the first time we're talking about it in our press release. But this is something that we started improving about a year and a half ago when we saw that there was really a major need to improve. In terms of the line haul, we started about three or four months ago when we talked to our union contract and all that. We said, guys, in order to improve service, we want to drive more miles on the road. For sure, that will create some kind of jobs, etc. So, that is something that we really started in the fall of 2023, and we'll keep doing that to improve service.

Got it. So, on the other side of US LTL, one of the big themes going to this year, I think, was just getting the terminal level information down to the service center managers thoughts and whatnot. So, I don't think you've talked about that as much. So, maybe you can give us a sense in terms of how that's progressing, and if you're starting to see that, that's going to take a little while to get moving as well?

Very good question. I mean, yes, we have financial information now at the terminal level in 2024. This is something new. So, I'm meeting the guys next week and I'll know more. I was in one of our terminals in Alabama two weeks ago, talked to the manager there. Yes, we're doing better now. And for sure, Brian, that's something I forgot to talk about. But you're absolutely right. This is also going to help us because now we're providing them the financial information so they can start managing costs, managing labor costs better, etc. This is something new, though. I mean, we’re just doing that now and it will take some time. Some managers will make it; maybe some managers will say, you know what, this is not for me, and then we'll have to replace some of the managers. But a manager at a TForce terminal in 2024 now has got to manage costs, manage employees, manage the fleet, manage the service, etc. He has to be a real manager.

Thanks operator. Good morning, Alain.

Good morning, Konark.

Just wanted to understand on Q1. I know you were saying, it's tracking a little bit soft due to weather in January, etc. But are you expecting EPS flat or up in Q1 versus last year's Q1?

Konark, as I mentioned earlier, we don't want to discuss 2024 in detail just yet. However, I can say that we achieved $9 per share in free cash flow this year, and we anticipate that our free cash flow for 2024 will also be strong. We'll provide more details with our Q1 report. It’s important to note that $9 per share is a significant achievement. We expect to have clearer insights when we release our Q1 figures. Overall, our free cash flow should perform well again in 2024 based on current observations. January has definitely been challenging. When comparing Q1 2024 to Q1 2023, I believe we will see improvements. However, the improvement may not be substantial due to the difficulties faced in January. We've had weather issues, including snow in Nashville, which led to our terminal being closed for a few days.

Okay, that's great, Alain. And then, maybe if I can follow-up with all that cash that you expect to generate this year, are you earmarking anything for tuck-ins and buybacks at all?

Yes, yes. Tuck-in, for sure. Konark, we always do tuck-in. We always spend or invest at least $200 million to $300 million a year on tuck-ins, so absolutely. Now, in terms of buyback, probably not as much as we did last year. But there again, it depends on what the stock price is. If you look at our Q4, we bought back, I think, 1.5 million shares because we look at the reaction after we came out and we saw an opportunity and said, you know what, we're going to buy 1.5 million shares. We did that in Q4. Depending on the reaction of the stock, we’re always there. Now, with this Daseke deal, what I could say is that, let's say we close that in April, I would say that our leverage will be under 2 million at the end of June after closing the deal. If nothing major happens, we'll probably be under 1.5 million by the end of the year.

Hi, good morning Alain. Thanks for taking our questions.

Good morning.

Can you talk a bit more about the conditions in which you'll pursue a breaking up of the company? Your December statement didn't include much details in terms of how you're thinking about doing that. Now, obviously the market responded favorably to it, but can you talk about conditions in which a split happens or doesn't happen? And what does the breakup do for the LTL business that's not getting now?

Yes. So, what we're doing now is we're studying this project, and we believe that it makes a lot of sense. Because if you look at our return on invested capital, our return on invested capital for our truckload in Q4 was about 10%, which is the lowest within TFI. Now, that compares favorably with my peers though. If you look at my peers, except for one, that is a big intermodal player, even in Q4 with a 10-point-something return on invested capital, I'm probably better than everybody except that peer that do a lot on the rail. We believe that this makes a lot of sense to be as a standalone. Even more now with Daseke, that's going to give us some size and also free cash flow over and above what we have within our truckload operation. So, it's really the logic of not being a conglomerate; like we've always been. You have to understand the history because we start really on the Canadian side. And in Canada, you cannot be a pure play because if you're a pure play, you're always going to be small. So, we've grown this business in Canada as not being a pure play.

Thanks. And as a follow-up, beyond the 500 to 700 basis points of initial OR improvement for US LTL that you've discussed in the past, you've also talked about an additional 500 to 1,000 basis points from mix and density improvement. How much would you estimate you've achieved from that so far as we enter 2024? And what's the cadence of achieving the balance of that over 2024 and 2025?

Yes, that's a very good question. So what we're saying is 88 for 2024, that is really the goal. We said that this company has to be at 85 and probably less than 85 OR over time. Now, for sure, this is based on normal market condition, which we haven't seen in 2023. We don't know if we'll see that in 2024. But let's say in 2025 we have normal market conditions in terms of freight environment, I think that we should be well positioned to be under 88 in 2025 in a normal market condition. Can we get to 85 over time? I'm convinced. Will that be in 85 in 2025? It's still too far away to say that. But I'm still convinced that there is no reason for us not to be a low 80 OR company over time.

Hey Alain. Thanks for taking my question. I know the call has been going long here.

Good morning, Kevin.

Maybe just a clarification question on the 88 OR in US LTL. Are you assuming shipments are similar to, let's say, the exit rate or the seasonally adjusted rate in the back half of 2023, so roughly the 23,000 shipments? Or do you assume you can kind of get up to that 24,000 or 25,000 shipments or is that needed to get to the 88 OR?

Yes, the average shipment for us in 2023 and 2024 is about 23,000 to 24,000 shipments. So, we're not going to do that in Q1, but the average for the year should be in that 2023, 2024 range.

Thanks operator. Good morning, Alain.

Good morning, Konark.

Just wanted to understand Q1. I know you were saying it's tracking a little bit soft due to weather in January, etc. But are you expecting EPS flat or up in Q1 versus last year's Q1?

Konark, as I mentioned earlier, we don't want to delve too much into 2024 at this stage. However, I can say that we achieved $9 per share in free cash flow this year. Looking ahead, we expect our free cash flow for 2024 to also be very strong. We will provide more details when we report our Q1 numbers. Achieving $9 per share is quite a significant achievement. We anticipate being more precise with our Q1 figures. Based on what we can see now, we expect free cash flow to be impressive again in 2024. January has certainly presented challenges. As for whether we will perform better in Q1 2024 compared to Q1 2023, I would answer yes. However, the improvement may not be substantial, given the difficulties we've faced in January. We're excited about the year ahead, and we're glad you were able to join us today. If you have any follow-up questions, as always, please don't hesitate to reach out. Enjoy the weekend everyone and thank you again. Bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.