TFI International Inc. Q4 FY2024 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Fourth Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Please be advised that this conference call will remain will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. I would also like to remind everyone that this conference call is being recorded on February 20, 2025. I will now turn the conference over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you for the introduction, operator, and thank you, everyone, for joining our call. So yesterday, after market close, we reported quarterly results reflecting the industry-wide slump in freight volumes, as well as the ongoing effort by our team to make the most of the challenging conditions. We again produced strong free cash flow of more than $200 million during the quarter. This brought our full year total to more than $750 million, the third year in a row that we've achieved this mark despite the prolonged weak stretch for the industry. This directly reflects our long-standing focus on optimizing free cash flow so that we can strategically invest in the business, consider attractive M&A, and return excess capital to shareholders. We did all three during the fourth quarter, while also reducing our debt to further strengthen our balance sheet. With that, let's have a look at our consolidated results. For the fourth quarter, our total revenue before fuel surcharge grew 9% over the corresponding prior year period to $1.8 billion, which benefited from our acquisition of Daseke last April. However, operating income of $160 million was down from $198 million, reflecting an operating margin of 8.8% versus 11.8% in the previous year. We did have unusually high accident-related expenses that were about $9 million higher than the prior year period. Our adjusted net income of $102 million was down from $148 million in the prior year, and adjusted EPS of $1.19 compares to $1.71. I would also note that the impact of foreign exchange fluctuation, which during the quarter reduced reported EPS by $0.03, as every $0.01 fluctuation of the Canadian dollar per U.S. dollar tends to impact either positively or negatively our annual EPS by about $0.02. So again, we produced solid cash flow, as I mentioned, specifically $262 million of cash from operating activity and free cash flow of $208 million. However, both were down from the prior year figures of $303 million and $244 million, respectively. I want to again call out that our ability to produce very respectable cash flow during a prolonged slump for the industry is a direct reflection of our team's effort to focus on the details of the business regardless of market condition. This includes concentrating on the quality of freight and other efficiencies. Let's now turn to a review of our three business segments, beginning with LTL, which was 40% of segmented revenue before fuel surcharge during the fourth quarter. LTL revenue before fuel surcharge of $737 million was up 10%, and operating income of $70 million, which had an $8 million impact from higher accident-related costs versus the prior year period was up 34%. Our adjusted LTL operating ratio was 90.3% as compared to 86.1% a year earlier, and return on invested capital was 16.3%. So next up is our Truckload, 38% of segmented revenue before fuel surcharge at $693 million, which was up from $399 million in the prior year period, benefiting from the Daseke acquisition. Truckload operating income came in at $60 million, which was up from $51 million. We produced an OR of 91.5% relative to 87.3% a year earlier, and our return on invested capital was 8.4%. Our third business segment to review is Logistics, which was 22% of segmented revenue before fuel surcharge or $410 million for the fourth quarter, down from $472 million in the prior year. Operating income of $43 million was down from $55 million. This equates to a logistics operating margin of 10.5% relative to 11.6% last year, and return on invested capital was 17.1. Turning to our balance sheet. During the quarter, we again benefited from our solid free cash flow of more than $200 million. We reduced debt by $156 million, and as a result, ended the year with a funded debt-to-EBITDA ratio of 2.1. In addition to allocating capital to debt reduction, we completed one bolt-on acquisition during the quarter. Also during the quarter, our Board declared a 13% increase in our quarterly dividend to $0.45 per share that was paid on January 15. We also repurchased $42.4 million worth of shares during the quarter. And you'll recall that in October, the renewal of TFI International's normal course issuer bid or NCIB was approved for an additional year. So before I wrap up, as you may have seen in our press release, we plan to redomicile TFI from Canada to the U.S. to better align with our shareholder base and commercial presence. With that, operator, if you could please begin the Q&A portion of the call, and I'll be happy to take questions.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

Great. Thanks. Morning, Alain. So when you think of where we are in the cycle now and where we ultimately go to, let's say, $8 of normalized EPS, how much of the path from where we are today to that level do you think is idiosyncratic actions that you guys can take versus waiting for the cycle recovery?

Very good question, Ravi. And you know what, I think that we still have a lot of work to do on cost. If you look at our TForce Freight, you know, our costs are still too high. We're also suffering because our volume keeps dropping. Our shipment count is down 6% year-over-year. Although our weight per shipment is about the same, it's still a very difficult environment. So we still have a lot of work to do at TForce Freight on the fleet side to reduce our costs. We're on the right track there. Our average age of the fleet of trucks at TForce Freight is 4.2 years, which is getting close to normal versus the average age that we have in Canada, which is a little bit higher. But then if I look at my maintenance cost per mile in the U.S. versus Canada, I mean, there's still a big discrepancy between the two. So we still have a lot of work to do on cost at the TForce Freight. The same is true also of our Daseke acquisition. If you look at the trend since we bought Daseke in April, I mean, Q2 was okay. And then we had issues with revenue per mile that keep dropping because the freight recession is still with us. And even in Q1 of '25, we're still seeing very high pressure on rates, although it's quite stabilized, but the number of miles are down and our costs also are too high. Daseke, we were trying to have a lot of equipment and these equipment are specialized equipment. They're used not very often. And let’s say, wind equipment, wind is out of trend, right? So it's not very popular right now. So we have to reduce our asset base at Daseke to reduce our cost, to reduce our depreciation expenses, to reduce our interest costs as well. So we still have a lot of work to do to get to - to me, on the cost side, with no market improvement, we have to be closer to a $7 to $7.25 EPS in a normalized cost environment. If you look at our logistics, I mean, we're down $12 million quarter-over-quarter - year-over-year in Q4. This is just volume. I mean, the truck manufacturers' volumes are down about 20%. This will probably continue in Q1, Q2, Q3 of '25. When we talk to our customers, they see a pickup by the end of '25. So that is also not helping us in the early days of '25. But this is just volume, and it will come back. So to make a long story short of a big question is that we still have a lot of work to do on the U.S. operation to become lean and mean. If I compare that with our Canadian operation, I mean, we still have a lot of work to do in the U.S.

Got it. That's really helpful. And apologies if I missed this, but did you give us formal 2025 guidance?

No. I mean, we're like our peers. I mean, it's really a very difficult start of the year. It's very foggy. So it's difficult for us. What I could say is that what we've seen so far in Q1, we're still in a very deep freight recession. The volumes are not there. So it's going to be a difficult '25, I think. Again, we thought - when we made our plan in October of '24 for '25, we never anticipated this kind of situation, which is still difficult in terms of volumes, both truckload and LTL.

Great. Thanks, Alain.

Pleasure, Ravi.

And your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

Yeah. Just to come back to U.S. LTL margins and deterioration in the quarter. Would you say that's - I know you talked about cost as well, but is it primarily revenue? And then can you maybe go into a little bit more color on some of the specific steps TFI is going to take to work on U.S. LTL margins in 2025 regardless of the volume environment?

Yeah. Yeah, yeah. You see the problem that we have, Jordan, is this, right now, okay, we're losing the small and medium-sized customers, which have the best margin, right? And some of that has been replaced by, let's say, 3PL and corporate account, which doesn't bring the same margin. And this was really accelerated in Q4. So that's part of the issues that we have is sales, okay? We have to be way more aggressive on the small- and medium-sized account. So this is problem number one for us. If you look at TForce Freight today, okay, is revenue. Problem number two is cost. So we've been working steadily on costs since we bought this company, and we've invested a ton of capital to improve our asset, to improve our training, etc. But at the same time, okay, our volume keeps coming down, right? So it's like you're chasing your tail, like a dog chasing its tail, okay? So this has got to stop. So we are at a floor of around 20,000 shipments. The mission that we give to our sales force is to try to grow organically, but also to try to improve the density. So what I mean by density, and I'm like a guy that's always repeating the same thing, if you look at our Canadian operation, our density is second to none. I mean it's just fantastic. That's why we're doing so well. In the U.S., our density is the worst. I mean, it's really bad. So we have to improve the density. So there are two ways to improve density, right? Approach number one is to try to do it organically, and that's what we've been trying to do for 3 years since we bought the company, 3, 4 years. Option number two, okay, is down the road, okay, you've got to do what we've done in Canada, you've got to do some M&A, okay? So if you can't get the density from organically from your sales team, then you have to focus down the road, okay, in trying to find a target, something that fits you, okay, that could help you improve your density at one point, right? So this is why we've been saying that one solution down the road, okay, for TForce Freight on sales and revenue is it will have to go through M&A at one point. But in the meantime, let's say during the course of '25 and '26, our focus has to be trying to grow it organically, okay, with the people we have and the sales revenue and try to squeeze, okay, the cost of our fleet operation. What we've done so far that's good at TForce Freight is our line haul, okay? So now we're using a software that's really good, which is called Optum, which is used by some of my peers. And now we are implementing Optum in Canada for P&D, okay? And we're also starting to look at implementing that P&D tools. It could be Optum or another one in the U.S., again, to improve the management of our costs on the P&D side. So it's like a two avenue for us. We got to keep working on the cost and do more with less, okay? But at the same time, the mission to our team - our sales team is to grow organically and to improve our density. And over time, down the road, let's say, within 12 months, 24 months, whatever, when we're ready, when we can find the right fit, okay, is to add M&A like we do in Canada all the time.

Just as a quick follow-up then sort of - I know things are still a little certainly challenging to start the year. But in that sort of, let's say, no help from the macro or zero volume growth environment, any sense for where your LTL OR could get to in the U.S. in 2025 or directionally where you'd like - where you think it could get to coming off the 97 or so in the fourth?

Well, what we know, Jordan, is that Q1 is going to be a very difficult quarter, right, a very difficult quarter. But I still believe that we've been running this company since we bought it in the neighborhood of 91, 92, 93, or 94 OR. Q4 was a disaster for us. I mean, we didn't do a good job in managing our labor cost. We had too many issues with accidents and claims. If you look at my claim ratio, I went all the way to 0.9% of revenue, which is just unacceptable, right? So this company, even in this kind of freight environment, we have to be able to run that between a 93 and a 95 OR. I've been saying since we bought the company that we'll get to a sub-90 OR. But right now, okay, at the level of shipments that we have at 20,000, if our sales team does not help us in trying to grow this density, improve this density and grow the shipment count and working just on the cost within '25 with this kind of freight environment, I think that overall, we should think that it's difficult to say because, again, it's very foggy Q1, Q2 with everything that's going on. But I mean, to me, we got to be able to live in a 93 to 95 OR even in '25 with this kind of difficult environment. But Q1 is extremely difficult because of all kinds of reasons, okay? But for the year '25, even with what we know today, we should be able to play in that 93 to 95. So which is way, way above the target that we have of being a sub-90 OR, right? But density is the name of the game, and we've been trying with the sales team to have those guys understand that we need to drive less miles. We need to pick up more freight per stop. It's been quite difficult, okay? It seems like it is difficult to do in this kind of environment. But it's the only way that we're going to bring this company to a sub-90 OR because at 20,000 shipments a day, when you run a national network in the U.S., you are small. You are small. In my mind to run - just look at the shipments count that we do in Canada. In Canada, we do close to 10,000 shipments a day. And we do only 20,000 in the U.S. So I mean, in Canada, with 10,000 shipments a day, we have huge density. That's why our costs are so good. In the U.S., our costs are not good because our density is way too low.

Right. Thanks so much.

Thank you, Jordan.

And your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good morning, Alain. So a lot happened, it seemed like in the numbers in the LTL. Length of haul dropped a couple of hundred miles. You added trucks. You mentioned an $8 million charge in there. Maybe talk about what's going on at the LTL so we can understand the dynamic and the speed that things are changing. And it looked like GP revenue is really shifting down very quickly. So a lot of dynamics going on here. Maybe walk through what changed so quickly.

Yeah. Well, GFP has been not doing well since, I would say, a year and a half ago when our partner on GFP, UPS said, I mean, those customers, we can't service those guys because they are not honest and they play games, et cetera, et cetera. So we have to drop all those resellers that UPS didn't want us to service. Now we're down to basically not much in terms of revenue versus where we were 2 years ago. And we've changed the commission structure to our sales team to try to make this thing grow again. But so far, we don't have any results, okay? So that's GFP. But on the asset side, what we have done, if you look at my personnel costs year-over-year, I went from 40% to 44%. And this is because of all these changes in terms of our service, in terms of not managing the labor costs the right way and also the mix of the revenue, which has deteriorated a little bit. Our weight per shipment is about the same, but the revenue per hundredweight is down. Why? Because we're replacing small and medium-sized account shipments with great margins versus a 3PL and a corporate account with less good margin. So this is what's happening there. And this is where I say that our sales team has to pull its own weight and start helping us to try to grow this better business, okay? But at the same time also, okay, we also have to manage the claim costs better. And this is big for us because we're at 0.9% of revenue, which is completely unacceptable. If you look at our Canadian operation, okay, we used to be at 0.2, we're at 0.3 in Q4. You look at the best-in-class in the U.S., the guys are at 0.2 or 0.3 or something like that. So us, we're at 0.9. Also, our accidents reserve had to be adjusted with the actuarial, which we took another hit. So globally, it's a lot of bad news for us in Q4, okay? But the guys, they are rolling up their sleeves, and we're attacking it, and we understand that the market is not going to help us again in '25. I mean, we still think that we're going to be in a freight recession. We don't see anything changing over the course of '25. And this is why when I look at the plan that we have for '25, running in the 93 to 95 OR for all of '25 would be probably the best that we could do with the low density that we have and without any M&A in '25. I don't think that we'll have any M&A in '25 to help us improve the density.

Thanks. But just to clarify, you added 500 trucks, right? You grew the fleet significantly, but why did the length of haul drop 400 miles? Did you just change business? Is that this mid...

No, no, no. Because you have to look at the active trucks, Ken, okay? The active trucks at LTL is about 3200 trucks. The total trucks is about 4000 trucks because we're bringing new trucks in, and we're not selling old trucks, okay? We have about - I don't remember exactly the count, okay? But we have a lot of old trucks that we're selling now because the active fleet of UPS or the TForce Freight LTL is about 3200. So there's no movement. You have to look at the active fleet.

Okay. And then just to redomicile, any tax implications on that? Is that just moving headquarters, where are you going to be moving? Is there any follow-on implications for that?

You know what, Ken, I think this is an evolution of TFI. So if you look at 5 years ago, we listed TFI into the New York Stock Exchange, and we were able to do that through what they call an MGDS exception. But this exception will disappear the minute that our shares that are owned by U.S. shareholders. The minute that we go above 50%, then this is not going to work. So we have to go to the SEC, and then we have also to be U.S. GAAP. So it's part of an evolution, okay? But at the end of the day, if you look at TFI today, okay, for head office, we have people working in Canada. We have also people working in the U.S. We have people in Montreal, in Toronto, Calgary. We have people in Chicago. We have people in Minneapolis. So we are all over the place in North America with our head office crew. So to me, it's just like an evolution, okay, because our business is now today about 70% U.S. domestic, 25% Canadian domestic, and about 3% or 4% or 5% transborder. So it's just an evolution, but we're not moving head office. We're not moving people from, let's say, Toronto to, I don't know, Chicago, no, no. Every member of the TFI head office is staying where they're at. So that's why we call TFI, TFI International is because we're Canadian and U.S.

Got it. Appreciate the time. Thanks, Alain.

Pleasure, Ken.

And your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.

Yeah, thanks very much. Good morning, Alain.

Good morning, sir.

So maybe just to clarify on the redomicile, you will not be delisting in Canada. Is that right?

No. No.

Okay. And will it be a full reincorporation or into the U.S.?

That Walter, because we're only in the early days, right? So we still have a lot of work to do on that. We have - we must get a shareholder approval of that. So to me, in a simple way, I mean, it's just like TFI International today is a Canadian Corp. tomorrow, once the shareholder approves it, it's going to be a U.S. Corp. So that's the way I understand it. So there's no big story except the fact that now by being a U.S. Corp on the Daseke acquisition, for example, one of our business unit deals a lot with DoD, the Department of Defense, the U.S. Department of Defense. And because we are a foreign owner, okay, that creates a little bit of issues for us. Okay. Well, that's no big deal. We can live with that. But the fact that now you are a U.S. Corp, that will help us, okay? So there's a few things like that. You could be part of some index in the U.S. because now you are a U.S. domicile. But at the end of the day, and like I said to our Board member yesterday, it's an evolution of TFI. If you look back 5 years ago, we had no U.S. shareholder. We were just Canadian, right? Today, just under 50%, 49.9% of our shareholders are U.S. and 4%, 5% were, I think, European or Japanese or something like that and 45% were Canadian. So it's an evolution.

Got it. Okay. And then my second question really is just on M&A. And you mentioned densification is a big objective and M&A can certainly help with that. This is a tough environment. So arguably, sellers are in a tough spot. Could you get - could you look at bolt-on or accelerating your bolt-on tuck-in acquisitions to a more significant pace to take advantage of potentially lower-than-normal acquisition multiples to achieve that density so that when things turn, you're building off a larger base?

Yeah. Yeah, you're right, Walter. I mean, for sure. But there's always the question, my - you've been with me for a long time, Walter, right? You know us really well. And me, my thing has always been you buy on bad news, and you sell in good news. But it's been bad news for TFI for the last 2 years, right? Since '22 when our EPS hit $8, I mean, it's just been bad. I mean we went to 6, something 6.15. And now this year, we're at 5.75. So with that in mind and all that's going on in '25 with the fog that nobody knows where we're going really. So a lot of people could be scared and say, hey, don't do anything crazy. Don't spend $1 billion or whatever. But I think that you have to be bold, okay? We have a very strong team in Canada, and we're also building a much stronger team in the U.S. in our specialty truckload with Steve Brookshaw and with Bob McGonigal at TForce Freight U.S. and also with Rick Hashie in our logistics, right? So you may be right, Walter. Maybe it's not going to be in '26. It could be maybe in '25, okay? But it's always to try to balance, okay, between being bold and trying to do something sooner than later, okay, because you may end up being ahead of the curve, okay, in terms of the market improving. Me, I really believe that the U.S. is the best place to be in the world in terms of business. And I feel really good about this U.S. economy. And I feel really that those guys, okay, will do a great job, the new administration. So I mean, to me, it's time to invest in the U.S. But then on the other side, I've got guys saying, oh, it's - you got to be careful. Your debt is at 2.1, your leverage is at 2.1. So this is why we're trying to reduce our debt by about $500 million, at least $500 million during the course of '25. So it's a balance, Walter, it's a balance. And we want to get the Q1 behind us because to me, Q1 is going to be very difficult when I look at my specialty truckload in the U.S., when I look at our U.S. LTL, it's going to be a very difficult Q1 and maybe also Q2 because with what's going on, we still don't know what are going to be the rules, right? So as of March, the new administration will talk about tariff. As of April 1, there will be a report by the treasury that's going to say whatever I don't know. So I think that the rules will be clearer starting the summer of '25 into the fall of '25. But with all this uncertainty, if you are bold, maybe it’s the right time to do a deal. So we'll see.

Okay. That's great. I appreciate the color, Alain. Thank you.

Thank you, Walter.

And your next question comes from the line of Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good morning. Thanks for taking the question.

Good morning, Brian.

Morning. Just wanted to ask if you could give a little more detail as to why you think you're seeing some of this mix shift in TForce Freight? And maybe how much you can quantify just how much more 3PL you're doing versus SMB? Is this competition that's the challenge? Is it service level? Is it kind of all the above?

I think it's all of the above. I think it's just a difficult environment, okay? Everybody is looking for freight. The perception is that through the master report is that, okay, TForce Freight is cheap, but the service is average or maybe not as good as the average of my peers. So I mean, we have to fight, and it's the focus of us. I mean, there are no other issues. Now this is what these sales guys have to do. I mean we've been working at it for 3 years, and we've not been very successful. The only success we had on the quality of freight is the average weight, which was really low. Now it is a little bit better at 1200. That's the only success that we have so far. We're trying to work with these guys to say, hey, your responsibility is to bring some freight. And so far, it's been difficult. So like I was saying to the team 2 days ago, the TForce Freight team is that, guys, I mean, I understand that we have this freight environment, but we have to have probably better people, better leaders. I mean, it’s - the ball is in their court, but it's tough.

So looking at Daseke, it looked like, at least on our math, it may be fairly profitable during the quarter. You made some comments that specialized TL was pretty tough. You have extra equipment laying around. So I just wanted to see if there was a path to better profitability? Or is that something you have to wait more for the cycle to turn around? So I guess a similar question there. How much of that is really in your control versus what the broader economy gives you?

Yeah. So the revenue per mile, okay, if you look at our revenue per mile, Q2, 3, and 4, it keeps coming down, okay? So it's really not good. Our revenue per truck because we have increased the number of miles stayed about steady. So more miles that we did per truck Q3, Q4 versus Q2, but less revenue per mile, okay, because the freight is scarce, right? So this is up to the end of '24. Going into '25, okay, rate per mile has got some stability, but because of everything that went on with the storm and this and that. So number of miles went down in January. And the killer that we have over there is that we have way too much capital invested - trucks and trailers invested in that company. And why is that? Because when we acquired Daseke, they had committed to buy a large number of trucks, which we could not walk away. So that's what we did in Q2 and 3 and 4 is we had to take on these trucks that would have been ordered. So now we have way too many trucks in a very difficult environment. So during the course of early '25, we have to start unloading those excess trucks that we have, okay? And then we'll have probably a better result in terms of our depreciation expense, which is just crazy, okay, with the revenue we have. In terms of customer, in terms of activity, okay, we're still in a freight recession in the specialty truckload. We are still not active like we should be in a normal environment, but it's been going on for 2, 3 years, right? So if you look at my peers in the U.S. in the van world, okay, it's really difficult. I mean us, if you look at my OR in Q4, I'm above 90 for the first time ever, okay? First time ever that our specialty truckload OR is above 90. I think we're 91 something. It's because Daseke is, like you said, probably running like a 98 OR, right? And the rest of our operation is running sub-90 OR, right? Because Daseke and the existing business that we had before we bought Daseke, it's about 50-50, okay? So legacy TFI specialty Truckload is about the same size as Daseke in terms of revenue. But in terms of profitability, it's day and night, right? So you're right, Daseke in Q4 did help us because if you look at my year-over-year improvement, top line is through the roof, but bottom line is we're a meager well, just a few million dollars. So that tells you that we didn't do too well, okay, in Q4 with our U.S. operation, okay? But this is a different environment. TForce is a big rock in my shoe, no question about it. Daseke and our U.S. specialty truckload, this is something that we will be able to fix on the cost side, on the equipment side during the course of '25. And if market conditions improve, that should help us. But if market does not improve, I mean, at least on the cost side with our specialty truckload, we have a path forward by shedding equipment, by improving our costs, improving our overhead as well, okay? So our overhead will come down during the course of '25. So I feel that Q1 is going to be difficult for specialty truckload as well, okay? But I think that we will bring the OR down sub-90 within the next Q2, Q3, and Q4.

Okay. Thanks very much. Really appreciate it.

Pleasure, Brian.

And your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. My connection is not great. Hopefully you can hear me, Alain.

Yes. No problem, Scott.

Okay, great. I know Ken asked, but any more color on the LTL just such a dramatic change. And then you've mentioned a few times tough Q1. Like do you think TForce is profitable? And then one more guidance kind of question. I know you're not giving specific guidance yet. But as you look at it today, do you think you'll grow consolidated earnings this year?

Tough - tough - tough question, Scott. So far, what we know with everything that's going on, okay, we did about $5.75 of EPS in '24. With everything that we know so far, same environment, everything the same. I think that $5.75 to $6, which is what we've done this year, it's still a very, very difficult environment. And I would say probably first 6 months of '25 will be more difficult than the first 6 months of '24, okay? And I think that the last 6 months should get better once we understand the new rules of the North American market. Now in terms of are we going to be profitable at TForce Freight, it's very difficult right now. So the month of January was not good for us. February is still tough. We believe that the sum of Q1, that's why we've asked our guys to give us a reforecast for Q1. It's tough for me to answer. But one thing is for sure is that we're not going to be better than a 97 OR in our Q1, right? So going back to your question about the average length of haul, for TForce Freight, to me, maybe I'm wrong, but in my mind, the average length of haul, okay, at TForce Freight is basically about the same. So I know Ken was saying that the length of haul has changed big time, but I don't know if it's a mistake. But in my mind, it's about the same. We're about the same as, let's say, ABF. ABF is about 1100 miles. We are about the same. I mean.

Okay. Okay. And then on the strategic side, when you were talking about LTL M&A, I think in your answer, you said like down the road, like five times, like it seems like it could be helpful now. Is this you not ready? Or are you not able to find a partner? And then just separately, on the redomicile, does that - what does that mean, if anything, for the idea of a spin at some point?

The spin. The spin, like I said earlier, Scott, we need size. So if you look at our market cap today, when we talk to our investors, large investors of TFI, they like the idea of the spin, but they say you're too small. You're too small. So if you're a $12 billion market cap guy and you split the company in two and one is, let's say, 6 and the other one is 6 - 2.6, 2.6 is small. So we think that your idea is really good. It makes a lot of sense, but try to get a little bit bigger. So let's say, if you do a deal and your market cap is 15, okay, because you're buying something good at a reasonable price, then it makes it easier to do, number one. Number two, it takes time. So in the meantime, what we're doing, Scott, we're not sitting on our hands, okay? We're getting ready, okay? So we have to work on systems, right? So - because when you do the split, you don't want to be stuck with a TSA, a transition agreement for 3 years like we had with UPS, right? So we're making some moves on the real estate side, too. We're making some moves on the asset side, okay? So let's say, we have trucks that are, let's say, in business A, but they should be in business B because what we used to do in Canada is to have a global portfolio of all assets mixed up between truckload and LTL. So now we're going to the split. So we're not sitting on our hands. We're getting ready, okay, to do that. But it's still in the cards, absolutely because it makes a lot of sense. The return on invested capital of our truckload operation is single digits in Q4, single digit, 8-point something, if I remember, I mean - and then the rest of our business in a very difficult environment, terrible environment for us, logistics, okay, LTL, I mean, we're running at 15%, 17%, 18% return on invested capital. So it's not the same. So it's got to be separate at one point.

Thank you, guys. Appreciate it.

Pleasure.

And your next question comes from the line of Bruce Chan with Stifel. Please go ahead.

Yeah. Thanks, operator. And good morning, Alain.

Good morning, Bruce.

You spoke a lot about. Yeah. Great to speak with you. You made some comments about the sales team earlier in the call and the opportunity in SMB, which I think makes a lot of sense. But you've also been trying for 3 years at this. You've had a lot of competitors in the space targeting this type of business. So I guess the question is, how does win in these RFPs? Are you just going to keep slogging it out? Do you need to hire more? Do you need to change incentives, especially without improving your service first?

Yeah. I think we did all of that today. We changed incentives, okay? We've changed people, okay? The focus is still the same. And we've not been able to have results, right? So you know, we are working on our service. We have improved service at TForce Freight, absolutely. Right now, if you look at my miss pickup, I still have way too many. I've got about a little shy of 400 a day that we miss pickup. But we used to be double that, right? So we are improving. Now for sure, the Mastio report is not helping us in the perception of TForce Freight. Why is that? Because we came to know that sadly, Mastio was trying to get in touch with us, and they couldn't get in touch with us for 4 years. So they were using information that is stale from 2020. So maybe this report is not accurate because we never provided them the right information for them to really get a true picture of TForce Freight services, right? So hopefully, down the road now that we have a communication, they will talk to customers that we service and maybe, hopefully, that perception that TForce Freight service is not good will improve. And I think the service reality-wise has improved, right? Now our sales team are fighting that, okay, and are fighting our peers that have better service. And in a difficult environment, okay, where freight is not easy to find, service is key, right? So if the customer has the perception that your service is not as good as the other guy and the price is about the same, well, the customer is not stupid. It's going to go with the other guy, right? So we have to change this perception of service, and we also have to work on improving our service at the same time. And we also have to educate our sales team that, guys, I mean, our service is improving, guys. And you got to fight. You got to fight, right? And so far, if I look at my corporate and 3PL, we're about flat, okay, in '24 year-over-year. So far in '25, we're down a little bit on corporate, but about flat on 3PL. But we're down on - again, on small, medium-sized accounts, which is the most profitable business that you can have. So I mean - so we're trying organically, okay, to improve that because that will help us with our density. And like I said earlier in the call, down the road, okay, and that's what we've done in Canada. That's what we've done in Canada for years and years and years is that we beef up our density through M&A, okay, through M&A. So we continue to do that. And in Canada, we run either union or non-union, right? So we've got a union network, and we also have a non-union network. And we beef up density in all these two networks all the time. And this is now after trying for 3 years, okay, to grow organically and it's not working, okay? So we keep pushing our sales team to grow this thing. But we now understand that we have to do something, okay, down the road on M&A, either to build a non-union network on the side or to try to grow with some regional unionized LTL to beef up TForce Freight. I mean - but don't forget, our approach to M&A is always the same, is that if we do some M&A, we keep business separate, right? We don't like merger. We're not a big fan of merger, okay? We don't do that, right? So we work together. So let's say, we own another company. I mean, we will work - the two companies will work together, but there's no combination. There's no merger. We hate that because, yes, the accountant will tell you that you could save a lot of money. But at the end of the day, it's falls. So we keep the two - like we do in Canada, right?

Okay. That's really helpful color. And then just a really quick follow-up on that M&A point. Is the thought still that an asset-light operation makes the most sense? Or are you kind of broadening up the search a little bit?

Well, asset-light is always the best. So if you look at our Canadian LTL, it's really, really light. Why is that? Because we are heavy intermodal. We are also heavy with third-party P&D. So for sure, I mean, if we have an option to buy an asset-light at a reasonable price, okay, we'll jump on that one first. Now we also understand that there's not that many asset-light operation in the U.S. on the LTL side. So then okay, we look at an asset operation. So about a year ago, we bought a $100 million revenue asset company, non-union in the U.S., okay? So this is our first, okay, of maybe more to come on that side. Now this company, the beauty of this company is that they're also big in the transborder between U.S. and Canada, right, which has better yield, better yield than U.S. domestic or better yield than Canadian domestic. So this is a first for us a year ago. And down the road, okay, this is an area that we'll be trying to grow. And maybe if we can find a good brother to TForce Freight, okay, I mean, that's also something that we're going to be looking at. If we can find a good brother, a good fit, but without merging, I mean, guys never say that TFI wants to buy a company and merge it with A or B or C, we don't do that.

Yeah. Thanks. Good morning. I'll stick to one question as well. And you kind of mentioned earlier in the call just around uncertainty around tariffs and what that might mean for volumes. Just wondering if you can just talk a little bit about your cross-border exposure. I know you've got a decent amount of automotive work. I'm not sure how much of that is cross-border. Just any, I guess, additional color you can provide on where you see the risk might be if we have some sort of big blanket tariff applied to Canadian imports into the U.S.

Yeah. Good question, Cameron. I mean, we owe a lot of aluminum us, okay? So for sure, aluminum is going to be part of the tariff. I mean, Mr. Trump has already said that aluminum tariff is going to be 25%. So we know that, okay? But we lived through that also in '18, right? So I don't think that this is going to affect the volume for aluminum, but we don't know. When we talk to customers, I mean, they feel good, but we don't know, right? This is why I'm saying we are going through some fog right now because I think that by the summer, we'll know. But right now, we don't know. Steel, we believe that Canada produces a lot of steel for the U.S. market. Some of it is specialized. So I don't see issues too much with that. We haul some of that. Some of it is more like commodity steel, which is like Stelco, for example. So that could be a problem, okay, with tariff. So this is mostly affects Ontario. It will affect us a little bit, but the problem is always the domino effect of all these truckers that are hauling this product that we don't us today that now are out of work, could they start to rock the ship and attack some of our customers that we service today. So it's still difficult to say, right? But because we're mostly a specialty truckload guy, it's not as easy as a van kind of world, right? So what we know so far, Cameron, we shouldn't be doing too bad. Now the transborder revenue is about 4% of global TFI revenue, 4%. So it's big, but it's not that big, right? So we'll have to see. That's why we cannot provide guidance. I mean, even my U.S. peers, okay, are having a tough time to give guidance because of all this unknown is inflation coming back in the U.S. or in Canada, okay? Who knows? The interest rates, are they going to stay high like they are in the U.S. The 10-year U.S. bond is 4.5 or about that. So that's high, right? So is this going to stay? Mr. Trump wants interest rates to come down. But so far, it's not happening, right? So all of this is creating a lot of issues and not knowing where we're going. But to me, it's foggy, but it's going to clear up. It's going to clear up. I think it's going to clear up in the summer, and then we know the rules, and then we’ll just adjust.

Okay. No, that makes sense. Appreciate the time. Thanks very much.

Pleasure, Cameron.

And that is the end of our question-and-answer session. I would like to turn it back to Alain Bedard for closing remarks.

Okay. So all right. Well, thank you very much, operator, and we appreciate everyone joining today's call. I want to thank you for your interest in TFI International. So I look forward to providing additional updates as we move through the New Year. And please, if you have any additional questions, be sure to reach out. Enjoy the day, everyone, and thank you again. Bye.

Thank you, Alain. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.