Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Second Quarter 2021 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 [Operator Instructions]. Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Also as a reminder, TFI changed its presentation currency at year-end 2020 and all dollar amounts are in U.S. Dollars. Lastly, I would like to remind everyone that this conference call is being recorded on Monday, July 26, 2021. 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, operator, and thank you everyone for joining us this evening. So today after the market those we released our second quarter 2021 results. TFI International again generated very strong performance with each of our business segments demonstrating growth and enhanced profitability over the prior year. This strong performance reflects not only the strengthening economic landscape, but our own favorable positioning in the transportation sector following the moves we've made to navigate the pandemic, and more recently, our game changing acquisition of UPS Freight. Over the past year despite unprecedented global challenges, we remain focused on what we do best. We get it right on the fundamental details of the business. We look to maximize efficiencies, and we seek strategic acquisition opportunities. This approach to the business which we adhere to regardless of operating condition is aimed at increasing returns on invested capital, optimizing our free cash flow and growing our earnings per share in order to create long-term shareholder value, and return excess capital to shareholders whenever possible. Already, our recent acquisition of UPS Freight now branded TForce Freight under the TFI umbrella is outperforming expectation. This strong performance benefited not only from pricing, but our own focus on freight that fits, in other words, the right freight for our network. As a reminder, this acquisition we view as one of the most strategic in our history, turning TFI International into a top five North American LTL carrier, in addition to the leading position we hold in seven of our other operating segments. TForce Freight is already having a positive impact on our overall results, which I'll now review. During the second quarter, our total revenue climbed to $1.8 billion, more than doubling from approximately $800 million the prior year, and even on an organic basis, reflecting…

[Operator Instructions] Your first question comes from the line of Ravi Shanker of Morgan Stanley.

Thank you. Good evening, Alain. Obviously, excellent LTL quarter and OR there, relative to expectations, as you said, you're running ahead of schedule. Can you help us understand how much of that was a quarterly seasonality and kind of how much you're really running ahead of your kind of short-term and long-term targets? And also, are you thinking of updating your targets on what the OR can actually be there? Thanks.

Yeah, very good questions. So you know what Ravi, if we look at our Canadian LTL quarter per quarter, I mean, we're very stable. We don't have much of this seasonal, okay, instability that we see right now at TForce Freight. So TForce Freight best quarter is Q2, right, and worst quarter is Q1. And there's a lot of swing between, let's say Q1, and Q2, and Q3, and in Q4, which in our mind is not normal. So for sure, we'll be addressing that. So, right now, we look like champions, because we report the NOR of 90% in Q2, okay. And we know that there's some cyclicality over there at TForce Freight that we're going to be working on. So if I look, for instance, at November is a slow month for us in terms of profitability, December, January. And, in our world of LTL, we never lose money in a month. In the world of TForce Freight today, the experience, if you go back and look at every years, there's a few months in a year that the company was losing money. So that's for sure, that's something that we're going to be working on with the team. But I'm very happy to say that we have a fantastic collaboration with the team over there in Richmond, led by Paul. It's really a great experience that we're having with these guys. And this is going to be a great success. This company, with the team that's there is going to turn to be a great success. Now, in terms of attending, better OR than a 90% that we did, so what I can see on that Ravi is that now I believe that within the next few quarters, maybe three, four or five, six quarters this company will be a sub 90 OR, for sure. I mean, think about that, in our Q2 in Canada in a terrible market compared to the U.S., when you say terrible it’s terrible. We ran the 78% OR, right, in a market, if you look at our statistic, in our MD&A, in the quality of revenue of our Canadian operation versus the quality of our revenue at TForce Freight today, which will improve over time. I mean, we run 78. So to me, can we do better than 90, six months ago when we did the acquisition, I said guys, I think we could do 90 within the next few years. Now, what I could say that guys, I think that we'll do better than 90 with the next few quarters.

Yeah. Thanks, Alain.

Good.

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

Great. Yeah. I wanted to Alain ask you about the just kind of tonnage and pricing trade-offs that you made, and how you think about that evolving going forward. That's specifically about the TForce Freight. It's obviously a good market backdrop with the market so tight, but kind of how have you responded, and how far along are you on the getting rid of the bad quality freight and pricing things up?

Yeah. Well, you know what, I mean, in terms of getting rid of the freight that does not fit, I mean, for sure, we're, we're working really hard with the team over there. We can't hold a shipment with the revenue of less than $100. This is something that we are addressing. All the historical charge that were waived because of whatever reason, we're looking at that. So we're correcting a lot of issues, where customers were probably taking advantage of the company. So we're slowly correcting that, and at the same time we're working on the costs. Now, in terms of growing the volume, I would say that our volume will probably be steady during the course of the next 12-months. Because our goal number one is to hold only the freight that fits our mission. And our mission is to make money, we're not in the business of holding freight just for the pleasure of holding freight. So the next 12-months is working on the costs, getting the new CapEx in, training our employees with the new technology, with the new trucks, safer ways of driving a truck. I'll give an example, when we bought the company, the trucks were running at 68 miles per hour. And then we did the study of our peers in the U.S., and we found out that everybody is at 65, so why run 68. Well, it's because nobody knows why. So we are working with a team there and we are adjusting the speed of our truck to 65 to be safer on the road. Now, these are all the things. So to get back to your question in terms of growth volume, I don't see that much. I mean, we're going to be growing the profitability of the company by working on the costs, and making sure that every piece of freight that we hold we make money on it. So we're not in the business of paying Paul for Peter, and then this is a loss either, but we get this, no, no, no, no, that's not us.

So, I guess just to understand that a little bit better, though, how much of the freight did you actually have a chance to touch in terms of pricing? I mean, I assume that would have a meaningful effect on the kind of trajectory of OR, did you touch half of it, or a large portion of it?

No, we haven't touched half of it. I mean, we bought the company two months ago. So what we've been addressing is a cursorial, okay. We've been addressing appointment freight. We've been addressing, for instance, we have a customer whereby we have about 400 trailers of freight every day for appointment. And this customer was paying a very cheap rate of $19 a day after five days, so we've corrected that for $50 after two days. And this customer is one of our largest customers who we had to adjust the rate to be fair. So if you ask me that question in terms of quality of revenue, we're just starting. We were just starting. I mean, we just can't go. Now, I have to say that Paul and the team there, they had what they call the Phoenix plan where they've already started before we bought the company to correct certain situation. Now, with us, we're just trying to accelerate that. Now, this is not going to be done over the next two months. This will take us probably more than a year to correct all these issues that we have with the freight that does not fit.

Right. Okay. So that 90 OR is done without too much work on the pricing, which seems to imply a lot of runway left. So if I understand you, right?

Yeah.

Yeah. Okay. Thank you for the time, Alain.

My pleasure.

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

Hey, thanks. Afternoon, Alain. So just want to start with the guidance implies about $1.20 per quarter, you guys just did $1.44 with only two months of UPS Freight. Is this the typical conservatism that that we typically get from you or anything else you want us to just be thinking about as we think about the back-half for the year?

Well, Scott, our motto at TFI is under promise and over deliver, you know that. I mean, we're conservative. We're not liberals. So, what we want is to give what we think is attainable. But, attainable, but we'll try to do better than that.

Okay. Understood. And just want to just clarify a couple things on the margin. So when you talk about sub 90 within a few quarters, I assume you mean, on an annualized basis?

Yes.

Okay. And then, maybe just some thoughts on the truckload, U.S. truckload still at a 93 operating ratio, and what you guide there?

No, not good. But don't forget that, our U.S. TL that we got from our friends at UPS, we run 110 OR with this division, it's a disaster. I mean, it's just terrible. So Greg Orr, which is a very, very great operator took on, and we're working really hard on that. So you should see us starting to improve, but it will take us some time. I mean, there's lots of contracts because this is -- what we got from UPS is mostly dedicated truckload operation. So you're stuck with a contract, you're stuck with a deal that don't make sense. So it takes time to correct that. So, our truckload operation will turn around, will improve, but that will take a little bit more time, because what we got from this acquisition is a lot of garbage in terms of contracts. But talking to Greg last week, he says Alain, we're signing new deals with customer with sub 90 ORs and we're going to do well. But this is like going back to 2017, Scott, when we bought our friends CFI, it took us eight months to clean the mess. We bought it in November, more than that, we bought it in November. And finally, I think we clean up the mess it was in October. So it was like 11-months. So now, we've been running the company for three months. And also it will take us some time, but this is, again, it's a small part of our business. And I think that the golden nugget of TFI today, the golden diamond, that is not really polished, because we just got it. It's TForce Freight. We've got the team, we've got -- the market is helping us for sure. I mean, the market is tight, that's help. I mean, our timing is great for that to correct some certain situation. Well, we have a great team. And we're going to spend a lot of capital there to upgrade the facility, to upgrade the fleet, to train our people. Because, for UPS, this division was very small, it was an orphan. For us, it's the most important division we have within TFI. So for sure, we're going to spend a lot of time and energy working with the team there to make things happen, as fast as we can. Think about it, we were surprised that we could come up with Q2 with something like a 90 award. Now, going back to the question of Ravi, for sure there's cyclicality within TForce Freight. So Q2 is the best quarter. Normally Q3 is not as good, and Q4 is not as good as three. And Q1 is not great. But we're going to be working on that.

Thank you for the time.

My pleasure.

Your next question comes from the line of Jack Atkins of Stephens. Your line is open.

Thanks for taking my question, Alain. So I guess just back to the broader point around taking the freight that fits, you called out those lower dollar, I'm guessing smaller wage shipments. That’s something you're looking to really address. But are there other places within your network or portfolio businesses where that freight may set, so whether that's a non-asset based LTL, or with the grouted freight pricing? Can you talk about how you can service those customers even if it's not within assets base LTL?

Yeah. You know what, Jack, this is a great question, because one of the best asset we got when we bought TForce Freight is GFP. UPS did a fantastic job of creating that, because when it doesn't fit an LTL, because it's too small, let's say it's two boxes on a pallet, it doesn't make any sense for an LTL carrier to take on because it weighs only those two box, maybe 125 pounds and the revenue is going to be low. So, so it doesn't make sense for the LTL. So us, we have the opportunity working with UPS ground, if it's conveyable, right, it's got to be conveyable. So if it's conveyable, then we have a discussion with our partner UPS ground and say, guys, how about if you guys take it on. I mean, for us doesn't make any sense, we are charging the customer too much. And if they deal with UPS ground for those two cartons, they're going to save money. We will make our margin on it, and UPS will make their money on it as well. So it's a win-win situation. So you're absolutely right, we have the opportunity for us to move some of the freight that doesn't fit us to our partner UPS ground. Now, if it's not conveyable, that's a different story. UPS will say, well, I don't want it right. It's not conveyable I don't want to touch it. So then we look at a different situation, a different solution. So here comes our last mile, guys. Our last mile guys could be another solution too. I mean, although so far, we have not introduced our last mile guys yet. But it's another card in the deck that we could play with our customers.

Okay, now that makes a lot of sense. And I guess just for my follow-up question. When you think about the opportunity with that ground and freight pricing service over the next several years, how big could that be? Are there any constraints to growth there? And sort of how are you thinking about the opportunity set, as you look out two or three years?

No, there's no constraints, Jack, because it's a win-win for us and it's a win-win-win for UPS. I mean, we are significant customers of UPS with GFP. And it's a great, great thing. I mean, as a matter of fact, we're trying to introduce GFP in Canada. We're testing it now. And we got the support of UPS Canada in order to introduce this same kind of service. And we'll see if we can have it fly in Canada. But no, there's no constraints there because it's such a win-win for us and for them, that this thing is going to keep on growing. Absolutely. It's another diamond within the family of TFI. The LTL is a big diamond in the rough, this one is a smaller diamond, but it really looks really, really brilliant. Sharp.

Okay, that's great. Congrats on a great quarter.

Thank you.

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

Yeah, just switching gears for a second on the parcel sector. Obviously, the shipment growth was strong, yields were really strong. Can you talk a little bit about your views as we move into peak season around the trends and packaging courier?

Yeah, it's a very good question, too, because you know what, we are already addressing the situation with our customers where we have to do the same as UPS or FedEx. We have to put caps on our customers, because, we can't keep -- yeah, if you look at my growth Q2 this year versus last year, I mean, it was a weak quarter last year. It was like a disastrous quarter. But if you look at my Q1, I was up 20. If you look at – I mean my Q4 was up 20, my Q1 was up 19. So this is we could live with that. But now going into Q3 and in Q4, I don't think that we are going to be able because now three of 20 and four of 20, we were already really, really busy. Now what you're going to see is us improving with maybe not a plus 20, but maybe it's going to be more like a plus 10 or 15 for Q3 and in Q4 talking volume. But you'll see us improving the bottom line the profitability again, because don't forget, last year was like Q3, and Q4 was like a tsunami. So we got overwhelmed like everybody else with volume. And sometimes, we had to serve as business where our margin was not the 20 points. So TFI’s mentality and culture is our guys. Let's readdress the situation, because us when business for 20 points. P&C is 20 points, it's not 10 is not six it’s 20, and even more in a busy season. If you look at my Q4 last year, I was a 19 point guy, if I remember correctly, in Q4. And if you look at now, what we've done, I mean, it's fantastic what we've done…

Okay, great. Well, thank you for that answer.

Pleasure, Jordan.

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

Good afternoon, Alain, and thanks for taking my question. Great quarter.

My pleasure.

So maybe, I want to kind of dig in to the TForce Freight a little bit more. Going back to the question before, I want to ask you a little bit differently. Like what portion of that $3 billion business you got from UPS, what portion of that business is satisfactory in terms of your yield and margin profile? And what portion is not? Like, can you split the two for us that'd be great?

Yeah, so if I understand correctly, your question is, we're just scratching the surface right now in terms of the quality of revenue. What we've been able to do so far is address the major customers certain major account, three or four major accounts that we are addressing, in terms of freight that fits or rates that don't fit, et cetera, et cetera. So, on the quality of revenue so far, we've been doing that. And we've also been in a position to address a cursorial appointment freight, a freight that's too long, tailgate charges to customers, that used to be waves and now are not. So, we just scratched the surface. And we're going to go by wave. But more importantly, what is going to come in the next, let's say six to eight quarters, is the improvement on the cost, because this new fleet that we're going to be improving is going to reduce our maintenance costs. While so far, maintenance cost is the same, because we have the same fleet, as we had when we bought the company. Fuel economy is the same, it's the ship, it’s bad. Why? Because we have the same trucks. So on the cost side, there's some things that we need to do in order to reduce our costs. Now, what we've done so far in the cost side is we shut down about I would say about 30 fueling station. Now, what that does, is that you don't save a lot of money because the fuel is about the same price, fuel in or fuel on the road, but it reduces the risk of an environmental cost. And it also improves the way you could control your costs, in terms of leakage, in terms of not being able to control what's…

That’s a fair color, Alain, thanks. And one follow-up on the CapEx if I got it correctly, you said $250 million to $300 million. I think seems like it's down about $50 million from your prior year guidance for this year. I’m wondering what took it down? Is it UPS, or is it something else in the system?

No, the problem we have is that in our order, the supply of our trucks in the U.S. by cart is having issue and they had to delay some of the trucks that were promised in ‘21 into ‘22. So all the trucks, the 1,100 trucks, we were supposed to get them by December of ‘21. Now, I don't remember the exact number of trucks, but some are going to be overlapping to January and February of ‘22. That's why you see less CapEx than what we said previously.

Makes sense. Perfect. Thank you, Alain. And good quarter again.

Yeah. My pleasure.

Your next question comes from the line of Brian Ossenbeck of J.P. Morgan. Your line is open.

Alright, thank you. Hey, good evening, Alain. How are you?

Hi, I'm good, Brian. How about you?

Good. Thanks. I just wanted to talk about the real estate footprint at TForce Freight. I know you have some terminals that you own, some of that you’ve leased, some that are probably in better locations than not, and maybe a few you want to add. So can you just give us an update in terms of what that portfolio looks like, the ability to change it? And I think the long-term optionality to add some different tenants, rents from different businesses out there?

Yes, that's a good question. But we're just starting to look at that. To answer this question is difficult for me at this time, but what I can tell you so far is that we got 12,000 doors, 10,000 that we own, 2,000 that we lease. And in my mind to do about 33,000, 34,000 bills a day, you don't need 12,000 doors. So for sure, we got way too many doors, number one. Number two is if I look at a city, I'll take the example of Chicago. To service Chicago, you need three or four or five terminals, you don't need that. It's a nightmare for the lineup. So that's another situation. What we're going to be looking at, is there a way that we can service as an example Chicago with maybe two terminals instead of four. So in order to do that, maybe while terminal A in Chicago, well, can you extend that one with I don't know 50 doors. Okay, well, yeah, it could be done. It will take time. So that we could shut let's say the terminal that you have in another part of Chicago. So all this reorg, we haven't really started, but this is something that for sure, it's really important to us. And down the road, we have to find tenants. We have to find tenants for these doors, so for sure, we're talking to other carriers. We're trying to exchange information about what we have us today that we believe is available, what these guys are looking for. So we're having some discussion with other carriers to help them and help us, right. But it's a little early Brian to give you -- it's going to take me another for sure six months to have a better understanding, because…

Alright, thanks for that. Maybe a quick follow-up on a short-term nature then, labor, costs and availability. Just in general, how do you see that progressing throughout the rest of the year in terms of expense visibility, and even just the availability? Do you think you're going to be running into any constraints on growth? And have you foresee that playing out for us this year?

See, Brian, I said it, I don't see us growing this year in terms of volume. I think it's not possible. Number one is because, we're looking for drivers, we're looking for dock workers as we speak, TForce Freight, which is unusual, because, historically, our turnover was above 12%. It's not a truckload operation. But even now, we had people retire when we took over there, some people say, you know what, this is not UPS. Those are the -- who are these guys, so you know what, I don't want to know who are these guys, so they just retired. So we're going through that now. So this is why I'm saying I think our volume is going to remain the same for ‘21. But in terms of expenses or recruitment, for sure, this is something that we have to spend a little bit more like signing bonus and all this, yes. But in terms of growing our volume, no. Right now, our focus, Brian is to grow the bottom line, not the volume, and we got a lot to do.

All right, great. Thank you for the time, Alain.

My pleasure, Brian.

Your next question comes from the line of Tim James of TD Securities. Your line is open.

Thank you. Thanks for your time, Alain. First question, wondering if I can dig in a little bit more to the specifics on where TForce Freight really outperformed for you relative to the guidance for the indications that you provided at the time of the acquisition. It sounds from what you're saying about fleet purchases, it's not obviously on that front. Is this just a matter of you kind of got into the weeds with customers and got pricing updated more quickly than you anticipated? Or, maybe just some additional color on what was better than expected?

Well, for sure, it's not really the costs. The costs we haven't done anything yet really big on the costs. So you're absolutely right, when we start looking at it, I remember my first meeting there in Richmond, and when we say guys, you can't hold freight for $100, you can't hold freight for $50 a shipment. That's not us. We have to change that tomorrow. So we start looking at that. They look at that every day. So this is something that we were able to do fast. So we used to do about 1,500 shipments a day for less than $100 out of 33,000, 34,000. So a shipment of less than $100, you lose your shirt on that. So if you stop doing that, well, this is addition by subtraction. So that's one example that we were able to do fast. But, if you would have asked me, I think you think that these guys have shipments under $100, I would have said no, impossible. No, they're not doing that. Well, they were. And, we're looking at the situation, because sometimes a shipper pops up, and you haven't seen him for three weeks. And now whoops, he comes up with a shipment for $70, because we had an agreement with him and we have lots of agreement with customers. So this guy pops up, so now we're addressing it. So that's one example plus the cursorial that I've said earlier, plus a few of those big account. Our largest account, we were running with this large account 120 OR. I mean, what is this, guys? What were we smoking when we give the race to this guy? So, July 1, now this is not even in Q2, but July 1, we addressed the situation with this shipper. We…

Okay, that's very helpful. Just one kind of follow-up question. Now, I assume the environment is very good for going to your customers and having these discussions. I mean, are you finding anyone that’s saying, look, we're not prepared to accept higher pricing, and therefore they're walking away? And as part of that that question, you mentioned about flat or sort of relatively flat volume at TForce Freight this year, that's not surprising, right? That was always kind of part of your thinking, I believe, right?

Yes, absolutely. For sure, you cannot correct a situation, whereby, the customer is taking huge advantage of you. And for sure, he is going to say no, and he's going to walk, but then he may come back. So this is why when I look at our volume, we're about flat because we win some, we lose some, but at the end of the day, we correct the situation or the quality of revenue. So this is why -- and the market for labor is really, really tight. So, to me, I'm saying why am I going to hold this freight and lose money when the market is so tight? No, forget about it.

Okay. Thank you very much, Alain.

My pleasure.

Your next question comes from the line of Jason Seidl of Cowen. Your line is open.

Thank you, operator. Good evening, Alain. I want to talk about the P&C a bit here. You sort of mentioned Canadians going back to work. You're obviously a little bit behind the U.S. in vaccination rates. But how should we think about 2022, you pick up more B2B type of business than we had in 2021, and then definitely than we had in 2020? So how should we think about the margin impact there?

Yeah. Well, you know what, historically B2B has always provided us with better margin, because we have more coincidence of delivery in a B2D world than on the B2C world, right. So if you look on average, normally, you say, well, you're going deliver one package to a home, so it's one stop one package, so it's not really great. But, with this growth in e-commerce and also focusing more on to the high density B2C operation, so for example, the downtown Toronto, Vancouver, Montreal. So we were able to get our coincidence delivery about the same without the B2B, because our B2B is still not back to where it was, but we still have go somewhere do the same kind of coincidence of delivery, which is a little over two, two and a quarter, two and a half parcel per stop with the B2C. Now, B2B in the fall of ‘21 will start to come back to more normal, but also some B2B will never come back, because they shut down the store. So what we anticipate is that our B2B should start to come back a little bit, but it's not going to be like a pre-COVID thing there. Some of our customers are not going to reopen. So it's still difficult. What we're seeing is, for example, one of our diamond in our P&C ICS, that was really badly affected by the COVID thing there. That's one of our major success of Q2, is that for some of Q2 ICS was very close to being back to normal, not normal, but close. So let's say, like 80%. We believe that in Q3 and Q4, probably back to maybe 90%, of what it was pre-COVID other than maybe its loss is gone. So, that's why I'm saying that, our P&C, which is one of our diamond, it's going to keep on improving. It's going to keep on growing. We're investing, so we are building a new terminal in Winnipeg as we speak, should open up early ‘22. We're also building a new terminal in Barrie, Ontario, just north of Toronto should open in Q1 of ‘22. We're also reorganizing our Vancouver that we cover Vancouver, we have two terminals in Vancouver, so the south shore and Burnaby. So we are reorganizing that with our team over there. We're looking at what we're going to do in Toronto. So we have one center in Toronto, in my mind that within the next two years because of volume issues, we will probably have two sorting facilities in Toronto. We have three in Montreal, one sorting and what two satellites. So, this business is going to keep on growing. B2B coming back and keep on growing the B2C.

That's good color. I want to switch on back again to the topic du jour here, which is your U.S. TForce Freight business. You mentioned freight selectivity and cursorial charges were really what sort of got you beyond expectations this quarter, and knowing full well that you've only owned it for two months, it's really hard to get really redo a lot of existing contracts. How should we think sort of by the end of this year? So by the end of ‘21, what percent of the contracts do you think you'll actually have been able to get at by then?

Jason, I don't know that. So I would say that, not the majority, it's impossible, because we're getting into the busy season. It's also we went on the priority list. So really the accounts that we feel that it doesn't make any sense in terms of profitability. So to give you an answer on that, it's hard for me, but we're just scratching the surface in terms of adjusting to reality. If you look at the quality of our revenue in our MD&A, and U.S. LTL, and you compare that with our peers, in terms of average weight, for instance, our average weight is way too low. Why? Because we still have way too many small shipments. We will correct that over time. Our average length of all is okay. It's comparable to probably most of our peers, but then if you look at the revenue per 100 weight, or the revenue per shipment, we are behind our peers, the good peers I'm talking about. So that tells you that we have a long way to go still in correcting the quality of revenue.

I appreciate the time as always, and good quarter. Thank you.

It's a pleasure, Jason.

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

Thank you very much, operator. Good afternoon, Alain. How are you doing?

I'm doing well, Walter. What are you?

Good. Just looking forward here, obviously, the integration of the UPS Freight acquisition is going very well, and perhaps better than you were hoping. And I'm wondering if that now allows you to look a little forward to the next acquisition, perhaps a little bit sooner than you would have typically. Looking at your leverage now, it's still a less than two times, like I said, the integration going well, perhaps cleared your desk a little bit, and allows you to look at a file that perhaps you were putting off a little later. Is that a fair thing to consider? Or, are you still further out before you start looking at other deals?

I think, Walter, you've been dealing with me for too long. So you understand the vision and the philosophy. So what I can tell you is I need to look at Q3, based on what I see in Q3, I could answer that. But if Q3 is in line with what I think that the team there could do, Paul and his team. You’re absolutely right, we will definitely look at our M&A situation much earlier than I thought.

That's fantastic. And if you were to, let's say, hypothetically speaking and looking at the areas where you would like to see TFI a little larger or have scale, either Canada versus U.S. I know you've talked a bit about specialized truckload as an area you've always liked. Could that be the area where you're going to focus? Or would it be somewhere else?

Well, you know what, we're a big fan of P&C, but there's nothing I can do on that. So I can't buy Puro [ph] in Canada and I can't do anything in the U.S. So really Walter, sectors that we really love is our logistics. Look at our return on invested capital, what we're doing there, we bought WW at a very good price, when you look at what our friends bought Transplace for. So for sure, that's an area that we're really in love with Cal and his team, so, you guys could see us doing something very, very interesting soon on that. The truckload, the specialty truckload for sure, because we're small. The van division, yeah, we're busy right now, because we have to fix this UPS truckload division. I mean, this is a Greg and his team, they're really busy at that maybe a small transaction, but nothing of size. So what's left is our LTL. So, like I said, many, many times, I should have been in the LTL much earlier than that, in the U.S. I'm talking about here. We have a great partnership with Saia through our TSC operation. So, down the road, if there's an opportunity in LTL, for sure, we're going to look at it. If there's a way that we could grow our LTL footprint in the U.S. because, like I said earlier, we got lots of real estate. So we probably have 30% of too many doors today. So, maybe LTL makes sense too if there's an opportunity down the road. But don't forget, I mean, most of our significant deal is always something that we do ourselves. We get in touch with the target, and we tried to convince them that it would be good for them, like we did with our friends at UPS. It was a great deal for them. It's a great deal for us. So probably the next one will be something like that.

Appreciate the colors, Alain. And congrats on a great quarter.

My pleasure. Thank you, Walter.

Your next question comes from the line of Ari Rosa of Bank of America. Your line is open.

Good afternoon, Alain. Very nice quarter. So, I wanted to talk about some of the seasonality that you addressed in terms of the UPS Freight. Obviously, very impressive to put up a 90% operating ratio so quickly after acquiring the business. But given that seasonality that you've seen, is there a good way to think about what that OR might have looked like, if you hadn't touched the business at all? Or kind of what the incremental impact was that the changes that you had made so much so far? And then also, should we then interpret that seasonality comment as implying that historically UPS has kind of sat on a lot of idle capacity in some of the slower periods? And how you're thinking about addressing that?

Yeah. It's difficult for me to answer what it could have been if we would not have bought the company, but I know that looking at the trend that UPS was working on for sure. They were going to start making money with UPS Freight. Now, would they have run a 10 point OR in Q2? I don't know. What I could tell you is that the trend there already the team at UPS was focusing on improving all kinds of things. But were they committed to invest the capital like we are? Maybe not, because those guys had different projects within their main business, which is a P&C. Now, in terms of adjusting the situation at TForce Freight, when we look at that, I was surprised to see how much of variation there is between one month to the other. So, for sure, their Q2 historically has always been the best. But, also, you got to remember that GFP, which is the contract between TForce Freight and UPS is steady eddy. So really what happened is that the LTL operation per se, was not making a lot of money. And in the difficult months of, let's say, November or December, January and February when it's winter, they were losing money, big time. So us for sure, it's going to be our priority to try to understand and immediately look at the situation and correct the situation, so that we tighten up the costs, so that we don't come up with losing money. I remember 25-years ago, I started with an LTL company is small. And they were losing money in November, December, January and February. But this company today makes money all the time. So, again, it's early, it's only two months. So this is why going back to Walter’s question, I want to see what July is going to look like, what August is going to look like, what September is going to look like and see, are we really controlling more of this seasonality that happened over there in the past. So this is why when I said, guys, I think that, this is going to be a sub 90 company within the next few quarters on a yearly basis, because I believe that we're going to improve the seasonality. Now, is this going to be as close to perfection as we have in Canada? Probably not, because in Canada, we're more asset light in our LTL than our U.S. operation. But for sure we will be improving. To me losing money in a month, no it's not acceptable. So we'll have to find a solution how we can remove that cyclicality that affects us so badly.

That makes a lot of sense. And thank you for that additional color there. And then just for my second question, one of the things that's been a concern, I think, on the LTL side, certainly for a lot of U.S. investors has been investing in union based LTL companies and the obstacles associated with maybe some of the work rules and that sort of thing. Maybe if you could give an update on kind of what you've learned so far, or what your thoughts are with regard to that? And, is that any kind of obstacle or do you not see that being a challenge at all, as you've now gotten a little bit more familiar with UPS?

A unionized environment, there's a perception that if it's union is no good. But to me, this is completely wrong. Because if you look at UPS, UPS is a unionized teamsters company, and they do really, really well. So, if you look at our Canadian operation, most of our Canadian operation is unionized with the teamsters and we do really well. Our P&C business is mostly unionized as well, and we do really well. So to me, I think that, as we were surprised to see this perception in the U.S., or maybe the excuse of some management team, they blame the union. My feeling is that with the union, for sure you lose some flexibility, for sure you may have issues with the pension costs, because, a unionized environment, they're really strong on pension for the employees, compared to a non-union, where the pension costs is going to be probably much less or maybe there's none, versus a union environment. So yes, there's a little bit of cost that disadvantage, and maybe also a little bit of work rule, but we work with our contract, we work with our team. And you know what, when I bought from DHL the Canadian business it was unionized. And they were running 115 OR. Today it's still the same union. But we run a sub 85 OR, it’s the same union. So what happened? Well, is because we managed a company. We addressed the situation with customers, that freight that does not fit. It's not for us, you give it to someone else. So, to me the concern that some investors may have in the U.S. or these dreamer, nobody has done that. So it's impossible. Well, give me a year, give me two years and you'll see we'll work with our employees, we'll work with our team with our management team and it's not an excuse the union. To me, it's a fact, so we live with it, and we work with them, but we manage a company though.

Got it. Understood. Thanks for that color, Alain, and very impressive results so far. Thanks.

Thank you.

Your next question comes from the line of Cameron Doerksen of National Bank Financial. Your line is open.

Thanks. Good evening. I guess really the one question I have is just on free cash flow. I’m just trying to reconcile your full year guidance with kind of what you have done so far year-to-date, which is like over $400 million. So obviously, CapEx is going to be higher in the back-half of the year. But is there anything else that we should be thinking about this? It seems to be that, to the low end of your free cash flow guidance that $550 million seems a bit low?

Yes, but we're conservative Cameron. So maybe I'm investing. There's a little bit of M&A in there, also.

Okay. So that would be the big differentiator. You already do like tax CapEx or anything like that.

No. So think about, Cameron, there's, let's say between in this forecast, there's at least, like $75 million of M&A in there.

Okay. That was helpful. Perfect. No, that was my one question. Thanks very much.

Thank you, Cameron.

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

Thanks for squeezing me in here. I'll keep it to just one. Also, on the CapEx side, maybe. Obviously, the lion's share is going to rolling stock in UPS Freight. And you addressed some of the longer-term infrastructure investments, but is there any significant work that you need to do in terms of the IT, line haul management, load planning software, dimensionalizers? Or, is that part of the business and shape?

Yeah. Well, that's a very good question. So for us, to walk away from UPS IT system for sure, we'll have CapEx in ‘22, and in ‘23. Now, if you ask me, what's the quantum of that? I still don't know. The guys are working on it. The range could be from let's say, $50 million to $75 million maybe. It's very early stage. So this would probably affect us sometimes in ‘22, and in ‘23.

Terrific. Got it. Thank you very much.

My pleasure.

[Operator Instructions] There's no further question at this time, please continue.

Okay. Well, thank you, everyone for joining us this evening. So, we very much appreciate your time today. And I want to thank you for your support on behalf of the entire TFI team. I look forward to updating you on our progress later in the year, and as always, please don't hesitate to reach out with additional questions. So, thank you, again, and have a wonderful evening.