Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Third 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. [Operator Instructions] Please be advised that this conference call will contain statements that are forward looking in nature and subject to a number of risks and uncertainties that can cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, October 22, 2024. I will now turn the conference 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 today's call. Yesterday, after market closed, we reported quarterly results that reflects industry wide challenging condition. We generated strong free cash flow, which has always been one of our primary areas of focus with a year-over-year increase of 37% to more than $270 million. This continued strong cash flow, as I've said many times, allows us to opportunistically consider strategic M&A, intelligently invest in the business and return excess capital to shareholders. We do this while maintaining a conservative balance sheet and indeed during the quarter we were able to significantly pay down debt as I'll discuss later on. Let's begin with a review of our consolidated results, which as always reflect the skill and hard work of our team members, especially during cyclical challenges for the industry. During these times, we collectively redouble our focus on the important details of the business, striving for added efficiencies through quality of freight, optimizing weight and revenue per shipment and other important operating fundamentals that have served us well over time. For the third quarter of 2024, our overall revenue before fuel surcharge was up 17% year-over-year to $1.9 billion benefiting from the April acquisition of Daseke. Operating income of $203 million was up slightly from $201 million in the prior year quarter and this equate to an operating margin of 10.7% versus 12.3%, a year earlier. Note that last year's operating income include higher net gains on sales of assets held for sales of $15 million. We generated adjusted net income of $137 million, up slightly from $136 million a year earlier along with adjusted EPS of $1.60 up slightly relative to a $1.57. In addition, as referenced, we have strong cash flow with $351 million of cash from operating activity,…

Thank you, sir. [Operator Instructions] Our first question comes from the line of Ravi Shanker from Morgan Stanley. Go ahead please.

So obviously interesting times in the industry. Just on U.S. LTL, are you able to distinguish how much of the earnings pressure there is purely cyclical and will snap back with more reordering stuff versus maybe some evolving industry dynamics in a post Yellow world with new capacity coming in and players jockeying for share et cetera?

That's a difficult question, Ravi. So, our focus is really to improve our cost basis. So the market condition we know has been challenging for the last probably like 18 months. So we don't control market conditions. Our focus is really to improve our cost base and also improve our service. If you look at the last report from [Mastio], I mean our service according to this survey is the worst of the top 7 carriers in the U.S. So it's really a focus of ours. For sure, what we're proposing to our customer is, okay, we proper -- our proposal is good in the sense that, okay, there's a match between the service that we provide, which has to improve, okay. And the rate also is still a good proposal for our customer because our rate on average is much lower than our peers. So this is why our focus was not notwithstanding the market condition. We have to improve our service, which as a matter of fact, we've started to move more freight away from rail onto the road, but also we have to improve our missed pick up. If you look at our claim ratio, we were going in the right direction but then whoops comes a Q3, we dropped the ball, right? So our claims ratio is at 0.8% of revenue. Our Canadian LTL, our claim ratio is 0.2%, which is like best-in-class. We used to be at 0.4%, 0.5%. Well, now we're at 0.8%. So guys, let's not drop the ball. Let's focus on service. Let's not miss any pick up. Let's be on time with our deliveries, et cetera, et cetera. Now if you look at this purchase that we did three years ago, 3.5 years ago, okay, and you asked me the question, hey, Alain, do you think that you made a mistake with this purchase? Not at all. I mean, the only mistake is that we probably underestimated the time it will take us to turn this thing around the culture. Now we're improving the management skill of our guys by training, by providing them financial information that we could continue to improve our cost basis, following metrics of service, et cetera, et cetera. Things that probably in the past were not a big focus of the management team at the time.

And maybe for my follow-up, I just want to clarify, did you say that 2024 is now looking like 2023 level of EPS? If we can just kind of clarify the 2024 guide that would be great. Alain Bédard: Yes, Ravi, that's what we're saying. I mean, if you look at where we are, I mean, we're basically flat year-over-year, okay as of Q3. So we believe that, we thought that we would do a better job in 2024 than 2023. But with market condition, with what we're looking at when we look at Q4, the first forecast that we're looking at, I mean we believe that ‘24 sadly will be a reputation of 2023.

Our next question comes from the line of Walter Spracklin from RBC. Go ahead, please.

Just on that guidance, looking out to next year now, if I look at consensus, it's up at it's come down a bit, but it's still at 8.50%, which is almost 40% above your new guide for 2024. I'm just curious if you're comfortable with that. I know there's a lot of operating leverage in your company. So when we do -- I know a lot of what to do with that question is dependent on how the economy does. But to the extent that from your outlook right now and where consensus sits, how do you feel about the consensus level of 8.50% for next year?

Very good question, Walter. It's too early for us to really talk about ‘25. I mean, we're going through our budget season right now. But what I could say though is that we've been under some kind of a freight recession for close to two years now, right? Normally, the cycle is between, I don't know, 18 months to 24 months. We don't see some major improvements so far in ‘25. We believe that at some point, it will happen, right? So, if we have a normal environment in 2025, not 2022, but just a normal and trade environment, okay, I think that getting close to $8 a share EPS like we did in ‘22 is normal because in ’22 that was a great year, but we didn't have Daseke. We didn't have JHT. There's a few assets that we didn't have at the time. So to say that around $8 in 2025 in the normal environment, I think it's attainable, which is about the same as what we've done in 2022 in a great environment, but now we have assets that we didn't have at the time, right? The other thing also to consider, Walter is that we will be reducing our debt like there's no tomorrow, right? So our debt, in Q3, we've reduced it by $130 million. In Q4, we will reduce that again by at least another $250 million to $300 million to get close to our target of reducing our debt since the acquisition of Daseke for about $500 million. And then if we don't do anything major until the end of '25, I mean, our debt will be reduced another $500 million during, let's say, Q1, Q2, by end of Q3, and ‘25. So our interest costs, okay, will reduce dramatically because if you look at Q3, our cost of financing is like double what it was last year, right? And that will continue to come down as we pay down debt, which is our focus. And also hopefully, the interest rate will start to drop a little bit and that that should help us reduce again. So we said Daseke 2025 in our mind will contribute at least $0.50 a share. Okay. And if we have a normal environment, our U.S. LTL should perform better. Our specialty truck load overall should perform better. Canadian LTL and P&C will perform a little bit better. I mean, we're running 77, 78 OR right now. It's just the top line that we're missing, right, on the lower activity.

And looking out to 2024 outside of just in terms of capital allocation, when you look at that debt reduction level, you're creating a lot of dry powder for acquisitions and/or buyback. Do you have in your mind, how much you would allocate in 2025 to buyback and how much you're keeping of that powder dry for I know you just alluded to a larger acquisition potentially at the end of 2025? How much you'd be allocating to M&A in 2025?

Well, the usual thing that we do, Walter, every year we always invest $200 million to $300 million on tuck-ins, M&A, et cetera, et cetera. And you'll see us doing the same thing in 2025, okay? So that's why I'm saying that our debt will reduce only by so much now. In terms of buying back the stock, we're just waiting to see the reaction, okay, to our Q3 results, the reaction over the next few months. And for sure, if we see an opportunity, I mean, so far this year, our buyback was really, really low. I think we bought back only 250,000 shares in 2023 so far. We're ready depending on where the stock price goes. We know what the value of TFI is down the road. We know that this freight recession is going to end at one point. We just don't know when, but we know it's got to stop at one point. And we will be very well positioned with all these assets that we've added like the JHT, like the Daseke, et cetera, et cetera. We're also reducing our costs both at the Daseke level at the TForce Freight level. So if there's an opportunity to buyback the stock, absolutely, but this is all based on price. Depending on the stock price, I mean, we'll be active or we won't be active. But in 2025, for sure we will always invest between $200 million to $300 million on tuck-ins of some kind. Mostly, we're trying to invest in logistics sector in the U.S., where we like to make 10 points like we're doing now, right? We're not going to invest in logistic business that makes 2 points that's not for us. We'll leave that to the others. So logistics and LTL, if we could find the right target in the U.S. That makes sense for us, we'll jump on it in 2025.

Our next question comes from the line of Scott Group from Wolfe Research. Go ahead, please.

A - Alain Bédard: Absolutely. So for sure, we're feeling a little bit of pressure on the pricing right now. Although our proposal to customer, if you look at pricing versus service according to the [Mastio] report, I mean we're -- our proposal is really fair. But you're absolutely right. We're feeling a little bit of pressure right now because don't forget some of our peers have invested on a lot on real estate. Okay. So for sure there's a little bit of fight. Don't forget that we have a lot of shipments that are moving to truckload right now, larger shipments because the truckload guys are looking for freight big time. They're not that busy. We'll see our peers in Q3 coming out very soon, but we know that the market for truckload is very light, right, the demand. So we are losing that. So for sure, we have a little bit of pressure. So this is why our focus is guys, we cannot continue to have a service that is subpar. Okay, so we have to improve that. And like I said on Q2, we still have our costs that are not as good as they should be. So that's got to be our focus. And we don't control the market. We're just a small player. We're probably number 5, number 6 in terms of volume at 22,000 shipments. We're not big. But we know one thing is that this market at one point will start to turn, and as we have to be ready with our service and our cost improvement.

And then just a follow-up on Walter's question about M&A. What are the sizes of deals you're looking at as you think about ’25? And then I feel like it's been a while since you've given us any update on the potential to separate the business and the spin. Maybe just any thoughts or color there as well?

Yes. Very good question. Listen, in terms of M&A size, if we look at TFI at the end of 2025, okay, in a normal environment, okay, without issuing any paper, right? No stock, no paper. When we talk to our board, we could look into a $4 billion to $5 billion deal in the U.S., right, on a target. And if the deal is more than that then we have to resort to paper, which we don't like to do, right? But, it depends on the target, depends on the transaction. In terms of, not mixing a return on invested capital between 15 and 25 versus a return on invested capital of 8 to 15, the truckload and the rest, for sure the discussion we're having with the board is that right now TFI's market cap is too small to do some kind of a split. Okay. So let's say our market cap is 12. You do a split, 6-6. Six is too small, right? So that's why the discussion that, I'm having with our board is, Alain, you got to do this next transaction. And then let's say that you do a $4 billion or $5 billion deal, the market cap changed from $12 billion to $15 billion or $18 billion, whatever it is, you got to get closer to $20 billion to start thinking about splitting into two. But it makes sense, okay, not to have returned invested capital of 8 to 15 mixed up with return invested capital of 15 to 25. So it's just a matter of time. We have to get to a certain size, Scott. And once we get to that size, I mean, I think that this is where we're going to go. We're getting ready. We're getting ready. I mean, Steve Brookshaw that runs our truckload operation. I mean, he knows where we're going. So, as much as we can, right now, we are splitting the real estate, okay? We're splitting the assets. So because that takes time. So we're getting ready. Is this something that's going to happen in ‘25? I don't think so. Is this something potential the end of ‘26 into ‘27? First, we have to do this deal that makes sense for our shareholders probably late '25 into '26 maybe. And then, okay, then we'll be ready to go to the next step.

Our next question comes from the line of Konark Gupta from Scotia Capital. Go ahead please.

I just wanted to verify on the [P4, Salain]. If we look back in the first few years of the acquisition, you started to reprice the book, which happened, decently well. Then you started to optimize the cost. Obviously, and I think you're still kind of looking at the costs here. I'm just trying to figure out, like, with the [Mastio] survey and obviously, the service focus and the cost focus you have. What's really required here to move the operating ratio in the U.S. LTL business to 85% or so? I mean, do you need the volumes only or do you need the volume service cost and all those things come together? And how far should we kind of play that road map in the next couple of years?

Absolutely. If we would, get from 22 to 25,000 shipments a day, for sure, that would help our cost basis. But the problem that we have within TForce rate today is that our business is too fixed. It's not variable enough, okay? So this is why we have to work with our team, our terminal managers to really adjust on a daily basis our costs versus the volume that we have, okay? That's number 1. And for sure down the road, if we can hit the 23,000, 24,000, 25,000 shipments, for sure that's going to help us.But you know, this is where it's the chicken and the eggs. So if you talk to our sales guy, they say, well you know, it's tough for us to get more business because the service is maybe not up to par to some of our peers, right? So when we talk to our operation guys we got to fix the service. We have to improve the service. Now you say, yes well, if we improve the service, maybe there's a cost to that. No, you have to improve the service and reduce the cost at the same time. So this is quite a challenge and this is where the talent of your management team comes to play.If you look at our management team in Canada, I mean this is a team that's been educated, trained, focused, et cetera for years and years and years. And if you look at the results, okay, in Canada, we're doing very well. Even with the Kindersley acquisition, that was not a star. Okay. I mean our Canadian operation is still running sub 80 OR in a difficult environment. Why? Because we have a very, a very educated talent team to manage our business. And this is the…

And if I can follow up on Daseke. You talked about $0.50 accretion next year. I just wanted to clarify, this $0.50 accretion next year is incremental to whatever cost improvements you have achieved at the closing of the acquisition. And do you expect another upside to that $0.50 from the debt you are paying or that's included in $0.50?

No, $0.50 that is based on operation of Daseke only. It's got nothing to do with our interest costs, okay? So the deal we have with the Daseke team there, and I've been seeing the plan for 2025, but I would be very disappointed if those guys don't come up with the $0.50 based on the operation, because we are making some major, major improvement right now on the Daseke finance team. We will be moving all this financial system away from our Dallas headquarter into Toronto, we're going to be moving that to Infinium. So by the summer of '25, everything is going to be run like at the Contrans style operation, right? So that represents huge savings for us. I mean the two Canadian companies that used to be managed by Daseke by the end of '24 will be managed by our Canadian team, those two companies, one is in Toronto, one is in Winnipeg will be managed by our Canadian team now, which our Canadian team knows more about the Canadian market than the U.S. team in Dallas. So no, we have a lot of good things that we're -- Steve Brookshaw and his team are working and for sure, you look Daseke with TFI legacy business, we come up in Q3 with a disappointing 90 OR or 89 something, 90 OR. Well, it's because the Daseke Group is still running at like a 96, 97 OR or 95, 96, 97, depending on the division. I mean, our legacy business is running more like an 80, 83, 84 OR in a difficult environment, right? So what we have to do is we have to bring those Daseke operating metrics closer to our own. And this is going to be happening during the course of what's left of '24 and into '25. For sure, if you look at the revenue per mile that we have in Q3 versus Q2 on the U.S. flat-bed market, I mean the rates per mile have dropped again, right? So the market is weaker in Q3 than they were in Q2. Now, okay, so there are so many storms right now that the U.S. had to go through lately. So for sure, that probably is going to help us in Q1 of '25 because they will have to start rebuilding, but we'll have to see. But on the cost basis, on the Daseke operation, we have a lot of work to do with the team there.

Our next question comes from the line of Jordan Alliger from Goldman Sachs.

This is Paul Stoddard on for Jordan Alliger. I guess the question that we have is where can we expect U.S. LTL to go for the remainder of 2024? And how can we expect this for the fourth quarter, just given the previous guidance around 90 for the year?

Yes. I think, Paul is that we'll probably show up Q4. Basically an improvement of Q3 and probably closer to Q2. So we won't break the 90 OR in '24 -- Q4, '24.

And I guess to follow-up on that, when we think about the cost takeout in the U.S. LTL business, I know that service has been a big focus but there's also been a lot of different initiatives such as getting financial management systems to the terminal managers trying to take out, improve the different systems, investing in the different assets. So I guess, are there other things aside from service that you can be doing to take out that cost?

Well, there's one thing that, I mean, we're implementing early '25 is the [Mastio] file and the billing because one major problems that we have with our customers is we can't build customer properly, right? And this goes back a long time. So we've been looking at all kinds of systems to help us. And finally, we found the right one, which is the one that's being used by one of our peers that will be implementing early 2025. So for sure, that should improve customer satisfaction because now we should be in a position to build customer properly, okay, number one. And number two, it should also help us with our bad debt or our revenue adjustment or all this bad experience that we are providing to our customer because we cannot build customer properly. It's unimaginable that in 2024, we still have issues billing customers, but it's a fact, right? So we're changing that. So that's the -- additionally to what you just said that's another thing that we're fixing in 2025. Also, the other major improvement that we see in 2025 is the fact that our fleet maintenance. We went from 100 shops to about 15 shops now. Now we are really in control of warranty claims. We don't have 100 shops that were completely out of control. So we should see some major improvement, with also the CapEx that we've done over the last two or three years in terms of the age of our fleet. Right now, we're running a fleet that's about four years old compared to when we bought the company, it was seven years old. So based on that and with better management and better software that we've implemented also into '24, we should see some improvement on fuel and on maintenance. So that's something that, hopefully, we'll be able to accomplish in '25. I'm really comfortable with the management -- the fleet management team that we have now and we should see some major improvements. So it's a lot of small things. But there again, I mean, we have to invest in our team, invest in our talent because we got to deliver that for our customers and our shareholders.

Our next question comes from the line of Ken Hoexter from Bank of America. Go ahead, please.

This is Adam Roszkowski on for Ken Hoexter. I just want to drill in first on the U.S. LTL pricing. So I think you previously noted that contract renewals had decelerated to the low-single-digits. Is that about still the case in 3Q?

Yes.

And also just sequentially from a, I mean, you spoke about the kind of 4Q OR impact sequentially. And last year, there was even into October, some impact from a cyber-outage. How are you thinking, I guess, just tonnage shipments at these depressed levels? Is it fair to still see a reasonable seasonal step down into 4Q?

Well, I think Q4 should be, like I just said, better than three and probably something like a line with two for U.S. LTL. But we had a difficult start of October because of all the storm that hit the East Coast. Now that's behind us, okay? So I haven't seen too much, okay, but it's still our -- if I look at October and the start of October was a little bit depressed in terms of volume. And the reason being is that we had issues in the Carolinas. We had issues in Georgia. We had some issues in Florida, et cetera, et cetera. So -- but notwithstanding that, I'm going back to the earlier comment is that we will do better in four than in three on our U.S. LTL in terms of operating ratio. And probably closer to two, right? But we won't break the 90 in 2024, like we thought we would, okay, no.

And then I guess, is there a baseline way that you're thinking about potential OR improvement in U.S. LTL next year? Maybe you spoke about some of the focus on service, some of those cost, maybe lower hanging fruit impacts. Is it reasonable $200 million, $150 million? Or what's the kind of steady run rate once you can get some of these issues under control?

Yes. I haven't seen the plan of our guys for 2025, but I would be really disappointed if we don't break the 90 OR in 2025. I mean, with everything that I just said, on the fleet cost, on labor cost per shipment that the guys are working hard on improving our service. And a big help that we're not getting is from our sales team that they don't seem to understand and we've been trying to educate them to get more freight per sub. This would be a tremendous help for our cost per shipment, right? So if we can accomplish that to educate those guys to, hey, we get, on average two shipment per stop. So we have to move to three, right, on average. So by doing that, I mean, immediately, it's accretive to your cost and reduce your cost per ship in like crazy. But the focus has never been there and the mission probably these guys never understood it, but it's -- we've been preaching that for a long time. And so far, we've not been successful. So that's a key for us of our success in 2025, okay? And the excuse that we get sometimes from the sales team is, well, service, okay, guys, we must not provide excuse to our sales team, okay? That's why we'll be correcting once and for all this mess around our billing and master file of customers into '25 to eliminate another excuse for not growing the business.

Our next question comes from the line of Kevin Chiang from CIBC.

Maybe just on the P&C front, if I look at revenue per shipment, it's moved up I guess, sequentially three quarters in a row now, weights have been -- or average weight per shipment has also been trending in the right direction in the past couple of quarters. Any color or any comments on what you're seeing in P&C just given -- it feels like the underlying backdrop is still pretty challenging. But it looks like you're seeing some improvement in your own operations?

Yes. So what happened, Kevin, in our P&C. In the summer of '23, the management team at P&C made some mistakes, right? Because the market was very weak and we were trying to alter line, and we lost a lot of business. But that is the summer of '23. So the effect of that shows up in Q1 of '24, right? So if you look at our Q1 of '24, a major disappointment. So with new leadership there, with Chris taking over and Michael over, okay, that we moved up in terms of taking care of our P&C with Chris, I mean we've corrected the situation. So from Q2 and in Q3, you see the trend, but the market in Canada is still very, very, very competitive, right? The demand is still not there. So what the guys have been able to do is keep improving the yield to a certain degree, but work very hard on the cost side, right? So that's where we are and we will see some improvement in '25. We are opening up a new center in Edmonton in early '25. So that should help us reduce our costs with better technologies, et cetera, et cetera. We're going to be looking at Vancouver probably '26, '27, doing the same thing in Vancouver to improve our technology there. So the guys are working on the costs. We're having some discussions with some partners of ours to move some freight from, let's say, one of our peers to another of our peers with better service and better rates. So the guys are really working hard to move freight very -- in a very lean and mean way in terms of cost. Our service is great. Our coverage is adequate. So it's just like some mistakes that were made in '23, in the summer of '23, puts us back a little bit in Q1 and in Q2 but the team is rebuilding the business base and adjusting in a very difficult environment.

Maybe just a follow-up question. Just on a comment you made earlier around just the U.S. LTL or TForce Freight sales initiative to get from two shipments to three shipments. It sounds like that might be -- that conversion has been a little bit more difficult than you anticipated. Just -- do you think you need to change like the compensation structure to incentivize the sales force to drive towards that improved density to get that cost per shipment lower? Or is there something else to maybe incentivize them to move towards this sales model that should drive better cost efficiency?

Yes, that's a very good question, Kevin. And we've been working at the compensation of not just the sales team, but the terminal managers and all that. So it's an evolution from the UPS days to where we are today and 2025, I have not seen their plan yet. But for sure, I mean, the compensation package of our terminal managers, of our salespeople probably will have to be reviewed and updated in '25 so that people understand clear what the mission is, right? So if you go back to what you just said about the sales team, we -- they must understand that we need more freight per stop. And for them to understand, they understand money, right? So you're right. If the compensation is based on getting more freight per stop, hopefully, they will start to understand that this is mission-critical, and this is what you have to do, guys. Not open up new accounts, let's try to get more business with the existing accounts that we already deal with. They know us. They know our strength, they know our weakness. They accept that because they do business with us. So let's try to grow with existing customers and not try to chase customer all over the place. And that is one way that's going to help the operation to reduce our cost. But there again, also, we have to look at our terminal managers incentive program so that they understand that we must not miss pick up because is pick up is you missed the revenue. The pick up is the generation of the revenue. If you miss the pick up, you don't get the revenue. So you need the revenue, don't miss pick up, right? So again, it's an evolution because where we started three years ago and where we are going to be in 2025, our incentive program, our bonuses will be way more aligned to what we want these guys to perform on versus '24 or '23 because this is an evolution. When you talk to a terminal manager that used to be is bonus used to be based on global UPS and you say, well, we have to change that based on your terminal. Now, it's difficult to do. So you need some kind of an evolution, right? So step 1, you say, well, you guys are not part of the big brown machine now. You're part of TFI, well, step 1, okay, this is what we're going to do, step 2, and that takes time to adjust.

Our next question comes from the line of Jason Seidl from TD Cowen.

I wanted to talk a little bit about the service on the U.S. LTL side. You said, obviously, you're disappointed in a little bit of a step down. I was wondering what you guys are doing to make corrections to that? And your commentary on sort of low single-digit price increases, does that assume that you get improvement in the service? Or would improvement in your service provide potential upside to that number?

No, I think that the improvement of our service will provide us down the road some potential improvement on the quality of our rates, the quality of our pricing. What are we doing to improve service? Number one, is as I said, we are moving as much as we can more freight from rail to road to improve the service because we know that if you give the freight, your line of freight to a third party, you're dependent on the service of that third party, right? So my best peers don't give a lot of freight to the rail because they want to provide good service to their customers. So more free we give to the rail, the more dependent on the service of the rail, okay, versus your customer and the service that you provide to the customer. So we've started, okay, in '24 to do that. But we still give the rail more than 30% of our freight today. So it's still too much. So the goal is to bring that down closer to 20%. So some of our peers are around 20%. And some of our peers are close to 0%, right? So we got to go step by step. So that's number one. Number two, it's a culture of not less a fair kind of thing, right? So guys, you cannot miss pick up. So we've started to monitor that, I would say, like eight months ago. Well, we still miss about 400 pick up a day. So we have to change that culture of -- yes, well, it's kind of normal. We were overwhelmed with a customer so we've missed 50 pick ups a day. Well, no, you have to adjust ourselves. So what are we going to do about that? Well, because you're…

I appreciate the explanation. I wanted to also key on, you called out truckload continuing to steal some LTL freight? I guess two things. One, did you see a sequential increase in that? And two, when would you expect that to improve? Is this like a back half of the '25 event?

The minute the truckload guys get busier. I mean, so when is this going to happen? I don't know. Okay. Hopefully, in '25, but we know I mean those guys are not busy. I mean we haven't seen any peers so far, except one. And those guys are not really big into the day-to-day truckload world, but we know the market is really weak. And now for sure, I mean, this will disappear once these guys become busy. Now when is this going to happen? Maybe late '25. Early '25, I don't think so. Summer '25, we'll have to see. But don't forget that interest rates have come down a bit, and they will come down more. And this should improve, okay, the customer disposable income for customers because inflation is less today than it was six months ago. So that helps the disposable income. Interest rate going down, again, that has disposable income more disposable income than the consumer can spend more, he spends more. It helps us.

Our next question comes from the line of Daniel Imbro from Stephens. Go ahead, please.

I wanted to maybe continue on the U.S. LTL pricing discussion. You mentioned that obviously one of the headwinds was service stepping back, but also that some of the competitors had added capacity. Can you maybe rank order which of those sequentially worsened through the quarter when you look at maybe the step down from the first half, mid-single to low-singles? And then just curious, as you're talking to customers and you're making these improvements to service, do you think your pricing will have to step further down to get customers to try and come back to TForce again? Or how are those customer conversations going as you navigate the cost for service changes?

Yes. So I think that you need the service. This is step 1 to try to convince the customer, right? So you can attract the customer with rates. But if the service is poor, I mean the guy is going to run and he's going to go somewhere else because yes, service is very important. Price is very important, number one. But service is also key, right? So when you're trying to get more freight, the guy will say, yes, how is your service? Well, my service is great. Okay, I'll give you a chance. And then if you don't provide the right service, then he's going to walk and you're going to have lots of churn. So that's one thing that a TForce rate we have, right? We have too much churn. So customers try us, and we fail a bit, okay, the guy goes away. So by improving service, you reduce the churn. By reducing the churn, you improve your volume, right? So this has been key to us. In terms of our peers the fact that some of our peers invested heavily in real estate. I mean, we haven't seen anything so far. But I'm just saying that the market is really soft. So people are -- some people are trying to chase rate and grow the volume. Our focus for us is not to chase freight, it's we have to fix our service first and reduce our costs and then reduce the churn so that we start growing organically because if you get 3,000 shipments more a day, but you lose 3,000 because of the churn, well, you're back to zero. So you got to fix the service so that you can reduce the churn of customer.

And then as a follow-up on the balance sheet. You mentioned you're paying down debt like crazy in the near-term, but you do need to scale up, it sounds like to kind of move forward with the spin. So curious how your appetite is on M&A at this point? And how active the environment is out there, given we're two years into a down cycle? Are you seeing more sellers come to market? How are multiples changing on the M&A side? Just curious what you're seeing out there when you're talking to potential targets?

So yes, reducing the debt for us is key, right, because our debt is -- where leverage is about 2 point something, okay? We want to be under 2 by year-end, okay? So that's the focus of ours. And also to get ready for something of size down the road in '25 into '26 maybe. In terms of M&A, I mean, we've always been very patient. We have a saying within TFI, you make your money on the buying never on the selling. So for sure, if you look at our last trade, those are really accretive to us. The Daseke one will be very accretive to us down the road once we do all the adjustment that needs to be done over there. And in '25, notwithstanding anything major by year-end or into '26, we'll do another US$200 million to US$300 million of investment into some targets. Our pipeline is solid. We have lots of opportunities. It's just that we have to be patient. If you go back to '24, we walked away of one deal because we couldn't agree on the valuation. And that's it. I mean we're very, very patient. And for sure, the environment because the freight environment has been so weak, the environment for M&A is good for us, right? But again, because of the Daseke transaction, step 1 for us right now is to reduce the debt by year-end to go with leverage under 2, keep reducing the debt. If something good shows up in Q1 and in Q2, in our, let's say, logistics sector, maybe some tuck-ins in Canada on the specialty truckload we’re so strong. Yes. We will continue to do that and get ready for something of size, hopefully, that we could have something good for our shareholders by year-end '25, into '26.

Our next question comes from the line of Brian Ossenbeck from JPMorgan.

So I wanted to -- just wanted to understand a little bit more of the what you see in the fourth quarter in particular, I think the guidance for flat earnings would imply a decent sequential step-up into 4Q and historically it's sort of been flat to down a little bit. So maybe you can walk through some of the assumptions or maybe there's some M&A or something else in there that would make that a little bit counter seasonal to get a nice pick up here into the fourth quarter?

Well, it's because, Brian, our Q3 was not good, right? Our Q3, if you look at our specialty truckload, I mean we did a better job in two than in three. And the reason being is that in the U.S., our specialty truckload operation was affected badly with some major accident from the Daseke team where this culture of having a student driver created a mess in our accident level. So this has been corrected. I mean we don't really like students driving our truck and getting to an accident that's going to cost us a fortune. So my specialty truckload should have done a much better job in Q3, and they will do a better job in Q4. So if you look at my Q2, that was an $83 million of OE and in Q3, I'm down to 70. That's not normal. That's not normal. And that came from our U.S. operation from Daseke and also a little bit of TA dedicated. I don't see that coming into Q4. So we should go back to closer to a Q2 number in our truckload. The same story is through logistics will probably be the same as Q3. Why is that? Because JHT is starting to suffer from our customers, packard and freightliners reduce construction, right, because the market is weak. So JHT will perform not as good as the first three quarters of the year. So logistics will be down a bit in Q4 versus Q3 and Q2. But if you look at Q2, Q3, we were stable at about $50 million of OE on logistics, right? So -- but we'll be down a bit into Q4. But we believe our LTL -- U.S. LTL and Canadian LTL and parcel will do better in Q4 versus Q3. So we did about close to $100 million in Q3, and we did about $110 million in Q2. So I think that we'll be closer to 2 than to 3 in Q4. So all in all, you should see us improve Q4 versus 3 being closer to Q2.

And then just one follow-up and talk about capacity additions and maybe some additional pricing pressure in U.S. LTL. But we've got the remainder of the yellow assets coming up for bid. I know in the past, you've said you wanted to be a bigger player in the market, but I don't know if that necessarily means here in the near-term. So maybe you can give an update in terms of the footprint for TForce Freight and if you're looking at the latest round of auctions to be a potential area where you could pick up a little bit more and optimize a little bit better?

Yes. So Brian, I mean, in that auction, we are bidding on one site, very small site, very small transaction, less than $1 million, okay? And that would be replacing a site that we are tenant, okay? So basically nothing of importance to us. We keep adjusting, okay, our portfolio. So during the course of Q3, we sold one of our terminal to one of our peers. And we sold another terminal that we have in San Diego and California to a kind of developer. So we keep adjusting in terms of number of doors that we have trying to get rid of lease terminals and buying terminals. So that's where the Yellow one where we put in the bid. But we have the terminal capacity to do 40,000 shipments a day and we do only 22,000. So I mean -- and it's going to take us probably a long time unless we do some M&A on the union side, which there's not that many to do anything with the real estate or we keep adjusting, right? So that has always been the plan, is to grow organically from the 22,000 shipments a day slowly into the '23, '24 but that pace is always on service and trying to grow with existing customer because they know you, right? So that's where we're at. So we're not going to be very active on the auction block with YRC. It's only one terminal, very small terminal that we're in there for. And the rest is we've got already way too much real estate that we are adjusting whenever possible.

Our next question comes from the line of Ariel Rosa from Citi Group. Go ahead, please.

This is Ben Moore on for Ariel Rosa at Citi. You just mentioned a few minutes ago, you'd be disappointed if you don't break 90 OR in '25. At your 2Q earnings call, you were saying targeting under 90 for the first half of '25. Do you think -- maybe just to kind of fine-tune this, the under 90 target is now more like second half of '25 or do you think the under 90 could still be a target for a first half of '25?

Yes, it's a very good question. Like I said, I've not seen the plan, okay, for '25 from that team over there TForce Freight. But what I would say is this, is that we have to break this last ceiling of 20 OR. So to me, it would be great if we could do that in the first six months, but I don't know. I don't know. But I would be very concerned if we don't do that at least on the second part of '25, with everything that we're trying to do, accomplish, improve service, trying to educate the sales team, like I said earlier, in trying to get more shipment per stop, et cetera, et cetera. I would be very disappointed. And for sure, I mean it all relates to beefing up the team, improving the talent, the management talent because we have a team in Canada that is second to none, okay. So we have the A team in Canada. So in the U.S., we don't have the A team, right? So we have to build an A team, and that's what we're trying to do is improve what we've got continuously, they'll provide them with better information, but if a manager sits on his hands and you give him all kinds of information, and he does nothing with it, then we have the wrong guy, right? So -- and it's an ongoing process that's going on right now. The mistake I made guys is when we bought UPS Freight, I thought that we could bring this company within five years in an 85 OR, which is normal. I mean we do less than 80 in Canada, in a union environment. My mistake was it's not that we're not going to get to 85. It's just -- it's going to take us more time because our team over there, the talent that we have, the tools that we have, the financial information, the focus was not as good as I thought would have been. So that's why it's going to take us more time.

Maybe as a follow-up, you've been asked a lot about service and service improvement on this call. Maybe just to ask slightly differently, it looks like your customers' perception of your service level is roughly where it was this year and last year, roughly the same, still sort of, unfortunately at the lower range compared to your other public LTLs, where some of them have actually improved from '23 to '24. Why do you think after all the work, very hard work that you and your team has been doing, why hasn't that shown an improvement from '23 to '24? And do you think we should see some dramatic improvement on any of those things, the damage, the shortage, the on-time pick ups deliveries from '24 to '25?

Yes. Well, like I said earlier on the call, I mean, it's a disappointment to me when you look at the claims where we were heading in the right direction, and then path, I mean, over the last nine months a year. Now our claims cost is going in the wrong direction. So guys, let's refocus on that. So that does not help us with the valuation that our customers are doing a bus in terms of service. Claim is a problem, right? Because when you break the guy's stuff, he doesn't like you, right? So that's number one, where we have not improved. So this is why we are at the bottom of the pack, number one. Number two, if you don't show up for pick up, nobody likes that because then you're stuck with the freight on your dock, right? And then you have to either call someone else or hopefully Q4 ratio is up tomorrow. Customers don't like that, right? So this is under our control, and we have to do a much better job at it. So this is why we have not improved, okay? And this is why, like I was saying earlier, there's an evolution in the bonus program that we have with our sales team and our management team. So it shows that the program that we have right now in '24 is not good because we're not getting the result that we're supposed to get, right? So we will have to improve the bonus plan so that these guys bonuses aligned to what we want them to perform. So being improved service don't break the stuff, don't lose it, show off or pick up, et cetera, et cetera. And then the guys will have to take that seriously because then the incentive, the bonus is gone, right? But that's an evolution because where we were with the bonus system when we bought the company, it was just, I mean, unacceptable, right? So it's been an evolution. But I mean this report -- this master report is a major disappointment for me. And I'm going to be with the team tomorrow as a matter of fact, and for sure, we'll be talking about that guys, I mean, we're still at the bottom of the pack. We have not improved.

Our next question comes from the line of Cameron Doerksen from National Bank Financial.

Just a couple of quick ones for me. I wanted to ask you about, I guess, the free cash flow. Maybe you've sort of provided some updates here on your kind of EPS outlook for 2024. Is there any change on the free cash flow you still think you can be within the original range that you're expecting?

Well, free cash flow, I mean, it's probably going to be the same as last year. Last year, we did about $775 million. So I think that the range that is reasonable is between $700 million to $800 million of free cash for '24. With CapEx of $300 million -- net CapEx of $300 million.

And I know it's still early you're in your planning process here. But I mean, I guess, how are you thinking about, I guess, the CapEx requirement for 2025 and you've invested quite a bit in making your fleet younger. Should we see some easing of spending on CapEx in 2025?

Yes. Yes, you'll see some easing of CapEx. Number one reason is because the life of a truck has been extended because the market is so weak that we don't run as many miles. So that's in a normal environment, a truckload truck is good for four years. And now it's going to be more like 4.5 years. So that delays a little bit the CapEx in that sense. So probably, you should see 2025 CapEx, same business more like $250 million instead of $300 million.

Our next question comes from the line of Benoit Poirier from Desjardins Capital Markets. Go ahead, please.

There was some great comments about -- we read a lot about heavier freight that was earlier moving toward LTL that has moved to TL. Just -- and you mentioned some points about the fact that we need to see eventually a recovery of the TL. What are the first things that freight industry needs to see in order to get a more normal freight environment, is kind of bankruptcy the first thing indicator that you look at that could help TL and eventually LTL?

No, I don't think so. Bankruptcy, I mean we saw that in Canada with Pride. A lot of people thought that Pride in Canada would disappear, but they have not disappeared, right? Because the banks kick the can down the road. So no bankruptcy, it's minimal. It's really -- the freight will start moving once the consumer spends more. This is very simple. North American economy is based on consumer, right? So the consumer right now is disposable income is not where it was a few years ago. So I mean, with lower interest rates, lower inflation, improve salaries, okay, that is going on right now. Down the road, he will spend more and hopefully spend less on trips and flying all over the place like you did in '23, '24 and spends more at home. So that will help freight. Freight will help us, right?

And for the follow-up question, you mentioned some color about the M&A size close to $4 billion, $5 billion towards the end of 2025, early 2026. I was wondering if you could share more details about segments that you would tap? Is it more related to LTL? Or could you do something in specialized TL? Are there any comfort level in terms of leverage and milestone you would like to achieve before pulling the trigger on something more sizable?

Yes. So our preferred. Okay. M&A target is in the U.S., number one. And number two, it's always been, like I said, LTL, we have to do more. I mean we're a small player in LTL in the U.S. We're the dominant player in Canada. So we will probably never be the dominant player in the U.S., but we have to be more of like maybe a #3 or #4, not #6 or #7, that 22,000 shipments a day we're too small. So for sure, LTL, down the road. And logistics, I mean, us, we love logistics because the return on invested capital is huge normally. Although, we don't like Logistics, making 2 points. I mean, we're not in that league. We're not in that business. But if you look at our logistics, we're running 90 OR, 88 OR or something like that. So that's really interesting. So logistics that makes money, but not logistics that makes 2 points. Logistics that makes money and that we can grow with. I mean, that's all -- we love that. If we could find, let's say, an LTL that's asset-light down the road that would be fantastic because if you look at our LTL in Canada because of our intermodal, the Vitran, the Clarke and all these guys I mean we run a very asset light model into our Canadian LTL sector, right? So if we could find a nice business in the U.S. that could be asset light, as an example, that would be interesting for us, right? Because then you don't have the worry that, yes, but I think you run a union shop and then you buy a non-union shop, and the union will try to unionize the non-union shop. I mean that's always the concern. But if it's asset-light that concern does not exist, right? Although to me, we run union shops and non-union shops in Canada, and the union does not unionize the non-union shop. But in the U.S., it's a big concern or if you buy, let's say, a non-union shop or the union will try to unionize it. Matt, I mean, we run Hercules right now. It's small. It's only $100 million in revenue. And we just bought it a few months ago, and it's still non-union, right? So -- but asset-light non-union probably would be a good target of ours down the road, we'll see.

Okay. And just in terms of comfort level for the leverage, Alain, any thoughts there?

Leverage is going to be under -- in the U.S., we have to keep the leverage under 3, okay? So this is why I said $3 billion, $4 billion, $5 billion, maybe we could do that without paper. If we have to go above that then we have to issue paper, which we don't like to do, right? So we don't like to do. In terms of leverage, we could go all the way up to 3. Why is that? Because we could delever quite fast. If you just look at this Daseke acquisition that we bought in April, we took on $500 million of debt, additional to the debt that we had and you'll see us down $500 million by year-end.

Our next question comes from the line of Bruce Chan from Stifel. Go ahead, please.

This is Andrew Cox on for Bruce. You mentioned some impact expecting in the first quarter from the relief efforts from the hurricane especially given the Daseke exposure, we were just kind of wondering if there -- if you're expecting anything here in the fourth quarter as well? Or is that more of a 1Q event for you all?

Yes, very good question. So far, what we know is that right now, it's a cleanup phase that these guys are going through right now. So it's more like the waste guys that are taking are busy with the situation there. So we don't know the cleanup phase. Is that going to be week? Is that going to be a month, okay? So once the cleanup phase is done, then they start reinvesting, rebuilding, et cetera, et cetera. So this is why maybe we'll see some benefit in Q4, but who knows. We don't know. But one thing is for sure, if it's not Q4, it's going to be Q1.

And then just as a follow-up, I wanted to get your thoughts on the impact of a potential FedEx Freight spend given your experience with the big brown machine in UPS. Do you think the spend would be a bigger hurdle, smaller hurdle or comparable from an unbundling standpoint? And over the course of time, do you expect this spend to be a net positive or a net negative for the group?

Well, I think it's going to be a net positive, but it's not easy to do. I mean, don't forget to do the spin-off of a division like UPS has done with us. It's not a very easy process. We've done it us. We know how to do it, okay, but it's not easy to do. I could tell you that. So I think it's good for the FedEx shareholders, depends on the valuation of the freight division, but I think it's a good move. I think it makes a lot of sense. I think it's also going to be good for the LTL industry.

Our next question comes from the line of Ken Hoexter from Bank of America.

Just a couple of clarifications on some numbers, just some confusion. And I know you've kind of hit this a couple of times, but just when you answered Ravi at the beginning, you said flat earnings year-over-year, and then you kind of clarified a couple of things throughout the call. Were you talking about a normalized $6.34 or Bloomberg has you at $6.18 year-over-year? Just trying to get clarity on the fourth quarter target. I know you said it was more like second quarter which was, I think, $1.71. So just trying to clarify that for some investors.

Right now, what we're saying, Ken, is that probably it's going to be more of the same. So that's for the year. So I don't remember what we did last year. I think it was something, $6.18, $6.20. So I think that's where we're going to end up the year.

Okay. Because that would be a significantly weaker, I guess to clarify that, that would be a weaker fourth quarter than I think I guess, the normalized $6.34 that's floating out there as well. Okay. So you're comparing against the $6.18. And would you be able to state then to clarify what your first three quarters has been just because there's a lot of normalization going on?

You know what, Ken, I don't have this number. I'll have to get back to you on that or David will have to get back to you on that. But overall, if you take what we have, I think at the end of Q3, just hold on for a second that we're at $4 55. So yes, so $4.55 plus $1.60 something like that. Yes, which is basically what we've done in Q3. But I think that we'll do a little bit better in Q4 than in Q3, like I was just saying about our specialty truckload, a little bit less on the logistics, a little bit better on the LTL and P&C. But to be conservative, what we're saying is that, okay, let's say that '23 and '24 are the same, like $6.18, $6.20.

And then when you talked about the kind of 91-ish OR for the fourth quarter, I guess you're looking at improvement sequentially for the U.S. LTL. Can you talk about what gets you there? What gives you the confidence? I mean it sounded like you were concerned. And should we be concerned with where pricing is at? It sounds like the renewals are low-single-digits. So I'm trying to match the kind of pricing concern, service concerns with how you show improvement?

No. I think it's not a market. It's not the market. The problem that we have that we have to improve versus Q3 is our cost. I mean, we had way too much cost in our claim. If you look at our claim in Q3 at 0.8% of revenue. I mean, this is completely unacceptable, okay? And I think that we're going to do a better job in Q4. That's number one. Number two, again, our fleet costs are improving in Q3. But for sure, they will keep improving on Q4. So labor cost per shipment. We took a little bit of a setback in the first two weeks of October. But September, our labor cost per shipment was the best the best so far in the year. So we did really, really well in September, but then with the first two weeks of October, it's a little bit a step behind -- a step back. But I think that we're on the right track in terms of doing a better job on our labor cost per shipment, Q4 versus Q3 because we were heading in the right direction, except the first two weeks of October because of all these storms. That's the excuse that we have right now. But I'm looking at the third week of October so far, and we're back on track to where we should be. So I think that we'll do a better job on the LTL OE in Q4 versus Q3. Same volume, same pricing.

So it's really focusing on those costs and then improving performance here, yes?

Yes.

There are no further questions at this time. I'd now like to turn the call back over to Mr. Bedard for any final closing remarks.

Thank you. So well, thank you very much, operator, and thanks, everyone for being on this morning's call and for your interest in TFI International. As always, if you have any follow-ups, please don't hesitate to reach out. Enjoy the day, and we look forward to speaking again on our next quarterly call. So thank you. All the best.

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