Q3 2020 TFI International Inc Earnings Call

At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.

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This conference call. The company says all 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 have dissipated. All dollar amounts are in Canadian dollars, what's the appetite to remind everyone that this conference call is being recorded on Friday.

Robert but you've heard 20 fund Pete I would now like to turn the call over to I like the dog Chairman, President and Chief Executive Officer of C. F. <unk> International. Please go ahead.

Well. Thank you very much for the introduction to operator and I appreciate everyone. Joining us for this mornings call yesterday after market close we really started third quarter results. If you need a copy of the press release, please visit our web site.

Do you find the national had a very strong third quarter as I mentioned on our last call we had.

We have seen several positive developments.

That bodes well for our performance going forward.

Played out as expected during the quarter and our strong financial and operation results came despite the ongoing pandemic and our despite and despite our continued focus on the health and well being over employees and customers.

As you frequently hear me mention a hallmark of P. apply International's operating philosophy is our relentless focus on the fundamentals of the business consistently getting the deals right.

We constantly seek opportunities to an answer efficiencies and increase returns on invested capital.

We also look at look to optimize our free cash flow and our earnings per share.

Thanks to our strong financial profile.

This position of strength, then allows us to strategically expand our business with a long term goal of creating shareholder value and this includes returning excess capital to shareholders whenever possible.

During the years such as this when macro uncertainty is elevated we believe that maintaining our culture and adhering to these principles is even more important.

You see it in our quarterly results no mix walked you through and.

And you also see it in our continued identification of strategic accretive acquisitions opportunities to expand and enhance our platform.

During the third quarter, we completed four acquisition and we agreed to acquire an additional business expected to close during the fourth quarter and.

In addition, subsequent to September we completed two additional acquisition in total that's seven well time and highly strategic acquisitions since our last call.

I won't walk you through the compelling rationale for each well do invite you to read more in our recent press releases.

As we extend our long and successful track record in this regard.

Turning now to do you find a national story score results, let's start with our high level performance and as a reminder, these results are despite the continued absorption of COVID-19 related costs in our continuing focus on health and safety.

Our total revenue of 1.2 billion was down 4% compared to the prior years third quarter.

This was a significant improvement over the second quarter's negative 17% year over year growth.

More importantly, our operating income increased 18% to 156 million and our adjusted EPS on a diluted basis expanded 20% to adults 25 up from a dollar for a year earlier.

Our net cash from continuing operation activities was a healthy 190 million and that was up slightly over the prior year.

We view cash was strategically important as it allows us to invest in our business and seek expansion opportunities.

Overall, we were very pleased with our performance.

More specifically, let's look at how each of our four business segments before beginning with our P. and see package in Korea.

Our package in Korea represents 14% of total segment revenue and saw a 5% increase in revenue before fuel surcharge versus the prior year.

Operating income of 28.5 million was up 1% as the segment operating margin of 17.5 compared to the 18 point to the prior year.

These year over year PNC results were much improved over our second quarter performance throughout.

Throughout the third quarter, we saw a pickup in b to C activity and even b to B, which has slowed significantly significantly due to the effect of COVID-19 improved as the quarter progressed.

Going forward, we believe the PNC segment is emerging even stronger from the pandemic with a more balanced makes a b to C and b to b demand that.

We are well prepared to accommodate.

Moving to LTL. This segment represents 16% of our total segment revenue and generated revenue before fuel surcharge of 177 million down from 205 million in the prior year.

That rate of year over year decline is much improved and in fact half of that was.

During the period for the prior quarter, reflecting a rebound in demand.

Importantly.

Our operating income grew 36% to 35 million and our operating margin expanded more than 700 basis point to 19.7.

This 36% year over year growth in operating income was the result of not only they can eat wage subsidy of 8 million, but our significant success driving operating leverage for example by emerging Arkadiy and freightways on T.S. Steel Berlin Express operating companies in May.

These ongoing efficiency significantly benefited our margin and more than offset the weaker demand environment.

Next turning to truckload and this is our largest segment representing 47% of our total revenue revenue before fuel surcharges declined 2% year over year, which was a sharp rebound from the 17% decline in the <unk> in the prior quarter.

Truckload operating income declined just slightly to 75 million from 76 million than the year earlier quarter and our operating margin was up slightly it should also be noted that we had 6.4 million of higher gain on sales of real estate in the year ago quarter.

Within this segment, our U.S. truckload operation grew revenue, 2.5% over the prior year period, while our Canadian specialize business each saw our Canadian and specialized businesses. Each saw a single digit percentage decrease in revenue, which led to a Canadian which wage.

City of 11 million.

Rounding out our segment discussion logistic is our second largest segment at 22% of total revenue.

We saw year over year growth of 9% in revenue before fuel surcharge or operating income more than doubled in the quarter versus a year earlier at 30 million compared to 14 million to play here are all.

Our operating margin came at 10.7 well above the.

Year ago, 5.4% as our margin improvement initiatives I've produced solid improvement on the bottom line either.

E Commerce and same day package delivery demand remains powerful organic growth driver for us.

Turning to our balance sheet. It remains a meaningful source of strength for us, allowing us to execute on our business plan.

We further strengthened our financial profile in August with a share offering that provided gross proceeds to tee up by approximately $290 million Canadian.

Our strong liquidity further benefited from our strong cash from operations during the quarter. All in we ended September with our long term debt down 27% since the start of the year and a total of $1.5 billion.

Liquidity.

Given our continued strong operating performance and very solid financial position I'm pleased to be announcing today that our board of directors has announced a sizable 12% increase in our next quarterly dividend payable in January.

In addition.

I'm pleased to report that as business conditions improve and do you find to notional as continued to perform during the quarter, we reinstated four or five days work week for 486 employees and we re are 298 employees full time.

Who had been furloughed.

Lastly.

Wrapping up my prepared comments today.

I want to update you a full outlook for 2020.

We now expect diluted earnings per share to be a minimum $4.

From our previous range of 340 to 375.

And we expect our free cash flow, which is a known or FRS measure to be minimum of 600 million up four up from 425 to 460 million previously.

Well in summary, as I mentioned at the start of the call a t. a fight international we focus on the fundamentals of the business and optimizing our capital allocation, regardless of constantly changing macro conditions.

Specifically we have.

We invested in a highly disciplined manner, where we see the best risk adjusted return well also paying our quarterly dividend on it.

On a day to day basis, our entire team looks for to drive efficiencies and produce not just growth but profitable growth.

Our ultimate aim is to create and unlock shareholder value returning excess capital to shareholders whenever possible.

I want to thank the entire team at <unk> five for generating the results I just thought line and for their continued dedication to this unprecedented here.

And with that operator, if you could open the lines. So we can begin the Q and a session.

Thank you ladies and gentlemen asked the question you will need to press star one on your telephone keypad to try your question. Please press it down to call. It should be limited to one question and a follow up in order to get as many college basketball again, Bobby Baldwin profit question people.

All because all the questions.

And your first question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

Good morning, everyone. Good morning, and thanks for taking my question so.

So I started but do kind of longer term questions for us.

First on M&A, obviously, you guys have been super busy this year, even with everything going on and you've just made a what wasn't one would consider to be a fairly sizable acquisition can you remind us again kind of what your pipeline looks like are you guys, taking a little bit of a break here.

And also a kind of what the market where the stock market, where it is do you feel like valuations out there are compelling for you to go off for new targets.

[laughter], that's a very good question Ravi I mean, I mean, M&A, it's been the secret sauce of of T., a five for the last 20 years. So I mean, what we've done so far this year is just some small tuck ins that we do every year, we invest about 200 million. So far we've invested only 100 some million.

And then 150 million with some very nice small strategic acquisition, but for sure I mean, we're gonna be closing the deal last acquisition, which is a significant one for us well going to be closing that sometime early November okay. Everything is done.

So that's going to be a great acquisition for US now in terms of the pipeline. Our pipeline is always very full you know in Canada, if someone wants to sell his company. The first call as always deify why because we have a strong track record of of closing transaction.

Number one and number two I mean, if we create.

We create an environment, where somebody sells his family owned company to US I mean, we keep the value, but you know the the this kind of environment that is prop is to.

To growing the business, we've done well in the U.S. <unk> new players Okay for sure what we've done. So far is you know some significant transaction to see if I won like three years ago now the deal last one are we done dynamics in a in 2011 and you know our future.

Sure for a significant transaction for sure. We've said it many times, it's got to be south of the border. It cannot be in Canada. Because you know we're such a dominant player in Canada. If we tried to buy a company with revenue that is little bit more than $90 million. Canadian then we have to sit down with a competition Bureau in Ottawa and you know it is it's.

It's a it's a long long process and takes a novel Kos with lawyers and things like that so I mean, yes, weve been really busy but this is normal for us what is little bit less than unusuals. It every three years or about we do some significant transactions. So.

So this is why the LSW is is a significant transaction not that big but it's it's important to us I mean, we're going to be investing $225 million U.S. on this acquisition and a it's a it's a strong team led by Tom and.

And we have a lot of faith in the future in that business or you know, it's our first step into the U.S. LTL market through this asset like kind of acquisition.

So we we were going to use that to really understand the market drug drug drivers of this LTL mark in the U.S., which is little bit different than probably the one in Canada now that doesn't say that are you know we're going to be stopping that's a you know if you look at a we've got $1.5 billion of liquidity available for us for M&A.

They are we going to be spending in Canadian dollars about 300 million on on deal last so we still have a lot of dry powder. If we find the right acquisition the right fit absolutely we got to jump on it we have a deep bench.

As you know in Canada, our team is second to none and in the U.S.. We're beefing up the team I mean again. This the LSW acquisition is going to beef up our team are all these small acquisition that we've done in the U.S. through our specialty T. O now, we're running probably like a little bit more than a thousand trucks in our specialty truckload.

Which three years ago, we were well zero right. So we've got a lot of faith in this economy in North America, a U.S. in Canada, I think that once this election is behind us.

You know some concerned we'll probably evaporate Oh and then the 21, we see a lot of tailwind for transportation lots of potential now in terms of.

[music] way shouldn't I think that there's still ways to do a transaction that is accretive day. One you know doing a transaction that's accretive after 10 years well that this is not my bag a we're not really in that business. You know accretion has to be like day, one and and.

Normally without any synergies because they when you don't have any synergies you know what you started the business and here. We go. So if you look at the last if you look at the everything that we've done over the last one you. That's how we were able to build this TIFIA, which we're really proud up today and very proud of our people our team.

Great color thanks Alan.

No you're right.

And your next question comes the line of Jason Seidl Cowen. Please go ahead.

Thank you operator, good morning, Alain and team wanted to focus a little bit on some of the trends you've been seeing across your different business lines. As we are as we sit here for Q I'm curious to know sort of the rate of recovery, you're seeing there and then talk about how that's going to impact.

The mine profitability, especially with the Canadian wage subsidy eventually going away.

Yeah, well absolutely a very good question, Jason. So so if you look at Q2 the subsidy in Canada was about 22 million yeah. The forecast for US in Q4 is going to be about just a few million dollars, our p. and see a if you look at what we've been doing so far is our big so it makes a b to b versus.

B to C. S change in Q3, but our profitability has not changed that much. So if you look at our PNC in Q3 and going into Q4, our a b to B is still down year over year. Okay. If I look at I see actually if I look at T.F.I.S., which are our specialty PNC guys mostly.

The b to B, Oh, I see us is still down about 567%. Okay. T.F.I.S. is still down about 20%, but globally overall, our PNC is up a bit okay.

So that means that we've replaced a a lot of our beat to be would be to see without affecting our bottom line too much you know if you look at our adjusted EBITDA. It stayed about the same you know so that's our goal going into Q4 and into 21, Okay. We'll keep growing this would be.

To see awfully Oliver I beat to be comes back up probably there's going to be some leakage because as we know E. Commerce is eating a lot of the launch of the brick and mortar guys. So maybe there's a permanent okay impairment in some of our b to b business or <unk>.

Well see I mean, but you know we're back so we're replacing b to b would be to see without affecting the bottom line. Because we're focused we have a very solid plan. Okay to replace the b to B that is gone and also growing the global revenue or P., and see which I think in 21, you'll see even some.

Better organic growth now.

Going into ecommerce then it brings me to the next sector, which is our logistics logistic is on fire for US I mean, if you look at our last mile operation in Canada, I mean, we're doing so good.

So good in terms of quality increase revenue and so good in terms of bottom line, but Canadian market is small so if you look our U.S. market, okay, but that wasn't the main driver of our bottom line improvement in our logistic is our U.S. last mile operation, Okay, which okay. The top line there's not.

Brazil, Okay, because we're still getting new business end of quality and at the same time, we still have some businesses that are then let's say that 234% bottom line and and Cao and his team are saying you know what to 3%. We don't sorry, guys. Yeah. We can't service you for two 3%. So you guys have.

To walk so what you're going to see in 20 and into 21 is that the bottom line of our U.S. operations going to keep on growing getting closer to a double digit EBIT. That's the goal topline will grow but not by much because we're still replacing 234% bottom line guys.

With better quality a bottom line now if you look at our LTL [laughter] here, here's the problem in Canada. Okay. Most of the LTL is retail. So this is why you see us in Ontario, and Quebec, Okay, not so much out west because the west. This is small but you know there was never any.

Industrial LTL out west so yeah. So there's nothing to lose there, but you know this industrial LTL in Ontario, and Quebec keeps on coming down. So this is why revenue you know keeps on going down okay year over year organically and at the same time some of our.

Brick and mortar guys LTL. The guys customers are also losing to the E. Commerce. So this is why yeah were still down big time in our LTL, but at the same time, okay. All the right moves that we're doing in focusing on the right Lane the right customer, though the right weight break so.

You know, we're not in the business of hauling freight for $40 I mean leave that to the other guys, but our LTL for sure needs needs needs to grow through M&A. So we're looking at all kinds of opportunities what can we do on that.

We were trying to buy apps are we announced this acquisition, but finally, there was certain closing conditions that were not met so we had to say well, okay. We'll look at something else.

So, but the LTL, where it's going to be organic growth into 21, yes, but I think that we're going to keep growing the dollar or the bottom line, okay through our efficiencies and hopefully we're working on on different scenarios to keep growing the topline on our can eat in LTL.

Now if you think about our truckload <unk>, our U.S. truckload operation as I started okay in Q3.

Yeah revenue always about stable or see if I operation did little bit better than T.C.A.M.

M.C.T. acquisition is doing really really well our specialty.

Our specialty truckload is still affected in Canada, you know some of the mines are coming back construction is okay, but you know the automotive business is still not where it should be so steel aluminum is affecting us a bit but I see 21, you know like a are you.

Our U.S. steel will definitely improve absolutely I think our Canadian specialty and Van Division also will get to see some improvement there. So overall I'm very confident so this is why you know when we give guidance for 420, we.

We say P.S. is going to be a minimum of four bucks EBITDA is gonna be probably a minimum of 900 million Canadian okay, but I think that 21 is is really going to be you know a lot of these small acquisitions that we've done in 20, plus the gls. One that's closing at the end of the year, Okay, it's going to help us.

<unk> into the 21 year and I think that T.F. I will again produce even better results in 21 versus 20, even without the Canadian subsidy.

Well that's a good that's fantastic color Elaine if I could sneak this last one and Oh Opex I mean, obviously capex, yes, and then in three Q, what lead times go out on equipment, which everyone's been experiencing.

Looking at Capex for 21.

Yeah. So so on Q4, our capex for sure you'll start to see you know capex net capex, probably going to be like between 50 and $60 million Canadian Okay into Q4, because some of the lag some of the Capex that were put on all will be taking care in Q4, but if you look at twice.

Anyone globally typify net of disposal in Canadian dollars, we should be running at around the 200 million Mark Okay.

Okay. That's.

That's great listen I appreciate the time as always like nice job of core pleasure. Thank you Jason.

And your next question comes on line of Allison Landry with credit Suisse.

Go ahead.

Thanks, Good morning, Wales, and talk about I'm. Good how are you.

I can speak to that.

And the U.S.T.L. segment, and specifically what your expectations for contract rate increases might be for 2021 on and you see an opportunity to maybe price a little bit higher than the market given yeah, you're you're yield improvement initiatives.

Yeah.

Very good question. So what we're seeing as of now Okay is that contract pricing is up by about 567, 8%, okay. Depending on the customer we all see the spot rate going a you know through to some good levels right. Now so we believe that the quality of revenue for U S. T a lot.

Operations for 2021 will definitely improve but even more importantly for us Allison is always what can we do us to reduce our cost. So one significant thing that is one of our project for us in 21, which we've put on the old in 20.

With the goal of it but it's back on track now is its rtms. Our guys are doing a fantastic job today with tools of the Eightys in terms of <unk>. Okay. So the discussion that we had with what Greg and the rest of the team there as the guys we need tools of the Twond the 20 Onest.

Century, Monday <unk> not the Twentyth century, okay. So this is why we picked mcleod as a new Tms and we're doing right now a the study phases. Okay of all of that and we should be in a position. According to what the guys are telling me to start looking at implementation sometimes into.

21, so so that's one thing that it's got nothing to do with the market, okay, but it's something that us we could do to have better tools to our management team to do a better job. Okay. So so brings better efficiency and you know the Motorola terrifies always been you guys we have to do.

More with less so yes, I agree with you I mean, we have a tailwind in 21 with you know that the quality of the revenue raised should start to improve.

But and the freight is there you know were always Prebook every morning, now where prebook or were you know six months ago, guys, where a year ago, guys were saying well we got drivers we don't have the freight no well. The problem is the opposite we have more freight than we have drivers [laughter]. So you know, it's it's maybe a nice.

No problem to have but at the same time as I.

As we say to our team guys. We have to work on our cost basis, we have to be the tiger. The the Tigers always the last one to survive in the jungle. So low cost okay hallways help the company. So we have to bring in a same thing or a guinea in truckload, we're always working to bring our cost down and improve.

All of our efficiency.

21 for sure like you said Tailwinds for us in terms of pricing improvement.

Okay great.

Maybe in terms of capital allocation and great to see the dividend hike could you could you speak to how you're thinking about the buybacks going forward.

Yeah, what a buyback is for US is always been seen as M&A right. So it's either you buy something outside of T., a buy or you buy your own stock. So right now it's always a balance between okay. What we what its its adjusted return okay. So what can we buy versus okay buying T.F.I.

Right now our pipeline is like I said earlier is full we got lots and lots and lots of opportunities. It's just a you know, which one can we do and which ones got the best returns. So what we've been doing if you look at the earlier.

In 20, when our stock dip when the covert thing hit and our stock we bought back about 1.5 million shares at the time, Okay. I think it was Q1 or early into Q2 or so.

So we took that opportunity at the time, so okay fine right now our focus is more on M&A, okay, but it's always a balance depending on what the stock reaction is going to be [laughter] I mean, like I said, we've got a billion five in liquidity. Okay. So yes through the deal less transaction that's going.

It comes down to probably a billion to Canadian but.

But this is always the question. Okay. What is the best adjusted return is it buying back terrifies shares or you know investing and growing the company to M&A right. So it's a balance it's always you know.

You know my number one job as a CEO of <unk> is to control the cash and you control the cash by you know whats our policy on dividend, 20% to 25% of our free cash flow goes back to our shoulder. That's that's our policy.

That's why we're able to increase it by 12% and then you've got reduction of debt, which we did this year, Okay, and then Oh, Hey, M&A. So yes, as you know, we always invest about $200 million a year on M&A would small deals and once every 234 years, we do something.

Significant.

The LSW is important and significant.

You know she if I was significant because it was $500 million invested the LSW is important but it's not 500 million. So you know for us right.

Right now if I, if you want to talk a significant transaction is 500 million.

So yeah, that's it's important but it's not you know the size of the big whales that we always talk about every three or four years.

Okay excellent that was helpful framework. Thank you.

It's a pleasure OWS.

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

Hey, Thanks morning, So I just wanted to check something I'm on a guide and so $4 you've done I guess 310 or 311 year to date should we be expecting a drop off in the in the fourth quarter as the subsidies go away or is there conservatism here just help us.

Think about what this means for four.

Well you know.

We are we are very conservative us at Ti if I you know our Moto one of our Motorways you know under promise and over deliver you know.

So for sure that's why we're seeing a minimum of $4 no you could say well if you see a minimum of $4 that means it's a minimum of about 90 cents for Q4 is that because core the subsidies going away subsidies going away absolutely subsidy for us in Q4 is probably like a few million dollars.

But our 90 cents. Okay. If you say minimum four of US are three times 90 cents compared to $1.20 something today, who that means that they believe that this is going to drop like 20 to 30 cents, probably not but we want to be conservative remember our last guidance was 340 to 360 right.

And now we're saying for so I mean, we you know we always like to under promise and over the liver. So this is why we see a minimum of so that could be for it we could before and could be for 15 now we know October okay. We have an idea of what's going on dober.

But we don't know anything about November and December. So this is why we're careful.

And but we have confidence because you know if we don't have any confidence in 2021 why wouldn't we raised our dividend I mean, we know our team is solid we have a fantastic plan, okay for now and into 21, but we want to be conservative.

Okay makes sense so.

So with the L.S. just because it's the larger one maybe just help us a little bit more which is the the strategic rationale here I think it was a fiber running around a 5% margin business, where you think you can yes, yes, and yes, maybe just I guess, a grander plans for LTL in the U.S. would be helpful. Yes, Yes, yes, that's a very good.

Question first of all when we look at the last.

5% for sure we believe that we could do better than that you know working with Tom and the team overtime, it's not going to happen overnight, okay, but over time, you know if if one and the same kind of business as the LSW is is a 7% bottom line guy.

Well, how why why are we not seven okay. So overtime, we will work with Tom and his team to to get from five to six six to seven and maybe seven to eight or whatever I mean, we don't really like being a 5% bottom line guys, but eight it is what it is today no what we'd be.

Leave is good is that we know the LTL business in Canada inside out Okay. We know this business really really well we know that.

We know the market, we know the players et cetera et cetera, now this deal less acquisition help us understanding better okay. The <unk> will help us understand better okay. The players in the U.S. the market into U.S., because when we look at the U.S. LTL market.

For us it's like a gold mine and they can in LTL market is a sand mine in Canada, you can't improve pricing because there's too much overcapacity, it's it's a.

You know that's why revenue is down every quarter you know market is shrinking and our competition is not adjusting so theyre always chasing volume, okay and trying to survive.

The U.S. LTL market is different I mean, you've got some fantastic company. Okay that one of them is running a sub 80 you are okay. And then you've got other is that a family owned that probably run a you know in the 80 to 80 to 90 or ours, you got some public one.

Non union that run 90, you are and you got guys. The unionized guys. Okay. That's a different story, but not to say that union is bad because you know we if you look at the largest trucking company in the world, they're unionized with the Teamsters and they do a fantastic job but.

But I'm, just saying US. We're also use some of our operation in Canada as unionized and we do very well we worked with the union none the problem at all.

So it's one way it's like we're going to school. Okay. We're just trying to understand the different drivers. Okay. In this U.S. LTL market because the LSW is about 70% to 75%.

LTL, Okay, and 20% a truckload and the rest is a freight forwarding. So it's like going to school, we want to understand this market better because we believe that you know the the LTL in the U.S. between you and me it is a much better business than the one in Canada, but hey, too bad.

That's where we started us is where they can in LTL business and we've been you know working day and night to improve this but if you look at our results right. Yeah revenue is down bottom line is up though even if you exclude the subsidy of $8 billion in Q3, I mean, our revenue went down big time, but exclude the <unk>.

Subsidy our bottom line is still up 2 million.

And we're stuck with all kinds of fixed cost the trucks to the terminal and all that so that tells you how efficient we can be.

Well we are.

Thank you.

And your next you're welcome.

The next question comes from line of Walter Spracklin with RBC capital markets. Please go ahead.

Thanks, very much good morning away.

Good morning, Walter and Linda.

Now I'd like to focus a little bit on the on your on your emerging here because you know you brought back a lot of cost and.

And it's still got the operating leverage right. I mean, you Bret you brought back all your employees a lot of lot of other companies saw a lot of the cost creep come in but you were able to actually improve your margins.

Volume came so they are operating leverage looks pretty attractive I want to ask you know then you gave us good color into the fourth quarter here, but when we go into next year wouldn't do it.

If we back out the queues impact.

You're looking into next year do you think that you're merging.

For next year can hold in at the level that you did in 2019, and therefore with the acquisitions you've done or can you give us a little bit of a of indication as to you know kind of order of magnitude. The improvement that you saw that we could see next year I don't know if you're prepared to give us directionally.

Some guidance in the next year or not but that'd be very helpful. Helpful.

Helpful. If you have it.

Yeah, well you see Walter we can't give guidance for 21, but what I could tell you is like I said earlier on the call is that our PNC and 21, which PNC. The subsidy like it was chicken shit I mean, it was like it very insignificant in a sense, yes, why she has MTF I asked but can't part loom as there was no a subsidy at all.

We believe that in 21, excluding a the subsidy there's no subsidy for US I think in 21 for a PNC, we're going to do better we got to do better because even would I be to be down a bit okay. Because we're still gonna do some catch up a bar b to b in 21, but.

But our b to C is going to keep on growing okay at a reasonable rate not going crazy, but a reasonable rate. Okay that we could sustain at the same time my bottom line our truckload in U.S. There was never any subsidy, but I can in truckload most of our subsidy came to our specialty T L. Okay.

Okay, and and we're going to do it this will be probably eliminated in 21, but we believe that we can sustain the margin because some of the market that we've been affected badly are coming back and some of the smaller deals that weve done like that Keith all okay, and others that we've done in Canada, Okay is going to help us before.

This this margin and we have some very very nice project in Montreal, Okay with Dod contracts Division. There we have some nice project in the in the Port, though Hamilton with T. L. A we have some nice project also with or you know.

Gorski and and and well what's the name of that Gasco Gus code that we just bought a few months ago. So I believe that even 21 as Steve and his team there are going to yield a fantastic 21, even if you exclude this covered the this subsidy there.

And then you know if you think about our logistics Theres no subsidy their logistics will be up big time on the bottom line because of what I. Just explained and then we're left with the LTL. So the LTL. That's why we were trying to buy this apps a company, but finally, we can do it LTL is an issue because we think that organic.

Lee the LTL, Okay is negative into 20 and into 21. The market is shrinking. So we have to do something in M&A to help us support the subsidy will probably go away sometimes in 21 and.

And the guys are working hard we are in discussion okay right now for something significant in terms of a of a contract with a carrier okay that maybe couldn't help our LTL business in Canada. It's still early in the game maybe.

Maybe we'll be in position to announce something sometimes before the end of the year maybe into next year, but we the LTL in Canada will have to grow through M&A.

Absolutely can do the deal Okay. We're working on plan B right now for me.

That makes sense and just a quick one on your M&A pipeline in the U.S. any risk that that gets affected by a U.S. election season. You know for example, a higher capital gains tax come in is there any any risk around the election that would affect your U.S. pipeline at all.

I don't think so Walter I mean, we don't know whats going to happen. There you know in two weeks, but we believe that a you know this.

This U.S. economy is going to stay strong whoever runs ones the country I mean.

[laughter], where no magician I mean, our goal a us is that we adopt so we adapt and we adjust and we work for the future of our shareholder don't forget Cfives in business number one to create value for shareholders. That's our goal.

And just one more housekeeping for me tax rate you've been guiding us I believe at 25% is it still around that now that we should yes, yes, yes, yes, Walter yes.

Thank you very much a keepsake. Thank you.

Okay. Thank you all doing the same for you.

And your next question comes online that's Tom Wadewitz with GBM. Please go ahead.

Yes, good morning morning wanted to.

Yes.

Come back a little bit said.

Truckload I think you were asked a little bit earlier about.

Pricing in 2021.

You know things like this that it's pretty powerful the biggest U.S. truckload names said, they expect double digit pricing in 2021 so.

Unusually strong framework, what do you think the Oh are in your conventional a U.S. truckload business can be I think you know kind of best in class is 80, hi definitely.

Hi, Def low eightys in a strong cyclical environment yeah.

No do you potentially get to that in 21 or is that kind of a multiyear potential for the U.S. truckload.

Yeah very good question. So what we keep on saying is that you cannot be in the truckload business. If you don't run a 90 or and better on average okay. Over 10 years. So that means that you know if you have tailwind like we will probably having 21.

It's it's impossible to run and I know you are you get the run better than 90, Okay. So if you look at what we've been doing in the last quarter. Okay. We're running at about a 90 or right now 1990 point something Okay, which is no for sure. The Guy will say well you know we've been affected with the equipment.

Okay. The profit on equipment is gone because you know that mark has not been so good but no okay fine but for us in a tailwind situation like we anticipate in 21.

I think there is no excuse to be running at 90 or you have to be focusing on on something sub 90 or because on average okay, you're going to have maybe some bad years at a 93 or so when the good news are coming in you got to be a sub 90 or no.

I've been seeing our plan or budget for 21, yet okay. So Greg and his team are working on it and we can't really provide guidance for 21, so far but what I would be really disappointed to see a 90 you are in our plan for 21.

Right Okay.

And then the second question is in logistics. So your logistics margin improved pretty dramatically can you just give us a little perspective on what drove that and you know kind of the forward look you sustain at that level or do you think about the margin looking forward as well. Thank you yep yep well most of the improvement.

Okay. So if you look at our improvement there's about $4 million or bottom line improvement that came from Canada, Canada is small okay, but the majority of the improvement can came from our U.S. operation Okay.

Okay in the quarter in Q3, and you'll see us improving in the U.S., even more as the time goes by you know what Weve done a year ago. If you remember what I said a year ago. I said guys were making a change in leadership in the U.S. So so what we're doing is cow, which is our E V. P. There.

As responsible Cana now oversees our U.S. operation since last summer.

At 20, a 19, okay and we've been rebuilding that team. So the sales team now is is under the leadership of Dean. Okay. Dean is is overseeing our north American Okay last mile operation both U.S. in Canada. So so huge yeah, we just signed and we just started.

Okay servicing a 16 million dollar account in the U.S. Whit Whit, some interesting and fair margin. So.

Our U.S. Q3 last mile operation at the majority of the improvement absolutely and you'll see that improving over Q4 and into 21 like I said earlier.

The top line of our U.S. operation will probably not grow that much because we're still replacing three 4% bottom line guys with better margin right. That's our goal we're not in business to practice delivery. We're in business to create shareholder value. So you know a guy that gives me a 2% bottom line.

No deal with someone else because you know for 2% My shareholder will say you know why would I buy five or 2% bottom line I'm just gonna buy shares of a.

No and North American Bank, and I'll get a three or four or 5% dividend. So stupid right. So that's our goal and you'll see us in Q4 again now the average with the L.S. like we said earlier the LSW is adding a lot of revenue to our logistics at only 5% margin so globally.

No it will help reduce our percentage, but we'll work on that.

In the months in the quarters to come.

Right. Okay. Thank you.

Pleasure.

And your next question comes from the line of Jarden Oliger Goldman Sachs. Please go ahead.

Hi, good morning, everyone.

We enjoy good morning.

I know you mentioned going to need organic.

Organic growth.

Some M&A to support it and assuming you're talking about topline there I'm just curious because here.

Mark and you can even without the way, so I'm, saying the third quarter.

Yeah, so yes.

Yes, I think putting the top line of sight, you think you can hold or improve upon efficiencies to the LTL margin.

Well, we still have blends okay to improve the margin or Jordan, but the top line like I said it without M&A is going to shrink yes. So dollar wise I think that we can sustain the dollar wise, even with some revenue leakage, okay because of the market, but for sure our approaches to two.

To do you know some M&A activities in Canada, Okay to beef up the top line and it will also have an effect, but I'm not saying that without the topline growth. Okay. It's not sustainable or margin no margins are sustainable because we still have some some stuff that we could do to keep on.

Improving what we're doing today.

Great and then just a bigger picture question.

On M&A, if we got.

Larger as a company.

Yeah I know.

Historically that strategic deals for every three or four years apart.

Yes, there's a need to make them work.

Will you need or would you want to have them come more quicker as you've gotten larger is that something that might need to happen.

You know what that's a good question Jordan. This is a this is a <unk> based on the deep bench that we have so in Canada, we have a very deep bench a team that is second to none but the problem. We have is it's a small market, okay and we're already really really big So our plan has been to beef up our U.S. team because the future.

She is in the U.S. for us to to to grow the our business significantly. So that's been the focus of ours. So deal last okay. We'll add will beef up our team in terms of market intelligence in the LTL. So if ever in February there's a transaction possible in the LTL in the U.S. you know I don't know maybe accompany that.

Becomes for sale or whatever so now with the last at least we before buying an asset based company will have some market intelligence, we have a team it's the same store.

It's the same story with our specialty T L. In the U.S. So what we've done so far is small acquisition. You know we bought you know a a 200 truck operation here to another 200 truck there and now we're up to a little over a thousand trucks. So if if a deal that comes to US, let's say for a thousand trucks now we could do that.

Easily and also you know.

Yes, our strategy has always been small step, but I agree with you that the bigger we get the larger they're small steps becomes right.

So our focus really has got to be for us small deals in Canada, Okay, small nice tuck ins, which we're doing now and hopefully we can find the right transaction after the LSW upsize in the U.S.

Maybe in the specialty TL, maybe in the last mile and we never know may be in the LTL, we'll see.

Right. Thank you.

You're welcome.

Thank you. Your next question comes the line that's going on this year with Laurentian Bank. Please go ahead.

Good morning, Alan and thanks, Congrats on a fantastic quarter.

Thank you Mona.

So I'm just going to keep it to one question, but when I'm thinking about your dinner I, Yeah I eat your performance in the legacy when a lead I'm. Just wondering what is your ultimate guiding principle or metric that did lead into every decision you make or that mentally you keep reverting back to and has it changed.

Just over time any just even on home [laughter]. Yeah. Yeah. Go ahead, yeah, Yeah, well, you know more or religion us is like I said for years and years when business to create shareholder value. This is Ben no a number one rule on T.F.I., Okay, and how do we get this done.

He is by focusing on free cash flow.

You know some of the guys say they talk about EBIT dog. This EBITDA that Bobby US we say, okay. EBITDA is fine we understand that but for US is what's the free cash what's left okay. Because you could have $100 million of EBITDA, but if you have $98 million or capex, okay to sustain the business well, there's not much to do.

So if you look at our track record of 20 years, that's how we've been able to build T.F.I.. It's based on the focus of creating shareholder value. That's never change because don't forget I'm in important shareholder of <unk> five from day one.

And also how do we get there is through people team team people and focus on free cash flow and the payback. So someone comes to me and say on a we we have to invest a million dollar for this customer and the return is going to be one point well.

Well find somebody else because we're not in the business of 1.2 0.3 points that's not us.

So that's always been the focus a T.F.I., it's everything is about creating value for our shareholders.

Yes through servicing customer and focusing on the team team people. The right Guy you know we've built a fantastic team of employees are doing a great great job and we're beefing up the team you know this acquisition of the Alaska is going to add you know another significant layer to our team when.

We're really proud of that.

Thank you I'll leave it there.

Yep.

And your next question comes from line of Sanjay Sakhrani with Bank of America. Please go ahead.

Good morning, and thanks for taking my question.

Well I'll keep it to one that maybe just talking about the the ship.

We did see in Twoq you maybe.

I mean, how do you look at the right.

Between beta being made it maybe over the next couple of quarters, I mean that would be kind of business you know whether it's in the U.S. kinda.

Yeah on any other details would be great.

Yeah very good question. So for US beat you be is really you know what can we do and how much can we do so our focus is always been to keep on growing b to b, but it's tough to do be in the market environment, because our customers are being you know.

I used the word attack by by the E Commerce. Okay. So what were trying always to protect our b to b and to try to to grow the b to b, but we live in the <unk>.

We live in a world in 2021 that E. Commerce is growing so we got to be part of the solution and that's what we're doing okay. So we're growing now in terms of the mix.

It is the mix 50 50 is that makes 60 40 I don't know okay. What's the best mix is but one thing I could tell you is that we're trying to protect and grow our b to b. Because that is you know the coincidence of delivery is always more a versus b to C, which is one stop.

One partial normally.

No we know.

We know that E commerce is growing and b to B, it's not growing as much. So this is why we came with a solution that really focus on not just growing E commerce, Oh everywhere and anywhere with any race. Our focus has been guys, let's grow where we can protect our March.

Okay, and then keep growing the revenue of the company and that's if you look out to Q3. Okay. This is what we've been able to attain now if you ask me about future you know probably in two to three to five years, we're going to see more okay of this growth in E. Commerce beat to see then we're going to see in the growth of.

To be so but.

But we are also controlling the growth okay.

Our PNC solution. Okay. Because you know, we don't want to offer more capacity and come up with a 3% bottom line solution. So.

So our most efficient solution, okay to the ecommerce is our last mile operation and.

And this is what we've been growing okay. The in a very important way in Canada, not so much in the U.S. for now okay, but that's going to be a real focus of ours in 21 in the U.S., but anyway like I said earlier.

We still have some small margin accounts that needs to be adjusted or change or are you know replace and that's why we believe that in 21, our top line in the U.S. is going to improve a bit but most importantly, the bottom line was willing to keep.

On improving a lot and I don't know if it this answers your question to 100%, but our focus is.

Bottom line and how do we get that right now we know that B to C is part of the solution.

Okay. That's great color I did my maybe I'll have one more follow up question, but and just in terms of the freight Michael obviously, we're seeing a very very strong freight market right now yet.

Just potentially could could you comment on how you want to.

These driver shortages right now and maybe talk about the wage inflation, you're saying you know what.

Hi, when hearing a lot of truck business really struggling to.

Driving and yeah, whiting pricing quite quite hefty sector, yes or no.

Yes, yes, well just see that so is that you know that the problem with the with the trucking industry is that a year ago, we had tons of drivers and not so much in terms of freight now we have tons of freight and it's tough to find the drivers hey, So for sure. We came out with a salary review for our drivers.

And that I think it took effect just lately because it's a problem hey, so it's it's the same story all over again, okay. So freight is it's plenty and shortage of drivers.

So this is what we're going through right now it's the same story for us and the rest of the industry, It's always a battle.

[noise] you know what we've tried to do in a situation like that our experience in Canada has always been.

No.

When there's a shortage of driver our approach in Canada, Okay over the last 15 to 20 years, what I said to my guys guys.

But if we buy a trucking company, okay with 200 drivers. So you know you buying a company you keep the good accounts and you know you get rid of the bad ones and also that gives you a little bit better capacity. So so that is in our mind a solution.

That you know we may start to think about the U.S. domestic market. So if I if I explain myself correctly is you look at it 200 truck company like we just bought MCT.

A few months ago, it's about 200 trucks and I'm looking at the results of MCT and.

And it's it's very impressive what the what Greg and the team has done there.

And maybe there's another MCT that we could buy you know in the next three to six months to beef up our our cat our human capital our driver fleet at.

And in those small trucking company you have some good accounts, but.

But sometimes because they don't know what the market is they have some not so good account and our approach is always been you know what you do is you just get rid of the ones that are not good and then that leaves you capacity to service your good account in your existing business.

I don't know if it if I may say in my right [laughter] myself correctly I don't know if you understand what I'm, saying.

Not that I mean that makes a lot of them. Okay. What's kind of your thoughts I know I appreciate it.

Okay.

And your next question comes the line of Konark Gupte, Let's close Scotia capital. Please go ahead.

Thanks, and good morning, how are you the most.

Good morning, I'm going to do.

Perfect perfect great. Thanks, hope, you're keeping seasonality I'm just a few quick ones from me really on debates subsidy I'm not sure. If I heard you correctly are you expecting the government to extend the weights subsidy into 2021.

Well no what I'm, saying is that a a wage subsidy for our Q4 is going to be minimal us. Okay. Because you know our revenue is coming back in and a slowly. Okay. So I was saying that in Q4, okay. Our wage subsidy is gonna be minimal just a few million dollars and for 21.

And it's probably going to be zero for us.

Okay makes sense, thank you and free cash flow guidance. So the minimum a you announced today a $600 million.

See that implies a relatively less cash generation in Q4, I'm curious as to if it's all pertaining to cap tax and tax payment perhaps.

Yeah, well capex is going to be more important for us in Q4 like I said it net capex is probably going to be like in the 50 to 55 million. Okay. Because we have to do some catch up because of Q2 was light and even Q3 was light.

Okay.

And then yes, you're right we got some tax payment, but like I said this is a minimum of hey, it's like on the P. S.

It's a minimum of four so what is it exactly we don't know, but we see it's a minimum of four so it could it be maybe it's for that or not for the Abbott, let's say four or five 415, we'll see it's the same thing with the free cash. So it's a minimum of six 600, so it could be 650 years it could be 675.

You know it all depends but at least this is a minimum.

Right right no I understand that Dolly and then I think not a lot of discussion on factors in Korea. So just want to kind of dig in a few things there there was.

There was a I think a margin contraction in Q3 versus last year, despite volumes being almost flattish and then pricing being quite positive.

What what will that do that the margin deterioration and then is there any room for margin improvement on where you are today.

Yeah, there's been a if you look at our adjusted EBITDA as a percentage of revenue I mean, there was no real margin a issues, but what is affecting us like I said is I see us, okay, and our T.F.I.S. specialty PNC, guys, which are mostly b to b or the revenue is still down.

[laughter] excuse me year over year, So I see us is down five 6% and T., if I asked it down like 15% to 20% and this is high quality margin business. Okay that we're now this if you look globally. Our PNC revenue is up a bit okay, because we replace those.

He was a b to B revenue lost okay, because the customers are still not completely reopen et cetera for whatever reason, okay by b to C with our camp R. Loomis operation, Okay, and and if you look at most of the E Commerce business, Okay, and you listen to whats going on.

As always have pressure on the margin we were able to do it at a kind of similar kind of margin like a like we used to do with our b to C. So that's what we're saying, we're saying also that E commerce in our packaging for your business will keep on growing and we're in business to protect our margin.

So we've got lots of demand I mean, we we could grow way more than what we're doing now, but we are controlling our growth through our capacity offering to our customers though.

Right right no that makes sense, thanks, and last one for me before I turn it over all the acquisitions you have closed or announced this year.

Up to almost call it a billion dollar in revenue.

Maybe you optimize some of those businesses right, but what kind of margins do these businesses on a cumulative basis generate today and where can they be in a year.

Yeah, well the biggest one is the OLED is that we're going to be closing a you know in November. So yeah. The LSW is 550 U.S. soil should go to convert that into Canadian dollars, it's about let's see 700 million.

Million dollars Canadian and that is a 5% bottom line company today.

We believe that 5% is okay, but its on the average and you know we're not in the business of average kind of return. So we believe that over time. This five will become six and maybe seven and eight it's still very early to say, but we look at the peers and we have.

Here's a seven right now so so one we'll be talking with Tom our leader there is it eight Tom if if the pews ARQ seven what can we do to get closer to six and seven and maybe but getting better than seven.

But it will take time, its not going to happen overnight now the other small ones like Keith all like gusto, Okay. Like the you know the DSN.

Although small a triple C that we bought in the U.S. the M.C.T. those.

Those guys you know.

Our running someone them, a 92 or some of them in 98, the war and the proof is in the putting if you look at our track record.

I mean [noise].

It overtime. These guys will get closer to on the specialty tea out an 85 war, but it takes time. It takes time, absolutely. So I mean, we we don't give guidance for 21, because our budget planning is not completely done for 21, but as soon as possible.

Give guidance for the way, we think 20 one's going to be but I could say my first feel about 21 is we're going to do better than 20, even without the subsidy.

That's perfect. That's all for me. Thanks, Thanks, so much land, let's stay there.

Thank you.

And your next question comes the line of Jack Atkins with Stephens. Please go ahead anyway.

Hey, Elaine good morning, Thanks for taking my question.

Well, Jack So just just kind of going back to the PNC business for a moment you know, we're certainly hearing about quite a bit of pricing power from the large U.S., yes parcel carriers. Yeah. You know I mean, when you think about that especially as we go into 21 with VTB hopefully recovering back to more normalized levels.

Yeah, because we got to be sustained me to see demand. Yeah. You know how are you thinking about the pricing power in your business, there and just sort of normalizing for the the subsidies isn't right to maybe think about it as a real step function change in profitability from a margin perspective, and Pete as you can see next year.

Well, you're absolutely right Jack for sure I mean, we're following in the steps of the big guys like the Fedex on the U.P.S. So so for sure the only difference between us and them is that those guys were ahead of the game in US. We're following them. So us and it will take effect only November okay, which is next week.

Oh, absolutely but.

But I agree with you beat to be is slowly coming back. So that's going to help us in 21 now are we going to be back to the same level as we were pre covert on b to b mm, it's hard to say probably not okay. But also our b to C is also improving in terms of demand.

And you know the name of the game.

In transportation has always been density Okay. You have to build density and the more density you have so on E. Commerce, because one stop is one parcel at 99.9% of the time, what you have to do in order to get the density is to pick the ZIP code picked the right Zip code.

So give you. An example, if you want to do it will be to see in the small northern town of Ontario, 20 miles north of Sudbury, well you want to have a lot of density there right. So our our option to assess been well, let's pick the right ZIP code like that you know.

The G.T.A. the greater Toronto area. The same thing with Vancouver same same approach with Montreal et cetera, et cetera, and that is the way to create density in an environment, where one stuff is one parcel. So you say one stop is one parcel that's true, but if you deliver into it a you know a downtime.

Own condo tower in Toronto, Okay, where there's about 300 apartment well, maybe one stop is not going to be one parcel. There may be one stop is going to be 15 parcel because there's 300 department, but a thousand or 300 apartment in summary, there is none.

Right. So so this is why our approach has been Vancouver, Calgary, Montreal, Toronto, or you know Ottawa dose city, where we could do more density okay per stop.

Okay, even in the E Commerce World.

Okay that makes a lot of stuff maybe just one one quick last one for me how are you thinking about your available capacity you know to to be able to to grow with the market bear. It in 2021 do you need to maybe add some capacity the margin within the B and C segment.

Yes, yes, what we're doing Jack is is we're increasing our capacity at Loomis Khanfar on a monthly basis, but we are not going to be like a you know, Canada post or others in Canada that are just growing out of control us we are growing in control.

All because we don't want to come up to our shareholders. Okay in Q1 or in Q2 next year and say well guys. We've grown PNC, 15%.

But the bottom line is down 20%.

No no no no no we don't want to do that that's why US. We go ahead, and we grow top and bottom line you know accordingly. So that's it that's the focus so when I talk to Brian and his team guys. Absolutely I mean, we got a full pipeline of customers I want to deal with us on E Commerce, but we gotta go.

Step by step, we got to pick and choose the right customer the right Zip code and where it fits and we don't want to blow out on the top line and a disaster on the bottom line.

Okay that makes a lot of sense in my book <unk>. Thanks again for the time.

Thank you Jack.

And your next question comes from the line of David Ross with Stifel. Please go ahead.

Yes, good morning land every Friday.

[laughter]. Thank you David good morning.

So when you talk about the logistics and last mile Division, specifically as you trade up in customer accounts to get more profitable business, Yes, where are those you called them like three 3.4 point accounts going are they able to find somebody else to haul it at those low prices or are any of them.

Coming back to you and paying the margin that it takes to run that business.

It's a mix a it's a makes a Dave are you know they say in transportation Theres a softer born every minute right. So.

So there's always someone stupid enough to say Oh, I'm going to do it for for this kind of money.

But you know our focus US is that we've got so much capacity growth for our last mile in the U.S. with E. Commerce at good margin why am I going to service. This guy like Payless something you know.

If if this guy sales assets for pay less for sure he wants to pay less for freight too right.

So that's not my topic, that's not my cup of tea.

So us we're we've got so much demand right now in the U.S. with the E commerce, So what I'm, saying to count it seems that guys I mean less rain. This new E Commerce business as I said, we're just starting to do business with one customer that's going to be 16 million for us on a yearly basis and okay.

Hey, take this guy on but get rid of those two or 3% Guy now some of them are are say Oh no no. We can't find another sucker, okay. So well stay with you guys. What can we do it for 8% bottom line. So we say, okay, well, we'll live with that but the guy comes back to US with can we do it for three and a half and I said no no no get out.

[music].

And just quickly on the trucking side of things given that it's tight but also rates are up.

Are you do you expect to see a fine TCAD to have any organic truck growth next year or is any of the growth in the truckload segment in the U.S. likely to be M&A.

Well, that's a that's a tough question I mean for sure. The freight is there the the freight is there the issue that Greg and his team have is the same as everybody else has his people is driver right. So so what did you do okay. In a situation like that is like I said to David and the team is the guys.

And we find a company okay, that's got asset, which is people and they don't know what to do with it. So this is why we bought from this this guy that was under the protection of the court come car, we bought MCT from him we bought Siti from him and we bought a triple C from him. So we got assets.

Yes people, okay, and with that we'll be in a position to create value to our shareholders.

As I was saying to Greg the other day so Greg.

Yes, we're busy okay, yes, we're trying to hire driver, but is there is there a small company in your neighborhood is there something of size size, which for US is 234 hundred trucks that we could buy and those guys are not bankrupt, but those guys are.

Okay, well, we can improve them through cost and through quality revenue.

Because it's very hard because every transportation companies looking for driver.

So and it takes time and it costs money.

So what we're saying guys how about if we buy a small and that's what I've done for 15 20 years in Canada is when the shortage was there no let's buy a company and a company you know it's not that expensive. We if we can strike the right deal. Okay. Perfect. So beef, we beef up the team like that.

So this is you know it's been like a little bit under the radar. Dave is is when we bought those three company from come car Okay.

Okay, we didn't get a lot of good quality raised from customers. Okay. Because the reason those guys were bankrupt or.

Or under the protection of the court, but we got a good asset which is the people and now we're working with customers end markets and we are improving so this is why we're saying M.C.T. What the guys have done there is fantastic I mean grammar Triple C. C. T is still.

An ongoing process, but it's going to be the same story.

So it's going to be hard to grow organically, okay through trying to find the drivers but.

But if we could find the right company. Okay small that's that's how we get the drivers.

Makes sense. Thank you.

You're welcome Dave.

And your next question comes in line of Brian.

JP Morgan.

[music].

Hey, good morning, and thank you for taking the question Brian.

[laughter]. So just couple of quick ones here I understand using a deal. That's you know kind of the foothold similar blueprint you done in the past the skill to new businesses and the U.S. gets the market intelligence as well would you consider both stream just overall brokerage platform more so to the TL side, where you report really focused and I'll pass it on.

Typically seen a higher level of investment, especially in the technology side in brokerage just overall understand LPL, yeah, I wouldn't have the same sort of drivers competition behind it but how do you. How do you think of just the level of investment and what what type of platform on the asset light side that you're looking to do with the Elas.

Well the LSW, a if I listen to Tom and the people that are talking to the guys. I mean, we could grow that fast, but you know our message to Tom and the team there is going to be guys focus number one yeah, we want to grow the top line, mostly on LTL, absolutely, but the most and.

One thing to us like I said on the call is that we have to bring this 5% bottom line company closer to six and to seven and maybe to eight today.

To us it's more important to to grow the bottom line than to grow just the top line.

But we believe that a as an example, okay. When we talk to Tom Okay ideal S say, Tom you guys focus on trans border LTL signal.

Oh.

Wow, that's a new thing for you guys, that's something that Tom and you teed up to focus because the.

The rates the quality of the revenue on transport afraid between us and Canada and U.S. in Mexico.

Is even better than the U.S. domestic rates. So guys. That's a new area of focus of yours. Okay. So that's one area that we think that Tom and his team could.

You will immediately start to focus on so we believe that the deal last will grow the top line over these for example, okay. We believe that the L.S. couldn't grow the topline with and conquer with our truckload operation in the U.S., Okay, we could do probably better with that.

And Oh, absolutely that's the way to go for Us I mean.

And it gets us market intelligence in the LTL market, which is something that you know right now today.

We know the Canadian market really really well, but the U. S. One we know it through our partners.

Okay, but only on the.

[noise] trans border freight.

When we look at the other LTL company.

I mean, some guys are doing a fantastic job in the U.S.

Fantastic job.

And there's way more consolidation that has been done in the U.S. on the LTL side.

And in Canada in Canada, there's still way too many small players not about making money.

Now that's a big difference if you compare that with our truckload market the truckload market in Canada as we more consolidated than the one in the U.S.

Hey.

But the LTL is different you LTL is the guys. It's a much better market than the U.S. and in Canada. So this is why for us when we look at the last it's fantastic in the sense that Oh. This is going to give us the opportunity to really understand what's going on there what are the drivers and then you know like I said earlier on the call.

We've got a billion dollars Canadian to invest.

To invest.

Okay. So we could it could be a specialty T L.

It could be another last mile. It could be you know maybe one day could be you know an LTL company in the U.S.. We don't know okay. We're working on something important in all those sectors, okay, but well see but at least on the specialty tea out we've done many small deals that now give.

Yes, you know what the market is all about and the U.S. okay.

On the van side through Cfive tea, we have a good understanding of the market now in the LTL with the L.S. overtime, we'll get a greater understanding of the market Fantastic and then we could start growing.

He guys in Canada, where such a huge player that's something of size.

Just tough to do stuff to do for us.

And just in terms of the technology investment is there.

We typically hear that with with brokerages LPL.

Maybe not as much is or you think you need to do just from a.

Visibility perspective, or anything out on the tech investment side as you bring deal or somebody yes.

Yes, yes, yes, yes, yes. So you know when we talked to Tom for sure. Okay, right now if I remember correctly, there using mercury gates and Sep a us we run Oracle. So first step for us is going to move because we have a T.S.C. agreement or for a year. So step one is to move.

Who are those guys from Sep to Oracle to you if I will use Oracle and then Oh. The next discussion is gonna be around Mercury gates. I mean is that the right tool for growing this division or do we have to do something else.

I don't know, it's too early to say, but absolutely. That's one area that we want to invest as tools for our people to do a better job like I said for our truckload guys.

No. We're in the phase we're looking at Mcleod, Okay. We're doing the study right now the first phase and then probably the implementation will take effect in 21, so we need our people to have the right tools to be even more efficient same story with our LTL you know our LTL as well we're looking at T M.

W. Okay. So if you if you look at our LTL operation of West mostly run on T.M.W.

In the East a we are quick X now that's run T M W.

Be probably moving a T.S. tcf on T. MW in 21, it's all about the tools. We have a team that is second to none in Canada, but we can always improve the results by giving those guys better tools and that is the goal for us.

Understood one last quick follow up on the driver market and the.

More inclination.

More inclination to buy assets to get drivers with M.C.T. NCTC sounds like it's going pretty well so far what's the what's your ability to hang on hang onto that people want when when they come over in the market is tight and you need to perhaps calls I'm afraid to buy.

Got the profitability are you seeing kind of historical levels of turnover and retention.

And does that make you more or less confident to do more to use in the future.

Yeah, not so much of our not so much I mean, I know, it's always been an issue in the U.S. and you buy a company and after you all the drivers are gone I mean or our approach is is been quite quite good I mean, if you look if you would talk to took raggatt MCT. He would tell you that no are there.

There is no real turned over the same thing that she t. with Steve and the team there not an issue, but you know we don't come in there and say well you guys have to change. This is the recipe and this is the way to go for the future no. We don't do that so I mean, the way our approach as you know hey, guys, let's keep on doing what we're doing and us were working.

With the customer and just to make sure that the rates are fair that the rates are market also if you look at.

If you look at the the stuff that we bought from.

From growing car I mean, the trucks, where a terrible and in some of the division. So we're investing in Capex, we're buying the equipment. So that the guys you know could could be proud of their equipment and their company. So I mean, we've been very very successful in Canada or you know and.

If you look at what we've done so far in the U.S., It's it's working well.

All right. Thanks for timely appreciate pleasure right take care.

And your next question does fall lineup Cameron Doerksen National Bank financial Please go ahead.

Thanks, Good morning.

Thanks, Kevin.

Yes, so just a quick one for me and it's I guess wanted to just get your thoughts around M&A in the specialty truckload area in the U.S., you've talked about that but I'm. Just wondering if there's any sort of specific sub segments of specialty steel that are more attractive I mean, I guess, you're flat bed versus dry bulk versus versus liquids is there anything there.

[laughter] better from an operational point of view or from a competitive landscape point of view that that yeah, we'd like.

I would like to focus on one of those three yeah.

Yeah, Yeah, that's a very good question Cameron so flat bed I mean, she is a flatbed company. So it's a really the first transaction that we do in the flatbed world. Okay. So, it's probably not going to be something for us important and 21 in M&A, but.

But in terms of bulk okay with the stainless steel okay. Everything they are released to chemicals or food. Okay. That's very important to us so triple C is like that.

When we bought Chile, when we bought all Lake.

Absolutely for us really the tanker world is for us priority number one.

We are the largest player in Canada on the food grade stuff.

Hauling you know whatever wine juice or sugar et cetera, et cetera. So we believe that for us on the specialty tea aisle food grade chemicals on the bulk side liquid and dry okay or not so much the same.

A man cement is okay in some areas.

North America, you know, but it's it's really the focus of ours flatbed. It's yes, we did see T. It was a good opportunity and we will keep on looking at that but really our focus on the specialty is more in the tanker world.

Does that include a petroleum products.

No no.

No no no no no no no no petroleum is no no.

Not for us.

You don't do much of that in a in Canada anyway in specialty truckload.

No very very small I mean, this came to us a small operation we have in Montreal about a 15 trucks on the petroleum is mostly for the ships.

Wendy you know the docking much all they need to add.

Energy. So so yes for the ship its a specialty petroleum business that we have that it's very small, but absolutely not I mean, if it if a company was up for sale, let's say with the I don't know $300 million revenue holding petroleum products no not for us well leave it to the other guys.

Oh I see is more food chemicals, yes, we're in.

Okay makes sense, thanks very much.

Thank you Cameron.

And your next question comes the line of Kevin Chang lets see I'd. Please go ahead.

Oh, Thanks for fitting me in here or later and it's been a long call maybe just a follow up on a on the CLS acquisition and you mentioned you have a lot of cross border partner.

Partnership something one of them with Ti as Tcs is just wondering as you think of the analysts longer term would you look to eventually in house all your cross border LTL I guess your cross border LTL network or <unk>, and eventually as partnerships and or no. Okay. No no no no I mean, what was that.

We're saying to deal last is that the trans border business is huge and you guys. You know you you're doing a good job on the domestic side Hey, how about if you started looking at the trans border business, which is something that those guys never really looked at but no. We're really proud of our partnership with saia right now and for sure we would never.

I would do something like that I mean, this it would be very on professional on our part so none of the relationship. We have signed up is we want to protect that and we want to grow it but it's got nothing to do with the L.S.

[laughter] when in fact, you know between you and me Kevin Yeah.

Yes deals with site anywhere else on the domestic side yeah.

Well get you me and everybody else on this call [laughter], Okay. The clarification I want a good quarter.

Thank you Kevin.

And your next question comes the line that's been helpful. But there's I think he's got home.

Hey, good morning Ali.

Boy Mint and gum.

And congrats for the results and I'm glad to see that the child efforts are paying off on U.S. last mile.

Yes, I like looking at last mile a great network in the U.S., there's been a lot of investment if we think that's tropic five ship Bob.

Just wondering whether you see some of fortunate to partner with some warehousing fulfillment companies as you don't want to go through real estate. So Im just wondering if you see some opportunities due to partner up with with some guys are eventually.

Well that's a good question by the way so far I mean, no okay, but we're having a lot of discussion. This is like you know the drone thing there I mean are you guys thinking about that yes. We are okay. It's just.

It's the same thing with a with this partnering with someone that's got the coverage. Okay. Because like you said I mean, we're not in the real estate business and we we don't want to be in the real estate business industrial real estate, all so yes, but right now we have so much demand without going through that.

Okay. That's right no cows team in the U.S. are any focus on on Joe's just a you know answering the demand that we're getting it's it's unbelievable, okay, but yeah, we got to do it step by step you know one step at a time and you know we're getting on board a $60 million kinda like.

I said earlier right now okay. Its fine, okay, but $16 million in the U.S. is big but it's not that big So we're testing also with another customer in California.

Right now at or very soon.

And this could be just for California. Another 15 million dollar account so huge potential for us in the U.S., but you know a year ago cows mission in the U.S. was guys weaker.

We cannot build if the foundation or not solid okay. So step one let's make sure that our foundation in the U.S.A.

His solid which now okay, we could say yes.

Getting rid of all of those 2% guys. Okay step number two okay, let's build a sales team that is north American it's done with Dean Okay Fine and then let's start growing organically with the E. Commerce solution that we have which is fantastic.

Lean and mean solution that today, we're growing big time in Canada, but not so much in the U.S., because we are replacing those 2% guys with better quality revenue.

Right. So we've got I asked for right now.

Anyway.

Okay. Okay, that's great color and the other question I had was around the market.

Markets. We are all aware about the positive market condition. Obviously the biggest question is around the duration of the cycle yeah. When we look at the clock Uh huh.

Orders, yes, the pick up over the last three months, but we are still well below the historical average I'm looking also.

And they should not be a driver's license drug and alcohol clearinghouse remove almost 30000 drivers. Yeah. It's also why as you know the implementation that will be meant that dairy in June Twentyth. We had one well then I guess on gas.

So do you see some long term tailwind or structural changes that might make this fall do cycle may be longer than than usual lightly.

I think so and also the leadership in the truckload world and in the U.S. like the good companies like a you know Knight and Heartland and Werner and all those good companies in the U.S. They they have like a great influence now about hey, guys.

This is how we could sustain this growth, okay, and and we're in business to serve customer, yes, but we're in business to make money as well so.

So I think that market the macro is changing to the advantage of the trucking company right now okay fine how long this is going to last maybe like you said longer than ever before because of the clearing house. Because also it takes a lot of capital now to two okay interest rates are low.

Low, but still I mean, it's not as easy to buy a truck like it was like 10 years ago, maybe and also customers are getting no pressure to be more I would say professional in the sense that you can't give a low to you know a nonprofessional driver anymore. Its its.

Looks bad so I think that you're right.

Now, where we are things are changing slowly changing to be you know more professional yeah. It may cost a little bit more money, but we are in business for two is to create value for our shoulder, but we have to do it in a safe manner. Okay. We have to be safe on the road, okay. What drivers are safe.

Right.

As an industry.

This is why I agree with you.

Probably a little bit.

Little bit more stronger tailwinds than we've ever seen before.

That's great color I like thanks, very much for the fine.

Pleasure, but anyway.

And there are no further questions at this time I will turn the call back over to our Knight for closing remarks.

Okay, well. Thank you very much operator for facility, our Q and a session I also want to thank everyone for spending time with US. This morning, you can rest assure that everyone. A terrifying to national we'll continue working hard for our shareholders, creating and unlocking value and returning excess capital whenever possible.

Hello.

I hope everyone stays safe and I look forward to providing you took.

To providing another update on our next call in the meantime, please don't hesitate to reach out if you have any questions have a great day and the wonderful weekend and thank you again.

This concludes today's conference call you may now disconnect.

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