Q4 2021 TFI International Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by while country T F. I L International fourth quarter 2021 results conference call.
At this time all participants are in a listen only mode.
Following the presentation, we'll conduct a question and answer session callers will be limited to one question and a follow up in order to get as many callers as possible.
<unk> instructions for entering the cube will be provided at that time.
Before we turn the call over to management. Please be advised that this conference call will contain several.
Statements that are forward looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.
Also as a reminder, can't fight change your presentation currency at year end 'twenty 'twenty and all dollar amounts are not in U S dollars lastly.
Lastly, I would like to remind everyone that this conference call is being recorded Tuesday February 8th 2022 I.
I would now like to turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of GSI International Pease go ahead Sir.
Well, thank you very much operator, and welcome everyone to this mornings call.
Yesterday after the market close we released our fourth quarter 'twenty 'twenty. One results you find international completed a very strong year.
And that will be remembered as a pivotal in our history with the successful acquisition of U P. S right.
Our strong fourth quarter results demonstrate the sound rationale behind this transformational event.
Which drove much of our outperformance along with continued strong execution across all of our business segments.
All four segments generated growth in operating income contributing to full year adjusted diluted earnings per share of $5.23, which easily exceeded the high end of our guidance that we provided in October .
What we.
What we find most compelling is that while U P. S rate rebranded T force rate is already playing a large role in our outperformers.
We still see much upside as we continue to integrate driving moat.
Both revenue and cost synergies.
It is this ongoing upside combined with our consistent focus on the fundamentals of the business that provides us with confidence that we will continue to successfully navigate the road ahead with T. F. I International now the in the strongest position in its history.
This focus of the fundamental for T F I international means that getting it right on the details of our business at.
It means striving for a patient or operational efficiencies.
And selectively kept our lives Inc. On strategic acquisition opportunities.
Over time this approach allows us to generate strong returns on invested capital optimize our free cash flow and grow our earnings per share.
And then and with the overreaching goal of creating long term shareholder value. We also aim to return excess capital to shareholders whenever possible.
Importantly, you will notice that before during and after the global pandemic. This has been our focus.
Regardless of the log downs ongoing supply chain disruptions and labor shortage and any other changes in operating condition that 'twenty 'twenty. Two may have in store. We are confident that our operating principles will continue to help us succeed.
Looking into the new year.
In addition to the N two integrating T force rate, we plan to especially focused on improving density increasing our service level optimizing our pricing increasing driver retention and the concept that I mentioned last quarter trade that fish.
This means taking on the Rafe rate for our valuable network.
Turning to our fourth quarter results, our total revenue climbed by more than 90% year over year to 2.1 billion. During the quarter. We continued to strategically price in order to capitalize on rebounding free volume across B to B and E Commerce.
Given our focus on profitability run to rather than grow for growth's Sakes I'm pleased to report our operating income climbed to 215 million, which was up 84% and our adjusted fully diluted EPS of $1 57.
It was up a very healthy 60%.
Similarly, we.
We had a long standing focus on net cash from continuing operating activities and I'm pleased to report an increase in this measure as well 290 million. This cash flow strength of strategically important, allowing us to appropriately invest in our business.
Seek attractive acquisition opportunities in a disciplined manner and return excess cash to shareholders when possible.
Each of our four segments performed well during the quarter with all four producing an increase in return on invested capital versus the prior year, which is a metric that we track closely.
Let's now take a look at each.
Beginning with P&C. This segment represents 8% of our total segment revenue and saw a 3% decline in revenue before fuel surcharge versus the year ago quarter.
But a 25% increase in operating income to $36 7 million.
The operating margin up a very strong 540 basis points to $24 five.
This improved profitability was the result of strengthening yields for boat P. B to C and b to B.
Our return on invested capital for P&C was a very strong was very strong as well at 25, 3%, which was up from 18 point too.
A year earlier.
Turning to our <unk> segment, which is 44% of total.
Total segment revenue before revenue before fuel surcharge was 823 million as compared to 141 million a year earlier.
With the increase largely due to the acquisition of T Force rate.
Operating income of.
103 million was up from $24 million and the operating margin of $12 six as I referred to earlier a significant upside potential as we continue the important work of up to amazing our newly acquired operation.
Okay.
Digging in deeper on the L. T O. Our Canadian business grew revenue before fuel surcharge of 3% and deliver a rote and arguably strong adjusted operating ratio of 78.3, representing a 440 basis point improvement versus the prior year.
Our return on invested capital for the kidney and L. T. O was a strong 17, eight up 420 basis points.
Our U S. L. G L business newly formed with last year's acquisition of U B S. Right produce revenue before fuel surcharge of 680 million with.
Nor that improve another 130 basis points sequentially to 89.4.
Our return on invested capital for U S. L. T. L was once again exceptional but we will continue to wait until we have a full year's worth of T force rate performers before reporting this measure.
Turning to our truckload segment, which represent 27% of total revenue.
Our revenue before fuel surcharge of 506 million was up 16% over the prior year fourth quarter and our operating income of 62 million was up 15%.
Our truckload operating margin was unchanged at 12 point too.
In addition, the newly acquired T Force rate Truckload Division continues to operate at a modest loss of $2 4 million a sequential improvement from a loss of $4 six last quarter.
And we expect continued near term improvement.
So taking a closer look at truckload revenue before fuel surcharge of for U S. Based on vessel operation grew 16%.
With a an adjusted or of 95 five in our return on invested capital of five 3% flat year over year.
Alright, Canadian conventional truckload operation grew revenue before fuel surcharge of very strong 26%. The adjusted the war was $88 four versus $85 to the prior year and the return on invested capital was $10 nine down 50 basis point.
Lastly, within truckload, our specialized operation grew revenue before fuel surcharge, 13% and adjusted the war of 84.6 and a return on invested capital of $11 two from 9.9 a year earlier.
Rounding out our this got rounding out our discussion by segment, our logistic business represents 20% of total segment revenue.
Our revenue before fuel surcharge jumped 33% to 428 million.
With operating income up 24% to 33 million logistics operating margin was 7.7 relative to eight point to the prior year and return on invested capital was a very strong $19 nine up 460 basis point. This overall strong performance was led by our same day package delivery busy.
As in the U S and in Canada and by the addition of U S. L. T. L brokers T F. W. W, which remains a strong performer.
Shifting gears here.
Do you find the national balance sheet remains a source of threatened a strength.
During the fourth quarter, we produced free cash flow of 121 million, allowing us to end the year 2021 with a debt to adjusted EBITDA ratio as calculated in accordance with our debt covenant of 1.51.
This low leverage and continued strong cash flow is what allows us to strategically grow the business through a prudent internal investment in our long standing disciplined acquisition strategy.
Turning to the all of those for 2020 two.
Today, we are issuing our initial full year guidance.
These initial range assumed at operating condition remains relatively stable and most importantly.
[noise] reflect their own confidence in our ability to capitalize on the favorable opportunities ahead based on what we T F I International can control.
This includes the compelling opportunities to optimize recently acquired T force rate operation and as always our emphasis on strong execution getting the fundamentals of the business right, including our focus on freed that fits and a preference for our cash flow and profitability over growth for the sake of.
For the sake of growth.
With this in mind, our initial 2022 outlook calls for full year earnings per share to be in the range of $6 25.
To $6.50.
Reflecting a potential growth of over 20% at the midpoint.
We expect net capex to be in the range of 325 to 250 millions for the full year and we also expect our free cash flow to exceed 700 million.
Throughout the year, we expect our leverage again defined as funded debt to EBITDA ratio as calculated in accordance with our debt covenants to remain at around 1.5 times.
In conclusion before we open the call for a question for your questions.
You are fine to national finished the year on a very strong note.
And we're now in the best position <unk> to navigate what's ahead.
And capitalize on the many opportunities that are within reach especially the compelling opportunities to optimize T force right.
We therefore see continued operating opportunity to create and unlock shareholder value returning excess capital to shoulders whenever possible.
And now operator, we can begin the Q&A session. If you could please open the lines.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone keypad to withdraw your question Press Star one again.
As a reminder, callers will be limited to one question and a follow up in order to get as many callers as possible again, that's firewall to ask a question. Please limit yourself to one question and a follow up please standby, while we compile the Q&A roster.
Your first question comes from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks, Helane can you talk about your expectations for the U S. L. T. L margins. This year and then if anything is changing in terms of your longer term expectations.
For for where the business can operate.
Yeah, Yeah, well you know what the way we look at Q4 is that we were very prudent and conservative and we're you know we're looking at Q1 'twenty two the same way.
We've never seen Q1, so far with T force right, but what I could tell you, though is that our what we've been able to accomplish so far with the team there, okay, which I think we have a great team in our U S. L. T. L is that all the low hanging fruit the easy stuff. Okay is mostly done now.
The year 2022 for US is really a pivotal year in the sense that.
We're gonna be a focus on on first of all.
Getting the operation you know with what we call first we said the afraid that first with now we need the network calls so that fits the operation. So we're gonna be really focus on improving the density on improving the number of shipments per stop unimproved and also our our footprint says.
At you know to travel the 70 miles to deliver two shipments it doesn't make any sense.
Right. So that's going to be a major major focus off of having the operation that fits and afraid that fits the operation as well.
So to answer your question I think that Oh long term. This company has to be a navy or no long term is two to three years from now I believe that probably by the end of 'twenty two.
We should be closer to something like an 86 or an 88, then a 90 or 92.
It's hard to say the chance we have is that the market. The <unk> market in the U S is really a great market to be in right now.
So that helps us, but we have so much to do on the operational side now for sure equipment has been delayed okay. That's a little bit of an issue because our M. P. G. On the old equipment is just the <expletive> our maintenance costs on the an old truck is 45 cents a mile which is about 40 cents more than the normal so.
These are all things that are being some kind of a and they kept for us but in the meantime, I see we're gonna be focusing on improving the density density in my mind is the name of the game in this business and if you look at what we do in Canada in a in a not so good market I.
I mean, the reason why we can produce those good results is because we focus on density we focus on doing more with less not less with more.
And our U S operation I mean, the focus was never really 100% there at that three in that regard, okay, and we're working with our with Paul and in all the team there to really change and we're gonna be focuses on trying to get more shipment out of customers instead of trying to get more color more customers.
Right.
So it's it's gonna be again.
A long correct, okay to get to the navy or but I think that this this company this team.
We'll do it I mean, if we're able to be sub 80 in Canada. There's no reason not to be an Ato our company within the next I don't know 24 to 36 months in the U S.
Yeah.
Okay, and then just so I understand when you talk you said 86 to 88 is that a was that a full year 'twenty to comment or more of like a run rate exiting the year and then maybe just on my other quick run rate okay.
Hey, Scott exiting the year I think that will be you know that's a fourth quarter I see us maybe between 85 to 88 something somewhere like that.
Okay.
Okay, and then maybe just your margin expectations for some of the other segments within the guidance would be would be helpful. Thank you.
Yeah, well you say if you look at our P&C I mean, we're second to none in that regard. So I think that P&C. The focus in 'twenty. Two we've done a fantastic job of you know building a very very strong foundation now the focus is going to be more growth in 'twenty two in our P&C. The margin is really solid second to none.
Same story with our Canadian L. T L. A R U S. L. T L. A U S. L. T. L. I mean, I've said it I mean are we going to start working in and improving our operation.
And improving our density our U S. Truckload are you know, we we've been a little bit disappointed okay with the dedicated truckload division, but I know, Greg and the team there are working really hard and we see that are finally, okay. We should end up the year any hany.
Or that's going to be closer to 90, then closer to 98.
Like we have right now.
And logistics I mean, we see a lot of growth there in the U S and in Canada, with our last mile and even our T. F. W. W. Scott is really doing really really well and growing so all in all that's why we are able to say guys. We think that we can do 625 to $6 50 in EPS in 'twenty two we're very confident.
Don't forget we're also very conservative.
Thank you for the time appreciate it.
So those are Scott.
Your next question comes from Tom <unk> with UBS. Please go ahead.
Hi, good morning right.
Wanted to see if you could provide a you know I think the framework on L. T. L. O. R is really helpful. So thank you for that.
Wanted to see if you could provide a little more thought on how youre doing on repricing. The book kind of how much you have gotten your hands on and in terms of raising price in L. T L.
And also how you think about a I guess, the taking out lower quality freight you know it seemed like you had some sequential decline in AR in tons of shipment that was maybe a bit more than seasonality. So maybe if you could comment on those two levers for where your AD for L. T L.
Yeah, Yeah, well absolutely in terms of the freight that does not fit I mean, we're not done I mean, we're not done I mean, we we did phase one.
Problem that we have is that we need to replace those shipping, but like you said, okay a quarter over quarter, our volumes are down a bit. Okay. So this is why you know our sales team has to be on their toes you know to be in a position to replace everything that does not fit us so in terms of repricing the business.
I mean, we've done a lot, but we still need a lot to do in terms of catching up to the market. So the market is improving every month every quarters and that's our base was so low.
Because of the quality of our afraid were so bad in the sense that we had a lot of small shipments are the average weight per shipment is still too low I mean, we're of around a 1070 found for shipping.
Most of our peers are closer to 13 to 14, hundreds I mean on the Canadian side, we're above 500 pounds per shipment. So theres still a lot to do in terms of the afraid that fits the mix I would say that we're probably done off of what we should have you know what we should accomplish on that.
And then the big story for Us in 'twenty, two is yes, certain degree with market and freight and all of that but it's all going to be a story in 22 of improving.
The cost of operation or reducing our cost of operation. This is the big thing that's going to help us bring this company closer to an 80 or.
Then a 90 or.
Okay and then for the second question just wondering if you could offer some thoughts on kind of a portfolio and a and how you think it might it might change in terms of both divestitures and acquisitions it seems like there.
There are a lot of you know a lot of transports out there that have cash that are are interested in doing deals dedicated as an area, where I think there are companies interested so is that something you consider in terms of pruning a portfolio or if it doesn't you know it doesn't necessarily seem to be.
Is something that's going well or you know is that something you just fix and then I don't know what thoughts on you know deals. This year is a are you likely or are you still need some more time to do bigger deals again.
Yeah for sure I mean, we we need more time, so I mean, we have to to deliver on our T force freight our promise of being closer to an either or.
There's been a lot of discussion about you know why do you guys run our U S. Truckload operation you know when you have a return on invested capital. That's a single digit I mean for sure I mean, where I'm getting a lot of questions from investors or board members and I'm, saying guys. I mean, we we have to.
To demonstrate okay, well, we could do and and I'm very confident in greg's team to be able to get this 5.5 return on invested capital closer to 10 no.
One thing is for sure I mean.
If if sometimes if you look at the track record of T. F. I, if we cannot grow this business in a sector like.
We were in the waste business, Oh, and we sold it to G. F. L about five six years ago, why because we couldn't grow it.
No. It's the same story with all of our sector.
If we if you look at our P&C in Canada, I mean, it's hard for us to grow in through M&A, but we're going to be focusing on growing organically and with the return on invested capital that we have there is I mean is second to none so so that makes sense.
In terms of M&A for sure. We're always open we cannot do anything of size before the end of 'twenty two.
Maybe from Q3 as soon as we feel really really good about T Force rates. Then you know we could go to the next step.
For sure we have a plan for the next step because as you know the next big acquisition for T. F. I, it's already in the in the plan right now I mean, we know what works and what we'll be doing overly you know in the next I don't know 12 to 18 months.
But in terms of divestiture I have to give a chance to our truckload guys. You know to really prove that a week you know it can be part of the tier five family now in terms of strategy for sure.
When we look at that if you are a cost of capital is more than I mean, your return on invested capital it doesn't fit right. So I mean right now our focus is really T force right and all of the migration away from our TSA with U P. S that that is really the focus of 'twenty two and in the meantime, our truckload guys.
Our working you know diligent Lee two to improve what we have now because for sure showing the results that we have today in our Q4 compares to our peers in the U S. T O.
L a where we're a little bit concerned.
Yeah.
Great. Thanks for all the perspective.
My pleasure.
Next question comes from Ravi Shanker with Morgan Stanley . Please go ahead.
Thanks, Good morning on maybe I'll start and my follow up which is just to confirm that your 'twenty 'twenty. Two EPS guidance does not include any M&A in it correct.
No no no everything stays the same.
Right.
Yeah.
No that makes sense.
And maybe if I can follow up on your comments on the on the U S. CLO business I mean, we certainly saw the results kind of improve their sequentially and I think on the last quarter you had flagged some issues with the residue L. P. L business within the U P. S. LDL business that you acquired it seemed like you made a bunch of progress there can you elaborate.
Great on that a little bit more and maybe kind of I did want to ask you about the potential long term future of that deal.
Yeah. So so Ravi are you talking L T L or truckload.
Truckload I'm talking to the truckload business within the trial.
Yeah, Yeah, Yes, yes, yes, yes, well, let me tell you that we believe that in Q1, we're going to stop losing money with the U P. S. Truckload business that we've acquired I mean, we still have two major accounts there that are not doing a good job for us we're losing money on two major accounts and I know that Greg and his team are working hard to fix.
This issue.
We've been working at it for eight months.
The you know this was E E.
A business that we got it was terrible really really bad because we had commitments with customers and we didn't have the trucks. We didn't have the powers. So we had to go with third party and we lost a fortune doing that now in terms of our approach to the market as our guys I mean lets fix race and that's what we've been doing it since day one so we've.
Last five or $6 million in in Q2, we lost $4 million to $5 million in Q4, Q3, and then we lost about two and a half in Q4, and we anticipate that we won't lose any in Q1 of 2022 .
It doesn't make any sense, okay to keep you know hauling freight and lose money in this kind of environment. It's so stupid, but we had to go through that but at the same time also while we did Ravi is we move the over the road from our T operation to see F. I. So now T. A is also adjusted.
A key to truckload guy.
And then you know we were also disappointed when we did that we found out okay and you know when you when you do two or three times a year.
We're a dedicated you're over the roll your intermodal you do this you do that and you got all kinds of allocation, sometimes you don't see the the global picture.
Dedicated at T. A now that we've pulled the over the road, we see that we have issues with us there as well with some customers that don't cover the costs and we don't make any money. So dedicated okay. Right. Now is our biggest problem. Okay that we have to fix within our U S. D out, but now our guys were sole focus strength.
To fix that that even our over the road, Okay, we lost a little bit of focus on market environment.
So if I compare with my peers, even on the over the road my average revenue per mile is way lower than theirs.
So this is now after looking at what happened in Q4.
With the results of my peers now you know our teams are saying Oh.
Here, we have another issue is that we have to fix with our customer because if we run on average let's see it I don't know two $2 20 of miles and our peers are running at 260 or 280 of miles I mean, we are not at market rate. So that's also part of our program early in 'twenty two to fix so.
As an example of talking with Greg as of the month of January over the road. Okay. We got about $9 million more on a yearly basis from existing customers. Okay. So Greg that's that's fine okay, but we need more than that right. So this is why we're doing the same thing in February adjusting rates to the market with our customers.
Got it thanks for that color Alan.
Pleasure.
Yeah.
Your next question comes from Connor <unk> with Scotia Bank.
So capital. Please go ahead.
Thanks, operator, and good morning.
Good morning, I'm, good how about you.
Hey, good to Atlanta. Thanks, so much for the time, so I wanted to focus on the package and according to the clinical trial, I think 75% or 25% operating margin is probably your best ever if not maybe close to the best ever you have seen.
<unk> seen in that segment I'm, just kind of wondering what kind of drove that performance. It wasn't more of a pricing story in Q4 wasn't motor for cost improvement story, and then what do you think about sustainability of that.
Yeah, so so kind of what.
What we did okay. This was Brian's plan, okay. The summer of 'twenty. One is that we're not going to go through the same story in 'twenty, one peak highs in 'twenty peak right. So we got rid of the and this is why our year over year revenue is a little bit lower.
Why because we got rid of e-commerce rate that we didn't we made very little margin on it right. So that was the plan and I said, Ryan I think it's a great plan and this is why we're showing you know a 24% OE in the division, Okay, and if you compare that with last year.
They were up about $67 million, okay versus last year. So fine now the new plans for 'twenty two when we were talking to Jimmy and bomb over there and said guys. Okay. Now we are very strong we don't have freight that doesn't fit in that but network. So let's start growing again, because if you look at the last.
Four or five quarters.
We used to grow 15% to 20% really if you look at Q3 and Q4 of 'twenty, one we slowed that down a bit okay to consolidate our base to add more trucks to add more drivers okay to beef up our terminal network. So we are opening a new terminal in Winnipeg as an example.
Okay. During Q2 of 'twenty, two and so like some kind of Oh wait a little bit and now where we're focused on growing again in our P&C. So to answer your question. It's a combination mostly is getting rid of freight that did not fit okay with low margin.
When we got stuck in 'twenty, Okay at peak.
And now our base is really really solid and and we're gonna start growing again there.
That makes sense, that's great color and.
And then if I can follow up perhaps a lots going on these days with respect to vaccine mandates and I'm sure. There is no resolution is up now officially and then you know theres some protests going on in Canada, as well called that matter I'm, just kind of curious as to your kind of high level thoughts on what do you think what's your kind of driver pool like these days.
Are you all vaccinated up there and do you have kind of.
Good enough for a number of drivers that we need for the business or are you seeing any kind of issue with their own vaccine mandates as well to your client.
Dove accident vaccination that T F. I, it's not an issue at all I mean on the Canadian side. Most of our drivers are are vaccinated you know so crossing the border into the U S has never been an issue we anticipated that so we work with our people to you know two to have them.
Okay convinced that a vaccination you know its your free you do whatever you want to talk to you when we get that but guys I mean to cross the border and we know that at one point, that's going to be an issue. If you were not vaccinated. So we have a few people a few drivers that are you know still say no well what do we do with them is we just keep them in Canada.
They don't cross the board anymore, but I would say our guys that are you know the way I look at January I think January is going to be the best January ever for the company.
I mean, the guys are doing a fantastic job and and for sure. There is some small carriers maybe in Canada that.
Having issues, but T F I not not an issue at all.
Our biggest issue for us really in January is sick people in the U S with Covid.
That has been the big thing for US you know what T Force right a lot of people got sick you know in January in the U S. Because of this new variant there. So that was a little bit of an issue of Greece and issue of servicing customers and all of that but that being said vaccination not a problem at all.
Thank you so much and good luck with the rest of the year.
Thank you.
Your next question comes from Jordan <unk> with Goldman Sachs. Please go ahead.
Yeah, Hi morning, just quick follow up on parsing the packaging Kerry you mentioned growth again, so I assume.
You're referring to you know you have some tough comps ahead still on on shipments and pricing, but do you expect that both of those categories to see growth again as we move through 2022, maybe as we move later in the year.
Yeah, well, absolutely Jordan I mean, what what we're saying is that you know we took a step back in a sense, okay with Q3, and Q4 and there's a growth okay in 'twenty.
'twenty one so what we're saying is that now where we're set up in 'twenty two to really turn the screw of growing organically again right. Now if you look at bottom line you know a 24% in Q4.
You know this is unbelievable. This is highly remarkable can we stick to twenty-five and grow organically. Oh. We are you know the guys are working hard on that but don't forget we have competition from pure or we have competition from the U S guys like UBS and Fedex and those guys are not running at 20.
Point, the bottom line our operation right.
So we may have to sacrifice a little bit the oes as a percentage.
Two to grow you know like a 5% to 10%.
That's what we'll see let's let's have a look at Q1 and then the rest of the year, but let me tell you that when I look at the numbers that we see so far I mean, so far so good even with everything that's been going on in January with the storm with the weather with the you know the omni kron and all of that we feel really good.
And can you just give a quick update on what you're seeing on the logistics segment I guess, most curious about the same day parcel delivery aspect. Thanks.
Same day, we're doing really well I mean, the only you know rock in our shoe is that our Canadian operation lost all of their volume with the largest E tailor right.
So those guys you know we were dealing with them in the U S. They walked away from us in the U S. Because you know, we're all about making money us and then slowly they walked away from us in Canada. So.
That is a little bit of a step back what we're replacing that as we speak on the U S side I mean, we feel really really good about what's going on the issues. We have right now is been like I said weather and then and this omicron thing there.
A little bit of an issue in January but you know long term, okay, you'll see us doing really well really really well.
And don't forget we run these operation with double digit EBIT I mean, we don't run these guys at 2% bottom line I mean, nothing nothing at T. T. O Fi is single digit OUI, except all key R. T F. W. W, which we bought from Donnelley and at the time those guys were at 2% to 3% bought them.
So W. W is still not a double digit.
EBIT Guy, Okay, but slowly you know, we're getting closer to a five five and a half but the rest of our business is all double digit Oh.
Great. Thanks, so much.
Your next question comes from Jack Atkins with Stephens. Please go ahead.
Great. Good morning, Thank you for taking my questions.
I would love to get update on your ground and freight pricing business that you acquired from UBS, how has that been trending over the course of the last couple of quarters and what are your expectations for that in 2022.
Well if you look at Jack at you know, you'll see in our MD&A that the average revenue ex fuel per shipment is up big time, you know so we've been correcting adjusting rates with our customer, but like I said earlier, we're not done we're not completed with that.
It's an ongoing process and it will last at least another year, because we got a lot of small ship and still in our network that has to go away, but we can't keep them out because we need to replace those small shipments with better shipments and this is the focus of our sales team, okay, guys wake up and smell the coffee.
We have to replace those shipments by better shipment right. It's the same story as.
If you think back when we bought the C. F I. Okay. In in 2016 17, it took us a year, okay in our truckload division to clean you know afraid that did not fit in an L. T. L environment. It takes way more than a year. It takes probably more like two to three years.
To really clean up okay, and get rid of all the shippers or the shipping that don't fit so we're not there yet at all okay. So our sales team is highly focused on improving the number of shipments that we get from customer as an example.
Okay. So let's say this this shipper gives us two shipments a day well try to get three from this guy So I forget four from this guy because we're already there right to do the first pick up right. So it's a it's a little bit of change. Okay. So we're working on the mix, but also we're working on the productivity and the efficiency.
The operations. So this is why during the course of 'twenty two what we believe is that slowly.
We'll get closer to an 80 586 by year end okay.
And then into 'twenty, three we'll keep on improving those processes and to get us closer to maybe in 'twenty three like at an 83 or an 84 down to the target that we have of being at least that need you are a carrier in the U S. L. P L market.
Okay got it got it no that that helps thank you and then I guess kind of thinking about the structural changes that you're trying to implement within your U S. L TL business.
Are you contemplating maybe any incentive changes for your sales force or your operations team and we've seen that with some other LTE ALS in the U S in the past.
Can you know positive impasse, yes, absolutely you're absolutely right Jack I mean, we're having a meeting with Paul and his team are I think next week.
Or the week after next and ER and for sure. We're talking about that absolutely I mean, we have to change okay. The way. Our salespeople are are you know their salary and their you know the commission and all of that so I know that Paul is coming out with a proposal on that you know it's it's.
Yeah. The the sales team that we have today our sales leadership you know everything has to be question about you know what we want is the way. We judge this sales team is not by the effort is by the results.
So I don't know if you understand what I'm, saying, Jack but me I don't look at the Guy tells me works 40 hours a day and he gets no freight well that's not good for me.
So maybe work less well get more.
Yep no totally it's all about the bottom line. Thanks, so much al I think it's all about the bottom line absolutely.
Your next question comes from Ken <unk> with Bank of America. Please go ahead.
Hey, good morning, Glenn.
You mentioned your you.
You mentioned you were very confident but yet very conservative within the model. So maybe just taking a look at that what where do you see the most upside is it the LTM margin you talked about is it truckload fixing the pricing and its best ever LTR truckload market, maybe talk about where the potential [laughter], yeah, well, you're right you're absolutely right, Ken I mean, yeah.
In the plan that we have for our U S. T. L. Guy So I think with that we will do better than that I think that our guys.
You know if you don't see that you have a problem you can't fix it right. So now I think that our U S. T O S T and when they look at our peers results for Q4 that were fantastic and our result, I wouldn't say that there are fantastic right. So we know what to do.
And it's not about cost okay. The big issues. We have is more like our costs are in line. Okay. The problem. We have is is getting the right market right for the service we provide to the customer so our team was there.
Completely focus on dedicated fixing dedicated which was a disaster that we got from you know the acquisition of U B S. Right. Okay fine, but we also overlooked what was going on the over the road thing. So now we know okay. When we look at our peers. The average revenue per mile. We know that we're too far from these where these guys are so.
That's one.
Number two is like you said T force right. We know we know what to do it's just the execution could be slow.
Ill or fast or between slow and fast right. So right now we don't know what's the speed of these operational changes are we gonna be slow or are we gonna be fast they'll what we've done so far with the lawyer in fruit I would say that we went really fast on that.
Now on the operation.
This FX way more people, you know and it affects our terminals it affects the terminal managers it affects.
No everything that we do every day. So yeah. This is why I'm not sure. So this is why we're going conservative with T Force right.
Pace of change.
Yeah.
So then for my follow up let's just dig into that for the the service centers and at the growth rate you always talk about density you talked about there were some opportunities where you could blend some of your operations in terms of better using utilizing the service centers, where are you in that process. How many service centers do you have now and what are you thinking of.
You know that that process going forward.
Well, we were just starting Ken who are just starting I mean as an example, I mean, we have a we have shut down one terminal in Chicago, and we're gonna be subleasing that terminal to another carrier.
We shut down two small terminals in West Virginia.
Are those two small terminals will be sold to another carrier.
We just closed a small center in Kansas, Salina, where we had 40 shipments a day there it doesn't make any sense to run an operation of 30, some thousand bills for a small operating.
Terminal 40 shipments a day. So we're just starting I I'll give you. Another example, we have a terminal in the Rialto and California are fantastic terminal Diamond terminal.
I don't know how many doors I don't remember, how many doors, but it's probably like 80 to 100 doors.
Well I've got 60 shipments a day.
That 60 shipments a day and a huge terminals. So we're just signing a deal with another carrier that is going to take over.
How 'bout 40 spots for parking equipment and are these guys will also.
Take another carrier will take about 40 doors in the terminal. So that's going to bring about two to two and a half million dollars to the bottom line of the company because right. Now. This site is like empty right. So we're just starting in Sacramento as an example, I got three site doesn't make any sense right. So we're working on Sacramento, So our team.
Where we're really focusing on the west coast right now so.
But it it will take time, okay, but we're just again, we're just scratching the surface I mean, I said it many times, we got 12000 doors over there we don't need 12, we need maybe I don't know six seven or 8000.
We have way too many doors, so that that is an opportunity for us for growth either organically or through M&A, yes, but in the meantime, everything that doesn't make any sense, where we're fixing it. Okay. So rialto, we wanted to keep the terminal.
Well, we don't want to keep it empty. So okay. So you find another tenant for now and then we'll see if we need that terminal five years down the road for our own need.
But in the meantime, let's get that two $2.5 million a year to help us cover the carrying costs and eliminate the loss that we have on that terminal right now.
Great. Thanks, a lot.
Thanks.
Okay then.
Your next question comes from Walter sparkling with RBC capital markets. Please go ahead, hey, thanks, very much good morning Ali.
Good morning Walter.
So you're you're going to have a pretty good year in terms of free cash flow your leverages, low and and not likely if I hear you correctly are going to be looking at acquisitions until perhaps a later in the year or early into next year or so does that mean, you now deploy that cash into buyback.
Or is this something you want to kind of raise cash to keep on hand for something perhaps a little little larger. So you can do a larger deal in the fourth quarter or early early 'twenty. Three just just curious where your head is at in terms of buyback versus retaining cash for acquisitions.
Yeah.
Buyback is well there's always an opportunity. So if you look at our what we've done in Q4, we bought back a million shares right.
And at the price that the T F I stock trades today, okay, well today against.
Talk about today, but let's say over the last few weeks for sure we're gonna be buying back at least a million shares. Okay. If if we are trading right now in sub 100 U S. I mean for sure we're gonna be buying at least a million shares now going to your point. Okay are we also feel that our guidance is conservative.
You know based on what we've seen so far I think that we'll probably do a little bit better than the guidance, but we're conservative right.
But if we look at the operating opportunity for us to do a deal of size, Okay, Let's say late 'twenty two or into 'twenty three.
The fact that we do some small M&A. So we'll do probably like a $150 million to $300 million of Canadian dollars of small M&A, okay buying back a let's say a 100 million U S of stock or maybe a little bit more it does not preclude us for the doing something of size laid in in in 'twenty two.
Okay. That's perfect I appreciate the buying back stock when your when your stocks at a certain level as opposed to when times are good.
The moving onto two constraints I mean, you know driver shortage is still still an issue supply chain.
It's still an issue and we heard a lot in other companies, saying that demand was above their volume right. Because you just couldn't get the vote. Yeah. So how much of that was a factor in the fourth quarter and how much are you assuming supply chain will be and driver shortage will be a continued constrained when you put out your guide.
For next year or for this year.
Yeah, well you see Walter the the fact that we are already over booked every day, it's true in the U S. Okay. It's true in the U S. It was not truly in Canada until I would say mid November . This is because you know I was talking to my Canadian Guy says how come this is not in Canada and it was not.
In Canada, but I could tell you that our what we're seeing in the U S for the I would say at least the last six months. We're seeing now the same story in Canada since probably early in November .
Oh for sure that demand is more than the supply and that's why I'm, saying that probably a T. F. I will have its best ever month of January because of that see our Canadian team.
He is taking advantage of market condition.
And our U S team like I said earlier on the truckload side, we missed a little bit of an opportunity and let's say Q3, and Q4, but no we smell the coffee and we're going to take advantage of the market in in the in 22, Okay. The supply chain I don't think it's gonna be fix.
So within the next six months to 12 months I mean, it's a lot of politics and there is lots of changes around the world.
So it's gonna be a very very tight market from what we could see in 'twenty, two and probably into 'twenty three so.
Well, let's see what happens our our guy.
Guidance is conservative like always right.
Our team is really focusing on doing better than that.
But so far when we could see that 'twenty two will be a great year for T O bye.
Okay I appreciate the time as always Atlanta, and congrats on a good quarter.
Thank you Walter.
Your next question comes from Kevin Chiang from CIBC. Please go ahead.
Yeah.
A pilot and so I'll just take a taking myself off mute here actually I just have one question if I could just follow up on the P&C margin.
24, 5% for Q4.
You know when I look back historically typically your Q4 margin.
Margin is a good benchmark to what the following year. It looks like you usually lose about 100 basis points as you kind of work through seasonality. So.
So if I kind of just use a rule of thumb it seems like maybe a low twenties.
<unk> margins it seems like maybe the baseline you're starting with them then.
Kind of talked about maybe growing the absolute earnings and willing to sacrifice a little bit on margins I'm. Just wondering is that the right way to think about it that maybe on a full year basis P&C the low twenty's.
And then and then you'll kind of flex that essentially lowering if there is a level that we can think of in terms of how low that could go but that would be appreciated.
You see Kevin Theres, two things that will affect us okay in 'twenty to be to be so we're still not back to where we were so beat to be for US is is even more profitable than b to C. Right because the coincidence of delivery versus pickup is better and b to b and B to C. So.
That's why we're saying are in 'twenty, two if b to B comes back because don't forget we still have lockdowns in Ontario are same thing and in Quebec ill. So we're still not out of the wood b to b, okay versus where we used to be pre COVID-19 . So that could help us a little bit in 'twenty two the other thing also.
So in 'twenty two is that we're gonna be more focus on highly profitable growth. The potential is there and we made these investments in drivers and trucks. If you look at our truck fleet in our P&C I think that we added about 100 trucks a year over year. So now we're in a position to two re.
Really take advantage of the potential of this market are e-commerce B to C growth, but it's got to be at profitable rates. So going back to your your your forecasts is that yeah. We should thing that T. F. I L. P. N C has gone around and it's going to run about the 'twenty, but that <unk>.
Based on B to B versus B to C. It's still difficult to predict so let's wait and see what Q1 is going to come about what I could tell you. So far when I look at our month of January is is the guys are really doing a fantastic job.
That's helpful. If I could just ask one clarification question just in your guidance does that assume your EPS guidance that is.
Does that assume the the 1 million share buyback.
Walters question or was there any buyback in there at all no no no. There was no buyback in there there's no M&A. There's no buyback is just that you know it's everything stays the same but don't forget it ever things stays the same okay. Ah you know leverage.
And the guidance, we're saying it's going to stay around 1.5, but if we don't do any buyback if we don't do any M&A my elaborate is going down the wrong one.
That makes sense right.
That makes a ton of essentially.
Thank you very much congrats on good quarter there.
Okay. Thank you Kevin.
Your next question comes from Brian <unk> from Jpmorgan. Please go ahead.
Hey, good morning, Thanks for taking the question.
Wonder if you come back to <unk> to.
The U S. L. T O you talked about density and going back for more shipments, but specific on the operation and lowering the operating cost for L. P. O is it primarily through the topline and through density you talked about not getting the trucks on time, which sounds like it's a pretty decent sized headwind. So maybe you can just elaborate on what are the main drivers of lowering operating costs.
Specific.
Those terminals, you're paring off or is it driven through density or maybe a combination of both.
Yeah, Brian it's really a combination and when I'm, saying to those guys. The guys. You know drivers they like to drive and you know why are they drivers is because they like to drive me I.
I like to pick up freight right. So.
So so we have a disconnect in terms of so what we want to do is have our P. N D guys drive less miles and pick up more freight so how do you that right. So first of all that's the first step is every stop that you have okay. With your drivers you try to pick up more freight per stop.
All right.
So it's something that's never been really monitor that.
Yeah G. P S rate so get more out of every stop.
That's number one number two is we have guys are driving 150 miles.
Okay that doesn't make any sense.
Ill because if this guy drives at 40 miles an hour that.
That means that he's driving about three to four hours a day, so when he's driving he's not picking up freight and when he's driving he's spending money, he's bringing fuel he's bringing tires and as I said earlier my old trucks cost me 45 cents a mile in maintenance.
So our intention Brian is to improve the efficiency of our network by picking up more freight and driving less miles and this is what we do us in Canada right R. L. T. L. Why are we so efficient it's just because of that not because we are a bunch of magician no.
I mean, we do more with less so the intention is to drive less miles and pick up more freight that takes time to O'brien. I mean, you you don't do that within a month in a huge network like a you know one of the T Force right network.
It's gonna be a combination of of that and for sure if you're running an old truck at 45 cents a mile maintenance and five miles or four and a half miles M. P. G versus the newer truck, which cost you five cents and have an M. P. G of eight I mean that also is detrimental.
To your profitability. So yes, we had some headwinds to that we were supposed to get a thousand trucks in 'twenty. One you know we got 300 by the end of 'twenty. One we got only 300, and we will get 500, probably new trucks by the end of Q1 'twenty two but we also have another thousand trucks.
Coming for 'twenty, two and it seems like the truck manufacturers.
In the better position, okay to complete the order because we went with three or four different suppliers, well three major ones and the smaller one right.
So new equipment is going to help us reduce the operating costs of the equipment, but more importantly, Brian our focus is do more with less travel less miles and pick up more freight so get more shipments out of the existing customer. They all don't drive 150 miles to to service a shipment.
And and you know this is this is a change right. This is a change so it fits with our approach of freight that's fits.
Why would you travel for two shipments of 150 miles.
Yeah, no so reduce the Zip code.
Use a little bit more agent, where it makes sense you know it's it's it's what we do all the time in Canada.
Okay, Great. That's really helpful. Just one quick follow up you mentioned synergies a few times with T Force freight is that a reference to starting to change some of the footprint and you mentioned earlier with leasing out some of these.
Facilities that can you start to maybe more final mile from these now that you've got a better handle on the real estate portfolio.
Yes, yes, absolutely I I'll give you. An example in California for instance, I mean, the R. A T force freight team Theyre used to you know us.
Use a third party.
And and now they're using a R. T Force logistics division at about a 65% of the cost that they used to be okay. So there is some synergies okay slowly between the family right, but real estate is a big opportunity for us it's an opportunity for growth. Okay. It's an opportunity for EM.
<unk> down the road, but it's also an opportunity to get rid of the real estate that does not fit like the those two small terminals I was talking about in west, Virginia, or the small terminals and that we were renting in Salina, Kansas that doesn't fit theres no future. There. So we're trying to make a deal with a carrier.
There that's got a larger footprint than us for those 40 shipments. So okay that was part of the Selena. So it's a it's a global.
Change in and what we do and the chance we have Brian is that the team there are T force right. There they really drinking the Kool aid their part of the solution. We don't have these kinds of pushback that sometimes you may have okay with an acquisition. So those guys are part of the solution. The team there they're part of the solution. So this.
Is why it makes it much more easier for us to to work with them and and apply.
I would say like the T F I Canadian L T a recipe for success.
Okay, great. Thanks for all that I appreciate it.
Pleasure Brian .
Your next question comes from Cameron <unk> with National Bank. Please go ahead.
Thanks, very much good morning.
Good morning, Gary.
So just just one question from me I guess my view is probably this is a non issue but in your press release, you do have a I guess a disclaimer in there around the internal controls and possible deficiencies as it relates to I guess, becoming a U S reported. So can you just maybe go over what what all of that is about and like I said I think it is.
We are not an issue, but just a maybe a bit of explanation as it would be good.
Yeah, So Kevin I'm, not a sox specialists, okay, but what I could say is this is that the work is not done the work is not complete but what we see so far okay based on because we've hired a price what else to help us on that we've hired also another firm M. N P to help us on that to do the testing.
And that's all of these controls and all of that and also under the supervision of KPMG. Our internal audit department is that because the F. I as sole decentralize I mean, what the guys are telling me is that they have to test about I would say like around 900 different controls okay with.
Is huge so so this is why it's there we're still in the testing and remediation phases right. Now. So this is why we said let's be transparent. Okay. So lets put a note in there that paragraph that says we don't know I mean, we'll know okay. When we come out with our annual filing.
If we have an issue or not but one thing I could tell you, though Cameron is if there's a small issue. Okay. We'll fix it I mean, we spend a lot of time and energy Okay to solve this sox compliance thing there and a lot has to do with documentation, which is different than what we used to do a T F I.
Right. So it's an education, it's a you know making sure that everything Okay is is what it should be for Sox compliance, but we said guys because we're not finding our MD&A now we're not finding our annual stuff now so let's put this paragraph in there just just in case and then.
If if it's if it's an issue when we file that we'll just say hey, guys or were committed we're going to work on that now.
Now, we know and if you maybe talked to David which is way more aware than me on that.
We know what that initial okay I P O filers in the U S about U S base, a new IPO theres about 50% of them that have some weakness.
Weaknesses, okay in the first year, we also know that flooring filers. Okay. On average okay have 75% of them have weaknesses the first year.
So it's no big deal because T. F. EIS team, Okay is committed to fixing everything that needs to be fixed on that and it's our first year.
Right.
Okay. No. That's that's a great explanation and just you know as far as Sox compliance cost I mean, obviously, you've probably incurred cost throat 'twenty.
'twenty. One is this you know if there's anything material going forward the additional G&A.
G&A costs that youre going to need to spend it to be compliant.
Yeah, well you know in our in our cost of 'twenty, one you've got you've got a few things that are exceptional for sure.
And this would probably amount with a you know all the legal and advisory and all of that for 'twenty. One you could say those are probably between 10 and 15 million that will not re happen in 'twenty to 'twenty. Two the Sox thing there will probably cost us a few million dollars Cameron too.
Get compliant.
Or or to do whatever testing needs to be done and change whatever it needs to be changed I mean, the guys are working it's really taken very seriously.
Bye bye hard our team.
Okay.
That's great color I appreciate it thanks very much.
It's a pleasure Kevin.
Your next question comes from <unk> majors from Susquehanna. Please go ahead.
Yeah. Thanks for taking my questions looking at the T Force freight deal. It's a large deal it's a complex deal and call. It 910 months and it certainly looks like it's a very successful deal.
As you go forward and think about doing bigger deals on a larger base. How do you keep the quality of those acquisitions as good as they have been historically for your company, especially as they need to get bigger to move the needle. Thank you.
That's a very good question and you know that the proof is in the pudding a T advice. So if you go back 20, some years ago. Most of our deals were small and every two to three years, we made a significant a bigger deal and we've built a culture a T F I of doing that right.
So it's not something new for us what's new to US like you. Just said is that this deal is really huge okay. We've never done a deal at this size and and for sure. It takes a lot of our energy to work with the local team. Now. This is why I've also said that you know before we do anything of size, we need to be sure that our.
You know we are 100% under control, Okay with our T Force right and this is why we don't see anything of size, probably before the end of 'twenty, two and into 'twenty, three because where you know some of the guys I remember about 15 years ago, and they said well are they either either.
A deal Junkie I know, we're not a bunch of deal Junkies, I mean, we do deals where it makes sense for our shareholders, where we can create value okay for our shareholders long term.
So I understand your point you know the next one is going to have to have size as well to move the needle and and it's all part of our plan. We've always you have some targets that are we're working on to make it happen you know when the time is right. So time could be right at the end of 'twenty two or.
Maybe if if we're not convinced we will wait until 'twenty three.
Okay.
Thank you for that Elaine if I could just squeeze one kind of housekeeping one in there I know you don't guide quarterly, but you've made some comments on you know on one hand, the T force freight business, having a really difficult once you seasonally historic even working to improve on that but the other hand, you've talked about having the best January ever for the busy.
Innes, who certainly come off a great for quarter for the company. You can you can you just help us directionally about what <unk> might look like so so there aren't any surprises when you reported in April .
Well, we like surprises us the good surprises, though right.
So I mean, you have to understand that T. F. EIS approach has always been you know under promise and over deliver I mean, that's that's the story of 20 some years of success at <unk>. So what we're seeing so far okay. When I talked about our month of January is that is gonna be a spectacular January for us yes.
We're also very conservative so I think last year, we did about 79 cents EPS in the in Q1 are so for sure we're gonna be at or above a dollar are we gonna be $1.25. It's still too early to say, but T force right is a big part of our success right. So ive never made money in <unk>.
Those guys never made money in December well this year.
Made a little bit of money in December okay. So fantastic great. So it's still too early that's why we're cautious about our guidance. We're conservative because we still have not gone through our Q1 with T Force rate, we know that our April normally is a great month for those guys.
March.
It should be good but January is a big issue and don't forget like I said earlier, we had a lot of six sick people in the U S with Covid right a lot of sick people.
January was bad for that January was also bad with the weather right. So I mean.
We have to be conservative.
Thank you.
Youre welcome.
Your next question comes from Ben what this all day.
What does that bank. Please go ahead.
Hey, good morning.
Good morning anyway.
Yeah.
Based on our discussion with the investors.
A lot of people as you know are worried about the potential trucking cycle rollover and I'm sure you're hearing the same concern what are you entering to these concern in any signs of slowdown on the horizon.
What how is the dynamic different from the past cycles in your view are there.
I think this is a perception and it's a mistake, it's a it's a huge mistake.
And and I understand that you could think about that because the guys are doing so well that you could say well are you.
That's probably the peak and from there is going to start going down well, there's a huge change well first of all the supply chain is a big problem as we all know.
The fact that it's hard for you to add truckers, I mean, everybody knows that.
In the U S and even in Canada to a certain degree you cannot add drivers. It's it's a fight it's a big fight so.
You know when.
If you look back at all of these cycles, okay over the last 30 years.
We shot ourselves in the foot because the customer was busy so we were adding capacity and then there's a slowdown and there's too much capacity and then the rage just went through the to the ship.
That issue right now its difficult I mean, so it's difficult for a truck or to add capacity.
You can't find the drivers and he can't find a truck. So it's a huge change in this stupid cycles. Okay that we've seen if you look at the L. T O market, both in Canada, and the U S. If you look at the P&C market boat in U S and in Canada, I mean, you got.
Lynn players in there you know U S. L. T L. You got disciplined players.
Yeah Stupid L. T L guys, there's less and less the Canadian L. T O market is still not there yet, but you know, it's it's getting better right. It's just that the logistics. The last mile is the same story, it's hard to find people. So.
To me I think it's a big mistake to think that Oh, they're at peak and this is the only way. These guys are going to go is down okay. Over the next I don't know, maybe a year or two.
But also it creates.
Opportunity for us like I said earlier on the call I mean, our stock at the price that it was yesterday or the week before it creates also an opportunity for us to buy back right.
Yes, no that's great color and just looking at your Capex, you're been you've been guiding for 325 350 I was just curious where are you going to be at the end of 2022 in terms of fleet replenishment and what could be spent in 'twenty.
'twenty, three and beyond what could be the sustainable level longer term. It seems that there is some money that is put to toward replenishing.
STL, but down the road I would expect given your asset light model. There's unfortunately due to reduce the capex beyond 2023. So if you could try to give some color that would be awesome.
Yeah, you see the big Capex. The Big you know abnormal capex that we're doing is for our U S. L. T. L operation. Okay. So normally in the U S. L. T L. We should be buying let's say between six <unk>.
600, and 650 trucks a year normally.
Right now we're trying to buy 1000, Okay. Why is even with our plan. If we get the 500 that we were supposed to get in 'twenty, one and we get that thousand that were hopefully going to get in 'twenty. Two and this is in our plan. Okay. At T Force rate L. T O at the end of the year, we were gonna see.
They'll be driving 2012 2013 trucks.
So that tells you that the same effort that we're doing in 'twenty. Two we'll have to do the same thing in 'twenty three the brain. The average age of this division to normality, who will take US 22, and 23 after that 23, okay. There may be some small read.
Duction, but.
Two to your model I think that you should work with right now for 22 and 23 the same number.
Okay.
Very good color. Thank you very much congrats again.
Thank you Benoit.
Your next question comes from Bruce Chan from Stifel. Please go ahead.
Yes. Thanks, guys. This is Casey deak in for Bruce This morning.
I just wanted to just quickly.
Thank you for all the guidance on a on the numbers and cost drivers but.
Can you talk a little bit of learning about what you think on tonnage for the L. T. L operations in there, especially in the U S. What what do you think cadence there looks like and I know, it's a back and forth had bad on getting rid of the battery and trying to find that right that's right yeah.
Yeah, well, what we've seen so far is the fact that for sure. If you look at it Bill Count we're down a bit if you look at our tonnage Okay, where we're also down a bit okay year over year. So you know once we get through Q1, I think that also with our approach with our sales team our sales.
Leadership of not looking at just what are the effort, but the results I think that we're gonna start growing because our peers are all growing I mean, a good peers you know.
The market the demand is there, but then US our problem is we got so much clean up to do in terms of you know get any of that that ship and get that customer getting rid of that lane. Okay. That's you know at the same time, Okay. You don't see really the results of our sales team because we have to replenish.
The the the 30 some thousand barrels a day that we do right.
I think that all drained 22, the clean up all of that will continue so you won't see us growing organically big time in 'twenty two in terms of volume Youll see us improving the quality of the revenue you'll see us improving okay with the cost base.
But in terms of growing organically as our peers are doing are.
Not sure about that in 'twenty, two 'twenty three it's gotta be a must but in 'twenty two I'm. The first six to nine months I think it's still you know replaced is and look at that and this doesn't make any sense and get more this guy and it's going to be more of a kind of churn still.
Okay and at the same time, though we're focusing on making sure that we deliver only something that fits our network, okay, and and something that fits us in terms of weight. So as an example, our average weight per shipment is still way too low compared to our peers. So our sales team understands that now so.
Our focus on you know getting the heavier shipment that makes sense and you know.
And and getting or reducing the number of low weight shipments that were getting and and we have a solution because we have G. F. P. US okay. The partnership we have with U P. M. So if it doesn't fit us are L. T. L. Maybe it fits our friends at U P S package and and that's G. F. P. We're growing that okay.
With our partner U P. S makes sense for them makes sense for us.
Sure No that's helpful.
Thank you and then the last thing I have for you guys is that.
On the maintenance are you seeing anything like your customers. When you are looking at picking.
Picking up good freight or picking up a good customer contract is there a pushback on the equipment are there are there are breakdowns on that old equipment.
Kind of hampering your ability to win.
Yeah for sure you know the fact that we run a an old fleet is not helping us it's not helping us with our drivers is not helping us with our customers. This is why they want when we go in there we say we have to improve that S. A beat now because of this supply chain mass and it's tough to.
Get their trucks in okay, but youre right I mean, it's it's not easy okay. Because it affects the service right. So you've got an old 2008 trucks and it breaks down well the service is going to suffer right.
So this is why a good carriers and our peers. They don't run old trusts like we do us today right.
Because when the truck breaks down the service breaks down as well and also their drivers mad.
It's just normal.
So we're addressing that as we are replenishing, okay, our truck fleet with newer trucks right.
So by the end of 'twenty, two we're still driving 2012, 2013, and think about that where in 2022 so.
So we're still driving 10 year old trucks, but today, we drive 2006, 2007 think about that I mean, we're in 'twenty to 'twenty two.
So we are improving okay, but 'twenty two is not going to be enough. So we have to keep improving in 'twenty three.
So that we don't have service issue because the truck is you know a problem.
Alright, well thank you.
Thanks for all the clarity.
Pleasure.
And your last question for today comes from Tim James with TD Securities. Please go ahead.
Okay.
Thank you good morning, congratulations good morning, great quarter.
Just going back to <unk>.
A question recently you were commenting on some of your peers being in a position of growth well <unk> is doing some cleanup.
Would you agree that this has and really is a great time in fact to be doing not clean up as opposed to trying to push growth I would think it's it's.
It's actually very opportune to be in that position.
Yes. It is it is because we're lucky in the sense that the market conditions are great. Okay death or appears are are busy growing their business, whereas us we're doing the cleanup it would be it would be nicer. If we would be the position to keep to you know to grow organically as we speak but if you have to be in the cleanup position.
I agree with you. This is the best timing to be in a position of having to do some cleanup right because some customers deals don't make any sense. So yes for sure. We got guys that just walked away, but where are they going to go well Theres always you know maybe a solution fine some of them cannot.
It's finding a solution. So you know it's I agree with you. It's the best timing, it's just sad that us because we're stuck in doing all this cleanup, okay, well, we can't we can't grow organically too much because you know if we add 1000.
Yeah.
Okay.
Oh I apologize Allen.
His line is disconnected just one moment please.
This is Gilbert and I will just take a moment.
Thank you.
Okay.
Okay.
Ladies and gentlemen that you can continue to lag in case, Mr. But I'll return the call. Thank you.
When you say Kevin Joe.
I must admit that I believe are back online and theyre going to connect you.
Okay.
You are now back online with step at all.
Sorry about that.
I don't know what I've been here so.
So laurie.
Uh huh.
Oh.
And then it's Tim James Here can you can you hear me.
Yes, yes, yes.
I don't know okay.
No.
Yes, no you covered off.
My question, just regarding the kind of timing in the industry, but often that it's actually not a bad time to be in this cleanup mode no not at all.
Maybe I'll move on to my follow up question, if I could and I just wanted to return to.
The idea around potential businesses are when you consider divesting certain operations.
And you indicated that when you feel you can't grow a business then it would be considered for.
For sale.
When you say grow do you mean in terms of revenue or earnings I mean could a low or declining revenue business, but that has improving efficiencies and opportunities for margin expansion and therefore in turn earnings growth could that still be a fit for tsi.
Yeah. So so on that one when I say when we can't grow as let's say, we cannot do M&A. Okay. So given you are a waste division that we sold five six years ago as I was unable to grow with okay organically, yes to a certain degree, but really through M&A was it possible.
We were just sitting on the fence in terms of size.
Uh huh.
It's it's a it's always a global look that we take so some of the investors are asking about our USD L. For sure we could grow that gave for sure we could do some M&A, okay, but right now the problem. We have is that our return on invested capital is below our cost of capital. So.
The story when we talk to our USTR guys is that guys. We have to move that up and we have the opportunity right now because the market for you STL. When we look at our peers is just on fire and US I mean, we now understand the opportunity for us to improve those results and there will be in a much better position.
Okay down the road for sure. There's always can we grow it organically or can we grow it through M&A. If you look at <unk> history of growth, it's always been done mostly through M&A, because its way faster and we have the talent to do it I mean, it's not all companies that could grow through M&A successfully.
Right.
Okay. That's great. Thank you very much Jim.
Got it.
Yeah.
And there are no further questions at this time.
Yeah.
All right. So thank you very much operator, and my thanks to everyone for listening in this morning as always we appreciate your interest in <unk> International and look forward to keeping you posted on our progress throughout the year. Please.
Please feel free to reach out with any remaining questions. They say.
Thank you again.
Hi.
[music].
The host has ended this call goodbye.
A question so it looks.