TFI International Inc. (NYSE:TFII) Q4 2024 Earnings Call Transcript

TFI International Inc. (NYSE:TFII) Q4 2024 Earnings Call Transcript February 20, 2025

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

Alain Bedard: Well, thank you for the introduction, operator, and thank you, everyone, for joining our call. So yesterday, after market close, we reported quarterly results reflecting the industry-wide slump in freight volumes, as well as the ongoing effort by our team to make the most of the challenging conditions. We again produced strong free cash flow of more than $200 million during the quarter. This brought our full year total to more than $750 million, the third year in a row that we’ve achieved this mark despite the prolonged weak stretch for the industry. This directly reflects our long withstanding [ph] focus on optimizing free cash flow so that we can strategically invest in the business, consider attractive M&A and return excess capital to shareholders.

We did all three during the fourth quarter, while also reducing our debt to further strengthen our balance sheet. With that, let’s have a look at our consolidated results. For the fourth quarter, our total revenue before fuel surcharge grew 9% over the corresponding prior year period to $1.8 billion, which benefited from our acquisition of Daseke last April. However, operating income of $160 million was down from $198 million, reflecting an operating margin of 8.8% versus 11.8% previous year. We did have unusually high accident-related expense that were about $9 million higher than prior year period. Our adjusted net income of $102 million was down from $148 million in the prior year and adjusted EPS of $1.19 compares to $1.71. I would also note that the impact of foreign exchange fluctuation, which during the quarter reduced reported EPS by $0.03 as every $0.01 fluctuation of Canadian dollar per U.S. dollar tends to impact either positively or negatively our annual EPS by about $0.02.

So again, we produced solid cash flow, as I mentioned, specifically $262 million of cash from operating activity and free cash flow of $208 million. However, both were down from the prior year figures of $303 million and $244 million, respectively. I want to again call out that our ability to produce very respectable cash flow during a prolonged slump for the industry is a direct reflection of our team’s effort to focus on the details of the business regardless of market condition. This includes concentrating on quality of freight and other efficiencies. Let’s now turn to a review of our three business segments, beginning with LTL, which was 40% of segmented revenue before fuel surcharge during the fourth quarter. LTL revenue before fuel surcharge of $737 million was up 10% and operating income of $70 million, which had an $8 million impact from higher accident-related costs versus the prior year period was up 34%.

Our adjusted LTL operating ratio was 90.3% as compared to 86.1% a year earlier, and return on invested capital was 16.3%. So next up is our Truckload, 38% of segmented revenue before fuel surcharge at $693 million, which was up from $399 million in the prior year period, benefiting from the Daseke acquisition. Truckload operating income came in at $60 million, which was up from $51 million. We produced an OR of 91.5% relative to 87.3% a year earlier, and our return on invested capital was 8.4%. Our third business segment to review is Logistics, which was 22% of segmented revenue before fuel surcharge or $410 million for the fourth quarter, down from $472 million in the prior year. Operating income of $43 million was down from $55 million. This equates to a logistics operating margin of 10.5 relative to 11.6 last year, and return on invested capital was 17.1. Turning to our balance sheet.

During the quarter, we again benefited from our solid free cash flow of more than $200 million. We reduced debt by $156 million, and as a result, ended the year with a funded debt-to-EBITDA ratio of 2.1. In addition to allocating capital to debt reduction, we completed one bolt-on acquisition during the quarter. Also during the quarter, our Board declared a 13% increase in our quarterly dividend to $0.45 per share that was paid on January 15. We also repurchased $42.4 million worth of shares during the quarter. And you’ll recall that in October, the renewal of TFI International normal course issuer bid or NCIB was approved for an additional year. So before I wrap up, as you may have seen in our press release, we plan to redomicile TFI from Canada to the U.S. to better align with our shareholder base and commercial presence.

With that, operator, if you could please begin the Q&A portion of the call, and I’ll be happy to take questions.

Q&A Session

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

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

Alain Bedard: Very good question, Ravi. And you know what, I think that we still have a lot of work to do on cost. If you look at our TForce Freight, you know, our costs are still too high. We’re getting also killed because our volume keeps dropping. Our shipment count is down 6% year-over-year. Although our weight per shipment is about the same, it’s still a very difficult environment. So we still have a lot of work to do at TForce Freight on the fleet side to reduce our costs. We’re on the right track there. Our average age of fleet of trucks at TForce Freight is 4.2 years, which is getting close to normal versus the average age that we have in Canada, which is a little bit higher. But then if I look at my maintenance cost per mile in U.S. versus Canada, I mean, there’s still a big discrepancy between the two.

So we still have a lot of work to do on cost at the TForce Freight. The same is true also of our Daseke acquisition. If you look at the trend since we bought Daseke in April, I mean, Q2 was okay. And then we had issues with revenue per miles that keep dropping because the freight recession is still with us. And even in Q1 of ’25, we’re still seeing a very high [ph] pressure on rates, although it’s quite stabilized, but the number of miles are down and our costs also are too high. Daseke, we were trying to have a lot of equipment and these equipment are specialized equipment. They’re used not very often. And let’s say, wind equipment, wind is out of wind, right? So it’s not very popular right now. So we have to reduce our asset base at Daseke to reduce our cost, to reduce our depreciation expenses, to reduce our interest costs as well.

So we still have a lot of work to do to get to – to me, on the cost side, with no market improvement, we have to be closer to a 7 to 7.25 EPS in a normalized cost environment. If you look at our logistics, I mean, we’re down $12 million quarter-over-quarter – year-over-year in Q4. This is just volume. I mean, the truck manufacturers volumes are down about 20%. This will continue probably Q1, Q2, Q3 of ’25. When we talk to our customer, they see a pickup by the end of ’25. So that is also not helping us in the early days of ’25. But this is just volume, and it will come back. So to make a long story short of a big question is that we still have a lot of work to do on the U.S. operation to become lean and mean. If I compare that with our Canadian operation, I mean, we still have a lot of work to do in the U.S.

Ravi Shanker: Got it. That’s really helpful. And apologies if I missed this, but did you give us a formal 2025 guidance?

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

Ravi Shanker: Great. Thanks, Alain.

Alain Bedard: Pleasure, Ravi.

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

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

Alain Bedard: Yeah. Yeah, yeah. You see the problem that we have, Jordan, is this, is that right now, okay, we’re losing the small and medium-sized, okay customers, which have the best margin, right? And some of that has been replaced, okay, by, let’s say, 3PL and corporate account, which doesn’t bring the same margin. And this was really accelerated in Q4. So that’s part of the issues that we have is sales, okay? We have to be way more aggressive on the small- and medium-sized account. So this is problem number one for us, if you look at TForce Freight today, okay, is revenue. Problem number two is cost. So we’ve been working steadily on costs since we bought this company, and we’ve invested a ton of capital to improve our asset, to improve our training, et cetera, et cetera.

But at the same time, okay, our volume, okay, keeps coming down, right? So it’s like you’re chasing your tail, like a dog chasing his tail, okay? So this got to stop. So we are at a floor of around 20,000 shipments. The mission that we give to our sales force is to try to grow organically, but also to try to improve the density. So what I mean by density, and I’m like a guy that’s always repeating the same thing, if you look at our Canadian operation, our density is second to none. I mean it’s just fantastic. That’s why we’re doing so well. In the U.S., our density is the ship. I mean, it’s really bad. So we have to improve the density. So there’s two ways to improve density, right? Approach number one is to try to do it organically, and that’s what we’ve been trying to do for 3 years since we bought the company, 3, 4 years.

Option number two, okay, is down the road, okay, you got to do what we’ve done in Canada, you got to do some M&A, okay? So if you can’t get the density from organically your sales team, then you have to focus down the road, okay, in trying to find a target, something that fits you, okay, that could help you improve your density at one point, right? So this is why we’ve been saying that one solution down the road, okay, for TForce Freight on sales and revenue is it will have to go through M&A at one point. But in the meantime, let’s say, during the course of ’25 and ’26, our focus has to be trying to grow it organically, okay, with the people we have and the sales, the revenue, and try to squeeze, okay, the cost of our, let’s say, fleet operation.

What we’ve done so far that’s good at TForce Freight is our line haul, okay? So now we’re using a software that’s really good, which is called Optum, which is used by some of my peers. And now we are implementing Optum in Canada for P&D, okay? And we’re also starting to look at implementing that P&D tools. It could be Optum or another one in the U.S., again, to improve the management of our costs on P&D side. So it’s like a two avenue for us. We got to keep working on the cost and do more with less, okay? But at the same time, the mission to our team – sales team is to grow organically and to improve our density. And over time, down the road, let’s say, within 12 months, 24 months, whatever, when we’re ready, when we can find the right fit, okay, is to add M&A like we do in Canada all the time.

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

Alain Bedard: Well, what we know, Jordan, is that Q1 is going to be a very difficult quarter, right, a very difficult quarter. But I still believe that we’ve been running this company since we bought it in the neighborhood of 91, 92, 93, 94 OR. Q4 was a disaster for us. I mean, we didn’t do a good job in managing our labor cost. We had too many issues with accidents and claim. If you look at my claim ratio, I went all the way to 0.9% of revenue, which is just unacceptable, right? So this company, even in this kind of freight environment, we have to be able to run that between a 93 and a 95 OR. I’ve been saying since we bought the company that we’ll get to a sub-90 OR. But right now, okay, at the level of shipments that we have at 20,000, if our sales team does not help us in trying to grow this density, improve this density and grow the shipment count and working just on the cost within ’25 with this kind of freight environment, I think that overall, we should think that it’s difficult to say because, again, it’s very foggy Q1, Q2 with everything that’s going on.

But I mean, to me, is we got to be able to live in a 93 to 95 OR even in ’25 with this kind of difficult environment. But Q1, extremely difficult because of all kinds of reasons, okay? But for the year ’25, even with what we know today, we should be able to play in that 93 to 95. So which is way, way above the target that we have of being a sub-90 OR, right? But density is the name of the game, and we’ve been trying with the sales team to have those guys understand that we need to drive less miles. We need to pick up more freight per stop. It’s been quite difficult, okay? It seems like difficult to do in this kind of an environment. But it’s the only way that we’re going to bring this company to a sub-90 OR because at 20,000 shipments a day, when you run a national network in the U.S., you are small.

You are small. In my mind to run – just look at the shipments count that we do in Canada. In Canada, we do close to 10,000 shipments a day. And we do only 20,000 in the U.S. So I mean, in Canada, with 10,000 shipments a day, we have huge density. That’s why our costs are so good. In the U.S., our costs are not good because our density is way too low.

Jordan Alliger: Right. Thanks so much.

Alain Bedard: Thank you, Jordan.

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

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

Alain Bedard: Yeah. Well, GFP has been not doing well since, I would say a year and a half ago, when our partner on GFP, UPS said, I mean, those customers, we can’t service those guys because they are not honest and they play games, et cetera, et cetera. So we have to drop okay, all those resellers that UPS didn’t want us to service. So – and it’s – now we’re down to basically not much in terms of revenue versus where we were 2 years ago. And we’ve changed the commission structure to our sales team to try to make this thing grow again. But so far, we don’t have any results, okay? So that’s GFP. But on the asset side, what we have done, if you look at my personnel costs year-over-year, I went from 40% to 44%. And this is because of all these changes, okay, in terms of our service, in terms of not managing the labor costs the right way and also the mix of the revenue, which has deteriorated a little bit, okay?

Our weight per shipment is about the same, but the revenue per hundred weight is down. Why? Because we’re replacing small and medium-sized account shipments with great margin versus a 3PL and a corporate account with less good margin, right? So this is what’s happening there. And this is where I say that our sales team has to pull its own weight and start helping us to try to grow this better business, okay? But at the same time also, okay, we also have to manage better the claim costs. And this is big for us because we’re at 0.9% of revenue, which is completely unacceptable. If you look at our Canadian operation, okay, we used to be at 0.2, we’re at 0.3 in Q4. You look at the best-in-class in the U.S., the guys are at 0.2 or 0.3 or something like that.

So us, we’re at 0.9. Also, our accidents, okay, reserve had to be adjusted with the actuarial, which we took another hit. So globally, it’s a lot of bad news for us in Q4, okay? But the guys, they are rolling up their sleeve, and we’re attacking and we understand that the market is not going to help us again in ’25. I mean we still think that we’re going to be in a freight recession. We don’t see anything changing over the course of ’25. And this is why when I look at the plan that we have for ’25, running in the 93 to 95 OR for all of ’25 would be probably the best that we could do with the low density that we have, okay, and without any M&A in ’25. I don’t think that we’ll have any M&A in ’25 to help us improve the density, okay? So with that in mind, this is where we stand, Ken.

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

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

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

Alain Bedard: You know what, Ken, I think this is an evolution of TFI. So if you look at 5 years ago, we listed TFI into the New York Stock Exchange, and we were able to do that through what they call an MGDS, okay, exception, right? But this exception will disappear the minute that our shares that are owned by U.S. shareholders, okay? The minute that we go above 50%, then this is not going to work. So we have to go to the SEC and then we have also to be U.S. GAAP. So it’s part of an evolution, okay? But at the end of the day, if you look at TFI today, okay, for head office, we have people working in Canada. We have also people working in the U.S. We have people in Montreal, in Toronto, Calgary. We have people in Chicago. We have people in Minneapolis.

So we are all over the place in North America with our head office crew. So to me, it’s just like an evolution, okay, because our business is now today about 70% U.S. domestic, 25% Canadian domestic and about 3% or 4% or 5% transborder. So it’s just – and with the next M&A, okay, we just announced a small transaction in our MD&A with that and with the possibility of us doing some more M&A in the U.S., like we said at one point, we will invest $3 billion to $4 billion. It’s going to be in the U.S. It’s not going to be in Canada. So our revenue will creep up to about 80 to 85. So it’s just an evolution, but we’re not moving head office. We’re not moving people from, let’s say, Toronto to, I don’t know, Chicago, no, no. Every member of the TFI head office is staying where they’re at.

So that’s why we call TFI, TFI International is because we’re Canadian and U.S.

Ken Hoexter: Got it. Appreciate the time. Thanks, Alain.

Alain Bedard: Pleasure, Ken.

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

Walter Spracklin: Yeah, thanks very much. Good morning, Alain.

Alain Bedard: Good morning, sir.

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

Alain Bedard: No. No.

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

Alain Bedard: That – Walter, because we’re only in the early days, right? So we still have a lot of work to do on that. We have – we must get a shareholder approval of that. So to me, in a simple way, I mean, it’s just like TFI International today is a Canadian Corp. tomorrow, once the shareholder approve it, it’s going to be a U.S. Corp. So that’s the way I understand it. So there’s no big story except the fact that now by being a U.S. Corp on the Daseke acquisition, for example, one of our business unit deals a lot with DoD, the Department of Defense, the U.S. Department of Defense. And because we are a foreign owner, okay, that creates a little bit of issues for us. Okay. Well, that’s no big deal. We can live with that. But the fact that now you are a U.S. Corp, that will help us, okay?

So there’s a few things like that. You could be part of some index in the U.S. because now you are a U.S. domicile. But at the end of the day, and like I said to our Board member yesterday, it’s an evolution of TFI. If you look back 5 years ago, we had no U.S. shareholder. We were just Canadian, right? Today, just under 50%, 49.9% of our shareholder summer of ’24 were U.S. okay? And 4%, 5% were, I think, European or Japanese or something like that and 45% were Canadian. So it’s an evolution.

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

Alain Bedard: Yeah. Yeah, you’re right, Walter. I mean, for sure. But there’s always the question, my – you’ve been with me for a long time, Walter, right? You know us really well. And me, my thing has always been you buy on bad news and you sell in good news. But it’s been bad news for TFI for the last 2 years, right? Since ’22 when our EPS hit $8, I mean, it’s just been bad. I mean we went to 6, something 6.15. And now this year, we’re at 5.75. So with that in mind and all this – everything that’s going on in ’25 with the fog that we – nobody knows where we’re going really. So a lot of people could be scared and say, hey, don’t do anything crazy. Don’t spend $1 billion or whatever. But I think that you have to be bold, okay?

We have a very strong team in Canada, and we’re also building a much stronger team in the U.S. in our specialty truckload with Steve Brookshaw and with Bob McGonigal at TForce Freight U.S. and also with Rick Hashie in our logistics, right? So you may be right, Walter. Maybe it’s not going to be in ’26. It could be maybe in ’25, okay? But it’s always to try to balance, okay, between being bold and trying to do something sooner than later, okay, because you may end up being ahead of the curve, okay, in terms of the market improving. Me, I really believe that the U.S. is the best place to be in the world in terms of business. And I feel really good about this U.S. economy. And I feel really that those guys, okay, will do a great job, the new administration.

So I mean, to me, it’s time to invest in the U.S. But then on the other side, I’ve got guys saying, oh, it’s – you got to be careful. Your debt is at 2.1, your leverage is at 2.1. So this is why we’re trying to reduce our debt by about $500 million, at least $500 million during the course of ’25. So it’s a balance, Walter, it’s a balance. And we want to get the Q1 behind us because to me, Q1 is going to be very difficult when I look at my specialty truckload in the U.S., when I look at our U.S. LTL, it’s going to be a very difficult Q1 and maybe also Q2 because with what’s going on, we still don’t know what are going to be the rules, right? So as of March, the new administration will talk about tariff. As of April 1, there will be a report by the treasury that’s going to say whatever I don’t know.

So I think that the rules will be clearer starting the summer of ’25 into the fall of ’25. But with all this in security, if you are bold, maybe it’s the right time to do a deal. So we’ll see.

Walter Spracklin: Okay. That’s great. I appreciate the color, Alain. Thank you.

Alain Bedard: Thank you, Walter.

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

Brian Ossenbeck: Hey, good morning. Thanks for taking the question.

Alain Bedard: Good morning, Brian.

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

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

And so far, it’s been difficult. So like I was saying to the team 2 days ago, the TForce Freight team is that, guys, I mean, I understand that we have this freight environment, but we have to have probably better people, better leaders. I don’t know. It’s – the ball is in their court, but it’s tough.

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

Alain Bedard: Yeah. So the revenue per mile, okay, if you look at our revenue per mile, Q2, 3 and 4, it keeps coming down, okay? So it’s really not good. Our revenue per truck because we have increased the number of miles stayed about steady. So more miles that we did per truck Q3, Q4 versus Q2, but less revenue per mile, okay, because the freight is scarce, right? So this is up to the end of ’24. Going into ’25, okay, rate per mile has got some stability, but because of everything that went on with the storm and this and that. So number of miles went down in January. And the killer that we have over there is that we have way too much capital invested – trucks and trailers invested in that company. And why is that? Because when we acquired Daseke, they had committed to buy a large number of trucks, which we could not walk away.

So that’s what we did in Q2 and 3 and 4 is we had to take on these trucks that would have been ordered, okay? So now we have way too many trucks in a very difficult environment. So during the course of early ’25, we have to start unloading those excess trucks that we have okay? And then we’ll have probably a better result in terms of our depreciation expense, which is just crazy, okay, with the revenue we have. In terms of customer, in terms of activity, okay, we’re still in a freight recession in the specialty truckload. We are still not active like we should be in a normal environment, but it’s been going on for 2, 3 years, right? So if you look at my peers in the U.S. in the van world, okay, it’s really difficult. I mean us, if you look at my OR in Q4, I’m above 90 for the first time ever, okay?

First time ever that our specialty truckload OR is above 90. I think we’re 91 something. It’s because Daseke is, like you said, probably running like a 98 OR, right? And the rest of our operation is running sub-90 OR, right? Because Daseke and the existing business that we had before we bought Daseke, it’s about 50-50, okay? So legacy TFI specialty Truckload is about the same size as Daseke in terms of revenue. But in terms of profitability, it’s day and night, right? So you’re right, Daseke in Q4 did help us because if you look at my year-over-year improvement, top line is through the roof, but bottom line is we’re a meager well, just a few million dollars. So that tells you that we didn’t do too well, okay, in Q4 with our U.S. operation, okay?

But this is a different environment. TForce is a big rock in my shoe, no question about it. Daseke and our U.S. specialty truckload, this is something that we will be able to fix on the cost side, on the equipment side during the course of ’25. And if market conditions improve, that should help us. But if market does not improve, I mean, at least on the cost side with our specialty truckload, we have a path forward by shedding equipment, by improving our costs, improving our overhead as well, okay? So our overhead will come down during the course of ’25. So I feel that Q1 is going to be difficult for specialty truckload as well, okay? But I think that we will bring the OR down sub-90 within the next Q2, Q3 and Q4.

Brian Ossenbeck: Okay. Thanks very much. Really appreciate it.

Alain Bedard: Pleasure, Brian.

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

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

Alain Bedard: Yes. No problem, Scott.

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

Alain Bedard: Tough – tough – tough question, Scott. So far, what we know with everything that’s going on, okay, we did about $5.75 of EPS in ’24. With everything that we know so far, same environment, everything the same. I think that $5.75 to $6, which is what we’ve done this year, it’s still a very, very difficult environment. And I would say probably first 6 months of ’25 will be more difficult than the first 6 months of ’24, okay? And I think that the last 6 months should get better once we understand the new rules of the North American market. Now in terms of are we going to be profitable at TForce rate, it’s very difficult right now. So the month of January was not good for us. February still tough. We believe that the sum of Q1, that’s why we’ve asked our guys to give us a reforecast for Q1.

It’s tough for me to answer. But one thing is for sure is that we’re not going to be better than a 97 OR in our Q1, right? So going back to your question about the average length of haul, for TForce Freight, to me, maybe I’m wrong, but in my mind, the average length of haul, okay, at TForce Freight is basically about the same. So I know Ken was saying that the length of haul has changed big time, but I don’t know if it’s a mistake. But in my mind, it’s about the same. So what I’ll do, Scott, on that, I’ll ask David to get back to you just to make sure that we all talk the same thing on that.

Scott Group: Okay. Yeah. I mean, it almost looked like a typo in the press release because it was down so much. So maybe that’s right.

Alain Bedard: It could be because to me, it’s – like I said to Ken, number of trucks, you got to look at the active trucks in our MD&A, okay, because it’s about the same. But in terms of length of haul, I mean, in my mind, it’s basically the same. I mean we have not changed the company. It’s about the same. We’re about the same as, let’s say, ABF. ABF is about 1100 miles. We are about the same. I mean.

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

Alain Bedard: Yeah. Okay. So like I said, Scott, I mean, my philosophy has always been you buy on bad news, you sell on good news. So it’s been bad for TFI in the last 2 years, right? It’s been bad for the industry in general, and it’s been bad for us as well. But we also did some M&A. So we bought Daseke in those bad times. We bought GHT, which is going to be a great asset. And we’re also buying another one that’s going to be under the GHT umbrella in April. So we’re still active in the good tuck-ins, reasonable price, et cetera, et cetera. But in terms of the U.S. LTL M&A, in order to do something, you got to do something of size because the problem we have us is that we’re way too small, way too small. 20,000 shipments is the ship.

it’s bad. I mean you cannot have – it’s difficult. If you want to be a national player in the U.S. with 20,000 shipments, it’s too small. Just think about we do 10,000 in Canada. I mean Canada is one tenth of the U.S. So it doesn’t make any sense. So – but I think the timing is right, but you have to be bold, right? And it also depends on our investors, okay? It also depends on the Board. So me, I’m the CEO, okay? And for sure, I’m making some proposal, okay? But sometimes you’ve got Board members or people that could say, A, are you crazy? I mean, your leverage is 2.1. It’s very foggy. Nobody knows where we’re going, okay, your earnings in Q4 are down like 30%, okay? Are you crazy? I mean, why would you do a deal of size, right? So me, I’m saying, well, guys, yeah, you got this, this is one side of the coin.

The other side of the coin is you got to be bold. You got to do it now when everything is bad because when everything is bad, one day, things will get better. So if you wait for things to get better, you’re going to have to pay more. So it’s a balance, like I said earlier, okay? And that’s why I’m saying down the road, okay, but maybe the road is not going to be too long, like I was talking with Walter. We’ll see.

Scott Group: And the spin idea?

Alain Bedard: The spin. The spin, like I said earlier, Scott, we need size. So if you look at our market cap today, when we talk to our investors, large investors of TFI, they like the idea of the spin, but they say you’re too small. You’re too small. So if you’re a $12 billion market cap guy and you split the company in two and one is, let’s say, 6 and the other one is 6 – 2.6, 2.6 is small. So we think that your idea is really good. It makes a lot of sense, but try to get a little bit bigger. So let’s say, if you do a deal and your market cap is 15, okay, because you’re buying something good at a reasonable price, then it makes it easier to do, number one. Number two, it takes time. So in the meantime, what we’re doing, Scott, we’re not sitting on our hands, okay?

We’re getting ready, okay? So we have to work on systems, right? So – because when you do the split, you don’t want to be stuck with a TSA, a transition agreement for 3 years like we had with UPS, right? So we’re making some moves on the real estate side, too. We’re making some move on the asset side, okay? So let’s say, we have trucks that are, let’s say, in business A, but they should be in business B because what we used to do in Canada is to have a global portfolio of all assets mixed up between truckload and LTL. So now we’re going to the split. So we’re not sitting on our hands. We’re getting ready, okay, to do that. But it’s still in the cards, absolutely because it makes a lot of sense. The return on invested capital of our truckload operation is single digit in Q4, single digit, 8-point something, if I remember, I mean – and then the rest of our business in a very difficult environment, terrible environment for us, logistics, okay, LTL, I mean, we’re running 15%, 17%, 18% return on invested capital.

So it’s not the same. So it’s got to be separate at one point.

Scott Group: Thank you, guys. Appreciate it.

Alain Bedard: Pleasure, Scott.

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

Bruce Chan: Yeah. Thanks, operator. And good morning, Alain.

Alain Bedard: Good morning, Bruce.

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

Alain Bedard: Yeah. I think we did all of that today. We changed incentive, okay? We’ve changed people, okay? The focus is still the same. And we’ve not been able to have results, right? So you know, we are working on our service. We have improved service at TForce Freight, absolutely. Right now, if you look at my miss pickup, I still have way too many. I’ve got about a little shy of 400 a day that we miss pickup. But we used to be double that, right? So we are improving. Now for sure, the Mastio [ph] report is not helping us in the perception of TForce Freight. Why is that? Because we came to know that sadly, Mastio was trying to get in touch with us, and they couldn’t get in touch with us for 4 years. So they were using information that is stale from 2020.

So maybe this report is not accurate because we never provided them the right information for them to really get a true picture of TForce Freight services, right? So hopefully, down the road now that we have a communication, they will talk to customers that we service and maybe, hopefully, that perception that TForce Freight service is not good will improve. And I think the service reality-wise has improved, right? Now our sales team are fighting that, okay, and are fighting our peers that have better service. And in a difficult environment, okay, where freight is not easy to find, the service is key, right? So if the customer has the perception that your service is not as good as the other guy and the price is about the same, well, the customer is not stupid.

It’s going to go with the other guy, right? So we have to change this perception of service, and we also have to work on improving our service at the same time. And we also have to educate our sales team that, guys, I mean, our service is improving, guys. And you got to fight. You got to fight, right? And so far, if I look at my corporate and 3PL, we’re about flat, okay, in ’24 year-over-year. So far in ’25, we’re down a little bit on corporate, but about flat on 3PL. But we’re down on – again, on small, medium-sized account, which is the most profitable business that you can have. So I mean – so we’re trying organically, okay, to improve that because that will help us with our density. And like I said earlier in the call, down the road, okay, and that’s what we’ve done in Canada.

That’s what we’ve done in Canada for years and years and years is that we beef up our density through M&A, okay, through M&A. So we continue to do that. And in Canada, we run either union or non-union, right? So we’ve got a union network, and we also have a non-union network. And we beef up density in all these two networks all the time. And this is now after trying for 3 years, okay, to grow organically and it’s not working, okay? So we keep pushing our sales team to grow this thing. But we now understand that we have to do something, okay, down the road on M&A, either to build a non-union network on the side or to try to grow with some regional unionized LTL to beef up TForce Freight. I mean – but don’t forget, our approach us on M&A is always the same, is that if we do some M&A, we keep business separate, right?

We don’t like merger. We’re not a big fan of merger, okay? We don’t do that, right? So we work together. So let’s say, we own another company. I mean, we will work – the two companies will work together, but there’s no combination. There’s no merger. We hate that because, yes, the accountant will tell you that you could save a lot of money. But at the end of the day, it’s falls. So we keep the two – like we do in Canada, right?

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

Alain Bedard: Well, asset-light is always the best. So if you look at our Canadian LTL, it’s really, really light. Why is that? Because we are heavy intermodal. We are also heavy with third-party P&D. So for sure, I mean, if we have an option to buy an asset-light at a reasonable price, okay, we’ll jump on that one first. Now we also understand that there’s not that many asset-light operation in the U.S. on the LTL side. So then okay, we look at an asset operation. So about a year ago, we bought $100 million revenue asset company, non-union in the U.S., okay? So this is our first, okay, of maybe more to come on that side. Now this company, the beauty of this company is that they’re also big in the trans border between U.S. and Canada, right, which has got better yield, better yield than U.S. domestic or better yield than Canadian domestic.

So this is a first for us a year ago. And down the road, okay, this is an area that we’ll be trying to grow. And maybe if we can find a good brother to TForce Freight, okay, I mean, that’s also something that we’re going to be looking at. If we can find a good brother, a good fit, but without merging, I mean, guys never say that TFI wants to buy a company and merge it with A or B or C, we don’t do that.

Bruce Chan: Okay, great. Appreciate the time.

Alain Bedard: Pleasure.

Operator: And your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz: Yeah. Good. Good morning, Alain.

Alain Bedard: Good morning, Tom.

Tom Wadewitz: I wanted to get a sense. I know we’ve had quite a bit of discussion on U.S. LTL. I think we’ve had for the last couple of years, a real framework of idiosyncratic drivers for improvement in U.S. LTL and that you had a fair bit of control. It feels like we’re kind of waiting for the market to improve and you really need a better freight backdrop to see things get better in U.S. LTL. Do you think that’s fair that, that’s really the most important lever for U.S. LTL to get better? Or are there still levers that are kind of meaningful enough that you can push in your control in U.S. LTL?

Alain Bedard: No, I think so, Tom. I think that we still have a lot of work to do on the cost side. I think fleet, okay, is a big problem for us since day one because we had old trucks, blah, blah. Now we have a normal fleet, but our cost is too high. So we’re starting to see some improvement because we have a new leader, that oversees our fleet management now. And this is something that should help us during the course of ’25 and beyond. That’s number one. Number two is, like I said earlier on the call, the P&D software that we’re using dates back about 20 years, right? So it was good 20 years ago, okay? So now in ’25, we’re going to be updating that through either an item [ph] which is the software that we’re using now for our line haul, which helped us big time, okay?

So our line haul cost today, even if we put more freight on the road versus rail, our line haul cost per pound or per shipment is less today than it was 3 years ago with better service because the rail is the rail, right? So we put less stuff on the rail, more on the road, costs about the same and service is better. But on the P&D side, we have a big job to do there because we could save a lot of money. So to me, it’s really the next big focus. So fleet, we have the tools, we have the software. We have a better leader now. We should – that should help us in ’25. P&D, it’s going to take probably all year, okay, to get this new software tested, implemented, maybe ’25 into ’26. The other thing also that we are implementing now is also – it’s been a cancer for us, billing, master file of customers and all that.

So we are implementing as we speak, and it’s going to take all the way until the summer of ’25, a software that’s been used by one of our peers. So it’s been tested by those guys, and that’s what we are implementing now. So that’s going to help us build customer properly, okay, have a better control about what’s going on, better visibility about what’s going on, et cetera, et cetera. So that’s also another lever during the course of ’25 that should help us on the cost side. Now if market starts to turn, if this economy starts to get better, if this freight recession disappear, let’s say, late ’25, even better. But for us, in ’25, we have to stop, okay, the degradation of volume, okay, and slowly improve it as much as we can. And we have a big job to do on cost, on fleet still on P&D and on billing customer properly so they can pay us properly.

Tom Wadewitz: Right. Okay. What about there hasn’t been much discussion on competitive environment. But if you take a step back, a number of the bigger players have added terminals and recycle the yellow terminals, if you will, expanded and are focused on growth. So do you think that’s potentially contributing to some of the pressure on shipments that other players who have added terminals are taking business and that’s contributing to the pretty significant cycle pressures and lower shipment count. That might be hard to see, but do you think that’s a factor, too?

Alain Bedard: Economy 101 tells you that if you offer more, okay, you’ll get less, right? So if you offer more freight capacity, you’ll get less money, to me, it’s basically the rule of economy. So by adding capacity to the LTL environment, for sure, down the road, you’re going to be putting pressure unless the market starts to grow, okay? And if there’s growth, maybe not so much. But if still a very weak market, for sure, by adding capacity, you’re putting pressure down the road on rates. The shipper sees that, they know that, and they will RFP the business and then you’re stuck with fixed costs and there’s a fight for freight, okay? So this is basic economy. So this is why us, our approach has always been, guys, don’t add capacity.

don’t do that, right? So this is why us down the road, what we’re trying to do is through some M&A, through some education, guys, if you add capacity, you’ll make less money. It’s very simple. You have to understand – just look at the price of oil, add capacity, add more oil, price of oil goes down, right? It’s just basic rules. So us in Canada, why we’re so good is we’re not adding capacity. We’re shrinking, shrinking, shrinking and making more or at least protecting. If you look at my LTL OR, okay, I used to be at 79 I think, in last year, and I’m an 80-something now, 80-point something, right? So we are protecting our margin. So you’re right. I mean, there could be some pressure down the road. Hopefully, our peers understand that and don’t offer too much capacity because LTL – the U.S. LTL is the best place to be in North America today.

Best place to be because it’s more – it’s not like the truckload where every Tom, Dick and Harry could be a truckload guy tomorrow.

Tom Wadewitz: So just to make sure I understand your comments. So you did not – it wasn’t clear that there was like a worsening of competitive pressures in 4Q. You don’t really think that was the issue. It was more broader market, but you might be concerned about pressures in the future. Is that – I guess, is that the way you’re seeing it?

Alain Bedard: Yeah. Yeah. Q4, it’s hard to say, okay? Maybe, okay? I don’t know. But one thing is for sure, long term, when you add capacity and the market is not growing, you’re going to end up with price pressure.

Tom Wadewitz: Yeah. Makes sense. Thank you for the timeline.

Alain Bedard: Pleasure, Tom.

Operator: Thank you. And your next question comes from the line of Benoit Poirier [Desjardins Capital Markets]. Please go ahead.

Benoit Poirier: Yeah. Good morning, Alain. Just with…

Alain Bedard: Good morning, Benoit.

Benoit Poirier: Yeah. With respect to free cash flow, obviously, you were able to pull close to $800 million in 2024. I would be curious, given all the comments that you provided, how should we be thinking in terms of free cash flow generation for 2025? And maybe a little bit more color around CapEx given the investment needed for Daseke that you committed for?

Alain Bedard: Yeah. So I think based on what we know so far, okay, Benoit, is TFI will pay its dividend. TFI will reimburse, okay, about $400 million to $500 million of debt during ’25. TFI will also invest about US$200 million in M&A. So if you do the sum of all that, I mean, it’s basically about the same of – because our CapEx will be reduced. Why is that? Because when you do when you drive less miles in your truckload operation, okay, well, you can extend the life of the truck, right? So our CapEx will be less in ’25 than they were in ’24 because of that depressed truckload environment. The same is true of our LTL. So LTL for this year, we’re buying 400 trucks, U.S. LTL, I’m talking here, instead of buying 500 or 600 trucks in ’24 and in ’23, right? Because our average age, okay, is at 4.2 now at the U.S. LTL. So globally, our CapEx, TFI net CapEx will probably be less $50 million to $100 million year-over-year.

Benoit Poirier: Okay. That’s great. And in terms of M&A, just for the follow-up, you gave very good color on the timing. It seems to be most unlikely in 2025. I’m just wondering how much it’s pushed to the right given maybe the financial situation? And do you feel you need to further integrate UPS 0Freight and Daseke, before pulling the trigger on the larger one. And obviously, when we look at the past, you’ve been quite good monetizing some assets, think about Heartland Express, Waste Management. So is it something that might be in the cards down the road?

Alain Bedard: Monetizing assets, no, except on the real estate side, Benoit. And in terms of TForce Freight, I mean, we have a plan and M&A will just help TForce Freight down the road, I think. So we will not stop an M&A transaction because we’re not happy with what’s going on at TForce Freight. I’m not happy at all with what’s going on over there. The guys are working hard, but we need results, right? So M&A could be part of that solution, helping them on the density side at one point, maybe. And on the Daseke side, I mean, we are really busy in reducing overhead costs over there. We have way too much asset. So this is killing us on depreciation expenses because we have probably in the neighborhood of 400 trucks too many, okay, because we were stuck buying the commitment that Daseke’s prior owners made.

And we got all these trucks in ’24. And now, okay, we have to start unloading the older trucks, okay, in a depressed environment. So what the guys have been doing is what they’re saying is that, the market is so bad, I don’t want to sell it now. I just want to wait until this market gets better. So this is today, right? So me, I’m saying now, guys, I mean, do we see the U.S. market pre-owned trucks getting better, okay? Not really. Well, okay, so let’s start unloading the trucks. And that’s what we’re doing now. And the beauty of Daseke is that we’re not losing money when we’re selling trucks even in a very depressed pre-owned market compared to when we are selling old UPS or TForce Freight trucks, okay, because they’ve been so – the fleet has been so poorly managed that if you look at my disposal of equipment in Q4, I’ve lost money, right?

Not much, but I still lost money, right? But on Daseke, when I sell equipment at Daseke, I don’t – overall, I don’t lose money. So I say, guys, now is the time. I don’t know when this market is going to get better. We know because we all – all the new trucks for PACCAR and Freight, that the production is down 20%, okay, in Q4. It’s going to be down 20% in Q1, 2 and 3 probably and picking up again in Q4. Q4 ’25, according to our forecast on the truck, I mean, for the first time, they will do a better job in Q4 ’25 than in Q4 ’25 than Q4 ’24 for the first time. So I mean, it’s a global situation. But M&A, like I said many, many times, you buy in bad news, you sell in good news. It’s all bad. It’s been bad for years and years. It’s just like we have to be bold.

We have to find the right target. We have to do the right deal at the right price. And that’s been the success of TFI over the last 25 to 30 years is buy the right price at the right time. We bought Daseke a year ago in April. Q2 was okay, 3 and 4, not so good. But I feel really good with Mr. Brookshaw and his team. We’re going to – we have a lot of work to do on reducing our overhead costs, reducing our asset base so that we could bring our expense – depreciation expense down. And we’re going to turn this ship around. I mean running a 90 OR in specialized truckload, it’s not acceptable, okay? Everybody knows that. I mean we’re not a van guy. We are a specialty. So we got to bring this OR down, and we’re going to get sub-90 for sure during the course of ’25, even in a difficult – still difficult market.

Benoit Poirier: Thank you very much for the time.

Alain Bedard: Pleasure, Benoit.

Operator: And your next question comes from the line of Daniel Imbro with Stephens. Please go ahead.

Daniel Imbro: Yeah. Hey. Good morning, Alain. Thanks for taking the questions.

Alain Bedard: Good morning.

Daniel Imbro: Alain, I want to start maybe back on the U.S. LTL service side. You mentioned a few times the claims ratio is unacceptably high at 0.9. To previous answer, you said some other things are getting better, but this has been softening for a couple of quarters. Would love to hear some of the investments you’re making to actually improve this claims ratio going forward. And could you provide any other update on like on-time deliveries? Any other service metrics that have been a headwind on the U.S. LTL side and maybe what you’re doing to improve those?

Alain Bedard: Yeah. So on the claims side, here’s the story, okay? So the reason we are at 0.9 is that we used to break so much stuff that we have a store in Richmond that was selling the stuff that we were breaking. But now we break less stuff, so we don’t have this revenue that goes against the expense. I mean that is the story right now, which to me is, okay, fine. But at the end of the day, okay, our claim will come down, it will come back down again, okay, in the next quarters. And what we’re doing about that is, again, is working with the customer, working with the operators, and we know what to do. It’s just like the story is that, well, the benefit that we had by selling all the stuff that we were breaking, I mean, that is gone.

The store is closed. We don’t have that anymore. And now we’re just expensing, okay, the stuff that we’re breaking now, okay, or losing now. So okay, fine. That being said, what is the plan to bring the 0.9 down to more acceptable level. So we’re going back to the source, and we should do a better job on that, right? So the guys are all sensibilized that, hey, this is not acceptable, okay? This affects our service, affects our customer relationship. Nobody likes to have stuff broken. Nobody likes to have stuff lost, right, even if you pay for it. So that is where we’re going on that. And what was your next second question? I forgot.

Daniel Imbro: Just any other update on the on-time deliveries or other service metrics that have been kind of elusive?

Alain Bedard: Yes. Yes, yes, yes. Well, the on-time delivery, we are improving, absolutely. But we’ll never be a 99.9 guy. So the goal is to be something around 98. when we bought the company, we were more like a 90 91, 92, and we had all the excuse in the world to be at 90, 91, 92. Right now, we’re more like a 95, 96 in range if you exclude everything that’s going on with weather issues. So we have improved. We’re still probably not to the level our peers are, okay? But we are improving. And I just gave the specific on miss pickup. I mean our miss pickup is down 50% versus what it was like a year or 2 years ago. So our service is improving, absolutely.

Daniel Imbro: Got it. And then as my follow-up, I want to ask a longer-term, maybe strategic one on the U.S. LTL side. It’s been a few years now. You mentioned it’s been a challenging 3 years of owning the TForce asset. Whether we think about the ability to cut cost or add density, I guess, how much of those differences in the U.S. versus Canada are maybe more structural than you appreciated when you bought this business as you’ve learned? And when we think about where OR can get to, maybe 93 95is this year, but has anything changed? Like where can this business go over time as you better appreciate the headwinds and just the challenges of the U.S. market?

Alain Bedard: You know what, the market in Canada is not different than the one in the U.S. and vice versa. What’s different is the level of issues when we bought UPS Freight, okay? So we could never, you know, even with all the new deals that we’ve done, we knew that the fleet was not up to par. We knew that the real estate was not up to par. But the system, the financial system, we were not aware because these were UPS system, okay? So they were connected to the UPS environment. So we didn’t know anything about that. And the tools for LTL because the tools per package at UPS are probably fantastic because these guys do a fantastic job over there. But the tools for LTL were poor, okay? So this is something that is taking us way more time than we thought.

So I’ve talked about the line haul, okay? So line haul, now we have Optum, which is helping us big time. The fleet, now we have Certarus [ph] that has been implemented a year ago. We had to change leadership. Now we have new leadership. So Certarus and the tool and the new leadership will help us reduce maintenance costs. Billing and master file management, it’s been a nightmare for us, from day one. Now we are implementing a software that’s been used by one of our peers. By the end of the summer, this should be done with. So it’s much worse, okay, than we thought when we bought the company, okay? But we’re going to get over it. I mean we know what to do, okay? The U.S. market is not that different than the Canadian market. The basic rule, okay, why are we so good and successful in Canada is because our density is second to none.

We drive in the U.S. right now for our P&D 10 miles between each and every stop. This is not acceptable. I mean we drive less than 5 miles in Canada. Why is that? Because we’ve educated our sales team, everybody in our Canadian operation that we want the driver to drive less miles and pick up more freight. That’s the culture we have in Canada. In the U.S., that culture did not exist, okay? And we’ve been trying, working with the sales team to understand, guys, we need more freight close to our terminal. We need more freight per pickup. So it’s what we call density that helps us reduce costs, right? By doing that, okay, you’re way more efficient. So what we’re trying to do for the first 3, 4 years, 4, 5 years that we bought the company is trying to do it organically.

And we’ve not been successful so far. The only success we have is we move the rate – not the rate, but the weight per stop, the weight, the weight per shipment, okay, from, let’s say, less than 1100 pounds to about 1200 pounds. That has been a success. But besides that, we have not done anything on density. So this is why I’m saying that down the road, okay, you try organically to improve your density. But at one point, and that’s been the success of Canada, M&A has been the success that we encounter in Canada, both union and non-union, okay, is to grow a network that through M&A, you build your density.

Daniel Imbro: Great. I appreciate all the color. Best of luck, Alain.

Alain Bedard: Pleasure.

Operator: And your next question comes from the line of Ariel Rosa with Citigroup. Please go ahead.

Unidentified Analyst: Dan Moore [ph] on for Ari. Morning, Alain. Thanks for taking our question. Back to the small and medium business, is it losing accounts and lanes? Or is it keeping accounts and lanes, but just losing volumes? Just to try to understand the ease of winning back that business when you improve service. And are there other higher-margin customer segments you could focus on to offset in case small and medium business is still low in 2Q and you’re at risk of OR being close to that 97 for 2Q?

Alain Bedard: Yeah. Yeah. No, I think that it’s just like the focus of our sales team has not been good, okay? So the reason that we lose, okay, is because our churn is too high, right? So we look at the churn – normal churn in an LTL environment could be 5%, 10%. But when your churn is way more than that, which is the case at TForce Freight, then it takes – you lose more than what you gain. So the net is minus, right? So you got to stop the churn, you got to stop what you’re losing, okay, so that you could have a positive when you had the loss because you will always have loss, okay? So because there’s – you always have churn, but you have to have less loss than what you can bring in. And so far, okay, on 3PL and corporate, okay, we’re fine.

The problem is that with small and medium-sized account, we lose more than what we gain, right, in terms of customer and also in terms of lane. So it’s just like, guys, roll up your sleeve and you got to be more aggressive so that we stop losing more than what we’re gaining.

Unidentified Analyst: Okay. Great. Appreciate that. Maybe just as a follow-on from your Investor Day a few years ago, you were great in providing estimates in OR improvement, for example, 50 or 100 basis points on – just to understand the magnitude of the, I think, 5 or so actions you’re implementing now, the sales culture to maximize shipments per stop, the P&D software would be number two, billing system number three or you’ve talked terminal level visibility and compensation tied to that, which needs time to gain. And then five would be the line haul in-sourcing. Can you provide sort of rough estimates on OR improvement basis points, ranges for these?

Alain Bedard: Yeah. So on P&D, it’s too early. I don’t know, okay? So this is difficult to say. On fleet, in my mind, okay, if I look at the plan, what we’re trying to do, I think fleet year-over-year, same miles, same everything, our cost has to come down between $20 million to $35 million year-over-year. That’s fleet. In terms of billing, bad debt, claims and this and that, to me, I mean, this is another $10 million to $15 million that we just throw money out the door. We pick up freight, we deliver freight, and we don’t know who we have to build because it’s not clear, okay? We accept an order and our people just saying, well, I think it’s A, no, it’s B. So we build A, and then after 6 months, A is not paying because he said it’s not me, okay?

So then you go back to B and B says, no, it’s not me because it was not clear the day that you took the order. So we have that because of all the software, all tools that we have that did not control that process, which will happen during the course of ’25 until from now, until the summer, July, right? So on the line haul side, I think we’re probably doing a great job. We’re probably at 95% of what the Optum the best that we could do on that. Our objective has been to move more freight on the road versus rail to improve service, and we’ve done that. So we run a lot of teams now, okay, running our line hauls. So we’re doing a better job on that. So on line haul, I don’t see that so much. So it’s basically the P&D, although P&D, I cannot put a number on it, it’s too early and fleet and also bad debt and billing customer properly.

So these are the kind of levers. Density, it’s a push. We’ve been pushing with no results with no results so far. So again, ’25, we keep pushing on that. And that’s why I’m saying down the road, we’re going to have to do something on M&A to help us improve, okay, that density. Because, again, we buy a company, there’s no merger, but we work together, right? So like we do in Canada, if I take the example of Canpar, Loomis, so what we’re saying is that these ZIP codes are Canpar, let’s say, in Toronto and these ZIP codes are Loomis. So we’re not merging the company. But in the ZIP code, okay, Canpar is delivering both Canpar and Loomis stuff. But the companies are not combined, but we work together. So we improved the density by doing that in those ZIP code because now Canpar delivers freight for Canpar and freight for, okay, Loomis.

And then in a different region of Toronto, for example, it’s going to be, let’s say, a Loomis territory where Loomis is going to deliver both Canpar and Loomis freight, right? But we don’t merge the company. No, no, no. We don’t do that.

Unidentified Analyst: Great. Thanks so much, Alain.

Alain Bedard: My pleasure.

Operator: Thank you. And your next question comes from the line of Konark Gupta with Scotiabank. Please go ahead.

Konark Gupta: Good morning, Alain Hanks for the question.

Alain Bedard: Good morning, Konark.

Konark Gupta: It’s been a long call, so I’ll keep it pretty short, hopefully. I know you’re not guiding here for ’25, but I think you’re alluding to some pressures and headwinds in the specialty truckload, the TForce and maybe JHT right, for the better part of the 2025. In terms of the remaining operating segments, right, the Canadian LTL, Canadian Truckload, Package and Courier, et cetera, do you see those segments like maybe offsetting the headwinds in the remaining segments perhaps? So I mean, perhaps this is like a flattish year from an earnings perspective? Yeah.

Alain Bedard: I feel pretty good about our logistics, okay? So our logistics are going to do well, except for JHT, the first probably 9 months, okay, we’re going to be behind last year because of – but logistics, I feel really good. P&C, I mean, the team there, Mike and Chris, they’ve done a fantastic job. If you look at my Q4, well, you can say, well, because of the Canada Post strike, yes, a bit. But don’t forget that we’re mostly B2B us, right? So I feel good about Canadian LTL. I mean the Kindersley acquisition will turn into a good OR environment because right now, it’s a drag on our Canadian OR. So the Canadian truckload, the driver is killing us, okay? So it continues. But I think that the federal government now is taking action, reducing the permit, the work permit and all that.

So maybe this is going to help us. So the big rock in my shoe, okay, and it’s been like that for a few years is TForce Freight, and we’re working hard on it. Specialty Truckload in Canada, we’re doing well, doing really well. Specialty Truckload in the U.S., we will do better in ’25. We have a rough start of ’25. We got too much trucks, too much assets that we’re stuck with because of commitment of the previous management team there that we had to take on. And then also the revenue per mile has been difficult for us in Q3 and in Q4. So far in Q1, revenue per truck is okay. The revenue per mile is okay. The revenue per truck is down because the miles are down because of weather issues. That will disappear during the course of the year. The freight is still not the greatest environment, okay?

Hopefully, with the new administration in the U.S., things will start to accelerate this freight demand. So yes, Konark, I feel really good about a certain part of my business. My biggest problem is really TForce Freight U.S. I mean it’s been that for 4 years. That’s the only reason I keep up at night, okay, is really TForce Freight U.S.

Konark Gupta: Okay. That’s helpful color. Thanks. And then maybe just a quick follow-up on redomiciling. Any time lines you want to kind of suggest here in terms of the application process, the shareholder approval and when this thing can be wrapped up?

Alain Bedard: I think the time line is between 9 and 12 months. And again, okay, if I may add to that, Konark, I mean, we have today within the TFI head office, we have employees in Canada and in the U.S. We have employees in Montreal, Toronto, Calgary, Chicago, Miami, et cetera, et cetera. And it’s not because the domicile of TFI International will move from Canada to the U.S. We’re not moving people. We’re not moving people from Canada to the U.S. I mean we’re not doing that. We’re not stupid. I mean, so I mean, it’s business as usual, okay? And us at TFI, we hire the best talent where the talent is. So if the talent is in Chicago, we hire in Chicago. If the talent is in Toronto, we hire in Toronto, right? So that has always been the nature. It’s just like by doing that, now we become a U.S. domicile, but every responsibility of TFI at office remains where the responsibility is today.

Konark Gupta: Right. Makes sense. Thanks so much for the time. Thank you.

Alain Bedard: It’s a pleasure, Konark.

Operator: And your next question comes from the line of Kevin Chiang with CIBC. Please go ahead.

Kevin Chiang: Hey, Alain, I’ll leave it to one, and I appreciate all the color you’ve provided on this call. I think in answer to an earlier question, you said absent any, I guess, revenue recovery, you saw a path to at least get to 7 or 7.25 EPS with your self-help levers. I know you’re refraining from providing guidance. But when we think of that level of earnings growth without a macro recovery, do you have a sense of how long you can get there? It sounds like you have a lot of irons on the fire for ’25. So is that something we can think of as at least a North Star for 2026 as you kind of work through some of these initiatives? Or is it longer than that, shorter than that?

Alain Bedard: No, for sure, Kevin. It is going to take us some time. I mean the cost issue that we have at TForce Freight is still a drag because our volume are too low, our volumes are too low. So at 20,000 shipments a day, it’s just very difficult. But we have levers that we’re going to be working on. Now in terms of our logistics, I mean, it’s a little bit of a market condition. As soon as, okay, this JHT situation corrects itself by the end of the year, okay, we’re going to be doing about $200 million of OE with our Logistics division. Now this year, we’ll probably be down to 150, 160 because of what’s going on with the truck manufacturing. I think our Canadian operation will do as good as they did in ’25 and ’24, okay? It’s really we need major improvement.

Because if you look at my TForce Freight Q4 year-over-year, I’m down like $30 million. I mean this is like a nightmare for me, right? So I mean, we have to take the bull by the horn now. Okay, Q1, because of everything that I’ve said, because of all the fog and all this, we can’t – we don’t know where we’re going to end up with Q1. So far, it’s very difficult for our TForce Freight and our U.S. Specialty Truckload operation. I think that truckload operation will improve during the course of the year. And it’s – we have a big job to do at TForce Freight U.S. LTL.

Kevin Chiang: That’s helpful color. I’ll leave it there and best of luck as you get through ’25 here.

Alain Bedard: Oh yes, we’re going to need a lot of work, but you know what the old saying, the harder you work, the luckier you can get.

Kevin Chiang: Yeah. Thank you.

Alain Bedard: Okay, Kevin.

Operator: Thank you. And your next question comes from the line of Cameron Doerksen with National Financial. Please go ahead.

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

Alain Bedard: Yeah. Good question, Cameron. I mean, we owe a lot of aluminum us, okay? So for sure, aluminum is going to be part of the tariff. I mean Mr. Trump has already said that aluminum tariff is going to be 25%. So we know that, okay? But we lived through that also in ’18, right? So I don’t think that this is going to affect the volume for aluminum, but we don’t know. When we talk to customers, I mean, they feel good, but we don’t know, right? This is why I’m saying we are going through some fog right now because I think that by the summer, we’ll know. But right now, we don’t know. Steel, we believe that Canada produce a lot of steel for the U.S. market. Some of it is specialized. So I don’t see issues too much with that.

We haul some of that. Some of it is more like commodity steel, which is like Stelco, for example. So that could be a problem, okay, with tariff. So this is mostly affects Ontario. It will affect us a little bit, but the problem is always the domino effect of all these truckers that are hauling this product that we don’t us today that now are out of work, could they start to rock the ship and attack some of our customers that we service today. So it’s still difficult to say, right? But because we’re mostly a specialty truckload guy, it’s not as easy as a van kind of world, right? So what we know so far, Cameron, we shouldn’t be doing too bad. Now the trans border revenue is about 4% of global TFI revenue, 4%. So it’s big, but it’s not that big, right?

So we’ll have to see. That’s why we cannot provide guidance. I mean even my U.S. peers, okay, are having a tough time to give guidance because of all this unknown is inflation coming back in the U.S. or in Canada, okay? Who knows? The interest rates, are they going to stay high like they are in the U.S. The 10-year U.S. bond is 4.5 or about that. So that’s high, right? So is this going to stay. Mr. Trump wants interest rates to come down. But so far, it’s not happening, right? So all of this is creating a lot of issues and not knowing where we’re going. But to me, it’s foggy, but it’s going to clear up. It’s going to clear up. I think it’s going to clear up in the summer, and then we know the rules and then we’ll just adjust.

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

Alain Bedard: Pleasure, Cameron.

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

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

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