Earnings Call: Q1 2019

Apr 24, 2019

Earnings release

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's First Quarter 2019 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. Instructions for entering the queue will be provided at that time. Before turning 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. Lastly, I would like to remind everyone that this conference call is being recorded on Wednesday, April 24, 2019. I will now turn the call over to Alan Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir. Well, thank you, and good morning, and thank you, operator, and thank you, everyone, for joining the call. Yesterday, we completed our Annual Meeting and released our Q1 results after the close of trading. If you need a copy of the release, please visit the Investors section of our website. This year is off to a strong start for TFI. And our first quarter results reflects our unwavering commitment to execution of the basic fundamentals of our business, so that we can drive strong and consistent free cash flow regardless of the economic cycle. We know that you the investors appreciate the tangible nature of free cash flow and we value the flexibility it provides in optimizing our approach to the business. During the Q1, we stayed true to our goal of creating and unlocking shareholder value and whenever possible, returning excess capital to our shareholder. Throughout the quarter, our team saw operating efficiencies, we pursued an asset light business model, we maintained our strong balance sheet and we saw accretive business acquisition in a highly disciplined manner, completing 3 during the quarter. This will remain our approach throughout the year with the aim of generating not just growth, but profitable growth, all in the interest of creating shareholder value. With that, let's have a look at our Q1 results. I should inform everyone that we've adopted the new accounting standard under IFRS 16. And as a result, certain numbers I'm going to discuss are not directly compatible with past results. Our total revenue grew 3% year over year to $1,200,000,000 and that's our highest revenue ever for the Q1. As you know, we're focused on profitability, not just top line growth. So more important to us is that our operating income was up 41 percent to $106,000,000 Similarly, our adjusted EPS on a diluted basis was up 40% to CAD0.77 Another focus of ours is our net cash from operating activity because of the flexibility it provides us and it's close tied to creating shareholder value. You'll recall that last year in 2018, we produced record net cash from operating activities of more than $500,000,000 For the Q1, our net cash from operating activity was CAD161 1,000,000, up 170 percent over the year ago and another record for TFI during the Q1. In addition, our free cash flow reached BRL 143,000,000, up 172% and also a Q1 record. The growth in our net cash from operating activities and free cash flow was driven by a stronger operating performance as well as in part by the impact of our adoption of our IFRS 16. The detailed impacts are available in our Q1 financial statement published yesterday. As you can tell, our overall results suggest that 2019 is off to a strong start and that of course is due to the performance of our forward reportable segment, all of which saw year over year increases in operating income. Let's have a look at each segment, starting with our P and C, which represents 14% of total segment revenue. Our revenue before fuel surcharge grew slightly to $147,000,000 Operating income was $21,000,000 relative to RMB21.6 million a year earlier and the operating margin was RMB14.3 versus RMB14.4 in the corresponding prior period. Volume as well as inclement weather were challenging. But as I mentioned earlier, regardless of the environment, our focus remain unchanged. We're committed to deploying cutting edge technology, optimizing the business mix and asset utilization and leveraging our strong network to capitalize on e commerce growth opportunities. Next is our LTL, which represents 19% of total segment revenue. Our revenue before fuel surcharge was also up just slightly to $208,000,000 However, our operating income jumped more than 2 fold to $28,000,000 and our operating margin was also expanded significantly to CAD13.3.5.6 a year earlier. This was driven by strong operating performance as well as a $9,400,000 gain from the sales of 1 property. We also saw a 5.7% increase in our revenue per 100weight, excluding fuel surcharge, as we continue to focus on the quality of our freight. Turning to our Truckload segment, which represents 40% of revenue. Our revenue before fuel surcharge was up 7% to BRL 527,000,000. Operating income of BRL 51,000,000 increased significantly compared to the BRL 36,000,000 in the corresponding prior year period, as did our operating margin, which jumped to 9.6 percent relative to 7.4 percent a year earlier for an increase of 220 basis points. Looking at our adjusted operating ratio, we achieved 84 for our Canadian truckload, 88.4 for our Specialty TL and $92,000,000 for our US TL. We remain cost conscious, continually looking to reduce expenses and at the same time, improving the efficiency and profitability of a modern fleet and network of independent contractors. Next, let's discuss logistics and last mile, which represent 19% of total segment revenue. Our new before fuel surcharge was R224 $1,000,000 relative to R230 $1,000,000 in the prior year Q1. This quarter, our Canadian operations generally improved earnings, while our U. S. Was a bit weaker. As a result, on a consolidated basis, our operating income grew 1% to R15 1,000,000. In terms of capital allocation, during the quarter, we returned $117,000,000 to shareholders by way of $21,000,000 of dividends, dollars 97,000,000 of share buyback. We also invested BRL103 1,000,000 in business acquisition. Looking forward, we intend to continue to buy back shares as well as execute on attractive acquisition opportunity in a disciplined manner, extending our long track record in that regard. Our outlook for CapEx, excluding real estate, is revised down to EUR 200,000,000 to EUR 200,500,000. Well, thank you for your time this morning. We appreciate your interest in TFI. And with that, we can now open the call for questions. Thank And your first question here comes from Jason Seidl from Cowen and Company. Please go ahead. Your line is open. Hey, Elena. Thank you for taking the question. This is Adam on for Jason here. I guess just first I want to ask you about recent TL pricing trends for your U. S.-based truckload. What have recent contract renewals looked like? What kind of trends are you seeing there in terms of contract renewals for TL? That's a very good question, Adam. I mean, what we're seeing so far is that we're still able to pass on adjusting our price up 3% to 5% to 6%. For sure, the market is a little bit different versus 2018, okay? But us, we come from a long way. If you remember, when we bought CFI, we were really, really far from where we should have been on quality of revenue. What we're seeing now, okay, is a little bit of fog. Right now, because of weather, seasonal is still not really strong. In Canada, it's not strong at all. I mean, we haven't seen it because of weather. In the U. S, in the North, still not available. And in the South, we're just starting. So this is why there's a little bit of pressure on volume. But so far, everything, every contract that we're renewing is still an opportunity to improve the quality of revenue. Got it. Thank you for that. Let me be a quick follow-up here. I wanted to also ask about Specialty TL. I know it's a focus for you guys. What does the M and A market look like for Specialty TL? And I know with a peer of yours, a Texas based peer of yours kind of removing themselves from the M and A market at the time at the moment, Are you able to take advantage of that and make more acquisitions? And just in general, what does the specialty TL M and A market look like for you guys? Well, for sure, Adam, that's an area of growth for us. We did 2 early in the year. Now it's time for us to really digest the acquisition that we've done. They're not big. I mean, we're adding about $20,000,000 of USD EBITDA with those 2 acquisitions. So it's really a base for us to keep on growing. So probably, you won't see us really active on the M and A side in the U. S, special TTL, at least for the next 6 months. But for sure, we have lots of opportunity and lots of opportunity. And for sure, on the M and A, we could do way more, okay? But it's just that you've got to do it in the disciplined manner, okay? It's easy to buy. Everybody with money can buy. But what do you do when you buy the company? That's the important thing. And this is why our focus at TFI has always been to buy at the right price and also to execute, okay, all the synergies after you buy the company, right? Got it. Thank you for the time. I appreciate it. Okay, Adam. Take care. Bye. And your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Your line is open. Thanks very much. Good morning. Good morning, Jeremy. Just maybe a couple of questions on guidance. You mentioned the updated CapEx number for the full year. I'm wondering if you can maybe just talk about if there's any changes to your EPS expectations for the full year. You made a couple of deals, I guess, subsequent to that. And the previous number we had was $3.80 to $3.90 Is there any change to that number? Well, you know what, Kevin, we've always been very conservative and under promise and overdelivered. So we're still sticking to our $3.80 to $3.90 in terms of EPS for 2019 so far. Let's see what happened in Q2. And then probably, we may update that. And for sure, the possibility of us going on the $4 is reasonable. But for the time being, as of today, I mean, we're still staying at about the $380,000,000 to $390,000,000 Okay. Fair enough. And on I don't know if you have any comments around our free cash flow was quite strong in Q1. I mean, always have a good strong free cash flow from TFI, but any expectations for the full year? Well, we've said it. I mean, on that regard, we've lowered a little bit of CapEx for the year 2019. And this relates really to the fact that not really understanding pretty well, okay, the impact of IFRS 16. So late or I mean like in the summer of 2018, we made the decision to really replace all the leased trucks that we have, mostly in Canada or in our specialty TL or TL with a truck that we're buying. So after really looking at the IFRS thing there, right now, I mean, there's no incentive for us, okay? It's only a tax incentive. So this is what we'll do it slowly. So this is why we brought back our CapEx at the level of $200,000,000 to $220,000,000 That being said, okay, if you look at our free cash flow, for sure, we should be flying in that 4, 450 neighborhood for 2019. Now Q1 was exceptionally strong, okay, because we did a much better job in terms of collecting our ARs and controlling the way we pay our payables and all that. So the guys did our DSO went down a day, okay? So a day is just a day for TFI is $15,000,000 right? Because our guys are more focused even more, okay, on collecting. Our CFI guys in the U. S. Have done a fantastic job of bringing down, okay, their DSO. We are completely 100% in control over there. We still have lots of work to do with our TCA and our TFM in the U. S. So 4 to 4.50, I think, is a reasonable target for us for 'nineteen. Okay. No, that's great. Maybe just finally for me, just wonder if you can maybe comment a little bit about the recent BeavEx acquisition or I guess it hasn't quite closed yet. But I mean, this looks very interesting. I know it's not huge, but it looks like it'd be a really nice fit with your existing last mile operation in the U. S. So maybe you can comment a bit more about what that brings to you and particularly what kind of profitability because it does look like coming out of Chapter 11, this is probably going to be immediately fairly profitable business. Well, absolutely, Kevin. This is a fantastic deal for many reasons. Number 1 is that they'll be banks because they're under the protection of the court. These guys were not making any money. So it was a nuisance for us in the market. And this is why if you look at the profitability of our U. S. Operations, our Canadian operation, I mean, U. S. Is lagging Canada. And one of the reason is because of those guys like BeavEx, a problem. So that problem disappears. So that's number 1. Number 2 is that we're adding about $100,000,000 of business into our network and we're adding only about 7 locations. So think about the improvement of density in all of the of our last mile network in the U. S. This is going to be fantastic. And if you exclude the overall OP, which you need the overall OP to do the work, okay, So you're left with about 25% gross margin with today's rate, which is about 5 points under what we do us in the U. S. So there's potential of improving rates there. But more importantly is that the overhead that we're adding is very, very limited, right? Seven terminals with rent, okay, a little bit of executive management and all that. So it's going to turn out to be a fantastic transaction like when I bought Metrec in 2004, like when we bought CF in 2,005. This is going to be highly accretive to our U. S. Last mile operation. No doubt about that. Okay. And then I mean, obviously, this is maybe a bit of a unique situation, but are there any other, I guess, other last mile type operators in the U. S. That maybe also be struggling that might be of interest to you? Well, yes, there's a few, okay. But Cameron is one of the on the M and A side, Cameron, you've got to be a very patient guy. We were patient with VIVEX. The only place I'm not patient is the bottom line improvement. So there you can be patient. But on M and A, you've got to be patient. So you've got to pick up the fruit when it's available and reasonable in terms of price. So yes, there's a few more, okay. And the last mile, we look at other opportunities before the end of the year. I said 2019 is not going to be a year for us of a big whale, a big transaction. But on the last mile, we're doing BeavEx. We may do more. Okay, great. That's all I had. Thanks very much. Thank you, Cameron. Your next question comes from Brad Delco with Stephens. Please go ahead. Your line is open. Hey, Lane. Good morning. Good morning, Brad. Lane, good job on results. Certainly better than what we were all expecting. And I think we were all pretty terrified of the impact weather may have on margins. But margins did well. And so I guess could you give us some color on what some of your expectations are for margins in each of your business segments going forward? I mean, how much opportunity do we have to continue to see the types of improvements that we saw here in the Q1 on a year over year basis? Yes. Well, it's a very good question, Brad. So I was with Greg Orr, the guy that leads our USPL and we still have lots of opportunity in terms of cost, in terms of improvement, in terms of saving both CFI and even more TCA. So if market conditions remain the same and for sure, you're right, Q1, we're not really talking about weather that much, but Q1 really affected us in terms of the weather. But that being said, I mean, we still have lots of opportunity. If market stays about the same on the USTL, okay, to bring our ore down from, let's say, a 92, 93 global ATCA, CFI into a sub-ninety percent over the next 12 to 18 months. Like I said to Greg, I mean, the guys have done a fantastic job at CFI. We're lagging a little bit at TCA. So this is where our focus is really TCA. We've made some changes over there. There's more changes to come. And the focus is really to keep bringing the cost down because like we always say, the Tiger is the last one to survive in the jungle. On the Canadian side, our Canadian truckload guys are doing a fantastic job. Our specialty truckload, Steve Brookshaw and his team, they have lots of work to do there because we made so many acquisitions, 6 or 7 of them in Ontario, a little bit in Quebec, that and some in the U. S, 2 in the U. S. So the guys have probably another 6 to 12 months to bring those acquisition into the level what we do at TFI in terms of profitability. So if you look at the OR in Q1, now take into consideration that specialty truckload in Canada in Q1, you got lots of equipment that's parked. You don't haul a lot of cement in Q1, okay? Q1 this year, we did haul a lot of salt because of weather. I mean, weather was bad, but I don't really understand why we didn't hold that much salt, but we did not. So this is why Q1 is never the reflection of what we do, but we keep on working. So still lots of potential there. On the LTL side, I mean, still lots to do there, still lots to do. We've improved big time, but it's still we have a lot of good work to do with Bob McGonigal, Rick Ash here this week. We see a lot of opportunity there. On the Last Mile side, I mean, the Canadian guys are doing a fantastic job. On the U. S. Side, this BeavEx thing is going to be like a shot in the arm, where it's going to really help us drive density, get rid of a nuisance and also be in a position to bring more density to our terminal network, which it's always really good. So going back to your question, we're busy. We've got lots to do, Jason, lots to do. So it sounds like you can see improvement across the board. Yes. And then maybe as a follow-up, On the LTL side, just curious as it relates to April, has there been any difference in activity, business activity, freight volumes in your LTL business versus truckload? We've just been hearing that April has snapped back a little bit because of industrial activity. I'm curious if you're seeing a difference between those trends in your truckload versus your LTL business. No. No, not at all, Brad. It's consistent. The only thing we're not seeing is all the seasonal stuff in Canada. It's really late. In Toronto, this morning, it's about 40 degrees. So even our waste all in business is slow because it's still not it's like the spring is still not here, okay? Got you. So we're all just sort of hoping that once weather warms up, we'll see a little bit of a spring lift to freight volumes? Normally, it should. Yes. Yes. Okay. All right, Alain. I'll leave it there. Thanks for the time. Okay. Thank you, Brad. Your next question comes from Gianluca Tucci with Echelon Wealth Partners. Please go ahead. Your line is open. Hi, Alain. Good morning. Good morning. I have a question as it pertains to e commerce. So how much of your business in Q1 was derived from e commerce? And what was the growth rate on that? Yes. Our e commerce business is about $100,000,000 a quarter today. Now what happened year over year, if you look at our e commerce in Canada, we made a decision late in 2018 to we have the largest e tailer in North America. We're doing business with these guys in cities like Vancouver and Toronto with an employee model. They've asked us to go into that direction. We tried it and it was a disaster. It was just a failure. So this is why if you look at our revenue year over year, we're replacing that business with business coming from other customers. So with this largest e tailer, now we're down to just servicing for them basically the small market like Victoria, like Regina or Saskatoon, the smaller market. We're not in the big market like the Toronto, Montreal, Vancouver market for these guys. So our e commerce for sure is growing. That's one of the reasons our guys either last mile or next day on the P and C side, it's expensive to service e commerce because it's always one delivery per stop. I mean, you got one package, one carton, no more than that. Whereas B2B, the average would be like maybe 1.8 on average, okay? So it's a little bit more expensive to service and we're addressing that now. This is why we're working on our technology, we're working on our sorting equipment. I think as I said on the call previously or previous calls, we're investing a lot of dollars in Calgary into a new sorting system. Once we're done with Calgary, we're going to Edmonton and then probably back to Toronto in 2 years, 3 years to upgrade our facility in Toronto. So e commerce, there's no question about it. It's growing within TFI and we're really focused at that. Our last mile guys, same story. I mean, the guys are doing a great job there. But if you want TFI, TFI is not going to work for 0 profit. I mean, some guys are doing it to get big and with volume, okay? And hopefully, one day make money. I mean, us, we're not in the same philosophy. You got to make money today, not in 10 years. So that's our approach. No, that's excellent color. Thanks, Elaine. And then just I'll follow-up with asking on an update for the shortage of truck drivers in the U. S. Can you comment on that? Yes. Well, truck driver has always been an issue in the U. S. We're doing a good job. I mean, we're seeding more trucks today. Our turnover is a little bit improved. We're doing a lot of stuff to make sure that we reduce the turnover because the turnover is just a killer. So it's still an issue, and it will probably remain an issue. But that's one side of the coin. The other side of the coin is that unemployment is really, really low in the U. S. So there's not that many guys looking for a job to be a truck driver. But that also creates an opportunity. If you're smart, okay, and you sit down with the customer and you say, well, I'm sorry. I mean, I can't buy a truck, I can't find a driver and I've got demand. So I have to move rates to a level where I can maybe attract more guys, right? So this is what happened in 'eighteen is that you saw rates moving up, okay, in the U. S. Now because of a little bit of weather issue, some consumer were sitting on the sideline, consumer confidence was down for a few months in the U. S, but it's up big time in February. So with the weather, the consumer confidence, we should see more activity. So the demand for drivers will stay. Now the ELD in Canada, they're still supposed to be on track for the end of the year. So that will put pressure on the Canadian side as well. But to me, pressure on driver, it's tough to find a driver. To me, we have to work this as an opportunity, not a handicap. Your next question comes from Nav Malik with Industrial Alliance. Please go ahead. Your line is open. Yes. Thank you. Good morning. Just want to ask on the logistics last mile segment. So you noted that the U. S. Side was a bit weaker or faced some headwinds. Was that competitive pressures? Or maybe you could elaborate a bit on what you're seeing in the U. S. On that segment? Yes. So our U. S. Operation, I mean, we have to make some changes there. We're not growing in terms of revenue in the U. S. It's been difficult for us. Like you said, it's probably like the competition is more aggressive over them. So this is why with Scott and his team, we're really focused in building a much or better or stronger sales force over there. Now BeavEx, for sure, it can help. It's going to bring about $100,000,000 revenue. If you look at our gross margin on the U. S. Side, it's comparable to the Canadian one. So it's not an issue of cost, okay. It's a little bit of an issue of overhead because if the revenues are growing, it goes down a bit, then you have a problem with the overhead. But that will be collected with the BeavEx acquisition. So our focus is really with Scott and his team there to rebuild a team of sales that's going to bring more opportunities for us in the future. And with that in mind, with the gross margin to be similar to the one in Canada, there's no reason why we're single digit EBIT in the U. S. And we're double digit EBIT in Canada. There's no reason for that. Okay. So you're really focused in that segment to grow revenue on that in the U. S. Side? Right. And BeavEx, for sure, it's really a shot in the arm, okay? But that being said, Scott has got to build a real solid sales team there in the U. S. We're weak. We're weak on sales. Yes. And then just kind of on that BeavEx acquisition again, I know you already touched on it, but in terms of it's like about $100,000,000 of revenue that you're adding. And I guess, I mean, it's coming out of bankruptcy, of course. But I mean, I guess you could see margins in line with your other businesses in that segment or in that sense, like you could look at maybe being around $10 plus 1,000,000 in terms of operating income? Or what are your thoughts as to where you could drive that from a profitability standpoint? Well, that's a very good question. Now first of all, what I have to tell you is this, is that we got to pick and choose customers, right? So we're not that stupid. So we picked the one that made sense. So all the dogs, we said, hey, call somebody else. So this is why, like I said earlier, now we can always be sure 100% until we get it, okay. But we believe that the gross margin will be like in the 25% neighborhood. And that means that for sure the contribution to the bottom line, is going to be probably like 10 plus. It's just global because we're not adding a lot of overhead. So if you take 25% gross margin and you're not adding a lot of overhead, if you're just doing 10, bottom line is because you're not that good. Maybe you could do 10 to 15. Yes. Okay. So lots of, I guess, upside in terms of profitability contribution from that transaction? Okay. And then just lastly for me, just on the acquisition side. I'm wondering if you could maybe talk about kind of vendor expectations in this environment, like where are vendors relative to you guys? Are you seeing willingness to do transactions? Or is it more that coming off of a strong year that maybe vendors have a bit lofty expectations for their businesses. Maybe you could just comment on that side of the M and A strategy. Well, like I said earlier, the way we do M and A is, first, quality is patient. So number 1 is that we are patient. We're not in a rush. We don't have to do deals. We do deals where it makes sense. So all the deals that we've done, okay, is based on a reasonable pricing. So for instance, somebody calls us and ask us for like 8 times EBITDA because we were PE, we bought it for 8, we want to sell it for 8 at least. So keep it. We're not buying things at 8. I mean, we don't even trade at 8 ourselves EBITDA. So I mean, this is why for us, if it fits, if the price is right, okay, yes, we'll look at it. So and like I said earlier, we have lots of I mean, we could we have one guy, Jason in Chicago on new M and A team. I mean, that guy could be busy like crazy. We could add more people to the team, but we have to digest what we do, 1st of all. And it's got to fit. It's got to fit with TFI. So, no, in terms of pricing, we buy at reasonable and fair price. Don't forget, we work for our shareholders. We don't work for the banks or for the we work for the shareholder. Yes, good to hear. Perfect. Thanks, Ale. Thank you. Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead. Your line is open. Hey, good morning, Alain. Congratulations for the very strong start so far. Yes. Thank you, Benoit. Yes. And just looking at the winter was obviously not only challenging for railroads, but I assume also for the trucking. Are there any tidbits you could discuss about how the costs were superior to a typical Q1 either in terms of accident and insurance costs? And would you be able to quantify some metrics to qualify the how harsh was the winter this year? Well, that's a good question, Benoit. We have not done that, okay. But one thing is for sure is this winter has been really difficult. So we have good winters. We have tough winters. So this one was a difficult one because of the cold, because of the ice, the ice is a killer because of the storm, because of the number of trucks, even the wind, even as when I was talking to Greg the other day, we had 15 trucks out of service just because of wind, too much wind. It's stupid, 15 trucks out of 2,000 is not much, but this is so unusual that we have in April in the U. S. Trucks out of service because of wind, right? So it's been difficult now. If you ask me, are you talking $5,000,000 $10,000,000 I mean, for sure, it's in 1,000,000 of dollars. We don't really look at that because we don't like excuses. So it's part of the game. So you have good winters, you have difficult winters, you have cycles on the activity, the economic activity that's like 2018 was great, then 2019 maybe it's going to be good, but maybe not as good. So we don't play this excuse game. Also our focus is bottom line, bottom line. Okay, don't give me an excuse of the weather. Do better. Do better than last year. And but we did not quantify that, Benoit. Okay. That's still a very good color, Alain. And just to come back on BeavEx, you mentioned about the 10% to 15% impact on the bottom line. Were you referring to net margin or EBIT margin, Alain? Yes, yes, yes. Because don't forget, this is $100,000,000 So if you do the math of just 25% gross margin, which is not great, which is not fantastic, but which is not bad, because don't forget, we got to choose the customer. So a guy with 12% gross margin, we say, you know what, call somebody else. We don't want you. So we did that with some customers. No, no, forget about it. Call somebody else. So if you take 25 gross margin and you add minimal amount of overhead, you should be bottom line a $10,000,000 to $15,000,000 guy unless you're very, very lazy, right? Okay. That's very good. So I assume that it's after depreciation, amortization. So it's probably more kind of a net margin, I would assume. Yes, it's not because there's no depreciation, there's no goodwill, there's nothing, there's no intangible because we're buying the company for $7,200,000 including working cap. Yes. Okay. Okay. That's perfect. Is there do you feel, Alain, there's an opportunity to recapture a portion of the other US100 million dollars that was part of BeavEx or that business is kind of not profitable or not in the same locations that are interesting to TFI? Well, yes, that's a good point. I mean, we chose 7 locations. There are some locations that were really small. The customer base was okay, but it's so small like $1,000,000 And we said, no, we don't want a terminal with $1,000,000 revenue. So this is not going to be attainable for us. Maybe in the other customers, they'll try to find another kind of BeavEx kind of guy. Maybe they'll find 1, maybe they won't find 1, then they will talk to us again. But we told them, listen, with these kinds of rates, we're not there. Call somebody else. Okay. And DSO, Alain, when we look at your DSO, you mentioned that it improved about one day, dollars 50,000,000 in pack. Are there a lot of are there still a lot of opportunities to improve your DSO? Is there any how many days do you think you could improve longer term? Is there still a lot of room in terms of DSO opportunity? Well, for sure, like I said earlier, I mean, we have 2 of our U. S. Operations that needs to improve our PCA and our last mile guys and we're taking action on that. CFI was not doing a great job when we bought the company a year ago. It was a mick knack mess. Today, they're really on top of the situation. They're doing a fantastic job. So U. S, those two divisions need to improve. In Canada, we have a little bit, but not so much in Canada. So I think that it's still doable that we could bring that down another day over the course of the next year. Lots of work. And don't forget, we get also a lot of pushback from customers that, oh, TFI, you're big, give me 90 days credit. Well, no, I can't do that. You're paying the small guy 7 days. You want me 90 days. Why? Oh, because you're big. No. No, because I got to pay my guys every day, every week. I got to pay my fuel every week. I'm not a bank. I'm a trucker. Okay. Okay. That's a good point, Alain. And just in terms of share buyback, you've been quite active. Obviously, evaluation was interesting. It seems that you still have room to complete your share buyback, although there is much less opportunity given your you've been very active. So and now if you look at the share count, it's below €85,000,000 So any thoughts on the remaining share buyback opportunity and whether you could enlarge the NCIB and try to be even more proactive on this side? Well, I think that if the stock remains at the level it's at today, like the $40 mark 42 something or not, I mean, we'll be back. I mean, we still are allowed to buy back about 2,000,000 shares and in our plan is we're buying back those 2,000,000 shares. So we want to bring the share count down like maybe 83 until October. And then in October, we'll see Like I said, excuse me, earlier, there's no big transaction for TFI in 2019. Nothing big. Just the small deals that we've done so far. So with the kind of cash that we're going to be generating and when you trade at double digit free cash flow on the stock price, I mean, come on. So I guess my guy is saying, buy more, buy more, and that's what we'll do. Okay. That's perfect. That's perfect. Okay. Thank you very much, Alain, for the time. Thank you, Benoit. Your next question comes from David Ross with Stifel. Please go ahead. Your line is open. Good morning, Elaine. This is Matt Mylesk on for Dave. Good morning. Congrats. Good morning. Congrats on the quarter and great start to the year. Just quick sort of housekeeping item here. On the step up in D and A and finance expenses in the quarter resulting from the change in lease accounting, We just wanted to sort of confirm that these expenses are expected to recur at similar levels going forward into the next year? Might there be a change in trajectory to think about? A little bit, a little bit, okay. Because what we're looking at is on the real estate side, I've talked about a little bit on the truck side. So truck will keep on buying more instead versus leasing, but slowly over the next 3, 4, 5 years. On the real estate side, for sure, the way this IFRS 16 works, I'm not really happy with the way it works. It doesn't make any sense. So for sure, there may be a little bit of change in terms of we've been working hard with our guys to say, we can't afford to have more space. We can't, we can't. So we've been doing a lot of that the last year and a half to 2 years. And now the pressure is going to be even more into reducing our footprint in Canada, okay, on our ILTL, on our P and C. So you should see that, okay, asset or depreciation of that asset going down. There also may be some sites where we have the opportunity to buy them back, okay, and because of the way the accounting is done on IFRS, doesn't reflect the reality, there may be some sites in Canada that we could take the opportunity to buy them back at a fair reasonable price. But that being said, you should see the trend going down, okay, in terms of that depreciation or finance charge because of IFRS 16 over the next 2, 3, 4 years because we want to reduce that as much as we can. Great. Thanks a lot. You're welcome. Your next question comes from Kevin Chiang with CIDC. Please go ahead. Your line is open. Hi. Good morning and thanks for taking my questions. Just 2 for me. 1, LTL margins in Q1 were extremely strong. And I noted that you talked about some opportunities you had with decreasing your subcontracting costs. Just wondering if you could elaborate what happened there. And does this create a new run rate for margins kind of as I think of the seasonality of LTL margins from Q1 into the rest of the year? It's about 300 to 400 basis points higher versus last year, backing out asset sales and stuff like that? Yes. Well, the big story in LTL besides the operation that we had last year. So what we've done is, as an example, we had Overland, TST Overland and Kingsley in Q1 of 2018. In Q1 of 2019, we have only Overland. So we've combined those 2, okay? And we got rid of a lot of costs, okay, by combining those 2. We also got rid of some business that don't fit, low margin business. And the net effect of the combination of K-zero-eight and Overland in Q1, okay, is 3 millimeters bottom line. That's just an example. Another example of the improvement that came in Q1 is the fact that we bought Normandin Last year, we bought it in April. So in 2018 Q1 Normandin was not there. So now we've added the Normandin business and Normandin is a highly profitable, very well managed company, okay? So if you look at our top line, you say, well, I mean, you did that, but your top line is only up just a few $1,000,000 Yes, true. Because we added Normandin, but at the same time, because of the combination of Kings Way and Overland, we got rid of a lot of freight that did not fit the network, because TFI is all about bottom line. It's not about top line. And how can we get more bottom line? Well, we have to share this customer because we're losing money with this guy. Now how come? No, we don't want that guy. So the same story happened with NFF. We bought NFF about 18 months ago and we keep on cleaning NFF. So since we bought NFF, we got rid of $20,000,000 of business. But instead of losing $8,000,000 or $6,000,000 or $8,000,000 Wow! We make money now. We make double digit EBIT. So that's but we reduce our footprint. We reduce the rent. We reduce a lot of stuff. So going back to your earlier to your question is yes, we will keep improving our LTL. Now 300 basis points, can we do another 300 basis points in Q2, 3, 4, 5? We'll have to see. But for sure, can we improve Q2 2019 versus 2018? Absolutely, I'm convinced. I mean, the guys are focused. The other thing also that changed in ILTL is, we have a lot of good guys that have been with the company for a long time that retired. 3, 3 of our top executives in FTL retired, Bydron, Clark and TST. Right. No, that's super helpful. And maybe just lastly for me, I appreciate you being conservative on your EPS guidance, but you kind of laid out a lot of self help levers, where margins can go within your U. S. Operations. You've made 4 acquisitions here, which in rough math could be another $0.15 to $0.20 of EPS. I think your $3.80 to $3.90 EPS didn't include any of these acquisitions. Just wondering why you wouldn't be able to lift that guide just on the acquisitions alone? Are you is there anything that you're seeing that's causing you any worry, whether it's noise around weather, issues around wage inflation? Just wondering if there's anything that maybe gives you a little bit more pause today than when we had our last when you had your last earnings call a few months ago? This is David Saperstein. I think Mr. Bedard have cut off. Kevin, can you hear me? Yes, I can hear you, Dave. Okay. Hi, Kevin. No, no. It's just with the new accounting standards, it's IFRS 16. We wanted to put these numbers out there, let them speak for themselves, let them be digested. And then as Mr. Bedard said earlier in the call, we can evaluate as the year progresses. Okay. No, that's super helpful. Thank you very much. Congrats on a good quarter. Thank you. The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead. Your line is open. Hey, guys. This is James on for Walter here. I just have a question on the M and A strategy. I know you guys mentioned that there wouldn't be any acquisitions in 2019. But if you look out to 2020, would your focus be more on U. S. Or Canadian markets? And with regards to strategy, are you guys looking to buy strong businesses and then grow them organically or more so buy companies out with poor operations and try to turn them around? Yes. Hi there. Good question. Our focus is always on making acquisitions that make us money, right? Because we're always thinking about capital allocation just from the perspective of, hey, where's the best return? So we're thinking about share buybacks, we're thinking about investing in our existing operations and we're thinking about M and A. So to your question, in Canada, we are the natural buyer for businesses across the scope of our activities. And so we'll look at opportunities throughout our 4 segments. And when they make sense, when they fit, when we can get a good financial return before any improvements, then we'll do those deals. And then there's always improvements, right? There's always improvements around procurement costs, a lot cheaper than smaller independent businesses do, as well as on the facility side. U. S, we've been active on both sides of the border so far this year. That will continue. In the U. S, we're a little bit more focused from a sector perspective. And you can see that in what we've done so far this year. We've been saying for a while now that in the U. S, we're really interested in specialized truckload. So we did 2 deals in the U. S. In specialized truckload. We need to digest those now. We've also been saying for a while that we've been interested in parcel. We've now got VevEx that's going to close shortly. And we'll continue to look in that space as well. Thank you. And on the driver shortage, there was a question on the driver shortage in the American market. Are you guys seeing anything similar in Canada? And do you see any impact from ELDs being implemented? And do you guys think that you'll be able to transition this into any opportunities for the business? Yes, that's a great question. So in Canada, the driver situation is more stable. It's more stable for a number of reasons. We were able to provide leadership in the market. We're able to the drivers are generally home more. We're able to provide kind of steady wage increases year after year. It's a different dynamic. And so our turnover is not as much a problem in Canada as it is in the U. S. ELDs is interesting. And this is one where you're right, ELDs are coming into play in Canada. And there's no question that ELDs in the U. S. Had a very, very important impact on safety, which we're all very grateful for. That also had an impact on capacity because it leveled playing field between all players, those that use formerly use paper logs and those that have been using ALVs all along. And we expect a similar sort of effect in Canada. And certainly, among the publicly listed companies out there, we are the most exposed to ELDs and the impacts of that in Canada. Great. Thank you. And then that's it for me. Your next question comes from Elena Yontes with BMO Capital Markets. Please go ahead. Your line is open. Thank you. So they've been on back. I mean, you know what the technology is on back. I don't know if you guys can hear me now? Absolutely. So I think technology, I mean, I lost the line. So thank you, David. So if I may, I'll take over. Okay. This is Alana from BMO Capital Markets for Fady Shulam. I just had a question regarding the acquisitions that have been made so far this quarter. I believe someone mentioned earlier, but I just wanted to confirm that the guidance is that that does not include the acquisitions, correct? Well, that's normally what we do. Part of our plans is that we do early late in last year, and we never include any acquisition in our plan. I said on the call that the guidance on EPS remains the same because we're very conservative. I didn't say that that does not include the M and A. So what we're saying is that the guidance stays the same even with the acquisition that we just made. So you say, well, you just added $20,000,000 in EBITDA, okay, U. S. So it should change, okay? But that's being very conservative. We'll say, for now, let's see what happens and then we'll revise, okay, guidance if necessary in Q2. Okay. Okay. That's great. And just more on the acquisitions. I'm just trying to understand the impact of the acquisitions on operating income. I'm just wondering if you could please comment on that. When you say acquisition, are you talking all the 3 acquisitions we've done so far? Is that what you're saying? Yes. But I guess is this the same story as the EPS if you expect no or how you expect these acquisitions so far in Q1 to reflect operating income? Well, if you look at the 3 acquisitions we've made, we've added about $30,000,000 in Canadian EBITDA. So EPS in terms of bottom line, this will add probably like maybe $0.10 And this is why I said, let's digest those acquisitions. Let's be conservative. We stay at $380,000,000 to $390,000,000 and then we'll review that probably in Q2. What we're saying today is we revised the CapEx down from about $20,000,000 $25,000,000 dollars And we're saying EPS stays the same for now. Like this BeavEx acquisition, for sure, it's going to improve EPS. But we're saying, guys, give us a quarter and then we'll come back. Okay. Okay. That's fair. And just one last question. I believe you mentioned earlier that the contract renewals for truckload pricing was up 3% to 6%. Did I get that right? Yes. Yes. Absolutely. We're still able to pass on excuse me, but we're still able to pass on pricing improvement in the U. S. Today. Yes, absolutely. Okay. And that 3% to 6%, that was for both the U. S. And Canadian truckload segments or is it just the U. S? No, it's just the I was just talking about the U. S. Okay, great. And that's it. Thank you so much for your time. Okay. Thank you. Your next question comes from Jason Seidl with Cowen and Company. Please go ahead. Your line is open. Hey, this is Adam on again. Thanks for taking the time for a quick follow-up here. I appreciate you guys squeezing me in. I just wanted to follow-up a little bit on just recent trends in April. I know it's only been a few weeks, but is there anything you guys are seeing in terms of your TL market that would give you guys a little bit of pause? Is that kind of part of the decision not to raise guidance? Just looking to see if there's anything that's been going on in the last few weeks in terms of contract TL that may be giving you guys a little bit of hesitation with the guidance? No, no, not at all. It's just a matter that we're very conservative. And we just don't want to play the very optimistic game of saying, oh, everything is going to be nice. What the only thing say is that what we're seeing is that the seasonal is late, okay? So normally seasonal in April should be ongoing. We're not seeing that in Canada yet. And this is, in our mind, is weather related. We know that the consumer confidence in February is up big time in the U. S. But seasonal we're just starting seasonal now in the South. The North was still not doing it. So this is why I was being very conservative I said, listen guys, let's do the BeavEx deal, which is going to close by the end of April. We've done those 2 deals. We've done all just April 1. So give us a quarter, okay? And then we'll probably be in a position to revise the guidance. And the only thing we're revising now is CapEx is down, okay? And we're still there to buy back the stock. That is clear. And we're not going to do anything major in terms of M and A. And let's see what happens with Q2. Got it. Thank you so much for the color. Appreciate it. Congrats again on the quarter. Thank you, Adam. And there are no further questions in queue at this time. I will turn the call back over to Alan Bedardin for any closing remarks. Okay. Well, thank you, operator, and thank you once again everyone for being part of today's call. You can rest assured that throughout 2019 and beyond, we at TFI will continue to seek opportunities to create value, unlock it for our investors and whenever possible, return excess capital to our shareholders. So thank you again. I look forward to speaking with you soon and have a good day. Thank you all. And ladies and gentlemen, this concludes today's conference call. You may now disconnect.