Earnings Call: Q2 2021

Jun 26, 2021

Earnings release

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Second Quarter 2021 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. Possible. Further instructions for entering the queue will be provided at that time. Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Also as a reminder, TFI changed its presentation currency at year end 2020 and all dollar amounts are in U. S. Dollars. Lastly, I would like to remind everyone that this conference call is being recorded on Monday, July 26, 2021. I will now turn the call over to Alain Badar, Chairman, President and Chief Executive Officer of DFI International. Please go ahead, sir. Well, thank you, operator, and thank you, everyone, for joining us this evening. So today, after the market closed, we released our Q2 2021 results. PFI International again generated very strong performance with each of our business segments demonstrating growth and enhanced profitability over the prior year. This strong performance reflects not only the strengthening economic landscape, but our own favorable positioning Over the past year, despite unprecedented global challenges, we remain focused on what we do best. We get it right on the fundamental details of the business, we look to maximize efficiencies and we seek strategic acquisition opportunities. This approach to the business, which we adhere to regardless of operating condition, is aimed at increasing returns on invested capital, optimizing our Free cash flow and growing our earnings per share in order to create long term shareholder value and return excess capital to shareholders whenever possible. Already, our recent acquisition of UPS Freight, now branded T Force Freight under the TFI umbrella is outperforming expectation. This strong performance benefited not only from pricing, but our own focus on freight that fits. In other words, the right freight for our network. As a reminder, this acquisition we view as one of the most strategic in our history, turning TFI International into a top 5 North American LTL carrier in addition to the leading position we hold in 7 of our other operating segments. Key force rate is already having a positive impact on our overall results, which I'll now review. During the Q2, our total revenue climbed to $1,800,000,000 more than doubling from approximately $800,000,000 the prior year and even on an organic basis reflecting very strong growth of 27%. Our growth has been driven by Powerful combination of both volumes and pricing and both B2B, the return of industrial demand and e commerce. However, as you know, at TFI, we're more interested in profitability than growth for SAIC's growth and are pleased to also report operating income just over $310,000,000 including a bargain purchase gain of $123,000,000 on the UPS Freight acquisition. Our EPS on a diluted basis was up 3 61 percent to $2.63 per share and our adjusted EPS on a diluted basis was up 89% to $1.44 Importantly, our net cash from continuing operating activity was up 78% to nearly €300,000,000 And we view this strong cash flow as strategically important, allowing us to invest in our business and seek Attractive external growth opportunities. It should also be noted that we are not adjusting these results for the transaction expense of $7,000,000 related to the acquisition of UPS Freight nor for the $5,900,000 mark to market loss on our cash Combined, these two items had a $0.10 impact on our reported diluted EPS, while in the prior year's Q2, our diluted EPS included a net $0.04 of one time expenses. With that, let's take a closer look and the operating performance of our business segment, all 4 of which helped drive our overall strong performance During the Q2, our P and C represents 9% of our total segment revenue and saw a 44% increase in revenue before fuel surcharge versus the year ago quarter. Operating income of $29,500,000 was up an even Stronger 80% with the operating margin jumping 4 10 basis points to 20.3%. This performance was driven by strengthening yield for B2C and B2B activity, both of which benefited TFI. Next, our LTL segment, now our largest at 39% of total segment revenue produced revenue before fuel surcharge of CAD625 1,000,000 relative to CAD114 1,000,000 a year earlier or excluding a CAD 4.81 2 months contribution from the newly acquired T Force Ray, up 24%. Our LTL operating income of CAD203 1,000,000 benefited from Previously mentioned bargain purchase gain of CAD 123 1,000,000 excluding the bargain purchase gain, operating income was CAD80 1,000,000 implying a margin of 12.8%. The strong growth of this segment came Despite the $9,700,000 reduction in the Canadian wage subsidy as our Canadian LTL business grew revenue before fuel surcharge 26% with an operating ratio of 77.9, while our newly formed U. S. LTL business generated revenue Truck fuel surcharge of $482,000,000 with an OR of $90,100,000 Next, Let's turn to our Truckload segment, which is now a smaller part of our business following the UPS Freight acquisition and representing 30% of total revenue and a 20% of operating income. Revenue before fuel surcharge of $482,000,000 was up a very healthy 42% year over year, While our operating income reached $63,000,000 up 24 percent despite a $9,900,000 reduction in the Canadian waste subsidy with an operating margin of 13% relative to 14.8% a year earlier. Taking a closer look, Our U. S.-based conventional truckload operation grew revenue before fuel surcharge 29% with an OR of 92.7 Canadian operation grew revenue before fuel surcharge 40% with an OR of 86.5. In addition, U. S. Truckload took on the UPS freight truckload operation, which waited a lot on our profitability. Specialized Swartal also performed very well with revenue before fuel surcharge up 55% as industrial markets rebounded and with excellent margin as well. Our OR for our specialized truckload was 82.6. Completing our business segment discussion, logistics represent 22% of total segment revenue and had a very strong quarter. Revenue before fuel surcharge more than doubled to $407,000,000 Our logistic operating income also more than doubled to $35,600,000 and our operating margin increased slightly to 8.7. Our logistics strength was driven by our same day package delivery business in U. S. In Canada and by the addition of T Force Worldwide. TFI International's Balance sheet remains very strong and the pillar of our strength, allowing us to execute our growth plans, both organically and through our disciplined acquisition strategy. During the quarter, we produced free cash flow of $268,000,000 that was up over 69% and we ended June with a leverage well below 2 times of our funded debt to EBITDA ratio. While turning to our updated guidance for the year, We feel confident in our outlook, knowing that regardless of economic condition, our ability to further optimize the recently acquired P4 straight operation is something we control. We expect earnings per share to be in the range of $4.50 Yes, dollars 4.50 to $4.60 up from our prior range of $3.80 to $4 We expect net CapEx to be in the range of $250,000,000 to $300,000,000 and we look for free cash flow of $550,000,000 to $575,000,000 above our previous range of $475,000,000 to 525,000,000 We also continue to expect our leverage defined as the funded debt to EBITDA ratio as calculated in accordance with our debt covenants and as set forth in our quarterly MD and A to remain below 2x the rest of the year. In closing, The year 2021 continues to be the strongest in our company's history following our listing on the New York Stock Exchange last year and more recently our pivotal Acquisition of UPS Freight. Our continued success stems from already adhering to our principle, including our focus on the fundamentals of the business to optimize profitability in our cash flow. Our ultimate aim is to create and unlock shareholder value, Well, thank you everyone for listening. And if you could now open the line operators, I'd be happy to take questions. And the follow-up in order to get to as many callers as possible. Your first question comes from the line of Ravi Shanker of Morgan Stanley. Thank you. Good evening. Alan, obviously, excellent LTL quarter and OR there relative to expectations. As you said, you're running ahead schedule. Can you help us understand how much of that was a quarterly seasonality OR and kind of How much you're really running ahead of your kind of short term and long term targets? And also, are you thinking of updating your targets on what the OR can actually be there? Thanks. Yes. Very good question. So you know what, Ravi, if we look at our Canadian LTL Quarter per quarter, I mean, we're very stable. I mean, we don't have much of this seasonal, okay, instability that we see right now at T Force Freight. So T Force Freight, best quarter is Q2, right? And worst quarter is Q1. And there's a lot of swing between, let's I'd say Q1 and Q2 and Q3 and Q4, which in our mind is not normal. So for sure, we'll be addressing that. Okay. So right now, we look like champions because we report an OR of 90 in Q2, Okay. And we know that there's some cyclicality over there at P Force rate that we're going to be working on. So if I look at, for instance, at November is a slow month for us in terms of profitability, December, January. And in our world of LTL, we never lose money, never lose money in a month. In the world of T Force Freight today, The experience, if you go back and look at every year, there's a few months in a year that the company was losing money. So that's for sure. That's something that we're going to be working on with the team. But I'm very happy to say that we have a fantastic collaboration With the team over there in Richmond, lead by Paul, I mean, it's really a great experience that we're having with these guys. And this is going to be a great success. This company with the team that's there is going to turn to be a great success. Now In terms of attending better OR than the 90 that we did, so what I can say on that, Ravi, is that No, I believe that within the next few quarters, maybe 3, 4, 5, 6 quarters, This company will be a sub-nine percent OR for sure. I mean, think about that. In our Q2 in Canada, in a terrible market compared to the U. S, When you say terrible, it's terrible. We ran a 78 award, right? In a market if you look at our statistic In our MD and A and the quality of revenue of our Canadian operation versus the quality of our revenue at T Force Freight today, Which will improve over time. I mean, we run 78. So to me, can we do better than 90? 6 months ago, when we did the acquisition, I said, guys, I think we could do 90 within the next few years. Now what I could say is that, guys, I think that we'll do better than 90 with the next few quarters, right? Very helpful. Thanks, Hans. Good. Your next question comes from the line of Tom Wadewitz of UBS. Your line is open. Great. Yes. I wanted to, Elaine, ask you about the just kind of tonnage and pricing trade off that you made And how you think about that evolving going forward that's specifically about T Force Freight. It's obviously Good market backdrop with the market so tight, but kind of how is how did you respond and how far along are you on the getting rid of the bad quality freight And pricing things up. Yes. Well, you know what, I mean, in terms of getting rid of the freight that does not fit, I mean, for sure, I mean, we're working really hard with the team over there. We can't haul a shipment with the revenue of less than $100 I mean, this is something that we are addressing. All the accessorial charge that were waived because of whatever reason, we're looking at that. So we're correcting a lot of issues where customers were probably Taking advantage of the company. So we're slowly correcting that. And at the same time, we're working on the cost. Now in terms of Growing the volume, okay. I would say that our volume will probably be steady during the course of the next 12 months, Because our goal number 1 is to haul only the freight that fits our mission. And our mission is to make money. We're not in the business of hauling freight just for the pleasure of hauling freight. So this is the next 12 months is Working on the cost, getting the new CapEx in, training our employees, okay, with the new technology, with the new trucks, Safer ways of driving a truck. I'll give you an example. When we bought the company, The trucks were running at 68 miles per hour. And then we did the study of our peers in the U. S. And we found out that everybody is at 65. So why run 68? Well, it's because nobody knows why. So we are working with the team there and we are adjusting the speed of our truck to 65 to be safer on the road. Now these are all the things. So to get back to your question in terms of growth volume, I don't see that much. I mean, we're going to be growing the profitability of the company by working on the cost and making sure that every piece of freight that we haul, We make money on it. So we're not in the business of paying Paul for Peter and then this is a loss leader, but we get this. No, no, no, no. That's not us. So I guess just to understand that a little bit better though, how much of the freight did you actually have a chance to touch in terms of pricing? I mean, I would assume that would have a meaningful effect on the kind of trajectory of OR. Did you touch half of it or A large portion of it? No, no. We haven't touched half a bit. I mean, we bought the company 2 months ago. So what we've been addressing is a sesorial, okay? We've been addressing appointment freight. We've been addressing, for instance, we have a customer whereby we have about The 400 trailers of freight every day for appointment. And this customer was paying a very cheap rate of $19 a day, Okay, after 5 days. So we've corrected that for $50 after 2 days. So and this customer is one of our largest customers. We had to adjust the rate to be fair. So if you ask me the question in terms of quality of revenue, we're just starting. I mean, we just No, we can't go. Now I have to say that Paul and the team there, okay, they had what they call the Phoenix plan where they've already Started before we bought the company to correct certain situation. Now us with us, we're just Trying to accelerate that. Now this is not going to be done over the next 2 months. I mean, this will take us probably more than a year to correct all these Issues that we have with the freight that does not fit, right? Right. Okay. So that 9 GLR Is done without too much work on the pricing, which seems to imply a lot of runway left. So if I understand you right? Yes. Yes. Okay. Thank you for the time, Alain. My pleasure. Your next question comes from the line of Scott Gru of Wolfe Research. So Just want to start with the guidance implies about $1.20 per quarter, You guys just did $1.44 with only 2 months of UPS rate. Is this the typical conservatism that we typically get from you? Or anything else you want us to else you want us to just be thinking about as we think about the back half of the year? Yes. But Scott, I mean, our motto at TFI is under promise To over deliver, you know that. I mean, we're conservative. We're not liberals. See? So I mean, what we want is to give what we think is attainable, okay, but attainable, but we'll try to do better than that, right? Okay, understood. And just want to just clarify a couple of things On the margin, so when you talk about sub-ninety within a few quarters, I assume you mean on an annualized basis And then also yes. Yes. Okay. And then maybe just some thoughts on the truckload, U. S. Truckload still at a 93% operating ratio, Not good. No, not good. Not good. But don't forget that our US TL that we got from our friends at UPS, We run 110 OR with this division. It's a disaster. I mean, it's just terrible. So Gregor, which is a very, very Great operator took on and we're working really hard on that. So you should see us starting to improve, Well, it will take us some time. I mean, there's lots of contracts because this is what we got from UPS is mostly dedicated truckload operation. So you're stuck with a contract. You're stuck with a deal that don't make sense. So it takes time to correct that. So our truckload operation will turn around, Okay. We'll improve, but that will take a little bit more time because what we got from this acquisition is a lot of garbage in terms of Contracts. But talking to Greg last week, he says, Alain, we're signing new deals with customer with sub-nine EORs We're going to do well. But for the this is like going back to 2017, Scott. When we bought our friend CMI, It took us 8 months to clean the mess. I mean, we bought it in November more than that. We bought it in November and finally, I think we cleaned up the mess In October, so like 11 months. So now, I mean, we've been running the company for 3 months. So it will take us some time, okay? But this is again, it's a small part of our business. And I think that The golden nugget of TFI today, the golden diamond that is not really polished because we just got it, okay, is T Force rate. We've got the team. We've got the market is helping us for sure. I mean, the market is tight. That's helped. I mean, it's Our timing is great for that to correct some certain situation. But we have a great team and we're going to spend a lot of Capital there to upgrade the facility, to upgrade the fleet, to train our people because For UPS, this division was very small. It was an orphan. For us, it's the most important division we have within TFI. So for sure, we're going to spend a lot of time and energy working with the team there to make things happen as fast as we can. I mean, Think about it. We were surprised, okay, that we could come up with Q2 with something like a 9 year war. Now Going back to the question of Ravi, for sure, there's cyclicality within T Force Freight. So Q2 is the best quarter. Normally, Q3 is not as good and Q4 is not as good as Q3 and Q1 is not great, but we're going to be working on that. Thank you for the time. Pleasure. Your next question comes from the line of Jack Atkins of Stephens, your line is open. Thanks for taking my question, Elaine. So I guess just back to the broader point around taking the freight that sits. You called out those lower dollar, I'm guessing smaller weight shipments as something that you're looking To really address, but are there other places within your network or portfolio businesses where that freight may fit? So Whether that's an asset based LTL or with the grounded freight pricing, can you talk about how you can still service those customers even if it's not with an asset based LTL? Yes. You know what, Jack, this is a great question because one of the best asset we got when we bought T Force rate is GFP. It's UPS did a fantastic job of creating that because when it doesn't fit an LTL because it's too small, let's say it's 2 boxes On a pallet. It doesn't make any sense for an LTL carrier to take on because it weighs only those 2 box maybe £125 And the revenue is going to be low, okay. So it doesn't make sense for the LTL. So us, we have the opportunity working with UPS Ground if it's conveyable, Right. It's got to be conveyable. So if it's conveyable, then we have a discussion with our partner, UPS Ground and say, guys, how about if you guys take it on? I mean, for us, doesn't make any sense. We are charging the customer too much. And if they deal with UPS Ground for those 2 cartons, they're going to save money. We will make our margin on it And UPS will be will make their money on it as well. So it's a win win situation. So you're absolutely right. We have the opportunity for us To move some of that freight that doesn't fit us to our partner, UPS Ground. Now if it's not conveyable, that's a different story. UPS will say, well, I don't want it, Right. It's not conveyable. I don't want to touch it. So then we look at a different situation, a different solution. So here comes our Last Mile Guys, okay? Our Last Mile Guys could be another solution too. I mean, although so far, we have not introduced our Last Mile Guys yet, Okay. But it's another card in the deck that we could play with our customers. Okay. Now that makes a lot of sense. And I guess just for my follow-up question, when you think about the opportunity with that grounded freight pricing service Over the next several years, how big could that be? Are there any constraints to growth there? And sort of how are you thinking about the opportunity That as you look out for 3 years. No, there's no constraints, Jack, because it's a win win for us and it's a win win win for UPS. I mean, we are significant customers of UPS with GFP and it's a great, great thing. I mean, as a matter of fact, we're trying to introduce GFP in Canada. I mean, we're testing it now, okay? And we get the support of UPS Canada in order to introduce this same kind of service. And we'll see if we can have it fly in Canada, right? But no, there's no constraints there because it's such a win win for us and for them That this thing is going to keep on growing. Absolutely. It's another diamond within the family of TFI. The LTL is a big diamond in the rough. This one is a smaller diamond, but it's really it really looks really, really brilliant, Sure. Okay. That's great. Congrats on a great quarter. Thank you. Your next Question comes from the line of Jordan Alliger of Goldman Sachs. Your line is open. Yes. Just switching gears for a second on the parcel sector. Obviously, the shipment growth was Strong yields were really strong. Can you talk a little bit about your views as we move into peak season around the trends in package and courier? Yes. That's a very good question too because you know what, we're already addressing the situation with our customers where we have to Do the same as UPS or FedEx. We have to put caps on our customers because we can't keep Yes. If you look at my growth Q2 this year versus last year, I mean, it was a weak quarter last year. I mean, it was like a disastrous quarter. So but if you look at my Q1, I was up 20. If you look at my meaning my Q4, I was up 20. My Q1, I was up 19. So this is we could live with that. But now going into Q3 and in Q4, I don't think that we are Going to be able because now at 3 of 2020 and 4 of 2020, we were already really, really busy. Now what you're going to see is us improving, Okay. With maybe not a +20, but maybe it's going to be more like a plus 10 or 15, okay, in Q3 and in Q4, talking volume, Okay. But you'll see us improving the bottom line, the profitability again, because don't forget, last year was like Q3 and Q4 was like a tsunami, right? So we got overwhelmed like everybody else with volume. And sometimes, we had to service business where our margin was Not the 20 points. So as DFI's mentality and culture is, guys, no, Let's readdress the situation. The address win business for 20 points. P and C is 20 points. It's not 10, it's not 6, it's 20 And even more in a busy season. If you look at my Q4 last year, I was a 19 point guy, if I remember correctly, In Q4. And if you look at now, okay, what we've done, I mean, it's fantastic what we've done in Q1. We were at 20 points in Q2. I mean, Q2, we're at 20 points compared to about 16 points last year, About a 400 basis point improvement. And that's always the culture of TFI. So what you can anticipate in the P and C is that, No, not 40% growth like we did in Q2 because it was really a dismal quarter last year. I mean, Our B2B was shut down in April May. Now B2B is starting to pick up, yes. Canada is reopening slowly, But it's still not where it was pre pandemic on the B2B side. B2C keeps on growing, yes. But you'll see even more growth in our e commerce with our last mile. Our last mile is really on fire in the U. S. And We made some changes there in our some of our leadership position. And you'll see us doing, I would say miracle. Just look at what we've done in our logistics, which excludes our last mile. Even with the addition of WW, which was a 3%, 4% bottom line company. We grew the revenue 100% and we also grew the bottom line by about the same. I mean, these guys, our last mile guys and even WW did a fantastic job. I mean, Yes. When I look at what these guys are doing, it's unbelievable. I mean, our U. S. Operation used to run single digit EBIT. Not anymore. I'm telling you, not anymore. And now we're going to top line and we are a double digit EBIT company now in the U. S. We're going to get closer to the Canadian operations profitability, I would say, probably within a year. Okay, great. Well, thank you for that answer. Thank you, John. Your next question comes from the line of Konark Gupta of Scotiabank. Your line is open. Good afternoon, Ali, and thanks for taking the question. Great quarter. So maybe I want to kind of begin to the P4 straight a little bit more. Going back to the question before, I want to ask a little bit differently. What portion of that $3,000,000,000 business you got from UPS? What portion of that business is satisfactory in terms of your yield and margin profile? And what portion is not? I'm like, can you just tell the 2 for us, that will be great. Yes. So if I understand correctly, your We're just scratching the surface right now in terms of the quarterly revenue. What we've been able to do so far is address The major customers, certain major accounts, 3 or 4 major accounts that we are addressing, okay, in terms of freight that fits or rates that don't fit, etcetera, etcetera. So on the quality of revenue so far, we've been doing that. And we've also been in a position to address accessorial, appointment freight, Freight, that's too long. Tailgate charges to customers that used to be waves and now are not. So it's just we just scratched the surface, okay? And we're going to go by wave. But more importantly, what is going to come in the next, let's say, 6 to 8 quarters Is the improvement on the cost, okay, because this new fleet that we're going to be Improving, okay, is going to reduce our maintenance costs. Well, so far, maintenance costs is the same because we have the same fleet As we had when we bought the company, right? Fuel economy is the same. It's the ship. It's bad. Why? Because we have the same trucks. So on the cost side, there's some things that we need to do in order to reduce our costs. Now what we've done so far on the cost side is we shut down about, I would say, about 30 fueling station. Now What that does is that you don't save a lot of money because the fuel is above the same price, fuel in or fuel on the road, but it reduces the risk Of an environmental cost. And it also improved the way you could control your costs, I mean, in terms of leakage, in terms of not being able to control what's going on because the system at UPS Freight when we bought the Company to control the freight the fuel, I mean, was pretty weak, I would say, Right. Because they didn't really focus on that. So I mean, it's a global improvement, okay, on the cost side that we're going to start. I'll give you another example. I mean, claims, cargo claims. In the mind of the team there, 1% of revenue was great. I mean, because they used to be 2%. For us, we know that great is 0.25. This is 0.25 is great. So we have a team working with them to address the situation. But this is will take time because we have to address Situation with our operation. We have to address situation with some customers. As an example, We spend about $350,000 a month right now for spills. I mean, I fell off my chair when I learned that. I said, what? Yes. That's what we spent. Impossible. It is a mistake. No, it's not a mistake, it's reality. So now we are Working with the team to address this is not normal, guys. I mean, what are we doing, right? So it's the way you load the trailers And there's many things like that. So on the cost side, we haven't done much yet. What we've done yet is really address The low hanging fruit with certain customer, large shippers, okay, and address accessorial. So we have a long way to go. This is Sri Kala, and thanks. And one follow-up on the CapEx, if I got it correctly, you said $250,000,000 to $300,000,000 I think it seems like it's down about $50,000,000 from your prior guidance for this year. Yes. Tell me what took it down. Is it UPS or is it No. No. The problem we have is that in our order, okay, the supplier of our trucks in the U. S, Bakar, Okay. It's having issue and they had to delay some of the trucks that were promised in 2021 into 2022. Okay. So all the trucks, the 1100 trucks we were supposed to get them by December of 2021. Now I don't remember the exact number, Okay. Of trucks, but some are going to be overlap into January February of 2022. That's why you see less CapEx than what we said previously. Your next question comes from the line of Brian Ossenbeck of JPMorgan. Your line is open. All right. Thank you. Hey, good evening, Alain. How are you? Hey, I'm good, Brian. How about you? Good. Thanks. Just wanted to talk about the real estate footprint at Key Force Freight. I know you have some terminals that you own, some that you lease, Some that are probably in better locations than not and maybe a few you want to add. So can you just give us an update in terms of what that portfolio looks like, the ability To change it, I think, the long term optionality to add some different tenants, run some different businesses out of there? Yes, yes, yes, yes. That's a good question. I mean, but we're just starting to look at that. I mean, it's to answer this question is difficult for me at this time. Well, what I could tell you so far is that we got 12,000 doors, 10,000 that we own, 2,000 that we lease. And in my mind to do about 33,000, 34,000 bills a day, you don't need 12,000 doors. So for sure, we got way too many doors, Number 1. Number 2 is if I look at a city, I'll take the example of Chicago. I mean, To service Chicago, do you need 4 or 3 or 4 or 5 terminals? You don't need that. I mean, it's a nightmare for the line haul. So that's another situation where we're going to be looking at. Is there a way that we could service, as an example, Chicago with Maybe 2 terminals instead of 4. So in order to do that, maybe is while Terminal A in Chicago, Well, can you extend that one with, I don't know, 50 doors? Okay. Well, yes, it could be done. It will take time, Okay. So that we could shut, let's say, the terminal that you have in another part of Chicago. So all this reorg, okay, we haven't really started, but this is I think that for sure it's really important to us. And down the road, okay, we had to find tenants. We have to find tenants for these doors. So for sure, we're talking to other carriers. We're trying to exchange information about What we have us today that we believe is available, what these guys are looking for. So we're having some discussion with other carriers To help them and help us, right? So but it's a little early, Brian, to give you It's going to take me another for sure 6 months to have a better understanding because the other problem we have is because of COVID, it's a pain in the neck Until maybe just a month ago, to really travel and have a look at all these locations. I mean, we got 200 of them, right? So it takes time. So we've done maybe so far with our own TFI team, I would say maybe 20, Okay. We've hired a firm to do an inspection of all the terminals and come back to us with everything that is Emergency, there's a repairs, the yard, the lighting, the lunch room, whatever it is. So Our plan is really to have our major hubs, okay? We have 12 of them, speak and span by the end of the year, by the end of 2021. So that's our first focus. When I say speak and span, I'm talking about lighting, I'm talking about the yard, I'm talking about the lunchroom, the restrooms. We're trying to bring this to our team members, okay, a sense of, Hi. We are important. They are investing in us. They are investing in the fleet. They are investing in our terminals. This is really our first step. At the same time, also we're looking at, can we do something? I mean, my terminal in Palatin, Illinois, I got a 10,000 square feet building there. I said, what are we doing with that? Nothing. Okay, fine. So we're going to be selling that probably within the next 6 months, Right. It's we don't need it. It's just sitting there doing nothing, empty, right? So but it's very early, Brian, very early. But we know that we have a Very nice asset within that we got from UPS. Those guys did a fantastic job in terms of the network And as we're going to keep on improving it. All right. Thanks for that. Maybe a quick follow-up on the short term nature then. Labor Cost and availability, just in general, how do you see that progressing throughout the rest of the year in terms of Expense visibility and even just the availability, do you think you're going to be running into any constraints on growth? And how do you foresee that playing out best this year? See, Brian, I said it. I mean, I don't see us growing this year in terms of volume. I think it's not possible. Number 1 is because we're looking for drivers, we're looking for dockworkers as we speak, T Force Freight, which is unusual because Historically, our turnover was about 12%. It's not a truckload operation. But even now, I mean, we had people retire when We took over. Some people said, you know what, this is not UPS. Those are the who are these guys? So you know what, I don't want to know who are these guys, so they just retired. Okay. So we're going through that now. So this is what I'm saying, I think our volume is going to remain the same for 2021. But in terms of expenses or recruitment, for sure, this is something that we have to spend a little More like signing bonus and all this, yes. But in terms of growing our volume, no. Right now, our focus, Brian, is to grow the bottom line, not the volume. And we got a lot to do. All right, great. Thank you for the time, Elaine. My pleasure. Bye. Your next question comes from the line of Tim James of TD Securities. Your line is open. Thank you. Thanks for your time, Alain. Pleasure. First question, Maybe if you can if I could dig in a little bit more to the specifics on where T Force Freight really Outperformed for you relative to the guidance from the indications that you provided at the time of the It sounds from what you're saying about fleet purchases, it's not obviously on that front. Is this just a matter of you kind of got into the weeds with Customers and got pricing updated more quickly than you anticipated. Or maybe just some additional color on what was Better than expected. Well, for sure. I mean, it's not really the cost. I mean, the cost, we haven't done anything yet, really big on the cost, right? So you're absolutely right. It's where when we start looking at it, okay, I remember my first meeting there in Richmond when we said, guys, I mean, You can't haul freight for $100 You can't haul freight for $50 a shipment. That's not We have to change that tomorrow. So we start looking at that. They look at that every day now. So this is something that we were able to Do fast, right? So we used to do about 1500 shipments a day for less than $100 Out of $33,000 $34,000 Okay? So a shipment of less than $100 You lose your shirt on that. So if you stop doing that, well, this is addition by subtraction, right? So that's one example that we were able to do fast. But If you would have asked me, I mean, do you think that these guys have shipments under $100 I would have said no, impossible. No, they're not doing that. Well, they were. And we're looking at the situation because sometimes Shipper pops up, okay? And you haven't seen him for 3 weeks and now, whoops, he comes up with a shipment for $70 Because we had an agreement with them, okay, and we have lots of agreement with customers. So this guy pops up. So now we're addressing it. So that's one example plus the accessorial that I've said earlier, okay, plus a few of those big accounts. We have our largest account, We were running with this large account, R120. I mean, what is this? Guys, What were we smoking when we give the rates to this guy? So July 1st, now this is not even in Q2, Okay. But July 1, we addressed the situation with the shipper, right? We addressed a lot of situation like that. So When I say that this company will do sub-nine EUR, I'm convinced. It's just I don't want to say when, Okay. Because we're going to be working against the cyclicality of the company, which to me is unbelievable how cyclical this is because us, We don't have this kind of cyclicality. And when I look at their peers in the U. S, they don't have that much cyclicality. So we're going to be looking at that. So this is why I'm saying this company will be sub-nine EUR for 12 months within the next Few quarters, maybe 3, 4, 5, 6 quarters, for sure. Because when we started looking at the cost and improving the cost, When we give them the tools like the trucks and this and that, so costs will come down, okay, quality of revenue will keep on improving And reduce the real estate costs if we can find other tenants to come in. Right now, all the maintenance Costs and we spend about $3,500,000 a month on that maintenance cost of our terminal network, Which to me is just through the roof, okay? So we're working on now on correcting this situation, Having ownership of the costs with our terminal managers. So this is ongoing. We've started a tour. So Paul and his team, okay, for the last 2 weeks have been touring our terminals. They've never done that. I said, Paul, go in and have a coffee with these guys so that they understand our plan, what we're trying to do. So I'm getting reports by the team, okay, every terminal that they visit, they meet the employees and I get the feedback and it's really fantastic. For us, in Canada, we've done that all the time, a barbecue or a breakfast. So we've introduced that to them. They say, well, we'll do it in September. No, no, no. Why wait September? No, do it now. So we're doing it now. This is our 3rd week that we're touring, okay? Our leadership is touring our terminals to talk about the future, To talk about what we want to do with our terminals, what we want to do with our fleet, what we're doing with customers. I'll give you another example. RESIs, residential deliveries. When you're a package P and C guys, residential is fantastic. But when you're running in Downtown L. A. Or in the suburbs of L. A. Or New York, wherever, with An LTL truck doing resi deliveries, it's a killer. So this is something that we're also addressing. We don't like really residential. I'll give you another stupid example, COD. Well, we're not in 1965. We're in 2021. COD, we're not going to do that Because it's a mess, right? So that reduces our costs and we talk to the customers and say, hey, Pay us with a credit card, but no COD. And it's simple. So these are all things that it's $0.01 at a time and squeeze here, squeeze there, correct this, correct that. Well, we have a long way to go over there. I mean, again, I'm repeating myself, but if we can run Sub ADOR in Canada. And believe me, the Canadian LTL market is not the U. S. I mean, it's a very Difficult market and there's a lot of guys that don't make a lot of money here in Canada without the help. But if we're able to do sub-eighty here in Canada, I mean, union or no union, okay? We work with our people. And for sure, like I said, we're going to be a sub-nine Maybe in the next few quarters. Okay. That's very helpful. Just one kind of follow-up question. Now I assume the environment Is very good for going to your customers and having these discussions. I mean, are you finding anyone that's saying, look, We're not prepared to accept higher pricing, and therefore, they're walking away. And as part of that Question, you mentioned about flat or sort of relatively flat volume as I said, team force raised this year. That's not surprising, right? That was always kind of part of your thinking, I believe, right? Yes, absolutely. For sure. You cannot correct a situation, okay, whereby the Customer is taking you the advantage of you and for sure he's going to say no, and he's going to walk. But then he may come back, Okay. So this is why when I look at our volume, okay, we're about flat because we win some, we lose some, but at the end of the day, we Correct. The situation of the quality of revenue, right? So this is why And the market for labor is really, really tight. So to me, I'm saying, why am I going to haul this freight And lose money when the market is so tight. No, forget about it. Okay. Thank you very much, Hillen. My pleasure. Your next question comes from the line of Jason Seidl of Cowen. Your line is open. Operator, good evening, Alain. I want to talk about P and C a bit here. You sort of mentioned Canadians going back To work, you're obviously a little bit behind the U. S. In vaccination rates. Yes. But as how should we think about 2022 as you pick up More B2B type business than we had in 2021 and then definitely than we had in 2020. So how should we think about the margin impact there? Yes. Well, you know what, historically, B2B, okay, has always provided us with better margin because we have more coincidence of delivery, Okay. In a B2D world and on a B2C world, right? So if you look on average, normally, you see, well, You're going to deliver 1 package to a home, so it's one stop, one package, so it's not really great. But With this growth in e commerce and us also focusing more on to the high density B2C Operation. So for example, the downtown Toronto, Vancouver, Montreal. So we were able to get Our coincidence delivery, about the same without the B2B, okay, because our B2B is still not back to where it was, Okay. But we still have Grosso Muadhu the same kind of coincidence of delivery, which is a little over 2.25, 2.5 parcel per stop. So with the B2C. Now B2B in the fall 2021 will start to come back to more normal, okay. But also some B2B will never come back Because they shut down the store. Okay. So what we anticipate is that our B2B should start to come back a little bit, But it's not going to be like a pre COVID thing there, right? Some of our customers are not going to reopen. So it's still difficult, Okay. What we're seeing is, for example, one of our diamond in our P and C ICS that was really badly affected by The COVID thing there, that's one of our major success of Q2 is that for some of Q2, ICS was Very close to being back to normal. Not normal, but close. So let's say like 80%. We believe that in Q3 and in Q4, probably back to maybe 90% of what it was pre COVID. The other 10, maybe it's lost, it's gone, right? So that's why I'm saying that our P and C, which is one of our diamond, No. It's going to keep on improving. It's going to keep on growing. We're investing. So we are building a new terminal in Winnipeg as we speak, Should open up early 2022. We're also building a new terminal in Barrie, Ontario, just north of Toronto, should open in Q1 of 2022. No. We're also reorganizing our Vancouver. The way we cover Vancouver, We have 2 terminals in Vancouver, so the South Shore and Burnaby. So we are reorganizing that with our team over there. We're looking at what we're going to do in Toronto. So we have 1 center in Toronto. In my mind, within the next 2 years because of volume issues, We will probably have 2 sorting facilities in Toronto. We have 3 in Montreal, 1 sorting, but Through satellites. So I mean this business is going to keep on growing. B2B coming back and keep on growing the B2C. Okay. That's good color. I want to switch on back again to the topic de jure here, which is your U. S. People's freight business. You mentioned freight selectivity and accessorial charges were really what sort of got you beyond expectation This quarter and knowing full well that you've only owned it for 2 months, it's really hard to get a really redo a lot of existing contracts. How should we have been sort of by the end of this year, so by the end of 'twenty one, what percent of the contracts do you think you'll actually have been able to get at by then? You know what, Jason, I don't know that. So I would say that Not the majority. It's impossible, because we're getting into the busy season, right? It's also We went on the priority list. So really the accounts that we feel that doesn't make any sense in terms of profitability. So to give you An answer on that, it's hard for me, but we're just scratching the surface in terms of adjusting to reality. If you look at the quality of our revenue in our MD and A, okay, on our U. S. LTL and you compare that with our peers In terms of average weight, okay. For instance, our average weight is way too low. Why? Because we still have way too many small shipments, right? We will correct that over time. Average length of haul is okay. I mean, it's comparable to probably most of our peers. But then if you look at the revenue per 100 weight or the revenue per shipment, we are behind our peers, The good peers I'm talking about, right? So that tells you that we have a long way to go still in correcting the quality of revenue. I appreciate the time as always and good quarter. Thank you. It's a pleasure, Jason. Your next question comes from the line of Walter Spracklin of RBC Capital Markets. Your line is open. Thank you very much, operator. Good afternoon, Alejandro. How are you doing? Hey, I'm doing well, Walter. How about you? Good. Just On looking forward here, obviously, the integration of the UPS Freight Acquisitions going very well and perhaps better than you were hoping. And I'm wondering if that now allows you to Look little look forward to the next acquisition, perhaps a little bit sooner than you would have typically Looking at your leverage now, it's still less than 2 times. Like I said, the integration going well perhaps clears your desk a little bit And allows you to look at a file that perhaps you were putting off a little later. Is that a fair thing to consider? Or are you still further out before you start looking At other deals. I think, Walter, you've been dealing with me for too long, right? So you understand the vision and the philosophy. So what I can tell you is I need to look at Q3 So what I can tell you is I need to look at Q3. Based on what I see in Q3, I could answer that. But if Q3 is in line with what I think that the team there could do, Paul and his team, you're absolutely right. We will definitely look at our M and A situation much earlier than I thought. That's fantastic. And if you were to let's just hypothetically speaking and Looking at the areas where you would like to see TFI a little larger or have some scale, either Canada versus U. S, TL, but I know you've talked a bit about specialized truckload as an area you've always liked. Could that be the area where you're going to focus? Or could it Or would it be somewhere else? Well, you know what, we're a big fan of P and C, but there's nothing I can do on that. So I can't buy Pure Oil in Canada and I can't do anything in the U. S. So really Walter, Sectors that we really love is our logistics. Look at our return on invested capital. What we're doing there, we bought WW at A very good price when you look at what our friends bought TransPlace for. So for sure, that's an area that we really love With Cal and his team, so you guys could see us doing something very interesting soon on that. The truckload, the specialty truckload for sure because we're small. The van division, yes, We're busy right now because we have to fix this UPS Torto Division. I mean, this is Greg and his team, they're really busy at that. Maybe a small transaction, but nothing of size. So what's left is our LTL. So like I said many, many times, No, I should have been in the LTL much earlier than that in the U. S, I'm talking about here. We have a great partnership with Saia through our TST operation. So down the road, if there's an opportunity in LTL, For sure, we're going to look at it. If there's a way that we could grow our LTL footprint in the U. S, because Like I said earlier, we got lots of real estate, right? So we probably have 30% of too many doors today, Right. So maybe LTL makes sense too, if there's an opportunity down the road. But don't forget, I mean, Most of our significant deal is always something that we do ourselves. We get in touch With the target and we tried to convince them that it would be good for them like we did with our friends at No, it was a great deal for them. It's a great deal for us. So probably the next one will be something like that. Appreciate the color as always, Emily, and congrats on a great quarter. My pleasure. Thank you, Walter. Your next question comes from the line of Ari Rosa of Bank of America. Good afternoon, Alan. Very nice quarter. So I wanted to talk about some of the seasonality that you addressed in terms of the UPS freight. Obviously, very impressive. It's up a 90% operating ratio so quickly after acquiring the business. But given That seasonality that you've seen, is there a good way to think about what that OR might have looked like if you hadn't touched the business at all or kind of What the incremental impact was of the changes that you had made so far? And then also, should we then interpret that seasonality comment As implying that historically, UPS has kind of sat on a lot of idle capacity in some of the slower periods and how you're thinking about addressing that? Yes. It's difficult for me to answer what it could have been if we would not have bought the Company, but I know that looking at the trend that UPS was working on, For sure. Okay. They were going to start making money, okay, with UPS Freight. I mean, now Would they have run a 10 point war in Q2? I don't know. What I could tell you is that the trend there Already, the team at UPS was focusing on improving, okay, all kinds of things. But Were we were they committed to invest the capital like we are? Maybe not because those guys had different So projects within their main business, which is the P and C. Now in terms of adjusting, Okay. The situation at T Force Freight, when we look at that, I was surprised to see how much variation there is between 1 month to the other. So for sure, their Q2 historically has always been the best. But also, you got to remember that GFP, P, okay, which is the contract between T Force Freight and UPS, is steady Eddie, Okay. So really what happened is that the LTL operation per se was not making a lot of money, right? And in the difficult months of, let's say, November or December, January February, it's winter, They were losing money, big time, right? So us, for sure, it's going to be our priority To try to understand, okay, and immediately look at the situation and correct the situation So that we have we tighten up the cost so that we don't come up with losing money. I mean, I remember 25 years ago, I started with an LTL company, small, And they were losing money in November, December, January February. But this company today makes money all the time. So, I mean, it's again, it's early. It's only 2 months. So this is why going back to Walter's question, I want to see what July is going to look like, what August is going to look like, what September is going to look like and see, okay, are we really controlling more of this seasonality that happened over there in the past, Right. So this is why when I said, guys, I think that it's this is going to be a sub-ninety company within the next Few quarters on a yearly basis, because I believe that we're going to improve the seasonality. Now is it going to be as Close to perfection as we have in Canada? Probably not, okay? Because in Canada, we're more asset light in our LTL than our U. S. Operation. But I mean, for sure, we will be improving. To me, losing money in a month doesn't no, it's not acceptable. So we'll have to find a solution how we can Remove that cyclicality that affects us so badly. Yes. That makes a lot of sense. And thank you for that additional color there. And then just for my second question, one of the things that's been a concern, I think, on the LTL side, certainly for A lot of U. S. Investors have been investing in union based LTL companies and the obstacles associated with maybe some of the work rules and that sort of thing. Maybe if you could give an update on kind of what you've learned so far or what your thoughts are with regard to that? And Is there any kind of obstacle? Or do you not see that being a challenge at all as you've now gotten a little bit more familiar with In a unionized environment, there's a perception, okay, that if it's union, it's no good. But to me, this is completely wrong because if you look at UPS, UPS is a unionized TeamSearch company and they do really, really well, right? So if you look at our Canadian operation, It's most of our Canadian operation is unionized with the Teamsters, and we do really well. Our P and C business It's mostly unionized as well, and we do really well. So to me, I think that as we were surprised to see this perception in the U. S, Okay. Or maybe the excuse of some management team, they blame the union, okay? My feeling is that With the union, you lose for sure you lose some flexibility. For sure you may have issues with the pension costs, right? Because A unionized environment, they're really strong on pension, okay, for the employees. Compared to a nonunion where the pension cost is going to be probably much less or maybe there's none, okay, versus a union environment. So yes, there is a little bit of cost, okay, that disadvantage and maybe also a little bit of work rule, but we work With our contract, we work with our team. And you know what, when I bought from DHL, the Canadian business, It was unionized, okay? And they were running 115. Today, it's still the same union. Well, we run a sub-eighty five wire at the same union. So what happened? Well, It's because we manage the company. We address the situation with customers that freight that does not fit is not for us. You give it to someone else, right? So to me, the concern that some investors may have in the U. S, oh, Alain, he's a dreamer. Nobody has done that. So it's impossible. Well, give me a year, give me 2 years and you see we'll work with our employees, we'll work with our team, with our management team And it's not an excuse, the union. To me, it's a fact, okay? So we live with it, Okay. And we work with them, but we manage the company though. Got it. Understood. Thanks for that color, Alan, and very impressive results so far. Thanks. Thank you. Your next question comes from the line of Cameron Doerksen of National Bank Financial. Your line is open. Yes, thanks. Good evening. I guess, one question I have is just on free cash flow. I'm just trying to reconcile your full year guidance with kind of what you have done so far year to date, which is like over 400,000,000 So obviously, CapEx is going to be higher in the back half of the year. But is there anything else that we should be thinking about? Because it seems to me that To the low end of your free cash flow guidance at BRL550,000,000? It seems a bit low. Yes. But we're conservative, Cameron. So maybe I'm investing There's a little bit of M and A in there also, right? Okay. So that would be The big difference is there any deal like tax cash gains or any kind of that? No. So think about Cameron, there's let's say between In this forecast, there's at least like $75,000,000 of M and A in there. Okay. Okay. That's helpful. Perfect. No, that was my one question. Thanks, Varnesh. Thank you, Cameron. Your next question comes from the line of Bruce Chan of Stifel. Your line is open. Thanks for squeezing me in here. I'll keep it to 1. Also, on the CapEx side maybe, Obviously, the lion's share is going to rolling stock in UPS rate. And you addressed some of the longer term infrastructure investments. But Is there any significant work that you need to do in terms of the IT, line haul management, load planning software, dimensionalizers? Or is that part of the business in good shape? Yes. Well, that's a very good question. So for us to walk away, okay, from UPS IT system, Okay. For sure, we'll have CapEx in 2022 and in 2023. Now if you ask me what's the quantum of that, I still don't know, Okay. The guys are working on it. So it could the range could be from, let's say, dollars 50,000,000 to $75,000,000 maybe. No, it's very early stage. So this would probably affect us sometimes in 2022 and in 2023. Terrific. Got it. Thank you very much. My pleasure. There's no further question at this time. Please continue. Okay. Well, thank you for thank you everyone for joining us this evening. So we very much appreciate your time today and I want to Thank you for your support on behalf of the entire TFI team. I look forward to updating you on our progress later in the year. And as always, please don't