TFI International Inc. (TFII) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce’s First Quarter 2016 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 will be provided at that time for you to queue up for questions. [Operator Instructions] Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Wednesday, April 20, 2016. I’ll now turn the conference call over to Alain Bédard, Chairman, President and CEO. Please go ahead. Alain Bédard: Well, thank you, operator, and good afternoon ladies and gentlemen. Earlier this afternoon, we held our Annual Meeting of Shareholders and we issued our 2016 first quarter results press release. I’ll begin by providing you with an overview of the key performance metrics for the first quarter and then I’ll discuss the results of each operating segments in more detail. As far as TransForce’s operations are concerned, the relative status of the U.S. and Canadian economies had different impacts on our results. Simply put, the healthy U.S. economy drove solid results in our P&C segment, especially because of the e-commerce initiatives the company has been focused on. But the sluggish Canadian economy has a negative impact on our LTL business, as well as on our specialized Truckload division that service the oil and gas market in Alberta and in Texas. That said, our decentralized and diversified business model is giving us the flexibility to efficiently adapt supply to demand and to seize market opportunity that may arise. With proceeds from the sale of Waste Management operation, which was completed February 1, we reimbursed $705 million of debt, and we also repurchased up to 2.9 million common shares for a total consideration of $63.6 million mainly under our substantial issuer bid program. Now turn to our Q1 2016 results. Total revenue from continuing operations was $934 million, a 3% decline compared to the same quarter last year. Before fuel surcharge revenue from continuing operations was up 1% to $867 million, which reflects the acquisition completed over the previous 12 months, as well as a favorable local currency appreciation on U.S. dollar denominated revenue. Operating income from continuing operations reached $40.3 million, down slightly from $44 million achieved last year. Adjusted net income from continuing operations reached $31.5 million, or $0.32 per diluted share, up from $27.5 million, or $0.26 per diluted shares in Q1 of 2015. Taking into account the gain, net of tax, on the sales of Waste Management operation, net income was $503.6 million, or $5.09 per diluted share, as compared to $14 million, or $0.13 per diluted share last year. Free cash from continuing operations totaled $24.7 million, or $0.25 per share, up from $18.7 million, or $0.18 per share last year. This increase is directly attributable to the company’s ongoing focus on disciplined capital allocation. I’ll now provide you with some details on each business segment. Our P&C revenue before fuel surcharge rose a 11% to $319.5 million compared to the same quarter last year. The increase is due to acquisition made last year to the favorable income of foreign exchange and to a volume increase. Excluding acquisition, revenue increased by 5%. In particular, high volume from our U.S. e-commerce initiatives are hoping to offset lower shipping activity and the non-renewal of low-margin business. Operating income rose by 21% to $17.9 million and the operating margin grew 50 basis points. We realized significant personal expense savings, resulting from the rightsizing of certain divisions, which were partially offset by higher transportation costs associated to higher volume. In LTL revenue before fuel surcharge decreased 6% to $172.7 million. The decrease is mainly due to the impact of low oil prices in Western Canada was contributed to a decline in demand. Operating income increased by $1.2 million to $4.2 million in Q1 of 2016. A strict focus on cost control and operational improvements generated this improvement despite lower volume. Over the short-term, however, we do not anticipate substantial improvements in prices or volume. Given these market conditions, we’ll continue to rigorously manage cost in line with supply and demand. In the Truckload segment, year-over-year revenue before fuel surcharge fell 2% to $334.7 million. The primary reason for this decline relates to the challenge raised by the specialized division that serve as the oil and gas industry. The decrease in truckload revenue was offset by the impact of favorable foreign exchange rate and a few minor acquisitions. As part of the company’s asset light strategy, we continue to pursue revenue from brokerage. The Truckload segment achieved $49.4 million in brokerage revenue, which represented 15% of our total revenue. Operating income in truckload dropped by $5 million to $20.6 million. The operating margin was $6.1 million compared to $7.5 million the year before. We incurred higher employee costs in the U.S. operation, which increased operating costs per mile. We are addressing this situation, while continuing to optimize our asset base. Finally, in the Logistics segment, total revenue decreased by 13% to $54.4 million. The decrease is due to the fact that, we had a non-recurring revenue of approximately $6 million in Q1 of 2015 that was generated by the strike at the Port of LA. Operating income also decreased by approximately 25% to $4.2 million, while the operating margin was down by 120 basis point year-over-year. Again, this is primarily related to the non-recurring volume loss. I’ll now provide you with a brief outlook on 2016, because Canada is TransForce’s major market. Low oil prices will continue to have a negative impact on many of the markets we serve. And while the lower Canadian dollar should spur activity in the manufacturing sector, we have to yet – we have yet to see a significant effect. These factors will limit organic growth. At the same time, a healthier U.S. economy should generate more activity in our Package and Courier and Truckload segment. Our P&C, the emphasis placed on e-commerce initiatives have begun to reap dividends, and we will focus on providing the best possible service offering in major center across North America to serve this rapidly expanding market niche. In the Truckload segment, the LTL U.S. economy and the weakening dollar should boost our return on capital. Finally, we can further increase our density in the logistics sector. These non-asset based activities strategically complement conventional transportation service and will help TransForce to generate additional free cash. Our disciplined capital management ensures that we invest in initiatives that generate superior return to meet our main objective of generating cash flow and create lasting value for our shareholders. I would now be pleased to open up the call to questions. So operator?

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session.[Operator Instructions] Your first question comes from the line of Mona Nazir with Laurentian Bank. Your line is now open.

Good afternoon, Alain. Alain Bédard: Good afternoon.

So, just a couple of questions for me. On the last call you provided some soft EBITDA guidance for 2016… Alain Bédard: Yes.

Just adding up the numbers you’re getting anywhere from, I believe that was $450 million to $460 million EBITDA? Alain Bédard: Yes, yes.

I’m just wondering does that guidance still stick at this point in time, or do you think that.. Alain Bédard: Yes.

…there’s some change… Alain Bédard: No.

…just given organic growth maybe limited? Alain Bédard: No, no. You see, if you look at our Q1 results, I mean, we’re $3 million behind plan so far. And that plan was like I just said for an EBITDA of about $450 million to $460 million. So, yes, we’re a little bit behind our plan in Q1. So what really happenned in Q1 is really the Alberta situation, okay, has been pretty difficult again in Q1. But as I’ve also said is that, we believe that last six months of 2016 will be in much better position, okay, than the first six months of the year. Now, if you look at our Truckload operation, yes, we were affected badly by the situation in Alberta and in Texas. But we were also affected by the situation in the U.S. So our Transport America division did not perform as well as last year in Q1. But that that is – the market has been soft in Q1, probably be soft again in Q2. But we believe firmly that because of what’s going on in the ELD world, okay, the market will start to tighten up a bit every quarter, okay? So that’s why we still feel pretty good that our guidance of $450 million to $460 million will stand.

Okay, perfect. And just secondly here, there has been a lot of discussion over the last few quarters on the call about your Waste divestiture, which is now complete. I know that you’re not doing the share buyback, and that’s a priority at this point, and perhaps extracting value on the Truckload side. But what’s your leverage down closer to two times? Are you perhaps looking to bulk up and make some more acquisitions particularly on the Package and Courier side, where you’re seeing some positive signs of organic growth? Alain Bédard: Well, absolutely, I mean, the best return on invested capital has always been in our P&C business, okay? So we did too small acquisitions last year. We bought All Canadian Courier in Canada and we also bought Hazen in the U.S. So, for sure, the priority for us, if we can find the right company either in Canada or in the U.S. that’s going to fit the model, no question about it. But one thing is for sure is that, our dynamics operation in the U.S. and the same in Canada and All Canadian Courier will definitely start to grow organically, okay? And this is, what has to do with the e-commerce that we’re trying to get some traction, okay, with our offering. Now, this is not easy to find some good companies on the P&C side. So this is why like I said, I mean, we will redeploy some capital over the course of 2016. There is an opportunity right now to do some kind of a deal, okay, on the truckload side. On the Canadian market, not so much, but on the U.S. market, there’s lots of good potential. And all the stock of all the companies in the U.S. right now in the truckload side have been really depressed, I would say, even more than our TFI stock. Our TFI stock has been very depressed for the last, I don’t know, a year. But over there, it’s even more, okay? So our priority is to keep on buying our shares. I mean, we bought on our NCIB, a million shares so far. We love six, and at the level of the stock right now, we’ll probably buy another five, which is what is exactly what we love to do. And if we see another good opportunity on – either the truckload side on the same day Last Mile P&C type of business, for sure, we will be jumping a lot, okay? Now, it could be also that on the LTL side, we’re trying to – we’re having discussion with some transportation company that have a Canadian operation and that may make sense for them to get out of Canada and sell it to somebody that wants to buy. So that could be also another opportunity to add some volume to our dying, okay, LTL market. The market of LTL is shrinking. We shrunk 5%, okay, in Q1, and it’s going to keep on shrinking. So a lot of our customers are being affected, okay, with the e-commerce. So the LTL guys, both U.S. and Canada are really affected by this growth, okay, in e-commerce. So the four guys that own them all having – they will be nervous in the next 10 to 15 years, because I mean the e-commerce is gaining traction every, every month more and more. So our focus is, can we find a good company that got the small operation in Canada that could fit into our network. So if – so that’s another potential, okay, transaction that could happen during the course of 2016. Now, like you said, our leverage is down to two, okay? We generate about $300 million of cash in 2016, so I mean, for sure, we have a lot of flexibility to do a lot of stuff. And we’ll be – we’re working. We’re working. We’ve got a lot of projects and we’ll see what comes to reality.

Okay. Thank you. I’ll step back in queue right now. Alain Bédard: Okay. Thank you, Mona.

Your next question comes from Cameron Doerkse with National Bank Financial. Please go ahead.

Yes, good afternoon. Alain Bédard: Good afternoon, Cameron.

I just want to follow up on the M&A discussion. One of the things you did mention really there was logistics. I know that was something that maybe you’re taking that you might want to add to. Is there – what was your thoughts on that? Is that something that would sort of be prioritized behind the P&C and the other things you discussed already? Alain Bédard: Well, you see, the problem Cameron with logistics is that, it’s an expensive business to buy. And how can I buy a business today, let’s say, that’s valued at 8 to 10 times and one that is valued at six to seven times. So it’s sad to say, but for me buying something in the logistics world is like impossible to do. So this is why where I could grow is, first of all, buying back my own stock, which we’re going to be keeping doing, okay, because it’s like a lot of people want to get rid of their shares, so we’ll be buying them back, that’s one number. Number two is, as I said to Mona, I mean, LTL, if I could find the right acquisition that’s going to beef up our density, because the market is shrinking. So we’re going to do something. And what we’re doing now is, we’re adopting ourselves. But if we could find something at a fair, reasonable price, we’ll definitely jump on it. Same thing with the P&C, okay? If we could find the right other like an all – another All Canadian Courier, like another Hazen,, we will definitely jump on it. I mean, we’re looking at a deal right now in the U.S. that makes sense, a small deal though, small. And last, but it’s the truckload. I mean, yes, we’re looking at a small truckload company in Canada. We’re looking at other truckload companies in the U.S. I mean, there’s lots of good companies in the U.S. that could be part of the TransForce families of company. But it’s got to be at the right price. It’s got to be the right culture, the right fit, and I mean, that’s what we’re working on. I mean, for sure, Cameron, we will redeploy our capital. Like I said to Mona, we generate so much cash. Yes, we’re going to be buying back, let’s say, 5 million shares at $22, that’s going to cost me $125 million. But we generate $300 million. So we’re going to be reducing the debt. We’re going to be redeploying capital. So I could buy a company tomorrow, okay, and buy back my shares, like I said, buy a company that’s $500 million, that’s going to cost me $500 million. Buy back Mona’s shares for $100 million, and my debt to EBITDA was taken about $2.5 million by the end of the year. So, for sure, we’re going to be busy.

All right, sounds good. Just second question for me, you’ve retired a bunch of debt here. I’m just wondering, if you can quantify what’s the sort of annualized interest cost savings on that retirement of debt is going to be? Alain Bédard: Yes. Well, first of all, we renegotiated our debt of a $125 million, okay? So we went from $685 million to 3, okay? So you do the math from $685 million to 3, the saving is probably around $5 million, right? So that’s one. Number two is, reduce our debt by about $700 million times 3, so it’s about $20 million, $22 million, okay, on a yearly basis. So $20 million, $21 million, $22 million, plus 5, so it’s about, I don’t know, $25 million to $28 million versus last year, okay?

All right, okay. Okay, so that’s good. All right. I’ll leave it there. So thanks very much. Alain Bédard: Thank you, Cameron.

Your next question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead.

Hi, good afternoon, Alain. Alain Bédard: Hey, good afternoon, Ben.

Yes. Just looking at Package and Courier, I mean, when we strip out the FX and strip out the acquisition, it seems that it’s mostly flat. So could you provide more color on, if you’re confident to drive the revenue upward, especially on the e-commerce side, whether you’re confident to reach $150 million to $200 million this year, Alain? Alain Bédard: Well, yes. First of all, in terms of the revenue, we feel pretty good, because right now for one e-commerce player, okay, we’re delivering on a daily basis about 20,000 parcels a day. A year ago or nine months ago, we were doing nothing with this guy. So it’s really coming along pretty good. Now, in terms of the improvements, I mean, yes, I mean, in Q1, you’ve got to keep in mind that all our business has been affected by our Alberta situation. So we are losing, okay, on the LTL. We are losing on the P&C. We’re losing on our truckload because of that sad situation that we’re facing in Alberta. So when you say, hey, Alain, we stripped the FX, we stripped this, we stripped- it’s like you’re zero, yes, maybe I’m zero, because I’m down, okay, 20% in Alberta, all right. So you end up with zero, okay, but because you’re down with Alberta, that means that you’re doing better somewhere. So where are we doing better? We’re doing better in our Last Mile in the U.S., no doubt about that, okay? We’re doing better in Q1 in our Last Mile in Canada, okay, so we’re doing better there. But our P&C next-day service has been suffering, okay? So we have one of our division, okay, that is behind last year, while as a matter of fact, we have two divisions that are being affected. So Loomis is one of them. Loomis is heavy, it’s a heavy player in Western Canada. So, for sure, those four guys are badly affected by the situation in Alberta, okay? So to answer your question that that is what’s happening. And do we feel good about the e-commerce? For sure, we feel good. I mean, we went from 0 to 20,000 parcels a day in a matter of nine months. Where we’re going to be at the end of the year? We’re going to be 35, or we’re going to be 40. I mean, the market is growing so fast in the U.S. Over and above that, I mean, with the same guys, we just opened up through All Canadian Courier, the Vancouver and Toronto market in their Logistics division. So we feel very, very good. So this is why, we’re not stupid, that’s why I’m buying back stock. I mean, every time a guy wants to sell my stock at $20, $22, $23, $24, I’m going to buy it as much as I can.

Okay. And looking at the margin improvement for Package and Courier, you’ve been talking about almost 100 bps a year typically. So now you’re at 0.5. Does the pressure from Alberta is kind of putting some – somewhat of pressure on the margin, yes, okay? Alain Bédard: Sure. sure. Hey, think about it, I mean, I’ve said it many times. Alberta used to be our gold market. I mean, it was a great market for us. Now it’s terrible. It’s like a sand mine. Everything is down there. We’re down 20%, 25%. I mean, everybody is down. Everybody I talk to, I mean, this is terrible what’s going on over there, and I don’t know how long it’s going to last, okay? The – this oil situation every time that we talk, I mean, it’s like, it’s going to stick to $30 to $40, and that killed the province. It’s really, really sad.

Okay. And just on the Truckload LA, I noted that you are talking about stronger outlook overall in the U.S. as opposed to Canada. But looking specifically at truckload, it seem that you’ve been able to maintain margins in Canada, while margins in the U.S. have declined somewhat because of higher operating cost per mile. So any color on the comment? Alain Bédard: What I – yes, what I can tell you is that, we are doing fantastically good with our Van operation back East. We’re doing very well with our specialized operation on the, let’s say, Ontario and Québec. We’re doing well. Where we’re hurting is in Alberta and Texas, okay, in our specialty operation. And in America, okay, but this is just a matter of a quarter or two quarters. I mean, America is going to do great. It’s got a great team. Those guys, they know what to do, okay, and we were caught little bit by surprise by the softness over the last few months, okay? But it’s going to come back. And the ELD will have an effect on shrinking the offer. I mean, there’s a lot of stuff that’s going to happen within the next 18 months in the U.S. that you’ll see the truckload, the company will start to appreciate in value, because I mean, the guys are going in the right direction.

Okay, very good. And looking at Logistic, Alain, given where we are in the cycle, would you say that Logistic has lost some shine right now, given that there is a better availability, or to explain what – somewhat of the results of the logistic division? Alain Bédard: Well, our results, Benoit, are being affected by Cornerstone one of our division that have a fantastic Q1 last year because of the strike in the Port of LA. I mean now – I mean, that’s gone. So this explains, okay, where we’re a little bit behind, okay, last year. But this is a Q1 event, okay. So, all of our Logistics division, I mean, are showing up some great results. And there is not an issue in our Logistics division at all for the rest of the year, just a matter that Q1 okay, because we had such a fantastic Q1 with Cornerstone and that has gone, because the strike has been resolved. So there is no more that strike that that created such a volume for us. So now we’re back to normal. But no, no, we feel good. But going back to one question, are you going to buy a logistics company, I mean, you’ve got to be crazy. I mean, I’m going to buy my stock before buying a logistics company.

And given valuation is so attractive, is there an opportunity to kind of monetize those assets, or basically it’s kind of core business and fits with the rest, Alain? Alain Bédard: It fits. It fits with what we do, Benoit.

Yes, okay. Alain Bédard: So there is no intention of selling anything. We sold the ways, because we couldn’t get the fair value in our stock. So right now, if I can’t get the fair value in my stock, so I’ve got two choices, buy it back or sell the company. I don’t want to sell the company. So I’m buying back the stock.

Yes, okay. And last one, a quick one for me. You allowed the unsecured revolving facility, do you up for renewal in August 2017? Alain Bédard: Yes.

So is there an opportunity to reduce significantly the interest rate on this one, Alain? Alain Bédard: No. I think that the deal that we have, okay, which is a scale based on the debt to EBITDA. It’s something that makes sense, okay? It’s something that we’ll try to improve, yes. But it’s – the important thing for us is that availability is there, I mean, the covenants are flexible like this 3.5 debt to EBITDA. We feel good about that. I mean, when we did the Contrans acquisition, there was a bump up for – I don’t know two, three quarters, okay, and we were back to 3.5. So we’re very happy with the banks that we have in our syndicate. We will probably be adding one or two, because our CFO gets a lot of call from banks that want to join the family. So the guys will be working very, very hard to get something nice and then the – for probably at the end of Q2.

Okay, perfect. Thank you very much for the time. Alain Bédard: Pleasure, Benoit.

Your next question comes from the line of Turan Quettawala with Scotiabank. Please go ahead.

Good afternoon, Alain. Alain Bédard: How it’s going, Turan?

Very well, thank you. How about you? Alain Bédard: Very good, thanks.

One, I guess, maybe the first question, I’m just wondering, is it possible to quantify like – on – in consolidated basis, what percent of your revenue is coming from Alberta? Alain Bédard: Yes, what is it today and what it was?

Sure, yes. Alain Bédard: So excluding fuel, okay, Alberta, if you include the Truckload, the LTL, and the P&C, okay, you were looking at above 15% to 18% of our revenue.

Okay, thank you. And that is today, right? Alain Bédard: Yes.

Okay. Alain Bédard: No, that is what it was.

Okay. Alain Bédard: Okay. So we lost about, I would say, easily 8% of our revenue in Alberta, 8% of our total revenue.

So it’s about – call it about 7% to 10% right now? Alain Bédard: Yes.

Okay. And I guess – and then that’s excluding the – obviously, all the oil and gas business that you’ve already sold, right, this is ex of all that? Alain Bédard: Yes. Well, that’s one point. We were doing about $150 million just in the rig moving business in Alberta.

Yes, yes, absolutely. That’s helpful. Thank you very much. And the next question that I had was on, can you talk a little bit about pricing maybe on the P&C side in Canada, I’ve heard there’s a bit of competition going on there. I know, Puro’s kind of have been pretty aggressive in the past as well. Just – can you give us some color there as to how that’s going on the pricing side in Canada? Alain Bédard: Well, it’s always the same situations, Turan. When the market gets soft, I mean, you’ve got guys that are starting to chase volume, instead of trying to adjust the asset, or the offering to market condition. So, for sure, I mean, the Canadian economy is not doing well. Hopefully, it’s going to do better within the next, let’s say, six-month or a year. We’ve been in the doldrums for the last few years. So on the P&C side, there’s always been some pressure. And for, let’s say, probably a year in 2013/2014, there were a less pressure on the pricing, but we just lost an account in Montreal to a group of companies that the customer split our volume with three or four different companies. So, yes, I agree with you. There’s some price pressure and there’s no pricing power, okay? So that is LTL, that is P&C on the next-day service. On the Last Mile, I would say, that’s a little bit of a different situation. There we’re starting to see some improved margin. The demand is there. And there we’re doing better than on the next-day service. Now, it depends also in our next-day service. We have like ICS, which is a specialty house. I mean, their pricing pressure, not really. The volume growth? Yes, you’ll start to see some growth there and we’re just waiting for a few new customers to jump in. But it’s like more like the Loomis and the Canpar guys, okay? Those guys are facing more price pressure and more – a little bit more competition, yes.

That’s really helpful. Thank you very much. And just last question for me, can you talk a little about Contrans, how that’s going? I guess, a lot of the volume pressure, if I’m not mistaken that you’re talking about in truckload, is that coming on the Contrans side, because I believe that a bunch of commodity related business is right? Is that where the issue is? Alain Bédard: Well, what’s been affected Contrans, yes, it’s the Alberta situation, no question about it. I mean, they were affected badly over there. But Alberta for Contrans was not that big. But it’s the mining industry. That is like the mind, it’s like they’re all dead, right?

Yes. Alain Bédard: But with some small acquisition here and there and some guys are doing a great job, we’re able to maintain. So, if you look at Contrans for Q1, we’re on plan, okay?

Okay. Alain Bédard: So, it’s not because of Contrans that were $5 million, $6 million behind last year, and we’re not on plan. It’s what that has to do with the rest of our truckload operation in Alberta and in Texas, and to a lesser degree, our U.S. operation.

Great. That’s extremely helpful. Thank you very much and good luck. Alain Bédard: Pleasure. Thank you, Turan.

Your next question comes from the line of Walter Spracklin with RBC. Please go ahead.

Well, this is Suneel Manhas stepping in for Walter Spracklin this afternoon. Alain Bédard: Okay. How is it going?

It’s good. How are you? Alain Bédard: Very good.

I had just a question here. Are you seeing any signs out of the capacity in Canada could be tightening? And if so what impact this might be having on rates on the north side of the border? Alain Bédard: Capacity issue on the LTL, no. Capacity issue on the P&C, not really, except maybe on the Last Mile. And on the truckload side, no, not net as of now, no, for sure, okay? We see a lot of guys that are not buying trucks. We see a lot of guys first of all, because you have to buy a truck that’s going to cost you about 25% to 30% more money. So you have a lot of guys that slowly are not renewing their fleets with their parking equipment, i.e., because they can’t afford to buy the trucks. The truck is way more expensive than it was a year ago because of the exchange, right? So, that’s why we feel pretty good that, okay, it’s going to be a tough six months. But we feel good about the last six months of the year. So there’s going to be some tightening on the truckload market in North America definitely late 2016 and into 2017.

Okay, all right, great. That’s great. And we’ve also found that northbound rates are falling fast while southbound rates potentially rising, but not offsetting lease. So could this potentially squeeze cross-border margins? And if so to what degree are you guys seeing this on your end? Alain Bédard: It’s always the same thing. I mean, for sure, I mean, there’s not a lot of freight coming from the U.S. back into Canada, why? Because it’s so expensive that the Canadian buyer cannot buy anything in the U.S. So you’re right, absolutely, yes, there’s less traffic going north and there is more traffic going south. So right now, we’re going to – and this is not the first time. We’re going to what we call an imbalance, okay? So that’s what we’re having to fight, okay, and we also have to fight with the currency, right, the currency swing. So but that’s our job. That’s what we do all the time. So but that doesn’t excuse us from, let’s say, $5 million or $6 million behind last year. This has to do with what I just explained. We feel good that the regular van operation, okay, for 2016 would deliver, okay, some good results and getting better into 2017 because of this tightening of the market and also because we believe that the U.S. economy will keep on improving and the Canadian economy 2017 should also improve. We believe that the fact that there’s an election in the U.S., it’s a transition year. LTs are always slower in an election year. So 2017, we believe it’s – on the Truckload side should improve in the U.S. And we think that also the fact that the federal government wants to invest in the infrastructure in Canada. So that should boost a little bit economy. Hopefully, the consumer will be in a position to spend a little bit more money, because we haven’t seen any dividend from the oil situation. I mean the oil – the fact that is being less for fueling his car. You should have more disposable income and be in a position to spend that money. While so far what I’m seeing is that, it’s like it didn’t materialize. But may it took a year or year-and-a-half for the consumer to start to feel good about this Canadian economy that’s not so good and maybe that’s going to help us within the, let’s say, the latter part of 2016 and going to 2017.

That’s perfect. I appreciate the time, Alain. Alain Bédard: Pleasure.

Your next question comes from Jason Seidl with Cowen. Please go ahead.

Hey, Alain, it’s actually Matt Frankel on for Jason this afternoon. Thanks for taking my question. Alain Bédard: Hi, Matt.

Hi, two questions for you, one high level. First is, just on the macroeconomic side of things, we heard from Canadian pacific this morning. They were a bit more beaten you sound in terms of the Canadian economic specifically. I’m curious what you’re hearing or seeing specifically from certain customers in certain industries, at least, you believe that we are in approaching bottom here? And then second question is, just pricing on the truckload side, specifically on the U.S. long-haul market right now, what you’re seeing? How conversations are going with customers in terms of rebidding new annual contracts, if you can comment on that would appreciate it? Thank you. Alain Bédard: Well, on the state of the Canadian economy, I mean, as we’re always very conservative, because we’re trucker. If I would be a real guy, it’s probably would be a different story. But as being truckers, we have to be very, very conservative. So maybe CP is right, we’re starting to read that things are getting a little bit better. There was the RBC report that came out that, yes, we’re starting to – the manufacturing are starting to do a little bit more in Canada. But that’s why we’re saying, hey guys, let’s be conservative to the first six months are not going to be nice and rosy, but we believe that last six months will be better. Now, in terms of the U.S. truckload market, for sure, I mean, the shippers are smart. I mean, they know that the market is soft. So they’re trying to rebid the business and then try to take advantage of that. So fine, but they also careful, because they know that something has to give at one point, the rules are pretty clear. So you need ELDs in your truck, no layer that the – by the end of 2017. So the smart shippers, they’re starting to ask question, okay, with their service provider, are you guys complying? And the good companies like, I don’t know, Knight, Hyland, Heartland, all those are common and all those good truckload company, they’re all complying, right? This is just the small medium-sized guy that he is waiting and he is waiting. But that’s one point, he is not going to be able to afford to wait. So that creates a little bit of instability. So, for sure, every quarter that we’re going one after the other in the U.S., we believe that the market will tighten up every quarter, okay, and up to the end of 2017. So that’s why, as I said it, when I talk to my guys, they feel that, okay, we missed the plan for Q1. Q2 is going to be difficult too. But LA, we feel good that we’re going to make the plan for the year, because we’ll do – we’ll make it up in Q3 and in Q4. So that’s our appreciation of the market today. Hello?

Your next question comes from Kevin Chiang with CIBC. Please go ahead.

Good afternoon, Alain. Thanks for taking my question here. Maybe just a clarification point, I think you mentioned earlier in your remarks that you answered the theoretical exercise around your buy back and acquiring a company and you mentioned your leverage ratio could be up to 2.5 times. Should we be thinking about that as being kind of the upper threshold you’d like to be at during the cycle, or would you like to push that – could you push that further is the right deal came along, as we saw on the previous cycle when you bought some higher quality assets like Contrans and Transport America? Alain Bédard: Yes, absolutely, Kevin. I mean I was just giving an example that if we do this and that, I mean, that would push our leverage to 2.5. But, for sure, for the right company at the right price, if we have to go up to three, we’ll do.

Okay. Alain Bédard: But right now, our priority is to buy back our own stock.

All right. Alain Bédard: I mean, I’ve said it. I have tried to buy back 10 million shares. I got only 2.6, okay? So we’re active now in our NCIB and we’re buying, okay, I just raised the cap, because our stock is down and we say good, that’s fine, so let’s buy more and so we’re buying as much as we can.

Fair enough. Makes sense. And then just on the comments on LTL, it sounds like it’s probably the most oversupplied situation you’re facing from a competitive perspective… Alain Bédard: Absolutely, yes, sir.

And I think you’ve been trying to consolidate the market there to bring some more capacity discipline. Is there way to quantify how oversupplied the market here is in Canada? And how much excess capacity to leave the system before you think you will see some improvement in pricing from the trends you’re seeing today? Alain Bédard: That’s hard to say, Kevin. If, for instance, there’s two bad trucking company right now that, if you add the revenues, it’s more than $200 million. If those guys would disappear tomorrow, okay, would that creates a market condition that improves the market probably, okay? So we – don’t forget, we are an 800 to 900 depends, if you exclude fuel. But let’s say $800 million company in the LTL and probably now down to $750, because I mean, we’re always going down. And we don’t have a good control of this market, okay? So $200 to me, it’s the minimum and it’s probably more like $300 or $400. But that the good thing is, we have some good competitors like Murray Mullen. I mean, so he is buying to Guard Wines [ph]. The problem that he has is that, at the same time that he’s doing some great job in Alberta that the Alberta economy goes to [indiscernible] right?

All right. Alain Bédard: My problem is not – my problem out West is not the competition is the market. My problem in the East, okay, is the competition more than the market.

Okay, that makes sense. And then – and just lastly from me, it sounds like if the right opportunity comes as you mentioned, you look to redeploy some capital here. Just trying to get a sense of – are the multiples that some of the companies you’re potentially talking with, are they coming in just given the general uncertainty in the macro environment. And maybe can you speak to the due diligence you do today to ensure when you look at our earning stream, how resilient that is and especially given how uncertain the market is that that earnings will be around even if we take another step down in the economy here? Alain Bédard: Well, we always have to prove the number, okay? So every transaction and let me tell you, I mean, we did three or four small acquisitions so far, okay, in Ontario in our specialty truckload, and we’re doing well, but these are small stuff, okay? So you say, hey, I think, how can you predict? Well, one thing is, what we’re doing is, we’re eliminating a guy that doesn’t know how to make money. He knows how to service a customer, but he doesn’t know how to make money. So by eliminating those guys that don’t know how to make money replacing that by the guy that runs the show in our home, which is, Scott, over there at Contrans. I mean, that is a great payback for the company. Now, that’s small. Now, if we do something of size like when we bought Contrans, okay, well that’s a different story. There is you get to prove the number and you’ve got – there’s got to be a fit. There’s got to be something that these guys are doing better than what you’re doing. So that is what we look at Kevin. For instance, what are these guys doing better than us that we could import into our own operation like when we bought America, okay, we said, hey, we got to be present in the U.S. So the America opportunity shows up, but these guys are good. They are running a good show, okay, so that is our beachhead. So that is where we’re going to start. We are going to learn the market to America. So and now we know. We understand a little bit better what’s going on in U.S. We talk to a lot of people. So it’s always – the only risk is, if I buy my stock, I know I’m for sure I know what I’m buying, okay? If I buy a company, there’s always a risk. Hey, there’s always the risk, so it’s like us, I mean, there’s always the risk, because market condition could change, it’s the same thing for an acquisition. Now, there’s more risk on an acquisition, because you don’t know the people, okay, you know what they have been doing, whereas if I’m buying my stock the way I’m doing now, I can’t make a mistake, I know what I’m buying.

That makes lot of sense. Thank you very much for the insight. Alain Bédard: Okay, Kevin, pleasure.

[Operator Instructions] Your next question comes from Mona Nazir with Laurentian Bank. Please go ahead.

Hi, just a follow-up from me. On the truckload side, I know that you are looking at a number of options either outright sale or formation of the new entity. I’m just wondering if the individuals that you’re speaking to, if they’re kind of content with the truckload size that you are at now, or do they think that a deal makes sense if you bulk up in size, or are there any changes to the current business before you enter into an agreement or some sort of implied prerequisite? Alain Bédard: No…

Okay. Alain Bédard: I mean, we could do a deal tomorrow with one or two or three different companies. And I mean the way we are today, it makes a lot of sense. I mean, there’s always been a discussion, okay, if we’re a partner, do you include the Canadian truckload, yes or no fine, but besides that, no.

Okay, thank you. Alain Bédard: You’re, welcome.

And Mr. Bédard there are no further questions at this time. Please continue. Alain Bédard: Well, thank you, operator. So ladies and gentlemen, thank you for joining us today. And I look forward to speaking with you again following our – the release of our Q2 results. So enjoy the rest of the day. Thanks for your interest in our company. Take care, bye.

Ladies and gentlemen, this includes the conference call for today. Thank you for participating. Please disconnect your lines.