TFI International Inc. (TFII) Q3 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce Third Quarter 2017 Results Conference Call. [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 Friday, October 27, 2017. I will now turn the conference over to Alain Bédard, Chairman, President and CEO. Please go ahead. Alain Bédard: Well thank you, operator, and good morning, ladies and gentlemen. And thank you for joining this morning's call. We released our third quarter 2017 results yesterday after the market closed. So please visit the Investor Relations section of our website, if you need a copy. At TFI International, our primary objective is to create and unlock shareholder value and I am pleased to report that we're making progress. During the quarter, we continued to drive operating efficiencies and push for an asset light business model. We strengthened our balance sheet as we executed a strategic sales and leaseback transaction and our free cash flow from continuing operations remained strong at $198 million. From a capital allocation standpoint, we've used this free cash flow to reduce debt by $175 million, which strengthens our financial position and allow us to further pursue high return in investment. In addition, we renewed our normal course issuer bid because at TFI we always welcome the opportunity to return excess cash flow to our shareholders. During the quarter before fuel surcharge, our revenue surcharge, our revenue from continuing operation grew 17% to $1.05 billion. I'm pleased to report that we've seen recent improvement in our U.S. truckload demand and we believe that the recent weakness which has created an overall revenue headwind in the past year is becoming abate. Our operating margin of 5.8% compares to 7.7% a year earlier with the decrease due to both the lingering difficult conditions in the U.S. domestic truckload market and the CFI transition particularly upset by efficiency gains in other segments. We also incurred a one-time transitional and rebranding costs of $3.2 million related to the integration of CFI. Our total adjusted net income from continuing operation was $48.8 million or $0.53 per diluted shares compared to $53.5 million or $0.57 per diluted shares a year earlier. Taking a look at our individual segments and beginning with Truckload. As I mentioned, we've seen the early sign of improvement in U.S., while Canadian operation have remained solid. Revenue before fuel surcharge of $483 million compares to $346 million a year earlier, with the increase largely due to CFI and other acquisition that contributed $147 million to third quarter truckload results. Without the acquisition, revenue growth was negative 3% as a result of unfavorable currency fluctuation and lower volume. Operating income for Truckload was $16.6 million or 3.4% of revenue before fuel surcharge versus $24.7 million or 7.1% of revenue last year. Excluding business acquisition, operating income increased by $2.5 million mainly due to our Canadian TL operation. At our Package and Courier segment, our focus on business mix and cost reduction yield a slightly higher margin despite a volume decline. We generated revenue before fuel surcharge of $305 million a decline of 5%. Excluding acquisition, revenue declined 10% versus a year earlier due to restructuring and volume pressure at both U.S. and Canadian same day operation. Operating income in the P&C was $31.4 million or a margin of 10.3%, which was 10 basis point over the past year. In our LTL segment, we saw lower volume from the U.S. and Eastern Canada and to address this we are proactively adjusting supply. Revenue before fuel surcharge of $198 million was up 7% over the prior year $185 million due primarily to business acquisitions. Operating income was $13.4 million versus $14.7 million in the prior year. In our Logistics segment, we generated positive revenue growth and stable margin. Revenue before fuel surcharge declined 25% from $72.9 million. Excluding acquisition revenue was up 6% driven by higher volume from new and current customers and some non-recurring business. Margin for Logistics held steady at 8.7% and our operating income for the quarter increased 25% to $6.3 million. Let me now spend a moment on our sales and leaseback transaction that we undertook to unlock shareholder value. In total we sold for real estate assets accounting for a less than 20% of the net book value of our total real estate portfolio. The transaction net of proceeds of $126 million produced a $7 million gain. It was done at a cap rate of less than 5.5%. Looking ahead for the remainder of 2017, we are cautiously optimistic on the North American economy and believe TFI International is well positioned to benefit when trade volume and rates strengthen. We see low unemployment and solid consumer spending that should drive a gradual recovery in trade volume and rates as evidenced by the early sign of improvement in U.S. TL demand. Near-term organic growth could still be limited given the somewhat challenging condition that persists and therefore to drive further revenue and operating income growth we intend to focus on operating efficiencies, asset preservation, tight cost control, and a disciplined acquisition strategy. In addition, our push for an asset-light business model should increasingly allow us to invest in higher return on capital initiatives that generates solid cash flow. As part of this proceed, we believe that TFI will increasingly earn a reputation as a provider of innovative value added solution. I'll close by reiterating that our priority is to create and unlock shareholder value and to do so, we will continue to drive operating efficiencies, maximize our free cash flow, and utilize our excess cash to reduce debt and return cash to our shareholder. So thank you for your time today. And operator, you may now open the call for questions.

[Operator Instructions] Your first question comes from the line of Jason Seidl of Cowen. Please go ahead.

Thank you Operator. Couple of questions here. I guess, one, when you're looking at your truckload business for the rebranding of CFI, is the rebranding cost done or should we expect more in 4Q? Alain Bédard: I think we are done on that, Jason. I mean, we spend a lot of dollars rebranding. I mean, don't forget we've got 7,000 trailers there and about a little over 2,000 trucks. So we're done with that. I think the total cost for all this moving trucks around and selling trucks and all this transaction, I mean, it was very expensive for us in 2017. So going into 2018, we will be back into more of a normal type of operation there at CFI.

And if I could touch on driver pay at CFI, where are you guys compared to the rest of the industry and what do you have or what do you see for driver pay increases in 2018? Alain Bédard: Yeah, that’s a very good question. So what we did when we bought CFI early in the year, I think it was January, we have increased the salary of our driver, trying to retain drivers and trying to also to reduce the turnover. And – but our main focus going forward, yes, we will adjust the driver pay, but the main focus is we have to give these drivers more miles. So this is an area of focus of our team there both TCA and CFI is – we have to get these guys more miles so that we have a happier team. And don't forget at CFI, we've been affected by a lot of business that didn't fit the model when we bought it. So it took us around nine months really. As a matter of fact there is only as October 1 of this year that we were able to clean all this business that did not fit okay at CFI. So we're done with that. And the big problem with when you have business that doesn't fit the model is that the drivers don't get the miles and then you're stuck with high turnover and unhappiness with the drivers and et cetera, et cetera. So that is behind us at CFI. So now we're going to start building in. And as you know we're starting to see a little bit of tailwind on the U.S. steel market. There's more freight, there is more demand. So we were able also getting rid of about $60 million of bad freight within CFI to replace that. We've also reduced, a little bit, the size of the fleet, okay. And then we are in a position, really well positioned, for 2017, Q4 and into Q -- into 2018.

And so I guess, I interpret this another way that because you're sort of revamping your end markets or your business mix that's going to help probably improve your driver turnover and thus maybe offset some of the driver wage increases that you are anticipating for 2018? Alain Bédard: But we will have to still adjust the pay for the drivers pay. So there is no question about that. But the guys' salary will be better because they will be driving more miles, okay. According to the law and according to all the regulation, I mean it's not about having those guys cheat on ELDs and all that. It's just to be more efficient at the dispatch level and the customer that fits the network, that is a filler for us in 2017.

Understood. If we go back over the last year, you've talked numerous times about trying to unlock shareholder value in the truckload sector and you've seen the multiples in the truckload stocks go way up and CFI as a whole is obviously trailing that. Where are we at in terms of the plans on doing something there or has that been scrapped? Alain Bédard: No it has not been scrapped at all. I mean, I was in St. Paul yesterday as we review the budget for 2018 with the guys at TCA. I mean don't forget, we've changed the leadership at TCA. We have added strength to the leadership team at CFI. And when I was talking with our guys over there at TCA yesterday, I mean, their focus is really how we're going to become more of an asset-light type of truckload operation there. So really if you look at TCA right now those guys are running probably like 130 or up out of 1,400 trucks. So maybe 10%. The goal is really to move that up, okay. And this is going to be an area of focus at TCA. If you look at CFI, we're running about 500 or up over there on the fleet of let's say 2,500, 2,600 trucks. We are better over there. But there again, I mean the focus is going to be how can we do better on that side so that we don't have to spend a ton of CapEx that we did in 2017. Now we did spend a lot of CapEx in 2017 because the previous owner, okay, in 2016, didn't spend a dime on the CapEx. Now that being said our maintenance cost per mile if you look at CFI right now went all the way up in 2017 to $0.12 which is completely unacceptable. So it's not going to be like that in 2018 because we replaced about 650 trucks, okay. But we're still going to have to do some catch-up in 2018 to bring the fleet back to a normal state. But now say the goal is going to be how to bring down our maintenance cost under the $0.10 mark and back to where a more normal level would be like $0.05, $0.06, $0.07 a mile, like these guys used to be a few years ago, okay.

And that will probably be like a 2019 event by the time you cycle through some of the new equipment? Alain Bédard: Absolutely. I mean it's going to take us some time. I said it. You can't catch up a year of no CapEx just in a year. It doesn't make any sense. So you got to spread that out. So this is why we did 650 trucks this year. Normally CFI should do about, let's say, 425 based on a 5-year life of a truck and we did 650. So next year to catch up the fact that they didn't buy 400 trucks in 2016 we are going to have to probably do another year of expensive vast investment in the CapEx on the truck side, not so much on the trailer side, but on the truck side. In TCA it's not an issue because TCA's CapEx has always been normal CapEx just to maintain the fleet to an age that is respectable. Jason, our maintenance cost will go down in 2018. Our rebranding cost and moving all this equipment all over the place, okay, is going to disappear. That freight that did not fit the system is completely out of our system as of October 1, okay. So all of that and the fact also that we're starting to see contract pricing moving to a more reasonable pricing environment, okay, we feel very good. I mean, I was with my TCA team yesterday and with Scott Arves and Greg Rumble our CFO. And we all feel very good that leadership team that we have there under our new leader there Paul Simmons, I mean we're going to do very well in 2018. And next week I'm going to be in Joplin with our guys there at CFI and talking to Scott and Greg there again, they've been there, at CLA you will be happy. Those guys are focused. I mean we went through a very difficult 2018 with market condition, fleet being terrible, the fact that it's tough to retain drivers because the freight doesn't fit the model, the trucks are too old, the truck breaks down because it's too old, I mean, it's been a very difficult year for us. But we see 2018 as being very positive for our U.S. TL, because don't forget, I mean U.S. TL cash flow right now is zero. I mean, our free cash flow is zero . We're investing like crazy and the returns are not there. But I mean for But I mean for sure some guys are saying, "Hey, Alain made a mistake, why did he invest in U.S. TL?" Well you'll see, down the road I mean this investment will prove to be very successful.

So not off the table for something going on with the TL business but maybe out more towards 2018. Alain Bédard: Absolutely. We got to fix what we have. I mean it's impossible for us to do anything on the M&A side on the U.S. side, it's impossible. We have to fix what we have and it's going to take us some time. But in 2018 on the Canadian side, I mean, we are very solid there. There we could do – we could do some M&A activity with our sales and leaseback and this is just a first step. I mean, what we did at the end of September is just step one. We have maybe four or five steps to do, still to do. So – I mean this is just the first step of a long process of unlocking this value that nobody sees, okay, at TFI.

I have a few more, but I'll get back in queue to give some body else a shot. Thanks, Alain appreciate it. Alain Bédard: Thank you Jason.

Your next question comes from the line of Mona Nazir of Laurentian Bank. Please go ahead.

Good morning Alain and thank you for taking my question. Alain Bédard: Good morning Mona.

First think I just wanted to touch on the P&C segment. There was a 10% contraction that was a further deterioration from the 3% last quarter. I know that the shift from positive growth was partially due to a significant e-commerce customer loss. I'm just wondering was there any other customer loss this quarter. And also you mentioned a restructuring impact in your prepared commentary. And if you could quantify that that would be great. Alain Bédard: So what we talk about restructuring is if you remember, okay, a year ago we let go the president that was running our last mile business in Canada, a year ago. And at the same time also we let go about $30 million to $40 million of business a year on customers that didn't make any sense for us, 2% guy. I mean, we don't want 2% guy, okay, within TFI. So this is still lingering effect because we left these customers go in Q4 of last year. At the same time that we had the president go, okay, we let those account go because this -- the past leader did not understand that we are not a 2% company. We don't have time to take care of a 2% company, bottom line. So this is, if you look Q3, year-over-year you say, "Hey, 10% drop in revenue." You're right. E-commerce on the U.S. side was a big issue. It affected us as of Q1 of this year. So it will still be an effect in Q4 of this year quarter-over-quarter. So it was – on the Canadian side was a 2% guy and on the U.S. side was the e-tailer that decided to do it on his own.

That's helpful. And then just turning into that, these comments into kind of the guidance. Is there any update on the 2017 EBITDA, just given some of the softness in the quarter and knowing how things in Q4 might shape up? I believe on the last call you said it was about $550 million to $560 million in EBITDA? Alain Bédard: Yes with everything that's going on right now and what we're seeing, Mona, for sure – I mean the $550 million is unattainable for us. I mean, we're now back down to about $525 million to $535 million, okay, number for the year 2017. We were lucky that the storm season in the U.S. did not affected – did affect us to a certain degree, but not so bad. We did lose 100 trucks because of the water situation there. So it affected us a little bit. So that should disappear in Q4. Our U.S. TL Q3 has been terrible because of all the situation that I explained. But this is – all this bad freight is out of our system now. So I anticipate that our Q4 should be a little bit better, okay, so trending positively out of the mess of 2017. This is why we believe that our P&C will do way better, okay, in Q4 because we made a lot of adjustment to our operations. Don't forget we let go a lot of people. We anticipate volumes to be strong in Q4 based on what we see so far in October. So I think between $525 million and $535 million should be a realistic number for 2017. But don't forget, I mean, our U.S. Truckload dragged us really, really bad in 2017 versus plan. I mean, it's been a very difficult year. And like I said to Jason, I mean, we had a nice budget meeting yesterday and the day before in Minneapolis Twin Cities. And I feel very good about these guys. I mean we changed – out of six or seven leaders there we changed four or five, okay. So it's a brand new team, it's a new CFO, it's a new President, it's a new – the sales guy, the VP of Sales has been with us for about – just about a year. So it's a new team, high energy, highly focused and I'm going to be next week, like I said earlier in Joplin. And the guys tell me, you will be happy to see that the team there is really focused. All the transition stuff is behind us. The bad freight is behind us, and we've been able to replace all that bad freight with something that is much more closer to reality with the fuel surcharge also that reflects the market, not a discounted fuel surcharge like we used to have with this customer. So – I mean, everything is pointing in the right direction for our U.S. TL.

Okay. And just a quick follow-up to that and then I will step aside. On the Truckload side you spoke about starting to see an improvement, positive data points. What kind of a ceiling could we see for the expected organic growth potentially in 2018, especially given the lower comp period in 2017? Is it possible to pivot from a current 3% contraction to a 5% positive growth or even better? Alain Bédard: You know what that I don't know, Mona. So when I looked at the plan that we have for TCA we're looking at a small increase. I mean, we don't want to be focused on growing top line and forgetting about bottom line. So if you understand the culture at TFI, I mean our focus has always been to the bottom line. Never to the top line. So, guys, let's deliver, because if you look at TCA it's a major disappointment for us, the 2017 and 2016 as well. I mean, when you're running a company – you used to run a company at 91 OR and you let that slip close to 98, 99 OR. I mean it's not good, okay. So this is what the new team there is focusing on. Guys, let's bring TCA back to the glory days, okay, where you guys were running at 91 OR for four, five years in a row, right. So the same thing with CFI. CFI I mean, we're 108 OR right now. It doesn't – it doesn't make any sense. So we got to bring that down to, I mean a breakeven. Now 100 seems to be great but – I mean, I'm sure that the focus is going to be a little bit more like bottom line and less with the top line. I mean, if we see opportunity, for sure we'll jump on that, okay.

Very helpful, yes, thank you.

Your next question comes from the line of Fadi Chamoun of BMO Capital Markets. Please go ahead.

Good morning, Alain. Alain Bédard: Good morning, Fadi.

So just to go back on CFI, what is a normal operational – when you look at all this business that you let go because it wasn't satisfactory and some of the cleanup you had to do, like what is the run rate whether it's EBIT or EBITDA that we should be thinking of currently that we can grow from as the business sort of gets a little bit stronger end markets? Alain Bédard: Well you see, Fadi, our plan for CFI, because when we bought the business these guys were according to the SIM that we bought the company from and our due dil, okay, this company was running like $100 million EBITDA, USD. And this year probably we're lucky if we're going to hit $50 million, right. Now there is all kinds of reasons for that. I mean maintenance went through the roof because of the fleet is too old. That cost us – that will cost us probably like $12 million to $15 million. There is all the rebranding costs that cost us $15 million to $20 million and moving all this equipment around. The fact that this freight that we – that I am talking about does not fit the network and you run 120 to 125 OR that ship freight, okay. And then you got issues with the driver because they don't have the miles, so they just quit. And then how do you service this bad customer is you got to find another driver and that guy will quit the same because it doesn't fit the model, okay. So those guys don't have the mile, they have to sit. And when they have to sit they don't make money. And when they don't make money, mama is not happy, so they quit, okay. So all that is behind us, okay. And all that cost us a fortune during 2017. So I haven't seen the plan for 2018. I'm going to be there next week. But for sure all this maintenance, turnover of drivers, the fact that the freight does not fit the model, all the rebranding because we were obligated to do that within a very short period of time, because between me and you I would never have rebranded all these trailers. But this was part of the deal. You spend a fortune doing that, okay. So that's behind us. So our plan initially for 2017 was $600 million in normal U.S. TL condition environment. Because all the rest of our business unit by the end of 2017, our P&C, our LTL, and our TL – Canadian TL and our Logistics will be on plan. The only one that is missing the plan by far is our U.S. TL, mostly CFI, but even TCA. And that's why we had to make a change over there, okay.

Okay. So basically the $50 million is kind of the base that you're going to be able to build on from like improving the maintenance cost and taking advantage of the stronger market I guess that's how we should be? Alain Bédard: And also the fact, Fadi, that we have freight in our system that did not fit the model, okay. So that's gone and it's been replaced by something that fits the model, okay. So if you look at all the U.S. TL, okay, and one of the most important KPI is the revenue per truck, okay, because this is the key, revenue per truck, miles per truck, per month, per week, per day whatever you look at it. And when you have bad freight in your network, you don't have the revenue per truck, not just because the revenue per mile is not what it should be, it's the mile. You don't get the mile because it doesn't fit the network. You got too much empty mile to reload because it doesn't fit the network. See what I mean.

Okay. Just a quick question on the LTL side. You are making good progress consolidating and focusing on higher density market and in the LTL facility. And then you had this breakup of relationship with Estes I guess. Alain Bédard: Yes.

Now I saw in the MD&A you mention that there were a few set of weakness of volume coming out. So does this set back some of your sort of cost coverage here in, I guess, TST? Is there issues there or you sort of right-sized the business? Alain Bédard: Yes, that’s a good question, Fadi. I mean, we had a 20-year relationship with our friends there at Estes and overnight they pick up the phone and they call our EVP, Rob and they said sorry Rob, but we had a shake hand with Alain and we know we had all kinds of these gentlemen agreement, but we made a decision to switch to a local guy after 20 years. So it caught Rob by surprise and we reacted. So, we, through Concord, one of our smaller division, okay, we have a partner that's called Saia. So we approached Saia and for sure, I mean, all the volume that we control ourselves now has been serviced in the U.S. by Saia. So it cost us time, energy et cetera, et cetera. After 20 years to break up a relationship like that on a 60 days' notice I mean, it's unheard of, but it is what it is. And at the same time, Rob is retiring, so Rick Hashie took over the team there and I mean it was quite an event because at the same time that Rob leaves with a broken heart on that thing there, Rick takes over and he's got to adjust the ship. So this is Q3 we are over $1 million severance in our LTL that affects our results because we had to adjust because the volume that our friend Estes used to control, we've lost that to the other guy. We kept our own, okay and Saia's volume into Canada was really small. Now that's a big area of our focus of them now, okay, because now they have Overland as a partner. So to answer your question, yes, we've been affected by severance in Q3 okay, over $1 million but this is short-term pain for long-term gain and you'll see that coming into 2018. Our intermodal division, okay, we've got a new team there, younger team, more aggressive and we will get way better results. Vitran was led by a guy for more than 25 years, Tony, did a fantastic job, okay, but the market condition is changing now – is changing because TFI's market share of the Intermodal LTL freight is more than 50%. Tony didn't have a chance to live in that kind of a world, right. it's the same thing for Marc, Joel over there. So you will see our LTL in 2018 do way better than we did in 2017 even with this relationship that we have with Estes that went south. We've replaced that and we will build much stronger and don't forget the acquisition of Cavalier also has been a great addition to our LTL business and you will see more into 2018. We're working on two or three different projects right now that will consolidate even more our position in the LTL. So I mean, yes, Q3 was a little bit of a disappointment in terms of how we look at the trend, you guys were doing better, whoop, a little bit of a setback, well, this is what happened. Don't forget $1 million and more in severance on our LTL division. That's got a huge effect on our bottom line, but this is short-term pain, long gain.

Okay, so the base case is really go back into that franchise? Alain Bédard: Yes, absolutely. I mean TST is a diamond of a company. I mean it's very well known, we have the knowledge because don't forget 20 years ago when we started that relationship with our friends there, they knew nothing about transport. I mean everything has been built by Overland, everything, this is like the startup that we did in California, Texas and Florida for an e-tailer. We did all the startup and after a year everything goes well, they take it in-house.

My last question, just to follow-up on the guidance number that you mentioned. I mean there's been a lot of sort of one-time expenses this year from CFI and some of the restructuring you've done here in the LTL and so on like, what is the base line we should be thinking of going into 2018 just to sort of have an idea what 2018 might look like? Alain Bédard: Still early Fadi, but I would tell you this. You know, there is no way in my mind that we could deliver less than 600 in 2018. With the business that we have today, I mean, for sure our U.S. TL guys are committed to do way better than what they've done in 2017. So that will definitely help us. The same thing is true for our P&C, our P&C, we keep on improving. Yes, we had a little bit of a set back with our e-tailer in the U.S. and – but you'll see us moving forward. So our P&C will do better in 2018. We also are working on a few hubs that will also be more efficient in 2018 and we have a good plan there. Our LTL, like I said earlier will do much better. Our intermodal LTL will do way, way better. So I'm feeling very good that, I mean, we said 600 for 2017. So I mean, it is going to be at least 600 for 2018 because all this excess costs that we have to live through, the fact also that the U.S. TL market was not as good as what it seems it's going to be so far in 2018. So to me, they should be like we said last year about 600.

Okay, thanks a lot, appreciate all this. Alain Bédard: Pleasure, Fadi.

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

Thanks very much, good morning, Alain. Alain Bédard: Good morning, Walter.

So this improving environment you're seeing in the U.S. truckload and you indicated that it is demand based. How is the capacity side and the ability to quickly turn that into the price or do you have contracts that are lengthy in term that you have the kind of wait till they roll over before you can really implement that? So what are some of the lead time where you can really capitalize on this turn in the truckload sector? Alain Bédard: It's already started Walter, you know when I was talking to our TC team already we have contract that are renewed now at fairer price, but it's going to take some time because as you know most of the contracts are for about 12 months. So as an example, they went to see one of our customers over there and the contract is in May and they've talked to them about adjusting price today and they said no, you got to stick to your contract and you going to have live until the month of May, but already the customer knows that the wind is changing and the direction of the wind is changing. So it will be over time and this is why our focus is – and I say that to my guys all the time, we don't control the market. I mean market we have to live by. So right now, market is going up, so we will go up. This is like the tide, so every ship goes up with the tide. So we go up with the tide on the quality of revenue, but the most important thing that we must keep in mind is we have to be lean and mean on the cost side. On the Canadian side, we run a very lean and mean operation because we've built that over time and we've been – on the U.S. side, we still have costs that we need to do better and this is the big focus for us again in 2017 and 2018, going into 2018 is guys, how can we bring our costs down by $0.05 a mile on fuel efficiency, on better productivity, more miles per truck, insurance costs, claim costs, accident costs, you know all this is the area of focus on a day-to-day basis. Revenue, you just go along with the market. So it's not going to save you, it's going to help us in 2018, but more importantly for us, we have to bring the cost of our U.S. operation down and also like I said to Jason, our focus is still to bring the capital intensity of our U.S. operations. As an example, CFI Q3 capital intensity was 15% of revenue. It doesn't make any sense. You can't make money with 15% capital intensity. Why? Because we have that shitty freight and you lose drivers, the truck sits idle and all that. So this is areas of efficiency that has to be brought on but when you have a contract with a customer, okay, that your hands were tied for 12 months and finally you were able to cut the cord October 1, then you could start investing in bringing freight that fits the network. And you won't have all these drivers in and out like a rotating door and the cost of hiring and new drivers doesn't know the customers or he it's a pole or he hits a dog and then you got a claim, it's a vicious circle.

And what are – but on the tightening capacity and improving rate, what kind of renewals are you seeing? Are these low single-digit or could we get into the double-digit territory of rate renewals as they come due? Alain Bédard: Well, I think I would say, it’s a single-digit, Walter. I mean, you can't talk about double-digit unless it's really unfair. So we had a situation in Canada, okay, with Vitran where they had to adjust double-digit the price of a customer. I think the guy was taking advantage of the company for so long. And then he calls the other guys and the other guys are saying no. I mean, if I stick with Vitran because I'm going to charge you more. But this is exceptional.

Okay. Alain Bédard: I would say that on the U.S. side I mean you're looking at a single-digit adjustment as a first step, right.

Okay. And now that you're past the kind of difficult process of re-establishing your asset base, particularly in U.S. truckload, can you give us some indication as we go out, as we, I guess, finish this year what the net CapEx is going to end up at this year and some indication as to what it will be on a trend basis for next year? Alain Bédard: On the U.S. TL, Walter, I mean TCA we're done, okay, with 2017. So at the end of September we were done. And on the CFI side, we still have some trucks to come in. But I would tell you that when you look at our numbers, this is an exceptional year and I said it from day one. I mean it was, we were talking about $30 million to $35 million more, okay, than normal because we're buying about 250 trucks at let's say net of disposal of $100,000 each, so you’re talking $25 million, convert that into Canadian dollars, so you're about CAD35 million, right.

Right. Alain Bédard: So, it’s going to probably be, Walter, the same thing next year because we have to catch up, okay, to our normal cycle. TCA, we will be buying 250 trucks in 2018 down from 285 last year. So it's about 30 trucks times $100. And on the trailer side, it's a light year for us at TCA, very light year. And CFI I don't know the exact number. But CFI on the trailer side, they've been fine. I mean the truck was the problem.

Right. So all of that in the mix that you expect your overall CapEx spend to be down next year? Alain Bédard: It will be down, absolutely, it will be down. And don't forget also that USD is now, I was going to say $1.25, oops, no, it's sort of now at $1.28. But most of our purchases were done with USD at $1.30 to $1.35 this year. I don't know I thought that maybe dollar was say at $1.25 but it seems that I am going to be wrong there. It's $1.28 now something.

Okay. That’s all my question. Thanks very much, Alain. Alain Bédard: Thank you, Walter.

Your next question comes from the line of Cameron Doerksen of National Bank Financial. Please go ahead.

Okay. Good morning. Alain Bédard: Good morning.

Just a – I just want to follow-up on the contract renewals in the U.S. TL particularly. I'm just wondering sort of when the – sort of the main period would be when your longer term or –year type contracts would renew? I mean is this something that we should expect to be kind of largely completed in the early part of 2018? Alain Bédard: No, it will be spread out all over the year because it's just a start. We're just starting to be in the position to talk to the customer and say to the customer, listen guys, I mean it's not working, those rates are not market rate today. So – but it's spread out over the course of the next 12 months, right.

Okay. And just a question on the, I guess, potential for additional sale leaseback on properties. I mean, you did a big transaction in the quarter. I just sort of read from your comments that there is maybe more to do. Can you just maybe describe what you're seeing there and is there, I guess, additional transactions that are at the same scale as the one you've just done? Alain Bédard: Well, if you look at our balance sheet right now we've got some $20 million there as assets held for resale, okay. So these are – these are two properties that we've already signed the SPA on, okay. But we've got some works to do on these property. One, I mean the regulation has changed over time. So we have to add sprinklers. The other one, it's a roofing thing and now it's in Alberta. So – I mean, now we're like in the winter. So probably these will close finally in not in Q1, or not in Q4 this year or not in Q1, but probably more like in Q4. But over and above these two properties that are now classified in asset held for sales, I mean we've got at least four or five properties that we're working on that will probably close during the course of 2018, okay. Well, in terms of cash, okay, these two properties you're talking about around $50 million of cash that will come into TFI. And the rest you're talking at least another $50 million to $60 million of cash, the one that we're working on right now.

Okay. Got it. And then maybe just finally, just on the M&A, I guess, prospects. I mean, it looks like you did a some other small transaction in the, I guess, in Logistics segment on the West Coast in U.S. Alain Bédard: Yes.

Can just maybe talk about – it sounds like maybe the way you're going to do here in the near term is more tuck-ins but where were you seeing the opportunities and then what are your focuses? Alain Bédard: Well, we see a lot of opportunity, I mean on the Canadian side. Nothing big, okay. But in Ontario and in Quebec, I mean we have a lot of files that we're looking at. And a lot of these companies are either having some profitability issues and for us it just would be like a tuck-in. On the U.S. side, I mean nothing major for us in 2018 at least until Q3. Once we see clear about the turnaround of our CFI and TCA there then we will be in a position to move along because we have some good prospect that we see would be a good fit for us on the U.S. side. But I'm saying no, no, no guys, I mean we've got too much on our plate right now. Let's fix what we have, let's show to our investors that we're on the right track because some guys may have doubt on that, but I don't. But when you look at the numbers and you're not leaving that every day is a wow, but we will correct that. And then once this is behind us, we have some – some good opportunity on the U.S. side as well as on the Canadian side. The Canadian side, for us it's easier to do because we have such a deep bench and we could do the trade just like that. U.S., we're going to fix what we have and also we have to beef up the team. So this is what Scott Arves, okay, and even Greg is working on, beefing up the team. So this is why we added strength to our TCA team. We've added strength to our CFI team and we're still looking how to beef up the team there so that when we have to do an adjustment or an investment then we have a deeper bench.

Okay, makes sense. That’s all I had. Thanks very much. Alain Bédard: Thank you, Cameron.

Your next question comes from the line of Benoit Poirier of Desjardins Capital. Please go ahead.

Hey. Good morning, Alain. Alain Bédard: Good morning.

Just to come back on e-commerce. Obviously we talk about the 10% decline organically, mostly due to the big e-tailer. I understand you're confident about 2018. It seems that you want to grow outside of this particular customer. But what is your remaining exposure to that big customer? And I'm just trying to know if the rest of the business could potentially be at risk. Alain Bédard: The only business that we do for that company is basically next to nothing in the U.S. now. I mean, most of the truckload business that we were doing for this guy, we cut that off 50% so far and we should be down to zero before the end of October or November. So on the U.S. side it's very minimal, I would say. Probably once we're all done with our truckload operation with this customer, he's going to be down to about $10 million of business with us. On the Canadian side, that's a little bit different. It's – we'll see, I mean, so far so good, but the level of trust is not very strong I mean with what happened in the Canadians – on the U.S. side, we're very careful, for sure investing for that kind of customers we're not going to do that. So yes, like the old saying, you ride the horse until it dies or until it drops and – but in the meantime, we are focusing on other customers on the e-commerce side. And we're doing well. We're doing well. We have a great partner that we're working on very closely on the U.S. side. This partner just signed a deal with Walmart. So on the U.S. – so we're just – I haven't seen anything yet, but hopefully it's too early for 2017, but I think we should see some good positive things there, maybe there is another player that we'll jump into the U.S. market. Hopefully, the Chinese will start being more active on the U.S. side, maybe we could help those guys. We'll see I mean, but e-commerce for us has been a bad experience with this customer in the U.S. We've built the business from scratch in three major states and then they made the decision to bring it home. It's their right, we don't question that, but it's just that it's very difficult for us to now adjust to that reality.

Okay. And on the LTL side, you've been making acquisition obviously, trying to consolidate this space. So what is the room for margin improvement? When we look at the quarter you were close to 6.7%. So I'm just wondering to look at what could be the margin improvement we might see in 2018 with LTL based on the consolidation that you've done? Alain Bédard: In think the LTL – if you remember what I told you about P&C a few years ago because of the DHL acquisition and because of this and because of that, our EBIT went down all the way to about 5 or 6 points and then we're back up to double-digit. There’s no way LTL in Canada, cannot be double-digit. Right now we're at 6, 7 points. We're not going to be double digits in 2018, but we will be closer to 8.5 than we are today. No reason to be running at 6%. Now we have to be careful because I'm looking at buying a small business right now, okay. They don't make any money, they don’t. In the east part of Canada, they don't make money. So there is a lot of players in Canada on the LTL side which is very different than the U.S. that don't make money. There's too much, people are not adjusting. The way I see TFI is, we have a good position on the intermodal, okay, and we have to adjust the pricing to the reality of 2018. We got increases from our line haul provider every year, every year and for the last three, four, five years, because all these companies were independent, nothing was passed on to the customer. This is not fair, but this is what we need to correct. From now until, let's say, the end of 2018, over the road – I was answering Fadi's question about Overland, we will adjust and our new partnership with Saia will be even in better terms and those guys are really focused into growing the transport business. And so, I feel very good that our LTL at 6, 7 point. 24 months from now, we should probably be double digit EBIT. I mean, there is no other way, it's got to be there.

Okay. Perfect. Very good. And just looking at 2018, Alain, you pointed out the goal to achieve $600 million and you lay out some very good information about the maintenance cost at CFI that will get almost $10 million, $12 million savings, $15 million to $20 million for the integration costs. So when we look at the rest of the – to get to $600 million, what would be the key drivers to get to the $600 million, Alain? Alain Bédard: Well, it's mostly our truckload operation in the U.S. that failed us in 2017 that won't fail us in 2018. So don’t forget, this was the plan for 2017 and we are still talking about the same kind of plan in 2018. So for us it's like, let's bring back our U.S. TL to the level they should be. At the same time, our P&C in 2018, both U.S. and Canada will do better, bottom line I'm talking about. Also our LTL will do better. So we believe, but this is still early because I haven't seen all the budget and all the plans for 2018, but this is still early but in my mind $600 million should be a minimum for us. So U.S. TL will definitely help. The Canadian TL, they are strong and they keep on doing better. Our specialty truckload is doing very, very, very good and if commodity prices and if the mining starts to move in Northern Ontario or Northern Quebec I mean, it will be fantastic for us. The drilling activity in Alberta is starting to wake up a little bit so that helped – will help us in 2018 as well. Texas, our operation there, they're starting to do better. So we have all kinds of good stuff on the go and if our truckload, our U.S. TL are performing like the have to, I mean, there is no question that we're going to end at $600 million.

Okay. And last one for me. When we look at 2018 and free cash flow I understand there is about $50 million of potential free cash flow coming from the two properties and another $50 million to $60 million coming from the other property. So when we look at 2018 with net CapEx, what type of free cash flow we might see and if you could provide the assumption for net CapEx and maybe the contribution from asset disposal, we might see next year, Alain? Alain Bédard: But, you know, in my mind, Benoit, all these real estate thing that we're doing, sales and leaseback, and selling sites and all that, I'm not including that in my forecast of free cash flow. So if I tell you that I believe that $300 million is the normal for us in 2018 that exclude, okay, the sales and leaseback on property that could fetch probably like $100 million in 2018 of cash.

Okay. Perfect. So you will apply this amount I would assume on debt reduction and potential buyback or eventually M&A, Alain? Alain Bédard: Well, I said it. I'd like to bring the share count down to about 85 million. So we're just waiting for an opportunity of weakness in the stock price and we'll be active again. We were not very active in Q3 because the stock price started to react to the reality of the U.S. TL market. An investment banker called me the other day and this is I mean, we’re just talking to some of our customers, why would – you could buy a good company like Knight at 30 times, 35 times earnings, but you could also buy TFI, which is a depressed stock in Canada and it’s got exposure, big exposure to the U.S. TL, right. So we’re just waiting for – if we could see an opportunity, I’d like to reduce the share count by between 4 million and 5 million. So, at today’s price, you’re talking about what – 4 million, you’re talking CAD 150 million, right.

Yes. Any level where you find the level to be attractive to pursue such an opportunity, Alain. Alain Bédard: Well, you see, we’ve not been active in Q3, except for the first few weeks of Q3. We’re just waiting to see what’s going to happen let’s say in November and for sure we’ll be back on the buyback. This is why we’re going to be continuing to unlock this share, this value of our real estate because nobody seems to be understanding what we’re doing. We sold those four properties for let’s say, $135 million with a cap rate, let’s say, of 5.5%, it’s less than that, but use that as a number, okay, so that means that your rent is going to be x. But you are going to save interest on $135 million, let’s say 4% or 3%. So the net cost is minimal in terms of your EPS right.

Yes. Alain Bédard: But the enterprise value has to – and that doesn’t change. But the market cap because of the debt has reduced by $135 million. I mean, when you look at that and let’s say you got at least another $100 million to do, maybe $200 million to do, I mean, it’s something that we need to do and I am going to use most of that cash to buy back the stock.

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

Your next question comes from the line of Turan Quettawala of Scotiabank. Your line is open.

Yes. Good morning, Alain. Alain Bédard: Good morning, Turan.

I guess, maybe my first question, you referenced earlier on the CFI business that you’re sort of doing about $50 million of profitability in 2017 on that particular business. Just wondering longer-term like let’s say once all this message that you’ve inherited for the players up a little bit, do you think this is a $75 million, $80 million business longer-term or do you think it could sort of go back to the $100 million that you referenced earlier? Alain Bédard: Well. I think that CFI used to be a diamond of the truckload company in the U.S. and there is no question about that to me that CFI short to medium, maybe not within the next six months, but let’s say within the next 18 months, once everything of CapEx in maintenance, in freight – freight is gone, okay, all the ship freight is gone. So when you have all that, there’s no way. CFI is not a 90 OR company. So 90 OR company, okay, so means like you are in, let’s say, a 9% bottom line company $45 million. And then if you add back depreciation on that to get to an EBITDA number, it makes a lot of sense, it’s got to be $100 million to $125 million EBIT USD company.

Okay. That’s great. That’s very helpful. Thank you. And I guess the other question, just looking at the P&C business. I mean from whatever, we’ve been reading obviously this is a pretty competitive business, a lot of – I mean you mentioned obviously one retailer, but there is – it’s a growing business for sure but it also seems to be pretty competitive from a pricing perspective. Do you think that longer-term like there is enough opportunity here? Or do you – are you concerned, maybe somewhat that there is going to be continued pricing pressure here in that particular business? Alain Bédard: No, what we have seen Turan is not pricing pressure. I mean, what we’ve seen is the largest e-tailer in North America, decided to bring the business in house, okay. So we just lost it, not to somebody else, but we lost it to that, right. And the same e-tailer, I mean we’re doing most of the business in Canada for those guys today, right. So we do other e-tailers, okay. So, in Canada, we are in a very different position versus the U.S. The U.S., they may have other opportunities like, I don't know, laser shape and others. On the Canadian side, it is very limited. And most of them are small guys. And one thing is for sure is that there is a – if you are just in LTL, you will be suffering because the brick and motor guys which are your customers are suffering. So if you are not in the e-commerce with the next day operation like we are, because don't forget we do e-commerce for our last mile or same day, but we also do e-commerce within the next day. So our competition in there is Canada Post and it's Puro and others. But you need a network to compete. So we can compete with those guys. Now there is a pricing and all at. I wouldn't say that it's a big, big, big issue, the pricing. The fact that we lost 10% of our revenue in Q3 is that e-tailer and also we clean the mess of our last mile business mostly in Western Canada, where we had shitty customers paying shitty prices. But to say that it's a price game, no, I mean – it's – you got to be competitive. But us, we're in the business to make money, right. So for sure if we have a guy that will come in and base his price on 2% bottom line, he is not going to have an issue with us. He is probably going to have to take the business. But then he has got to deliver, right.

Yes – no, that's fair. That's fair. Okay, that's helpful, thank you. And I guess maybe just one more in terms of the pricing. We talked a lot about pricing in the U.S. I know you mentioned the Canadian business actually is doing better for you. Just wondering, do you see an opportunity to price up here in Canada as well on the truckload side? Alain Bédard: It's already – it's already being done right now as we speak. Our Canadian TL operation are talking to our customers, because don't forget the cost – we have to pay our people better, right, every year. So we have to adjust our price to the reality and it's ongoing right now.

Okay, perfect. That’s great. Thank you very much. Alain Bédard: Pleasure, Turan.

Your next question comes from the line of Kevin Chiang of CIBC. Please go ahead.

Hi, thanks so much for taking my question here. Just two quick ones from me. Maybe just going back to one of your comments earlier around the multiple difference between yourself and I guess some of the U.S. trucking peers. Does that change the way you think about long-term leverage – your long-term leverage ratio especially as you – as you have the sales leaseback and you're going to bring in some cash. But how do you think about that longer-term? Alain Bédard: Yes, that's a very good question, Kevin. You're absolutely right. I mean, a 3 times debt to EBITDA guide in the U.S. will not get the same kind of multiple that a – let's say, 1 times leverage. So you're right. So our goal is to bring that down to closer to 2 versus closer to 3, right. So if you look at, right now, we are at, I don't know, 2.8 or something in that. And because our debt went down, but also our EBITDA went to the ship, right. So bringing back the EBITDA to the normal level, of let's say, $600 million and if you look at your debt that let's say 1.5, then you are closer to the 2.5, which is not 2, but it's better than the 2.8. And the forecast is very simple, is based on what we know today. We will end up the year with total debt of probably like $1.4 billion, unless there is M&A. So $1.4 billion at an EBITDA of $530 million, we're still closer to 3 than to 2. We've got more to do on the real estate side. And again, there is not going to be any major deal on the M&A side. So, I agree with you that to get the valuation of a great truckload, you got to be under the 2 mark. But there is a big gap between getting the valuation of the 3 or 2 top truckload companies in the U.S. and us. There is a huge gap, huge.

Yes. That’s a fair observation. And then just last question for me, not to beat a dead horse here, and I know it’s been asked a few times. But if I think about the $530 million, you’re kind of talking to this year about EBITDA and the $600 million you’re looking to in 2018. I’m just trying to figure out, how much of that is stuff you have like a very high visibility on in terms of that $70 million delta? It sounds like you’ve got this one-time cost, you’ve cost cutting initiatives, the removal of bad contracts. Is there a sense of $50 million of the $70 million is basically high visibility? You know you are going to get there or is it – is there a way to quantify that just to get a sense of how much comfort you have around that $600 million relative to the $530 million you will do this year? Alain Bédard: I’m very comfortable, Kevin, because rebranding this is over. I mean it’s not going to happen again, right. The maintenance cost that went through the roof because of poor CapEx in 2016, we’re not going to settle all of that in 2018. But at least half of that will disappear. So, just with those two accounts, I mean, you are at about $25 million that you should not see in 2018. And then you’ve got all the turnover and all the battery running at 120, 125 OR being replaced, let’s say, just by 100 OR. So you save 20, 25 points on $50 million of business, that’s about a $10 million to $15 million that should not be there, okay. So from 25 now you are up to 40. This is just within the CFI. So if the guy is doing 40 today, 40, 45 this year 2017 you add 40 to CFI USD, now he is back to about 85. 85 is still far from, let’s say 110 or 115, that is the normal. But $40 let’s at $1.25, so that’s CAD 50, right, because I’m talking CAD 600. So already just with CFI let’s that are not be normal, you are back up to let’s say CAD 575 and that does take into account okay, the TCA situation where as an example in Q3 I mean, there is a delta, okay, of about $2 million in the quarter, U.S., which doesn’t make any sense, right. That doesn’t take into account that in Q3 we lost $2.6 million selling assets at CFI because don’t forget, we take that into consideration, selling equipment is part of our business. And if you look at our Q3, well, nobody talks really about that, we lost money selling equipment in Q3 because of CFI, okay. So that will disappear also in 2018, right. So this is why I feel – now I’ve not seen all the budgets so far, but to me I can’t have in my mind and the objective that will be less than CAD 600.

Okay. This is very great color. Thank you very much, Alain. Alain Bédard: Pleasure.

Your next question comes from the line of David Tyerman of Cormark Securities. Please go ahead.

Good morning, Alain. Alain Bédard: Good morning, David.

First question, I’m just wondering what went wrong or what – better way of putting it, what was the surprise that caused the $70 million-ish reduction in EBITDA this year compared to what you thought it would be back at the start of the year. Alain Bédard: Well, that’s a question that I ask myself. How can we explain that we’re buying let’s say, $110 million or $100 million and we end up with $40 million, how can we explain that. So I said it many times, number one is, okay, forget about rebranding because when we thought this is affecting our numbers this year, but it’s not going to affect our numbers. So this is there, but it shouldn’t be there. Maintenance, I said it many times. I mean, the fact that these guys did not invest so what we did at the closing so, because they did not invest, we adjust the price, but we did not adjust the profitability of the company for the next two years that will be affected by that. The bad freight in the system. This is something that happened between, let’s say, August and October of 2016, okay. So what happened there, okay, is like, very difficult to explain is that, overnight we got a lot of freight that did not fit the model, and this is a huge cost. And it’s such a huge cost, it’s not just the OR that’s important, it is that you lose drivers because if you are based and you don’t service North Pacific like Washington State and overnight somebody tells you, you got to do it, but you don’t have the team to do it, but you can service let’s say out of Dallas, Seattle with all the team. You don’t have the team to do it. So you do it with solo. So the guys don’t get the miles. They don’t get the money. So they just jump and go work with somebody else, but you’re tied up with supposedly a contract that you have to service, right. So it’s not just the fact that you’re running at 120 OR, it’s all the domino effect with recruiting and hiring and training, and accidents. Because right now if you look at my accidents level on the U.S. side it’s least 30% to high or at least. Now, this is not normal but if you run in the U.S. 400 million miles or 450 million miles and you’re spending $0.03 too much, do the math, that’s $15 million, right. So it’s a domino effect. Now, the question to the freight is behind us now. We had a little bit of freight that didn’t fit the model at TCA but not a lot, and this is going to be behind us in Q4. And then you’ve got to replace that freight, but this doesn’t happen overnight. So you got to bring the new customer in and you got to train and you got to position the trucks and position the trailers, it’s very expensive, okay. This is like running a plant. If you run a plant and you got stability, you should do fine. Well, we have instability because you’ve got all kinds of things happening, the cost just goes through the roof.

Okay. So it sounds like it’s pretty much all at CFI, it sounds like a lot of this was inevident at the time of the acquisition, and sort of as the – I mean third unfold it became clear and that’s really what’s going on? Alain Bédard: Absolutely. And this is why we brought Scott Arves, okay, that’s got tons of experience working at Schneider and others. And we brought Scott on in April, Scott is on our board, and we said, Scott we need help, you got to help us. And he said, Alain, I’m going to be there. And he got involved with CFI. We brought on more talent. We replaced most of the team at TCA. Scott knows TCA. I mean he used to run it, okay, until about three years ago. And when he retired – when he retired, this was not a 99 OR company, it was a 91 OR company. So the things has slipped there as well. And we were talking to the leader there at the time and he said, we got to do something and everything that we’re trying to do was not successful. So this is why we had to make some changes, got a new team, those guys are focused, we have a 1000% confidence in those guys and they will deliver.

Okay. The TCA slippage, when did that happen from acquisition… Alain Bédard: It started in the 2016, okay, late 2015 into 2016. And then you could blame the market. Yes, the market had something to do it, but say, the market could penalize you from 91 OR to a 92or 94, okay. Because if you look at all the U.S. TL at the same time, even the good ones were penalizing in the OR because of market, but that does not explain a 91 to 100 or 99.

And where would you be now in TCA? Alain Bédard: We're just under 100 now.

Okay. So that's where you are right now? Alain Bédard: That's where we are, yes. And this is why we had to make some changes.

I am sorry, how big is that business now in sales? Alain Bédard: This is 300.

300, sale Alain Bédard: This is 300 U.S.

Okay, that's helpful. And then just two last quick smaller questions I hope. The Package and Courier, so the revenue was down around 5% year-over-year in Q3, but in the previous few quarters it was up a couple of percent. So looking forward, should we continue to expect it to be down over say, the next three quarters in that 5% range or what’s your thought there? Alain Bédard: We're down in Q4 again versus quarter-over-quarter last year, I mean, right, because of the cleanup that we did on the Canadian side and the fact that we lost that e-tailer in the U.S. side. But going into 2018 okay, the e-tailer will not be an effect into 2018 because we lost it early in 2017 and then the cleanup on the Canadian side will still linger probably until Q3 of 2018 which is on a yearly basis, about $25 million to $30 million].

Okay. And then the other question so it sounds like you would do well to be at overall breakeven over the – in terms of revenue growth in the first # quarters of next year in P&C. Alain Bédard: On the P&C side, on the next day service that we are growing. I was just talking about last mile.

Yes I'm just wondering that when you net it all out together… Alain Bédard: When you net it all out we should be probably excluding acquisition, we should be, like you said above flat, maybe a little bit up, but in terms of bottom line we're going to do much better because all these accounts that have been close like replace okay from a 2% margin add a 8% or 9%, 10% margin is much better for us.

For sure and then just on the less than truckload. So I understand, the million dollar severance, if you add that back, you're still down year-over-year on the EBIT margin. Alain Bédard: USD is also an effect.

Okay, should we continue to expect the margins to be down in U.S. TL over the next few quarters. Alain Bédard: LTL you mean, you mean LTL.

LTL, yes. Alain Bédard: So LTL like I was explaining our intermodal business will do better over the next 12 months in terms of pricing and in terms of cost and are over the road will also do better. Yes, we lost our partner in the U.S. We've replaced that with another partner in Overland which has been affected is going to be back on track because of efficiency improvement and all that. So to me, if you look at what we're doing today in terms of bottom line at six to seven point, it doesn't make any sense, in 2018 we're not going to be talking six point to seven point, we have to talk between seven point and nine point, closer to nine point by the end of the year.

Okay, perfect. That’s very helpful. Thank you very much. Alain Bédard: Pleasure.

And there are no further questions at this time, I will turn the call back over to Mr. Bedard. Alain Bédard: Well, thank you ladies and gentlemen for attending our Q3 conference call and have a great day and I guess we'll see you at Q4. Thank you, bye.