Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Fourth Quarter 2021 Results Conference Call. [Operator Instructions] Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Also as a reminder, TFI changed its presentation currency at year-end 2020 and all dollar amounts are now in U.S. dollars. Lastly, I would like to remind everyone that this conference call is being recorded today, Tuesday, February 8, 2022. I would now like to turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please, go ahead, sir.

Well, thank you very much operator and welcome everyone to this morning's call. Yesterday after the market closed, we released our fourth quarter 2021 results. TFI International completed a very strong year and that will be remembered as a pivotal in our history with the successful acquisition of UPS Freight. Our strong fourth quarter results demonstrate the sound rationale behind this transformational event which drove much of our outperformance along with continued strong execution across all of our business segments. All four segments generated growth in operating income contributing to full year adjusted diluted earnings per share of $5.23, which easily exceeded the high-end of our guidance that we provided in October. What we find most compelling is that while UPS Freight rebranded TForce Freight, it's already playing a large role in our outperformance, we still see much upside ahead as we continue to integrate driving mode, both revenue and cost synergies. It is this ongoing upside combined with our consistent focus on the fundamentals of the business that provides us with confidence that we will continue to successfully navigate the road ahead with TFI International now that in the strongest position in its history. This focus of the fundamental for TFI International means that getting it right on the details of our business. It means striving for operational efficiencies and selectively capitalizing on strategic acquisition opportunities. Over time, this approach allows us to generate strong returns on invested capital, optimize our free cash flow and grow our earnings per share. And with the overreaching goal of creating long-term shareholder value, we also aim to return excess capital to shareholders whenever possible. Importantly, you will notice that before, during and after the global pandemic, this has been our focus. Regardless of lockdowns, ongoing supply chain disruptions, and labor shortage, and…

[Operator Instructions] Your first question comes from Scott Group from Wolfe Research. Please go ahead.

Hey, thanks, Alain. Can you talk about your expectations for the U.S LTL margins this year? And then if anything is changing in terms of your longer term expectations for where the business can operate?

Yes, yes. Well, you know what, the way we look at Q4 is that we were very prudent and conservative. And we're looking at Q1 '22 the same way. We've never seen Q1 so far with TForce Freight rate. But what I could tell you though, is that what we've been able to accomplish so far with the team there, okay, which I think we have a great team in our U.S LTL is that all the low hanging fruits, the easy stuff, okay, it's mostly done now. So, the year 2022 for us is really a pivotal year in the sense that we're going to be focused on, first of all, getting the operation with what we call, first, we said, the freight that fits, but now we need the network also that fits the operation. So, we're going to be really focused on improving the density, on improving the number of shipments per stop on improving also our footprint in the sense that to travel 70 miles to deliver two shipments, it doesn't make any sense, right. So that's going to be a major, major focus of having the operation that fits and the freight that fits the operation as well. So, to answer your question, I think that long-term this company has to be an ADOR. Now, long-term is 2 to 3 years from now. I believe that probably by the end of '22, we should be closer to something like an 86 or an 88 than an 80 or 92, okay. It's hard to say. The chance we have is that the market, the LTL market in the U.S is really a great market to be in right now. So that helps us, but we have so much to do on the operational side. Now, for…

Okay. And then just so I understand when you talk, you said 86 to 88, is that a -- was that a full year '22 comment or more like a run rate exiting the year and then maybe just my other question.

It's the run rate.

Run rate, okay.

Yes, exiting the year -- Scott, exiting the year, I think that will be, let's say, fourth quarter ICRs maybe between 85 to 88, something -- somewhere like that.

Okay. And then maybe just your margin expectations for some of the other segments within the guidance would be helpful. Thank you.

Yes. Well, you see, if you look at our P&C, I mean, we're second to none in that regard. So, I think that P&C the focus in '22, we've done a fantastic job of building a very, very strong foundation. Now the focus is going to be more growth in '22 in our P&C. The margin is really solid second to none. Same story with our Canadian LTL. Our U.S LTL, I mean, I've said it. I mean, we're going to start working and improving our operation and improving our density. U.S Truckload, we've been a little bit disappointed, okay, with the dedicated Truckload division, but I know Greg and the team that are working really hard. And we see that, finally, okay, we should end up the year in a OR, that's going to be closer to 90 then closer to 98 like we have right now. And Logistics, I mean, we see a lot of growth there in the U.S and in Canada, with our last mile, and even our TFWW. Scott, it's really doing really, really well and growing. So, all in all, that's why we're able to say, guys, we think that we could do 625 to 615 EPS in '22. We're very confident. Don't forget, we're also very conservative.

Thank you for the time. Appreciate it.

Pleasure, Scott.

Your next question comes from Tom Wadewitz with UBS. Please go ahead.

Yes, good morning.

Good morning.

Wanted to see if you could provide, I think the framework on LTL OR is really helpful. So, thank you for that. I wanted to see if you could provide a little more thought on how you're doing on repricing the book, kind of how much you've gotten your hands on. And in terms of raising price in LTL. And also, how you think about, I guess, the taking out lower quality freight. It seemed like you had some sequential decline in tonnes or shipment. That was maybe a bit more than seasonality. So, maybe if you could comment on those two levers for where you're at for LTL?

Yes. Yes, well absolutely. In terms of the freight that does not fit, I mean, we're not done. I mean, we're not done. I mean, we did Phase 1. The problem that we have is that we need to replace those shipping, but like you said, okay, quarter-over-quarter our volumes are down a bit, okay. So, this is why our sales team has to be on their toes, to be in a position to replace everything that does not fit us. So, in terms of repricing the business, I mean, we've done a lot, but we still need a lot to do in terms of catching up to the market. So, the market is improving every month, every quarters. And as our base was so low, because the quality of our freight was so bad in the sense that we had a lot of small shipments. The average weight per shipment is still too low. I mean, we're around 1,070 pound per shipment. Most of our peers are closer to 1,300 to 1400s. I mean, on the Canadian side, we're above 1,500 pounds per shipment. So, there's still a lot to do in terms of the freight that fits the mix. I would say that we're probably done half of what we should have -- what we should accomplish on that. And then the big story for us in '22 is, yes, certain degree with market and freight and all that. But it's all going to be a story in '22 of improving the cost of operation or reducing our cost of operation. This is the big thing that’s going to help us bring this company closer to an ADOR than a 9 ADR.

Okay. And then for the second question, just wondered if you could offer some thoughts on kind of portfolio and how you think it might change in terms of both divestitures and acquisitions? It seems like, there are a lot of transports out there that have cast that are interested in doing deals dedicated scenario where, you know, I think there are companies interested in doing deals dedicated scenario where I think their company is interested. So, is that something you consider in terms of pruning the portfolio, if it doesn’t, does necessarily seem to be something that’s going well or is that something you just fixed? And then, I don’t know, any thoughts on deal this year is, are you likely or are you still need some more time to do bigger deals again?

Yes, for sure. I mean, we need more times. I mean, we have to deliver on our TForce freight promise of being closer to an ADOR. There's been a lot of discussion about why do you guys run a U.S truckload operation when you have a return on invested capital that's single-digit? I mean, for sure -- I mean, I'm getting a lot of question from investors or Board members. And I'm saying, guys, I mean, we have to demonstrate, okay, what we can do, and I'm very confident in Greg's team to be able to get this 5.5 return on invested capital closer to 10. Now, one thing is for sure, I mean, if sometimes, if you look at the track record of TFI, if we cannot grow this business in the sector, like we were in the waste business and we sold it to GFL, about 5, 6 years ago, why? Because we couldn't grow it. Now, it's the same story with all of our sector. If we -- if you look at our P&C in Canada, I mean, it's hard for us to grow in through M&A. But we're going to be focusing on growing organically and with the return on invested capital that we have there, I mean, it's second to none. So that makes sense. In terms of M&A, for sure, we're always open. We cannot do anything of size before the end of '22, maybe from Q3 as soon as we feel really, really good about TForce Freight. Then, we could go to the next step. For sure we have a plan for the next step because the next big acquisition for TFI is already in the plan right now. I mean, we know what we'll be doing, hopefully, in the next, I don’t know 12 to 18 months. But in terms of divestiture, I have to give a chance to our truckload guys to reprove that week. It can be part of the TFI family. Now, in terms of strategy, for sure. When we look at that, a fewer cost of capital is more than your return on invested capital, it doesn't fit, right. So, I mean, right now, our focus is really TForce Freight and all the migration away from our TSA with UPS, that is really the focus of '22. And in the meantime, our truckload guys are working diligently to improve what we have now because for sure, showing the results that we have today in our Q4 compares to our peers in U.S. TL we're a little bit concerned.

Great. Thanks for all the perspective.

My pleasure.

Your next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Thanks, [indiscernible]. Maybe I'll start my follow-up, which is just to confirm that your 2022 EPS guidance does not include any M&A, correct?

No. No, no, everything stays the same, right?

Yes, got it. That makes sense. And maybe if I can follow-up on your comments on the U.S TL business. I mean, we certainly saw the results kind of improved there sequentially. And I think in the last quarter you had flagged some issues with the residual TL business within the UPS LTL business that you acquired. Seem like you made a bunch of progress there. Can you elaborate on that a little bit more and maybe kind of -- I did want to ask you about the potential long-term future of that TL business?

Yes. So, Ravi, are you talking LTL or Truckload?

Truckload -- I'm talking about the Truckload business within the UPS operation I think …

Yes, yes, yes. Well, let me tell you that we believe that in Q1, we are going to stop losing money with the UPS truckload business that we've acquired. I mean, we still have two major accounts there that are not doing a good job for us. We're losing money on two major accounts. I know that Greg and his team are working hard to fix this issue. I mean, we've been working at it for 8 months. This was a business that we got, that was terrible, really, really bad because we had commitments with customers, and we didn't have the trucks, we didn’t have the power. So, we had to go with third-party and we lost a fortune doing that. Now, in terms of our approach to the market is that guys, I mean, let's fix race and that's what we've been doing since day one. So, we've lost $5 million or $6 million in Q2, we lost $4 million to $5 million in Q4 -- Q3, and then we lost about $2.5 million in Q4, and we anticipate that we won't lose any in Q1 of 2022. It doesn't make any sense, okay, to keep hauling freight and lose money in this kind of environment is so stupid. But we had to go through that. But at the same time also what we did, Ravi, is we move the over the road from our T operation to CFI. So now TA is also just a dedicated truckload guy. And we were also disappointed when we did that we found out, okay -- and when you do 2 or 3x, you're dedicated, you're over the road, you're intermodal, you do this, you do that and you got all kinds of allocations, sometimes you don't see the global picture…

Got it. Thanks for the color, Alain.

Pleasure.

Your next question comes from Konark Gupta with Scotiabank -- Scotia Capital. Please go ahead.

Thanks, operator. Good morning, Alain. How are you?

Good morning. I'm good. How about you?

Good. Alain, thanks so much for the time. So, I wanted to kind of focus on the package and courier business as well. I think the 75% OR, or 25% operating margin is probably your best ever, if not maybe closest to the best ever you have seen in that segment. I'm just kind of wondering what kind of drove that performance? Was it more of a pricing story in Q4, or was it more of a cost improvement story? And then what do you think about sustainability in that?

Yes. So, Konark, what we did, okay, this was Brian's plan, okay. The summer of '21 is that we're not going to go through the same story in '21 peak as in '20 peak, right. So, we got rid of -- and this is why our year-over-year revenue is a little bit lower. Why? Because we got rid of e-commerce rate that we didn't -- we made very low margin on it, right. So that was the plan. And I said, Brian, I think it's a great plan and this is what we're showing, a 24% OE in that division, okay. And if you compare that with last year, we're up about $6 million, $7 million versus last year, so fine. Now the new plan for '22 when we're talking to Jimmy and Bob over there is that guys, okay now we are very strong, we don't have freight that doesn't fit in that network. So, let's start growing again because if you look at the last 4 or 5 quarters, we used to grow 15% to 20%. Really, if you look at Q3 and Q4 of '21, we slowed that down a bit to consolidate our base to add more trucks, to add more drivers, to beef up our terminals network, so we are opening a new terminal in Winnipeg as an example during Q2 of '22. So, some kind of a wait a little bit and now we're focused on growing again in our P&C. So, to answer your question, it's a combination mostly is getting rid of freight that did not fit, okay with low margin that we got stuck in '20 at peak. And now our base is really, really solid and we're going to start growing again there.

That makes sense. That’s great colors of color. And then if I can follow-up, perhaps, lots going on these days with respect to vaccine mandates, and I'm sure there's no resolution as of now officially. And then there's some protests going on in Canada as well for that matter. I’m just kind of curious as to your kind of high-level thoughts on what do you think -- what's your kind of driver pool like these days? Are you all vaccinated there and you have kind of good enough for number of drivers that you need for the business? Or are you seeing any kind of issues around vaccine mandates as well at TFI?

So, vaccine -- vaccination at TFI is not an issue at all. I mean, on the Canadian side, most of our drivers are vaccinated. So, crossing the border into the U.S has never been an issue. We anticipated that. So, we work with our people to have them, okay, convinced that vaccination it's -- you're free to do whatever you want, we get that. But guys, I mean to cross the border, we know that at one point is going to be an issue if you're not vaccinated. So, we have a few people, a few drivers that still say no, well, what we do with them is we just keep them in Canada so, they don't cross the border anymore. But I would say, guys, that the way I look at January, I think January is going to be the best January ever for the company. I mean, the guys are doing a fantastic job. And for sure, there's some small carriers maybe in Canada that, that are having issues, but TFI not an issue at all. The biggest issue for us really in January is sick people in the U.S with COVID. That has been the big thing for us. At TForce Freight, a lot of people got sick in January in the U.S because of this new variant there. So that was a little bit of an issue, creates an issue with servicing customers and all that. But that being said, vaccination not a problem at all.

Okay, Alain. Thanks so much and good luck for the rest of the year.

Thank you.

Your next question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Yes. Hi, morning. Just quick follow-up on -- the package and courier, you mentioned growth again. So, I assume you're referring to you have some tough comps ahead still on shipments and pricing. But do you expect both those categories to see growth again as we move through 2022, maybe as we move later in the year?

Yes. Well, absolutely, Jordan. I mean, what we're saying is that we took a step back in a sense, okay, with Q3 and Q4 and those are growth in 2021. So, what we're saying is that now we're set up in '22 to really turn the screw of growing organically again, right? Now, if you look at bottom line at 24% in Q4, this is unbelievable. This is highly remarkable. Can we stick to 25% and grow organically OE? The guys are working hard on that. But don't forget, we have competition from [indiscernible]. We have competition from the U.S guys like UPS and FedEx. And those guys are not running at 20 points bottom lane operation, right. So, we may have to sacrifice a little bit the OEs as a percentage to grow like a 5% to 10%. That's what we'll see. Let's have a look at Q1 and then the rest of the year. But let me tell you that when I look at the numbers that we see so far, I mean, so far so good. Even with everything that has been going on in January with the storm, with the weather, with the Omicron and all that, we feel really good.

Can you just give a quick update on what you're seeing on the Logistic segment? I guess, most curious about the same day parcel delivery aspect. Thanks.

Same day, we're doing really well. I mean, the only rock in our shoe is that our Canadian operation lost all of their volume with the largest e-tailer, right. So those guys, we were dealing with them in the U.S., they walked away from us in the U.S because we're all about making money us. And then slowly they walked away from us in Canada. So that is a little bit of a step back, while we're replacing that as we speak. On the U.S side, I mean, we feel really, really good about what's going on. The issues we have right now has been, like I said, weather and this Omicron thing there. It create a little bit of an issue in January, but long-term, okay, you'll see us doing really, really well. And don't forget, we run these operation with double-digit EBIT. I mean, we don't run these guys at 2% bottom line. I mean, nothing at TFI is single-digit OE, except our TFWW, which we bought from Donnelly. And at the time those guys were 2% to 3% bottom line. So, WW is still not a double-digit EBIT guy, okay, but slowly we're getting closer to a 5%, 5.5%. For the rest of our businesses all double-digit OE.

Great. Thanks so much.

Your next question comes from Jack Atkins with Stephens. Please go ahead.

Okay, great. Good morning. Thank you for taking my questions.

Hey, good morning, Jack.

So, Alain, I would love to get an update on your ground at freight pricing business that you acquired from UPS? How has that been trending over the course of the last couple of quarters, and what are your expectations for that in 2022?

Well, if you look, Jack, you'll see in our MD&A that the average revenue ex fuel per shipment is up big time. So we've been correcting adjusting rates with our customer. But like I said earlier, we're not done, we're not completed with that. I mean, it's an ongoing process and it will last at least another year because we got a lot of small ship and still in our network that has to go away, but we can't kick them out. Because we need to replace those small shipments with better shipments and this is the focus of our sales team, okay. Guys wake up and smell the coffee, we have to replace those shipments by better shipment, right? It's the same story as if you think back when we bought the CFI, okay, in 2016, '17. It took us a year in our Truckload division to clean freight that did not fit. In an LTL environment, it takes way more than a year. It takes probably more like 2 to 3 years to really clean up, okay, and get rid of all the shippers or the shipments that don't fit. So, we're not there yet at all, okay. So, our sales team is highly focused on improving the number of shipments that we get from customers an example, okay. So, let's say this shipper gives us 2 shipments a day, well try to get 3 from this guy, it's right to get 4 from this guy, because we're already there, right to do the first pickup, right? So, it's a little bit of change. So, we're working on the mix, but also we're working on the productivity and the efficiency on the operation. So, this is why during the course of '22, what we believe is that slowly we'll get closer to 85, 86 by year end, okay. And then into '23, we'll keep on improving those processes to get us closer to maybe in '23, like an 83 or an 84 down to the target that we have of being at least an ADOR carrier in the U.S LTL market.

Okay, got it. Got it. No, that that helps. Thank you. And then I guess kind of thinking about the structural changes that you're trying to implement within your U.S LTL business, are you contemplating maybe any incentive changes for your sales force or your operations team? We've seen that with some other LTLs in the U.S in the past had significant positive impact.

Yes. Yes, absolutely. You're absolutely right, Jack. I mean, we're having a meeting with Paul and his team, I think, next week, or the week after next and for sure we're talking about that, absolutely. I mean, we have to change, okay, the way our sales people are -- their salary and their commission and all that. So, I know that Paul is coming up with a proposal on that. It's the sales team that we have today, the sales leadership, everything has to be questioned about what we want is the way we judge a sales team is not by the effort, it's by the results. So, I don't know if you understand what I'm saying, Jack, but me, I don't look at -- the guy tells me he works 40 hours a day and he gets no freight. But that's not good for me, right? So maybe work less, but get more.

Yes, no, totally. It's all about the bottom line. Thanks so much, Alain. Thank you.

It’s all about the bottom line. Absolutely.

Your next question comes from Ken Hoexter with Bank of America. Please go ahead.

Hey, good morning. Alain.

Good morning, Ken.

You mentioned you were very confident, but yet very conservative within the model. So maybe just taking a look at that, where do you see the most upside? Is it the LTL margin you talked about? Is it truckload fixing the pricing in this best ever LTL -- truckload market? Maybe talk about where the potential is?

Yes, well, you're right. You're absolutely right, Ken. I mean, in the plan that we have for our U.S TL guys, I think that we will do better than that. I think that our guys -- if you don't see that you have a problem, you can't fix it, right. So now I think that our U.S TL team when they look at our peers' results for Q4, that were fantastic. And our result, I wouldn't say that they're fantastic, right? So, we know what to do. And it's not about costs, okay? The big issues we have is more like our costs are in line, okay. The problem we have is getting the right market rate for the service we provide to the customer. So, our team was in a completely focus on dedicated, fixing dedicated, which was a disaster that we got from the acquisition of UPS Freight, okay, fine. But we also overlooked what was going on the over the road thing. So now we know, okay, when we look at our peers, the average revenue per mile we know that we're too far from these -- where these guys are. So that's one. Number two is like you said, TForce Freight. We know what to do. It's just the execution could be slow or fast, or between slow and fast, right? So right now we don't know what's the speed of these operational changes? Are we going to be slow, are we going to be fast, though, what we've done so far with the low hanging fruit, I will say that we went really fast on that. Now on the operation, this affects way more people. It affects terminals, it affects the terminal managers, it affects everything that we do every day. So, this is why I'm not sure. So, this is why we're going conservative with TForce Freight. Pace of change.

Yes. So, Alain, for my follow-up, let's just dig into that for the service centers and the growth, right. You always talked about density. You talked about there were some opportunities where you could blend some of your operations in terms of better utilizing the service centers. Where are you in that process? How many service centers do you have now? And what are you thinking of that process going forward?

We are just starting, Ken. We're just starting. I mean, as an example, I mean, we have shut down one terminal in Chicago, and we're going to be subleasing that terminal with -- to another carrier. We shut down two small terminals in West Virginia, that those two small terminals will be sold to another carrier. We just closed a small center in Kansas, Salina. We had 40 shipments a day there. It doesn't make any sense to run an operation of 30-some thousand bills for a small operating terminal, 40 shipments a day. So, we're just starting. I'll give you another example. We have a terminal in Rialto in California, a fantastic terminal, a diamond terminal. I don't know how many doors. I don't remember how many doors, but it's probably like 80 to 100 doors. I guess 60 shipments a day. Think about that 60 shipments a day in a huge terminal. So, we're just signing a deal with another carrier that's going to take over about 40 spots for parking equipment. And these guys will also take another carrier, will take about 40 doors in the terminal. So that's going to bring about $2 million to 2.5 million to the bottom line of the company. Because right now this site is like empty, right? So, we're just starting. In Sacramento, as an example, I got three sites. It doesn't make any sense, right? So, we're working on Sacramento. So, our team, we're really focusing on the West Coast right now. So -- but it will take time, okay, but we're just -- Ken, we're just scratching the surface. I mean, I said it many times, we got 12,000 doors over there. We don't need 12,000 we need maybe, I don't know, 6,000, 7,000 or 8,000, okay. We have way too many doors so that is an opportunity for us for growth, either organically or through M&A, yes. But in the meantime, everything that doesn't make any sense we're fixing it, okay. So, Rialto, we want to keep the terminal. We don't want to keep it empty. So, okay -- so you find another tenant for now, and then we'll see if we need that terminal 5 years down the road for our own need. But in the meantime, let's get the $2 million, $2.5 million a year to help us cover the carrying costs and eliminate the loss that we have on that terminal right now.

Great. Thanks, Alain. Appreciate it.

Okay, Ken.

Your next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.

Thanks very much. Good morning, Alain.

Good morning, Walter.

So, you're going to have a pretty good year in terms of free cash flow, your leverage is low. And not likely, if I hear you correctly, going to be looking at acquisitions until perhaps later in the year or early into next year. So, does that mean you now deploy that cash into buyback? Or is this something you want to kind of raise cash to keep on hand for something perhaps a little, little larger, so you can do a larger deal in the fourth quarter or early '23? Just curious where your head is at in terms of buyback versus retaining cash for acquisitions?

Well, buyback is -- well, there's always an opportunity. So, if you look at what we've done in Q4, we bought back a million shares, right? And the price that TFI stock trades today, okay, well, today -- I can't talk about today, but let's say over the last few weeks, for sure, we're going to be buying back at least a million shares, okay. If we are traded right now in sub 100 U.S., I mean, for sure, we're going to be buying at least a million shares. Now, going to your point, okay, we also feel that our guidance is conservative. So, based on what we've seen so far, I think that we'll probably do a little bit better than the guidance. But we're conservative, right? But if we look at the opportunity for us to do a deal of size, okay, let's say late '22, or into '23, the fact that we do some small M&A, so we'll do probably like CAD$150 million to CAD$300 million of Canadian dollars of small M&A, okay. Buy back, let's say US$100 million of stock or maybe a little bit more. It does not preclude us for the doing something of size late in '22.

Okay, that's perfect. And appreciate the buying back stock when your stocks at a certain level as opposed to when times are good.

Yes.

Moving on to constraints. I mean, driver shortage is still an issue, supply chain is still an issue. And we heard a lot in other companies saying that demand was above their volume, right? Because you just couldn't get the volume -- yes. So how much of that was a factor in the fourth quarter? And how much are you assuming supply chain will be and driver shortage will be a continued constraint when you put out your guidance for next year or for this year?

Yes. Well, you see, Walter, the fact that we are already overbooked every day, it's true in the U.S., okay. It's true in the U.S. It was not true in Canada until I would say mid-November. This is because I was talking to my Canadian guys, how come this is not in Canada, and it was not in Canada. But I could tell you that what we're seeing in the U.S for, I would say, at least the last 6 months. We're seeing now the same story in Canada since probably early November. So, for sure that demand is more than the supply and that's why I'm saying that probably TFI will have its best every month of January because of that. See, our Canadian team is taking advantage of market condition. And our U.S team, like I said, earlier on the truckload side, we missed a little bit of an opportunity in, let's say, Q3 and Q4. But now we smell the coffee and we're going to take advantage of the market in the -- in '22, okay. The supply chain, I don't think it's going to be fixed within the next 6 months to 12 months. I mean, it's a lot of politics in there. There's lots of changes around the world. So, it's going to be a very, very tight market from what we could see in '22 and probably into '23. So, let's see what happens. Our guidance is conservative like always, right? So, our team is really focusing on doing better than that. But so far, where we could see that '22 will be a great year for TFI.

Okay. Appreciate the time as always, Alain, and congrats on a good quarter.

Thank you, Walter.

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

Hi, Alain, just taking myself off [indiscernible]. Actually, I just have one question. If I could just follow-up on the P&C margins, 24.5% for Q4. When I look back historically, typically, your Q4 margin is a good benchmark to what the following year looks like. You usually lose about 100 basis points as you kind of work through seasonality. So if I kind of just use that rule of thumb, it seems like maybe a low 20s margin seems like maybe the baseline you're starting with and then you kind of talked about maybe growing the absolute earnings and willing to sacrifice a little bit of margin there. Just wonder, is that the right way to think about it that maybe on a full year basis, P&C, the low 20s margin and then you'll kind of flex that potentially lower and if there's a level that we can think of in terms of how low could go, that would be appreciated.

Yes. Kevin, there's two things that will affect us, okay, in '22, B2B. So we're still not back to where we were. So B2B for us is even more profitable than B2C, right? Because the coincidence of delivery versus pickup is better on B2B and B2C. So that's why we're saying in '22, if B2B comes back, because don't forget, we still have lockdowns in Ontario, same thing in Quebec. So, we're still not out of the woods B2B, okay, versus where we used to be pre-COVID. So that could help us a little bit in '22. The other thing also in '22 is that we're going to be focused on highly profitable growth, the potential is there. And we made these investment in drivers and in trucks. If you look at our truck fleet in our P&C, I think that we added about 100 trucks year-over-year. So now we're in a position to really take advantage of the potential of this market, e-commerce B2C growth, but it's got to be at profitable rate. So going back to your forecast is that, yes, we should think that TFIs P&C is going to run about the '20. But that based on B2B versus B2C is still difficult to predict. So, let's wait and see what Q1 is going to come about. What I could tell you so far when I look at our month of January, is the guys are really doing a fantastic job.

That's helpful. If I could just ask one clarification question. Just in your guidance, does that assume your EPS guidance that is -- does that assume the million share buyback you mentioned in Walter's question, or is there any buyback in there at all?

No, no.

Okay.

No, there's no buyback in there. There's no M&A, there's no buyback. It's just that …

Okay.

… it's everything stays the same. But don't forget that everything stays the same, okay. Our leverage in the guidance, we're saying it's going to stay around 1.5. But if we don't do any buyback, if we don't do any M&A, my leverage is going down around one.

That makes sense.

Right.

That makes a ton of sense, Alain. Thank you very much. Congrats on good quarter there.

Okay. Thank you, Kevin.

Your next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good morning, Alain. Thanks for taking the question.

Good morning, Brian.

When it comes back to the U.S LTL, you talked about density and going back for more shipments. But specifically on the operation, lowering the operating cost for LTL, is it primarily through the top line and through density? You talked about not getting the trucks on time, which sounds like a pretty decent sized headwind. So maybe you can just elaborate on what are the main drivers of lowering that operating costs? Is it something specific with those terminals you're pairing off? Or is it driven through density or maybe a combination of both?

Brian, it's really a combination. And when I'm saying to those guys that guys drivers they like to drive and why are they drivers is because they like to drive. Me, I like to pick up freight, right. So, we have a disconnect in terms of -- so what we want to do is have our P&D guys drive less mile and pick up more freight. So how do you do that, right? So first of all, first step is every stop that you have, okay, with your drivers you try to pick up more freight per stop, right? So, it's something that's never been really monitored at UPS Freight, so get more of every stop. That's number one. Number two is we have guys driving 150 miles, okay, that doesn't make any sense. Because if this guy drives at 40 miles an hour, that means that he's driving about 3 to 4 hours a day. So, when he's driving, he's not picking a freight. And when he's driving, he's spending money. He's burning fuel, he is burning tires. And as I said earlier, my old trucks cost me $0.45 a mile in maintenance. So, our intention, Brian, is to improve the efficiency of our network by picking up more freight and driving less miles. And this is what we do us in Canada, right? Our LTL, why are we so efficient? It's just because of that, not because we're a bunch of magician? No, I mean, we do more with less. So, the intention is to drive less miles and pick up more freight. That takes time though, Brian. I mean, you don't do that within a month in a huge network, like the TForce Freight network. So, it's going to be a combination of that. And for sure,…

Okay, great. That's really helpful. Just one quick follow-up. You mentioned synergies a few times with TForce Freight. Is that reference to starting to change some of the footprint you mentioned earlier with leasing out some of these facilities? Can you start to run maybe more final mile from these now that you've got a better handle on the real estate portfolio?

Yes, yes, absolutely. I'll give you an example. In California, for instance, I mean, our TForce Freight team there used to use third-party, and now they're using our TForce Logistics division at about 65% of the cost that they used to be, okay. So, there's some synergies, okay, slowly between the family, right. But real estate is a big opportunity for us. It's an opportunity for growth, okay, it's an opportunity for M&A down the road, but it's also an opportunity to get rid of the real estate that does not fit like the those two small terminals I was talking about in West Virginia, or the small terminals that we were renting in Salina, Kansas, that doesn't fit. There's no future there. So, we're trying to make a deal with a carrier there that's got a larger footprint than us for those 40 shipments. So, okay, that was part of the Salina. So, it's a global change in what we do. And the chance we have, Brian, is that the team there, TForce Freight, they are really drinking the kool-aid. They're part of the solution. We don't have these kinds of pushback that sometimes you may have, okay, with an acquisition. So those guys are part of the solution. The team there, they're part of the solution. So, this is why it makes it much more easier for us to work with them and apply, I would say, like the TFI Canadian LTL recipe for success.

Okay, great. Thanks for all that, Alain. Appreciate it.

Pleasure, Brian.

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

Thanks very much. Good morning.

Good morning, Cameron.

So just one question from me. I guess, my view is probably this is a non-issue. But in your press release, you do have a, I guess, a disclaimer in there around the internal controls and possible deficiencies as it relates to, I guess, becoming a U.S reporter. So, can you just maybe go over what all of that is about? And like I said, I think it's probably a non-issue, but just maybe a bit of explanation is, would be good.

Yes. So, Cameron, I'm not a SOC specialist, okay. But what I could say is this is that the work is not done, the work is not complete. But what we see so far, okay, based on -- because we've hired Pricewaterhouse to help us on that, we've hired also another firm M&P to help us on that to do the testing and test all these controls and all that. And also under the supervision of KPMG and our internal audit department is that because TFI is so decentralized, I mean, what the guys are telling me is that they have to test about, I would say, like around 900 different controls, okay, which is huge. So, this is why it's -- we're still in the testing and remediation phases right now. So, this is why we said let's be transparent, okay. So, let's put a note in there, a paragraph that says, we don't know. I mean, we'll know, okay, when we come out with our annual filing, okay, if we have an issue or not. But one thing I could tell you, though, Cameron, is if there is a small issue, okay, we'll fix it. I mean, we spend a lot of time and energy, okay, to solve this SOC compliance thing there. And a lot has to do with documentation, which is different than what we used to do at TFI, right. So, it's an education, it's making sure that everything, okay, is what it should be for SOC compliance. But we said, guys, because we're not filing our MD&A now, we're not filing our annual stuff now. So, there's paragraph in there just in case, and then if it's an issue when we file, then we'll just say, hey guys, we're committed, we're going to work on that. Now, we know and if you maybe talk to David, which he's way more aware than me on that. We know that initial, okay, IPO filers in the U.S., about U.S base new IPO, and there's about 50% of them that have some weaknesses, okay, the first year. We also know that foreign filers, okay, on average have 75% of them, weaknesses the first year. So, it's no big deal, because TFI's team, okay, is committed to fixing everything that needs to be fixed on that. And it's our first year, right.

Okay. No, that's a great explanation. And just as far as SOC compliance costs, I mean, obviously, you probably incurred costs throughout 2021 …

Yes.

… Is this anything material going forward, the additional G&A costs, so you're going to need to spend it to be compliant?

Well, in our costs of '21, you've got a few things that are exceptional, for sure. And this would probably amount with all the legal and advisor and all that for '21. You could say those are probably between $10 million and $15 million, that will not rehappen in '22. In '22, this SOC staying there will probably cost us a few million dollars, Cameron, to get compliant, or to do whatever testing needs to be done and change whatever needs to be changed. I mean, the guys are working. It's really taken very seriously by our team.

Okay. No, that's great color. I appreciate it. Thanks very much.

Pleasure, Cameron.

Your next question comes from [indiscernible]. Please go ahead.

Yes, thanks for taking my questions. Looking at the TForce Freight deal, it's a large deal. It's a complex deal and call it 9, 10 months in it certainly looks like it's a very successful deal. As you go forward and think about doing bigger deals on a larger base, how do you keep the quality of those acquisitions as good as they have been historically for your company, especially as they need to get bigger to move the needle? Thank you.

That's a very good question. And the proof is in the putting a TFI. So, if you go back 20 some years ago, most of our deals were small, and every 2 to 3 years we made a significant, bigger deal. And we've built a culture at TFI of doing that, right? So, it's not something new for us. What's new to us, like you just said is that this deal is really huge, okay. We've never done a deal at this size. And for sure it takes a lot of our energy to work with the local team. Now, this is why I've also said that before we do anything of size, we need to be sure that we are 100% under control, okay, with our TForce Freight and this is why we don't see anything of size, probably before the end of '22 and into '23 because we're -- some of the guys I remember about 15 years ago, they said, well, Alain, he is like a deal junkie. No, we're not a bunch of deal junkies, I mean, we do deals where it makes sense for our shareholders, where we can create value, okay, for our shareholders long-term. So, I understand your point. The next one is going to have to have size as well to move the needle. And it's all part of our plan. We've already have some targets that we're working on to make it happen when the time is right. So, time could be right at the end of '22 or maybe if we're not convinced, we'll wait into '23.

Thank you for that, Alain. And if I could just squeeze one kind of housekeeping one in there. I know you don't guide quarterly, but you've made some comments on one hand, the TForce Freight business having a really difficult 1Q seasonally historically and working to improve on that. But the other hand, you've talked about having the best January ever for the business, you certainly come off a great quarter for the company. Can you just help us directionally about what 1Q might look like, so there aren't any surprises we report in April?

We like surprises, the good surprises, though, right? So, you have to understand that TFI's approach has always been under promise and over deliver. I mean, that's the story of 20 some years of success at TFI. So, what we're seeing so far, okay, when I talk about our month of January is that is going to be a spectacular January for us, yes. But we're also very conservative. So, I think last year, we did about $0.79 EPS in Q1. So, for sure we're going to be above $1. We're going to be $1.25. It's still too early to say. But TForce Freight is a big part of our success, right? So, they’ve never made money in January, those guys. They never made money in December. Well, this year, they made little bit of money in December, okay, so fantastic. Great. So, it's still too early. That's why we're cautious about our guidance. We're conservative because we still have not gone through a Q1 with TForce Freight. We know that April, normally is a great month for those guys. March should be good, but January is a big issue. And don't forget, like I said earlier, we had a lot of sick people in the U.S with COVID, right. A lot of sick people. January was bad for that. January was also bad with the weather, right. So, I mean, we have to be conservative.

Thank you.

You're welcome.

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

Hey, good morning, Alain.

Good morning, Benoit.

Yes. Based on our discussion with investors, Alain, a lot of people, as you know, are worried about the potential trucking cycle rollover. And I'm sure you're airing the same concern. What are you answering to this concern? And any signs of slowdown on the horizon? And what -- how the dynamic different from the past cycles in your view, Alain?

I think this is a perception and it's a mistake. It's a huge mistake, okay. And I understand that you could think about that, because the guys are doing so well, that you could say, well, that's probably the peak and from there it's going to start going down. Well, there's a huge change. Well, first of all, the supply chain is a big problem as we all know. The fact that it's hard for you to add truckers. I mean, everybody knows that in the U.S and even in Canada to a certain degree, you cannot add drivers. It's a fight. It's a big fight. So, when -- if you look back at all these cycles, okay, over the last 30 years, we shot ourselves in the foot because the customer was busy. So, we were adding capacity, and then there's a slowdown, and there's too much capacity. And then the risk [ph] just went to the ship. That issue right now, it's difficult. I mean, so it's difficult for a trucker to add capacity. He can't find the drivers and he can't find the truck. So, it's a huge change in this stupid cycles, okay, that we've seen. If you look at the LTL market, both in Canada and the U.S., if you look at the P&C market, both in U.S and in Canada, I mean, you got disciplined players in there. U.S LTL, you got disciplined players. The stupid LTL guys, the less and less. The Canadian LTL market is still not there yet. But it's getting better, right? It's just that the Logistics, the last mile is the same story. It's hard to find people. So, to me, I think it's a big mistake to think that they're at peak and this is the only way these guys are going to go is down, okay, over the next I don't know, maybe a year or two. But also, Benoit, it creates opportunity for us. Like I said early on the call, I mean, our stock at the price that it was yesterday or week before, it creates also an opportunity for us to buy back, right.

Yes, no, that's great color, Alain. And just looking at your CapEx, you've been guiding for 325, 350. I would be curious, where are you going to be at the end of 2022 in terms of fleet replenishment? And what could be spent in 2023 and beyond, what could be the sustainable level longer term? It seems that there's some money that is put to work replenishing U.S TL. But down the road, I would expect given your asset light model, there's an opportunity to reduce the CapEx beyond 2023. So, if you could try to give some color, that would be awesome.

Yes, you see the big CapEx, the big abnormal CapEx that we're doing as for our U.S LTL operation, okay. So normally in the U.S LTL, we should be buying, let's say, between 600 and 650 trucks a year normally. Right now we're trying to buy 1,000, okay, why? Is even with our plan, if we get the 500 that we were supposed to get in '21 and we get the 1,000 that we're hopefully going to get in '22. And this is in our plan, okay, at TForce Freight LTL, at the end of the year, we're going to still be driving 2012, 2013 trucks. So that tells you that the same effort that we're doing in '22, we'll have to do the same thing in '23 to bring the average age of this division to normality it will take us '22 and '23. After that '23, okay, there may be some small reduction. But to your model, I think that you should work with right now for '22 and '23 the same number.

Okay, that's very good color. Thank you very much, Alain. Congrats again.

Thank you, Benoit.

Your next question comes from Bruce Chan from Stifel. Please go ahead.

Yes, thanks, guys. This is Casey Deak in for Bruce this morning. I just wanted to just quickly thank you for all the guidance on the numbers and the cost drivers. But can you talk a little bit, Alain, about what you think on tonnage for the LTL operations, especially in the U.S what you think cadence there looks like. And I know it's back and forth a bit on getting rid of the bad freight and trying to find better freight.

Right. Yes. Yes. Well, what we've seen so far is the fact that for sure, if you look at our bill count, we're down a bit. If you look at our tonnage, okay, we're also done a bit, okay, year-over-year. So once we get through Q1, I think that also with our approach with our sales team, our sales leadership, of not looking at just what the effort but the results, I think that we're going to start growing because our peers are all growing. I mean, good peers, the market, the demand is there, but then us our problem is we got so much clean up to do in terms of getting into that shipment, get it in that customer, getting rid of that lane, okay, that at the same time, okay, you don't see really the results of our sales team because we have to replenish, okay, the 30,000 some bills a day that we do, right. And I think that all during '22, the clean-up of all that will continue. So, you won't see us growing organically big time in '22. In terms of volume, you'll see us improving the quality of the revenue, you'll see us improving, okay with the cost base. But in terms of growing organically as our peers are doing, not sure about that in '22. In '23, it's got to be a must. But in '22, the first 6 to 9 months, I think it's still replace this and look at that, and this doesn't make any sense and get more this guy, and it's going to be more of a kind of [indiscernible] still, okay. And at the same time, though, we're focusing on making sure that we deliver only something that fits our network, okay, and something that fits us in terms of weight. So as an example, our average weight per shipment is still way too low compared to our peers. So, sales team understands that now. So, they are focused on getting the heavier shipment. That makes sense. And getting or reducing the number of low weight shipments that we're getting. And we have a solution because we have GFP us, okay. The partnership we have with UPS, so if it doesn't fit us, or LTL, maybe it fits our friends at UPS package, and that GFP, we're growing that, okay, with our partner, UPS, makes sense for them, make sense for us.

Sure. No, that's helpful. Thank you. And then the last thing I have for you guys is kind of on the maintenance, are you seeing anything like your customers, when you're looking at picking up good freight or picking up a good customer contract? Is there pushback on the equipment? Are there breakdowns on that old equipment that's kind of hampering your ability to win?

For sure. The fact that we run an old fleet is not helping us. It's not helping us with our drivers. It's not helping us with our customers. This is why day one, when we go in there, we say we have to improve that ASAP. Now, because of this supply chain mess, and it's tough to get the trucks in, okay, but you're right. I mean, it's not easy, okay? Because it affects the service, right? So, you got an old 2008 trucks and it breaks down. Well, the service is going to suffer, right? So, this is why good carriers in our peers, they don't run old trucks like we do -- us today, right? Because when the truck breaks down, the service breaks down as well. And also the driver is mad. It's normal. So, we're addressing that as we are replenishing, okay, our truck fleet with newer trucks, right? So, by the end of '22, we're still driving 2012, 2013. Think about that we're in 2022. So, we're still driving 10-year-old trucks, but today we drive 2006, 2007. Think about that. I mean, we're in 2022. So, we are improving, okay, but '22 is not going to be enough. So, we have to keep improving in '23, so that we don't have service issue because the truck is a problem.

All right. Well, thank you. Thanks for all the clarity.

Pleasure.

And your last question for today come from Tim James with TD Securities. Please go ahead.

Thank you. Good morning, Alain. Congratulations on a great quarter.

Good morning.

You just -- just going back to a question recently, you were commenting on some of your peers being in a position of growth, while TFI is doing some clean-up. Now, would you agree that this has and really is a great time, in fact, to be doing that clean up as opposed to just trying to push growth? I would think it's actually very opportune to be in that position.

Yes, it is. It is because we're lucky in a sense that the market conditions are great, okay, that our peers are busy growing their business whereas us we're doing the clean-up. It would be nicer if we would be in a position to keep to grow organically as we speak. But if you have to be in a clean-up position, I agree with you. This is the best timing to be in a position of having to do some clean-up, right because some costumers deals don't make any sense. So, yes, for sure we got guys that just walked away for where are they going to go? Well, there's always maybe a solution. Fine, some of them cannot find a solution. So it's -- I agree with you it's the best timing. It's just sad that us because we're stuck in doing all this clean-up, okay, well we can't grow organically too much because if we add a 1,000 [technical difficulty]

Oh, I apologize, Alain. [Indiscernible] offline was disconnected. Just for a moment please. This is the operator. We'll just take a moment. Please stand by. Thank you. ladies and gentlemen, you can continue to hold if you'd like. In case Mr. Bedard, return to call. Thank you. Mr. Bedard, I believe you're back online. They're going to connect you.

Okay.

You're now back online, Mr. Bedard.

Sorry about that. I don't know what happened here. So -- [technical difficulty].

Hello. It's Tim James here. Can you hear me?

Yes, yes, yes.

Okay. Okay. No worries. Yes, no, you covered off the -- my question just regarding the kind of timing in the industry backdrop and that it's actually not a bad time to be in this clean-up mode.

Oh, not at all.

Maybe I'll move on to my follow-up question if I could. And I just want to return to the idea around potential businesses or when you consider divesting certain operations. And you indicated that when you feel you can't grow a business, then it would be considered for sale. When you say grow, do you mean in terms of revenue or earnings? I mean, could a low or declining revenue business, but that has improving efficiencies and opportunities for margin expansion and therefore in turn earnings growth? Could that still be a fit for TFI?

Yes, so on that when I say when we can't grow is let's say we cannot do M&A, okay. So given you our waste division that we saw the 5, 6 years ago, is I was unable to grow with, okay. Organically, yes, to a certain degree, but really through M&A was impossible. And we were just sitting on the fence in terms of size. So, I mean, it's always a global look that we take. So, some of the investors are asking about our U.S TL. For sure, we could grow that, okay. For sure we could do some M&A, okay. But right now, the problem we have is that our return on invested capital is below our cost of capital. So, the story when we talk to our U.S TL guys, that guys we have to move that up and we have the opportunity right now because the market for U.S TL, when we look at our peers is just on fire and us, I mean, we now understand the opportunity for us to improve those results. And then we'll be in a much better position, okay, down the road. For sure, there's always can we grow it organically? Or can we grow it through M&A? If you look at TFI's history of growth, it's always been done mostly through M&A because it's way faster. And we have the talent to do it. I mean, it's not all companies that could grow through M&A successfully, right.

Okay. That's great. Thank you very much, Alain.

Great.

And there are no further questions at this time.

All right. So, thank you very much operator and my thanks to everyone for listening in this morning. As always, we appreciate your interest in TFI International and look forward to keeping you posted on our progress throughout the year. Please feel free to reach out with any remaining questions. Stay safe and have a great day. I think [indiscernible] thank you again. Bye.