Good day, ladies and gentlemen. Thank you for standing by. Welcome to TFI International Second Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. I would also like to remind everyone that this conference call is being recorded on July 28, 2025. Joining us on today's call are Alain Bedard, Chairman, President and Chief Executive Officer; and David Saperstein, Chief Financial Officer. I'll now turn the call over to Alain Bedard. Please go ahead, sir.

Well, thank you very much, operator, for the introduction, and thank you, everyone, for joining today's call. Within the past hour, we reported our quarterly results that demonstrate solid margin performance across all of our business segments. This reflects the hard work of the talented team members across our organization even as economic uncertainty continues to weigh on industry-wide freight volumes. As you've heard me say, strong free cash flow is always a top priority at TFI International, and I'm pleased to report that we had yet another strong quarter in that regard, producing $182 million of free cash flow. As you know, we use excess cash flow to return capital to shareholders whenever possible. Thus, we repurchased a significant number of our shares, both during the second quarter and into the third, this while maintaining a strong balance sheet, which has long been a pillar of our strength. In fact, we further strengthened our balance sheet during the quarter through a private placement bond offering that I'll discuss in a moment. So let's begin with a quick review of our consolidated results. During the second quarter, we had a total revenue before fuel surcharge of $1.8 billion compared to $2 billion a year earlier. As I mentioned, we had strong margin performance across the board, and we generated $170 million of operating income, representing a 9.5% margin, up just a percentage point compared to 2.5% in the prior year period. We also produced adjusted net income of $112 million relative to $146 million last year, and our adjusted EPS of $1.34 compares to $1.71. In terms of net cash from operating activity, we generated $247 million, which was virtually flat with the prior year period. And free cash flow, as you heard me say, was $182 million, and that…

[Operator Instructions] Your first question comes from the line of Ravi Shanker from Morgan Stanley.

Great to see the turnaround in margins here. I assume that this was all idiosyncratic to the actions you've taken and not really helping the cycle. Can you remind us what is the margin ceiling you can achieve with further internal actions before the cycle starts to help you out on the LTL side?

Yes. You know what, Ravi, it's always been a big discussion at TFI. I mean we are very cost sensitive, us, and what these guys were able to accomplish in Q2, okay, in a very difficult -- still difficult market condition, okay? Now if you look at all the tools that we've implemented so far, one IT, one technology tool is Optym. We've implemented Optym for our linehaul. Now we're in the midst in '25 to implement Optym, that software, okay, to help us on the P&D side. So our linehaul, we're very proud with what happened there. If you go back 4 years ago, we used to run linehaul miles on the rail for about more than 30% of our miles. Now we're down to closer to 20% of our miles, and we'll probably drop that. And this is all because Optym is helping us do a better job on the linehaul. We believe that the next thing that's going to help us reduce our cost is going to be on the P&D side, okay, where we're going to do more with less. So that's one area that we feel good about, and we're implementing that. As a matter of fact, this week, I think, David, if I'm right, we're implementing 2 terminals, smaller terminals, okay? So that's the first of those 100-and-some terminals that we're going to be moving towards with Optym. And over and above that, I mean, we still have lots of work to do on claims. If you look at our claims ratio, I mean, we're not good. I mean, yes, we're better, okay? We're at 0.7% of revenue. We used to be at 0.9%. I think TForce Freight best result has been 0.4%. If you look at our Canadian operation, we run 0.2%. And I think the best peer in the U.S. runs 0.2%. So this is, again, a huge cost for the company. And the same is true of accidents. So we just hired a guy, okay, Marc Fox, that's going to help us improve our safety. He was the President of Matrec, okay, when we used to own Matrec some 10, 15 years ago, and Marc has done a fantastic job in terms of changing the culture and improving the culture of safety. So claims and accident, okay, I think that we need to improve that like 100%. That's going to help us big time. Also new technology in terms of AI, David, maybe we could talk a little bit about that, what we're looking at doing on AI to help us reduce the labor intensity of our operation, maybe on the collection side, maybe on the appointment freight side. I mean, we're looking at all kinds of stuff to reduce, reduce, reduce our costs and be the tiger, lean and mean.

Maybe as a follow-up question, if you can give us a little more color on just how customers are talking to you about the tariff environment, kind of especially Canada, U.S.? Are there any structural changes in supply chains and kind of any impact on you guys long term, if you can tell at this point?

Well, that's for sure. If you look at our Canadian LTL, we're down, okay? I mean we're still doing really well, but we're down, right? And one of the reasons we're down is because all the trade between U.S. and Canada on the LTL side is down. And this is the most profitable business that we have on the LTL is the trade between U.S. and Canada. So for sure -- normally, the flow is 2 North, 1 south. Right now, okay, the 2 North are down to about 1, okay? So we are losing. Now the minute the tariff is settled with Canada and Mexico, I mean, we should do fine. I mean things will come back. It's just like this kind of instability right now, okay? So this should be fixed probably before August 1. Maybe it's going to be fixed or later on, but for sure, in '25. So yes, we're a little bit affected. We're mostly affected by the instability in our industrial truckload base in the U.S., where a lot of our customers are just waiting on the sideline to say, "Hey, where are we going? Where is this going to happen," okay, "Where is this going to end?" Because our miles in our specialty truckload are down like around 10%, which is not normal. I mean it's just like -- it's quiet. It's very quiet right now. Hopefully, with this Big Beautiful Bill, that should help investment. And that's what -- the investment we made on Daseke a year ago, that was because we thought that the industrial business in the U.S. will start to grow again, okay? Well, we missed the call, we were maybe 1 year too early.

Your next question comes from the line of Scott Group from Wolfe Research.

Maybe if you can just give us a little bit more color on the Q3 guidance, $1.10 to $1.25, maybe some of the margin assumptions there. It's probably a little bit of a steeper decline Q2 to Q3 than we typically see. So just any thoughts there.

Scott, this is really based on just the historical seasonality of the business. If you look last year, Q2 to Q3, we dropped $0.11 of EPS and margins contracted pretty much across the board, across the divisions and the segments. And so that's all that we're forecasting there is just normal seasonal sequential declines. And the extent to which we're able to continue to drive these idiosyncratic opportunities that we have over the course of this quarter, we will, of course, come to offset some of that.

Okay. And then maybe just maybe a little bit more specifics on how you think about the progression of U.S. LTL margin in Q3, if you have any early thoughts on where you think this should be going in Q4.

You know what, Scott, I think that our guys at TForce Freight will do a great job again in Q3. I would say that, again, I mean, our volume is still too soft. So the guys, what they've done so far is they've improved the mix of our freight, okay, year-over-year. And when you talk to our team here, they think that what we're focus is a 94% OR like we've done in Q2, 94%, 95% OR, I think that, that is the goal that is attainable today with the kind of volume we have, right?

So you're saying 94%, 95% in the back half of the year is sort of what you would expect?

Yes.

Your next question comes from the line of Walter Spracklin from RBC Capital Markets.

Just on the guide in the back half, I know you're not -- or I guess, implied guide for the fourth quarter. Are you giving any indication as to what we're going to see for the full year? And are you seeing -- I know you've been right in terms of what you've seen in the general macro environment, saying that we're not seeing much relief. Is there anything that would suggest to you that is this -- are you seeing any signs that this could start to improve front half of '26? Are you thinking now more back half of '26? Just curious to your view on the overall macro here from the signals you're getting.

Well, in terms of the industrial freight in the U.S., Walter, we believe that this new budget that the Trump administration came up with, I think it's going to revive the investment in the industrial sector, maybe the housing, maybe school, maybe all kinds of investment, okay? So this is why -- since we saw this new plan of the U.S. administration, we feel way better that we're finally going to get out of this freight recession that have been stuck in the mud for close to 3 years now. Now we haven't seen anything yet, okay? But it's just like what we're reading, what the guys are talking about, when we talk to our customers. I had a meeting with our specialty truckload fleet a week ago. And for the first time, I heard those U.S. guys say that, "We feel better. We feel good when we talk to our customers. Hopefully, things will start to roll," right? So we haven't seen anything yet concrete, Walter, but all the signs are there to say that -- I don't know when, but we're going to get out of that mud of that real estate -- not real estate, but this terrible recession that we went through the last 3 years. Late '25, maybe, okay, early '26 because don't forget, these projects sometimes takes time. So we'll see. But at least the confidence, okay, when I talk to the guys in the U.S., is coming back. On the Canadian side, I mean, there's a lot of instability. Once we know what's going to be the deal with the U.S., I mean, then the Canadian will be able to say, okay, this is what we need to do now, right?

Yes. And I think what underpins that is really being able to see the effects of the cash tax savings, right, and thinking about how that flows through the economy. I mean just us, our cash tax savings in the U.S. this year are going to be $20 million and next year is going to be another $20 million. And think about that throughout the economy, and this is really going to go towards companies that are doing CapEx, right? And these are the companies that are our customers. And now that we own Daseke, right, 72% of our specialized operation in the U.S. is flatbed. We have $1.3 billion of U.S. flatbed exposure revenue. That's this year based on today's depressed dollars. So when you think about rates coming down and you think about all of this cash tax savings coursing through the economy, that's what gives us a little bit of confidence in there really being a catalyst for a turn, in particular, for our business units, which is our specialized Truckload and our LTL.

You're sounding more confident than I've heard you in a while. So that's great. My follow-up question is on M&A. Can you talk to us a little bit about how you're looking at tuck-ins, what your budget would be over the balance of the year and into next for just tuck-in M&A? And then what your thoughts are toward a larger deal, I know you pointed to 2026, is that still in the cards?

Yes. So for '25, Walter, it's pretty simple. The M&A activity is buying back TFI, right? That's what we're doing. That's what we'll continue to do in '25 because we cannot find another opportunity that cheap. It's impossible. with so much free cash flow, there's no company that we can buy today at a reasonable price that is better than buying back TFI. So that's what we're doing. Now in terms of larger transaction, I think that probably you could see us getting involved into something of size in '26. Don't forget, the last deal we did was late '23 into '24. So that was like 2 years ago. Mr. Brookshaw and his team, slowly, we're digesting Daseke, okay? It's more and more every day under our control. We're transforming the good Daseke truckers, okay? The role that Steve has is to change these guys from good truckers to good business truckers, right? So a good business trucker is there to make money. A good trucker is there only to service the customer and hopefully makes money. That's the difference between the 2.

Your next question comes from the line of Jordan Alliger from Goldman Sachs.

Yes, I was wondering if you could give a little more color on the U.S. LTL side and some of the other things you've been working on such as the sales force rejiggering penetration efforts on the small to midsized businesses, some of that other initiative stuff that maybe lifted margin better than expected in the second quarter.

Very good question, Jordan. And I have to tell you that sales has been -- since we bought UPS Freight, TForce Freight now, it's been a rock in our shoes. I mean we've never done well, okay? We've tried everything. But I think that now for the first time in -- since we bought the company in Q2, we're starting to have a good sales team on the small and medium-sized account that is highly motivated and getting results, okay? So the number of shipments, okay, that went down like crazy about 6 months to 9 months ago versus the total shipment, okay, now is coming back and the guys are very motivated. So we feel really, really good that finally, through Chris' leadership, I mean, now we are kind of regenerating this sales team. And also at the same time, one thing that has always been an issue with our customer is that billing customer, okay, it's like we always had problems with that. David, could you talk a little bit about that with Prism, okay, this new software.

Yes. For sure, especially now that we've corrected the problems, we can explain exactly what they were. Prism is a new billing software, which is helping us with our billing and our billing accuracy. We've also changed our processes so that we no longer deliver until you have an account with us or we have your credit card. And this caused DSO to go down at TForce. Or in the U.S. LTL, which is primarily TForce, DSO went down from 43 days a year ago to 35 days. It's very rare to see such a dramatic reduction. And why is that? Well, it's because of the software and it's because of a better process, which is a basic one, which is don't deliver the freight until you have an account and then you get paid quickly. So this also helps the customer service. This also helps the customer experience because there's no running around afterwards trying to figure out the billing.

That also helps the motivation of the sales guy because now they don't get calls from customer, and your building department, they don't know what they're doing or this or that. I mean it's smoother. It's getting easier to do business with TForce Freight today than in the prior times, and we'll keep improving that.

Exactly. And you see it in also the quality of the revenue. So you'll notice that our length of haul is down a little bit. The SMB mix has improved, right? The big problem that we had over the last several quarters was a 3-point reduction in the SMB mix as a percentage of our total revenue. And we've now reclaimed 2 of those 3 lost points, okay? So we're 2/3 of the way back to where we were, let's say, about a year ago. And that's important. That's contributing to the results. And then the last thing is the GFP. We've now put up our third sequential quarter of GFP stability. We're up a little bit. But stability for 3 quarters now is something that we have not seen in a while. And those 2 go hand-in-hand, the local, the SMB and the GFP sales.

Your next question comes from the line of Tom Wadewitz from UBS.

I wanted to ask you a little bit more on U.S. LTL. I know you guys have been kind of peeling back the onion for a number of years, getting the billing right, I'm sure it sounds like a big positive. What else do you think is left? I guess I was surprised when you said around 20% of linehaul miles outsourced rail. I thought you were like up in the mid-30s. But I don't know, is it in-sourcing more linehaul? Is it other things? Just kind of where you're at in your journey of getting to have the LTL operation and service that you want to have?

Well, you know what, I mean, for sure, from day 1, we were not able to move away from rail because our fleet, our trucks, were so bad that it was just a problem. So we've invested tremendously into the asset, the trucks and also the software. So right now, we are running about 20%. And we didn't add that many road drivers within TForce Freight. I mean it's just like those drivers are doing more, okay? So we've also introduced sleeper trucks, okay? So now I would say we're just a little over above 100 sleeper trucks in our linehaul fleet at TForce Freight. And this is also helping us on the long haul, okay, because now running sleeper, we beat the service of rail, okay, and the customer satisfaction is like much, much, much improved, right? So it's a change, and we'll continue to improve that. Now can we go less than 20%? Well, it's something that we're looking at right now, okay? But it's way better in terms of our service on the 3 or 4 days service, right, because now we move more and more freight on the truck instead of rail.

So are you kind of where you want to be then in terms of your service? Or are there other kind of big things that you need to do? And then I guess just maybe related to that, it seems like the pricing is still showing some pressure. I think you had some improvement in shipments sequentially, but you're still kind of down in terms of revenue per hundredweight sequentially and year-over-year. So how do we think about that equation of getting to improvement in the price?

Yes. So our service on the next day, okay, is comparable to our peers. We know that. Where we are not up to par is when it's a 2-day or a 3-day or a 4-day service. 4 days, now we're getting closer to our peers because now we move more away from the rail, okay, and with our own trucks. Now on the 2 to 3 days, this is where the guys are working on. So our service is not where it should be. I'm not saying that our service has improved, okay? On the next day, we are comparable to our peers. And until such time that our service is comparable to our peers, our rate cannot be as good as our peers, right? So you have to provide the service first and then your sales team could say, "Hey, you know what, this is the market, and this is what we would like to have in terms of rate." So we're not there yet, Tom. But the guys are working on, and we've made some major improvements over the last, I would say, 1.5 years and even more lately. Our missed pickup, okay, which was a cancer for us, a cancer because like nobody cared, okay? We were all the way up to 4% 3 years ago. Now we're hovering around 1%, okay? Still too much because in Canada, we don't have missed pickup. I mean we're 0, right? So guys, 1 is better than 3 or 4, but is not good enough. So we have to keep improving this service metric, right?

Yes, for sure. It's something that we're very focused on because, as we talked about before, missed pickup is the worst because it's bad service and you lose the revenue. Our missed pickups are down, the missed pickups, pure missed pickups, are down over 50%, maybe 53%, something like that year-over-year in the quarter. And then when you add missed pickups plus reschedules, I get sometimes, "I didn't miss it, but I rescheduled it." "You missed it." Then you add those together, we're down like 42%, 43% year-over-year. So it's a major, major improvement.

Your next question comes from the line of Brian Ossenbeck from JPMorgan.

So maybe just to follow up on that last train of thought. When does that start to translate to better service, to consistency? Like, how long does it take for those conversations to result in better yields, bringing it back to the market? Is this something you can see towards the end of this year? Is it really going to take a little bit longer, considering it has been such a big change in a short amount of time. Are shippers going to want to see that for a longer period of time before they start paying you in a commensurate rate?

I think you're right, Brian. I mean 1 quarter does not make a year, right? So for sure, the shippers, they're smart, okay? And for sure, they look at us and they say, "Well, okay, guys are doing better." But okay, let's wait and see. This is not just a blimp of improvement and then those guys fall back in the same kind of rock, right? So you're right, Brian, it's going to take more time. Now is it another 2 or 3 quarters? I think also when the market starts to firm up, that's going to help us down the road, okay? But if things stays the same, I would say that -- I mean, to bring the confidence to our customer that TForce Freight service is up to par to the peers, it's going to take a few quarters to build that confidence, but we'll continue to improve.

Okay. And then Daseke and the flatbed side of things, maybe you can just go through more detail in terms of, I think at one point, you needed to get rid of some equipment, you had too much trailer equipment, maybe some other operational changes to get these to be business truckers instead of what they were before, but some updates on the asset side and then just the processes in terms of where you are now and what that could look like when the volumes do get better.

Yes. So very good question on Daseke. I mean, I think as I said on the call of Q1, by the summer, okay, all of Daseke will be running our own financial system. The same with fleet management, okay? And now we have visibility about what's going on in terms of the asset base. So if you look at my trailer count at Daseke or specialized truckload, I'm down, okay? If you look at my truck count, I'm down, but not enough. So I got way too many trucks sitting idling because my miles are down about 10% year-over-year, okay, because my industrial customers are not that busy. So you'll see us improving. If you look at my OR of Q1, okay, of my specialty truckload versus Q2, I wouldn't say that the market is better. I mean I wouldn't say that we have more activity. We just did a better job on the cost side of it, right? So revenue per truck, we're doing okay. The rate is improved, but it's the velocity that's not there. So overall, after buying Daseke about a year ago, I'm very proud of what these guys have accomplished so far. But we have a long way to go because I think I've said it on the last call, it's not normal to run a specialty truckload with a 90% OR, okay? It's not normal. So we got to bring those guys back down to an 85%. Probably hopefully, early '26, we'll be running at an 87%, 88% OR and then continue the improvement in a normal environment, okay? If market starts to help us, well, for sure, we'll be way faster going towards an 85% or an 82% over time. Now the market is very difficult. If you look at -- there's not that many peers that came out, okay, so far in Q2. But you could see that when you have one of my peers losing money in truckload, okay, I mean that tells you -- and these guys are good. That tells you how difficult it is in today's market. So I'm really proud of the guys improving, what, 200 basis points quarter-over-quarter on the OR. So the guys are working really, really hard. Now in terms of capital, I would say that to run the business today, okay, we have to shed about $20 million of capital in excess equipment, trailers and truck. And this is what we're doing. Now for sure, the pre-owned market on equipment is not that great. But if you look at -- we're not losing money by selling the equipment right now. We're making a little bit of money, okay? But this is where the guys were slow. I said, "Guys, we got to be a little bit more active."

Your next question comes from the line of Daniel Imbro from Stephens.

Alain, I want to follow up on the U.S. LTL pricing discussion. I think it makes a ton of sense you're improving the missed pickups in service, and that will take time to show up in price. But I think the magnitude of the decline, down almost 7% year-over-year, can you just walk through or unpack what the headwinds to yield were this year? Considering service is better, I would have thought maybe we saw a little bit of improvement. But was there mix? Is it just competitive pricing? Kind of what's happening with core yields there?

At I would say, number one, is that the market is soft. I mean, what I've seen so far is that some of my best peers' volumes are down, 5%, 6%, okay, not the one that came out last week. So there's price pressure a little bit, not disastrous, but there is some, okay? And for sure, the mix is -- the minute that we start gaining more on the SMB where the profitability is better, okay, we should come up with better revenue per shipment, et cetera, et cetera. So it's a transition, okay, to move away from the corporate account and the 3PL as much as we can and to get to a goal where maybe 40% of your shipments are with the SMB.

Yes. And also, Daniel, our weight per shipment went up by almost as much as the yield went down, right? The weight per shipment was up over 5%. So carrying heavier freight, yields down a little bit, it's the way in this soft market that we're working to kind of preserve that revenue per shipment, right? And we've been able to do that while reducing the length of call a little bit, which takes a little bit of the cost off. But the real -- the main driver of the yield decline is the growing weight per shipment.

Great. Helpful color. And maybe one not on the U.S. LTL. Just on the P&C side, I guess, how much benefit, if at all, in the quarter was there from the partial Canadian postal strike or the other competitor strikes, any surcharges we saw there? How much should we extrapolate the 2Q results into the back half?

There was nothing there. I mean this potential strike didn't help us at all, very minimal, okay? And it seems like there's not going to be another strike. So very, very minimal. What's killing us, okay, on our P&C side, although our results are fantastic compared to our peers, is, on the Canadian side, Carney, the Prime Minister, decided to go away from that carbon tax there. So fuel price went down. And us, fuel has always been a headwind -- a tailwind for us because of our density. So this is the effect of that carbon tax. But no, nothing specific to the potential strike. There was nothing for us there.

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

Maybe just when I look at your OpEx within your U.S. less than truckload, for the past couple of quarters, you're down $56 million, $57 million year-over-year, both in Q1 and Q2. Just wondering, is that a trend rate you can continue for the rest of the year? So if I look at OpEx, can that be down another $50-plus million in Q3 again? Or are you starting to lap tougher comps? But it does feel like you had some excess OpEx in 2024 in the back half of last year.

Yes, for sure. Yes, I don't know, we'd have to look at some of the details to get back to you on those numbers, Kevin, separately. But yes, I mean, we've been taking out costs. You can see that the truck count is also down in the U.S. LTL. We're trying to adjust the cost to the demand, while at the same time, we're investing in service. Part of the reason that we're missing less pickups is that we're staffing a little bit more. We're working the overtime as well. We're making sure that there's guys there. So there's the 2 pieces of it, right? It's not just about cutting, it's also about making some strategic investments. And certainly, picking up the freight is a very high return on investment.

Yes. Right. That makes sense. I mean just a clarification, David, I think you mentioned the Q3 guide of $110 million to $125 million just assumes normal seasonality. I guess if I ask it this way, would that assume then any incremental success you have on your self- help levers outside of what you've realized in the first half of this year, that would be additive to that guidance?

Correct. That normal seasonality would be we continue to operate the same way that we're operating now that just we maintain that, right? And then we just kind of have the seasonality applied to it.

Your next question comes from the line of Ari Rosa from Citigroup.

Congratulations on the nice turnaround here. I was hoping you could talk about the sustainability of the free cash flow. Alain, you opened your comments just talking about free cash flow. I think that's such an important part of the story. Just talk about -- can you sustain these levels? And where does it go to if we see a little bit of improvement in the macro?

Yes. That's a very good question. But I've always said the proof is in the pudding. So you got to look back, okay, 5 years. And don't forget the last 2 or 3 years, it's been very difficult in terms of the macro, right? And we still generate a lot of cash. TFI is a cash cow, and this is -- and I've said it many, many times, this is the golden goose of TFI is the cash because cash permits us -- excess free cash permits us to reduce debt or give more to the shareholders or do M&A. And if you look back 30 years of TFI, that's how we've been able to grow, okay? I remember when we turned the company into an income trust in Canada in 2002, people said, "Well, if you give all your cash away, you're not going to be in a position to grow the company." But we've grown the company from 2002 to 2008, okay, when we reverted back into our corporation at the same time that we had the financial crisis, so bad timing there. But I mean, this has always been the focus. So as an example, we just gave the example of Daseke where these guys were good truckers, but we're changing those guys into good business truckers. So you'll see us brokering more freight to the market and driving less mile with our own asset to have the proper balance that we have in Canada. right? So if you look at the revenue in Canada of our specialty truckload, the balance between the revenue from our asset and the revenue from our brokerage is not the same as the U.S. because in the U.S., the Daseke guys, their thinking was, "Well, we got to run it ourselves with our own asset. Yes, we do a little bit of brokerage here and there." So we're changing that in the U.S. So again, asset from the other guys, not your asset, improve your free cash flow, right? It's the same revenue, okay, maybe not the same margin, but you're not stuck with the CapEx or the accident, right?

So I'm sorry, so in terms of the sustainability of this level, like what's your thought on that? It sounds like there's opportunity for it to step up from here? Or what is it...

Yes, for sure.

If you can be a little more explicit on that.

Yes. Because if you look at what we do in Canada, I mean, my P&C and my Canadian LTL are really very running light in terms of assets. And this is what we're trying to do with Daseke and our specialty truckload in the U.S., the same kind. It's harder to do for us in the U.S. LTL because it's a unionized labor force, a little bit more difficult. So this is why, to me, okay, by switching revenue from asset to non-asset, it's going to help our free cash flow down the road. So to me, in a normal environment, can TFI -- with the business we have today, can we do close to USD 1 billion in free cash flow in the market is helping us? Absolutely.

Yes. Because when you think about what's the first contributing element to the free cash flow is the net income, okay? So as the business -- as the environment recovers, everything recovers, net income goes up. Perfect. Okay. Then what? Well, when we start making a lot of money, we're not going to go out and celebrate and buy trucks. That's not us. We're not going to buy trucks with excess free cash flow. We're going to buy the trucks that we need while continuing to migrate towards this more asset-light model in the recently acquired businesses that Mr. Bedard went through. And so the incremental earnings drop straight to the bottom line of the free cash flow. And the only thing that you have to kind of look at to offset that would be working capital needs, which might increase as revenue goes up. But that's it. So you should expect the free cash to go up along with earnings. And you will not see any sort of large step-up of adding capacity through assets.

And also, we have a few one-timers on the real estate side, okay? Because we're also adjusting our real estate portfolio to the reality of the world today, so this is also something that is going to help us in '25, '26, '27, down the road.

Got it. That's wonderful color. And then I just wanted to stay on the point about the service in the LTL business. I was hoping you could go into a little bit more detail on what are the actual steps that you're taking there to improve the service and get it to look a bit more like peers. Some of your peers have been pretty open about the steps that they take to step up service, whether that's putting airbags around the freight or dimensioners and that sort of thing. Just talk about kind of a little bit more detail, a little more color around how you're actually -- what's the progression to get that service improvement?

Yes. Here are the things that we're looking at. The first is billing accuracy, okay? And as it relates to that, we've talked about the software and we've talked about some of the success that we've had there. The second is cargo claims. And there, yes, we're using straps. We're experimenting with cardboard. And so we are looking at various consumables to be able to improve the cargo claims. The third is missed pickups, which we're addressing through, first of all, better systems. We're using the more advanced Optym P&D, but we're also really making sure that we're staffed appropriately and making sure that the culture at the terminal level, at the dispatcher level, is that missed pickups are not acceptable. And then, of course, the last is on-time delivery. And as it relates to that, there's a culture element to that, and then there's also a linehaul element to that.

Your next question comes from the line of Ken Hoexter from Bank of America.

David, good to hear you on the call again. I just want to come back to the second quarter outlook, right? So it's a big pullback. And I know you said it's a normal seasonal drop. But I guess if we go back 2 years ago, we didn't have that drop. So maybe, David, if you can just kind of walk us through what drops off, right? Because Alain already mentioned LTL margins at U.S. should stay basically flat into 3Q, 4Q. So is it truckload? Is it logistics? What falls off? Or is it just freight in the third quarter?

Yes. Listen, I think -- so we said 94%, maybe 95%. So if we end up in the 95%, that would be a point on the LTL. I think the truckload last year compressed a bit as well. The logistics could also compress a bit with the lack of truck deliveries in our truck delivery business as just the industry pulls back on CapEx. And then I think there's a question mark that we have that we don't have the answer to, and we won't until the quarter is over, which is how much of the freight dynamics that we're seeing right now are related to the stop, start, stop again dynamic related to the tariffs, right? We saw that imports into the West Coast of the U.S. were way up in June, right? So we're benefiting from those freight flows now. What's going to happen when those are done, but then at the same time, you've got peak season coming. So we are just conscious of the fact that it's difficult to extrapolate what you're seeing right now out to the future because of the start and stop nature of the imports that have been coming into the country as a result of the tariff stuff, which it looks like maybe the worst of that volatility is behind us.

And David, can you just remind us what percentage is related to West Coast transports?

Well, it's probably -- so on our LTL, around half of it is retail. And I couldn't tell you how much of those are related to West Coast imports, but I think a lot of that retail stuff is coming from China.

Yes. Because don't forget, we used to be part of UPS and UPS is a retail machine. It's a transition more and more into industrial freight. And this is maybe one thing that we forgot to say, David, is that now more and more, we are introducing our LTL salespeople to our industrial base customer that we have at Daseke, right? Because, again, UPS was a retail machine, UPS freight was the same. We said, no, no, no, no, guys, let's move more into the industrial environment, okay? And through the Daseke sales team, we're opening doors to our LTL team to see, "Hey, can we do something with you guys," right, like a Caterpillar, like a John Deere, all these major industrial customers that we service on the industrial side, but we don't on the LTL side.

Wonderful. And then my follow-up, I guess, Alain, if you think about shipments down 10%, tons down 6%, you talked about the competitor that's already reported, but what's your big picture on the capacity or the cycle here? I don't know if you want to throw in English language proficiency impact on the trucking side, just the cycle on the tonnage side being down much. Do you think you're losing share? Have you stabilized? Maybe thoughts on the backdrop.

Yes. I think that the English thing there is just maybe for the truckload guys. In the LTL world, I mean -- so when I talk to our truckload guys, they believe that, yes, there could be some effect to that. But to say that we've seen something so far, I would not say that. But in terms of our volume, okay, I mean, we've been going down for the last 2 or 3 years, okay, in terms of volume. And now a little bit like David was saying about the GFP where finally, we have some stability, I think that the next few quarters, we're going to start having some stability and maybe coming back into some kind of a growth mode, nothing big. But again, this is also related to improving the service. This is where the guy now understand that it's the chicken and the egg, right? So what comes first? Well, we know what comes first is the quality of service. If you don't have that and you're competing with good peers that provide a good service, good luck. I mean, it's going to be tough. So this is why the team is really focused on like what David was saying about improving all the different factors. So you got to be stupid to miss 3% of your shipment, missed pickup, because that's 3% of shipment that you're not going to have because you just miss it because you're stupid. So now we're down to 1%, okay, we should be down to 0. So again, this is all things that the guys are focused and it's like a religion. But again, like I was saying earlier to a different analyst, I mean, it's not quarter that's going to convince the industry, the shipper that, "Oh, maybe it's a blip. Maybe it's like, oh, it's flavor the month now," right? No, no, no, no. We have to prove that this is going to be consistent, sustainable. And this is why when we go back and talk about U.S. LTL Q3 at 94%, 95% OR, it's because we want to be cautious. We want to be prudent. I hope that we do better than that. But I mean, this is the minimum goal for us.

Your next question comes from the line of Bascome Majors from Susquehanna.

David, if we go back to the cash flow discussion from earlier, you talked about -- I think Mr. Bedard talked about getting close to $1 billion in free cash flow in a more normalized environment. Do you have a sense of where you might shake out this year? And just to clarify on the quarterly outlook, I know you're optimistic that U.S. industrial can improve later in the year. But if we're kind of bouncing along where we are and that doesn't happen before next year, can you just help us frame your view of seasonality in the fourth quarter as well?

Yes. So I think that free cash will be probably in the $700 million range for the year. And as it relates to the industrial piece, I do think that it takes -- stimulus takes time to course through the economy. And this big tax break for CapEx is going to take some time. So I think that's really a '26 event when we start to see those projects really in motion, exactly, take shape. So as it relates to seasonality in the fourth quarter, the best way to look at that would be, if you're asking about the truckload, to look at what we did between Q3 and Q4 last year because we had Daseke in Q3 and Q4 last year. So the whole kind of picture is apples-to- apples and give you a sense for the sequential movements that we would expect to see. I think that on the LTL side, it was a bit of an aberration in the U.S. What happened to us in Q4, that is not normal seasonality. That was related to us losing a lot of SMB. And so that will not apply. That trend between Q3 and Q4 in terms of the margin compression that we saw last year, that will not be repeated. It is a more difficult quarter. So it's normal to have some pullback in Q4 relative to Q3, but certainly not like what we saw last year.

Your next question comes from the line of Benoit Poirier Desjardins Capital Markets.

Just looking at the financial leverage, you've been a disciplined capital allocator. You ended the quarter with a leverage of 2.35, mentioned a clear desire to pursue buyback given where the stock is. Just wondering what could be the targeted leverage by year-end given the comments about free cash flow generation? And where would you like to be before sizing a more transformative deal?

I think our plan, correct me if I'm wrong, David, is that, based on our plan, we're going to end up the year around 2, 2.1 leverage, right? Let's say, 2.1. We're at 2.35 now, 2.1. So this is the way we see it. And now in terms of deal of size, the approach that we have is that we could live all the way up to 3, okay, because we generate so much cash. But we're not going to go above 3, that's for sure, okay? So up to 3, and then very fast that year is we want to bring that leverage down, okay, to more like under the 2.5: 2.2, 2.25, 2.35, in that league.

Okay. That's very good color. And Alain, you mentioned great color about the industrial, your exposure to industrial, the comments -- positive comments about the potential recovery in 2026. Obviously, logistics is also depressed this year, but there's a pickup expected in 2026. So I'm just trying to figure out what could be the normalized earning in 2026 with those positive comments. How much upside could we see next year in terms of earning power, whether we could see a $6 of EPS and maybe 90% OR for U.S. LTL, whether it's doable?

Yes. It's still -- Benoit, it's still too early for us to talk about '26 because we are having a tough time just to talk about Q3. But going back to logistics, I mean, logistics okay? Our JHT division is going through some tough times right now because nobody is buying trucks, right? So you know the OEMs are down 15%, 20%, 30%. But that will correct itself probably in '26 according to the forecast we have from the OEM, okay? That being said, our U.S. logistics had a not so good first 6 months of the year, okay? So we were running at about 95% of plan. Now okay, we believe that the last 6 months of '25, we're going to be closer to 98%, 99% of plan. So that should help us because, in a normal environment, if everything runs normal, the OE of our logistics before tax should be between $200 million to $220 million, okay, with the business we have today. And I think we're going to end up the year probably like $160 million or something like that. So JHT is a big, big thing there. But according to JHT and the truck OEM, I mean, because of this new engine thing there in '27, those guys will be pumping a lot of trucks in '26. And with this CapEx staying there with the new plan of Mr. Trump, okay, probably JHT will be back to being very busy in '26. So that's going to help us.

Your next question comes from the line of Konark Gupta from Scotiabank.

Just wanted to get back to the SMB mix here. Can you help us understand what made these SMB accounts, whichever you got back, what made them come back? And like what was the reason in the first place they left here?

Because we're focused on them now. We care about them. We are -- really, as an example, David was talking about missed pickup. I mean, we really focus on missed pickup for those guys even more than the general freight that we service. So we care about those guys because these are the best margin accounts. Instead of just not caring, okay, now it's a real focus of ours. They didn't come back because of rates, because we cut rates and this and that, no. They came back because we made them a proposal which is fair, reasonable. And we told them, "Listen, we'll provide you with good service." This is why going back to an earlier comment, my next day, okay, service is comparable to our peers. Where we are not comparable to our peers is the second day, the third day and the fourth day. The fourth day, we're getting closer to our peers. So this is where the second and the third day, this is where we need to make major improvement, okay, to correct our service to be closer to our peers. But small, medium-sized account is mostly next day. So now my service is up to par to our peers on the next day.

Makes sense. So it's the service-based getting back, not the price-based getting back.

Yes. No, not the price.

Glad to hear. And then just my follow-up would be on the capacity side. I think you laid out some capacity numbers for the Truckload business for Daseke, et cetera. What about U.S. LTL and Canadian LTL? How many doors, how many trucks or trailers -- you're maybe way too much in the U.S. and Canada on the LTL side. I mean, do you need to rationalize some? Or do you still need to add more for the future?

No. The Canadian side, we're done because we've just acquired Kindersley about a year, 1.5 years ago. So we're done with Kindersley. We've acquired also Hercules in Canada and in the U.S. So Hercules, we're done in Canada. We're not done in the U.S. yet. So the guys are working on the U.S. side right now. But the rest of our business in Canada is okay. We have no issues. In terms of U.S. LTL real estate, we still have about 3,000 doors too many, 3,000 to 4,000 doors too many. So you should see us during the next 6 months, do some trade, okay, some swaps with some of our peers that we do all the time. So that should help us reduce the carrying cost of those real estate that we have no use for it. On the truck side, we've talked about truckload. On the LTL side, what we're selling is the old UPS freight trucks, okay, with very little value. So there's not much capital to regain from the sale. But we still have way too many trailers over there and too many trucks, but not a lot of capital tied up there.

Your next question comes from the line of Elliot Alper from TD Cowen.

This is Elliot on for Jason Seidl. Maybe just a follow-up to the last question on TForce. Are you seeing some of these SMB customers feeling more of the tariff pressure? And then a number of carriers are also going after the SMBs. Is the pricing a bit accretive to maybe the total book? Is it seeing incremental challenges given some of these players are looking to grow share?

I think on the tariff side, I don't see anything, any issues with the small and medium-sized account with the tariff. David?

No, we haven't seen that. And in terms of your other question about pricing and other people going after SMB, it's a market, right? It's a market. We all know LTL has good characteristics, good market structure, which makes it a very attractive segment within transportation. And it's a market. It's a market that operates within those parameters.

And one shipment could be good for me and one of my peers, not as good for him, depending on where the customer is, where my terminal is. So what is good for me is not necessarily as good or what is good for my peers is not necessarily good for me. So just to say that everybody is going after this kind of business, I mean, sometimes it fits better me than the other guys or maybe the other guys versus me. So it's just to play it smart.

And then just bigger picture, I mean, any indication of how peak season may shape up when speaking with some of your customers, maybe any pockets of strength or weakness?

So far, I mean, it's like more of the same guys.

Your next question comes from the line of Cameron Doerksen from National Bank.

Maybe just a couple of quick, I guess, maybe modeling questions for David. You mentioned, I guess, some of the tax rate changes or cash tax changes from the new U.S. legislation. I guess what's your expectation for, I guess, effective tax rate going forward with that?

The tax rate won't change. It's just a cash tax benefit. It's a cash tax benefit that we estimate, based on our CapEx over 5 years, is worth $75 million cumulatively relative to what our tax would have been without this law. And of that $75 million, $40 million is realized in the first 2 years.

Okay. That's helpful. And maybe just, I guess, on the -- you did do a debt issuance in the quarter. It looks like pretty attractive terms. Are you able to update, I guess, what the kind of average interest rate is now for TFI across the entire company?

Yes. I think we put it in the MD&A, but I can tell you that the weighted average interest rate on this particular issuance was 4.8% fixed. And we reimbursed debt that was costing 6.1%.

But I think globally, David, we're under 5%.

Yes. Globally, for sure, we're under 5%, and we can follow up on the exact calculation. But this was a great private placement for us. We managed to access the markets at a great window. We reduced our interest expense, as we discussed. We increased the availability on our revolver. We actually pushed the maturity out by a year as well in a separate transaction on the revolver. And we also better aligned our currency mix with our cash flow, the currency of our debt with the currency mix of our cash flow. So we're very happy with the transaction.

Your last question comes from the line of Bruce Chan from Stifel.

Alain, just wanted to ask maybe a bigger picture strategic question. You talked in the past about maybe finding some density in LTL via M&A. And I know it's still early, but with some of the improvements that you've seen this quarter, is that still on the table? Or do you think that you'll be going at it organic from this point forward?

You know what, we need to prove to the investor that we are in control at U.S. LTL. We had a lot of -- not a lot, but we have a few shareholders that were very disappointed. They made a lot of money with TFI, but they were disappointed that they thought that we've lost control of TForce Freight. So now we're starting to show that, no, no, no, we're back in control. So for sure, to do a deal of size in the LTL right now, it would not be smart because our investors, we have to convince them that we are in control. So let's say that we come out Q3 and then Q4 and let's say, Q1 of '26, and now we have 1 year of showing, "Hey, guys, it's not a blip. It's not a mistake." It's not something -- "No, no, it's true. These guys are going in the right direction." Then you could start looking at a transaction of size at that time. But now it would be too early. We have to prove to our investment community that we are in control. They know we are in control of all of our business, but they have a question mark on TForce Freight, our U.S. LTL. So this is what we have to prove. If we would do a deal of size in the truckload world, okay, when we're running, let's say, a 90% OR and most of my peers are running 95% and worse than that, I would say that probably the investor would say, "Those guys are really in control in a very difficult environment. So they're buying something of size, it's okay, they have a great team, they'll fix it." But today, if we do something of size in the LTL, I think it would not be prudent. So we have to show that we are in control, and that's going to take a few quarters. And then in '26, we'll relook at that. But for now, it's easier for us to just buy back TFI. We know the company really well. We know the free cash flow per share, the yield is like double digit. There's nothing we can buy today that's cheaper than that with the best potential.

Okay. That's great. That makes a lot of sense. And then just maybe a last cleanup, perhaps for you, David. I don't think I heard it, but any color on LTL contract renewals?

Yes. Listen, the contract renewals continue to be in the sort of low to mid-single digits. The question is the mix, right? It's of little use if you get renewals that are up, but then the customers that pay you more give you less freight and the ones that pay you less give you more freight, right? So that's really what we're looking at. But specifically to answer your question, that's where the renewals are.

There are no further questions at this time. I will now turn the call over to Alain Bedard. Please continue.

All right. So thanks very much, operator, and thank you, everyone, for being on the call with us today. We very much appreciate your interest in TFI International, and I look forward to updating you on how we perform through the balance of the year. As always, if you have any further questions, please don't hesitate to reach out. Enjoy the summer, and thank you again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.