Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's UPS Freight Acquisition conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and a follow-up in order to get as many callers as possible. Further instructions for entering the queue will be provided at that time. Before we turn the call over to management, please be advised that this conference 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 material from those anticipated. Lastly, I would like to remind everyone that this conference call is being recorded on Monday, January 25th, 2021. I will now turn the call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir. Well, thank you very much, operator. I appreciate everyone joining us on short notice. This morning, we announced one of the most exciting transactions in the history of TFI International. We wanted to host this call to walk you through the many highlights and to allow for a Q&A. We have agreed to acquire UPS Freight, which is the LTL division of UPS. Upon closing, this immediately propels TFI International to become one of the five largest North American LTL carriers. As you know, TFI International has a long and outstanding track record of growth through acquisition. We have acquired and integrated more than 90 companies since 2008, which has helped us grow considerably to become one of the leaders in the North American transportation and logistics industry. This acquisition of UPS Freight is one of the most highly strategic in our company's history. It not only strengthens our service offering but accelerates our strategic expansion across the U.S. and fortifies our ongoing relationship with UPS. If you are familiar with our strategy, we allow more than 80 companies to operate as independent business units under the TFI International umbrella with a high degree of autonomy. This approach is perfectly suited for capitalizing on UPS Freight's existing strength and allowing us to improve its margin over time. TFI International is paying CAD 800 million before adjustments in U.S. dollars for UPS Freight, which generates approximately CAD 3 billion of revenue in 2020. The CAD 800 million represents the base enterprise value of the transaction on a cash-free, debt-free basis and is subject to closing and post-closing adjustments. Importantly, all pre-closing pension obligation accidents and workers' comp claims and costs remain with UPS. Approximately 90% of what we are acquiring will become a standalone operating company to be named TForce Freight within our LTL business segment. The remainder, which represent dedicated truckload assets, will join our truckload business segment. As an important part of this agreement, the newly named TForce Freight will continue to serve UPS's ongoing LTL distribution needs for a base term of five years. TForce Freight will also act as an authorized reseller of UPS Ground at freight pricing for a base term of five years. Let's talk strategy. The assets being acquired include a network of 197 terminals, of which 147 are owned. This complements our existing Canadian LTL operation. Remember, TFI is also continuing to expand into Mexico by leveraging our existing LTL brokerage operation there. The end results will be a far-reaching, difficult-to-replicate network that we believe will be the single most comprehensive in North America. Our next strategic move is to work with our new colleagues to add the TFI touch to the acquired operations. Our intention is to optimize performance. More specifically, UPS Freight has been approximately break-even from an operating income perspective. We see compelling opportunities to improve yield, efficiency, and productivity, both near and long-term, through separate management of the LTL and dedicated truckload businesses. We will apply our proven cash flow-focused business model to drive long-term value creation. In addition, from a capital investment standpoint, we plan to make targeted investment in the LTL fleet during the first year in order to lower maintenance costs, improve efficiency and safety, and of course, enhance customer service and driver satisfaction. As a result of applying our operating approach and making these targeted investments, we expect this transaction to be accretive to our diluted EPS in 2021, and we expect the new TForce Freight to become even more accretive over time. Another piece of the strategy is that in addition to the new TForce Freight continuing to serve UPS's ongoing LTL distribution needs, as well as reselling ground at freight pricing, we also look forward to offering expanded network opportunities to UPS in Canada. In closing, this transaction has been unanimously approved by both boards and is expected to close during the second quarter. Subject to customary closing conditions. We are eagerly looking forward to watching the new TForce Freight succeed in the years ahead as part of the TFI International family, and we look forward to welcoming their team. In addition to my remarks this morning, we have also posted a presentation regarding TForce Freight transaction that you can find in the presentation section of the investor page in our website. With that, operator, we can begin the Q&A session. If you could please open the lines. Thank you. Ladies and gentlemen, to ask a question, you will need to press star one on your telephone keypad. To withdraw your question, please press the pound or hash key. Callers will be limited to one question and a follow-up in order to get as many callers as possible. Again, that's star one to ask a question. Please stand by while we compile the Q&A roster. And your first question will come from Scott Group from Wolfe Research. Your line is open. Hey, thanks. Morning, guys. Morning. Just two really quick things, and then I have a bigger picture question. What's the depreciation here, and do you plan to keep this as a union carrier? Well, absolutely. It is a union carrier, okay? We have experience dealing with the Teamsters. The very important thing, though, is to remember that this carrier is not part of this multi-employer pension fund like the other two unionized carriers in the U.S. We have a long-term experience and relationship with the union in Canada. We understand that some people could see that as a handicap. We see that as an opportunity, stability, and all these things. One thing is for sure, if you look at UPS on the Package and Courier side, they've been unionized for a long time, and they've performed very well. To me, the fact that it's a unionized carrier could be an excuse to provide for some companies poor results. We believe us that being a unionized carrier, we have a contract, we live by the contract, our employees live by the contract, everybody lives with this contract, and we have stability. We'll work with our people, and we'll improve absolutely the efficiency working with the team there, the management team there. We have a very deep experience in this business. If you look at what we're doing in Canada, in a very depressed environment in Canada for LTL carriers, which is very different than the environment that we have in the U.S., which we believe that the environment in the U.S. is way more profitable than in Canada. We're running unionized operation in Canada with 85, 88 OR. For us, the fact that it's a union carrier, it's a contract, and we'll live with a contract. For sure, over time, we'll try to work with the union and to bring maybe some more flexibilities in some areas, but it is what it is. Okay. Bigger picture, Alain, as you've done your due diligence here, why do you think the margins at UPS Freight have been so poor? Where do you think you can take them? Can you get to mid-single, high single, double-digit margins? How quickly can you unbundle the pricing that they've been doing over time? Well, you're absolutely right. For sure, bundling is an issue. It will take us some time. Is it six months? Is it a year? It's still difficult to say, that's going to be one thing everybody knows about that's for sure. The LTL was like a loss leader for maybe UPS. If you just look back also at the other major Package and Courier in the U.S., the other guy, they had the same kind of issue. They were using the LTL as a kind of loss leader. They changed their approach, us will change also the approach of that. Absolutely. Don't forget, the attention of UPS has always been on the Package and Courier side. They do very well on that. For sure, this was a kind of an orphan within the UPS family. It's small. UPS runs a what? A CAD 75 billion company. This is CAD 3 billion. It's nothing for them. The attention, the level of really focus was just normal. I remember when we bought all kinds of companies that were orphaned, okay? The attention is not there. The attention is always in the major business, okay? They do very well. We really like the team that's there, okay? If I look at Paul and if I look at Todd, those guys, those AVPs there, they've been with the company for a long time. They know what needs to be done, and it's just the focus now is going to be working with these guys. For us, this business is very important. For UPS, it was not so much probably because it's so small for them. Okay. Thank you, Alain. Pleasure. Your next question will come from Ravi Shanker from Morgan Stanley. Your line is open. Thanks. Good morning. Alain, certainly very interesting transaction. Congratulations. Maybe you can start by giving us a little bit of history here, kind of how long have you been talking with each other, who approached whom? Is this something that you've been looking for and UPS seemed to fit the bill? Yeah. Well, it's been a discussion that I've been having for a very long time. I've talked to Eli at your firm for a long time about this transaction many years ago, because the way TFI used to service the U.S., okay, we had experience with partners that really after everything was doing well, they just decided to do a different way, and it really affected us. Right now, the partners that we have partners with our TST operation is very different. We have a fantastic relationship with those guys. At the end of the day, we had to be ourselves with an asset operation in the LTL. We want to keep the relationship with TST and their partner. On the other side, we'll be working with the U.S. domestic market, which we believe that is a much better market than the Canadian domestic LTL market. It's been a long thing. Don't forget, I remember when I made the deal with DHL buying their Canadian operation, it was not important to them, okay? Ken Allen kept on saying, "Well, you know what? I've got other things to do more important than sell this business." I think that for years and years, the discussion that we were having at the time, okay, guys, we're not in a rush. UPS, it's a big company, and I think that maybe the change of CEO over there with a different vision, I guess, was a catalyst that helped us be able to finalize this transaction. Great. Just as a follow-up, [Pierre], you feel like you have the ability to quickly turn the margin here from zero to something not zero. Beyond that initial low-hanging fruit, will you be running this business for growth in the next three to five years, or are you looking to push the OR to the 85, 80 level like some of the peers have? Well, for sure. We're not in the business of practicing delivery in any of the TFI business. For us, the growth is more important to the bottom line than to the top line. Absolutely, we'll have to address the situation now. Don't forget, this company was a break-even. For sure, we had the Q1 and Q2 exposure to COVID and a little bit in three and four. I think that this company, even now, could do better in a normal environment. For sure us, our focus is going to be more, "Guys, let's not try to grow the top line. Let's do better with what we've got today as a first step. Let's invest in our people and in our fleet, okay, in our asset, in our real estate, whatever it needs to be done so that we become more efficient." As an example, we can't afford to run a 2005 trucks in the U.S. Fuel economy is bad. The safety on the truck don't exist, et cetera. This is why our focus, us, within that first year is going to be to invest in the fleet, like we did with CFI. When we bought CFI, we had to do major adjustment on the asset, okay, that this company was running. It's the same thing with our TForce Freight business. Our plan is really to probably upgrade 1,000 trucks within 12 months to catch up a little bit and bring better trucks for the drivers, trucks with more safety on the trucks so that we have to pay less in terms of accidents and things like that. Safety is very important for us. For sure, this is going to be one thing that's going to be addressed. Maybe volume within the next 12 to 18 months, maybe volume will be less. Okay, but just look at what we do in Canada. Volume is a little bit less, although the market is really depressed in Canada, but our focus is growing the bottom line. absolutely at TForce Freight, the business is going to be, "Guys, let's grow the bottom line first." market keeps on growing in the U.S., for sure, we'll try to get our share of it. Very good. Thank you. My pleasure. Your next question will come from Walter Spracklin from RBC Capital Markets. Your line is open. Yeah, thanks very much. Good morning, El. Morning, Walter. just on that point, I think a big part of your margin improvement, part of it will be operating, but a big part, as you alluded to, is repricing the loss leader approach to pricing their product. presumably, you will see some lost revenue here as you price higher. What level do you think when you look at over the next few years will revenue do you expect to drop to before we start to see some more growth as you improve the service level? Is it a short-term one-year drop and then start growing off that, or does contract length come into play here? Do they have longer-term contracts that will require more time to get these repriced? How do you look at the evolution of your revenue in the next three years as you implement your own policy? Yeah. That's a very good question, Walter. For sure. As soon as you start talking to customers about adjusting price to market, the first reaction is always, "Well, we're going to bid the business, and you're going to lose the business," et cetera. The chance we have is that we have more market intelligence today than we had just six months ago because the acquisition that we did of DLS, which is an LTL logistics company in the U.S., provides us with a market intelligence that we know what the market can bear. For sure, we'll be talking to customers over time. It will take time. It's not going to happen within six months, Walter. It will take probably 12 to 18 months for us to start correcting. Then the beauty we have is that, I'm just giving you an example, a very simple example. Let's say we're having a discussion with a customer and because we need X to adjust the price and maybe there's another solution. Well, at the end of the day, for sure, our logistics guys will look at the file, okay, and say, "Guys, understand that our operating arms cannot do this job. The guys will probably lose the customer. So can you guys, our logistic department, take over this customer and maybe find another way to service this guy in a different manner?" Okay. This is exactly the same strategy that we use in Canada with our truckload operation, whereby sometimes a customer is the market is CAD 1,000. Our operating units cannot do it because the backhaul is not there, or they don't have as good of a backhaul as some of our competition have, okay? this load will be sold to somebody else. at the end of the road, okay, we may lose the customer at the operating division, okay, but maybe we could gain the customer in our logistics division. absolutely, UPS Freight had a program of improving the profitability. in their plan, okay, they were looking at losing about 8%-10% of the volume. Okay, this plan has already started about, I would say, summer or in 2020, and so far they haven't lost any. it's always step one and step two. we figure us that we may lose maybe at the operating company, maybe between 8%-10% according to the original plan that UPS came about with. we'll say, "Well, maybe there's a way that we could save this customer by dealing, having those customer, if we can do it at our operating company, maybe we could do it at our logistics company," right? Makes sense. Second question here is on your CapEx investment. What are you planning for incremental CapEx? Just to follow up on that depreciation rate we should model for additional depreciation. Yeah. normally, okay, this company should run about net CapEx about between CAD 75-CAD 90 million, okay? This is the normal. What we are planning on doing in the next 12 months is over and above the normal CapEx, we will add between CAD 50-CAD 75 million, okay, to reduce the average age of the trucks. Trucks will be our priority number one because of the fuel economy, because of the huge maintenance cost, because of safety on the truck. We want more safety. We want facing camera on the trucks. We want collision avoidance on the trucks. We want lane change assist on the trucks so that we reduce the number of accidents. As you know, okay, we have nothing to do with all these provisions for past closing accident and workers' comp and all that, but that's good. Okay, fine. We don't have anything to do with the past, but me, my focus is the future. I don't want to have those kinds of occurrence, okay, in workers' comp or accident and things like that. This is why our focus is as soon as this is announced, okay, we're talking with the manufacturers, okay, about having slot and according to Greg Orr, which is our EVP in the U.S., we're going to move fast on that. It's going to be good for the driver. It's going to be good for the U.S. public because running safer truck is safer than running an old truck, right? That's going to be our focus. Normally, it is what it is, but we will be adding on top of that, mostly on the truck side. depreciation? Depreciation, I don't know that right now, Walter. If you look at on an EPS basis, adding the capital, okay, adding more on the depreciation side, but we will save more than that on the maintenance cost. Don't forget that when you run old trucks, sometimes you need more than one trucks to do the job of one. You need a backup. You need this, you need that. At the end of the day, on an EPS basis, it's going to be positive, I'm convinced. We look at what we've done at CFI. It was crazy. We were spending about CAD 0.12 a mile on maintenance when we took over the company. Now we're running the company with better equipment, average age of about around two years old. Our cost is down to about CAD 0.04-CAD 0.05 a mile. Okay. We run a much safer fleet. Excellent. Appreciate the time, Alain. Thank you. Pleasure, Walter. Your next question comes from Jason Seidl from Cowen. Your line is open. </edited_transcript Hey. Thank you, operator. Good morning, Alain. Morning, Jason. I wanted to touch a little bit on the pricing side. You mentioned that it's a loss leader at UPS, and it was used to sort of bundle services. When you look at the pricing, how far below LTL industry pricing is the sort of bundled service package that they were offering? I think it's a lot, Jason. When we did our due diligence, we were surprised to see the number of account that runs over 100 OR, right? There's a lot of accounts that runs over 100 OR, which is completely unacceptable. The story we got is that, you know what, guys? You have to accept these rates, the mothership talking to the loss leader, because the customer is way more important on the P&C side than on the LTL side. It's a huge opportunity, but it will take time, Jason. It's not going to happen overnight. Let's say that we're short 15% with one account. It's impossible. You cannot adjust your rates 15% day one. We'll have a discussion with the customer, and then he's going to look at the market. the chance we have, okay, is that we're competing with very good trucking company in the U.S. that make good returns like OD, like Saia, like Estes and R+L and all these guys. this is why I'm saying that the opportunity is great. Now, on the other side of the coin, we have to reduce our costs. Absolutely. We have very good tools in the company, okay? Absolutely. A lot of good technical tools, but the focus has to be there, right? the management team there understand that now you are not a loss leader. Now you're going to be a strategic asset for TFI, and we will work with you. We'll invest capital, we'll invest time, and we want you guys to be successful. Right? Well, I'm sure they're happy to be unshackled there. When you think about getting pricing back, and I think it was brought up before about the potential loss of business, if your price is so far below the market, do you feel as long as service standards are kept up that you are going to actually lose the marketplace because it's not like they could go back into the LTL space and get it cheaper. Yeah, absolutely. The experience we have so far, Jason, with the team there, okay, what they've been addressing so far, they haven't lost much. That's the experience of 2020 with the team there under the ownership of UPS. They put a plan that they call the Phoenix plan, okay, whereby they are addressing customers one by one, slowly but surely. So far, they haven't lost any business. When I look at their Q4, okay, and the forecast for January, the revenue is there. Got you. Last one here, if I can squeeze it in. Talk about how the two different networks are going to interact on cross-border business between TFI's legacy Canadian LTL and UPS's U.S. network. Well, we're going to run a hybrid model, Jason. Right now, we have a fantastic relation with Saia through our TST-CF company. In our mind, that stays, that remains, okay? Because TST-CF used to be partnered with Estes, and a few years ago, Estes decided to go a different way with a cartage guy in Canada. We turned around, and we made a deal with Saia. This is going really, really well. We would like to keep that relationship ongoing for sure. We didn't really have discussion so far with Saia because this is just publicly known now. Our team in Canada will be talking to the Saia team just to make sure that we understand that, hey, TST-Saia, okay, is there, and it's a keeper on us. There's like a Chinese wall between our TForce Freight operation in the U.S., okay, and our newly carrier that's going to take over. Because right now, the TForce Freight relationship in Canada is with a cartage company, and for sure, we'll be talking to those guys to move the relationship between this cartage company in Canada to our Quik X operation. Quik X is a non-union Canadian carrier, national carrier, very efficient. It's a great operation. Mike Hover, the guy who runs the show there is, he's going to be really happy down the road to start servicing our TForce Freight, okay, new U.S. operation with Quik X in Canada. This is going to be a fantastic transaction. We will run a hybrid model. TForce Freight with Quik X, one way of doing business with the trans border. We've got the Saia relationship with TST. That is very, very important to us to keep. All right. Appreciate the time as always, and congrats on the acquisition. </edited_transcript Thank you. Thank you, Jason. Your next question comes from Brian Ossenbeck from JP Morgan. Your line is open. Hey, good morning. Thanks for taking the question. Alain, maybe if you can go a little bit more into detail about the collaborations and the longer-term agreements here as you have this sort of trail off in the transition period the next three to five years, specifically on the ground with freight pricing, if that's something you'll still be offering even when the transition is done. If you can just touch on the integrations, the systems, the transition there, because I imagine that's a pretty big. Yeah amount of work, but you get a three-year holdover. What are some of the puts and takes around that? Yeah. That's a very good question. First of all, I think that when we talk to the team there at UPS, I had a meeting with the COO, Carol. She sees it very clearly in her philosophy, and they understand the value of teaming up with TFI. This is why we will keep on selling the ground, and they will keep on selling the freight. This is fantastic. As we saw, that was also in my remarks, is that we will be also looking at what can we do more together. Our last mile operation in Canada, which is big on e-commerce. When UPS was overwhelmed with volume in April and May of 2020, we were there to help them. what we would like to do, and this is one example of what could be done, After this transaction is done, what can we do in Canada to help UPS? one of the discussion that will take place is maybe our last mile operation there, which is highly flexible, highly efficient, and it's got size. Maybe we could do the same thing in the U.S., again, with our last mile operation. Maybe when those guys have too much volume in one market like Dallas or like Chicago, whatever. there's many other discussion that will take place, and I think this is just the start of a relationship with UPS. We have things that we can offer UPS, and they have things that they can offer to us. That's the business side of it. I think that this transaction is just the first of probably many others to come. Number one. Number two, in terms of transaction, the TSA. The transition agreement, like you said, it's three years. Why? Because IT, it's a very, very complex thing there, and we just wanted to make sure that nothing's going to be missed. Nothing's going to get in a mess situation. This is why we asked UPS, give us three years. IT is really the key. The finance and the rest of the business, it's not going to take us three years. It may take us a year. As an example, payroll for staff by the end of 2021 will be on our system. Payroll for the unionized employees, probably the latest by the end of 2022 will be on our system. We have a plan with our team here, but IT is really the one that is very, very important. I think there's about 85 system that runs on the mothership platform today that we will have to do one by one into our own platform. Got it. That's helpful. The follow-up question is just on the physical footprint, considering how much it's going to expand here close to the acquisition. Do you have any thoughts in terms of how you might be able to leverage that? I know we've talked about in the past you might be going into more final mile fulfillment out of physical locations. The extra 200 terminals, what does that look like? Is that a possibility or maybe something that could add value in the longer term? That's a very good question. I'm telling you. You get it. For sure. This is huge opportunity for us to add 200 location that we will be working with our last mile operation to see, can we run under the same roof? Because if you would look at our LTL operation in Canada and the way we do business in Canada, this is exactly this. Is that under one site, we may have ICS, we may have TForce, we may have Canpar, Loomis. On the one site that we run LTL, we could have some truckload operations. For sure, this opens up a lot of opportunity for us. In our last mile today, we run major markets. We run about 80 markets right now. This opens up 200 locations for us to see, can we do more? Can we add more market? In my opening remarks, when we talk about this is the most strategic transaction that TFI has ever done, and it's fantastic for us, and I think it's a great deal for UPS also because it eliminates an asset, but that does not eliminate the service because we will keep providing the service to UPS's account through our GFP, and we will keep on doing business with them, giving them the potential for the package in court. It's all strategic for all of us. All right. Thank you for your time, Alain. Pleasure. Your next question will come from Konark Gupta from Scotiabank. Your line is open. Good morning, and thanks, Alain. How are you? Morning. I'm good. How about you? Great, thanks. Maybe the first one, I can see in your slide deck, you guys are talking about pro forma leverage, two to two and 2.25x, I guess. Yeah. I'm assuming that's funded debt to EBITDA, and given what you disclosed recently in Q3, I'm guessing the depreciation or call it EBITDA from this transaction, I'm guessing you're anticipating somewhere in the $150 million-$250 million US EBITDA. Yeah. Is that a first-year goal or is that a current kind of number right now? Is it pre-synergy or post-synergy is my question. This is pre-synergy. Don't forget, this is a CAD 3 billion company in revenue. If you generate only $150 million in EBITDA, that means that you're running, what, 5%? This is crazy. Right. Absolutely. This is pre-synergy. This is all the different things that we're going to start working on. It's all the costs that we will work on in terms of safety, in terms of the accidents, in terms of all of this. This is just day one. Right. As you alluded to, I know you're investing in CapEx in the fleet in the first year, so hopefully that will increase the EBITDA just right off the bat from that CapEx. Absolutely. In the Phoenix plan coming up from UPS, those guys had a very clear mandate for 2021. We're not talking about that. We're not using the mandate that the management team had on Phoenix. The numbers that we're using is based on what it is today. Right. Okay. Second one for me. Given this leverage two and a quarter, call it doesn't seem awfully high to me, obviously. I'm guessing you're funding all through some cash you have and plus debt that you raised internally. How comfortable are you with this leverage ratio going forward? Obviously, you will get synergies and all that, and free cash is obviously here. Do you intend to optimize your balance sheet at some point, or this is probably a good metric, the two range is good to go? Yeah. Well, you know what, we're not a big fan of issuing equity, and there won't be any equity offering to finance this deal at all. This is going to be financed through cash and debt that we have available for the company. We have about CAD 1.4 billion of capacity today. We will be using some of that. Let's say this deal will cost us a little over a billion dollar Canadian at closing. We will generate a ton of cash. We're coming out with our Q4 numbers. I think it's February 8th, if I remember correctly. When you take a look at what we've done in Q4, you will understand better that we don't really need at all any equity whatsoever. TFI is very well positioned in 2021. Our e-commerce is just going through the roof both in Canada and now it's started in the U.S. We are in a fantastic position. This is why we can afford also to, when we talk to the team there at TForce Freight, new company in the U.S., is that guys over and above the normal CapEx, we'll add on that. We'll add at least CAD 50 million over and above that so that our drivers will have better equipment. We will have less breakdown because don't forget, you run a 2006. This is a very old truck. You got all kinds of frustration from the driver because the guy breaks down on the road, then he comes. It's going to be so much positive. You have to understand that for UPS, that was not their focus. That was like an orphan within the family. Their big focus is, "Hey, P&C is so good for us that why do we need this LTL company? Just sell the asset to a guy that knows how to run that and then keep the service running." That's the deal we have with them. Great. Thanks for that. Maybe just the last one, if I may. You mentioned the IT, obviously. Which is what I was alluding to hopefully before. It seems IT will be complex, clearly. Are there any other potential hurdles you see in this transaction given the size or maybe the regulatory hurdles? Can you talk about anything else beyond IT? No. The IT thing, what's important to remember is that this company was acquired by UPS. Overnite was acquired, and they have their own system. Really what the big problem is not the Overnite legacy kind of system. It's all the new features that's been added on by UPS over time. This is really from UPS. If there was not those things, it would be much simpler. What we want ours is to move the big, old legacy kind of system from Overnite that is run by UPS now, but all the other systems that are really helping us to perform better in terms of information. Besides that, for sure, in terms of the personnel, in terms of the contracts with the union, we'll just live with what's there. Our focus to us is going to be what can we do to be more efficient, do more with less, and have better results. For sure, customer will have to help us a little bit. Like I said earlier, if a customer doesn't fit our operating company, well, what we'll do is not just say goodbye to the customer. We'll say, "Hey, you guys are the logistics arm. Can you do something with this customer?" If logistics says no and operation says, "Well, this customer does not fit. Yes, it's been serviced today, but it doesn't fit our company." Okay, it's going to go. When we bought CFI in 2016, late in 2017, we had about CAD 75 million of business that did not fit. Took us a year to get rid of that. within the LTL company, UPS Freight today, absolutely, there are some customers that don't fit. we'll be talking to them, and we'll be asking maybe for more money. if it doesn't fit, it's got to go. the beauty is that we have an option. We have our logistics division that can say, "You know what? It doesn't fit the operating company. Okay, fine. But it fits the logistics. Okay, fine." logistics will take care of this customer. That's our approach. No, that's great. Thanks so much, Alain, and all the best for the two of you. Thank you. Your next question will come from Jack Atkins from Stephens. Your line is open. Great. Good morning, and thank you for taking my questions. I guess, Alain, it's great to speak with you. I guess if we could maybe drill down on the year one and maybe year three synergy targets. If you could maybe provide a little bit of context to help us think about, as you look out over the next 12 months post-close and then maybe sort of three or four years after that, could you give us some brackets around the synergies that you're targeting for the transaction? Because it seems like there's a lot of low-hanging fruit here. Well, absolutely, Jack. I mean, the first thing is that the truckload division right now runs a 96 OR, something like that. It's okay. It's not good. It's not bad. The first thing that we're going to do is that Greg Orr and his team will take over the truckload division, which is small. It's only just shy of 1,000 trucks. That division will be part of our truckload, and it's going to run really well, and it's going to be run by specialists of the truckload world. Okay, fine. The rest, which is our LTL company. If you run an LTL company today, okay, basically, you look at that and you say, "Why are we running a 99 or a 98 OR?" Okay, we have lots of different things that needs to address. Now, if you ask me within a year, can we run versus, let's say, today, 98, 99, could we be at 96? I think so. It's got to be a good goal to be at least after a year at 96. Within three years, if you said, "Can we do a 90 OR?" Absolutely. I'm convinced, okay, that we will bring this company over three years to a 90 OR, first of all, because the transborder business with Canada. I mean, dealing with Quik X, TForce Freight or UPS Freight will save a lot of money. This is incredible. I mean, by switching partners in Canada as an example, they will save a lot of money. We will save a lot of money on insurance costs, claims, and this and that. To me, can we do a 90 OR? Absolutely. like I said earlier, customers that don't fit UPS Freight or TForce Freight, okay, the new company, will go away. Now, will go away because it doesn't fit, because it doesn't make sense for us to service that customer within our company. we have an option, and for sure, we'll have our logistic guy look at the, well, okay, the operating company cannot make it. Okay, us, the logistic, can we do something about that? This is fantastic. I mean, this is so good. I'm sure you guys, now you're starting to understand why did he buy DLS three months ago, right? Well, it makes total sense. It made sense then, and makes even more sense now. That's very helpful, Alain. Thank you for that. I guess maybe just my follow-up question, when you think about longer-term growth here, there aren't a lot of folks that are investing in growth in the LTL industry. It's really sort of been OD and Saia. Yeah. With the 197 terminals, that's below some of the more national LTL operators out there. I mean, it seems like there's plenty of opportunity to expand the network count- Yeah the facility count there over time. Yes. As you sort of think strategically over the next five years for your U.S. LTL footprint, what's the right terminal count, do you think, to sort of be where you want to be? Yeah. That's a very good question, Jack. what we look us is it's very I mean, when I look at the portfolio today, we look at where the volume is and where the growth is going to come from. as an example, when I look at the coverage on the West Coast, I think it's fairly thin. When I look at the coverage that we have, let's say, in the Southeast of the U.S., I think that we could do better. also the fact that with our TForce Logistics division, I mean, they could be partner also in a real estate transaction with our LTL operation. we could have a building which is going to be shared by both units, right? Because right now our TForce Logistics division are running about 80 locations, but we don't own any of them. for sure, over time, I mean, we will either build something, buy land and build a terminal like OD has done very well. If you look at what OD has done, it's a fantastic evolution of this company. We believe that we have the team there. I mean, Todd and Paul running this company with their own management team. I think that for them, being now very important to TFI versus not so important at UPS because they were too small, right? Absolutely. Well, makes a lot of sense. Congratulations again. Thanks for the time. Thank you, Jack. Your next question will come from David Ross from Stifel. Your line is open. Yes. Good morning, Alain. Good morning, David. I wanted to talk about how this ties into the logistics and last mile segments. How do you see UPS Freight potentially working with the growth there in last mile, specifically in the big and bulky side? Yeah. Well, that's a very good question, Dave. absolutely, I mean, this is why Kal, our EVP in charge of our last mile, is the key person on the TFI side working with UPS and working with our TForce Freight, okay? absolutely, we see a lot of potential there between, let's say, us and the Package and Courier and our last mile. It's a very highly strategic move. it's just going to be confirmed over time, Dave. It's still too early to say what could be the huge benefit of that. This is like an iceberg. What we see right now is just the tip of the iceberg. There's a lot of potential that we can't see today that we'll see over time. last question, just on the Teamster side, the pension side. It's great that you're not tied into Central States or any of those multi-employer plans, but- No it's going to work that TFI is essentially going to be the company of record for a single employer plan Yes it just transfers from this contract? Yes. Exactly. We live with the same contract that was there until the summer of 2023, and what we will do is a mirror plan of the plan that exists today. It's exactly the same for our unionized employee. Nothing changes. All the benefit, everything stays the same. Excellent. Well, congrats again on what I think is a terrific deal. Thank you, Dave. Your next question comes from Tom Wadewitz from UBS. Your line is open. Yeah. Good morning, Alain, and congratulations on the deal. </edited_transcript Good Tom. You've had a lot of questions on the kind of union aspect. How do you look at some of the work, and obviously, you know how to work within the constraints, but how do you look at the impact of work rules and whether you think that's a meaningful barrier to what you might want to do on the cost side? How do you think about the future? Because it seems that UPS, because of their big relationship with the Teamsters, would have had more influence on keeping flexibility. There could be some push to make your operation more like ArcBest or YRC in terms of potentially more constraints. Just on the broader work rules and whether that you think that's an issue or not. No. The contract that exists today, it's a reasonable contract. Absolutely, if we would be non-union, there are some things that we would like to see disappear, but it is what it is. We'll live with the contract. Now, don't forget that when you deal with a union, they always talk about the deep pocket guy. Okay? there were some things there that if UPS Freight would have been, or TForce Freight would have been a standalone, there's some things that probably would not be part of that contract because there was always the excuse, "Well, it's a deep pocket. It's very not significant for you guys," et cetera. for us, it is really is. Now, can we live with this contract? Absolutely. Absolutely, we'll live with the contract, and over time, we'll discuss with the Teamsters and our people how can we make it better, the work rule and all that. Don't forget one thing also, as I said many times, a customer does not fit the company today will go away unless we could get more money from the customer. Okay? If it doesn't fit, it's going to go. Okay? For sure, if our line haul cost, as an example, is way above market, okay, I don't think our P&D cost per hour compares, our dock rate per hour compare. The only issues we have is really the line haul, okay, cost that we pay the drivers per mile. That's very, very, a little bit off market, I would say. Over time, we'll work with them. If you look at the last contract that was done in, I think, 2018 or 2019, the increase was minimal. Okay? Because you have to get closer to the market. For us, the important thing is, besides the rates that we have with our employees, that's not going to be the focus for 2021, 2022. The focus for us is going to be do more with less, invest in the asset, invest in our people, make sure that we do this transition with UPS properly, make sure that we keep the service up to a certain level of above 96 to 97 on time. Because if you ask for a customer more money, well, the first thing they always tell you is, "Well, your service sucks, and I'm going to go somewhere else." We don't want this kind of an answer. We want the service to be up to par to the general service that exists in the U.S., and then you could ask for more money. If the customer doesn't fit, it will go away, and it will go first to our logistics. If those guys say, "Well, we can't do anything ourselves either," well, then it's going to go to the market. Right. Okay. just as a follow-on, you mentioned the potential to make this into a 90 OR company. What's the kind of timeframe you're thinking of in that comment, and what are the assumptions in terms of you talked about line haul and getting a lower cost structure and maybe getting a little more flexibility with the union contract? Do you assume those things when you talk about a 90 OR? No. Is that it? No, Tom. Okay. What we assume today is that the contract we have with our employees stays the same because it will stay Right until 2023 is the same contract. Nothing changes. Okay? What will change, though, between now and the summer of 2023 is that we will do more with less. We will have better assets. I'm talking trucks and trailers. Okay? We will address the customer situation. Customers that don't fit, okay, the operating company will go. Okay? We will address that. Like I said early on the call, so maybe the revenue will come down for the first 12 to 24 months. We'll see. So far what the reaction has been with the customer, because already the team there has already addressed some situation, and the reaction has been quite favorable for the company. We will keep on doing that. When the summer of 2023 comes along, the union will understand who we are. We're not the deep pocket guy. We're in business. We need a return, and we'll just service the customer that fits the company. Right. Okay. That's great. Thanks for the time, Alain. Pleasure, Tom. The next question will come from Mona Nazir from Laurentian Bank. Your line is open. Good morning, and congratulations. Mona. Morning. Firstly, you spoke about add-on opportunities that this transaction could bring over time. In your prepared remarks, you touched on expansion plan into Mexico, and it's also mentioned within the slide deck. I believe even with the Transport America acquisition in 2014, sorry, that was a goal. Although it was on the TL side. I'm just wondering if you could speak about the opportunity, particularly in Mexico. Thanks. Yeah. Well, Mexico is big for us. Every day, Mona, we have about 2,000 trailers in Mexico through our TCA, CFI operation. Mexico is really big for us. We service also Mexico today with a logistics company that's called CFI Logística. Now, what's going to happen is that for sure at UPS Freight, the focus was U.S. domestic. Absolutely. The focus was not about Canada or Mexico. Yes, they service Canada. They ship every day about 70 trailers of freight from the U.S. to Canada, back and forth. It's fairly big. Mexico was always small. Working with the team there, coming up with a different solution, we believe that we are very well-positioned to do better on the Mexican LTL market. Between U.S. and Canada and into Mexico, we could do better. That's going to just open up, give us more density, give us more freight to help that. The same story applies to the TForce volume coming into Canada. That's going to help our Quik X division. Absolutely. Big time. Now Quik X will have the responsibility to work with our TForce Freight business to grow this business from south to north to south. Because the actual carrier that's being used by UPS Freight is a carriage company. Those guys are not really selling anything for UPS Freight today. That's not their mandate. Their mandate is just to deliver the freight. For us, it will change. The same story applies to our TForce Worldwide, which is the old DLS. We bought that in November. The focus of that team selling LTL was purely U.S. domestic. now Rick Hashie, which is our EVP responsible for that company, working with Tom, the guy that runs TForce Worldwide, now we're talking about, "Hey, wake up. Hey, sell more into Canada or Canada into the U.S." now we're going to say to him, "Well, sell more into Mexico." this is going to open up. This is like playing cards, where you have a fantastic deck and fantastic hands now. We can offer so much to our customer base. That's very helpful. Thank you. just secondly, you have been through almost 90 acquisitions. You have a strong sense pre- and post-transaction of how things are going to shake out. I'm just wondering, with this being the most significant transaction to date, more subjectively, I'm wondering if you could give us a lens insight as to where this transaction sits on a scale that ranks perhaps work to be done and maybe challenges with one being relatively easy and perhaps straightforward and 10 perhaps being more complex. Is it leaning towards that 10 being more complex side? Well, absolutely. Because, Mona, a carve-out is always difficult to do. That's number one. There's not that many people that can do carve-out successfully. If you look at our track record. We bought Matrec. It was some kind of a carve-out standalone. If you look at when we bought Loomis from DHL, that was a carve-out. It's been a huge success. It was not easy to do. We've done it. If you look at when we bought the truckload from XPO, it was a carve-out. It was difficult the first year because this was a transition year, and there was some things that we didn't really like. Like I said, there was CAD 75 million of business that did not fit, so it really affected us in 2017. Now Greg Orr is running CFI as a sub-90 OR company. It's been a huge success of ours. It will be a difficult transition. Because it's complex. We have the team, we have the people, and we can do it. Like I said many times, there's not that many Let's say a PE for them to buy UPS Freight would have been really difficult to do. Us, it's difficult to do, but we will do it because we have a deep bench. We know the business well. We know what needs to be done, and we will address it step by step under the leadership of our team that's there. I've met those guys a few times. We've looked at what these guys are doing. We looked at their plan. I've met the CEO in charge of supply chain. We have his full support. I met the CEO of the company, Carol there. We have her support. Met the CFO there as well, Brian. Brian Dykes, the Germany guy, very helpful into doing this transaction. for sure, now the big job will start. I believe firmly that for us, the run rate within a year is going to be a 96 OR for this company. I believe that within three years, we will be in a position of running a 90 OR, which is just normal. It's not something that is not doable. If we run an 85-87 OR in Canada, in a market that is day and night. Canada is like a sand mine in LTL, in terms of the quality of the rates. U.S. is like a silver mine. You know what I mean? it's crazy. The difference in the quality of rates in Canada versus the U.S. is unbelievable. It's just a matter of us. We'll do it one step by step. Okay. Working with the team there. Slowly, surely, we will be investing. That's the other thing also that's important. Investing in assets, investing in people. There's some good things that these guys are doing in the U.S. that we're not doing in Canada. There again, using the technology, it will also help us improve our Canadian operation. That's great. Thank you so much for that clarity and insight. Thank you, Mona. Your next question will come from Ken Hoexter from Bank of America. Your line is open. Hey, Alain. Good morning. Thanks for the great details and congrats. I've watched this move around from Union Pacific to with IPO to UPS. Overnite has had an active history. Just maybe your thoughts on asset light. You've historically looked at the market on less assets and as a way to make money and focus on cash. Here, you talked about a lot of reinvesting in assets and physical locations. Maybe just your thoughts on the potential to be more asset light or is this just changing the dynamics for you and TFI and being more asset-focused? Yeah. Ken, that's a good question. What we're saying is that we will be investing to bring the company up to what we believe is par. Okay. Once this is done, we feel that the asset intensity of this LTL carrier is going to be low. Why? Because a lot of the line haul is done by the rail. Okay. Also, a lot of the line haul is done by third party, like good carriers like Barnett, for instance, or CRST are providing the support for the line haul. If you look at the major investment that we're going to do is it's going to take us a year, maximum two years to do all this catch up. Once this is done, okay, it is going to be CapEx normal and probably some lower intensity. The other thing that's important, we'll have to see what the customer reaction is going to be. All the customers that don't fit. If you look at the CapEx that was done in 2020 by UPS Freight, it was small. Why? They believe at the time that the action that they took with customer, they would lose more than what they've lost because basically they haven't lost much. If you would look at their Q3 and Q4 operation after the big COVID thing of Q2, you see that the guys are on the right track improving all the time. No, our philosophy of running a very light company will remain. Absolutely. Don't forget, we are running today about CAD 550 million of asset light operation through our logistics division. We believe that probably some customer that don't fit will stick with our logistics. Logistics, instead of being CAD 550, maybe in two years, they'll be more like CAD 750 million-CAD 800 million. It's hard to really give you what the picture is going to be in two years, but our motive is still we need to do more with less. We believe that we may expand the real estate portfolio or footprint. For instance, they rent about 50 terminals today. That may change. Okay. We may also add to one site, for example, our last mile operation. Is there a way that we could fit those guys in there? Yes. Okay. Now there's going to be more than one operation in one site, like we've done in Canada many, many times. Our focus to run a 4%-5% capital intensity after this deal is done, okay, may be a little bit more than that for the first year or two. Once we have stability there and we start to grow organically, like the market is growing in the U.S., I think that we'll still be in that. We don't want to be an 8%-10%-12% capital intensity company. No way. Great. Thanks for that. For my follow-up. FedEx, UPS's peer has talked a lot about passing freight from ground to its LTL division. What's your thoughts on mix of business? You talk about it running as a loss leader, I guess, in terms of getting the customer and the bundling pricing. Is there a lot of business that was going back and forth? Yeah. Well, business between UPS Ground and UPS Freight, absolutely. There's a relationship that will keep on going, but for sure, rates have to make sense for them and for us, right? We believe that they have a fantastic sales machine, as we do. The intent is to keep on selling their products, and their intent is to keep on selling our product. That's why we have some kind of a five-year agreement. It's not just an agreement for five years, it's an agreement in principle that it makes sense to do it. It's not selling the issues. It makes sense for them, and it makes sense for us. Good. Appreciate the comments. Your next question comes from Cameron Doerksen from National Bank Financial. Your line is open. Thanks. Good morning. Morning, Cameron. Just a couple of quick ones for me. I guess first, can you talk a bit about the customer base, maybe if you've listened to the bigger customers, is there any single customer that is kind of overweight in the portfolio? Maybe you could also discuss what industries the other business is more exposed to. Yeah. Well, there's no customer, Cameron, that's more than CAD 100 million in the company today. CAD 100 on a CAD 2.6, CAD 2.7 billion LTL company, it's what? 4%. It's a huge customer. The customer base is very varied, okay? Absolutely. Over time, for sure, there'll be probably a shift in the customer base. Like I said earlier, there's some customers that maybe don't fit the company today, and then those guys will have to go out or pay what is normal to the operating company. We have a huge salesforce over there, a huge salesforce that will bring more opportunities that fit the company. Right? Right. Okay. No, makes sense. just secondly, maybe you could just talk a little bit about the book value of the assets you're acquiring. It kind of sounded to me like maybe it's sort of like a one-times book kind of transaction, and I'm just wondering, so I guess the quality of the assets and if you do have an opportunity to divest something here, one would assume that you probably typically generate more than book value when you sell, especially real estate assets. Yeah. Well, for sure Cameron, if you believe what the evaluator will say is that we're buying this company for less than the book value. Okay. That doesn't mean nothing to me, because what's important is what do you do with these assets? Right now, we're running this company at a break-even or a little bit better than the break-even. Okay. For sure, we will be adding better assets, newer trucks and trailers and things like that, and that will help bring down the OR. We will also, like I said earlier, customers that don't fit will have to go. There again, we'll be more efficient, et cetera. Now, excess assets in terms of trucks and trailers, whatever is going to go, the value is not that much, because they're old piece of equipment. Real estate so far, what we see, we don't see anything major down the road. For sure, we'll be working 24 hours a day in trying to improve all those sites. I'll give you an example. They have a lot of fueling station in those sites. We don't really believe in that, us. Right now, everything that we run in the U.S. have no fueling station. In Canada, basically, maybe we have five to 10 fueling station at best. This is going to be a big focus of ours. Day one is, guys, can we get rid of those fueling station? Because it's a risk. There's always a risk with the environment, so I don't want this risk. That's going to be also another area of priority of ours. The shops that we maintain. We have about 500 mechanics there. For sure, you need an army of mechanics because you run old trucks. Now, with newer trucks, so we'll be more efficient. Do you need as many shops as we have? It's going to be an ongoing TFI approach of doing more with less. Okay. That's great. I appreciate it. Thank you. Thank you. Next question will come from Benoit Turcotte. From Desjardins, your line is open. Hey. Good morning, Alain. Congratulations for the announcement this morning. Thank you, Benoit. Yeah. Sorry, the call is a bit long, but very quick question. Could you maybe provide some color about the IT investment required to bring those operations on par with TFI? Looking at the trucking fleet, maybe what type of trucks you might be considering these days, Alain? Thanks. Yeah. The IT so far, okay, we believe that over the course of three years, the CapEx that's going to be needed, and this again, is a very preliminary number, okay, because you have to do the transition and move all the software. That's going to be part of our CapEx that we'll have a little bit more info over the course of 2021. So far, we believe that it will require something in the neighborhood of CAD 25 million-CAD 50 million to do all this move from A to B. Excuse me. Okay. We will save on the cars that we have to pay the mothership during the course of those two to three years. Right? That's number one. In terms of the equipment, so far, if you are asking us, are we going to buy electric trucks and things like that? No. What we're going to be buying in 2021 is just the normal kind of trucks that everybody's buying, which is a diesel truck with safety features on it, like a forward-facing camera, like the collision avoidance, et cetera. That's going to be the important approach that we do in 2021. That's great, color. Thank you very much for the time, Alain. Thank you, Benoit. Take care. Your final question for today will come from Kim James from KeyBanc Securities. Your line is open. Thank you. Good morning, Alain. Congratulations on the transaction. I'll keep it quick. I just had one final one that I wanted to cover off. Can you comment at all on approximately how much of the LTL revenue that's being acquired comes from customers that also account for P&C revenue for UPS? I don't know that, Kim. Probably, we have common customers between, I would say probably the big accounts, okay, have a relationship with both, like UPS and us. I think that this is a good area for us to keep on growing. Being partner with this, in my mind, the best company in the world, is going to help us. Us being small and very agile and very flexible, I think it's also going to, down the road, I think that the UPS team will understand that we could also help them even more than what we're doing today. Right. Okay. Thank you very much. Thank you. I will turn the call back over to Mr. Bédard for closing remarks. Okay. Well, thank you very much, operator, for facilitating our Q&A session. Again, I wish to thank everyone for joining this morning's call on short notice, and we hope you share our excitement regarding this game-changing acquisition. We look forward to speaking with you again in two short weeks when we announce our fourth quarter and full year-end results next month. Have a great day, and thank you again. Bye. Thank you everyone for joining us today. This will conclude today's conference. You may now disconnect.