Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's first quarter 2023 results conference call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and a follow-up. Again, that's one question and a follow-up so that we can get to as many callers as possible. Further instructions for entering the queue will be provided at that time. 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. Also, I would like to remind everyone that this conference call is being recorded on Wednesday, April 26th, 2023. I'll now turn the call over to Alain Bédard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir. Well, thank thank you for the introduction, operator, and welcome everyone to this morning's call. Yesterday, after the market closed, we released our first quarter 2023 results. Many times over the years, including last year, you heard me mention that profitability and cash flow are most important to us as they allow us to be nimble, especially during uncertain times when we can capitalize on market turbulence. This means that the ability to steadily invest in the business, opportunistically pursue acquisition, and return excess capital to shareholders whenever possible. During the first quarter, we generated a 69% increase in net cash from operating activity to $232 million, and our free cash flow more than doubled, up 113% to nearly $200 million. While our strong cash flow performance benefited from working capital fluctuation, it also comes despite reduced freight volumes, despite the unfavorable FX impact, and despite our sales last August of CFI. Our operating income during the first quarter was $166 million with an operating margin of 10.7% versus the year earlier period of $220 million with an operating margin that was 90 basis points higher at 11.6%. Our adjusted net income of $117 million was down from $158 million the prior year, and our adjusted diluted EPS was $1.33, was down from $1.68. Importantly, the year-over-year change in these items reflects not only the reduced freight volumes and the sale of CFI, but also the fact that our earnings are fully burdened by several items for which we did not adjust. These include severance package related to early retirement offers, costs associated with transitioning IT system from UPS, the mark- to- market on DSU, and that provided unfavorable variance to our reported earnings this quarter, and again, foreign exchange fluctuation. We did not adjust for any of these items, the first two of which, the severance cost and the IT system transition, will help to streamline operation and enhance our efficiency going forward. The move of the financial system in particular will result in better control and insight into acquired TForce Freight operation and allow us to exit our TSA with UPS. Let's have a look at how each of our four business segments performed during this quarter, some of which produced significant increases in return on invested capital, even as we navigated uncertain economic times. Starting with our P&C, our package, which represent 8% of our segment revenue before fuel surcharge. The number of package across the segment was down 5% year-over-year, and our revenue before fuel surcharge was down 10%. Our operating income of $27 million was up 5% over the prior year, with our margin expanding 340 basis point, and our return on invested capital was a strong 31.5%, which was up considerably from 26.4% a year earlier. Our next segment to discuss is LTL, which is 46% of segment revenue before fuel surcharge. Our shipments were down 20% in the U.S. and 9% in Canada, which, along with foreign exchange impact, contributed to a 17% decline in our revenue before fuel surcharge. Reported operating income of $58 million was down 39%, fully burdened by the costs I've referred earlier that we do not exclude, namely severance costs and IT system transition again. Within LTL, Canadian revenue before fuel surcharge was down 12%, but we achieved a significantly improved operating ratio of 75.5%, which was 360 basis points better than the prior year period. Similarly, our return on invested capital for Canadian LTL was 23.2%, up significantly from 18.4% a year earlier. As for the U.S. LTL, revenue before fuel surcharge was up 18% on the ongoing volume headwinds. We continued to streamline operation following the acquisition of TForce Freight. Our adjusted operating ratio of 95.7% was up from 90.7% a year earlier on the reduced volume as well as the non-recurring costs. The transition to the new financial system is now complete, which should benefit us going forward, and we continue to see additional opportunity to take costs out of the business. Return on invested capital for U.S. LTL was 17.4, as compared to the prior year's quarter of 22%. Next, let's discuss truckload, which is 27% of our segment revenue before fuel surcharge. Reflecting our sales of CFI last year, truckload saw revenue before fuel surcharges fall 20% partially on the impact of foreign exchange. Our operating income held almost flat, down just 1%, again, despite the CFI sales over the course of the past year, reflecting a 320 basis point margin improvement. Digging deeper, specialized operation held revenue virtually flat despite foreign exchange, benefiting from our diversity and exposure to niche market. We also saw an improve OR of 84.5%, 250 basis point better than a year earlier. Our specialized truckload return on invested capital came in at 14.1%, and we view this business as having additional self-help opportunities ahead. Canadian-based conventional truckload was also solid, with revenue before fuel surcharge up slightly. Again, even stronger on a constant currency basis. Our adjusted operating ratio for conventional truckload improved a significant 440 basis points to 81.2%. Our return on invested capital was 21.3%, much stronger than the prior year's quarter of 11.7%, as we continue to focus on network density, cost control, and improving the operation of recently acquired businesses. We believe these overall solid results for truckload, which again, were even stronger on a constant currency basis, underscore our point last quarter that our business is now more resilient during volatile market conditions, with lower U.S. dry van exposure following the sales of CFI. Our last segment to review is logistics, which represent 20% of segment revenue before fuel surcharge. Our revenue before fuel surcharge of $355 million was down 18% on volume weakness, as well as a difficult year-over-year comparison and foreign exchange impact. Within logistics, brokerage volume were weak, while same-day package delivery volumes were relatively stable, thanks primarily to the successful efforts of our sales team in bringing on new customers. Our operating income fared better, off 9% to $32 million, reflecting successful containment of expenses. As a result, our operating margin actually improved 90 basis point to 8.9%, and our return invested capital was 19.3%, almost flat with the quarter of 2022, despite the lower volume this quarter. TFI International's balance sheet continues to benefit from our strong free cash flow, which was nearly $200 million during the quarter, as I mentioned. Our funded debt to Adjusted EBITDA ratio came in just below 1% at 0.98% as of March. As a reminder, our debt is almost entirely at a fixed rate, which is a weighted average cost of less than 3.5%. This strong capital position is what allows us to strategically invest in the business, even during times of uncertainty, while also returning capital to our shareholders whenever possible. Year to date, we have completed five tuck-in acquisitions, including one subsequent to the first quarter. During the quarter, we also announced that our board of directors approved a $0.35 quarterly dividend, which is 30% higher than the year-earlier level. I'll wrap it up with our updated outlook. We are updating our guidance provided in February to a range of $7.00-$7.25 for the 2023 earnings per share, U.S. dollars. We also anticipate free cash flow of $700 million-$800 million, which is based on net CapEx of between $200 million-$225 million. I also note that this range now reflects $300 million of capital deployed towards either M&A and share buyback. Now, operator, if you could please open the lines, we're ready to move to the Q&A portion of the call. Ladies and gentlemen, to ask a question, you need to press star one on your telephone keypad. To withdraw your question, please press star two. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Again, that's star one to ask a question. Our first question comes from Scott Group with Wolfe Research. Please go ahead. Hey, thanks. Good morning. Alain, can you just talk about what's changing in the guidance assumptions and then the severance in IT costs? What are the actual annual savings that come out of that? How does that change your view around what the LTL margins? Okay. Well, let's start with the guidance, okay? What we see, Scott, is, you know, after Q1. You know, and, you know, just about a few months ago, we were thinking that, you know, first two quarters of 2023 would be soft, and we believe at the time that, you know, Q3 and Q4 would be better. You know, when we talk to our customer now more and more, inventory are still high. The consumer approach to... You know, they want to travel more, because we've been locked down for two, three years. You know, the story was, well, spend money on your house, spend money on, you know, buying a TV, whatever, okay? Because you can't travel. Now, this has changed, okay? People want to travel. Disposable income is also affected by inflation, so food costs more. What's left? Okay, we see consumer now in this year and probably into next year, spending more of these dollars into travel and vacation and all that versus, you know, consuming a TV or, whatever, you know, improvement to the house, et cetera, et cetera. With that in mind, we, you know, we've talked to our, to our EVPs and everybody, we've reviewed our plan, and that's how we come up with a reduction on our guidance, okay? We think that the new guidance is really reasonable, but, you know, who knows? you know, at $7 EPS per share, it's way below our target of $8-$9 that we would like to be, but we have to be realistic about the market, okay? In terms of the IT transition from UPS, okay, it costs us a fortune, you know, in terms of consulting, but the work is done now, right? All of this cost that if you look at all this transition and IT in the quarter, you're talking about $8 million, which is about a $0.07 impact on EPS just coming from that. That will allow us, you know, with this financial system to use the TFI systems to better manage costs, right? Until just a few months ago, as an example, all payables were managed by UPS, okay? You know, these were payments that were approved by our operation, but we had no visibility on it, okay? Except maybe at the terminal level. Now we're starting to dig in, okay, with our head office team and our analytical team. For sure, we're seeing some opportunity to do better, okay, in terms of expenses. In terms of the severance package, okay? That amount is close to $9 million-$10 million. There, you got two segments. You got staff, okay? That, this is a severance that is long-term because these people will never come back, okay? Because of new technology, new tools, et cetera. These guys amount to a severance of about $3.5 million, if I remember correctly. The rest is a package that we offer to our drivers, to our dock workers, okay. What we're saying to them is that, "Guys, we are offering you a certain amount to retire." As we speak, okay, because the volume is down like 20%, like I said, we have about 800-900 people on layoff. When you replace folks that have been with the company for a very long time with younger folks, okay, normally the cost is not the same. Vacation is not the same. I mean, there's a, there's a value, financial value to that, but there's also a, you know, you bring newer people, the ones that are being laid off, okay, younger people, I would say, not newer, but younger, okay, back to the workforce. As you know, we are in discussion with the union that represents our employee right now? I mean, it's just a matter of not having too many people on layoff. What we're saying to our friends that represents our employees that, you know, we are at 23,000 shipments a day right now. We used to be at 30,000, 32,000. We're down to 23,000. It will take us some time to bring the 23,000 shipments a day to 24,000 to 25,000, et cetera, et cetera. These people on layoff will be there for quite a long time, right? With early retirement and retirement, we'll be able to draw from that pool of layoff people over time. We're not we're gonna add shipments if it makes money, if it makes sense for us, right? Basically, Scott, this is the approach that was taken. The payback, okay, of these costs, I would say it's less than a year. Okay. Helpful, lot there. Just second question, just on the M&A environment, just give us an update. I know you've done five tuck-ins. How are we feeling about a big deal? I saw you lowered the ArcBest stake just slightly. How should we think about that? Wherever you wanna take the M&A. Well, I think, you know, you buy on bad news, you sell on good news, Scott. There's lots of bad news right now in transportation. You know, one of my peers just came up this morning with shipments down 10%, which is the star of the U.S. LTL, right? A lot of bad news. We love this environment for M&A. You'll see us do some more tuck-ins. I said in my discussion, we're gonna be spending at least $300 million on M&A and on buyback, but these are small transactions. We believe that, you know, every three years, TFI do something of size, okay? For sure, we've been working on a few opportunities, right? Now, could that materialize in 2023? Maybe at the end of 2023 into 2024. For sure, we have the capacity. We have the know-how. You know, so something, okay, may happen on something of size before the end of the year or into next year, Scott. One thing is for sure, is that the small, nice tuck-ins, I mean, we'll be announcing one in Canada very soon, a fantastic deal, and probably another one, again, in Canada, later in the year, that we're working on right now. On the U.S. side, I mean, we have a few opportunities that we're looking at right now and stay tuned. Thanks, Alain. Appreciate the time. Very good, Scott. Thank you. Our next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Thanks. Morning. Alain, just a couple of follow-ups on that. Just on the guide itself. Your 1Q results adjusted for the special items came in roughly in line with our expectations, which means the full year guidance cut is coming out the rest of the year. Is this largely a function of 2Q being a lot worse than you thought, or are you just taking the full back half, including second half inflection down as well? Just trying to figure out what the rest of the year looks like. Yeah. Yeah. You know what I'm seeing right now, Ravi, when we talk to our customers, you know, we thought that Q2 would be soft, and we thought that Q3 and Q4 would be better. Right now, the discussion we're having is that, no, no, this is not gonna happen. Q2 is gonna be soft. Q3 and Q4 is gonna be probably the same. This is why we've reduced. Now, don't forget, last time we gave guidance, this was without any M&A, okay? Now this $7.00-$7.25 includes some small tuck-ins that we're doing now, okay? It's a little bit of a change, but basically, the biggest issue is the future. Is Q2 and Q3 and Q4. It's gonna be tougher than we thought. Understood. Maybe as a follow-up to the M&A discussion as well. Obviously, on the last call, you put out some feelers on ArcBest with the stake that you purchased. How has that progressed? Have you had any conversations with them on cooperation or partnerships and kind of how it might this play out? Thank you. You know what, Ravi? Right now, I mean, there's no update on that. I think that, we are very busy trying to manage this storm right now, okay? I think we did pretty well in Q1. Really our focus right now is to manage again the storm into Q2. Now we had some discussion with the company there that we own about 4%. I guess these guys are busy. Don't forget that we have also to renew the union contract, us and them, okay? This is why we said, you know, we're too busy with the storm and too busy trying to get a contract in place with the Teamsters. For now, I would say there's nothing going on, okay? We'll see down the road. Understood. Thank you, Alain. Pleasure, Ravi. Our next question comes from Cameron Doerksen with National Bank Financial. Please go ahead. Yeah, thanks. Good morning. Morning, Cameron. I had, maybe a question on the truckload business. You know, obviously, you know, still a bit of a tough market, but you actually improved your operating ratio in both the segments there. Just wondered if you can sort of, you know, give us some color around, you know, what you've done to be able to do that. You also mentioned just in your prepared remarks about some additional self-help in the specialized truckload segment. Maybe you can talk a bit about what you mean there and what additional upside there might be. A very good question, Cameron. One of the things that is helping us this year, and will continue to help us, is Transport America. That was part of CFI. We sold CFI in the summer of 2022. Now TA is part of Mr. Brookshaw, one of our EVP, his responsibility. This is really a great turnaround that's helping us in our specialty truckload. That was, I would say last year was like a, like a mini dog, and now it will become like a mini star within our specialized transportation business. This is when we talk about self-help in 2023, TA is a great example of that. Also, our flatbed division in the U.S. has been combined into one. We used to be three flatbed division in the U.S., Coastal, Ho-Ro, and South Shore. Those three now are combined into one under the leadership of Kristen, one of our Canadian EVP, oversees now this flatbed operation in as of 2023. That is another self-help, okay? If you compare what we do in Canada, flatbed operation, and what we've been doing so far, you know, on our flatbed, it's like day and night. We believe that with the management team that we have now in the U.S., overseen by Kristen, that's another major improvement in our flatbed organization, in our specialty truckload. If you look on the Canadian truckload side, I mean, we've bought SGT about a year and a half ago, and that company was just a mess, okay, when we bought it. The team there in Quebec has turned this SGT around. We also bought in Quebec, Boutin, which was also not very profitable. Didn't pay a lot of money for that. Now we see a good future. We also bought Saint- Michel in Quebec, that we see that this is gonna improve big time over the course of 2023. All this, Cameron, is with, you know, an environment that is more difficult this year than it was last year, right? We have more price pressure with customers? For sure. At the same time, we got a lot of work to do on our costs. Our TMS, as an example, at Saint-Michel, was not up to par. The same story is true of what we were doing at TA. We just moved these guys into the financial system of Contrans, which is Infinium, from CFI. I mean, there's a lot of good stuff that we're doing. The market is difficult. I mean, our guys did a fantastic job, okay. Our truckload guys did a fantastic job in Q1. I mean, I would say that they were pulling water out of rocks. This is why our Q1, in my mind, is a great quarter. The only small rock that we have in our shoe is TForce Freight, for sure. I mean, think about that. You're down 20% in volume, and that's difficult, okay? The guys did okay. I wouldn't say that we did great, but we did okay. Don't forget, we had some major in energy spent into this transition from UPS Financial to TFI Financial. you know, sometimes, you know, when you're focusing on one thing, you may drop a few issues here and there on the cost side. Let me tell you that, you know, we're gonna take the bull by the horn for the rest of the year at TForce Freight, and we're gonna do a much better job, okay, on cost. Okay. No, that's very helpful. Just on the TL margins, though, It sounds like you're fairly confident that those are sustainable through the rest of the year, especially given the fact that seasonally Q2 and Q3 would be better quarters. You know what, Cameron? We may see a little bit of a drop because, you know, this market is really becoming. I would say that right now, April is softer than we thought it would be, right? I say that the team is doing a fantastic job. Now, are they gonna do as good in Q2, Q3, Q4 as they did in Q1? Normally, I would say yes, okay. Because of market condition, this is why we're conservative in our guidance, okay, at $7-$7.25. Okay. Understood. Thanks very much. Excuse me. Thank you. Thank you, Cameron. Our next question comes from Paul Stoddard with Goldman Sachs. Please, Paul, go ahead. Hi, this is Paul on for Jordan Alliger. I guess getting back to the tonnage decline in U.S. LTL, I guess the question is, when you're hearing from customers that things are a little bit more difficult, I guess how much of this is macro versus actions that you are taking on your end? About 50/50. Okay? If you look at, you know, what we've seen so far in my peers, basically the number one LTL peers that we have in U.S. came out with a drop of about 10% on shipments. Okay? If you look at our Canadian operation, okay, we're down 9% on volume. We know the market in Canada and in the U.S. LTL, our U.S. LTL, we're down 20%. I would say, guys, that half of that is the market and the other half is all the cleanup that we've been doing since we bought the company. Got it. Great. Thank you. I guess for a follow-up, you mentioned a little bit about the cost actions that you're gonna be taking in U.S. LTL. Could we maybe get more update? I know we had some of the IT costs that happened this quarter, but maybe more of an update as we move through the year with some of the plans that you mentioned in your Analyst Day back in November. Yeah. Absolutely. If you remember our Investor Day in November, Paul was talking about Lino. This new tools will be fully implemented by the end of May. If you remember what Paul was saying at the time, is that this is about 100 basis point. I mean, this should help us improve our costs. On the P&D side, labor costs on the dock and P&D and fuel, I mean, for sure, we've, you know, we have now KPIs dollar-wise that will help improve what our terminal managers are doing. As an example, for fuel, I mean, we could do way better on fuel than what we're doing today. Fuel economy, you know, price at what price that we're buying fuel. Where are we buying the fuel? This is all things that, now we're starting to implement with our team there. That's never been done really, right? We believe that our volume probably will stay around the 23,000-24,000 shipments between now and the end of the year. Okay. Now that being said, we shouldn't have too much up and down in terms of volume. That a steady volume will help us protect our costs, improve our productivity. And at the same time, don't forget that we're in discussion with the people that represents our employees, and we wanna finalize that as soon as possible. I think that, you know, what we've been clear with them, excuse me, is that, you know, the volume that's gone, it is not coming back next week, it's not coming back next month, and we have to be more efficient. Don't forget, it's us, the management has to reorganize the work so that the employee is more efficient. It's got nothing to do with the salary of the employee. It's got to do what do you do with this employee? A driver drives a truck, and when he drives a truck, he spends money, okay? Me, I'd like my drivers not to spend more times driving and spend more time picking up freight. by reorganizing the work, okay, they drive less, and they have more stop, and that's more beneficial to the company, and that doesn't change anything for the cost of the employee, right? Great. Thank you. You're welcome. Our next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead. Thanks very much. Good morning, Alain. Walter. Just wanted to zero in on your first on your parcel business. Did very well when you compare it to UPS, for example. I'm just curious to see, are you seeing a different environment in Canada in parcel versus what UPS reported? Just any color on what might be different there that's helping P&C do better than their peers. Well, you know, Walter, they're down 5%, 4% or 5% U.S. domestic. We're down about 5% ourselves, right? In terms of activity, in terms of volume, I think that everybody's gonna be down in the package business, probably like 4% or 5% like us and UPS. The difference between us and them, I can't say, okay, what's different, Walter. What I can say is that TFI runs a very lean and mean operation. I remember two years ago when I asked McGonigal, I said, "Bob," as kind of a training, don't forget, the TFI culture is we like our EVP to train into different segment. One day, the actual CEO will retire, maybe in five years, something like that. We want... The next CEO will come from, one of our EVP from the family. When I say, "Bob, you go there as a training." He said, "Well, I know nothing about P&C." I said, "Well, so what? I mean, you know about network. You've been running some of our LTL division, and you'll learn. It's an experience thing." After two years, he's been there in a market that's been quite difficult after the lockdown and this and that. We're still improving the numbers, right? I mean, it's a cost approach. It's, the return invested capital approach. It's just that. Don't forget, we're finding, besides UPS and FedEx, we're also finding Purolator, which is a different league than us, right? You understand what I'm saying, Walter? It's not... The owner is not the same, right? Understood. The railroads that we're reporting, noted a particular lag benefit in their fuel surcharge program, where declining fuel prices. Yes. They were still charging, higher fuel surcharges but paying less at the pump. How does that work in your business? Did you see any lag benefit here, or is it a different nature? No. I know the railroads probably have a little bit more pricing power that they can drive through. Yeah. You know, a stronger fuel surcharge. Is there any impact to change in fuel prices here for you, positive or negative from that? Yeah. You see, we're not a monopoly, Walter, right? Fuel is always a problem. When it comes up, and you call customer and you say, "I've got to adjust my fuel surcharge," he says, "Wait. Wait 30 days, wait 15 days," et cetera, et cetera. When fuel comes down, like now, he says, "Don't wait. Adjust the price now." Right? With rail, it's probably a different discussion. There's not that many rail company in Canada or in the U.S. For sure, we don't have the same benefit, okay, of this discussion that you're talking about rails. You're right, though, that, you know, when you run a very high density network like we do us in Canada with our P&C and our LTL, okay? Not so much in the U.S., because in the U.S., I mean, the density of our LTL operation is the shit, okay? We're working on it. That being said, fuel comes down as we speak. It's like neutral for us in the U.S., okay? We don't have a huge benefit with our density. It's a negative. It's a little bit of a negative in Canada because of our huge density, okay, versus the fuel surcharge that we collect from customer. Of our huge density, we get a little bit of a benefit that may disappear over time if fuel stays at, I don't know, like $70 a barrel. Okay. I appreciate the color. Thanks, Alain. You're welcome, Walter. Our next question comes from Jack Atkins with Stephens Inc. Please go ahead. Great. Good morning, Alain. Thanks for taking my questions. Pleasure, Jack. If I could go back to something you said in your prepared comments around, you know, I think you said you'd like to have earned $7 to $8... Excuse me, $8 to $9 this year. What was that comment really referring to? Is that if we were sort of in a more normalized-? Yeah. operating environment, you feel like the assets in place could make that? Just could you provide a little bit of clarity around your commentary there? Yeah. Yeah. You know what, Jack? Last year we did $8, right? About $8. We're not feeling good about that is we thought that in a normal environment in 2023 we would have done at least $8 and going towards more $9 than $8. Now, the situation is reversed because we're coming out with a guidance that is $7. We're far from $8, and we're very far from $9, okay? The guys will be working really, really hard in 2023, everybody in TFI's family to get to try to beat this consensus that we just updated today, right? This company, okay, in a normal environment for sure will be an $8-$9, maybe even better down the road, okay, to $10, right? Our forecast for 2023 is 7. Okay. Okay. No, that makes sense, Alain. I just wanted some clarification on that. you know, as it relates to like the $300 million of M&A and buyback by the end of the year, if I go back to the fourth quarter call, the idea was you're gonna do just $300 million-$400 million of M&A by the end of June. you know... Yeah. What's changing there? Are you maybe saving your dry powder for something bigger by the end of the year? Just if you could maybe clarify that change again as well. Yeah. Yeah. That's a very good question, Jack. Two deals that we were doing in the U.S., okay, one seller decided to not to sell, right? It was a father and son thing there where the son wanted to sell, the father didn't wanna sell, which is not normal. Normally, the father wants to sell and the kids, they don't want this, but that was a bit a story in the U.S., we had to pull out of that transaction. We also pulled out of another transaction because the trend of the business, okay, was not consistent with the agreed price. We pull out of two deals. at the same time, like I said, we have a major transaction on the Canadian market now that should close probably in Q3 and into Q4. It's a fantastic deal that we're gonna be doing in Canada. We've got two major deals for the Canadian scale, okay? One is imminent, okay, the announcement will be imminent, and the other one is probably gonna be later. In there also, Jack, we said buybacks. Buybacks are always in our mind, okay? So far, if you look at our Q1, we did 0. We did about 50,000 shares, so we didn't do much. Like I also said on the call, is that we believe that there's a possibility of something of size between, let's say Q3, Q4 and Q1 2024. You know, it's always the same thing, Jack. We work on not just one transaction because one could fail. Like I just explained, two deals that we're working on have failed. We have a good feeling about something of size. Like you said, dry powder is important to us. You know, we'll do those two major transactions that are really fantastic for us in Canada. We're doing some small M&As here and there. This is why we said, "Hey, guys, we spent $80 million in Q1 on M&A, and we believe that over and above that, we have at least another $200-$300 million of deals going down the road. Okay. Thank you, Alain. Really appreciate it. Pleasure, Jack. Our next question comes from Konark Gupta with Scotiabank. Please go ahead. Thanks, good morning, Alain. How are you? Hey, I'm good. How about you? Good, thanks, Alain. I just wanted to confirm, before I ask Natasha, Alain. The guidance you said $7 to $7.25, is that adjusted for any of the non-recurring items that you laid out? No, no. These non-recurring items are part of that $7 because, you know, we did $1.33 I think in Q1, if I remember correctly. The difference between $1.33 and what is $7 is what we're gonna have in Q2, Q3, and Q4. Makes sense. Thank you. My first question is on the U.S. LTL. Yeah. If I'm looking at the operating ratio without these non-recurring items, right? It sounds like it's 92%. Yeah. You were at 90% in the previous quarter in Q4, right? I think last quarter. Yeah. You said you have visibility into some 90% operating ratio by the end of this year. Yeah. What's that visibility looking like right now in this market environment? In the plan, when we talked about that plan of $7 EPS, we think that we're gonna run around that 92% mark, okay, excluding, like you just said. I mean, we said 95%, but this includes, okay, those non-recurring items. If you look at the year at three-fourths rate, we believe that we're gonna run the year at 92%. We should do a little bit better, okay, from 95% over the course of those next three quarters at three-fourths rate. Okay, thanks. I suspect that's driven by those, financial systems and the remaining sort of transitioning items, right? Yeah. I mean, we're. See, my labor cost per shipment today, okay, if I look at April, if I look at March, the trend is down, right? These are tools that we implemented with the TFI financial system that we monitor the labor cost per shipment on P&D, on dock, okay? And that's by terminal as well. We're tightening the screw, okay, working with our team there, giving them some incentives, okay, to get to a more reasonable number. Don't forget, we will do about 6 million shipments in 2023 at TForce Freight, you know, grosso modo, 6 million shipments. If you could shed just $5 per shipment labor costs, which is normal what we should have been able to do, okay, well, 6 million times 5 is $30 million, which is about close to a point, 150 basis points just on your P&D and dock labor, which is the normal goal. The other aspect also that we're looking is admin cost per shipment, which is something that was never looked at, right? We went as high as close to $50, okay, including benefits, for admin. I mean, this is not sustainable. Now we're down to about $42 per shipment. The goal is to get to about $30 per shipment. I mean, in Canada, we do even better than that. In Canada, we've been working at it for more than 20 years, right? By these new system that we are implementing, so we did the financial up and running February 1st, 2023. We're doing the HR on Oracle, okay, as we speak, May and June, right? Again, we're gonna be able to walk away from Workday into TFI Oracle HR. There again, okay, we're gonna be saving on TSA, okay, and we're gonna have a tool, a system, a KPI that is standard to TFI, right? Then the next move, which is about the fall, is we're gonna run away from the fleet management system that we use at UPS. It's called AIS. We're gonna be moving to our own, okay, system in the fall. These are all things, guys, that we believe that will help us in that soft patch of volume, okay, to be able to manage around the 90%, 91%, 92% OR in 2023. Sounds perfect. Thanks a lot. Last one for me. I noticed in the disclosures, you guys sold or, you know, kind of maybe sold some of the ArcBest shares in Q1 from Q4. Is that more kind of reflective of, you know, just a kind of strategy to, you know, own equity in your competitors from time to time? Or is it more of the discussion of what's happening with ArcBest and the unions? you know, I mean, don't forget that at ArcBest they have a buyback program, so it's just that we didn't want to be too close to the 5% where you have to do this and do that. That's why we sold a, you know, a small 50,000 shares of the company. That's got nothing to do with our intention to try to have a good working relationship with the company over there. Okay. Thanks so much, Alain. Have a good one. Take care. Our next question comes from James Monaghan with Wells Fargo. Please go ahead. Hey, guys. Good morning. Good morning. ask about U.S. LTL and sort of, so I guess the severance costs you incurred. You mentioned the employees that were laid off and sort of underutilized. Like, outside of those severance costs, was there a drag from those in the quarter from those employees essentially sort of being underutilized across it before they took packages? No, not really. I mean, you know, if you look at what we've done in Q2 and in Q4 in terms of utilizing those employees, we probably should have done a better job in Q3 and in Q4 because our volume, okay, was also dropping with market as of Q3 and in Q4. We were a little bit late in the game, okay? No, that's, I would say probably by the end of October, November, this is when we started to lay off workers. We should have started doing that much sooner. Okay, fine. There again, we have all kinds of excuse, the visibility that we have, et cetera. We, which we improve now, right? Because of the financial tools, financial system at TFI. I know Scott Group doesn't like when I say tools, but it is what it is. I mean, now we have better visibility, and our management team is taking action more on a day-to-day basis versus what are we gonna do eight months or eight weeks after the fact. Now the fact that we've offered package to retire, that is more financial, is we're replacing those guys very expensive in terms of benefits and in terms of salary versus younger folks. Also we have 800-900 people on layoff. We don't like that. We would like to bring those guys back as soon as possible, right? The volume growth in volume will help us, but we don't see a lot of potential there for 2023. Normally we have about 200-300 people that retire every year over there, 200-400. The fact that those older folks are retiring helps us on the cost per shipment because the salaries, the benefits are not the same on, let's say, a 30-year-old employee and a 60-year-old employee, right? This is part of change that was never done before. Was never done before. We do that in Canada, if need be, and we've done that many times, but it's never been done there. We're gonna keep pushing because, you know, we want to reduce the average age also of our workers, right? Because if you look at the average age of our workers today, it's fairly old, right? We need, you know, these younger folks to come in and have the older folks retire and, yeah, that's it. That is also what we're going through now. Volume growth down the road will help us. Absolutely. Yeah. I guess I also wanted to ask, it seems like you're also making progress with truck deliveries. I guess kind of more broadly, it seems like you're, this quarter had some sort of inefficiency costs within it. You're quite aggressive about managing those. You're seeing like TSAs come out across here. You're not necessarily sort of building in a step down in sort of the OR from the sort of elevated rate, even ex those costs, right, that you called out in the press release. Just trying to understand why you're not seeing sort of more significant margin improvement across the rest of the year, even if volumes are sort of relatively stable. Is there a yield or mix headwind we should be considering? Will the 800 or 900 employees create a larger drag? Just trying to understand, the sort of what the moderate cadence of improvement in OR. Yeah. Well, there's many things going on, James. I mean, as an example, we used to run 120 shops, mechanic shops with 300 mechanics. Our leadership in the maintenance right now, a lot of their focus is shutting down those shops. We went from over 100 shops, which doesn't make any sense. Okay, now we're down to 40 shops. You have to make arrangement, close the shop, get rid of the spare parts that was in those shops, lay off or just retire those employees, those mechanics, the management that was related to those. If I look at my maintenance costs, okay, compared to what it should be, I mean, I'm not there. The excuse that we hear that, yeah, but I mean, we're stuck in closing shops. My fuel economy is not as good as it should be, right? These are all things that in a normal environment of a company, okay, that's got 4,000 trucks. You don't have 120 shops to maintain that fleet. You don't. It's just that we have to do a lot of correction. We did the same thing on fuel. Fuel, we shut down about 85-90 fueling stations that were running. We moved that to Comdata with fuel card. The system, okay, that controls those cards, if you look at our Canadian operation, our truckload operation, I mean, it's foolproof. The system that we have over there at TForce Freight is not foolproof. We're working on that to improve that, right? This is why when you look at that in a soft market environment, we're saying that, "You know what, guys? We came up 95% in Q1 or, okay, if you adjust for the one-time cost, we're at 92%." We may also have some kind of one-time cost in Q2 and Q3 because we're moving to HR Oracle. Not as much as financial, but we may have some. We're saying, you know, let's be conservative and let's say that, okay, is 92% reasonable in 2023? We don't like to be a 92% OR company, but I think it's reasonable for now. Let's see what we come up with in Q2 and in Q3. I'm still convinced and we'll get there, that, if we can run a 75% OR in Canada with a unionized environment there as well, in a market that is day and night, the quality of the revenue in U.S. versus Canada. If we can run that in Canada in a union environment, 75% with the experience and the tools we have in Canada that we are also importing to the U.S., I mean, for sure we'll get to at least an 80% OR. It will take us some time. Absolutely. For sure, we are getting more and more involved into the TForce Freight operation. Got it. Just real quickly, the best way to sort of characterize it is there's these OpEx headwinds or investments from lowering some of the structural costs and they're masking like real underlying improvement? Yeah, absolutely. Okay. Yeah. Thank you. 2023, guys, is a huge transition year for us from UPS. Don't forget, at the same time that we're paying UPS, we're spending money, we're spending energy and time, okay. Don't forget, we did this transition. The financial one? It was a huge success. We did the payroll a year ago, 14,000 employees, just like that, January 1, 2022. It was a huge success. We had a little bit of fine-tuning to do, but, I mean, think about we have no issues with the system and this and that and losing this, losing that. No way. No. Thank you for the clarity and context. Pleasure. Later, James. Our next question comes from Kevin Chiang with CIBC. Please go ahead. Thanks, good morning, Alain. Kevin. maybe just focusing on Canadian LTL. I mean, it had great results. I mean, yield and volumes were down, but your operating ratio was in the mid-70s. maybe just if you could provide some granularity on some of the buckets you're able to pull on given the more challenging top-line environment. Then I guess I would think of the cadence of that OR through the year. Typically, first quarter is your highest OR. Would that be your expectation in your guidance for 2023, that you kinda start at 75.5%, and we can kinda grind that lower as we get through the year here in Canadian LTL? No. Not in 2023. Yeah. I don't think so. I think that 2023 is a special year. You're absolutely right. Normally, Q1 is not as good as Q2, Q3, and Q4. Q2 is always our best. Because what we're seeing in the market right now, Kevin, you know, we were soft in Q1, but the guys have done a fantastic job. You know, like I said also earlier, fuel was a little bit of a tailwind for us, okay? That tailwind is disappearing, okay, so we're gonna lose that into Q2, Q3, and Q4, if oil stays at about the price it is now. If you look at the price that we're paying now, is about the same today as it was last year. Last year, it really peaked, okay, heavy into Q2 and in Q3, right? Is not gonna happen this year, we're gonna lose a little bit of that, of that tailwind in Canada. Not in the U.S., but in Canada. This is why, to me, if we can come up with 75% OR in Q2, Q3, and Q4, I mean, it would be like, wow, because of that situation. I think that, you know, 75% will maybe be 78% down the road, you know, because of that tailwind that may disappear. Well, probably disappear. The big difference that we have, Kevin, between our U.S. and Canadian operation as an example, think about that. You know, in the U.S. with huge density, right, we have to drive between each and every pickup we do about 11 mi. Think about that. 11 mi between customer one to customer two. In Canada, okay, where the density is the shit compared to the U.S. If you exclude Toronto, Montreal, and Vancouver, I mean, what are you talking about? Our average miles, okay, are 50% less. What does that tells us? That tells you that in the U.S., we like to drive trucks, and we don't like to ship freight. That's a great anecdotal data point there. Maybe just on U.S. LTL, as I think back to, you know, some of the levers you had called out, some of the self-help levers to get the OR lower. Yeah. You had talked about the IT program. Yeah. Obviously, you made those investments there. Yeah. You talked about, you know, labor efficiency. It sounds like some of. Yeah. - the severed stuff addresses that. I think the last one was improving the fleet efficiency. If you could just give us an update on where that sits, and then I think if I added all that together before, you know, that was about 8 points of OR improvement on an annualized basis. It feels like you're making great progress as I think of those three levers here. Yeah, but not good enough, guys. Not good enough. We still drive too many miles for our P&D operation. Too many miles. Okay? For sure, the guys are looking at that. We do too many pickups with small trailers. As an example, if you look at what my peers are doing in the U.S., what we're doing in Canada, a driver likes to drive, and he also likes to drive with a short trailer. It's easier, right? Mm-hmm. Us, we don't like a 28 ft trailer because what kind of freight can you put in 28 ft? What we normally do, we have our P&D guys drive 40 ft, 48 ft, 53 ft. They load more freight in, and they can pick up more freight. This is a global change of culture. You know, they run. We run in Canada, six-wheelers and eight-wheelers, but we mostly run eight-wheelers, so tandem trucks. Mm-hmm. For sure, the trucks is longer. Again, you have to be a better driver to drive a longer truck, okay. Mm-hmm. They were only used to drive six-wheelers. We're saying, "No, no, no, no, no, no." We are changing that also because, you know, if you run, for instance, we run Nashville to Memphis, okay, with LTL, and let's say we run five a night, and we come back with three empties. Mm-hmm. Why are we doing that? Because, you know, we don't have a tandem truck, so we can't load a truckload on the way back. This is just normal operation, okay, but you don't have the proper equipment because the guy runs a 28 ft or two 28 ft. He runs a six-wheeler, so he can drive with LTL because it's not that heavy. If you have to load a truckload, let's say, of Pepsi or Coke as an example, I mean, you need a tandem truck. This is all going through right now with us getting involved in the operation and changing things. You know, UPS Freight was like a package company hauling LTL. Mm-hmm. Mm-hmm. We're changing that now. TForce Freight has to become a real LTL company with the right equipment, okay? That is the transition that we're doing as we speak, right? Right. Right. Alain, thank you for taking my questions, and best of luck as you go through 2023 here. Thank you, Kevin. Our next question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead. Good morning, Alain. Morning, Benoit. Yeah. Looking at LTL, the segment benefited somewhat from strong market condition during the pandemic and the lack of supply. As we return to more normalized condition, do you see some of the LTL business flowing back to truckload? I don't see that, Benoit. I mean, for sure the truckload guys are not busy, right? If you think about the U.S., it's just a disaster, right? If you look at one of my peers in the truckload that came out, their U.S. truckload operation has been, you know, killed with volume. There may be some of that, okay? For us, we don't see. First of all, we never saw LTL, okay, because we were so busy going to truckload. Us, okay? Because what we unload as freight that we didn't want, for sure the truckload guys would never want that. It was just terrible freight. Okay. Now, the guys are less busy. Is there some shipping that would go from us, let's say an LTL operation to them? I don't see that, Benoit. I mean, when we talk to our customer, they're more about... Because if you look at my quality of revenue, Q1 this year versus last year, my revenue per shipment is about the same. We've dropped a little bit, okay? Q1 I'm talking now. A little bit. The weight also has dropped a little bit. There's not been any significant change in the quality of our freight year-over-year, right? We've lost volume, yes, okay, because of market condition and also because some of the freight that did not fit. To truckload guys, I don't see that. Okay. It's the same thing that we have in Canada between rail and road. The service is not the same. Okay. That's great. With respect to your 92% OR for USTL for 2023, does this imply that OR needs to reach 90% at one point in the coming quarters given the start at 95%? Just wondering if the 80%-85% target over two or three years is delayed somewhat given the softer market environment? You know what, Benoit? Me, I would say that the target of 80%-85% OR is still two, three years down the road, okay? For sure, 2023 is gonna be a soft year, and we will end up with better into Q2 and in Q3 and in Q4, not because of market condition, because I don't think market condition will improve. I think that we will do a better job on our cost. You know, we are, you know, we are working really hard with better tools, better information, better training. I'll just give you an example of what we've done so far. You know, we used to run our LTL with three division, east, central, and west. We said forget about that. There's only two division now, so we run east and west. We used to run with 21 RDO, which is regional guys. We went from 21 to I think 16. We're doing a lot of things that to be leaner and meaner, okay? Like I said with Kevin, we're also changing TForce Freight to be more of a real LTL carrier than just being like a half-pregnant LTL carrier, a little bit of package influence into the equipment as an example. Because we run so many single axle that we can't come back with truckload, okay, when there's no LTL on the way back. There's a lot of things going on. Plus that we're moving away from Workday at UPS into HR Oracle. We're moving from their AIS system to fleet for the fleet management. That's gonna help us have better visibility with our own system. A lot of good things that are undergo on the cost side. We want TForce Freight to be much leaner. Much leaner. We have about 2,000 doors that we don't need right now at TForce Freight, 2,000-3,000 doors too many. This is why we're having discussion with our peers. We just made a deal with, you know, one of our peers in Raleigh. In Q1, when you see a gain of $5 million on our real estate in Q1 in LTL is we sold to one of our peers, our terminal in Raleigh, and we bought theirs, right? We're keeping all this real estate ongoing. We're just in the midst of doing another deal with one of our peers in one of our terminal in Georgia. Excuse me, in Georgia, right? I mean, this company will be much leaner than it is today, and it's leaner today, a little bit leaner today than it was two years ago. Yeah, we're investing Okay. in technology. We're investing in our people at the same time. No, we'll get there, guys. If we can run a 75% OR in Canada in a unionized environment with intermodal there as well, I mean, there's no reason why we can't do an 80% OR. I think like you said in one of your notes, I mean, just think about the free cash flow generation at TFI. That opens up a ton of opportunity for us down the road. Yeah. No, that's great, Alain. Last one for me, obviously, financial position is great. With respect to the large transformative deal that you've been referring to, what drives the timing later this year or early next year? Do we need to see the expectation going forward to come down? Is this more a matter of you have enough work on your plate with TForce Freight, so you want to be more advanced or get more visibility before doing something more transformative? Yeah. Yeah. Yeah. For sure, I mean, we can't do anything in Q2. I mean, we... Don't forget, like I said, someone asked me the question about specialized truckload. I mean, Steven Brookshaw and his team have done a fantastic job at TA. TA used to be a concern of ours. TA is not a concern of ours now. TA will do very, very well. Now the market is a concern. That's not gonna change because we don't control the market, we're gonna have to adapt and adjust, and we'll do that. Now, the concern that I've got is our TForce Freight. We need to renew this contract, okay? We need to become leaner. This is why this is an ongoing process, we're not gonna do anything of size, for sure, before Q3 and Q4 of 2023. We don't want to miss the boat because, you know, we like to buy house on bad news. You know? Bad news is always good for TFI. If you look back, okay, I remember in 2008, 2009, this was really bad, and we bought TFIS from Mike Andlauer, okay? The Andlauer Retail, it was called ATS at the time. We bought that from Mike, and it turned out to be a fantastic transaction for us at the time, and even today, right? Yeah, it creates a ton of good opportunities in bad times. I think that 2023 is going to be a tough year for the industry, and maybe into 2024, who knows? I mean, we got a lot of opportunities. I mean, we're not just, Benoit, we're not just talking about one transaction of size because, you know, if you shoot only one and you lose that, well, you just lost, right? You have to look at one, two, or three different possibilities. You know, you try to do the one that makes more sense for your shareholders, right? There's so many things that we're working on right now. Like I said earlier, stay tuned, guys. Perfect. That's great, Alain. Thank you very much. My pleasure. There are no further questions at this time. We conclude our question and answer session. All right. I would like to turn the floor back over to Mr. Bédard for closing comments. Please go ahead, sir. Okay. All right. Thank you, operator, and thank you everyone for being with us this morning. Please enjoy the rest of your day. If you have any follow-up questions, don't hesitate to reach out. As always, we appreciate your interest in TFI International. Thank you again, and see you soon for the Q2 results. Have a great day. Take care. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.