Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International’s Third Quarter 2020 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. [Operator Instructions].

Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. All dollar amounts are in Canadian dollars.

Lastly, I would like to remind everyone that this conference call is being recorded on Friday, October 23, 2020. I will now like to turn the call over to Alain Bédard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead..

Well thank you very much for the introduction operator and I appreciate everyone joining us for this morning’s call. Yesterday after market closed we released our third quarter results. If you need a copy of the press release, please visit our website. TFI International had a very strong third quarter.

As I mentioned on our last call we had seen several positive developments that bodes well for our performance going forward. These played out as expected during the quarter and our strong financial and operational results came despite of the ongoing pandemic and despite our continued focus on the health and wellbeing of our employees and customers.

As you frequently hear me mention, a hallmark of TFI International’s operating philosophy is our relentless focus on the fundamentals of the business consistently getting the details right. We constantly seek opportunities to enhance efficiencies and increase returns on invested capital.

We also look to optimize our free cash flow and our earnings per share adding to our strong financial profile. This position of strength then allows us to strategically expand our business with a long-term goal of creating shareholder value and this includes returning excess capital to shareholders whenever possible.

During years such as this when macro uncertainty is elevated we believe that maintaining our culture and adhering to these principles is even more important.

You see it in our quarterly results that I will next walk you through and you also see it in our continued identification of strategic equitive [ph] acquisitions opportunities to expand and enhance our platform.

During the third quarter we completed four acquisition and we agreed to acquire an additional business expected to close during the fourth quarter. In addition subsequent to September we completed two additional acquisition. In total that’s seven one-time [ph] and highly strategic acquisitions since our last call.

I won’t walk you through the compelling rationale for each, but I do invite you to read more in our recent press releases as we extend our long and successful track record in this regard.

Turning now to TFI International's third quarter results, let's start with our high level performance and as a reminder these results are despite the continued absorption of COVID-19 related costs and our continued focus on health and safety. Our total revenue of 1.2 billion was down 4% compared to the prior year’s third quarter.

This was a significant improvement over the second quarter’s negative 17% year-over-year growth. More importantly, our operating income increased 18% to 156 million and our adjusted EPS on a diluted basis expanded 20% to a $1.25 up from a $1.04 a year earlier.

Our net cash from continuing operation activities was a healthy 190 million, and that was up slightly over the prior year. We view cash flow as strategically important as it allows us to invest in our business and seek expansion opportunities. Overall, we were very pleased with our performance.

More specifically let's look at how each of our four business segments perform, beginning with our P&C, package and courier. Our package and courier represents 14% of total segment revenue and saw a 5% increase in revenue before fuel surcharge versus the prior year.

Operating income of 28.5 million was up 1% as the segment operating margin of 17.5% compares to the 18.2% the prior year. This year-over-year P&C results were much improved over our second quarter performance.

Throughout the third quarter we saw a pickup in B2C activity and even B2B which has slowed significantly due to the effect of COVID-19 improved as the quarter progressed. Going forward we believe that our P&C segment is emerging even stronger from the pandemic with a more balanced mix of B2C and B2B demand that we are well prepared to accommodate.

Moving to LTL, this segment represents 16% of our total segment revenue and generated revenue before a fuel surcharge of 177 million, down from 205 million the prior year. That rate of year-over-year decline is much improved and in fact half of that was during the period quarter -- the prior quarter, reflecting a rebound in demand.

Importantly, our operating income grew 36% to 35 million and our operating margin expanded more than 700 basis point to 19.7%.

This 36% year-over-year growth in operating income was a result of not only the Canadian wage subsidy of 8 million, but our significant success driving operating leverage for example, by merging our Canadian Freightways and TST Overland Express operating companies in May.

These ongoing efficiencies significantly benefited our margin and more than offset the weaker demand environment. Next, turning to truckload. This is our largest segment representing 47% of our total revenue. Revenue before fuel surcharge declined 2% year-over-year, which was a sharp rebound from the 17% decline in the prior quarter.

Truckload operating income declined just slightly to 75 million from 76 million in the year earlier quarter, and our operating margin was up slightly. It should also be noted that we had 6.4 million of higher gain on sales of real estate in a year ago quarter. Within this segment our U.S.

truck load operation grew revenue 2.5% over the prior year period, while our Canadian specialized business each saw -- our Canadian and specialized businesses each saw a single-digit percentage decrease in revenue, which led to a Canadian wage subsidy of 11 million.

Rounding out our segment discussion, logistic is our second largest segment at 22% of total revenue. We saw year-over-year growth of 9% in revenue before fuel surcharge. Our operating income more than doubled in the quarter versus a year earlier at 30 million compared to 14 million the prior year.

Our operating margin came at 10.7% well above the a year ago 5.4%, as our margin improvement initiatives have produced solid improvement on the bottom line. E-commerce and same day package delivery demand remains powerful organic growth driver for us.

Turning to our balance sheet, it remains a meaningful source of strength for us, allowing us to execute on our business plan. We further strengthened our financial profile in August with a share offering that provided gross proceeds to TFI of approximately $290 million Canadian.

Our strong liquidity further benefited from our strong cash from operations during the quarter, all in we ended September with our long-term debt down 27% since the start of the year and a total of $1.5 billion of liquidity.

Given our continued strong operating performance and very solid financial position, I'm pleased to be announcing today that our Board of Directors has announced a sizable 12% increase in our next quarterly dividend payable in January.

In addition, I'm pleased to report that as business conditions have improved and TFI International has continued to perform, during the quarter we reinstated 4-5 day’s work week for 486 employees and we rehired 298 employees full time who had been furloughed.

Lastly, wrapping up my prepared comments today, I want to update you our full outlook for 2010. We now expect diluted earnings per share to be a minimum of $4, up from our previous range of $3.40 to $3.75, and we expect our free cash flow which is in non-IFRS measure, to be a minimum of 600 million for up from 425 million to 460 million previously.

In summary, as I mentioned at the start of the call at TFI International we focus on the fundamentals of the business and optimizing our capital allocation regardless of constantly changing macro conditions. Specifically, we invest in the highly disciplined manner where we see the best risk adjusted return while also paying our quarterly dividend.

On a day to day basis our entire team looks to drive efficiencies and produce not just growth but profitable growth. Our ultimate aim is to create and unlock shareholder value returning excess capital to shareholders whenever possible.

I want to thank the entire team at TFI for generating the results just online and for their continued dedication to this unprecedented fear. And with that operator, if you could open the lines so we can begin the Q&A session..

Thank you, ladies and gentlemen. [Operator Instructions]. And your first question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead..

Good Morning everyone, good morning Alain, thanks for taking my question. So wanted to start with two kind of longer term questions. First on M&A, obviously you guys have been super busy this year, even with everything going on. And you've just made what one would consider to be a fairly sizable acquisition.

Can you remind us again kind of what your pipeline looks like, are you guys taking a little bit of a break here, and also kind of with the market, with the stock market, where it is do you feel like valuations out there are compelling for you to go offer new targets?.

That's a very good question Ravi. I mean, M&A has been the secret sauce of TFI for the last 20 years. So I mean, what we've done so far this year is just some small tuck ins that we do every year, we invest about 200 million. So far we've invested only 100 some million, 110 million, 115 million with some very nice small strategic acquisitions.

But for sure, I mean, we're going to be closing the DLS acquisition, which is a significant one for us. We're going to be closing that sometime early November. Okay, everything is done. So that's going to be a great acquisition for us. Now in terms of the pipeline, our pipeline is always very full.

In Canada, if someone wants to sell his company the first call is always TFI. Why? Because we have a strong track record of closing transactions number one. And number two, I mean, we create an environment where someone sells his family owned company to us.

I mean, we keep the value, this kind of environment that is propose [ph] to growing the business. We've done well. In the U.S. we're new players, okay for sure. What we've done so far is some significant transaction the CFI one like three years ago.

Now, the DLS one, we done dynamics in 2011 and our future for significant transactions for sure we've said it many times, it's got to be south of the border. It cannot be in Canada because, we're such a dominant player in Canada.

If we try to buy a company with revenue that is a little bit more than $90 million Canadian, then we have to sit down with Competition Bureau in Ottawa. And, it's a long, long process and takes an awful cost with lawyers and things like that. So, I mean, yes, we've been really busy but this is normal for us.

What is a little bit less than unusual is every three years or about we do some significant transaction. So this is why DLS is a significant transaction, not that big, but it's important to us. I mean, we're going to be investing $225 million U.S. on this acquisition.

And it's a strong team led by Tom and we have a lot of faith in the future in that business. It's our first step into the U.S. LTL market through this asset like kind of acquisition. So we we're going to use that to really understand the market drivers of this LTL market in the U.S., which is a little bit different than probably the one in Canada.

Now, that doesn't say that we're going to be stopping. That's -- if you look at we've got $1.5 billion of liquidity available for us for M&A, we're going to be spending in Canadian dollars about $300 million on DLS so we still have a lot of dry powder. If we find the right acquisition, the right fit, absolutely we are going to jump on it.

We have a deep bench. In Canada, our team is second to none and in the U.S., we're beefing up the team. I mean, again, this DLS acquisition is going to beef up our team. All these small acquisitions that we've done in the U.S.

through our special TTL now, we're running probably like a little bit more than a thousand trucks in our specialty truckload, which three years ago we were, well, zero. Okay, so we've got a lot of faith in this economy in North America, U.S., and Canada.

I think that once this election is behind us, some concern will probably evaporate, and then 2021 we see a lot of tailwind for transportation, lots of potential. Now in terms of valuation, I think that there's still ways to do a transaction that is accretive. day one.

You know, doing a transaction that's accretive after ten years, well, this is not my bag. We're not really in that business. You know, accretion has to be like day one and normally without any synergies, because day one you don't have any synergies. You know, you start the business and here we go.

So if you look at DLS, if you look at everything that we've done over the last 20 years, that's how we were able to build this TFI, which we're really proud of today and very proud of our people, our team..

Great color. Thanks Alain. .

Pleasure Ravi..

And your next question comes from the line of Jason Seidl with Cowen. Please go ahead..

Thank you, operator. Good morning Alain and team.

Wanted to focus a little bit on some of the trends you've been seeing across your different business lines as we sit here in 4Q, I am curious to know sort of the rate of recovery you're seeing there and then talk about how that's going to impact the bottom line profitability, especially with the Canadian wage subsidy eventually going away?.

Yeah, well, absolutely. A very good question, Jason. So if you look at our Q2, the subsidy in Canada was about 22 million. The forecast for us in Q4 is going to be about just a few million dollars. Our P&C, if you look at what we've been doing so far is our mix of B2B versus B2C have changed in Q3, but our profitability has not changed that much.

So if you look at our P&C in Q3 and going into Q4, our B2B is still down year-over-year. Okay, if I look at ICS, if I look at TFIS, which are our specialty P&C guys, mostly B2B, ICS is still down about 5%, 6%, 7%, okay. TFIS is still down about 20%. But globally overall our P&C is up a bit, okay.

So that means that we've replaced a lot of our B2B with B2C without affecting our bottom line too much. If you look at our adjusted EBITDA it has stayed about the same. So that's our goal going into Q4 and into 2021, okay. We will keep growing this B2C, hopefully all of our B2B comes back.

Probably there's going to be some leakage because as we know, e-commerce is eating a lot of the lunch of the brick and mortar guys. So maybe there's a permanent impairment in some of our B2B business, we will see. I mean, but, we're back.

So we're are replacing B2B with B2C without affecting the bottom line because we're focused, we have a very solid plan, okay, to replace the B2B that is going and also growing the global revenue of our P&C, which I think in 2021 you'll see even some better organic growth.

Now going into e-commerce, then it brings me to the next sector, which is our logistic. Logistic is on fire for us. I mean, if you look at our last mile operation in Canada, I mean we're doing so good, so good in terms of increased revenue and so good in terms of bottom line. But Canadian market is small. So if you look at our U.S.

market, okay, one of the main drivers of our bottom line improvement in our logistic is our U.S. last mile operation.

Okay, which the top line is not growing because we're still getting new business in of quality and at the same time, we still have some business that are, let's say, 2%, 3%, 4% bottom line and [indiscernible] and his team are saying, you know what, 2%, 3% we don't sorry, guys, we can't service you 2%, 3%. So you guys have to walk.

So what you're going to see in 2020 and into 2021 is that the bottom line of our U.S. operations is going to keep on growing, getting closer to a double-digit EBIT that's the goal. Topline will grow, but not by much because we're still replacing 2%, 3%, 4% bottom line guys with better quality of bottom line.

Now, if you look at our LTL, here's the problem in Canada, most of the LTL is retail. So this is why you see us in Ontario and in Quebec. Not so much out West because the West is small, but there was never any industrial LTL out West. So there's nothing to lose there. But, this industrial LTL in Ontario and Quebec keeps on coming down.

So this is why revenue keeps on going down year-over-year organically and at the same time, some of our brick and mortar guys, LTL guys, customers are also losing to the e-commerce.

So this is why we're still down big time in our LTL, but at the same time, all the right moves that we're doing and focusing on, the right lane, the right customer, the right wave break. So, we're not in the business of hauling freight for $40. I mean, leave that to the other guys. But our LTL for sure needs to grow to M&A.

So we're looking at all kinds of opportunities, what can we do on that. We were trying to buy APPS. We announced this acquisition, but finally there was a certain closing condition that were not met. So we had to say, well okay, we'll look at something else. So but the LTL, it's going to be organic growth into 2021, yes.

But I think that we're going to keep growing the dollar of the bottom line through our efficiencies and hopefully we're working on different scenarios to keep growing the top line on our Canadian LTL. Now if you think about our truckload, our U.S. truckload operation has done okay in Q3. Yeah, revenue is about stable.

Our CFI operation did a little bit better than TCA. Our MCT acquisition is doing really, really well. Our specialty truck load is still affected in Canada. Some of the mines are coming back, construction is okay, but the automotive business is still not where it should be. So steel, aluminum is affecting us a bit, but I see 2021 like our U.S.

steel will definitely improve, absolutely. I think our Canadian specialty and van division also will get to see some improvement there. So overall, I'm very confident. So this is why, when we give guidance for 2020, we say EPS is going to be a minimum of $4, EBITDA is going to be probably a minimum of $900 million Canadian.

But I think that 2021 is really going to be a lot of these small acquisitions that we've done in 2020 plus the DLS one that's closing at the end of the year. It is going to help us into the 2021 year and I think that TFI will again produce even better results in 2021 versus 2020, even without the Canadian subsidy. .

Good, that's fantastic.

Alain if I could take this last one in, CAPEX I mean, obviously, you had CAPEX -- and then in 3Q you had lead times going on equipment which everyone's been experiencing, how should we think about CAPEX for 2021?.

Yeah. So, on Q4 our CAPEX for sure you'll start to see, CAPEX, net CAPEX probably is going to be like between $50 million and $60 million dollars into Q4 because some of the lag, some of the CAPEX that were put on hold will be taken care in Q4.

But if you look at 2021, globally TFI net of disposal in Canadian dollars, we should be running around the 200 million mark. .

Okay, that's great. Listen, I appreciate the time as always. Nice job at the quarter. .

Pleasure. Thank you Jason. .

And your next question comes from the line of Allison Landry with Credit Suisse. Please go ahead. .

Thanks, good morning. Just to talk about -- I'm good, how are you? I was wondering if I could speak to the U.S.

TL segment and specifically what your expectations for contract rate increases might be for 2021? And do you see an opportunity to maybe price a little bit higher than the market given your yield improvement initiatives?.

Yeah, a very good question. So what we're seeing as of now, is that contract pricing is up by about 5%, 6%, 7%, 8% depending on the customer. We all see the spot rate going through to some good levels right now. So we believe that the quality of revenue for our U.S. TL operations for 2021 will definitely improve.

But even more importantly for us, Allison, is always what can we do us to reduce our cost? So one significant thing, that is one of our project for us in 2021, which we've put on hold in 2020 with the COVID, but it's back on track now, it's our TMS. Our guys are doing a fantastic job today with tools of the 80s in terms of IT.

So the discussion that we had with Greg and the rest of the team, there is that guys we need tools of the 21st century, not the 20th century.

So this is why we picked McLouth [ph] as a new TMS and we're doing right now the study phases of all that and we should be in a position according to what the guys are telling me, to start looking at implementation sometimes in 2021. So that's one thing that has got nothing to do with the market.

But it's something that us we could do to have better tools to our management team to do a better job. So it brings better efficiency and the moto of TFI has always been guys we have to do more with less. So yes, I agree with you.

I mean, we have a tailwind in 2021 with the quality of the revenue, rates should start to improve, but and the freight is there, we're always pre-booked. Every morning now we're pre-booked. We're -- six months ago, guys, or a year ago guys we are saying well, we got drivers, we don't have the freight. Now, well the problem is the opposite.

We have more freight than we have drivers. So, it's maybe a nice problem to have but at the same time, as we say to our team guys, we have to work on our cost basis. We have to be the tiger. The tiger is always the last one to survive in the jungle. So low cost always help the company.

So we have to bring and it is the same thing we're a Canadian truckload. We're always working to bring our cost down and improve our efficiency. But 2021 for sure, like you said, tailwind for us in terms of pricing improvement. .

Okay, great. Just maybe in terms of capital allocation, great to see the dividend hike.

Could you speak to how you're thinking about the buyback going forward?.

Yeah, well buyback is for us has always been seen as M&A, right. So it's either you buy something outside of TFI or you buy your own stock. So right now, it's always a balance between, what we -- what is adjusted return. So what can we buy versus buying TFI.

Right now our pipeline is like I said earlier, is for we got lots and lots and lots of opportunities. It's just, which one can we do and which ones got the best return.

So what we've been doing, if you look at the earlier in 2020, when our stock dipped, when the COVID thing hit and our stock dipped we bought back about 1.5 million shares at the time, I think it was Q1 or early into Q2. So we took that opportunity at the time. So okay, fine. Right now our focus is more on M&A.

But it's always a balance, depending on what the stock reaction is going to be I mean, like I said, we've got 1.05 billion in liquidity. So yes, through the DLS transaction that's going to come down to probably a $1.02 billion Canadian.

But this is always the question, what is the best adjusted return, is it buying back TFIs shares or investing in growing the company through M&A, right. So it's a balance.

It's always, my number one job as a CEO at TFI is to control the cash and you control the cash by what's our policy on dividend, 20% to 25% of our free cash flow goes back to our shareholder. That's our policy. That's why we're able to increase it by 12%. And then you got reduction of debt, which we did this year, and then M&A.

So yes, we always invest about $200 million a year on M&A with small deals. And once every three, four years we do something significant. DLS is important, significant, CFI was significant because it was $500 million invested. DLS is important, but it's not $500 million.

So, for us right now TFI, if you want to talk, a significant transaction is $500 million and also DLS is important, but it's not -- the size of the big whale that we always talk about every three or four years. .

Okay, excellent. That was a helpful framework. Thank you. .

It's a pleasure Allison. .

And your next question comes from the line of Scott Group with Wolfe Research. Please go ahead..

Hey, thanks, good morning. So I just wanted to check something on the guidance. So $4, you've done I guess, $3.10 or $3.11 year-to-date.

Should we be expecting a drop off in the fourth quarter as the subsidies go away or is there conservatism here, just help us think about what this means for fourth quarter?.

Well, we are we are very conservative us at TFI. You know our motto -- one of our motto is, under promise and over deliver? So for sure, that's why we're seeing a minimum of $4. Now, you could say, well, if you see a minimum of $4 that means it's a minimum of about $0.90 cents for Q4. Is that because of the subsidies going away.

Subsidies going away, absolutely. Subsidy for us in Q4 is probably like a few million dollars. But our $0.90 if you say minimum of $4 versus $3.10 is $0.90 compared to $1.20 something today. Oh, that means that they believe that this is going to drop like $0.20 to $0.30. Probably not, but we want to be conservative.

Remember, our last guidance was $3.40 to $3.60. And now we're saying $4. So, I mean, we always like to under promise and over deliver. So this is why we say a minimum of. So that could be $4, it could be $4.10, it could be $4.15.

Now we know October, okay, we have an idea of what's going on in October, but we don't know anything about November and December. So this is why we're careful and -- but we have confidence because, if we don't have any confidence in 2021, why would we raise our dividend? I mean, we know our team is solid.

We have a fantastic plan for now and into 2021. But we want to be conservative..

Okay, makes sense. So with DLS, just because it's a large one, maybe just help us a little bit more with just the strategic rationale here. I think it was a 5, running around a 5% margin business where you think you -- and then maybe just the grander plans for LTL in the U.S.

would be helpful?.

Yes, yes, yes, that's a very good question. First of all, when we look at DLS 5% for sure, we believe that we could do better than that. Working with Tom and the team over time, it's not going to happen overnight. But over time, if one in the same kind of business as DLS is, is a 7% bottom line guy.

Well, why are we not 7? So over time, we'll work with Tom and his team to get from 5% to 6%, 6% to 7% and maybe 7% to 8% or whatever. I mean, we don't really like being a 5% bottom line guys, but it is what it is today. Now, what we believe is good is that we know the LTL business in Canada inside out. We know this business really, really well.

We know the market, we know the players, etcetera, etcetera. Now, this DLS acquisition help us understanding better -- will help us understand better the players in the U.S., the market in the U.S., because when we look at the U.S. LTL market for us it's like a gold mine. And the Canadian LTL market is a sand mine.

In Canada you can't improve pricing because there's too much overcapacity. It's a -- that's why our revenue is down every quarter. Market is shrinking and our competition is not adjusting. So they're always chasing volume and trying to survive. The U.S. LTL market is different. I mean, you've got some fantastic company, one of them is running a sub 80 OR.

And then you've got others of the family owned that probably run in the 80 to 90 ORs. You got some public one non-union that run 90 OR and you got guys, the unionized guys, okay, that's a different story.

But not to say that union is bad because if you look at the largest trucking company in the world, they're unionized with the Teamsters and they do a fantastic job. But I'm just saying us we're also -- some of our operation in Canada was unionized and we do very well. We work with the union, no problem at all.

So it's one way, it's like we're going to school. We're just trying to understand the different drivers in this U.S. LTL market, because DLS is about 70% to 75% LTL, and 20% truckload and the rest is freight forwarding. So it's like going to school, we want to understand this market better because we believe that the LTL in the U.S.

between you and me is a much better business than the one in Canada. But hey, too bad that's where we started us, is with the Canadian LTL business and we've been working day and night to improve this. If you look at our results, revenue is down, bottom line is up though.

Even if you exclude the subsidy of $8 million in Q3 I mean, our revenue went down big time, but exclude the subsidy our bottom line is still up $2 million. And we're stuck with all kinds of fixed cars, the trucks, the terminal and all that. So that tells you how efficient we can be or we are..

Thank you..

You are welcome. .

And your next question comes from line of Walter Spracklin with RBC Capital Markets. Please go ahead..

Hey, thanks very much. Good morning Alain. .

Good morning Walter. .

I'd like to focus a little bit on your margins here, because, you brought back a lot of costs and still got the operating leverage, right. I mean, you brought back all your employees, a lot of other companies saw a lot of cost creep come in. But you were able to actually improve your margins as the volume came.

So the operating leverage looks pretty attractive.

I want to ask you, I mean, you gave us good color into the fourth quarter here, but when we go into next year, if we back out the Qs impact looking into next year do you think that your margins for next year can hold in at the level that you did in 2019 and therefore with the acquisitions you've done, can you give us a little bit of an indication as to kind of order of magnitude, the improvement that we could see next year, I don't know if you're prepared to give us directionally some guidance in the next year or not, but that would be very helpful if you have it?.

Yeah, well you see Walter, we can't give guidance for 2021, but what I could tell you is like I said earlier on the call, is that our P&C in 2021, which P&C the subsidy like it was chicken shit. I mean, it was like very insignificant in the sense, yes for ICS and TFIS but Canpar Loomis, there was no subsidy at all.

We believe that in 2021, excluding the subsidy, there's no subsidy for us I think in 2021 for our P&C, we're going to do better.

We going to do better because even with our B2B down a bit, because we're still going to do some catch up of our B2B in 2021, but our B2C is going to keep on growing at a reasonable rate, not going crazy, but a reasonable rate that we could sustain at the same time our bottom line.

Our truck load in the U.S., there was never any subsidy but our Canadian truck load most of our subsidy came to our special TTL. And we're going to -- this will be probably eliminated in 2021 but we believe that we can sustain the margin because some of the market that we've been affected badly are coming back.

And some of the small deals that we've done, like the Keith Hall and others that we've done in Canada, is going to help us beef up this margin. And we have some very, very nice project in Montreal with Contracts Division there. We have some nice project in the Port of Hamilton with TTL.

We have some nice project also with Goreski [ph] and well what's the name of that Gusgo that we just bought a few months ago. So I believe that even 2021, Steve and his team there are going to yield a fantastic 2021 even if you exclude this COVID, the subsidy there. And then if you think about our logistics, there's no subsidy there.

Our logistics will be up big time at the bottom line because of what I just explained and then we're left with the LTL. So the LTL, that's why we were trying to buy this APPS company. But finally we can do it. LTL is an issue because we think that organically the LTL is negative into 2020 and into 2021.

The market is shrinking so we have to do something in M&A to help us support. The subsidy will probably go away sometimes in 2021 and the guys are working hard. We are in discussion right now for something significant in terms of a contract with a carrier that maybe could help our LTL business in Canada. It's still early in the game.

Maybe we'll be in position to announce something sometime before the end of the year, maybe into next year. But the LTL in Canada will have to grow through M&A. If perhaps we can do the deal, we're working on Plan B right now..

It makes sense. And just a quick one on your M&A pipeline in the U.S., any risk that that gets affected by a U.S. election that sees, for example, a higher capital gains tax come in, is there any risk around an election that would affect your U.S.

pipeline at all?.

I don't think so, Walter. I mean, we don't know what's going to happen there in two weeks, but we believe that this U.S. economy is going to stay strong whoever runs the country. I mean, but we're no magician. I mean our goal is that we adapt. So we adapt and we adjust and we work for the future of our children.

Don't forget, TFI is in business number one, to create value for shareholders. That's our goal..

And just one more housekeeping for me, tax rate, you've been guiding us I believe at 25%.

Is it still around that level we should...?.

Yes, yes, yes, Walter, yes. .

Thank you very much. Keep safe. Thank you. .

Okay, thank you Walter. The same to you..

And your next question comes from the line of Tom Wadewitz with UBS. Please go ahead. .

Yes, good morning. Wanted to sneak back a little bit on the U.S. truckload, I think you were asked a little bit earlier about kind of pricing in 2021, it seems like the setup is pretty powerful. The biggest U.S. truckload name said they expect double-digit pricing in 2021.

So, the unusually strong framework, what do you think the OR in your conventional U.S. truckload business can be, I think kind of best in class is 80, high 70, low 80s in a strong cyclical environment. You think, do you potentially get to that in 2021 or is that kind of a multi-year potential for your U.S.

truckload?.

Yeah, very good question. So what we keep on saying is that you cannot be in the truckload business if you don't run a 90 OR and better on average over 10 years. So that means that if you have tailwind like we will probably have in 2021, it's impossible to run a 90 OR. You get to run better than 90.

So if you look at what we've been doing in the last quarter, we're running about in 90 OR right now, 90 to 90 point something, which is for sure the guy will say, well wow. We've been affected with the equipment, the profit and equipment is gone because the market has not been so good. But now, okay, fine.

But for us, in a tailwind situation like we anticipate in 2021, I think there's no excuse to be running a 90 OR. You have to be focusing on something sub 90 OR because on average you are going to have maybe some bad years at a 93 OR so when the good years are coming in you got to be sub 90 OR.

Now, I haven’t seen our plan or budget for 2021 yet so Greg and his team are working on it and we can't really provide guidance for 2021 so far. But what -- I would be really disappointed to see a 90 OR in our plan for 2021..

Right, okay, and then the second question is in logistics, so your logistic margin improved pretty dramatically. Can you just give us a little perspective on what drove that and kind of the forward look that you sustain at that level or how you think about the margin looking forward as well? Thank you..

Yeah, well most of the improvement, so if you look at our improvement, there's about $4 million of bottom line improvement that came from Canada. Canada is small, but the majority of the improvement came from our U.S. operation in the quarter in Q3. And you'll see us improving in the U.S. even more as the time goes by.

What we've done a year ago, if you remember what I said a year ago, I said guys, we're making a change in leadership in the U.S. So, what we're doing is Kohut which is our EVP that was responsible for Canada, now oversees our U.S. operations since last summer 2019 okay, and we've been rebuilding the team.

So the sales team now is under the leadership of Dean. Dean is overseeing our North American last mile operation, both U.S. and Canada. So we just signed -- we just start servicing a $16 million account in the U.S. with some interesting and fair margin. So our U.S. Q3 last mile operation had the majority of the improvement, absolutely.

And you'll see that improving over Q4 and into 2021. Like I said earlier, the top line of our U.S. operation will probably not grow that much because we're still replacing 3% or 4% bottom line guys with better margin, right. That's our goal. We're not in business to practice delivery. We're in business to create shareholder value.

So, a guy that gives me a 2% bottom line I will deal with someone else because for 2% my shareholder will say why would I buy TFI for 2% bottom line. I'm just going to buy shares of a North American bank and I'll get a 3%, 4%, 5% dividend. So stupid, right. So that's our goal and you'll see us in Q4 again.

Now, the average with DLS like we said earlier, DLS is adding a lot of revenue to our logistics at only 5% margin. So globally, it will reduce our percentage but we'll work on that in the months and the quarters to come..

Right. Okay, thank you. .

And your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead..

Hi good morning everyone. .

How are you Jordan. .

Good morning. I had a question for you.

On the LTL, I know you mentioned you'll need organic -- it will be organic growth and you might need some M&A to support, I am assuming you're talking about the top line there, I am just curious because your LTL margin even without the wage subsidy in the third quarter was quite good, so putting the top line aside, do you think you could hold or improve upon the efficiencies to the LTL margins?.

Well, we still have plans to improve the margin, Jordan. But the top line, like I said, without M&A is going to shrink, yes. So dollar wise I think that we could sustain the dollar wise, even with some revenue leakage because of the market.

But for sure, our approach is to do some M&A activities in Canada, to beef up the top line and it will also have an effect. But I'm not saying that without the top line growth, it's not sustainable our margin, no. Our margins are sustainable because we still have some stuff that we could do to keep on improving what we're doing today..

Right, and just a bigger picture question, on M&A, as you guys have gotten larger as a company, I know historically the strategic deals were every three, four years apart. Do you think there's a need to make them what will you need or what you want to have them come more quicker as you've gotten larger.

Is that something that might need to happen?.

You know what, that's a good question, Jordan. This is based on the deep bench that we have. So in Canada, we have a very deep bench, a team that second to none. But the problem we have is it's a small market and we are already really, really big. So our plan has been to beef up our U.S. team because the future is in the U.S.

for us to grow our business significantly. So that's been the focus of ours. So DLS, will add, will beef up our team in terms of market intelligence in the LTL.

So if ever there's a transaction possible in the LTL in the U.S., I don't know, maybe a company that becomes for sale or whatever so now with DLS at least before buying an asset based company, we will have some market intelligence. We have a team. It's the same story with our special TTL in the U.S. So what we've done so far is small acquisition.

We bought 200 truck operation here to another 200 truck there. And now we're up to a little over a 1000 trucks. So if a deal that comes to us, let's say for a 1000 trucks now we could do that easily. And also, our strategy has always been a small step. But I agree with you that the bigger we get, the larger the small steps becomes.

So our focus really has got to be for us small deals in Canada, small nice tuck ins, which we're doing now. And hopefully we can find the right transaction after DLS of size in the U.S., maybe in the special TTL, maybe in the last mile, and we never know maybe in the LTL, we'll see..

Right, thank you. .

You are welcome..

And your next question comes from the line of Mona Nazir with Laurentian Bank. Please go ahead. .

Good morning, everyone and congrats on that fantastic quarter. .

Thank you, Mona. .

So I'm just going to keep it to one question, but when I'm thinking about your tenure at TFI, future performance and the legacy you want to leave, I'm just wondering what is your ultimate guiding principle or metric that is weaved into every decision you make or that mentally you keep reverting back to and has it changed over time, I mean, just even right now?.

Yeah, well you know Mona, our religion [ph] is, like I said, for years and years. We're in business to create shareholder value. This has been number one rule at TFI. And how do we get this done is by focusing on free cash flow. Some of the guys say they talk about EBITDA this, EBITDA that, pop pee [ph]. Us, we say okay, EBITDA fine, we understand that.

But for us is what's the free cash, what's left? Okay, because you can have a $100 million of EBITDA but if you have $98 million of CAPEX to sustain the business, well, there's not much to do. So if you look at our track record of 20 years, that's how we've been able to build TFI is based on the focus of creating shareholder value.

That's never changed because don't forget, I'm an important shareholder of TFI from day one and also how do we get there is through people, team, team, people, and focus on free cash flow and the payback.

So someone comes to me and say, Alain we have to invest $1 million for this customer and the return is going to be one point, well, find somebody else because we're not in the business of one point, two points, three points, that's not us. So that's always been the focus at TFI. Everything is about creating value for our shareholders, yes.

Through servicing customer and focusing on the team. Team, people, the right guy, we build a fantastic team of EVPs, who are doing a great, great job, and we're beefing up the team. This acquisition of DLS is going to add another significant player to our team and we're really proud of that..

Thank you, I'll leave it there..

And your next question comes from the line of Sanjay Ramaswamy with Bank of America. Please go ahead..

Good morning and thanks for taking my question. I will also keep it to one, but maybe just talking about B2C and the shift that we did see in 2Q, I mean, how do we look at the right mix between B2B and B2C maybe over the next couple of quarters and is there specific kind of business, whether it's in the U.S.

or Canada that you prefer here, any other details would be great there?.

Yeah, that's a very good question. So for us, B2B is really what can we do and how much can we do? So our focus always has been to keep growing B2B, but it's tough to do in the market environment because our customers are being, I will use the word attacked by the e-commerce. So we're trying always to protect our B2B and to try to grow the B2B.

But we live in a world in 2021 that e-commerce is growing. So we got to be part of the solution and that's what we're doing. So we're growing.

Now in terms of the mix, is the mix 50:50, is the mix 60:40? I don't know, okay, what's the best mix is? But one thing I could tell you is that we're trying to protect and grow our B2B because that is the coincidence of delivery is always more versus B2C, which is one stop, one parcel normally.

Now we know that e-commerce is growing and B2B is not growing as much. So this is why we came with a solution that really focused on not just growing e-commerce everywhere and anywhere with any race, our focus has been guys, let's grow where we can protect our margin and keep growing the revenue of the company.

And that's -- if you look at our Q3, okay, this is what we've been able to attain. Now, if you ask me about future, probably in two to three to five years we're going to see more of this growth in e-commerce, B2C, then we're going to see in the growth of B2B.

But we are also controlling the growth of our P&C solution, because, we don't want to offer more capacity and come up with a 3% bottom line solution. So our most efficient solution to the e-commerce is our last mile operation. And this is what we've been growing in a very important way in Canada. Not so much in the U.S.

for now, but that's going to be a real focus of ours in 2021 in the U.S. But in the U.S. like I said earlier, we still have some small margin accounts that needs to be adjusted or changed or replaced and that's why we believe that in 2021 our top line in the U.S. is going to improve a bit.

But most importantly, the bottom line will keep on improving a lot. And I don't know if this answers your question a 100%, but our focus is bottom line and how do we get that, right now we know that B2C is part of the solution..

I think that's great color. I did lie, maybe I will ask one more follow-up question, but just in terms of the freight cycle, obviously we're seeing a very, very strong trade market right now in the U.S.

Just potentially could you comment on how you're kind of navigating these driver shortages right now and maybe talk about the wage inflation you're seeing, we're hearing a lot of truckers really struggling to drive this and the rate inflation is quite, quite hefty, so could you just please give some color on that?.

Yes. Well, the problem with the trucking industry is that a year ago, we had tons of drivers and not so much in terms of freight. Now we have tons of freight and it's tough to find the drivers. So for sure we came out with a salary review for our drivers and that I think it took effect just lately because it's a problem.

So it's the same story all over again. So freight is plenty a shortage of drivers. So this is what we're going through right now. It's the same story for us and the rest of the industry. It's always a battle.

You know what we're trying to do in a situation like that, our experience in Canada has always been when there's a shortage of driver, our approach in Canada over the last 15 to 20 years, what I said to my guys, guys, how about if we buy a trucking company with 200 drivers.

So, you buy the company, you keep the good accounts, and you get rid of the bad ones. And also that gives you a little bit better capacity. So that is in our mind, a solution that we may start to think about the U.S. domestic market.

So if I explain myself correctly, is you look at a 200 truck company like we just bought MCT a few months ago, it's about 200 trucks. And I'm looking at the results of MCT and it's very impressive what Greg and the team has done there.

And maybe there's another MCT that we could buy in the next three to six months to beef up our human capital, our driver fleet. And in those small trucking company we have some good accounts, but sometimes because we don't know what the market is, we have some not so good account.

And our approach has always been what you do is you just get rid of the ones that are not good and then it leaves you capacity to service your good account and your existing business. I don't know if I am explaining myself correctly. I don't know if you understand what I'm saying..

Yeah, that makes a lot of sense. [Multiple Speaker] and I appreciate the color..

And your next question comes from the line of Konark Gupta with Scotia Capital. Please go ahead. .

Thanks and good morning, Alain, how are you?.

Good morning. I'm good.

You?.

Perfect, perfect. Great, thanks. I hope you're keeping safe and healthy.

Just a few quick ones from me Alain, on the wage subsidy not sure if I heard you correctly, are you expecting the government to extend the wage subsidy into 2021?.

Well no, what I'm saying is that our wage subsidy for our Q4 is going to be minimal, because our revenue is coming back and slowly. So I was saying that in Q4 our wage subsidy is going to be minimal, just a few million dollars and for 2021 it's probably going to be zero for us..

I see, it makes sense, thank you. And on free cash flow guidance, so the minimum you announced today is $600 million. Obviously, that implies relatively less cash generation in Q4.

I'm curious as to if it's all pertaining to CAPEX and tax payment, perhaps?.

Yeah, well CAPEX is going to be more important for us in Q4. Like I said, net CAPEX is probably going to be like in the 50 million to 55 million, because we have to do some catch up because Q2 was late and even Q3 was late. And then yes, you're right, we got some tax payment.

But like I said, this is a minimum of, it's like on the EPS, it's a minimum of 4. So what is it exactly we don't know, but we see it's a minimum of 4. So could it be maybe it's for 4.5, not 4.5 but lets see 4.05, 4.15, we will see. It is the same thing with the free cash. So it's a minimum of 600. So it could be 650, it could be 675.

It all depends, but at least this is a minimum..

Right, right now, I understand that Alain. And then I think another lot of discussion on package and courier, so just want to kind of dig in a few things there. There was I think a margin contraction in Q3 versus last year despite volumes being almost flattish and pricing being quite positive.

What led to that margin deterioration and then is there any room for margin improvement from where you are today?.

Yeah, there's been -- if you look at our adjusted EBITDA as a percentage of revenue, I mean, there was no real margin issues. But what is affecting us, like I said, is ICS and our TFIS specialty P&C guys, which are mostly B2B. The revenue is still down year-over-year. So ICS is down 5% to 6% and TFIS is down like 15% to 20%.

And this is high quality margin business that we're now. This if you look globally our P&C revenue is up a bit because we replace those B2B revenue lost, because the customers are still not completely reopened except for whatever reason. By B2C with our Canpar Loomis operation.

And if you look at most of the e-commerce business, and you listen to what's going on, guys are always out fresh on the margin. We were able to do it at a kind of similar kind of margin like we used to do with our B2C. So that's what we're saying.

We're saying also that e-commerce in our package and courier business will keep on growing and we're in business to protect our margin. So we've got lots of demand. I mean, we could grow way more than what we're doing now, but we are controlling our growth through our capacity offering to our customers. .

Right, right, now that makes sense, thanks. And last one for me before I turn it over, all the acquisitions you have closed or announced this year, they add up to almost call it $1 billion in revenue.

Maybe you optimize some of those businesses but what kind of margins do these businesses on a cumulative basis generate today and where can they be in a year?.

Yeah, well the biggest one is DLS that we're going to be closing in November. So yeah, DLS is 550 U.S. So if you convert that into Canadian dollars, it's about let’s say $700 million Canadian. And that is a 5% bottom line company today. We believe that 5% is okay, but it's only average. And, we're not in the business of average kind of return.

So we believe that over time this 5% will become 6% and maybe 7% and 8%, it is still very early to say. But we look at peers and we have peers at 7% right now.

So one, we will be talking with Tom our leader there and says, hey Tom, if the peers are at 7%, what can we do to get closer to 6% and then 7% and maybe get better than 7%? But it will take time. It's not going to happen overnight.

Now, the other small ones like Keith Hall, like Gusgo, like the DSN, all those small, the CCC that we bought in the U.S., the MCT those guys are running. Some of them are 92 OR, some of them are 98 OR, and the proof is in the pudding.

If you look at our track record, I mean, over time these guys will get closer to on a special TTL an 85 OR but it takes time. It takes time. Absolutely. So, I mean, we don't give guidance for 2021 because our budget planning is not completely done for 2021. But as soon as possible, we'll give guidance for the way we think 2021 is going to be.

But I could say my first feel about 2021 is we're going to do better than 2020 even without the subsidy..

That's perfect. That's all for me. Thanks so much, Alain..

Thank you..

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

Hey, Alain, good morning. Thanks for taking my question. So just kind of going back to the P&C business for a moment. We're certainly hearing about quite a bit of pricing power from the large U.S. parcel carriers.

I mean, when you when you think about that, especially as we go into 2021 with B2B hopefully recovering back to more normalized levels, there's obviously going to be sustained to B2C demand.

How are you guys thinking about the pricing power in your business there and just sort of normalizing for the subsidies, is it right to maybe think about a real step function change in profitability from a larger perspective in P&C next year?.

Well, you're absolutely right, Jack. For sure, I mean, we're following in the steps of the big guys like the FedEx and UPS. So for sure, the only difference between us and them is that those guys were ahead of the game and us we are following them. So us it will take effect only in November, which is next week. Absolutely.

But I agree with you, B2B is slowly coming back, so that's going to help us in 2021. Now, are we going to be back to the same level as we were pre-COVID on B2B, it's hard to say. Probably not but also our B2C is also improving in terms of demand and the name of the game in transportation has always been density.

You have to build density and the more density you have. So on e-commerce, because one stop is one parcel at 99.9% of the time, what you have to do in order to get the density is to pick the zip code, pick the right zip code.

So I'll give you an example, if you want to do B2C in the small northern town of Ontario, 20 miles North of Sudbury well, you want to have a lot of density there, right.

So our option has been, well, let's pick the right zip code like the GTA, the Greater Toronto Area, the same thing with Vancouver, and same approach with Montreal, etcetera, etcetera. And that is the way to create density in an environment where one stop is one parcel.

So you say one stop is one parcel that's true, but if you deliver into a downtown condo tower in Toronto where there's about 300 apartment, well, maybe one stop is not going to be one parcel there. Maybe one stop is going to be 15 parcel because there's 300 apartments. But a tower with 300 apartment in Sudbury, there's none, right.

So this is why our approach has been Vancouver, Calgary, Montreal, Toronto, Ottawa, those cities where we could do more density per stop even in the e-commerce world..

Okay, that makes a lot of sense, maybe just one quick last one for me.

How are you thinking about your available capacity to be able to grow with the market there in 2021, do you need to maybe add some capacity to the margin within the P&C segment?.

Yes, yes. What we're doing, Jack, is we're increasing our capacity at Loomis Canpar on a monthly basis. But we are not going to be like Canada Post or others in Canada that are just growing out of control.

Us, we are growing in control because we don't want to come up to our shoulders in Q1 or in Q2 next year and say, well guys, we've grown P&C 15%, but the bottom line is down 20%. No, no, no, no, no. We don't want to do that. That's why us we go ahead and we grow top and bottom line accordingly. So that's the focus.

So when I talked to Bryan and his team, guys absolutely. I mean, we got a full pipeline of customers that want to deal with us on the e-commerce, but we got to go step by step. We got to pick and choose the right customer, the right zip code, and where it fits. And we don't want to blow out on the top line and a disaster on the bottom line..

Okay, that makes a lot of sense in my book. Thanks again for the time..

Thank you, Jack..

And your next question comes from the line of David Ross with Stifel. Please go ahead..

Yes, good morning, Alain. Happy Friday. .

Hey, thank you, David. Good morning..

So when you talk about the logistics and last mile division, you specifically as you trade up in customer accounts to get more profitable business, where are those, you call them like three point, four point accounts going.

Are they able to find somebody else to haul it at those low prices or are any of them coming back to you and paying the margin that it takes to run that business?.

It's a mix. It's a mix Dave. You know, they say in transportation there's a sucker born every minute, right. So there's always someone stupid enough to say, oh, I'm going to do it for this kind of money. But, our focus us is that we've got so much capacity growth for our last mile in the U.S.

with e-commerce at good margin why are we going to service this guy like something Payless something. If this guy sells assets for Payless, for sure, he wants to pay less for freight too. Right, so that's my topic-- that's not my cup of tea. So we've got so much demand right now in the U.S. with the E-commerce.

So what I'm saying to challenge these guys, I mean, let's ring this new e-commerce business. As I said, we're just starting to do business with one customer. That's going to be 16 million for us on a yearly basis. And take this guy on, but get rid of those 2%, 3% guy.

Now, some of them are saying, oh, no, no, we can't find another sucker so we'll stay with you guys. What can we do it for? 8% bottom line. So we say, okay, well, we'll live with that. But the guy comes back to us with can we do it for 3.5%, I said, no, no, get out..

And just quickly, on the trucking side of things, given that it's tight, but also rates are up, are you -- do you expect that CFI and TCA to have any organic truck growth next year or is any of the growth in the truckload segment in the U.S.

likely to be M&A?.

That's a tough question. I mean, for sure, the freight is there. The issue that Greg and his team have is the same as everybody else has is people, his driver. So what do you do in a situation like that is like I said to David and the team is that guys, can we find a company, that's got asset which is people, and they don't know what to do with it.

So this is why we bought from this this guy that was under the protection of the court CanPar, we bought it from him, we bought CT from him, and we bought the CCC from him. So we got assets, people, and with that we will be in a position to create value to our shareholders. Because I was saying to Greg the other day so Greg, yes, we're busy, okay.

Yes, we're trying to hire a driver.

But is there a small company in your neighborhood, is there something of size which for us is 200, 300, 400 trucks that we could buy and those guys are not bankrupt but those guys are okay, but we can improve them through cost and through quality of revenue because it's very hard, because every transportation company is looking for a driver.

So -- and it takes time and it costs money. So what we're seeing is guys, how about if we buy a small and that's what I've done for 15, 20 years in Canada, is when the shortage was there, oh let's buy a company and a company, it's not that expensive. If we could strike the right deal. Okay, perfect. So we beefed up the team like that.

So this is -- has been like a little bit under the radar Dave is when we bought those three company from CanPar. Okay, we didn't get a lot of good quality rates from customers because the reason those guys were bankrupt or under the protection of the court, but we got the good asset, which is the people.

And now we're working with customers and market and we are improving. So this is why we're seeing MCT, what the guys have done there is fantastic. I mean, [indiscernible]., CCC, CT is still an ongoing process, but it's going to be the same story.

So it's going to be hard to grow organically through trying to find the drivers, but if we can find the right company, small, that's how we get the drivers..

Makes sense. Thank you..

You are welcome Dave..

And your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Please go ahead..

Hey, good morning, Alain. Thank you for taking the call. Alright, so just a couple of quick ones here. I understand using the U.S. kind of a foothold somewhere in the past to skill to new businesses in the U.S., get some market intelligence as well.

Would you consider bolstering just the overall brokerage platform more so to the TL side, where you are currently focused on -- and we have typically seen a higher level of investment, especially from the technology side and brokerage just overall understand LPO, I would have the same sort of drivers competition behind it, but how do you think of just the level of investment and what type of platform on the asset side that you're looking to do with DLS?.

Well DLS if I listen to Tom and people that are talking to the guys, I mean, we could grow that fast but, our message to Tom and the team there is going to be guys focus number one, yeah we want to grow the top line mostly on LTL, absolutely.

But the most important thing to us, like I said on the call, is that we have to bring this 5% bottom line company closer to 6% and to 7% and maybe to 8%. To us, it's more important to grow the bottom line than to grow just the top line.

But we believe that as an example, when we talk to Tom at DLS, say, hey Tom, do you guys focus on transborder LTL, he said no. Wow, that's a new thing for you guys, that's something that Tom and your team have to focus because the rates, the quality of the revenue on transport or freight between U.S. and Canada and U.S.

and Mexico is even better than the U.S. domestic rates. So, guys, that's a new area of focus of theirs. So that's one area that we think that Tom and his team could immediately start to focus on.

So we believe that DLS will grow the top line over these, for example, we believe that DLS can grow the top line with in -- with our truckload operation in the U.S. We could do probably better with that and absolutely, that's the way to go for us.

I mean, and it gets us market intelligence in the LTL market, which is something that, right now, today, we know the Canadian market really, really well. But the U.S. one, we know it through our partners, but only on the transborder freight.

But when we look at the other LTL company, I mean, some guys are doing a fantastic job in the U.S., a fantastic job. And there's way more consolidation that has been done in the U.S. on the LTL side than in Canada. In Canada, there's still way too many small players, not above making money.

Now, that's a big difference if you compare that with our truckload market, the truckload market in Canada is way more consolidated than the one in the U.S. But the LTL is different. The LTL is the guys, it's a much better market in the U.S. than in Canada.

So this is why for us, when we look at the U.S., it's fantastic in the sense that, oh, this is going to give us the opportunity to really understand what's going on there, what are the drivers, and then, like I said earlier on the call, we've got a billion dollars Canadian to invest.

So we could -- it could be a special TTL, it could be another last mile. It could be maybe one day could be an LTL company in the U.S. We don't know, okay, we're working on something important in all those sectors but we'll see. But at least on the special TTL we've done many small deals that now give us, what the market is all about in the U.S., okay.

On the van side through CFITC, we have a good understanding of the market. Now on the LTL with DLS over time we'll get a great understanding of the market. Fantastic. And then we can start growing because in Canada we're such a huge player that something of size dust off to do for us..

And just in terms of the technology investments there, we typically hear that with brokerages, LPO, maybe not as much as you think you need to do, just from a visibility perspective or anything on the tech investment side as you bring dealers on board?.

Yes, yes, yes, yes, yes, yes. You know, when we talked to Tom Fisher, right now, if I remember correctly, they're using Mercury Gates and SAP. Us, we run Oracle so first step for us is going to move because we have a TSC agreement for a year. So step one is to move those guys from SAP to Oracle.

In TFI we use Oracle and then the next discussion is going to be around Mercury Gates. I mean, is that the right tool for growing this division or do we have to do something else? I don't know. It's too early to say, but absolutely, that's one area that we want to invest, is tools for our people to do a better job like I said for our truckload guys.

We're in the phase, we're looking at McCleod [ph], we're doing the study right now, the first phase and then probably the implementation will take effect in 2021. So we need our people to have the right tools to be even more efficient.

Same story with our LTL, our LTLs were looking at TMW so if you look at our LTL operation of West mostly run on TMW in the East, we have a quick exit now that's run TMW. We're going to be probably moving to TST CF on TMW in 2021. It's all about the tools.

We have a team that is second to none in Canada, but we can always improve the results by giving those guys better tools and that is the goal for us..

Understood. One last quick follow-up on the driver market and then wait for more inclination to buy assets, to get drivers with MCT, NCT, it sounds like it's going pretty well so far.

What's the ability to hang on to the people when they come over and the market is tight and you need to perhaps call some of the freight to bring up the possibility, are you seeing any historical levels of turnover and retention, and does that make you more or less confident to do more of these in the future?.

Yeah, not so much Brian, not so much. I mean, I know it's always been an issue in the U.S. that you buy a company and after a year all the drivers are gone. I mean, our approach is it's been quite, quite good. I mean, if you look -- if you would talk to Greg at MCT, he would tell you that, no, there was no real turn over.

The same thing at CT with Steve and the team there. Not an issue, but we don't come in there and say, well, you guys have to change. This is the recipe and this is the way to go for the future. No, we don't do that.

I mean, the way our approach is, hey guys, let's keep on doing what we're doing and now we're working with the customer just to make sure that the rates are fair, that the rates are market. Also, if you look at the stuff that we bought from CanPar, I mean the trucks were terrible in some of the divisions.

So we're investing in CAPEX, we're buying the equipment so that the guys could be proud of their equipment and their company. So, I mean, we've been very, very successful in Canada, and if you look at what we've done so far in the U.S., it's working well..

Alright, thanks for your time, Alain, appreciate it. .

Pleasure Brian, take care. .

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

Thanks. Good morning. .

Morning, Cameron..

Yes. So just a quick one for me. I guess I wanted just to get your thoughts around M&A in the specialty truckload area in the U.S., you've talked about that. But I'm just wondering if there's any sort of specific sub segments of special TTL that are more attractive.

I mean, I guess your flatbed versus dry bulk versus liquids, is there anything there that is better from an operational point of view or from a competitive landscape point of view that you would like to focus on one of those three?.

Yeah, yeah, that's a very good question, Cameron. So flatbed I mean, CT is a flatbed company, so it's really the first transaction that we do in the flatbed world. So it's probably not going to be something for us important in 2021 in M&A.

But in terms of bulk, OKAY, with the stainless steel, , everything that relates to chemicals or food, that's very important to us. So CCC is like that. When we bought Schilli, when we bought Hallwick [ph]. Absolutely, for us really the tanker world is for us priority number one.

We are the largest player in Canada on the food grade stuff, hauling whatever wine, juice, sugar, etcetera, etcetera. So we believe that for us in the special TTL food grade, chemicals on the bulkside liquid and dry not so much the cement. Cement is okay in some areas of North America, but it's really the focus of ours. Flatbed, yes we did CT.

It was a good opportunity and we'll keep going on looking at that but really our focus on the specialty is more in the tanker world. .

Does that include petroleum products?.

No, petroleum is not for us..

No, you don't do much of that in Canada anyway.

And specialty truck was…?.

No, very, very small. I mean, this came to us. It's a small operation, we have in Montreal, about 15 trucks. On the petroleum it is mostly for the ships. When they dock in Montreal they need energy so yeah. It is for the ship, it's a specialty petroleum business that we have that is very small, but absolutely not.

I mean, if a company was up for sale, let's say with I don't know $300 million of revenue, all in petroleum products no, not for us. We'll leave it to the other guys.

Honesty is more food, chemicals, yes, we're in?.

Okay, makes sense. Thanks very much. .

Thank you, Cameron..

And your next question comes from the line of Kevin Chiang with CIBC. Please go ahead..

Thanks for getting me in here, Alain. I know it's been a long call. Maybe just a follow up on the DLS acquisition. And you mentioned you have a lot of cross-border partnerships.

I think one of them with TSG CS, just wondering, as you think of DLS longer term would you look to eventually in-house all your cross-border LTL, I guess your cross broader LTL network and eventually these partnerships?.

No. .

No, okay. .

I mean, well, what we're saying to DLS is that the transborder business is huge. And you guys you're doing a good job on the domestic side. Hey, how about if you start looking at the transborder business, which is something that those guys never really looked at. But no, we're really proud of our partnership with Zaya [ph] right now.

And for sure, we would never do something like that. I mean, this would be very unprofessional on our part. So, no, no, the relationship we have with Zaya is we want to protect that and we want to grow it. But it's got nothing to do with the DLS. As a matter of fact, between you and me, Kevin, DLS deals with Zaya in the U.S. on the domestic side..

Yeah, perfect I will get you, me, and everybody else on the call. Thank you for the clarification and congrats on the good quarter..

Thank you Kevin. .

And your next question comes from the line of Manuel Crossy [ph]. Please go ahead..

Hey, good morning Alain. .

Good morning Manuel, and congrats for the results and glad to see that Cal’s efforts are paying up on U.S. Last Mile. So, Alain looking at Last Mile, a great network in the U.S.

There's been a lot of investment if we think that Shopify -- just wondering whether you see some opportunity to partner with some warehousing fulfillment companies as you don't want to go through real estate.

So I'm just wondering if you see some opportunities to partner up with some guys eventually?.

Well, that's a good question Manuel. But so far, I mean, no. But we're having a lot of discussion. This is like the drone thing there. I mean, are you guys thinking about that? Yes, we are.

It's the same thing with this partnering with someone that's got the coverage, because like you said, I mean, we're not in the real estate business and we don't want to be in the real estate business, industrial real estate at all. So yes, but right now, we have so much demand without going through that, okay, that right now Cal's team in the U.S.

are really focused on just answering the demand that we're getting. It's unbelievable. But we got to do it step by step, one step at a time. And, you know, we're getting on board for $60 million, like I said earlier, right now. It's fine, but $16 million in the U.S. is big, but it's not that big.

So we're testing also with another customer in California right now or very soon. And this could be just for California, another $15 million cap. So huge potential for us in the U.S. But, a year ago, transmission in the U.S. was guys, we cannot build if the foundation are not solid. Okay, so step one, let's make sure that our foundation in the U.S.

is solid, which now we can say yes. Get rid of all those 2% guys. Step number two, let's build a sales team that is North American. It's done with the OKAY, fine.

And then let's start growing organically with the e-commerce solution that we have, which is fantastic, lean and mean solution that today we're growing big time in Canada, but not so much in the U.S. because we are replacing those 2% guys with better quality revenue. So we've got our hands full right now, Manuel. .

Okay, okay, that's great color. And the other question I had was around the TL market, we are all aware about the positive market condition. Obviously, the biggest question is around the duration of the cycle. But when we look at that Class A order, yes, the pickup over the last three months, but we are still well below the historical average.

I'm looking also at the implementation of the driver's license, drug and alcohol clearing up that remove almost 30,000 drivers. You also asked for ELB implementation that will be mandatory in June 2021.

[Multiple Speaker] so do you see some long term tailwind or structural changes that might make this positive cycle may be longer than usual Alain?.

I think so. And also the leadership in the truckload world in the U.S., like the good companies, like Knight and Heartland and Warner and all those good companies in the U.S., they have a great influence now about, hey, guys, this is how we can sustain this growth. And we're in business to serve customers, yes.

But we're in business to make money as well. So I think that market the macro is changing to the advantage of the trucking company right now. Okay, fine.

How long this is going to last? Maybe, like you said, longer than ever before because of the clearing out, because also it takes a lot of capital now to -- okay, interest rates are low, but still, I mean, it's not as easy to buy a truck like it was like 10 years ago maybe.

And also customers are getting pressure to be more, I would say, professional in the sense that you can't give a load to a non-professional driver anymore. It looks bad. So I think that you're right. Now, we are -- things are changing, slowly changing to be more professional, make us a little bit more money.

But we are in business to create value for our shareholders, but we have to do it in a safe manner. We have to be safe on the road with drivers that are safe as an industry. So this is why I agree with you probably a little bit more stronger tailwinds than we've ever seen before. .

That's great color. Alain, thanks very much for the time. .

Pleasure Manuel. .

And there are no further questions at this time, I will turn the call back over to Alain for closing remarks..

Okay, well thank you very much, operator for facilitating our Q&A session. I also want to thank everyone for spending time with us this morning. You can rest assured that everyone at TFI International will continue working hard for our shareholders, creating and unlocking value and returning excess capital whenever possible.

I hope everyone stays safe, and I look forward to providing you -- to providing another update on our next call. In the meantime, please don't hesitate to reach out if you have any questions. Have a great day and a wonderful weekend. And thank you again. .

This concludes today's conference call, you may now disconnect..