TFI International Inc (TFII) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the TransForce, Inc. fourth quarter 2009 results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions.) As a reminder, this conference is being recorded today, Thursday, February 25th, 2010.

I would now like to turn the conference over to Mr. John Lute. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us today to discuss the results for TransForce, Inc. for the fourth quarter and full year of 2009. A news release detailing the results for the period ended December 31st, 2009 was issued by Canada NewsWire earlier this morning.

Alain Bedard, the Chairman, President and CEO of TransForce, will discuss the highlights and review the Company's financial performance. Following his comments, we will open the lines for questions from analysts.

Analysts and portfolio managers are welcome to ask questions over the phone, and the operator will be providing those instructions, as you just heard. We ask that you please ask only one question at a time, followed by one follow-up question if necessary, and then go back into the queue with any subsequent questions. This will allow for all participants to get their questions answered in a timely manner.

Business media and shareholders are welcome to listen to this call. And media are free to use management's comments and responses to questions in any coverage. However, we would ask that they do not quote callers unless that individual has granted their consent.

If any media want to ask follow-up questions, please contact me after this call, and my number is 416-929-5883. It's also in the earnings release. And shareholder questions should be directed to Alain Bedard.

A recording of this call will be available until midnight on March the 4th and that recording can be accessed by using the dial-in and reservation numbers listed on the earnings release.

Before Alain begins, I need to read this statement. The following discussion will include a review of developments that affected TransForce's performance during the fourth quarter and 12 months ended December 31st, 2009 and may include forward-looking statements and estimates. Such comments will be affected by and involve known and unknown risks and uncertainties which may cause the actual results of the Company to be materially different from those expressed or implied.

Now, I will turn the call to Alain Bedard, the Chairman, President and Chief Executive Officer of TransForce. Alain?

Well, thank you, John, and good morning, everyone.

As you all know, 2009 presented a very challenging operating environment. That is putting it mildly. Last year was probably the worst that anyone in the industry can remember. Although we take pride in our efforts to build a diversity of the operation at TransForce by industry segment, by geography and by client, there was simply no refuge in this system-wide economic downturn. Virtually every industry and every geographic area was hit and hit pretty hard.

As our customers' business shrank, so did our revenue. We made some efforts to generate new revenues but, really, there was little if anything we could do about revenue in this environment.

So, we continued to focus our efforts on ourselves and what we needed to do to ensure the long term for TransForce and its shareholders. We acknowledged that we were unlikely to sustain revenue growth in an overwhelmingly weak economy, but we could control our costs and adjust ourselves to the level of the demand. We challenged ourselves to reduce our fixed costs and administrative expenses. And through the creativity and determination of our employees at all levels of our organization, we achieved meaningful savings.

As a result of our commitment to decrease costs and improve productivity, we were able to maintain our operating margin, despite much lower revenue. EBITDA as a percentage of revenue stayed virtually unchanged at 12.3% of revenue for the year.

I know it's normal practice to thank employees during quarterly conference calls, but I really have to emphasize what a tremendous job our people have done this year. As the saying goes, when the going gets going, the tough get going. And our people did. They have truly performed above and beyond in order to maintain the strength and integrity of TransForce. I will go through the details of the effort they made in a moment.

While controlling costs was certainly a priority in 2009, we also continued to pursue our strategy of growth through acquisition, within the limits of the current economic environment. So, in the fourth quarter of this year we completed the acquisition of the Retail Solutions Division of ATS Andlauer Transportation Services. This division generates about CAD 100 million -- CAD 120 million in annual revenue and is a strong strategic fit with our existing Canpar and ICS business.

We also showed our continuing commitment to reduce our debt. At the beginning of the year we set ourselves an ambitious target of reducing debt by CAD 100 million. We reached this target by year-end, bringing debt down as a percentage of our total cap to 57% as of December 31st, versus 61% at the end of '08. This gives TransForce increased financial flexibility and we believe it adds value to our shareholders in the range of about CAD 1 in the enterprise value of the Company.

Now, let's have a look at our results from the fourth quarter of this year, then I will look at the year overall.

TransForce generated total revenue of CAD 488 million during the quarter, down just 10% from CAD 554 million in the fourth quarter of 2008. Revenue, excluding fuel surcharge, decreased 6.8% to CAD 452 million.

Looking at each of our four segments, our LTL combined revenue of CAD 131 million in the fourth quarter was down from CAD 155 million in 2008. This represents 26% of our total revenue in the quarter.

Our Package and Courier segment, which contributed 19% of total revenue, was CAD 93.9 million compared to CAD 74.5 million in the same period last year. The acquisition of ATS added CAD 23 million in the revenue.

Revenue from the Specialized Services segment was CAD 111 million, or 22% of total revenue, compared with CAD 141 million last year.

Finally, our Truckload, our largest segment, contributed 33% of our revenue at CAD 164 million. This compares with CAD 195 the same period last year.

As we have in previous quarters, we decreased expenses in the fourth quarter. We reduced operating expense and fixed costs, as well as our G&A expenses, 9.1% to CAD 427 million from -- yes, from CAD 470 million for the same period last year.

EBITDA in the fourth quarter was CAD 60 million, a decrease of 18%, compared with CAD 73.8 million in the same period of 2008. As a percentage of revenue, EBITDA slightly decreased to 12.3% compared to 13.6% in the fourth quarter of 2008.

As a result of our commitment to reduce our debt, as well as lower interest rates, interest expenses decreased to CAD 7.8 million from CAD 11.3 million for the same period last year.

At December 31st, 2009, the Company recognized a goodwill impairment of CAD 45 million or CAD 0.47 a share in the oilfield services group of the Specialized Services segment. As you know, a writedown of goodwill is a non-cash charge on the consolidated statements of income and has no effect on TransForce's cash flow or EBITDA.

TransForce generated an income before income taxes a nonrecurring charge of CAD 21 million in the 41, compared with CAD 18 million in 2008.

The net loss for the quarter was CAD 27.2 million, or CAD 0.29 a share, compared with a net income last year of CAD 14.8 million, or CAD 0.17 a share. However, before the nonrecurring charge, we delivered an income of CAD 17.8 million, which equals CAD 0.19 a share.

Cash flow from operations before net changes in non-cash operating working capital was CAD 50.7 million, up from CAD 48 million last year.

Despite the difficult business conditions, TransForce met its commitment to shareholders and paid a dividend of CAD 0.10 per share during the quarter.

Now, let's look at the full year. Frankly, let me tell you, it's not a year that I would want to go through again. But I'm still proud of what we've built and how we achieved the year.

Revenue dropped significantly. We cut our costs to keep our EBITDA margin very close to the previous level and we paid down debt while paying out the promises dividend to our shareholders.

For 2009, TransForce generated revenue of CAD 1.8 billion, down 18%, versus CAD 2.3 billion in 2008.

Revenue, excluding fuel surcharges, decreased 13% to CAD 1.7 billion versus CAD 2 billion a year ago. The decrease was the result of lower volume, both in numbers of shipments and tons shipped during the year, as well as competitive pressure on pricing.

LDL contributed 28% of our total revenue, or CAD 524 million, compared with CAD 646 million in 2008. Revenue from our Package and Courier segment was CAD 294 million, or 15% of revenue, versus CAD 296 million the year before.

Our Specialized Services generated revenue of CAD 438.1 million compared with CAD 541.7 million in 2008, representing 23% of total company revenue. The oilfield and oil sand service division was hit very hard by the decline in drilling that followed the lower energy price. On the other hand, our waste management business continued to be strong throughout the year.

Our Truckload segment contributed to 34% of total revenue at CAD 639 million, compared with CAD 839 million for the same period last year. So we dropped CAD 200 million in our Truckload division. Lower demand.

EBITDA for the year, CAD 226 million compared with CAD 280 million in the same period last year. As a percentage of revenue, however, EBITDA was virtually unchanged at 12.3%.

Let me emphasize that, for the year, we reduced operating expenses by more than CAD 320 million, or 20%, from 2008. We cut fixed costs and general and administrative expenses by more than CAD 33 million, or 10%. Combined, we drove down costs by more than CAD 353 million last year.

As a result of reducing debt by approximately CAD 100 million during the year, we decreased our interest expense to CAD 35 million versus CAD 46 million in 2008. Long-term debt stands at CAD 708 million at December 31st, 2009.

Net income for the full fiscal year was CAD 10.9 million or CAD 0.12 per share, compared with CAD 79.7 million or CAD 0.92 a share in 2008. That includes the nonrecurring charges taken in the fourth quarter.

Now, before this nonrecurring charge, net income was CAD 55.9 million or CAD 0.62 per share for 2009 compared with CAD 79.7 million or CAD 0.92 a year earlier.

Cash flow from operations before net changes in noncash operating working cap was CAD 191 million, down from CAD 218 million in the same period last year.

And as I noted, TransForce paid CAD 0.40 dividend during the year per share.

We have shown what we can do to get our costs down and inline with revenue. We are doing everything we can to reduce costs, preserve margins and ensure that TransForce is very well positioned for the economic recovery.

We are now strongly leveraged to an increase in revenue. Our costs will not need to rise inline with revenue when the increase -- which means more can flow to the bottom line.

We do believe that revenues will increase with an economic recovery. That recovery, while (inaudible) in some measures, is likely to be slow and being felt in all sectors. We expect the operating environment in 2010 to show only slight improvement over 2009. As a matter of fact, our plan is really -- we don't see too much growth in the revenue. We see expenses being, again, improved so that we could get a better bottom line for 2010.

We will continue to exercise discipline in spending, while seeking opportunities to increase revenues. TransForce has a long history of strong performance and we are dedicated to managing within the current environment and executing our long-term strategy for growth.

And again, along with other shareholders, I want to thank our people for their outstanding work in very difficult circumstances in 2009 and today.

Now, I would like to take your questions so, operator?

Thank you. (Operator Instructions.) Our first question is from the line of Walter Spracklin with RBC Capital Markets. Please proceed with your question.

Thanks very much. Good morning, Alain.

Yes, good morning, Walter.

Just wanted to make sure -- sort of you guided us at some pretty good breakdown of what your outlook for 2010 last quarter. I think you talked a little bit about EBITDA in the CAD 250 million range for 2010.

Right. Yes.

Cash flow of around CAD 100 million, CapEx of CAD 50 million. Is that still your forecast for 2010?

Yes. Yes.

So, not changes there.

No changes there, no.

Okay. You have a -- your revolving term loan coming due October, 2010, I guess.

Right.

I think you have about -- just under CAD 400 million on that. What is your thoughts there? Is that just something you're going to refinance? And what's your expectations in terms of cost to refinance it?

Yes. Very good question. So, if you remember, Walter, we have right now a CAD 400 million that's due in October. And we have roughly another CAD 160 million that is due in '13. Initially, the plan was to move everything, that CAD 400 million, and match it with the other CAD 160 million in '13. So, that was the original plan.

Right now, the discussion we're having with our banks and with all kinds of investors is we will probably do a global deal. So, the CAD 160 million was due only in '13, but we will definitely package a complete deal of let's say CAD 600 million, Okay? And everything is going to be renewed in Q2 of ['09].

Now, the discussion we're having is, right now our spread, okay, on the four-year is 150 and on the long term is 185. And today, if you look at the -- after discussing with the investors, depending on if you're a double-B or whatever you are, you could look at 325, 350. So, let's say 350. Okay? So, if we take 350 versus the 150 we have today, it's 200 points or 2%. Okay?

Okay.

So, we--.

--You've forecasted--. Yes, go ahead. Go ahead.

So, that's a significant increase on the rate, okay? So, if you take CAD 600 million and add 2% to that, you can do the calculation, right?

Sure. So, we should be factoring in around a 200 basis point increase in cost of debt financing.

Yes.

Okay.

Yes. Yes. Now again, like we said for 2009, it's our plan to reduce our debt by more than CAD 100 million this year, in '10. Okay?

Yes.

So, that's another thing. Now, I don't know if you had a chance to read our MD&A, but in there we have a -- as a subsequent event, okay, we put a small note there that we just sold -- we'll be closing in a week a sale and leaseback in Calgary. Okay? So, that's a deal. It's done. The closing is next week or the week after.

So, that's why you see in the MD&A a note on the subsequent event. And that will bring about CAD 32 million and that will be used to reduce our debt. And the cap rate that's been used there is just a little under 8% for a 10-year deal. It's a global -- 25 years on that property.

Okay.

No, this is Calgary. We're looking at two other properties that we believe will bring another CAD 50 million in order to reduce our debt. So, take CAD 30 million plus CAD 50 million. So, we'll bringing our debt down at least CAD 100 million with our cash flow of the Company and probably CAD 80 million -- CAD 30 million is done, CAD 50 million to do in 2010, with Vancouver being one of the properties we're still looking at, and Montreal we're looking at one, or Toronto. One of the two.

Alright. So that CAD 32 million and CAD 50 million is in addition to the CAD 100 million that you're going to generate in cash flow--.

--Right. Yes.

Okay. Alright. Okay. That's great.

Alright. The next question here was on the -- Mullen reported their results today as well. And in their release, they're talking a lot about the over-capacity problem, particularly in their area. They're saying pricing is just -- is getting worse, very, very irrational. They're saying they're walking away formulary business.

Can you talk -- obviously, this is -- can you talk about your regions and where that is the case, where it's very, very bad? And then discuss, perhaps, if there are regions where it's not quite as bad and what segments that would help you over that.

Yes. You see, Walter, we have to segregate our business in two. What we do for the oil sand sector is doing very good. As a matter of fact, we just won a major contract with [Keryl], the SO project there.

So, on the oil sand sector, we're doing great. I mean, in 2009 we had a little drop there because they slowed down the activity because of oil prices. Now, oil's back CAD 70, CAD 80. So in that sector, where we have about CAD 60 million, CAD 65 million, CAD 80 million of revenue, we're doing very, very good and we'll do better starting in the summer with the Keryl project, with the Suncor, because Suncor is one of our major accounts. Whereas, our competition is really attached with Syncrude and Shell, we are with SO and Suncor and Petro-Canada now. So, that area, no problem. We're doing good. We'll do even better.

The big issue is natural gas. That is a disaster. That's a disaster because the price of natural gas is hovering now around CAD 5. Yes, there's a little bit more activity in the drilling, because there are some depletion, but the prices are so low, we're discounting 20%, 25%, 30%. So, think of -- how can you make money when you discount 20%, 25%, 30%?

Absolutely.

I mean, don't forget us, we're number three. The leader is not me. And I'm number three behind Mullen and Flint. So me--.

So, if we could just--.

--The small guy that's got to adjust itself to the market.

So, how does that make you think about your strategy in that segment as the number three player in a segment that is just getting killed on the pricing side. Strategically, how does that -- what's your thoughts on that segment?

You see, Walter, we have to ride the storm--.

--(Inaudible). Okay.

Yes. We have to ride the storm. I mean, there's not much we can do. I mean, we're not the leader. So really, we're trying. We can't really influence the number one and number two guy. And that's one thing. Plus, you've got all kinds of small guys that are buying equipment cheap and paying lower wages that are competing against me and against Murray and against the guys at Flint. So, it's -- Alberta is really a mess. It's a mess.

So, what we've done this year is we shut down Red Deer, okay? So, that's one of our cost operations that was shut down this year. So, let's say we save CAD 0.5 million by doing that. And then we're still looking at what we could do. We're looking at -- we're present in Edson, but should we serve Edson out of Edmonton or should we keep a presence there? So, so far, we're still saying, hey, no. We have to be in Edson. So, it's really -- we have to ride the storm, okay?

Now, one thing where it's helping me a little bit in that sector is that we have a small operation in the US where we operate in two states. And that's doing much better than Alberta. Okay? It's still not the golden years, but we could do more over there because, for instance, there's another state that we're looking at right now where they have lots of shale gas. And in that state, there's no history of gas drilling. So, there's nobody there that has been used to service this (inaudible). That's new. Okay?

So, this is what we're discussing with some of our customers about opening up over there. So, there could be some potential for us in terms of growing on the US side. But on the Canadian side, a disaster.

Okay.

And my Q4 in that sector, I'm down CAD 7 million quarter-over-quarter. Think about it; CAD 7 million. It's a disaster.

Yes. Okay. Just a last question here. Integration process with ATS. How's that going? I guess is Mike behaving himself and things are going--?

--Oh, yes. No, no. Mike is a fantastic guy. We could learn a lot from this guy and he's going to be helping us. And ATS, I mean, they had a very good year in 2009. They had a rough start on the volume side in 2010, but I mean, it's a very good management team that we have there. And we have one guy that works with them, [Brian Court] that's been with me for a long time. And for sure, we will make some improvement. But we have a fantastic team there and the fit between Canpar and those guys and ICS, I mean, it's -- we're building a very, very strong sector over there and it's not over.

Okay. That's all my questions. Thanks for the call, Alain.

Thank you.

Thank you. Our next question is from the line of David Newman with National Bank Financial. Please proceed with your question.

Good morning, Alain.

Hey, good morning, David.

How are you?

I'm not too bad. How about you?

You're surviving, right?

Well, at least the Canadian team, they were good with the Russian last night, right?

Yes, they did very well. Very well.

Lots to celebrate with that.

That's right.

Right?

Just in terms of your margins, the EBITDA margins slipped a little bit in the quarter. Was there anything going on there? It slid down to the 12 zone. And the last couple quarters before you were a little higher than that level. What do you kind of expect in 2010 on the margin side? And what else can you do -- I mean, obviously, you took a lot of costs out in 2009. Is there any other equipment and facility rationalization that you can do? Is there other things that you can do? I know you named a couple that you're doing out West. Is there any other things that you can do?

Absolutely.

Materially?

Yes, absolutely. So, to answer your question, in Q4 we had two major issues. One was the energy, like I said to Walter previously. Our revenue was down about 40%, 50% in the quarter and my profit was down CAD 7 million. So, that really affected me. And my LTL also in Q4 -- I mean, we just got killed out West with the revenue going down, the yields going down, the volume going down, the margins -- everything was off track in Western Canada in my LTL. So, that explains a little bit about the Q4 drop versus the year before.

Okay.

Because the year before, my LTL out West was doing very good. And the energy was not great, but was okay. This year it's a disaster. And even my LTL out West was not performing well. Okay?

Okay.

So, we made a lot of changes over there, out West. We had the guy that used to run Byers, okay, so that guy's gone. Don't forget that there was a guy that was running CF Managing Movement for 30 years, so he was let go in the summer of 2009. So, we made a lot of changes over there because I'm not very happy with what we've accomplished in 2009 over there in our LTL. And the same thing with our energy.

Now, people are -- they understand the issue. Everybody is falling in the right direction and we have good people there. It's just that we had a few issues with certain individuals and we made the correction.

Okay.

Now, for 2010, what we see us is really a little bit of volume improvement. We see some of that in our parcel division, but very, very slow. So really, 2010 for me is flat on the revenues. So, let's say we did 1.8 or 1.7 after fuel, taking out the fuel, so we're going to be in the same league with the acquisition of ATS. So, let's say you could have CAD 100 million. So, that's where we're going to be on the revenue side. That's our thought today.

Now, on the cost side, yes, there are still a lot of things that we could do. As a matter of fact, we are making some changes within Canpar. We have a new VP of Operations there that's taken over, Mr. MacLeod, that was there for 30 years is going to return in May. So, a new broom sweeps clean. So, we're making some changes there, improvement. The same thing with ATS, which is a very good company, but we identified a few items that we could improve.

So, in my LTL in the East, we're going through major phases of consolidation. To give you an example, Sherbrook was done about two weeks ago. Where we used to have three terminals there now we're down to one. We're looking right now at Three Rivers. We're looking at London and Ontario. We're looking at Ottawa. We're looking at Kingston. We're looking -- we just opened up a new terminal in Red Deer in our LTL. We're looking at opening up a terminal in Lloyd Minister.

So, it's really a new strategy where we have to shut down some of our operations, but there are also some opportunities of opening up areas where we were not there. So, for instance, we're looking at Sunbury right now. We're looking at North Bay, where we're not really present.

So, a lot of these things now -- because over the last I would say year and a half, I'm involved big time with our operational guys and trying to be in a position -- when this market gets better, yes, really we'll be very, very strong.

If you go back to 2004, 5 and 6, we did good. We did good, but we could have done better. Now, this storm--.

--Can you just (inaudible) a bit because now this has given you a bit of a pause to allow you to--.

--Exactly. (Inaudible), for sure--.

--Industry and kind of say, okay, where -- now you've had some time to actually look at your--.

--Yes--.

--Footprint and actually--.

--Sure--.

-Rationalize to maybe--.

--Absolutely--.

--The next run.

Absolutely. Absolutely.

Okay. And then the next question is just on the -- your outlook seems a little more muted than -- we're seeing ATA Truck tonnage and cash freight index and all these other indicators all pointing a little stronger. Is there areas that, in LTL and TL where you're seeing some strength at all? I know southbound's kind of horrendous. But is there -- are you seeing anything at all in the volume side? And I'm sure pricing's a little further out, right?

Yes, yes. It's too early to say that. Maybe in the US, I mean, those guys are ahead of us. Okay?

Okay.

Maybe--.

--Why is that?

I don't really know why would these guys be ahead of us. I mean, because our economy is much better than theirs. We don't have as much debt or the consumer is not. So maybe because here in Canada we're more conservative and we're more prudent. I don't really know. But for us to say, David, that we're -- our volume is getting better, no. Okay? What might feelings are is that probably in three and four we will do better versus last year in terms of volume.

Okay.

But I don't see that at all in one. Two, I don't think it's going to get any better, okay? So, it's probably going to be flat versus last year. And maybe we'll have a better momentum in three and four.

Okay. Okay. So, flattish in the first half, really.

Oh, yes. And in my mind we'll do better at the bottom line, there's no doubt about that.

Okay. And you--.

--Okay? But I'm looking--.

--Kept CapEx somewhat reined in -- my last question -- CapEx somewhat reined in. What's your forecast for CapEx for this year?

About the same. We'll do about net of all disposal, between CAD 50 million and CAD 60 million. And most of our CapEx will be done in areas where our business we see more potential.

Now, let me give you one example. If you look at ICS, for instance, last year we converted 34 runs into [owner-op].

Into, sorry?

We converted 34 runs, employee runs, the trucks--.

--Yes--.

Into owner-op.

Okay.

So, we got 34 trucks back because our employees, they don't buy -- the ones that are converted from employees to owner-op. They buy their own trucks.

Right.

Sometimes they buy mine, but most of the time they go outside. So, that's a CapEx that I don't have to do. So, this year we'll be converting at ICS, I don't know exactly the number so far, but probably between 10 and 15, maybe 20. Now, these conversions are all done in small towns. Let's say take for example Pembroke.

Yes.

Okay, small town. Five guys. It's very difficult to supervise five guys because you cannot really afford management there in a small terminal like that. So, these are really the areas that we're focusing and making changes from employees to owner-op.

Now, take a city like [Charro]. Charro, let's say we have within Canpar 100 drivers, or ICS 75, I mean, we could manage those guys there because of the technology, because of the size. And because we can afford good management because we got big business, right?

Right.

But in Sunbury, that's a different story. Or in Val-d'Or, Quebec. That's a different story. So that changes--.

(Inaudible) smaller towns and owner-ops.

Yes.

And what about on the LTL side? Is there -- are you consolidating the terminals in the LTL side as well for the smaller towns?

Yes. What we're doing in the LTL really in the smaller towns is really the consolidation and then -- that's step one. Step two may be something different, but that's going to take us some time.

Okay. Very good.

Yes.

Alright. Well, thanks, Alain.

A pleasure, David.

Thank you. Our next question is from the line of Nima Billou with Bloom Investment Counsel. Please proceed with your question.

Good morning, Alain.

Hey, good morning, Nima.

I just wanted to talk with respect to the acquisition on the Retail Solutions side. You'd said that a bit of a rough start with respect to volumes. But was one of the things that attracted you to that division the ability for a big cyclical rebound, or are you finding opportunities to substantially improve operations as well?

Well, when we look at ATS, I mean, this is a very good company with lots of strength. Now, their gross margin is very good because their model, their operating model is great. I mean, it's mostly an owner-operator type of company. So, on the gross margin, this compares favorably with Canpar, and it's not as good as ICS, but it's a very good gross margin. Okay?

Yes.

So really, it's between the gross margin and the EBITDA. So, it's the SG&A, it's the network, it's the fixed costs.

Okay. Well, that certainly would--.

--We could make it better. Don't forget that ATS is like ICS. ATS was a public company. So Mike, he had to have a management team of a public company and he never had really a chance from public -- being public until the end of 2008 to the time I bought the Company. There was no changes really made. He didn't have the time, right?

So us, now from a public -- ex-public ATS company, we'll adjust ourselves to now a part of a TransForce company.

Do you also--.

--Like we did with ICS.

Yes. Do you also see any opportunity for a rebound in those volumes, or are you undertaking initiatives to grow the business or at least stop the decline in volumes, or is that just a matter of the economy coming back?

I think there is a cyclical issue. I mean, if you go back to ATS, those guys are very strong and they do a hell of a job in the entertainment business. Now, I mean, we look at January, January was a disaster for them in that sector because there was nothing.

Yes.

But those guys are great. I mean, the person that leads that division on the revenue side is Mike's wife. She's fantastic. She's done a fantastic job there over the years. And when I listen to what the guys are saying, it's that, hey, don't get excited because I mean it's just cyclical. I mean, we're down in January; yes, we're slow in February, but it's going to come back.

Okay. And what types of volume declines were you seeing in the fourth quarter in the LTL and Truckload? And I know everyone keeps asking the same question different ways, but when do you kind of see -- what sort of a -- you've already given a bit of an outlook and guidance in terms of top line, but what's sort of a recovery or when could you see that coming back? Just wanted to get a sense of how bad it was in the fourth quarter.

Well, if you take the LDL, it's really -- we see the East and the West very differently.

Okay.

The West is really terrible. I mean, down 15%, 20% out West.

Wow.

Okay? So -- and this is Edmonton and North, because of all the disaster in the energy industry that is where we're getting killed.

And it's mostly gas related--.

--Not in Calgary. Like, Calgary is like Toronto and Montreal. It's down, but in a more manageable way.

Okay.

Okay?

Yes.

So, that's the LTL. Now, our Truckload is really -- it's ongoing. It's ongoing. Again, yesterday another one, White Birch applied for bankruptcy protection. Another one. So, we had IBCB, we have Smurfit, we have Tembec, now it's White Birch.

Yes.

So, that is a dead sector. And that affects Quebec.

Is that the same--.

--And the automotives -- hey?

Is it the same sort of 10%, 15% declines there?

Oh, yes. Oh, yes.

Okay.

And Ontario, it's the automotive that's killing us. Automotive is dead. I mean, we are manufacturing cars and trucks in Ontario. We're at, what, 60% of where we were two years ago? And we hope to go back to 75%, but we'll never get back to the level we were in 2006 or 5, whatever, right?

Yes.

It's not coming back to what we saw, let's say, three or four years ago. So, I said it in our Truckload sector. It's a permanent thing. LTL, I don't think it's permanent. I think it's going to come back.

Yes. One is cyclical, one is structural.

Right. Absolutely. Yes. Parcel, you see -- I mean, parcel, like ICS, we were flat over the year. Canpar we were down. Why? Because we have lots of retail within Canpar and retail was down.

Yes. Do you see any opportunities in Truckload still to acquire, or are you going to just focus on--?

No, no, no. Truckload, I mean, we're very, very careful about that because the trucking industry, in my mind, still don't understand that this is a permanent impairment, a permanent change. I mean, it's not coming back.

But in our industry, it's like we're rosy. We always believe that it's going to come back. But to me, Truckload, it's not going to come back to the level--. Now, there's more of a match between the offer and the demand. We are starting to see shippers now getting nervous, asking for a two or three years' commitment. And this is why down the road, is it in three months? Is it in six months? I don't know. But nobody's buying trucks, right?

Yes.

Look at class A sales of trucks. Nobody's buying trucks. So, trucks every day get older. And nobody's buying new trucks for the last 18 months so there's less trucks on the road. So now, offer is getting very close to the demand. And the day that we have more of a demand -- and it's going to come, even in the structural depression like we went through. So, let's say in 2006 the demand was 100, today with all the permanent impairment we're down to 75, okay? Fine. But we have trucks for 82. But in six months we'll be matching the 75.

Okay.

So then, pricing will start to firm up in the Truckload.

Great. Thanks very much, Alain.

Very good. Pleasure.

Thank you. Our next question is from the line of Jason Granger with BMO Capital Markets. Please proceed with your question.

Thanks. Good morning, Alain.

Hey, good morning, Jason.

The free cash flow that you're looking -- or expecting to generate for 2010, so another solid year on the free cash flow front. CAD 100 million plus and potentially another CAD 80 million or thereabouts on the proceeds from the sale/leaseback. So, CAD 180 million in cash available to you. Looking at acquisition opportunities out there, what could you tell us about your thoughts on that for 2010?

2010, Jason, it's going to be a small year on the acquisition side. About the same as what we'd done in 2009. So, if you go back to 2009, we spent what, about, CAD 50 million -- no, more than that, CAD 75 million on acquisitions.

Okay.

I'm just giving rough figures. So, we'll be in that neighborhood, between CAD 50 million and CAD 75 million, no more than that.

And would -- should we expect to see those acquisitions in the parcel, the LTL areas or where would you go looking to do those deals?

Don't forget that waste management is a sector that's today -- when you look at all my divisions, my most profitable division today within TransForce is waste.

Okay.

So, you may see an acquisition in that sector. Okay?

Okay.

Parcel, if you look at my EBITDA margin, because waste you don't see my EBITDA margin because it's mixed up with my energy sector, which is the ship.

Yes.

But if you look at my parcel, you see that this is my best family. ATS is in there. The acquisition of ATS is in there. And that's another sector that we definitely would like to grow.

Okay.

LTL for sure. Nothing big, but maybe a small carrier in Ontario, maybe a small carrier in Alberta. That's what we're looking at right now. Truckload, no, not really anything significant in that sector.

Okay. Now, ATS being added into the Parcel-Courier segment there, so margins there have been EBITDA in the range of 18%, 19%. How should ATS affect margins there in 2010?

Well, on the EBITDA side, it's going to bring that down because the EBITDA margin of ATS has never been at 18%.

Yes.

Those guys, EBITDA margin's always been floating around 10% to 12%. But don't forget, they have no depreciation. Right?

Yes.

So, they're like an ICS in terms of not having too much depreciation. So, that's going to bring my margin down on the EBITDA side. But on the EBIT side, okay, they are doing a little bit better than Canpar so far today, but not as good as ICS. So overall, it's going to be a very positive contribution. And like I said earlier, the gross margin of ATS is quite good. But their model of operation is very good. And I mean with the owner-operator, the purchase line and all of that. Mike has done a fantastic job with his team of building that company.

Now, on the fixed cost side, well, there are things that we could do there and we're working with them to get it better. Like we did with ICS.

Yes. Yes. Okay. You've talked about the structural, semi-permanent or permanent decline in Truckload demand cross-boarder with the weakness in the cross-border traffic, the manufacturing shutdowns.

Yes.

Going forward here strategically, how do you look to reshape your business to address that? Should we expect you to be ramping up further in the Parcel, the Courier business? Is airfreight something that you'd look at?

You mean -- when you say airfreight, it is companies like Cargojet, no. Not really. I mean, we'll definitely -- you'll see us growth within the next two or three years definitely on the LTL where we are a significant player. Okay? You'll see us grow there. And our margin is not good, but it's going to get much better.

And you'll see us grow in the parcel because -- when you look at the industry, you have to be -- if you're in the parcel, you have to be in the parcel, you have to be in the LTL and you have to be in the Truckload.

Yes.

So, look at the nice, good, very good companies in the US. Look at UPS. He's in the parcel, now he's in the LTL. He's not doing great in the LTL, but he will do great as soon as some issues are fixed. The same thing with FedEx. If you look at another great company in the US, Conway. Conway is not in the parcel, but they are in the Truckload, as well as in the LTL. So, these are three families that really, down the road, you have to be in.

Now, the chance we have at TransForce is that we've built the company around that. So, we're very strong in Truckload, very strong in LTL. We could be stronger in the Parcel, and you will see us getting stronger in the Parcel within the next 12 to 18 months, okay? And so, these are the areas.

Now, on the waste management side, like I said, definitely it's a very good division of ours and it's going to get even better. As you know, we have a landfill in Ontario close by Ottawa, so that's a very good asset. But we have no activity around that. See, most of our activity is in Quebec so that's something where we could get better there.

On the energy side, like I said earlier, I mean, we're there. We're number three. We're like the tail of the dog. I mean, we're just -- and the two big guys, we're just following those guys and we're just riding the storm. I'm very unhappy with that sector.

Yes.

The prices are terrible, but what can we do?

Yes.

And volume down big time.

Yes. Okay. A last question here on pricing. This has been talked about some on the conference call here, but just to look for a recap. On the LTL and Truckload pricing, could you just comment on how things were trending through Q4 and how things have been trending since the start of the year here in Q1? Do you--?

Well, okay. So, LTL -- like I told you, Jason, is we have to segregate the country into--.

--Yes. Yes. Western Canada getting hammered.

Yes. Yes, yes. Western Canada is a disaster. Our yields are down. I mean, the pricing is terrible, like I said.

Could you give us a sense of what the pricing is down? The base price in Western Canada?

In the last quarter our pricing was down 10%, 20%. And our volume was down the same. So, we really got hammered big time over there. In the East--.

--Okay. Is that

Oh, I'm sorry?

I was going to ask you -- so is the West showing signs of stability now having hit those levels in LTL?

Not yet. Not yet. Not yet. I'm looking at the month of January and February so far. And on the pricing side, okay, we are doing some things now to improve that. On the cost side, yes, we do. On the volume side, nothing significant so far.

Okay. Okay.

And I think that '10 is not going to be a better year than '09.

On the East, though, we see like a good TSD Overland. I mean, this is a fantastic company. Those guys are gaining some momentum on the volume. So, those guys are doing good. Our small, select company that we have, which is a regional LTL, is doing very good. Kingsway, the volume's still down a bit.

But the East, I see that by probably the end of 2010 we'll be less in a destroying mode volume-wise versus what we see out West.

Okay. Truckload pricing--.

--Pricing in the East--.

--Is that fairly stable?

It's fairly stable. I mean, we're trying to go for an increase. It's not easy because it's still a low freight demand. But we're talking to our customers. We're trying to convince them that, hey, guys, I mean, it's gotta be done. So, we're not there yet, but we don't see the East as bad. The West is really terrible for us right now.

Yes. That's the problem area. Okay.

And you look back in the good years we had there in '04, '05, '06, '07 and '08, it was fantastic. Then boom, '09 happened.

Yes. Okay.

And been bad since then.

Okay. And then on Truckload on the pricing front, what are you seeing there? Are things stabilizing there? No further deterioration? Sort of flat for the last little while?

Yes. Well, you saw in Q4 our drop in volume has moderated a bit. Okay?

Yes.

So--.

--Happy to see that.

Yes. So, that is starting -- I think we -- on the volume. On the demand side, we're starting to get to the bottom of it.

Yes. Okay.

Pricing, I don't see any improvement until probably the fall when we get to three and four. Why? Because we need, again, less trucks on the road because offer is not matching the demand yet. But I think that within the next two or three quarters it's going to be there. And we -- like I said earlier, we're starting to see some shippers, smart shippers. They say, oh, maybe the wind will start to change now. So, let's try to convince the trucker to give me a three-year deal. Okay?

Yes.

Well, if you're smart--.

--(inaudible) time. Yes.

If you're a smart shipper, you going to ask for that. If you're a smart trucker, what are you going to do? You're gonna say no. For sure you're not going to say yes.

Yes.

Right?

Okay. Absolutely. Okay. Well, that's very helpful, Alain. I appreciate the color. Thanks.

Okay. Pleasure.

Thank you. Our next question is from the line of Youssef Abboud with Clarus Securities. Please proceed with your question.

Hello, Alain.

Hey, Youssef. Good morning.

Good morning. I just wanted to come -- I want to address a little bit the cost issue. If I look quarter-on-quarter, Q4 and Q3 -- and I understand the seasonality here. Your revenue in most segments went up. However, your EBITDA margin went down.

Yes.

So, your costs definitely here are going up. And I know you did a lot to address the cost issue in 2009. We've seen the impact in the first nine months.

Yes.

However, this missed again in Q4. So, what's going on on the cost issue here? And yes, maybe partly because now you're taking more measures because of the energy service. Is there any other issues? And--.

--Well, like I said--.

--My second question is, are you trying to gain more business by cutting your prices--.

--No--

--At the expense a little bit on your--.

--No--.

--Margins because of the (inaudible)--.

--No, no, no, no. No, no. We're -- I know this happens in the US. Conway did that. FedEx Freight did that. And that is not the way we are running our business. We are not doing that at all.

Now, to go back to your first question, really, our costs went down in Q4, like it did in Q3. But where we missed the boat is in two major sectors. It is LTL and energy. Our costs went down in energy, but our yield, our prices went down 20% to 25% to 30%. Okay? Because of stupid pricing over there. And us, we're the number three guy so we have to follow the leadership of the other major players. Okay? So, that's one.

And LTL, again, the West, we saw our yield drop like there's no tomorrow over there on the pricing in Q4. Now, we made a few mistakes there so this is what -- to give you, like I said earlier, the guy that used to run Byers, he's not with us no more. Okay? So, we made a change there because there was a lack of leadership there. But on the cost side, we are getting better and better and better every week, every month, every quarter.

So, to go back to your question, the other thing also that -- if you go back to two and three, our overhead was going down CAD 15 million every quarter. Now, you see in Q4 it was down only CAD 10 million. You say, oh, oh, it's going up. He's not cutting as much as he did in two and three. But you have to take into consideration that we added ATS in there. Okay? And we need some adjustment, like I said earlier. So, it's going to take us some time. But we are doing everything we can to be more efficient everywhere.

Right. So, Q4 are really not indicative -- we should see better margin improvement going into the first half, Q1, going onwards, right?

Oh, yes. Year-over-year you'll see -- take the example of the month of January. My revenue is down in January versus last year, but my profit is up.

Okay. Okay. That's good. And then, just to recap, ATS you're expecting CAD 100 million in revenue for this year, right?

Well, we think that ATS is going to be between CAD 100 million and CAD 120 million. I mean, that's what they used to do, CAD 120 million. Those guys are good. The salesforce there is being rebuilt. I mean, under Mike. He was doing that when we bought the Company and we're still focusing on building a stronger salesforce over there to grow the business. Because these guys have a fantastic model, a good product and we could do better in terms of volume there. And that's what we're working on with the management team that we have there. And also, the support of Mike, which the guy has built a fantastic company.

Right. And my last question, Alain, is regarding the leverage. You're going to raise CAD 80 million from the sale and leaseback. And this likely is going to reduce -- you're going to reduce the debt. So, in order for -- which is part of the global deal that you mentioned about--.

--Yes.

Now, you have a free cash flow of CAD 100 million as well. Does it make sense for you also to use this part of the free cash flow to reduce more your debt, especially since you're spreads are going up now?

Well, that's the reason we're doing it because, like I said earlier, my spread's going to go up by let's say 200 points. So, that's going to cost me a fortune, okay?

Yes. Yes.

So, I can't really afford that. So, this is why a cap rate of 8, it's probably not a golden deal, but it's much better than borrowing our debt and this and that. So--.

--Right, but--.

--I mean, that's the goal--.

--(Inaudible) amount of CAD 50 million to CAD 75 million. So--.

--Well, that's the other thing. If we want to do that, the CAD 75 million of acquisition, then -- I mean we need that CAD 100 million of debt reduction, plus probably another CAD 75 million to CAD 80 million. Because I don't want to do -- there's no equity issue at TransForce; none whatsoever.

Now, I had to do it for ATS, okay, and I don't want to do it no more. So, this is why I'm securing myself with this sales and leaseback thing in order to able to do like a 70 -- CAD 50 million to CAD 75 million of acquisition, because that is what I'd done last year. But I had to issue 50 -- not 50, but CAD 48 million of equity at a very cheap CAD 5.85. So, that was good for the guy that bought the stock, but me, I couldn't even buy stock myself and I was diluted with that. So, it's not going to happen anymore.

Right. Yes. Okay. Thank you very much.

Pleasure.

Thank you. There are no further questions at this time. Mr. Bedard, Mr. Lute, I will turn the conference back over to you.

Thank you, operator. Since there are no more questions, I'd like to thank everyone for participating in this conference call. For any of you who joined while the call was in progress, a recording will be available until midnight, March the 4th by calling 1-888-555-5253 or, in Toronto, 416-626-4100, and entering pass code 21456986. Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.

Thank you.