TFI International Inc (TFII) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce 2012 first quarter 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. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions).

Before turning the meeting over to Management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, April 27, 2012.

I will now turn the conference over to Alain Bedard, Chairman, President and CEO. Please go ahead.

Well, thank you, operator, and good morning, everyone. The news release detailing our (technical difficulty).

Ladies and gentlemen, please stand by. The conference will resume momentarily.

Ladies and gentlemen, Alain Bedard has rejoined the conference.

Sorry. Sorry, everybody. So, thank you again, operator, and good morning, everyone.

So, the news release detailing our results for the first quarter ended March 31, 2012 was issued yesterday by Canada Newswire. We hope that you had a chance to review it.

The first quarter of 2012 was solid for TransForce. While the economy remained hesitant, we continued to improve operating efficiency and asset utilization. We generated first quarter total revenue of CAD788 million and a strong increase in our key EBIT metric, which nearly doubled from last year.

The results achieved reflect our determination to meet and surpass our operating objectives, while continuing to provide the highest level of quality and service. This determination has made TransForce a key player in all segments and has helped shareholder value.

I will briefly review our first quarter financial results.

The total revenue of CAD780 million represents a 40% year-over-year increase. The increase came almost completely from the companies acquired in 2011 and from Quik X, which we acquired in January of last year -- this year, I mean.

With respect to existing operations, we saw solid revenue increase in the Company's Specialized operations, including services to the energy sector.

First quarter EBIT grew by 95% to CAD47.4 million, representing 6% of total revenue, up from 4.3% of total revenue in 2011. Both our acquisition and our existing operation evenly contributed to the increase in EBIT.

The Company's ongoing efficiency enhancement and optimization of assets strengthened our margins. Adjusted net income for Q1 rose by 166% to CAD24.7 million, or CAD0.25 a share fully diluted, up from CAD9.3 million or CAD0.09 per share fully diluted last year. Adjusted net income excludes the after-tax effect of changes in the fair value of derivatives and of net foreign exchange gain or loss.

Net income for the quarter reached CAD30 million, or CAD0.31 a share fully diluted, up from CAD14.9 million or CAD0.15 a share full diluted in the first quarter of 2011.

Free cash flow, consisting of net cash from operating activity less addition to property and equipment, was CAD38.3 million or CAD0.40 a share. We used this cash flow, as well as loan and borrowing, to invest CAD62.7 million in acquisitions during the quarter.

I will now look at first quarter results for each segment.

In Package and Courier, revenue, excluding fuel surcharge, was CAD258 million, a 90% increase over last year. This increase mainly resulted from our acquisition of Dynamex and Loomis. Revenue from existing operations was stable as volume and pricing remained largely unchanged.

EBIT for the Package and Courier segment rose 50% to CAD13.9 million, but the margin was only 4.8% compared to 6.2% earlier -- last year. This reduction was due to a negative EBIT margin at Loomis.

In the LTL segment, results improved with revenue, excluding fuel surcharge, reaching CAD138 million, up 31% from last year. The LTL division of Quik X contributed CAD31.3 million to revenue, while revenue from existing operations increased a small 1%.

LTL remains a difficult segment due to industry overcapacity. However, our EBIT has seen an upward trend as result of aggressive effort to reduce capacity and optimize asset utilization. EBIT for the LTL segment was CAD6 million compared to last year a loss of CAD2.4 million. The margin -- the EBIT margin stood at 3.6%.

In Truckload, our revenue, excluding fuel surcharges, decreased 4% to CAD128 million. While price remained stable, volume was down. Lower volume -- lower customer demand, particularly in the second half of the quarter, affected the Company Truckload division. However, continuous effort to reduce costs and better asset utilization significantly improved profitability. EBIT increased 66% to CAD8.4 million, while the EBIT margin raised 5.6%, up from 3.3% last year

In service to the energy sector, we saw continued strong growth during the quarter, both in revenue and profitability. Revenue increased 54% to CAD120 million, a result of stronger demand from the US oil and gas industry, and a CAD30 million contribution from IE Miller, acquired in November of last year.

EBIT more than doubled to CAD14.9 million due to improved efficiencies and the contribution of Miller. The EBIT margin in this segment was 12.4% in the first quarter of 2012, up from 8.7% last year.

In other services, revenue from a waste management, logistics and ancillary transportation services increased 11% during the quarter, with the majority of the increase coming from the logistics segment.

Looking ahead, we expect the general economy to improve only marginally in 2012. As always, the main priority of TransForce I like to focus -- or to future improve, efficiency and asset utilization. We will achieve these objectives by remaining true to our operating principle by maximizing synergies across our network and by continuing to -- our evolution to an asset-like business model.

Finally, TransForce is dedicated to offering winning solutions to its customer by investing in initiatives that leverage the knowhow of its people and the use of its technology. This commitment and a methodical execution of our growth strategy will remain the central elements of our value creation for our shareholders.

I will be pleased now to answer any questions you may have. Operator?

(Operator Instructions). Your first question comes from the line of Ben Vendittelli with Laurentian Bank Securities. Your line is now open.

Thank you. Good morning, Alain.

Hey, good morning, Ben.

Just on the Loomis side, can you give us a bit more color? I mean, I was sort of expecting it to start progressing towards breakeven early in the year. Can you give us a sense of what the progress is and when you anticipate that will be achieved?

Yes. You see, on the Loomis file, okay, what we're trying to do is this year, 2012, we -- our priority is to move the Loomis IT system into our own, which is our Simon system. So, on that aspect we're progressing very well. And this is the priority for us in 2012, really because we can't start doing anything on the operation until we speak the same language. Okay? So, the Loomis software will be abandoned probably sometime late in this year. We're moving the system as we speak, so we should be moving from the old Canpar facility into our new [Desco Road] facility by June. And after, we're working on moving the Loomis operation onto the same platform.

So basically, in this year, 2012, you won't see a lot of improvement in our operation. It's really the back office, the process and all of that that we're improving. We think, and we're still convinced, that Loomis will cut the red ink by the end of this year. What I'm saying is that the total results for 2012 Loomis should not be in the red, so should not be in the loss position; a very small profit. Because to bring Loomis to the level of profitability that we see in other of our division, we need to make a lot of changes in the way Loomis operates today.

So, that cannot be done until we work on the same platform and we have the same information. So, this is why we're working on that as we speak. Then, we can start making the most needed improvement into the operation of that company, that was not really focused on results in the past.

Okay. And when do you anticipate the transition into TransForce's IT system to be complete?

Well, we -- you see, we have to train about 2,000 employees. So, we have to roll it out region by region, terminal by terminal. So, the expense we have with that is -- let's say we start sometime in the fall, it's going to take us probably six months. So, we'll have some of that done probably in '12, but to be finally completed I think that we're going to end up the end of Q1 of 2013.

Now, as soon as -- let's say we started with Ontario, so as soon as Ontario is done on the IT, let's say we -- this is done as priority number one in the sequence, we could start on the operation after the IT is done for that province. You understand that?

Yes.

We don't have to wait until Q1 of next year to start working on the improvement because now we have the platform, the same platform, let's say, for Ontario. And then we move to the Maritimes or out West or to Quebec.

Okay. That makes sense. And in terms of some of the reduced volumes, how much of that is the actual softness in the market and how much is it that TransForce is being more selective in its bidding process to maintain margins?

Well, you see, in the Truckload is really -- it's all about volume in the Truckload. You see a small drop. So, the pricing in Truckload was not the greatest, but it didn't deteriorate. The same thing in the LTL, okay? It's not the best environment, but at least the pricing remains quite stable.

Package and Courier. I mean, if you exclude the acquisition in Q1, I mean, we were flat but we have a lot of good stuff in the pipeline that -- talking to my guys at Dynamex and the guys at Loomis and Canpar. So, we should start seeing some small growth there. Pricewise, the pricing there is okay. And in the -- the only area where we're really growing is still the energy sector in the US and, to a certain degree, in Canada. And the pricing environment there is okay; it's fine. And with Matrec, I mean our landfill in Ontario is starting to grow in terms of volume, so we should see some improvement in Q2.

So, all in all, the environment for let's say Truckload and LTL is favorable. Package, our volumes should grow a bit and the environment is good, but we'll do much better we keep on improving Dynamex and Loomis.

And then on the other sector, one thing I didn't really mention, so our Specialized Services in the energy sector will be on the same platform. That's another thing that we're doing right now, is we're moving everybody, I mean the ex-IE Miller into our platform endeavor. Our Canadian operation to our IT platform endeavor. That should be completed by the end of this year, 2012. So, there's another savings and synergy that's going to help us improve our numbers in that sector.

Okay. And just lastly, how much of an impact did the favorable weather have on margins in the quarter?

Not a lot. I mean, maybe CAD1 million because where we're saving is really on the facility where the heat is. We're not like the real guys that can save a fortune because there's no snow, there's no avalanche or that -- they don't have these problems. Us, it's no big deal. There's some small saving, our trucks. But don't forget, even if it's warm, it was a warm winter, we still have to use winter fuel because we never know, okay, if today is let's say plus 5, it's unusual. But we use -- we still use winter fuel because it should be minus 20 and maybe tomorrow is going to be minus 20. You know?

Yes. Perfect. Thank you very much.

Pleasure, Ben.

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

Yes, good morning.

Good morning, Cameron.

A few questions on the energy space. You closed the small acquisition, the Peak USA assets.

Right.

Is there -- are there other opportunities like that where it wouldn't be a large operation, but maybe specific terminals or assets of other players out there that you're looking at?

There could be, Cameron. There could be. But really, you see, right now -- we did that because this was an opportunity that we couldn't say no. Our focus is really on the energy sector now with Marc Fox and his team there, either in the South or in Canada or in the Rockies area is really to improve our global operation. Because don't forget, Miller, we bought it. It was very well run company. But Speedy, that's a company that we bought about 18 months ago, but that was -- at the time that we bought it, it was a bankrupt company.

So, I mean, we still have lots to do to improve. So, our focus for 2012 on the energy sector is that, you know, guys? We said yes to Peak because this was a -- is such a fantastic deal for us. But right now, the focus is really to make this thing much better than what it is today, move the IT platform like I was explaining earlier, and then maybe by the end of the year we'll look at something else. Maybe more in terms of diversification than into growing into -- more into the rig moving. Because don't forget, you'll see; TransForce or its subsidiary is now the largest rig mover in North America. Could you believe that?

Yes.

I mean, we're already today the largest rig mover. So, are we going to grow more into the rig moving? Probably not, except it's a hell of good (inaudible). Probably what's going to happen is that we're going to start growing more into other sectors of the business, but in the US; not in Canada.

And what other sectors would be priorities for you? What would be the best fit with the existing operations?

Well, what makes a lot of sense for us is really when it relates to water hauling, you know? Because we have the experience. We have some tanks that are right now being used in Canada for our chemical, etc., etc. We have the knowledge. We could -- we have the knowledge because of our waste operation of treating this kind of water. So, that -- water hauling is probably the next step for us, but we'll see. Servicing the well with a roustabout, it also makes a lot of sense because we have tons of locations in the right area, so there could be some synergies if we buy a company that is servicing the wells through the roustabout operation. So, there's a few things that we could do. But, this is nothing before late in the year.

Right. Okay. And just a question on the -- I'll stay with the energy space, so just a question sort of on the demand profile. I mean, we've got what seems to be strong activity in the oil side, but maybe not so much on the natural gas. What's your split of the business, particularly in the US? How is your exposure there?

Well, that's where we're pretty big on liquid. Because on the dry side, it's affected -- natural gas affected a little bit our Pennsylvania operation because there it's mostly dry well. And it affected also our Wyoming Rock Spring operation as we speak because there is also what you would call a dry well with natural gas. But, where we're really biggest is in Texas, Oklahoma and in the Bakken and around Denver area where it's all liquid.

Right. Okay.

So, it's -- I didn't check that, Cameron, but I would say we're probably today 80/20; 80/20 dry.

Okay, perfect. Alright, that's all I had. Thanks very much.

Okay, Cameron. Good day.

Your next question comes from the line of Benoit Poirier from Desjardins Securities. Your line is now open.

Good morning, Alain. This is Benoit Poirier from Desjardins. How are you?

Very good. And you, Benoit?

Yes, pretty good. Just to go on the LTL business, Quik X was contributing for about CAD31 million in the quarter.

Yes.

The acquisition was completed on January 5th. I was wondering if you still target CAD200 million in revenues and if there was some seasonality in the LTL business in this Q1?

No, because when we say Quik X is CAD200 million, okay, but that includes the Truckload and Logistics division. The LTL division was about CAD140 million or CAD130 million, something like that.

Okay. Okay.

Okay?

Very good.

So, there's a split there. So, I know that the Logistics was about CAD15 million and the Truckload was about some -- I don't remember the number. So, Quik X is not CAD200 million of LTL.

Okay. Excellent. And if we look at your margin for Specialized Services, they were down sequentially from 14.9% to almost 11.5%. Is there -- could you maybe provide more color about the seasonality and what kind of target you would like to see for this year?

See, when you operate the landfill, your worst season is really the winter in terms of volume. Okay?

Okay.

So, that's what you see there, it's because -- I don't have the information with me, but normally in the winter you don't see -- you drop in terms of your tonnes at your landfill. So, that is one effect. The other thing is that let's say now we're booming at the -- at our landfill because everybody's doing their -- like their spring cleanup, okay?

Okay. And is it reasonable to expect this division to post still a 14% kind of EBIT margin this year?

Sure. I mean, don't forget that in there I've got one division that does not contribute a lot, which is my HR kind of division, where my EBIT is roughly 1% or 2%. That's a business that I acquired about four or five years ago when there was some kind of a shortage of people in trucking. And since that, because of recession and all the mess that we had from 2009 up to now, I mean, this is why I'm not making a lot of money.

So, this affects, too, my average margin there. But, if you exclude that, plus the fact that I've been growing there for -- you see the growth from CAD72 million last year to CAD80 million, most of that growth comes from my logistics division. So there, in your logistics division, your EBIT margin cannot be double-digits. So, your EBIT margin, if you're good, is going to be an 8% or a 9% because you're the middleman. So, that's why you see that I had some kind of a drop in my margin this year versus last year. But, you'll see some correction, if you want to call it that, when you get to Q2.

Okay. And given the commodity price, did you see some pressure from --.

Yes.

The recycling?

Yes. Yes, yes, yes, yes.

Okay.

See, right now our recycling plant, they operate at about -- I would say about breakeven, okay? Whereas last year, with the commodity price on newsprint and cardboard, I mean, we were making money. This year we don't make any money. But there again, if China gets back on its track, I mean, the commodity prices will start to go up and this affects us, yes.

Okay. And could you maybe, if we (inaudible) the waste management business, give some color on the Moose Creek expansion? Give an update on that?

Yes, it's going very well. I mean, we're still on track to do about between 450,000 tonnes to maybe 500,000 tonnes there versus our quota or volume capacity at 750,000. So, we're tracking this year from let's say 300,000 to 450,000. So, we're on the right track there. As you know, we bought a transfer station in Belleville. We're working very hard on that. That's going to help us bring more volume to our landfill. No, I mean Lafleche is doing very well.

Okay. And maybe just a last quick question. If we talk about terminal consolidation, was there any consolidation in the quarter?

No, none in Q1, but we'll have more in the rest of the year for sure.

Okay.

Just a few. If you look at a total number, if you exclude the acquisition of Quik X, we're down a few, but that's not enough. I mean, the target is that TransForce -- with the operation we have today, we have to reduce by 50 terminals.

Okay. So --.

But, that's not going to happen tomorrow. I mean, that's going to take us two, three years. But for sure, we have to downsize about 50 terminals.

Okay. So, and -- so if I understand, you said it would be done in about 24 months, so probably the largest portion will come in 2013.

Well, you'll see some every quarter; and you'll see some every quarter. But, the big thing is going to happen in our parcel and this is going to start happening sometime in 2013. Right now we're working more on the LTL side, so you'll see some on the LTL side. You'll see a little bit on the parcel side. Within Dynamex we're working to downsize the number of square footage that we have in this operation, because Dynamex is a same day, so we shouldn't have those big warehouses which we have today. Okay? But, to really make those leases and those commitments takes time.

Okay. So, congratulations and thanks for the time.

Okay. Thank you, Benoit.

Your next question comes from the line of David Newman from Cormark Securities. Your line is now open.

Good morning, Alain.

Good morning, David.

How are you?

I'm very good. You?

Good; very good. I just have a question back to the P&C side. I think we all understand where Loomis stands but, in terms of attribution in the quarter, I'm sort of calculating that it was around anywhere from CAD2.5 million to CAD4 million loss at Loomis.

Yes.

And if that's the case, it looks like Dynamex is actually starting to do a lot better. So, I guess my question is more is that correct and how --?

It is. It is correct. You're absolutely right. I mean, Dynamex, we had targeted to reduce our SG&A there under the 20% mark and those guys are on the right track. They are on the right track there. The only problem is we had to -- a little bit of price concession in the US, which didn't make any sense, so our guys there -- in late Q4 of last year. So, we're correcting that as we speak. Our number one account, we were a little bit misled into some kinds of new business so we're correcting that. The guy in charge of our sales there, Jason Bergman, a smart guy. He's working with this customer. We have another one that needs to be corrected. So, whatever we gained on the overhead we lost half of that on the gross margin in the US.

Okay.

But, we're on the right track. I mean, we just gained a new large account that could be about CAD10 million in the US. It's going to be about 200 owner-operator in -- they have 11 sites, these guys. So, a good business. It's in the nuclear medicine.

Okay.

Yes.

And where is that? Is that in California?

Well, they have 11 sites all across the US.

Okay.

Okay? So, we're taking over as we speak. We just signed a letter of intent. We're signing the contract probably this week or next week. So, it's on the go. But, just to say that Dynamex, I agree with you that they are getting much better.

Okay. Okay. And then you've talked about, I think, in the past California and Florida as being potential opportunities to kind of scale up. So, you've done sort of the first phase, get the SG&A down, get your costs down. Are you comfortable enough now that you can sort of start [densifying] the business overall in these markets and tackle the healthcare?

Well, you see, I had a chat with [Maynard] and his team just lately and this is the direction that we want to go. And for sure, I mean, after Q2, like I just explained, we have to make a little -- some correction there on a few accounts. We have to bring our gross margin into the 30% mark. We sell a bit there. And as soon as this is done and the overhead we keep on working on it, I mean, no doubt that we'll grow that business in the US. Because don't forget, in the same-day market we're the largest player and we're only 300 and some million in the US, so --.

Right.

A lot of potential there.

Okay. And then, on the LTL side, same thing. I mean, you saw good margin improvement in the quarter overall. I mean, the Quik X, this obviously looks like it's a tiny drag if not breakeven. How -- the synergies, IT, terminal and I think --.

Right.

Benoit was asking about that a bit as well. How do you -- where do you go from here, I guess, on the LTL side?

Well, it's still the same. I mean, it's more the same, David, is we have to -- see, we're working right now on moving everybody, like we're doing with the Package and Courier. We're moving everybody on the same IT platform. So, this is the same drive. We're consolidating back office, reducing the network, working with the customer to be more efficient. It's a -- we did much better in the quarter. With an EBIT margin of 3%, I mean, it doesn't make any sense.

Yes.

So, we've got to keep on improving that. Yes, my guys are telling me, Alain, it's much better than last year. We improved 6% or 5%. We were down minus 2% and now we're up 3%. Right. But --.

Keep on going.

We have to be around 8%.

Right.

Okay? So, we still have a long way to go.

Okay. And then the last one for me. I think in last quarter you had guidance of EBITDA of CAD375 million, CAD400 million, your CapEx around CAD60 million, CAD70 million and the free cash flow around CAD225 million, CAD240 million. Still feel comfortable with all those -- all those numbers?

Oh, yes, absolutely. I think that if the economy stays the same, like we think it's going to remain, okay, we're very confident that CAD375 million to CAD400 million with cash flow of CAD225 million minimum to CAD250, I mean, that's our goal, though. We'll deliver that.

Excellent. Thanks, Alain. Great quarter.

Thank you. Thank you, David.

Your next question comes from the line of Turan Quettawala from Scotia Capital. Your line is open.

Yes, good morning, Alain.

Good morning, Turan.

I just had a couple of quick ones. All of my questions have been answered. I guess, first of all, on the Quik X side, you just said that of the CAD200 million revenue, I guess about CAD130 million to CAD140 million is in LTL. I guess the rest of that is in Truckload, then?

It's -- no, there's some CAD15 million to CAD20 million. I don't remember the numbers, I don't have that in front of me, that is in the Logistics division.

I see. Okay.

And the rest would be Truckload, yes.

And the rest would be all Truckload? Okay.

Yes.

So, still about I guess CAD30 million, CAD40 million in Truckload. Is that fair?

I would say --.

(Inaudible.)

Yes. And the other thing, too, is that they have the -- what they call their Quik X intermodal. So, yes, I would say -- let's say CAD145 million with the intermodal is LTL and CAD15 million is -- let's say is their Logistics.

Okay.

And the rest would be Truckload. So, yes, you're right, it's about CAD30 million, CAD30 million, CAD35 million a year is their Truckload.

Okay. So, I guess the Truckload business, I guess organically the volume was quite weak, I guess, on the Truckload side, right, because --?

Yes. Yes, yes.

Okay.

Yes, mostly at the end of the quarter.

Okay.

Well, we're not doing too bad January up to mid-February and then, boom, it's like it slowed down in March.

I see. Okay. I guess how is it trending and what do you think is the outlook for the rest of the year?

To me, in my mind, Turan, it's going to be flat this year.

Okay. Okay. I guess the next question was on Quik X. Just trying to also understand in terms of the LTL business how do you see the EBITDA evolving there, I guess, through the year? Obviously, it was kind of I guess maybe negative or flattish this year -- this quarter, sorry.

Yes. Yes, yes. Well, you see, our EBITDA on the LTL was about 3.6% in the quarter, okay? So, it's a major improvement versus what we did last year. But last year, don't forget that we were negative mostly because we have CAD2 million in severance. And the operation was losing a little bit of money, but not that much.

Yes.

But, I see we have to get closer on average for the year and to the -- about 5%. Now, in Q1 we had a major disaster in one of our divisions, Kingsway, where we had all kinds of stability. And now we have a new leader at Kingsway, so -- and me personally, I know the company well. I've been involved -- when I started in Trucking into this division it used to be one our diamonds and now it's more like a sand mine than a diamond mine. But, I mean, we're going to be making some adjustment into that division. But overall, all our divisions in LTL are doing better.

Okay, great. And I guess just one last question on Dynamex. I guess I saw something talked about, maybe a new product with some sort of a same-day Truckload kind of business. Is --?

Yes.

Can you give me maybe some -- throw some light there, how large that could be and I guess maybe in terms of margins?

Well, you see, it's still too early to tell, Turan. I don't want to throw numbers. But, talking to the president of the company, those guys are in discussion with major customers right now and that could be quite significant. I mean, they understand that, us, we don't work for 2%, 3% bottom line. I mean, this is not the way to do it. Even if we don't put a lot of asset on the road, because as you know, Dynamex is mostly an independent contractor.

Yes.

But -- so, this is why I said to the guys, don't bring me CAD20 million with 3%. I'd rather have CAD10 million with 10% than -- you know what I mean?

Yes, yes, yes. Okay. And the CapEx, I guess it wouldn't be that large, either, right?

No, no, no, no, no, no. No.

Okay. Okay. That's great. Thank you very much.

Okay, Turan. Have a good day.

You, too.

Thanks.

Your next question comes from the line of Damir Gunja from TD Securities. Your line is now open.

Thank you. Good morning, Alain.

Hey, good morning, Damir.

I just had a question on the energy services side. Can you maybe just touch on how much that business may have benefited from sort of the shift from dry to more liquids-rich gas drilling? Has that been a bit of a theme that's been driving the results?

Not yet. It could happen because, if the price keeps on being around CAD2 for natural gas, CAD2 per million BTU, I mean, we see the driller and the customer moving some rigs, let's say, out of some areas of the US into more of the liquid well. But so far, not a lot. But when we're discussing with customers, there -- that could be one thing that may happen of the course of the year. But, don't forget that the demand in the US is big and they still -- if you look at their production, there was about 8 million barrels a day a few years ago and now they're up to 10, but they still consume 18, right? So -- and they understand that they have to be more independent politically.

So, you're going to keep seeing more activity in Texas, Oklahoma, based on the discussion we're having with customers. And even around the Denver area, talking with our customers, we'll see more activity there. Our Granby terminal, just north of Denver, those guys are busy. I mean, they're like the guys in the Bakken, they're going crazy.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Walter Spracklin with RBC Capital of America. Your line is open.

Thanks very much. Good morning, Alain.

Good morning, Walter.

So, you've clearly been pretty hard at work integrating a lot of these recent acquisitions and seeing a lot of shifts taking place. And what I'm trying to do is, you must be incurring some costs that are not necessarily recurring that will obviously go away once all these integrations are in place. So, just curious if you can give us just roughly, if there were any of these costs incurred and a quantification of that in the quarter and how many you expect, say, this year and next so that we can look at, yes, your EBITDA guidance, but then reflect in some more -- perhaps a higher recurring EBITDA guidance when these costs come to an end.

Yes, yes. Well, that's a difficult question, then, Walter, because we don't really look at it. But, I agree with you. We have these costs today, because as we were saying, we're moving everybody in the -- into our platform right now. So, that costs a lot of money, the training, the education, and this and all of that. But, we don't really evaluate that because, don't forget, this is going to be done, Walter, over the course of the next two years, I would say. All this change and moving in our LTL and our Parcel. So, this is about CAD2 billion of our business. Not even CAD2 billion, let's say CAD1.8 billion. So, for sure we're incurring as we speak some costs. We're spending some money into improving our software, etc., etc., and the benefit will be down the road.

Parcel will be first. I think parcel should be completed by the summer of 2013. LTL will probably be done by the end of '13 or the summer of '14. And the saving is going to be humongous because all these divisions will operate under the same platform.

I completely agree with you. And I think that -- and I know it doesn't do you a lot of benefit to quantify those costs, but I know investors in the Street, if they can get their head wrapped around just a ballpark number and then just look at your EBITDA guidance and then say, well, there's this X amount that's already baked in in nonrecurring costs, I think it just makes it even more compelling--.

Yes.

What the forward is. But, understanding you haven't quantified that and I see --.

No.

It doesn't -- it's not -- it doesn't help you on a business case perspective, so I can understand that as well.

Well, you see, Walter, us, we don't want to give the investor any excuse that, oh, we're spending CAD1 million and this is not going to happen again. Until we get the product out, until we prove that, hey, this is what we've done and it works, that's the way I like to operate, Walter.

Yes, that's a good way to operate. I mean, not everybody does it that way, so it's a -- that's a good thing. That's a good thing.

No, no, no. Us, we -- we're not the excuse guy. I mean, we --.

I hear you.

Do it and I could tell you a timeline. Like Parcel; I'm convinced it's going to be done by the end of -- in '13, Q2 '13, because we know where we're going. The LTL, it's probably another six months after Parcel. The savings are going to be huge. That I could tell you.

Yes.

Okay? And it's not 7 digit, it's 8 digit.

That's right. Okay.

Okay?

So, that's good color.

Yes.

Just moving on, I guess, if I look at -- when I -- actually, I did note as well that the Dynamex move in the Truckload, just coming back to that for a second. I know that when you talked about your expansion, your focus in the US, you kind of clearly articulated you're looking for oil field services, you're looking for same day --.

Yes.

Perhaps centering in on high-value-add business like healthcare and so on. When I saw the Truckload announcement come out, it kind of had me scratch my head as to whether this --.

Yes.

Fits into that bill. Can you give me a little bit of color on that strategy?

Yes. But don't forget, Walter, one thing is for sure; it's Truckload, okay? First of all, it's more brokerage, okay?

Okay.

Like we do with our Logistics division in Canada. Because these guys have so many huge accounts that we are more and more -- they don't want to use the name brokerage, but this is -- a duck is a duck.

I see. Okay. So, more 3PL kind of stuff that we're looking at.

Right. Right.

Okay.

Right, right.

That makes sense.

And it's got to be same day. We're not going to be involved into running a truck from here, let's say, Washington down to LA. I mean, no, no, no, no, no, no.

So, if the -- given their contact with customers and the customer puts in a bid that you don't want to service, you'll use that 3PL to --.

Exactly.

Divert that somewhere else. Got it.

Exactly.

Okay.

Or what we could do -- let's say we have a major account in Dallas, where we're doing same-day operation for them using a larger truck than a small truck. But, this is still dedicated business with a long-term contract. I mean, we're not going to be a Swift over these guys. No, no, no, no.

Right. Okay. So, this is a complementary type thing to your existing --?

Yes.

Same-day business.

Yes.

Okay. That makes a lot of sense.

Last question here now is a little bit on -- I guess the management team -- obviously, Alain, you've been with the Company a long time. You're almost a one-man-show here. You don't have a CFO and you've quite capably done -- run this thing with great competency. And I'm just curious. You announced some senior VPs coming up --.

Right.

This year. Are we -- from a -- or from an investor perspective going to see more of your Senior Management Team start to come up? Because I know they've been very focused on specific business units. I know you rotated them around a bit, but are we going to see anybody come up as from an investor perspective, getting more familiarity with some of your senior management?

Yes, yes. I think that you should start seeing that probably as soon as -- because we have a big job to do with Parcel. A big job --.

Yes.

To do over the --let's say the next two years with the Loomis, the Dynamex and the IT and all of that. We have a big job to do with our LTL.

Now, one thing that I didn't announce publicly, but my Kingsway and my CF division are now reporting to Rob O'Reilly, which is our EVP responsible for LTL now. Okay? So, that was done about a month and a half ago.

So, you'll -- as soon as this is done -- and depending also on what happens in terms of the growth of the Company. Because every time we buy a company that's a good company, we get good people, a good management team, like we did when we bought Miller. I mean, we have -- see, part of the -- what we're doing in the US, you'll see, we'll be announcing that in the summer. We're making some major improvement to our management team there.

So, down the road, yes, you're right. I mean, there's someone that's going to have to start traveling closer to me and understand more of just -- not just one segment of the business, but the global TransForce business.

Yes, that's right.

But there again, there may be some changes. I mean, a lot of people discuss about our Truckload division. I mean, for sure, when you look at TransForce today, depending where we're going, what we're seeing is that, us, we're going to be like a UPS of Canada. I mean, the UPS of Canada, Package, LTL, our logistics are the core. We like the --.

Although it doesn't (inaudible) in there --.

Specialty Services because it's high margin. Okay, perfect. So, depending what happens over the course of the next 18 to 24 months, you may see other changes. I agree with you.

Got it. Okay. Alright, well that's all my questions. Congratulations on a good quarter.

Thank you, Walter.

Your next question comes from the line of Jason Granger from BMO Capital. Your line is open.

Thanks very much. Good morning, Alain.

Hey, good morning, Jason.

Just going back to the 50 terminals over the next 2 to 3 years that you're talking about consolidating and closing down, how -- could you tell us how many of those would be owned versus leased, just sort of ballpark?

Oh, most of them, Jason, is leased.

Okay. And then, in terms of -- I mean, potential savings that would come from exiting these leases, do you have a sense of a number there?

I would say it's about -- well, you have to break -- the way I look at it, Jason, is that I look at my real estate costs versus my revenue. So, Dynamex is a special situation because Dynamics, today, its real estate cost is about 4.5% of revenue, which is way too much.

Okay.

Way too much. The reason being that, if you're a same-day guy, why would you need a warehouse?

Sure.

Okay?

Yes.

So, that has to be brought down to around 2%.

Okay.

So, Dynamex you're talking an easy 2%. 2% of CAD500 million, you're talking CAD10 million.

Okay, that's helpful.

Okay? Now, this is not going to happen tomorrow.

No.

It takes time. We've got to downsize, downsize, downsize. Now, if you look at Loomis/Canpar, this is CAD500 million. Okay? Those guys are running today at about 6.6%, 6.7%. Okay?

Okay. Wow.

Now --.

Loomis and Canpar, okay.

Right. So, this has to be brought down under 5%. So, you have 1.5% there. Now, it's normal that Loomis/Canpar is more expensive on the real estate than Dynamex, because Dynamex same-day doesn't need a sorting facility, etc., etc. Loomis/ Canpar, yes, need some.

Sure.

Okay?

Okay.

So, we have to bring that down at least 1.5%. Now, this is going to be done through some kind of consolidation. It's not going to happen this year.

Yes.

But, we know that it's going to happen, okay?

Okay.

So, you have about 1.5% of another, CAD500 million, which is --.

CAD7.5 million, right.

Let's say CAD6 million, CAD7 million, CAD8 million.

Yes. So --.

Okay? And then you've got the LTL. The LTL, we've got to bring that down 1%.

Okay. 1% on CAD750 million. Okay.

Yes.

So, CAD7.5 million there.

Yes, yes.

So, we're running around CAD25 million in total.

(Inaudible.) Yes. CAD20 million, yes.

CAD20 million, CAD25 million over --.

Yes.

Say, the next 2 to 3 years.

I would say 2 to 3 to 4 years because --.

Okay.

(Inaudible.) You see, us, I don't allow anybody to sign a lease within TransForce that is more than 3 years unless I approve it.

Sure, okay.

Okay? But, when I'm buying Dynamex, these guys didn't have these clauses. Okay? I bought Quik X, okay? These guys didn't have these clauses, okay? So, it's -- to some leases it could take me a little bit more time but, on average, you'll see some major improvement, let's say over the next 2, 3, 4 years.

Okay, very good. And sort of a steady ramp up throughout those 2 to 4 years?

Well, you'll see more in '13 and '14 than this year because we're not -- we're working on Dynamex as we speak, but Loomis/Canpar, I mean, nothing's going to happen before '13, '14.

Yes, okay. That's helpful. And just circling back here to the acquisitions. You touched on this a couple times in the call, focus on energy services here for 2012. And on the Q4 call, there you had talked about plans to scale back the acquisition program this year.

Right. Yes.

Maybe CAD50 million to CAD100 million. And it sounded like that would be centered on the US oil fields, backend loaded.

Or Package; or Package.

Or -- okay.

Yes.

Any changes to that?

No.

No? Okay.

No, no.

So you're thinking. And then -- I mean, it seems like you have somewhat of a renewed interest in the Less-Than-Truckload business. It seems like you're turning the corner here with margin improvements in volumes and more comments around the opportunities for consolidation in that space with some of the midmarket companies out there in Canada.

Yes.

I mean, how should we look at that? Over the past year or so it's been more of a focus on the Currier and the oil fields going forward. But, where does LTL fit into the mix now?

The LTL fits pretty well into the mix. I mean, for sure it's very difficult to grow the business when you're losing money. Okay? When I'm not happy with the returns. This is what I'm talking to my LTL guys. I mean, put yourself in my shoes. Why would I grow a business that loses money?

Now, LTL, we're turning the corner there. Our plan of reorganization and restructuring is working. Now, the LTL Canada market -- I'm not talking about the US because I don't want anything to do with the LTL US market. But, in Canada we need more consolidation, so I don't see anything major for 2012. But definitely, our interest is really to grow the LTL through acquisition in Canada because we need more consolidation. We have to be -- we have to adjust the offer with the demand so that the pricing could start to be more reasonable. Because even with what we are doing today, the pricing is still not where it should be.

Sure. Yes. Yes, okay. Understood. And I mean, your EBIT margin for LTL last year, I think it was about 3%.

Yes.

Where -- certainly, I mean, I would expect it to get 400 to 500 basis points beyond that over time, on a normalized basis over the course of the cycle.

Yes.

But, by the end of this year where do you think that can get to?

Well, our plan is to bring that into double-digit number in terms of EBITDA; not EBIT, EBITDA. We've got to bring that double-digits. So, it's got to be over the 10 mark.

By the end of 2012.

Yes. Yes.

Okay. And that's excluding fuel?

Yes.

Excluding fuel surcharges. Okay.

And just one last one here back on the acquisition theme. Your P&C business in the US, talk about the same day and the dedicated -- and you've talked about potential opportunities in the US, South Florida, California, healthcare focus. What -- do you see more of your growth focus on the same day or the dedicated in terms of the acquisition stuff?

Well, when we say same day, Jason, it means same day. Everything we do with Dynamex is always same day. So, it's either same-day dedicated or same day running for some specific customer.

Yes, understood.

So, same day to me, it's always -- the focus is -- like this new contract that we're getting with a good company in the US in nuclear medicine is we're replacing their 200 drivers with 200 of our own people.

Yes.

Okay? So, we're going to fully dedicated to --.

Sure.

To this customer. Okay? With -- they have 11 distribution centers in the US. So, our guys are attached to them.

And that would be a 3 to 5-year contract--?

(Inaudible.)

Cost plus pricing, that sort of thing?

Yes. And what's very important is that every morning our employees or our independent contractors, they report to the customer facility and what they do is -- everything is same day. So, they pick it up this morning and they deliver everything during the day and come back at night.

Sure. Okay.

So, this is where we're going to be growing in the US.

Yes, okay. Just wanted to clarify --.

We're not going to be another UPS or another FedEx with big terminals and things like that. No, no, no, no. Us is our focus is only in that niche market where it's a CAD7 billion CAD9 billion market, with us being number one at the 300 and something.

Yes. Okay. Okay, that was it for me. Thanks, Alain. Appreciate it.

Okay, Jason. Thank you.

(Operator Instructions). Your next question comes from a follow-up from the line of Benoit from Desjardins Securities. Your line is open.

Yes. Alain, just a question about the stock price. Obviously, there's a lot of momentum in your stock. If we look at your first -- sorry, your first convertible, the price is getting closer to the strike price. So, my question is what's your intention assuming the stock continues to rise? Is there any potential opportunity for you to lower your financing expense and maybe force the conversion, improve your balance sheet and renew your M&A activity sooner than expected?

You see, Benoit, on this -- this is a very good question. And what I could tell you today is that we're not going to issue any equity as we speak. There's nothing I can do on that convertible until November of '13, except buying the -- maybe the debenture on the market, on the open market like everybody else. Okay? So for now, I mean, there's nothing in the plan in terms of equity or nothing in the plan in terms of touching that convertible debenture.

Our plan really is now to discuss with our bankers our -- because this is a good question because we haven't talked about that. Our financing that we have in place today was good two years ago when we put it in place. It does not reflect the reality of today's market. I see some savings that needs to be put in place there. But, I also agree with you that this debenture at 6%, it's becoming expensive because of the very good cash flow that the Company's reporting, but it's not in my mind for now. Really, in my mind is I'm looking at our new structure, the new financing structure and then we'll see what happens.

Okay. Perfect. Thanks, Alain.

Thank you.

Mr. Alain Bedard, there are no further questions at this time. Please continue.

Well, thank you, operators -- operator. So, ladies and gentlemen, thank you for your interest in TransForce. I look forward to my next opportunity to update you on the progress of the Company when we report our second quarter results. Have a pleasant day. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.