TFI International Inc (TFII) 2013 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce 2013 second 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 the time to queue up for questions.

(Operator Instructions)

Before turning the meeting over to management, please be advised that this conference 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 Monday, July 29, 2013.

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

Well, thank you, operator, and good morning, ladies and gentlemen.

Earlier this morning, Canada newswires issued the news release concerning our results for the second quarter ended June 30, 2013. I will begin by going over the highlights of the quarter, and then I will provide you with more details regarding the performance and activities of our operating segments.

For the second quarter, total revenue ranged CAD792 million, a decline of 2.4% compared to CAD812 million we attained last year. This decrease is mainly because of lower revenue in our Rig Moving business which is still affected by the sharp drop in drilling activity in North America. This was particularly offset by the contribution from Velocity Express acquired earlier this year. The EBIT margin was 7.9% versus 8.5% last year, but factoring out the Velocity acquisition, it remains stable year over year at a point 8.4%.

In other words, in spite of the challenge in certain sectors of the economy, the measures we have taken to maximize operating efficiency and make the best use of our assets has enabled us to continue to drive profitability. This is especially true in Package and Courier and LTL where we had EBIT increases.

Adjusted net income, which excludes the after-tax effect of changes and the fair value of the derivative and net foreign exchange gain or loss, was CAD37.4 million in the second quarter compared with CAD37.8 million a year ago. As we have repurchased over 4.1 million common shares in the past 12 months, adjusted earnings per share increased to CAD0.39 compared to CAD0.38 in the prior period.

Our free cash flow was very robust in the quarter, reaching CAD91 million, or CAD0.98 a share, a strong increase over the CAD50 million, or CAD0.61 a share achieved last year. The free cash flow includes proceeds from the sale of property and equipment of CAD22.5 million which is a direct result of our steady focus on optimization to maximize return. We used our fund mainly to reimburse CAD37 million of long-term debt and to repurchase 739 common shares for CAD14.7 million.

In addition, as we announced this morning, subject to the approval of the TSX approval, we will renew our normal course issuer bid. Starting later this week, we will be allowed to repurchase up to 6 million shares over a one-year period, and we intend to be active.

We also announced this morning that we have entered into agreement to acquire E.L. Farmer, an asset-light provider of pipe storage and hauling services for the oilfield industry based in Odessa, Texas. This acquisition fits in very well with our existing Energy sector operation and the transaction should generate annual revenue of approximately CAD70 million. We should be concluding this transaction in the current year.

I will now review the second quarter highlights for each business segment. In the Package and Courier, revenue excluding fuel surcharge was CAD295 million, a 12% increase over last year. This revenue increase is mainly due to the acquisition of Velocity. Before the effect of the acquisition, EBIT rose 18% and the EBIT margin increased by 1.3% to 8.4%.

Our operating division continued to carry out measures to deal with redundancy, boost productivity, and further improve the efficiency of their operations. As expected, Velocity EBIT margin was negative and pulled down our overall operating results. Its integration with Dynamex is progressing well and should be completed early in 2014 at which time we expect that the profitability will increase more significantly.

In the LTL segment, revenue before fuel surcharge was CAD139 million, an increase of 2% compared with the same period in 2012. We're pleased to see that operating income is trending higher as we continue to reduce over capacity to adjust to customer demand and to maintain a strict focus on capital and cost control.

Over the first half of this year we completed a sales and lease-back in [Dorvale] which generated proceed of CAD18.4 million and sold two other properties in the second quarter for CAD11.9 million. EBIT for the second quarter was $12 million, a 28% increase over the same quarter in 2012 and EBIT margin before the gain on sale of properties stood at 6%, up from 5.6% a year ago. We anticipate further efficiency gain as we continue to move all LTL division to a common IT platform.

In the Truckload segment, revenue excluding fuel surcharge decreased by 6% to CAD128 million in Q2. While prices were stable, volume was down as economic activity is still weak in many industrial sectors. EBIT was CAD11.7 million, or 7.8% of revenue compared to CAD14.7 million, or 9.2% of revenue in the same period last year. We are committed to protecting our margin, even in the current economic context. Profitability should improve as we continue to manage capacity and rationalize our use of capital.

In the energy sector, revenue net of fuel surcharge was CAD78 million in Q2 compared to CAD109 million in the prior year. This decline is mainly due to rig moving operations in the US and Canada. T-Force Energy services US saw its revenue drop by CAD30 million and Alberta revenue fell by CAD3.5 million in the quarter.

As has been the case for a number of months, some customers are greatly reducing drilling activity and revenue shortfalls are particularly significant in the Bakken formation. As a consequence, EBIT fell to CAD3.1 million compared to CAD13.2 million in Q2 of 2012, and EBIT margin decreased from 12% to 4%. As we don't anticipate any significant improvement in this sector through the rest of 2013, we have been proactive and closed three terminals in Alberta and one in Wyoming in the last few months, and we sold CAD7 million of equipment in the rig moving.

And, finally, in the Other Specialized Services sector, revenue before fuel surcharge was CAD85 million versus CAD93 million in Q1 of 2012. This decrease mainly comes from Logistics and Ancillary Transportation Services; however, EBIT margin increased slightly to 15.7%.

In the months ahead we don't expect to see any major uptick in the Canadian economic activity. The rig moving is particularly soft and is likely to remain so through the rest of this year both in Canada and in the US. The economy is still very tough for a number of our other industry sectors as well so, we don't really anticipate any significant organic growth this year in Canada. However, in the US, as I said, we're making good progress with the integration of our same-day Package and Courier operation, and we have organic growth of more than 8% so far this year.

Our business strategy of constantly improving operating efficiency and asset utilization remains on track and continues to generate savings and enhance profitability. Revenue and EBIT growth will be driven by these factors, as well as by our selective acquisitions strategy. The addition of E.L. Farmer to our energy sector operation is a good fit, and at a fair price, and further positions us to benefit when drilling activity picks up again.

Our cash flow generation remains strong and enables us to reimburse long-term debt and repurchase our common shares. By sticking to our core business strategy, we're confident that we'll be able to continue increasing shareholder value. So, at this point I will be pleased to answer any questions. So, operator?

Thank you. Ladies and gentlemen, I will now conduct a question-and-answer session.

(Operator Instructions)

One moment please for your first question. Walter Spracklin of RBC Capital Markets.

Thanks very much. Good morning, Alain. So, I guess my first question is just on your last point there in the acquisition, your most recent acquisition in the energy space in the US. Given the depressed nature of that sector, it was surprising at first to see you investing in it and is it because you're finding pricing acquisition pricing now to be very advantageous given that downturn or is there something else at play there?

Well, first of all I think the acquisition of Farmer is the diversification of what we do in the rig business, rig moving business. That's number one. Number two is we believe that in the US, this energy sector activity will pick up. We have a strong belief that this energy sector right now is going through some slowdown, okay, but it will get back on its track once a lot of small issues like pipeline and the railing of products et cetera gets fixed and gets done. Now, this also is a business that we're doing in Canada right now.

We have a small division that's based in Edmonton that's called [Wenalto] where we do pipe hauling and storage and this division is doing very well because, you see, if you exclude the rig moving business that's been a disaster for us over the last 12 months, the rest of our business, which is today one-third of our business is outside of rig moving and with the acquisition of Farmer, now 45% of our business will be outside of rig moving and that business is highly profitable. Everything that we do for the Oil Sands is highly profitable and everything that we will do with the Farmer acquisition will be highly profitable. We're really in a major mess with NTFI today, energy sector is the rig moving where we've seen our revenue for the first six months of the year drop CAD60 million. That's a major disaster for us.

So, we our confident that this energy sector in the US will be back on track. We see slow down in the Bakken, true, but in Texas the activity is quite interesting. Now, Farmer has been in business for over 100 years. They are the largest pipe storage facility in Texas. We have lots of land. Just to give you an example, in Houston we now own 150 acres of land for the pipe storage and holding. And also there will be some combination down the road between some of our activity in Canada with now are US-based operations. So, you'll see. If you look -- look at it. It looks a little stupid to invest more in a sector where we're doing not too good, but what I've learned over the last 20 years is you by on bad news.

You've done a good job of that, that's for sure. And that sort of dovetails in my next question. It seems that you had a great free cash flow quarter. You did an asset sale there, that's certainly helped that and you paid down debt. You signaled a renewal of your NCIB, but I guess rather -- it seems that you're gearing up toward the potential for making some more of these opportunistic acquisitions as opposed to dividends. Is that how I'm -- am I reading that right, that acquisitions might be starting to come a little bit -- come to you a little bit easier?

I think you're right. I think that I've said earlier on the dividend. We're not going to do anything in 2013, that's for sure, because if our stock drops under CAD20, we're buying, and we have now the possibility of buying up to 6 million shares so that's number one issue. If the stock drops under CAD20, we're buying, number one. Number two is that we've been very, very shy on the acquisition trail so far this year. Yes, we bought Velocity, we're still busy working on that integration with Dynamex which is going very well, and now we have this deal with Farmer. So, I don't think the rest of the year will be pretty busy on the M&A side, but definitely in 2014 we're trying to get ready to grow our business again through the M&A acquisition.

Now, if you look at the three PD that I was looking at buying, this company, which is exactly the same as our Dynamex business, has been sold to XPO, which is public, for CAD365 million, okay. That's a CAD300 million revenue company. So, for us, we have to walk away from deals that are expensive like that, but think about the value now that you can put on our Dynamex business which is about CAD500 million just in the US.

Now, our focus on the M&A on that sector of the business because all the major acquisitions are fairly large in terms of price ticket, so we'll be more focusing on the smaller ones like the CAD20 million to CAD50 million acquisition range in the P&C business. On the energy side in the US, a lot of people our hurting because of the slowdown in the activity and some of these guys have been in business for 20 years, 30 years, 40 years and just getting tired because of the banks in the US are not the same as in Canada. They don't wait. They put so much pressure that these guys now are looking for a way out and we see a lot of guys trying to sell their assets as we speak or sell their business. So, sure, you're right, Walter. We'll probably see a little bit more activity in the next 12 to 18 months with NTFI, mostly in the US though.

Okay. And then switching gears over the Package and Courier. I know you've been integrating that and it looks like the process is going well. I know you had a union --, you had a new contract with a union related to your western business, not to your eastern. I know east has been you focus recently and you were going to kind of look at west later down the road, but I think you got a recent agreement. Can you give us an update there?

Yes, well, first of all we're going to be combining and this is public knowledge now, every Loomis and Canpar in Montreal, all the sorting facility within those two divisions will be combined by the end of August, so we're going to see some tremendous saving of that. And then we're going into another major city in Canada which is still not public so I can't really talk about that, but our intention is to do another major city in Canada before the end of this year.

So, step one, we have to combine those sorting under one roof which is going to be done in Montreal by the end of August and then another major city in Canada by the end of the year. And then once the sorting is done, the combination of the sorting, then we can start looking at what can we do on the P&E side. Anything that we can combine on that, so we'll have to look at that as the next step, but we're really happy with the way now that our employees are fully supporting the activity of the Company.

How much of your sorting will be done at the end of this year in terms of combined --?

I would say that about -- by doing Montreal and also this other city, I would say that about 20% of our volume will be converted by the end of the year.

Great.

Now, Ontario is probably going to be last because it's all related to leases expiring date, so in Montreal we were lucky because all the leases were due at about this time in 2013, so that's why we started with Montreal. Now, Toronto, we'll see major saving, we won't see that before the end of '14 because our expiry dates on our lease is 2015. So -- yes, 2015, so we can't start on that on '14 only, so that's why probably you'll see more like in '15 Alberta should be probably -- in '14, Alberta should probably be the target and also the prairies.

Okay. It looks like progress is going well. I think that's all my questions. Thanks very much, Alain.

Okay, thank you, Walter. Good day.

Cameron Doerksen of National Bank Financial.

Good morning. Just to follow up on the comments you made on the acquisition that you announced this morning, is there any information you can give us about what you paid for that, what the profitability of that business is?

Well, the profitability of that business as it stands today is about very close to double-digit EBIT.

Okay.

Okay. And the price we paid is less than 25.

Okay.

Which is a fair price for us.

Right. Yes. Yes. Can you maybe just talk the energy segment then? Can you just maybe talk a bit about what more you're planning to do or can do as far as sort of reducing costs and your capital there? You did a number of things so far this year, but is there more to do?

It's not enough. It's not enough, Cameron, it's not enough, so, what we did -- so, where do we stand today in Alberta is now we're down to only two small terminals, [Braden Valley] and [Stony Plain] around Edmonton, and we have a new team there, [Andy l'Amour], a young guy, and we're reducing our assets, so we'll be selling more of our assets in Canada so probably by the end of this year our asset dollars in the rig moving business in Alberta will be down to about CAD10 million versus CAD20 million a year ago. And then we hope that down the road there will be more activity in Canada.

Now, on the US side, though, we have to shut down Casper because Casper -- we opened up Casper two years ago because it's -- yes, it's coming and it's coming and it's coming, but it never came so the activity there has always been like on the slow side. And, in the Bakken, we were geared up for a CAD60 million Company and now we're a CAD20 million Company in the Bakken, so this is why we have too much real estate, we have too many terminals, and by the end of '13 we're getting rid of a [man camp], so we're going to save money by doing that. We sublease one of our terminals, but we're stuck with apartments because we're paying over $1 million in hotel rooms so we have now long-term agreement with apartments but because of our revenue is so low now we have too many apartments, so our guys are trying to reduce our fixed costs over there.

Now, the revenue side of the Bakken has stabilized, so we're not dropping but we're not growing. So, we have some kind of stability there but that's not enough. Now, our new market where we're doing pretty good is in Colorado. Colorado we're doing okay. It's growing over there. In the south, we had a disappointing month of June. We had all kinds of issues, people issues and this and that, although Miller, the ex-division of Texas was called Miller, those guys have lots of experience. While we went through a period of very slow and people issues like [Unis], this is a fantastic terminal that we have there, but it's a dry well, it's a natural gas environment, so gas has been slow, the guys are working like day and night to get the revenue in but there is next to nothing. PA we're doing okay so what else can we do?

Not allowed except their in the US, there again, there's too much assets for the revenue we are generating today so we will be selling more assets. We will be selling another CAD3 million, CAD4 million, CAD5 million in Canada and probably the same in the US by the end of this year, and then get ready if something happens in 2014. We're highly confident that this market cannot stay the way it is, so it is going to have to turn at one point. Don't forget, this business has always been cyclical and this is -- the most cyclical business with NTFI is our rig-moving business. So, this is why this acquisition of Farmer which relates to drilling, too, but it's got less assets and it's much less cyclical than the rig-moving business. So, this kind of diversification will bring us to about 45% of our revenue in 2014, we'll be in other sectors -- in sectors other than the rig-moving business.

Right, that sounds good. It's probably fair to say though that EBIT margin in that segment at around 4% is kind of the bottom. It sort of sounds like you've got enough on the go here that we should maybe even see margins improve a little bit even if revenue doesn't?

I think so, Cameron. The guys -- we have two VP's of ops in the US working like day and night to get the revenue in and to reduce our cost so I think that you're right saying that the 4% is -- I mean we're at the bottom of the -- I don't think we can go lower than 4% on the profitability side.

Okay, good.

Don't forget, the rest of our business is highly profitable. We're double digit EBIT in the rest of our business, it's just that this rig-moving business has been a major disaster for us over the last 12 months.

Yes. Absolutely. Just last one for me just on you sold some properties in the first half of the year. Just wondering what the prospects are for the remainder of 2013?

Well, we have a commitment that we'll probably be selling one property that we have in Toronto where we have FedEx as a tenant, so doesn't make any sense for us to hold that building. We're not in the real estate business building, so that will probably go in Q3 and then we're working on another one in Calgary where we have a single tenant that takes care of all the terminal. So, for sure that's one. The other thing, too, is that more and more we need larger terminals and this is why we've shut down a lot of small terminals that doesn't make any sense today in today's environment, so you'll see some reduction. When you go through our MD&A versus number of sites we have versus what we have today, you'll see probably another 40 sites disappear from TFI within the next 6 to 12 months, LTL and parcel in the US.

Okay.

Yes.

That's good. That's all my questions. Thanks very much.

Thank you, Cameron.

Ben Vendittelli of Laurentian Bank Securities.

Good morning, Alain.

Good morning, Ben.

Just to follow up on one of Cameron's questions with a bit more detail. Given some of -- although you're not expecting any improvement in market conditions on relocation, some of the changes you're making internally, can we expect some of those margin improvements to come in the back half of this year or is there really improvements in 2014?

I would say that some minor improvement in the back half of '13 but I think that '14 is the year where you should see some real improvement. Number one, because of the mix that's going to change. Like I said, if you look at '12, 25% of our revenue was coming out of other business except the rig moving, so 75% was a rig moving out of our revenue of about CAD400 million in 2012. And you'll see in 2014 the rig relocation will be just a little bit more than 50%, so even if the profitability is not there, then you'll see in general our energy services improving because of this acquisition of Farmer and the rest of our business that's doing pretty good.

Okay. And again in the energy segment your rationale for holding off until 2014 before making more acquisitions, is that driven more so by market dynamics and expecting the market to potentially deteriorate more between now and then or is there really a pricing issue where you're not saying pricing come off yet?

I'd say it's both. The pricing is still week, the discounting is still heavy both in Canada and in the US, and the level of activity is still very slow. Now, one of the good things though that in the US we're starting to see some guys exiting the market. Some guys that were brought in there because the market in the back half for instance was so great that when the market is great this is like the gold rush. Everybody comes in, and then when the gold becomes a sand rush, everybody wants out. So, what we're starting to see in the back end now is more stability and some of the guys are walking away because they see, well, there's nothing to do here. The profitability is down to 0, close to 0, so no big deal so let's get out and go elsewhere.

So, that's why we're starting to see some improvement, but it's going to be small and minor in '13. I think that '14 will be back into a better environment in the rig-moving business in the US. In Canada, that's a big question mark because there's too much, too many players and too -- the rig count is so low now that Canada is a big unknown.

Okay. And in the US from an acquisition standpoint are you starting to see fire sales or is it still too early for that?

No, no it's not early. We're getting calls like there's no tomorrow, so this is why I'm saying that everybody is getting tired. And this is, again, a lot of guys were invested in the business because it was such a great business, but now it's slowed down, there's all kinds of issues, we had the weather issues in the US in the back end, we had the road band issues in Q2. We had kind of a war between the county and the drillers. We had all kinds of stories that now it's not as interesting for guys to invest in the business, so now the phone rings and a lot of guys want to exit the business and invest elsewhere.

Okay, perfect. Thank you very much.

Pleasure, Ben. Take care.

Fadi Chamoun, BMO Capital Markets.

First question on Velocity. Should we still think this is break even or slight profit by the end of the year?

Oh, absolutely. Absolutely, but you see, Fadi, by the end of year we think Velocity will be very closely integrated into the Dynamex and that's what we're saying, early in '14 Velocity is not going to be a drag no more. It was still a drag in Q2. I don't think it's going to be a drag again in Q3 or in Q4, but definitely by the end of '13, early in '14 Velocity will be a thing of the past and the revenue stream is just going to be within Dynamex and already Dynamex US as a standalone is very close to being double-digit EBIT now so, yes, Velocity is still a drag. Once we combine the two in 2014, we'll be going down maybe from 9.5 down to 7 or 7.25 and then back to 10 by the end of '14, but it's going pretty good.

Okay.

And the big cost, Fadi, one of the big costs we had within Velocity was the real estate. It was a disaster. Those guys have 8% of the revenue for real estate. I mean targets got to be 3% but the problem is we're stuck with lots of leases that takes six months, a year, year and a half and we're not a big fan of taking a re-org cost of let's say CAD2 million, CAD3 million to erase all these leases so, us, we're spending the money every month but every month or every six months we get less and less of these old leases that we're tied up with.

Okay, that's helpful. So, on the LPL side, I apologize if I missed it in the MD&A, but you had some pretty good results and there was a mention of [franks] in Canada on the west coast side. Can you elaborate a little bit? Was it customer specific or what's really behind that?

I'm sorry, I didn't hear your question right, Fadi?

On the LTL side you had a stronger quarter and you mentioned something in the release there was a strength in the market in kind of on the West Coast side.

Yes. See, the issue there is, yes, the market is a little bit better and if you look at my revenue is about stable, up I think CAD1 million or CAD2 million, and what we're starting to see is some improvement in the market specifics but really where we have a lot of improvement is really in our cost basis. So, and there again, when we bought CF in 2005 it made sense to have a terminal in Terrace, BC or terminal in Smithers, BC, but now days with the cost of real estate being so expensive, we have to pull away from the small towns and use probably more like local guys, so a lot of all the actions we're taking is also based on reducing our fixed costs so then when you have a fluctuation in volume then you don't get killed with the fixed cost.

So the west in my mind, BC and Alberta, will definitely do a little bit better. The other thing, too, is that Murray Mullen is doing a great job in Alberta. He's bought Highway 9, now he just bought Jays in Saskatchewan. So, we like to compete as with Murray because this is a good company that likes to make money. So, that's why the climate over there is much easier than the climate in the east and about Ontario and in Quebec where we have too many of these small guys that don't understand the economics and just try to survive. They don't try to make money, they are just trying to survive so the pricing there is not as interesting as it is now out west, so we really favor the fact that good companies like Mullen are buying more and more into the LTL in Alberta or in Saskatchewan so that helps us. That helps the market.

Okay. Maybe I'll take a shot at your guidance. You're coming out of the first half with a pretty big deficit obviously in the EBIT, almost digit, but it looks like the second half things should start stabilizing, maybe improve a little bit in a couple of areas? What do you think the end the year because 2014 looks like maybe starting to be a good set up. So, for us, what should we think about the base being in 2013 as --?

That's a very good question, Fadi. We started the year being -- our plan was to be just a little over CAD400 million and we firmly believed that we would do about CAD400 million, CAD405 million maybe out of CAD385 million in 2012, and then we had this disaster first quarter we're down CAD10 million, CAD12 million, and then the same in Q2 and we see three and four being a little better than one and two year over year. Farmer is going to help us a bit because that is going to close in the middle of August, but that being said, our target of CAD405 million or CAD400 million we're going to be way behind that. So what's the base for next year? We're going to close the year at about CAD360 million and CAD370 million.

At the end of Q1 I firmly believe it was a tough job to close the year at CAD380 million to CAD385 million, but CAD380 million, CAD385 million I think now it's not attainable for us, so we have to scale that down to about a CAD360 million, CAD365 million maybe and we'll see what happens there. This energy situation really caught me off guard. Until January, I was not aware of the disaster that we were going through. We lost money in the rig-moving business in Q1 in Canada which is unbelievable. This is supposed to be your best quarter and you lose money.

So, this really caught me off guard because when we did our plan in October of last year we said I think that with what we're going to do with the Package and Courier and what we're going to do with LTL and even the Truckload situation caught us a little off guard with this Quebec situation of these inquiries there and the corruption situation a lot of projects have been put on hold, so if you look at my Truckload, I'm down 6% but some of that relates to the very slow activity in Quebec.

All the major projects have been postponed and delayed so, I think that the base for next year is, I don't know, we'll see between CAD360 million and CAD370 million, okay, and then definitely the Package and Courier next year will improve in terms of the bottom line, same volume and then the same thing to be said of the LTL. The Truckload, I think the revenue will come back to a certain degree and the Energy, I mean that's the big question mark. On the rig-moving side of it, when I talk to my guys they say, Alain, it's going to come back but so far when I look at my month of July it's not back. Now, okay, it's summer, it's vacation, it's this and that but it's still very slow for us in that sector.

Okay and one final question. You mentioned you expect Truckload to come back a little bit. Are you expecting [bid] of those projects that were delayed too?

Yes. The situation in Quebec is that the projects have been delayed. Now, how much of that is coming back? I think everything that's been delayed will be coming back. The problem is that because of that we don't know if the base market is really slowing down so, I'm down 6%, is it 6% with all the projects? I don't think so. Maybe it could be 2%, 3% because of the projects and maybe it's 2%, 3% that the market has really slowed down a bit.

Now, the US dollar appreciation by a few points, is that something that's going to help us down the road? Yes. It didn't help us at the end of June because I mean we had only one week of that dollar being at [103, 104], but if the dollar stays there, that could be a little bit of a boost for us a few million dollars for the last six months of the year. Now, is that going to help the guys in Canada to export more? Maybe. The lumber situation is getting a little bit better. We see a little bit more activity on that sector but we'll see.

Okay, great that's helpful, thanks, Alain.

Thank you, Fadi. Have a good day.

Turan Quettawala, Scotia Bank.

I just had one quick question. Most of them have been asked. I was looking at the Truckload and the MD&A. You talked about the volume going down obviously, but you're in a difficult environment here but as you mentioned that prices were pretty stable. That's a little surprising, isn't it? Considering usually it's the other way around on the Truckload business with prices sort of falling and a lot of guys trying to keep their volume. So I was hoping you could give me some more color there?

Yes. What we're saying is we're not talking about the market, we're talking about us. Our volume is down but our revenue per mile for instance stayed the same. Now, you're absolutely right because when the market slows down, everybody starts to drop their price but us we're not going to do that, okay, because we feel that some of this activity that slowed down is not because of the Quebec situation. Don't forget that the Truckload business that we have, if you look at the way it's spread out, about 60% of our business is in Quebec and about 30% in Ontario and about 10% in Alberta.

So, this is why we've been affected big time with all the flatbed activity, all these projects, construction by the government or the city because it's not just the Quebec government that slowed down their projects, it's also the city of Montreal, Laval and all these guys, that everything has been put on hold. So, that's why we said we're not going to drop our prices, we're just going to do less, okay, but we're not going to drop our prices. Because my philosophy has always been if we can't make money in one sector, we'll just, like we're doing in the rig-moving business right now is we're selling assets and we're moving these dollars and we'll invest elsewhere, so just think we'll be selling about close to CAD15 million to CAD20 million in assets in the rig-moving business this year and this is exactly about the same capital as we're investing to get Farmer and Farmer has a close to double-digit EBIT. So, we're trading dollars because we see that in the rig-moving side it's got to be slow for another, I don't know, 6 months, 12 months and there's opportunity to buy assets right now at discounted price because some of the guys want to walk away from the business.

Yes. Okay. I guess I thought you were talking more about the industry there, so the industry obviously your prices are coming down, right, on the --?

We don't really know. My guys are telling me that the price pressure is still there and it's also the same thing in the LTL. In the LTL we still see some price pressure there. The reason we're doing better is because we're working on our cost and our efficiency and our productivity.

Okay. And I guess maybe just I'll ask Fadi 's question just again on 2014 there. Could you give us a sense of what the EBITDA, I assume you are talking about growth in '14, but can you give us a sense of how much growth there could be?

Well, what we think today, let's say our base would be say CAD365 million, we think that with all the improvement we're putting in place we could be let's say back to CAD385 million which was the 2012 number. Okay? And hopefully we'll get closer to the CAD400 million in '14.

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

Okay.

David Newman of Cormark Securities.

Just on the currency side. I don't know what your internal view is of what the currency might be, but it sounds like every CAD0.01 is about CAD0.015 on your operating earnings, but do you guys also hedge and you have a big US dollar denominated debt, so any other plans on that front?

Yes. Well, we have, as you know, a lot of debts in US dollars. At the end of the quarter we're at $375 million and now we're above $400 million and something because our debt now is mostly -- our bank debt is mostly in US dollars. We believe that the Canadian dollar will still stay weak for probably the next 12 months, maybe 18 months depending on because our dollar is mostly a commodity dollar. Oil is supporting our dollar to a certain degree but the rest of our commodity like aluminum, iron ore, --

Nickel, coal --

-- coal and all that are not doing too good because of slower economy in Europe and to a certain degree in Asia. So, that's why we believe it's still going to be weak for a few months. So, we had some hedging. If you look at my MD&A, you'll see some of the details in their but it's nothing big, nothing big. We like to hedge more on the debt side because we've got about $375 million of assets in US dollars. The only problem is you got to look at statement number four which is a statement that nobody looks at. You see the drop in EPS because of my -- I took a hit on my US dollar debt I don't remember how much, how many millions of dollars, but I get also the benefit on statement number four but nobody looks at that.

So, it looks like about CAD0.01 is about equal to about CAD0.015, is that kind of an --[EPS] from it?

Yes, yes.

Okay. So, that's a pretty decent benefit. And if he continues, obviously you mentioned in the past that obviously there is the big hollowing out of the manufacturing sector in Canada. I know this is kind of a longer term thing, but going back in time, how long does it take for this sort of lag effect to kind of kick in where we can actually get the exports going again?

It's hard to say. It's not going to go again because of CAD0.03, CAD0.04, CAD0.05 improvement in the valuation of the US versus the Canadian.

Right.

I don't think so. The only thing is that now I think the lumber situation, the lumber is really helping right now because of the construction in the US is not where it used to be but it's improving, so that's where you see a little bit more lumbar flying out of Canada on the truck from Canada into the US, so that's a little bit of help right now and the dollar helps there, but in the rest of the manufacturing it's -- I don't think it's going to move the needle as you said. I think it's just helping what's left of the Canadian manufacturing not to disappear.

And every quarter we ask about the LTL and every guy I talk to in the LTL space, everybody says the same thing and it's dire need of consolidation. I know we talk about it every quarter and that's kind of the good, the bad, and ugly waiting for the first guy to blink. What's going on?

Well, you see, if you look at what Murray has done, I mean he bought Jay, a small guy in Saskatchewan. That's a great move so that helps the market. The problem is that we've got to do more in the east, okay, and us we're just waiting for the right price. The price has to be reasonable and so far I was talking to a guy in Ontario and the guy loses money and we offer him a little bit of cash for his company and the guy says, no, I'm going to wait. You're going to wait? Okay, wait. We're going to wait, too.

So, I've always said you make your money on the buying, never on the selling, so you got to make sure -- I made some mistakes. When I bought [Kos], I paid too much and I'm still paying for that, okay. So this is why I'm very cautious. I don't want to make another mistake. When I look at 3PD, the price 3PD was sold, to me it's unbelievable. A $30 million cash flow company sold for $365 million, unbelievable, and financed with Credit Suisse with $195 million which is six times debt to cash flow. Wow. But, that's a different world over there in the US. So, I'm waiting. On the LTL, I think that some things will happen within the next few years because the market is shrinking every year, no question about it.

And there has to be a fairly chunky one. You have to do a fairly substantial acquisition to kind of get something consolidated, right?

Yes, you got to do CAD100 million, okay, so that would help. Like we did with Quik X, Quik X was about CAD125 million in LTL, so that helped a bit but Murray, buying a small guy in Saskatchewan, that helps too. What he did when he bought Highway 9 in Alberta, that helps. Those guys they want to make money compared to a small guy that owns it but just trying to survive.

Right, and just a housekeeping one. Your Velocity, what was the revenue in the quarter? Was it CAD36 million, CAD37 million there? I'm just trying to figure the organic growth overall?

Yes. I think it's about CAD30 million, CAD35 million because when we bought the company -- not CAD35 million, I would say CAD30 million, but it's in the MD&A somewhere.

Okay.

You'll see our organic growth in the US on the same day is about 8% right now.

Okay, got it. Perfect. Thanks, Alain.

Thank you.

Benoit Poirier of Dejardins Capital.

Just to come back on the terminal consolidation and some closer you mentioned about 40 sites and you also mentioned some leasing of opportunities. I was just wondering, it seems to me that there is a nice opportunity on the cost saving but also in terms of some free cash flow. So, could you maybe tell us what it could represent in terms of cost saving and also what it could represent in terms of real estate value that could further strengthen your free cash flow?

Okay. So, I'll give you a very simple example on the Velocity thing. Those guys, as I said earlier, their real estate cost was about 8% of revenue so 8% of CAD150 million, so you're talking about, what, so it's eight, about CAD12 million. And once it's in the family, that 8% drops to 3%, okay. So, you're saving 5%, so five, so there's about a CAD7 million savings just on the integration of Velocity within Dynamex. Okay. That's one.

On the cash flow side, I mean we'll be selling in Q3 probably another terminal, so that's another CAD7 million -- CAD7 million to CAD8 million that will come into the TFI coffer, okay, and we're looking at selling another one in Calgary because we have a single tenant that's got nothing to do with us, long-term lease. So, I've said it also earlier that we've got about a little bit more than CAD100 million of assets that our tied up right now in assets that we don't have any need for. Some of them are empty like the one we sold in Q2 was a Vancouver terminal that was just empty. Okay, so, it was costing me about CAD1 million to support that empty terminal and it's been sold. So, we got some of these empty ones in, for instance in Quebec or in Ontario, and we're trying to get rid of them as fast as we can but we need a buyer.

So, this is why you'll see some cash flow coming in from sales but you'll also see some cash flow improvement coming from reducing that terminal base that we have both in Canada and the US. We've announced a few closure -- we've closed down for instance, I'll give you an example, TST Overland in Saskatchewan now has been closed down, so we saved two terminals there. One has been leased to a third party, the other one will be taken over by another one of our divisions, and then CF covers all of Saskatchewan for TST and CF. So, we shut down those guys. We shut down CF in Lethbridge and now it's one of our smaller divisions better which is locally based which will serve as the area for us. So, there again we have two small terminals that are up for sale over there. We did a few others up north in BC and there's more to come. We just announced Friday that we're closing down two of our garages within CF. CF was operating four garages, we say that's too many. So, we shut down Prince George and we shut down the garage in Edmonton and there's more to come in terms of downsizing to the right level.

Our fleet is much newer today than five years ago when we bought CF. So, we're investing more into newer equipment, so we need less mechanics to maintain this equipment because they're more on warranty. So, these are all things that we're trying to do because real estate cost is a killer in the sense that when you're doing fine, you're doing good, but if it starts to slow down, your 3% on the same day could become 4% and on the LTL side we're trying to shoot under 5% as a percent of revenue, so if your revenue drops 5%, that becomes a big, big thing that you have to carry. So, that's why it's a big focus of ours.

Okay, so very good color. So, does it mean that in terms of net CapEx your guidance for the year you stick to about CAD50 million or for all those reasons it could even be lower in 2013, Alain?

No. I think that CAD40 million to CAD50 million is the right number still.

Okay, perfect. And just to come back on the EBITDA guidance for 2013 and 2014, obviously as your model evolves to asset-like model, I'm just wondering what should we expect in terms of depreciation and amortization expense? Last year you were close to CAD150 million I'm just wondering whether it should go down?

It will go down on the definitely.

Okay and to what kind of magnitude, Alain?

Well, if you look at our Q2 so far this year versus last, you see a drop in depreciation and I think that for 2014 as a percentage of revenue will be for the first time under 3%. We said that about 3.1% today, I think, on that and we should probably be a little under 3% next year, so that's one. On the intangible depreciation, we're going down this year versus last year by about CAD5 million or CAD6 million, and I think the same thing will happen in 2014, so we did CAD42 million in 2012, I think we're doing about CAD36 million this year and we'll probably do about CAD30 million in the year 2014.

Okay. That pretty good color and I assume that this year is due to the Canpar, right? That is now fully amortized?

It's Canpar and it's also ATS and I would say ICS because we bought ICS in 2007, so that's why ICS is getting very close to 0 and then ATS will disappear and the big chunk that we're still -- we'll be stuck with is the Dynamex acquisition that we did in 2011 so, on average, I think it's about seven years so we're up to about 17, 18 on the Dynamex thing. Plus, everything that relates to Matrec, this is a very long-term intangible depreciation there.

Okay. Very good color. And, with respect to Vy Tran, you bought back some shares during the quarter. Just wondering whether you could provide us an update on the rationale behind the Vy Tran and if your view has changed since?

Well, Vy Tran for us is still an investment thing. We're just waiting to see, as I said when we did the first investment, we're looking at the management and they have a plan they think that they can turn this company around. They have a great team that they've hired from FedEx Freight. I met these guys just as we were presenting at the same time that they were presenting in New York and in Florida over the last six months, so I've listened to their message.

Those guys have done great things over their at FedEx but you know turning Vy Tran around in the US is not an easy job and I'm just waiting to see how much cash flow these guys are burning in the US. We know that their Canadian operation is okay. They say it's highly profitable but maybe a 94, 95, 96 [OR]. That would be interesting for us, but we have to see what's going to happen in the US and we've said it publicly, we have an interest in buying the Canadian operation. We don't have any real interest in running the US operation but we'll have to see. Definitely that's one player that if it would be part of TFI that would help the Canadian LTL business that we have in terms of creating some kind of synergies and eliminating some assets and eliminating some real estate, too, but we have to see.

The board over their has said it publicly that they're looking at all opportunity. I know that they've hired a firm to help them go through all their possibilities, so we'll have to see what happens. I know that they're coming out with their numbers pretty soon, so we'll have to see, Benoit. Maybe -- we'll have to see, but there's more than Vy Tran that will become available in Canada. A lot of these small, medium, large companies are not doing too good so, --

And it's fair --

The pressure is terrible.

Okay. And it's fair to say that you'll be interested in those opportunities?

Yes, absolutely because we need some leadership in this market and things have to change because it doesn't make any sense. Us, we're working like slaves and we end up with a 6% EBIT. I mean, it's not acceptable.

And on the Package and Courier side, same-day delivery represented the first time ever you disclosed the percentage, it's 52%.

Yes.

What about the opportunities on the M&A side? Is there any goal to increase that percentage toward I don't know, 60%, 70% or any goal to grow that business in order to tap the business from Amazon and all those big online players?

You see, right now, the story is this. In Canada, I mean the possibility of an acquisition is very slim on the next day side. On the same day side, you may see some activity in Canada before the end of the year in terms of M&A but Canada is going to be small.

On the US side, the problem of acquiring a great brand like 3PD for instance which I looked at the company. It's a great company. The guys that are running the show there are great. The company sold for $365 million, so we were out of the game. My first bid was at $150 million and they laughed at me and said you're crazy, $150 million, forget it. Now, that doesn't mean that we cannot by those small, medium size companies, but that was not my plan. A year ago I thought that I was able to buy so I bought Velocity and now I'm looking at the price I paid for Velocity and I'm saying wow, okay, I thought it was a great deal when I bought it but now I think that it's a fantastic great deal.

Now, the approach that I'm taking now with my guys in the US I say, guys, give me some targets. Give me some great companies that would be a good fit for us. The same thing that we've always been doing in Canada. So, companies that now we will target, instead of getting a SIM by a broker, which is now in the bid process, I don't like those bid process, there's too many players and you don't really have a chance really to talk to the owner. When we target the company, we call the owner ourselves and we deal with them on an exclusivity basis so it's always an easier deal for us than to go through a broker.

Good point. And we haven't talked about waste management, Alain, but when we look at the space the multiples are pretty much right now.

Yes.

Good multiple. And also in terms of utilization you still have lots of capacity, a lot of room in Moose Creek and Granby, so I'm just wondering if you feel that there could be an opportunity to monetize that business in the next two years? And maybe also if you could refresh or remind about the ramp up, how it's going at Moose Creek?

Well, Moose Creek is doing pretty good. I mean the expansion of our compost facility has been delayed because of weather issues. Brian King just sent us a note a few weeks ago, has been delayed a few weeks. We think that we should be up and running over their with the expansion of our compost facility some time in September, late September because this is a highly profitable operation for us and we signed contract with Toronto, we have a contract with the city of York, so that's going to be great for us.

On the landfill side, Mark and the team there are working day and night to bring the volume in. We're on plan with this year, so we think we should be able to close the year over the 400,000 ton mark there and closer to 500. So, we're on track there.

On the Quebec side, I was at Granby site two weeks ago and this is a gem that we have there. It's working pretty good. We will probably have some news on the M&A side in the waste management probably before the end of the year because as I said to Walter, we're quiet but we're still working on that. So, on the M&A side on the waste side you may hear us with some news before the end of the year.

In terms of selling this division, it's not our intention. I think I've said it. We're looking to hire a president of our T-Force energy division in the US. We're looking for an American. So, that will free up Mr. [Fox] more and I said to Mark, yes, you got to have more time because you're going to be less exposed to the energy sector in the US but I'll keep you busy on the waste side though.

Okay. That's pretty good color, Alain. Okay. And lastly just in terms of free cash flow guidance I was wondering if you still expect to be around CAD250 million, CAD270 million this year?

Yes. I think that if you look at our free cash flow in Q2 it was great. I mean, even with the tax bill that we had to pay we're still on track as I said earlier with about CAD90 million-some of cash tax that we'll be paying this year. The CapEx will probably be a little bit less than anticipate. The sale of excess equipment on the energy side will probably bring another I would say at least CAD10 million for the rest of the year so, we're fairly confident. We're not going to increase our dividend, so we're going to be about the CAD250 million mark again this year.

Perfect. Thanks again for the time.

Okay, thank you, Benoit.

Kevin Chiang of CIBC.

Just a quick question to clarify. The EBITDA guidance you provided, does that include the acquisition of Farmer or excludes them?

No, it includes the acquisition of Farmer for 2013 about five months and the year at 2014.

Perfect. And then just turning to the acquisition, it looks like it does diversify your revenue stream there in Energy Services. Strategically, how do you see that division evolving over time in terms of areas of service you'd like to expand in to? And then when you look at your rig-moving accounting for roughly 55% of your revenue there, do you have a target of where you'd like that to get to in order to reduce the cyclicality in Energy Services?

Well, you see, I think that an ideal ratio for us to be like a 50-50, okay. Now, don't forget that the revenue within the rig moving is really low right now, so the revenue will have to increase in '14 and '15 because we were starting from a real low base, so this is why to meet that 50-50 we'll have to do more on the rest of the business if we do, like either the pipe storage because we see a lot of potential of increasing what Farmer is doing. We see also some potential in the roustabout type of the business which is the servicing of the well. So, definitely on the Energy sector we're trying to be like a 50-50 guy on the rig-moving side, but we'll do more on the rest of the business which is less cyclical in the cyclical business.

Okay. No, that's helpful. And then you had mentioned that Farmers had a pretty steady or sounded like has had a pretty steady revenue in EBITDA or EBIT margin over the past couple years. Is that the case, it's been roughly kind of CAD70 million over the past two, three years and I guess in the high EBIT margin percentage range over that period as well?

Yes. Absolutely. This business has been a great business. They are the leader in Texas. It's a great name. They've been in business for so long, so this is like Miller. Miller has always been run well and has been in business for a long time, same thing with Farmer.

Sounds good. That's it for me. Thank you.

Okay, pleasure, Kevin. Have a good day.

Maxim Sytchev of Dundee Capital Markets.

Quick question for you in relation to the US. I'm just trying to sort of think strategically maybe 24 months out. Right now it looks like you're running at roughly 30% top line exposure from the states. In terms of how you're thinking to strategically position the Company as I said over the next 24, 36 months, is there a chance that 30% is going to become 40%, even 50%? Any commentary would be great in relation to that?

Okay, so what you're saying, Maxim, is that the 30% versus what?

Right now just in terms of top line exposure right now and as you obviously are going to add Farmer then potentially looking and P&C that number will climb higher, but is there some sort of strategic rationale where you'd like to get or you're just trying to be opportunistic right now? Because obviously the US is recovering and a stronger market than Canada?

Absolutely. So, to answer your question, Maxim, what I would say first of all is that the Energy sector has always been for us about CAD400 million, so if you look at us totally globally on the CAD3.2 billion, this amounts to about 13%, 14% of our revenue. The mix will definitely -- you'll definitely see a change, so in 2012 75% of our revenue came from the rig-moving business both US and Canada and today this year is about 33% and we're going close to 45% with acquisition of Farmer for 2014. Now, in terms of Canada versus US, the Canadian operation now, because of what happened with the rig moving, will be about let's say a total of about CAD130 million, CAD135 million on CAD400 million, so the Canadian composition of our business is really now being about one-third of our revenue derives from Canada operations, but the rig-moving in Canada will probably be about CAD20 million, CAD25 million in 2013, '14. We don't see that growing.

On the USA side, the rig-moving business in '14 we believe that we've hit the bottom of the barrel and the rig-moving revenue will start to grow again in Texas and in Colorado and to a certain degree in the Bakken. So, I don't know if I answered your question properly but --.

I guess it was also not just in relation to the rig moving but sort of the overall pie because, again, Dynamex very much US focused Velocity as well, so it looks like again you are slowly moving in the US as been a very important market for TransForce and again from a strategic perspective I mean is there some thought that perhaps at some point you'd like to be sort of 50-50 split between Canada and the US and how fast you think we could get there?

Definitely. Definitely. I mean today I think we're about 30%, 33% of revenue coming from the US. For sure, down the road let's say four, five years from now more than 40% of our revenue will definitely come from the US, so we're getting much closer to a 50-50 split than let's say five years ago.

Okay, excellent. That's it for me. Thank you very much.

Okay, thank you, Maxim.

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

Well, thank you for being with us today and I look forward to speaking with you again following our third quarter results. So, thank you all and have a good day.

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