TFI International Inc (TFII) 2016 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the TransForce first-quarter 2016 results conference call.

(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 Wednesday, April 20, 2016. I will now turn the conference call over to Alain Bedard, Chairman, President and CEO. Please go ahead.

Thank you, operator, and good afternoon, ladies and gentlemen. Earlier this afternoon we held our annual meeting of shareholders and we issued our 2016 first-quarter results press release. I'll begin by providing you with an overview of the key performance metrics for the first quarter and then I will discuss the results of each operating segment in more detail.

As far as TransForce's operations are concerned, the relative status of the US and Canadian economies had different impacts on our results. Simply put, the healthy US economy drove solid results in our P&C segment, especially because of the e-commerce initiatives the Company has been focused on. But the sluggish Canadian economy has a negative impact on our LTL business, as well as on our specialized truckload division that serves the oil and gas market in Alberta and in Texas.

That said, our decentralized and diversified business model is giving us the flexibility to efficiently adapt supply to demand and to seize market opportunities that may arise. With proceeds from the sale of Waste Management operation which was completed February 1, we reimbursed CAD705 million of debt and we also repurchased up to 2.5 million common shares for a total consideration of CAD63.6 million, mainly under our substantial issuer bid program.

I'll turn to our Q1 2016 results. Total revenue from continuing operations was CAD934 million, a 3% decline compared to the same quarter last year. Before fuel surcharge, revenue from continuing operations was up 1% to CAD867 million, which reflects the acquisition completed over the previous 12 months, as well as a favorable local currency appreciation on US dollar denominated revenue.

Operating income from continuing operations reached CAD40.3 million, down slightly from CAD44 million achieved last year. Adjusted net income from continuing operations reached CAD31.5 million or CAD0.32 per diluted share, up from CAD27.5 million or CAD0.26 per diluted shares in Q1 of 2015.

Taking into account the gain net of tax of the sale of Waste Management operation, net income was CAD503.6 million or CAD5.09 per diluted share compared to CAD14 million or CAD0.13 per diluted share last year. Free cash flow from continuing operations totaled CAD24.7 million or CAD0.25 per share, up from CAD18.7 million or CAD0.18 per share last year. This increases directly attributable to the Company's ongoing focus on disciplined capital allocation.

I'll now provide you with some details on each business segment. Our P&C revenue before fuel surcharge rose 11% to CAD319.5 million compared to the same quarter last year. The increase is due to acquisitions made last year, to the favorable income of foreign exchange and to a volume increase. Excluding acquisition, revenue increased by 5%. In particular high volumes from our US e-commerce initiatives are helping to offset lower shipping activity and the non-renewal of lower-margin business.

Operating income rose by 21% to CAD17.9 million and the operating margin grew 50 basis points. We realized significant personal expense savings resulting from the right-sizing of certain divisions which were partially offset by higher transportation costs associated to higher volume.

In LTL revenue before fuel surcharge decreased 6% to CAD172.7 million. The decrease is mainly due to the impact of low oil prices in Western Canada which contributed to a decline in demand. Operating income increased by CAD1.2 million to CAD4.2 million in Q1 of 2016.

A strict focus on cost control and operational improvements generated this improvement despite lower volume. Over the short-term, however, we do not anticipate substantial improvements in prices or volume. Given these market conditions, we'll continue to rigorously manage costs in line with supply and demand.

In the truckload segment, year-over-year revenue before fuel surcharge fell 2% to CAD334.7 million. The primary reason for this decline relates to the challenge faced by the specialized division that services the oil and gas industry. The decrease in truckload revenue was upset by the impact of favorable foreign exchange rates and a few minor acquisitions.

As far as the Company's asset-light strategy, we continue to pursue revenue from brokerage. The truckload segment achieved CAD49.4 million in brokerage revenue which represented 15% of our total revenue.

Operating income in truckload dropped by CAD5 million to CAD20.6 million. The operating margin was 6.1% compared to 7.5% the year before. We incurred higher employee costs in the US operation which increased operating costs per mile. We are addressing this situation while continuing to optimize our asset base.

Finally, in the logistics segment total revenue decreased by 13% to CAD54.4 million. The decrease is due to the fact that we had a nonrecurring revenue of approximately CAD6 million in Q1 of 2015 that was generated by the strike at the Port of LA.

Operating income also decreased by approximately 25% to CAD4.2 million while the operating margin was down by 120 basis points year over year. Again, this is primarily related to the nonrecurring volume loss.

I'll now provide you with a brief outlook on 2016. Because Canada is TransForce's major market, low oil prices will continue to have a negative impact on many of the markets we serve. And while the lower Canadian dollar should spur activity in the manufacturing sector, we have yet to see a significant effect. These factors will limit organic growth.

At the same time, a healthier US economy should generate more activity in our package and courier and truckload segments. Our P&C the emphasis placed on e-commerce initiatives have begun to reap dividends. And we will focus on providing the best possible service offering in major centers across North America to serve this rapidly expanding market niche. In the Truckload segment, the healthier US economy and the weakening dollar should boost our return on capital.

Finally, we can further increase our density in the logistics sector. These non-asset based activities strategically complement conventional transportation services and will help TransForce to generate additional free cash. Our disciplined capital management ensures that we invest in initiatives that generate superior return, meet our main objective of generating cash flow and create lasting value for our shareholders. I would now be pleased to open up the call to questions. Operator?

(Operator Instructions)

Mona Nazir, Laurentian Bank.

Good afternoon, Alain.

Good afternoon.

Just a couple questions for me. On the last call, you provided some soft EBITDA guidance for 2016. Just adding up the numbers we were getting anywhere from, I believe it was CAD450 million to CAD460 million EBITDA. I'm wondering does that guidance still stick at this point in time? Or do you think that there's some change, given organic growth may be limited?

No. You see, if you look at our Q1 results, we are CAD3 million behind plan so far. That plan was, like I just said, for an EBITDA of about CAD450 million to CAD460 million. So yes, we're a little bit behind our plan in Q1. So what really happened in Q1 is really the Alberta situation has been pretty difficult again in Q1. But, as I also said, we believe that the last six months of 2016 will be much better position than the first six months of the year.

Now, if you look at our truckload operation, yes, we were affected badly by the situation in Alberta and in Texas. But we were also affected by the situation in the US. So our Transport America division did not perform as well as last year in Q1. But that is -- the market has been soft in Q1, probably be soft again in Q2.

But we believe firmly that because of what's going on in the ELD world, the market will start to tighten up a bit every quarter. So that's why we still feel pretty good that our guidance of CAD450 million to CAD460 million will stand.

Okay, perfect. And secondly here, there's been a lot of discussion over the last few quarters on the call about your Waste divestiture which is now complete. I know that you're now doing share buyback and that's a priority at this point and perhaps extracting value on the truckload side. But with your leverage down closer to two times, are you perhaps looking to bulk up and make some more acquisitions, particularly on the package and courier side where you're seeing some positive signs of organic growth?

Well, absolutely. The best return on invested capital has always been in our P&C business. So we did two small acquisitions last year. We bought All Canadian Courier in Canada and we also bought Hazen in the US. So for sure the priority for us, if we can find the right company either in Canada or in the US that's going to fit the model, no question about it. But one thing is for sure is that our dynamics operation in the US and the same in Canada, and All Canadian Courier, will start to grow organically. And this is -- a lot has to do with the e-commerce that we're starting to get some traction with our offering.

Now, this is not easy to find some good companies on the P&C side. This is why, like I said, we will redeploy some capital over the course of 2016. There's an opportunity right now to do some kind of a deal on the truckload side. On the Canadian market not so much, but on the US market there's lots of good potential. All the stock of all the companies in the US right now in the truckload side have been really depressed, I would say even more than our TFI stock. Our TFI stock has been very depressed for the last, I don't know, year. But over there it is even more.

So our priority is to keep on buying our shares. We bought on our NCIB 1 million shares so far. We are allowed 6 million and at the level of the stock right now we'll probably buy another 5 million, which is exactly what we're allowed to do. If we see another good opportunity on either the truckload side on the same-day last-mile P&C type of business, for sure we'll be jumping on that.

Now, it could be also that on the LTL side we're trying to -- we're having discussion with some transportation company that have a Canadian operation and that may make sense for them to get out of Canada and sell it to somebody that wants to buy it. So that could be also another opportunity to add some volume to our dying LTL market.

The market of LTL is shrinking. We shrunk 5% in Q1 and it's going to keep on shrinking. A lot of our customers are being affected with the e-commerce. The LTL guys, both US and the Canada, are really affected by this growth in e-commerce. The four guys that own them all, they will be nervous in the next 10 to 15 years because the e-commerce is gaining traction every month more and more. So our focus is can we find a good company that's got a small operation in Canada that could fit into our network? So that's another potential transaction that could happen during the course of 2016.

Like you said, our leverage is down to 2, we generate about CAD300 million of cash in 2016, so for sure we have a lot of flexibility to do a lot of stuff. We're working. We've got a lot of projects and we'll see what comes to reality.

Okay, thank you. I'll step back in queue right now.

Okay, thank you, Mona.

Cameron Doerksen, National Bank Financial.

Good afternoon.

Good afternoon, Cameron.

I want to follow-up on the M&A discussion. One of the things you didn't mention really there was logistics. I know that was something that maybe you were thinking that you might want to add to. What's your thoughts on that? Is that something that would be prioritized behind the P&C and the other things you've discussed already?

The problem, Cameron, with logistics is that it's an expensive business to buy. How can I buy a business today at, let's say, that's valued at 8 to 10 times and when I'm valued at 6 to 7 times. It's sad to say, but for me buying something in the logistics world is like impossible to do.

So, this is why where I could grow is, first of all, buying back my own stock which we're going to be keeping doing. Because it's like a lot of people want to get rid of their shares so we'll be buying them back. That's number one.

Number two is as I said to Mona. LTL, if I could find the right acquisition that's going to beef up our density because the market is shrinking, so we've got to do something. What we're doing now is we're adapting ourselves but if we could find something at a fair reasonable price, we'll definitely jump on it.

Same thing with the P&C. If we can find the right other like another All Canadian Courier, like another Hazen, we will definitely jump on it. We're looking at a deal right now in the US that makes sense. A small deal, though, small.

And, last, but it's the truckload. Yes, we're looking at a small truckload Company in Canada. We're looking at other truckload companies in the US. There's lots of good companies in the US that could be part of the TransForce families of companies. But it's got to be the right price, it's got to be the right culture, the right fit. That's what we're working on.

For sure, Cameron, we will redeploy our capital. Like I said to Mona, we generate so much cash, yes, we're going to be buying back, let's say, 5 million shares at CAD22. That's going to cost me CAD125 million. But we generate CAD300 million. So we are going to be reducing the debt, we are going to be redeploying capital.

So I could buy a company tomorrow and buy back my shares. Like I said, buy a company that is CAD500 million that's going to cost me CAD500 million, buy back my shares for CAD100 million and my debt to EBITDA will stick at about 2.5 by the end of the year. So for sure we are going to be busy.

All right, sounds good. Second question for me. You've retired a bunch of debt here. I'm wondering if you can quantify what the annualized interest cost savings on that retirement of debt is going to be.

First of all, we renegotiated our debt of CAD125 million. So we went from 6.85% to 3%. So you do the math from 6.85% to 3%, the saving is around CAD5 million, so that's one. Number two is reduce our debt by about CAD700 million times 3%, so it's about CAD20 million, CAD22 million on a yearly basis. So CAD20 million, CAD21 million, CAD 22 million plus CAD5 million so it's about, I don't know, CAD25 million to CAD 28 million versus last year.

Right, okay. So that's good. All right, I'll leave it there so thanks very much.

Thank you, Cameron.

Benoit Poirier, Desjardins Capital Markets.

Good afternoon, Alain.

Good afternoon, Ben.

Just looking at package and courier, when we strip out the FX and strip out the acquisition, it seems that it's mostly flat. Could you provide more color on if you're confident to drive the revenue upward, especially on the e-commerce side, whether you're confident to reach CAD150 million to CAD200 million this year, Alain?

Yes. First of all, in terms of the revenue, we feel pretty good because right now for one e-commerce player, we're delivering on a daily basis about 20,000 parcels a day. A year ago or nine months ago we were doing nothing with this guy. Its really coming along pretty good.

In terms of the improvements, yes, Q1, you've got to keep in mind that all our business has been affected by our Alberta situation. So we are losing on the LTL, we are losing on the P&C, we are losing on our truckload because of that sad situation that we are facing in Alberta. So when you say -- hey, Alain, we stripped the FX, we stripped this, we stripped -- it's like you are zero. Yes, maybe I'm zero because I'm down 20% in Alberta. You end up with zero but because you're down with Alberta that means that you're doing better somewhere.

So where are we doing better? We are doing better in our last mile in the US, no doubt about that. We are doing better in Q1 in our last mile in Canada. So we are doing better there. But our P&C next-day service has been suffering. So we have one of our divisions that is behind last year. As a matter fact, we have two divisions that are being affected. So Loomis is one of them. Loomis is heavy, it's a heavy player in Western Canada. So for sure those poor guys are badly affected by the situation in Alberta.

So to answer your question, that is what is happening. Do we feel good about the e-commerce? For sure we feel good. We went from zero to 20,000 parcels a day in a matter of nine months. Where are we going to be at the end of the year? We going to be 35,000 or we going to be 40,000? The market is growing so fast in the US.

Over and above that, with the same guys, we just opened up through All Canadian Courier, the Vancouver and Toronto market in their logistics division. So we feel very, very good. This is why. We are not stupid, that is why I am buying back stock. Every time a guy wants to sell my stock at CAD20, CAD22, CAD23, CAD24, I'm going to buy it, as much as I can.

Okay. And looking at the margin improvement for package and courier, you've been talking about almost 100 bps a year typically. So now you're at 0.5. Does the pressure from Alberta putting somewhat of a pressure on the margin?

Sure.

Yes, okay.

Think about it, I've said it many times. Alberta it used to be our gold market. It was a great market for us. Now it's terrible, it's like a sand mine. Everything is down there, we are down 20%, 25%. I mean everybody is down. Everybody I talk to, this is terrible what is going on over there. I don't know how long it is going to last. This oil situation, every time that we talk, it's like it's going to stick to CAD30 to CAD40. That kills the province. It's really, really sad.

Okay. And on the truckload, Alain, I noted that you are talking about a stronger outlook overall in the US as opposed to Canada. But looking specifically at truckload, it seems that you've been able to maintain margins in Canada, while margins in the US have declined somewhat because of higher operating costs per mile. Any color on the comment?

What I could tell you is that we are doing fantastically good with our van operation back east. We're doing very well with our specialized operation on the, let's say, Ontario, Quebec. We are doing well. Where we are hurting is in Alberta and Texas in our specialty operation. And in America, but this is just a matter of a quarter or two quarters.

America is going to do great. It's got a great team, those guys they know what to do. We work hard. A little bit surprised by the softness over the last few months but it's going to come back and ELD will have an effect on shrinking the offer. There's a lot of stuff that's going to happen within the next 18 months in the US. You'll see the truckload company will start to appreciate in value because the guys are going in the right direction.

Okay, very good. And looking at logistics, Alain, given where we are in the cycle, would you say that logistics has lost some shine right now given that there's better availability or to explain somewhat of the results of the logistics division?

Our results, Benoit, are being affected by Cornerstone, one of our divisions had a fantastic Q1 last year because of the strike in the Port of LA. Now that's gone. So this explains where we're a little bit behind last year. But this is a Q1 event.

All of our logistics division are showing up some great results. There's not an issue in our Logistics division at all for the rest of the year. It's just a matter that Q1, because we had such a fantastic Q1 with Cornerstone, and that is gone because the strike has been resolved. There is no more of that strike there that created such a volume for us, so now we're back to normal.

But no, no we feel good. But going back to one question, are you going to buy a logistics company? You've got to be crazy. I'm going to buy my stock before buying a logistics company.

And given valuation is so attractive, is there an opportunity to monetize those assets? Or basically it's core business and fits with the rest, Alain?

It fits. It fits with we do, Benoit. No, there's no intention of selling anything. We sold the Waste because we couldn't get the fair value in our stock. So right now, if I can't get the fair value in my stock, so I've got two choices: buy it back or sell the Company. I don't want to sell the Company so I'm buying back the stock.

Okay. And last one, a quick one for me. You allowed the unsecured revolving facility up for renewal in August 2017. Is there an opportunity to reduce significantly the interest rate on this one, Alain?

No, I think that the deal that we have, which is a scale based on the debt to EBITDA, it's something that makes sense. It's something that we'll try to improve, yes. But the important thing for us is that the availability is there, the covenants are flexible, like this 3.5 debt to EBITDA. We feel good about that. When we did the Contrans acquisition there was a bump up for two, three quarters and then we were back to 3.5.

So we are very happy with the banks that we have in our syndicate. We will probably be adding one or two because our CFO gets a lot of calls from banks that want to join the family. The guys will be working very, very hard to get something nice and dandy for probably the end of Q2.

Okay, perfect. Thank you very much for the time.

Pleasure, Benoit.

Turan Quettawala, Scotiabank.

Good afternoon, Alain.

How's it going, Turan?

Very well, thank you, how about you?

Very good, thanks.

One, maybe the first question, I'm wondering is it possible to quantify on a consolidated basis, what percent of your revenue is coming from Alberta?

Yes. What is it today and what it was?

Sure.

Excluding fuel, Alberta, if you include the truckload, the LTL and the P&C, you are looking at about 15% to 18% of our revenue.

Okay, thank you. And that is today, right?

Yes. No, that is what it was.

Okay.

Okay, so we lost about, I would say, easily 8% of our revenue in Alberta. 8% of our total revenue.

I see. So it's about, call it, about 7% to 10% right now?

Yes.

Okay. And then that's excluding obviously all the oil and gas businesses that you've already sold, right? This is ex of all of that?

Yes, well, that is one way. We were doing about CAD150 million just in the rig moving business in Alberta.

Yes, absolutely. That's helpful, thank you very much. The next question that I had was on, could you talk a little bit about pricing maybe on P&C side in Canada? I've heard a little bit of competition going on there. I don't know Puro's been pretty aggressive in the past as well. Can you give us some color there as to how that is going on the pricing side in Canada?

It's always the same situation, Turan. When the market gets soft, you get guys that are starting to chase volume instead of trying to adjust the asset or the offering to market conditions. So for sure, the Canadian economy is not doing well. Hopefully it is going to do better within the next, let's say, six months to a year. We've been in the doldrums for the last few years.

On the P&C side, there's always been some pressure. For, let's say, probably a year in 2013, 2014 there were less pressure on the pricing. But we just lost an account in Montreal to a group of companies that the customer split our volume with three or four different companies. So, yes, I agree with you there's some price pressure and there's no pricing power. That is LTL, that is P&C. On the next day service.

On the last mile, I would say that's a little bit of a different situation. There we're starting to see some improved margin. The demand is there. And there we are doing better than on the next day service. It depends also in our next day service we have, like ICS which is a specialty house. There, pricing pressure, not really. Volume growth, yes, you will start to see some growth there. We are just waiting for a few new customers to jump in. It's more like the Loomis and Canpar guys, those guys are facing more price pressure and a little bit more competition, yes.

That's very helpful, thank you very much. Last question for me, can you talk a little bit about Contrans, how that is going? I guess a lot of the volume pressure, if I'm not mistaken, that you're talking about on truckload, is that coming on the Contrans side? Because I believe they had a bunch of commodity-related businesses, right? Is that where the issue is?

What has been affecting Contrans, yes, it's the Alberta situation, no question about it. They were affected badly over there. But Alberta, for Contrans, was not that big. But it's the mining industry. That is like, the mines, it's like they're all dead.

But with some small acquisitions here, there, and some guys are doing a great job, we're able to maintain. So if you look at Contrans for Q1, we're on plan. It's not because of Contrans that were CAD5 million, CAD6 million behind last year and we're not on plan. It's what has to do with the rest of our truckload operation in Alberta and Texas and to a lesser degree, our US operation.

Great. That's extremely helpful. Thank you very much, Alain. Good luck.

Pleasure. Thank you, Turan.

Walter Spracklin, RBC.

Hi Alain, this Suneel Manhas stepping in for Walter Spracklin this afternoon. Just a question here, are you seeing any signs that capacity in Canada could be tightening? And if so, what impact this might be having on rates on the north side of the border?

Capacity issue on the LTL, no. Capacity issue on the P&C, not really, except maybe on the last mile. And on the truckload side, no, not as of now.

For sure, we see a lot of guys that are not buying trucks. We see a lot of guys, first of all because you have to buy trucks that's going to cost you about 25% to 30% more money. So you have a lot of guys that slowly are not renewing their fleet, so they're parking equipment because they can't afford to buy the trucks. The truck is way more expensive than it was a year ago because of the exchange.

That's why we feel pretty good that, okay, it's going to be a tough six months but we feel good about the last six months of the year. So there is going to be some tightening on the truckload market in North America, definitely late 2016 and into 2017.

That's great. And we've also found that northbound rates are falling fast while southbound rates potentially rising but not offsettingly so. Could this potentially squeeze cross-border margins? And if so, to what degree are you guys seeing this on your end?

It's always the same thing, for sure. There's not a lot of freight coming from the US back into Canada. Why? Because it is so expensive that the Canadian buyer can not buy anything in the US. So you're right, absolutely, there's less traffic going north and there's more traffic going south. Right now we are going through -- and this is not the first time, we are going through what we call an imbalance. That is that we're having to fight. And we also have to fight with the currency, the currency swing.

But that's our job, that is what we do all the time. That doesn't excuse us from, let's say, CAD5 million or CAD6 million behind last year. This has to do with what I just explained. We feel good that the regular van operation for 2016 will deliver some good results and getting better into 2017 because of this tightening of the market. And also because we believe that the US economy will keep on improving and the Canadian economy 2017 should also improve. We believe the fact that there is an election in the US, it's a transition year, things are always slower in an election year.

So, 2017, we believe, on the truckload side should improve in the US. And we think that also the fact that the federal government wants to invest in the infrastructure in Canada, so that should boost a little bit the economy. Hopefully the consumer will be in a position to spend a little bit more money because we haven't seen any dividend from the oil situation.

The fact that he's paying less for fueling his car, he should have more disposable income and be in a position to spend that money. Well, so far what I am seeing is that it's like it didn't materialize. But maybe it took a year or year and a half for the consumer to start to feel good about this Canadian economy, that's not so good. And maybe that's going to help us within the later part of 2016 and going to 2017.

That's perfect, appreciate the time, Alain.

Pleasure.

Jason Seidl, Cowen.

Hi, Alain, it's actually Matt Frankel on for Jason this afternoon. Thanks for taking the questions. Two questions for you, one high-level. First is on the macro economic side of things. We heard from Canadian Pacific this morning. They were a bit more upbeat than you sound in terms of the Canadian economy specifically. Curious what you're hearing or seeing specifically from certain customers in certain industries that lead you to believe that we aren't approaching a bottom here.

And then the second question is pricing on the truckload side, specifically in the US long-haul market right now. What you're seeing, how conversations are going with customers in terms of rebidding new annual contracts. If you can comment on that, we'd appreciate it. Thank you.

On the state of the Canadian economy, us, we are always very conservative because we're truckers. If I would be a rail guy it probably would be a different story. But us being truckers, we have to be very, very conservative. So maybe CP is right, we are starting to read that things are getting a little bit better. There was the RBC report that came out that, yes, we're starting to -- the manufacturing are starting to do a little bit more in Canada. But that's why we're saying -- hey guys, let's be conservative. The first six months are not going to be nice and rosy but we believe that the last six months will be better.

Now in terms of the US truckload market, for sure. The shippers are smart. They know that the market is soft, so they're trying to rebid the business and trying to take advantage of that. Fine. But they're also careful because they know that something has to give at one point. The rules are pretty clear. You need ELDs and your truck no later than by the end of 2017.

So the smart shippers, they are starting to ask questions with their service provider, are you guys compliant? And that could companies like Knight, Highland, Heartland all those are common. And all those good truckload companies, they're all compliant. It's just the small, medium-sized guy that he is waiting and he is waiting. But at one point he's not going to be able to afford to wait, so that creates a little bit of instability.

So for sure every quarter that we're going one after the other in the US, we believe that the market will tighten up, every quarter up to the end of 2017. So that's why, as I said it, when I talk to my guys they feel that, okay, we missed the plan for Q1. Q2 is going to be difficult too. But, Alain, we feel good that we are going to make the plan for the year because we'll make it up in Q3 and in Q4. That's our appreciation of the market today.

Kevin Chiang, CIBC.

Good afternoon, Alain, thanks for taking my question here. Maybe just a clarification point. I think you mentioned earlier in your remarks that you ran through a theoretical exercise around your buyback and acquiring a company and you mentioned your leverage ratio can be up to 2.5 times.

Should we be thinking about that as being the upper threshold you'd like to be at during the cycle? Or would you like to push that -- could you push that further if the right deal came along? As we saw in the previous cycle when you but some higher-quality assets like Contrans and Transport America?

Absolutely, Kevin. I was just giving an example that if we do this and that, that would push our leverage to 2.5. But for sure, for the right company at the right price, if we have to go up to 3, we'll do.

But right now our priority is to buy back our own stock. I've said it, I've tried to buy back 10 million shares. I got only 2.6 million. Okay. So we're active now on our NCIB and we're buying, okay. I just raised the cap because our stock is down and we say good, that's fine. So let's buy more. So we're buying as much as we can.

Fair enough, makes sense. And then on the comments around LTL, it sounds like it's probably the most over-supplied situation you are facing from a competitive perspective.

Absolutely, yes, sir.

I think you've been trying to consolidate the market there to bring some more capacity discipline. Is there a way to quantify how over-supplied the market here is in Canada? And how much excess capacity needs to leave the system before you think you'll see some improvement in pricing from the trends you are seeing today?

That's hard to say, Kevin. If, for instance, there's two bad trucking companies right now that if you add the revenue it's more than CAD200 million. If those guys would disappear tomorrow, would that create a market condition that improves the market? Probably.

Don't forget, we are a CAD800 million to CAD900 million -- depends if you exclude fuel -- but let's say CAD800 million company in the LTL and probably now down to CAD750 million because we are always going down. And we don't have a good control of this market. So CAD200 million to me is the minimum and it's probably more like CAD300 million or CAD400 million.

But the good thing is we have some good competitors like Murray Mullen. He's bought into Gardewine. The problem that he has is that at the same time that he is doing some great job in Alberta, the Alberta economy goes to (expletive).

Right.

My problem is out west is not the competition, it's the market. My problem in the east is the competition more than the market.

Okay, that makes sense. And lastly from me, it sounds like if the right opportunity comes, as you mentioned, you'd look to redeploy some capital here. Just trying to get a sense of are the multiples that some of the companies you're potentially talking with, are they coming in, given the general uncertainty in the macro environment? Can you speak to the due diligence you do today to ensure, when you look at an earnings stream, how resilient that is? Especially given how uncertain the market is that earnings will be around even if we take another step down in the economy here?

We always have to prove the number so every transaction. And let me tell you, we did three or four small acquisitions so far in Ontario in our specialty truckload and we're doing well, but these are small stuff. You say, hey, Alain, how can you predict? Well, one thing is what we're doing is we're eliminating a guy that does not know how to make money. He knows how to service the customer but he doesn't know how to make money. So by eliminating those guys that don't know how to make money, replacing that by the guy that runs the show in our home, which is Scott over there at Contrans, that is a great pay-back for the Company. Now that's small.

If we do something of size like when we bought Contrans, that's a different story. There is, you've got to prove the number and there's got to be a fit, there's got to be something that these guys are doing better than what you're doing. So that is what we look at, Kevin.

For instance, what are these guys doing better than us that we could import into our own operation? Like when we bought America, we said hey, we've got to be present in the US. So the America opportunity shows up, these guys are good, they are running a good show. Okay, so that is our beach head so that is where we are going to start. We're going to learn the market through America. And now we know, we understand a little bit better what is going on in the US. We talk to a lot of people.

It is always -- the only risk is if I buy my stock, I'm for sure I know what I am buying. If I buy a company there's always a risk. There's always a risk, so it's like us, there's always a risk because market conditions could change. It's the same thing for an acquisition. Now there's more risk on an acquisition because you don't know the people, you know what they've been doing. Whereas if I'm buying my stock like I'm doing now, I can't make a mistake. I know what I am buying.

That makes a lot of sense. Thank you very much for the insight.

Okay, Kevin. Pleasure.

(Operator Instructions)

Mona Nazir, Laurentian Bank.

Hi, just a follow-up from me. On the truckload side, I know that you're looking at a number of options, either outright sale or formation of a new entity. I'm just wondering if the individuals that you are speaking to, if they're content with the truckload size that you're at now, or do they think that a deal makes sense if you bulk up in size? Are there any changes to the current business before you enter into an agreement or some sort of implied prerequisite?

No. We could do a deal tomorrow with one or two or three different companies and the way we are today, it makes a lot of sense. There's always been a discussion, if we're partnered do you include the Canadian truckload, yes or no? Fine. But besides that, no.

Okay, thank you.

You're welcome.

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

Thank you, operator. So ladies and gentlemen, thank you for joining us today and I look forward to speaking with you again following the release of our Q2 results. Enjoy the rest of the day. Thanks for your interest in our Company. Take care, bye.

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