Good morning, and welcome to Titanium Transportation Group Q3 2024 Conference Call. On today's call, we have Ted Daniel, President and Chief Executive Officer; Alex Fu, Chief Financial Officer; and Marilyn Daniel, Chief Operating Officer. Before we begin, I would like to remind everyone that certain statements made on this call today may be forward-looking. In that regard, please refer to the risk factors and cautionary provisions outlined in the press release issued by the company yesterday as well as the filings made by Titanium on SEDAR. Please note that this call is being recorded today, Tuesday, November 12, 2024. A replay of this call will be made available until midnight on November 26, 2024, and the details of the replay can be found on Titanium's website under the Investors section. I would now like to turn the call over to Titanium's President and CEO, Ted Daniel. Please go ahead, sir.

Good morning. Thank you, operator, and thank you all for joining us. The third quarter of 2024 continued to be an environment of significant challenges for the industry with overcapacity as a key issue, especially in the full truckload segment. While we're starting to see signs of improvement, capacity rebalancing remains a work in progress. Within this backdrop, we remain focused on what we can control amidst a challenging freight environment, including managing costs, delivering exceptional service to our customers through our technology-driven solutions and maintaining our commitment to safety. This approach translates into steady results. Titanium generated $118 million in revenue, a 5% increase over Q3 of 2023 and $10.3 million in consolidated EBITDA. It is important to note that Titanium's ability to generate consistent results despite challenging market conditions is a testament to our diversified business model and our team's operational excellence. Having said that, let's turn to our segmented results. Our trucking business delivered revenue of $58 million in Q3 2024. EBITDA margin came in at 15.5%, a decline from Q3 2023. This short-term decline in profitability can be attributed to soft contract pricing, reflecting the extended pressure on transactional prices as a result of this freight recession. Despite these headwinds, our team continued to mitigate rising costs by utilizing real-time analytics in both operating costs and revenue. The Logistics segment continued to demonstrate resilience with volume growth of 24%, translating to revenue of $61 million, up 18.3% compared to Q3 of 2023, with EBITDA coming in at $3.6 million in Q3 2024. EBITDA margins for logistics during the quarter were 6.5% compared to 9.7% in Q3 of 2023. These results demonstrate our active focus on acquiring sustainable future opportunities, notwithstanding the significant market pressure on transactional pricing. We're pleased with the strong growth in this segment and have been focused on growing this asset-light division regardless of market conditions, particularly in the U.S. freight brokerage market. As I've outlined on previous conference calls, Titanium's commitment to scale our business in the U.S. market will be the major driver for our next stage of growth. During the third quarter of 2024, U.S. revenue increased 24%. Aligned with this, we secured our newest freight brokerage office in Virginia, marking Titanium's eighth U.S. location. Expanding our U.S. footprint with an asset-light model in strategic markets has been central to our growth strategy, and our Virginia operation is set to be a vital gateway into our key consumer markets. We're also continuing to see benefits from the integration of our U.S. acquisition, while experiencing temporary adverse effects on margins during this period of integration. In 2025 and beyond, we expect our U.S. assets to be a core part of our cross-selling strategy and enable customers to access a comprehensive freight management offering, driving growth in Titanium's U.S.-based logistics business. During the quarter, we continued to divest redundant assets, and continue to evaluate our business units. We necessarily cease certain operations for specific geographic areas and specific asset offerings in areas we remained operational. This decision was driven by a thorough assessment of current profitability and future prospects in those areas. By shedding these underperforming assets, we're better positioned to focus on more promising opportunities and markets. As we prepare for a potential shift in the freight market, our focus remains on operational excellence, a strengthened balance sheet and delivering unmatched value to our customers. With a young fleet and limited capital expenditure needs, we expect to generate substantial free cash flow over the next 24 months. Additionally, we're focused on monetizing underperforming assets, which will help us accelerate our debt paydown while maintaining dividend distributions. Our priority remains on meeting the growing needs of our customers, scaling for future growth and generating long-term value for our shareholders. As a result, we're maintaining our 2024 full year revenue range of $440 million to $460 million and EBITDA margins of 8% to 10%. With that, I'll turn it over to Alex for a more detailed discussion of our financial results for Q3. Alex?

Thanks, Ted. In the third quarter of 2024, on a consolidated basis, Titanium generated revenue of $118.3 million compared to $112.7 million in Q3 of 2023, a 5% increase. We delivered EBITDA of $10.3 million with an EBITDA margin of 9.8%. Diving deeper into the segment performances, the Truck Transportation segment saw revenue of $58.1 million and EBITDA of $7.9 million with an EBITDA margin of 15.5%. Soft contract pricing, reflecting the extended market pressure on transactional prices continue to be the main factor contributing to this segment's weakened profitability. The Logistics segment generated revenue of $60.9 million, an increase of 18.3% compared to $51.5 million in the comparative period. EBITDA was $3.5 million compared to $4.5 million in Q3 2023, with an EBITDA margin of 6.5%. Logistics demonstrated momentum with volume growth of over 24%. This supports Titanium's active focus on acquiring sustainable future opportunities, notwithstanding the significant market pressure on transactional pricing currently. In addition to navigating the challenging economic environment, we maintain our focus on strengthening our balance sheet. During the third quarter of 2024, we continued our sales of redundant assets from discontinued or ceased operations, which generated $4.1 million of free cash flow used towards repayment of long-term liabilities. We also continue to prioritize debt repayment following our U.S. acquisition as fortifying our capital position remains an essential component of our strategy. In the quarter, we paid over $12 million in net debt through the use of our free cash flow. This disciplined approach to capital allocation underscores our commitment to strengthening our balance sheet and enhancing our financial flexibility. By prioritizing debt reduction, we are ensuring that we have the capacity to invest in future inorganic growth opportunities and steer through current economic uncertainties. Given the strength of our business and our confidence in the earnings outlook, we maintain our dividend, declaring a dividend of $0.02 per common share. I would now like to turn the call back over to Ted.

Thank you, Alex. Amid a prolonged freight recession, we are relatively satisfied with the performance in the third quarter of 2024 and remain cautiously optimistic as market conditions show early signs of improvement. Forecasting end market recovery remains challenging, but we anticipate that carriers such as Titanium who have remained committed to sustainable growth will benefit from market stabilization. While recovery has been anemic, the tender rejection index is now above 6% and spot rates are moving higher, giving us optimistic confidence that the worst of the downturn appears to be behind us. By leveraging our investments in people and technology, we have strengthened our balance sheet and are positioned to deliver long-term sustainable value to our shareholders as the market normalizes. With that, I'll turn it over to the operator to open the line for questions.

[Operator Instructions]. Our first question comes from the line of Steve Hansen from Raymond James.

Ted, in your remarks there, I think you cited a few signs of improvements, the tender rejection index, spot rates, et cetera. Is this universal across your network that you're seeing it? Is there a regional variance or dispersion in that recovery process? Or how are you seeing it so far?

I'd say I'm seeing little baby steps going forward. We're definitely not seeing an erosion. We're seeing that across the network, things are stable, and we're seeing kind of a glimmer of an uptick.

I'm just trying to get a sense for how it's progressing here, but it's encouraging nonetheless. Just maybe touching on Virginia for a minute. You've got this new eighth location that you described here. Are there specific attributes about that market that get you excited about that new location? And just as a broader question, the volume growth there in that segment continues to be pretty outstanding. Maybe just describe to us how you're continuing to pull such great volume out of a pretty soft market?

Yes. We actually don't have a lot of presence in that geographical market. So, first and foremost, what we did was, we've been grooming somebody who is actually going to be taking over that office. And they know that market really well, they spent a number of years, in fact, working for 2 of our other offices and having kind of grown, call it, the corporate ladder to a management position. And this individual is very familiar with the Virginia market and sort of that kind of Mid-East area, and they're actually going to be heading that up, and they're already, call it, in the vicinity, getting pretty excited about getting going on this. So, we actually look forward to seeing the Virginia Beach operation launch and in addition, grow the new business that's going to come out of that geography.

And in terms of growing the new business and how we're managing that volume growth in this kind of market, the freight market in the U.S. is a huge market, and our revenue and our volume in that piece is very small. So, we're managing by growing individuals and tackling new segments to try to grow those volumes. So, that's how we're managing that kind of growth during these times.

Our next question comes from the line of Yuri Zoreda from Canaccord Genuity.

Could you just talk about where your fleet utilization stands at this stage in the Crane integration in this environment?

Sorry, did you ask about fleet utilization?

Sorry if the audio wasn't good. Yes, I was asking about where it stands given the integration of Crane and the environment and the asset sales and the utilization.

So, just to respond to that in terms of the integration, we are fully integrated with the previous Crane and have been focusing on our U.S. fleet sort of readjusting to the marketplace, et cetera. So, we've done a good job, and the team has been great to work with. We are now happy, especially in light of recent economic and political changes in the United States, that we are happy to have a strong fleet in the U.S., giving us multiple options between Canada and the U.S. In terms of optimizing the fleet, we are in that process as we speak.

And I guess along those lines and second for me, just on margins, pricing headwinds aside, you have strategies that you've mentioned to help improve margins, including analytics utilization, as we just talked about and starting to materialize some of these synergies from Crane. Could you talk a little more to those benefits, which one do you feel like will be more imminent? And when do we think we should start to see them impact profitability?

So, yes, we are utilizing our analytics to identify areas where we can make good improvement. Of course, with the current market the way it is, it is difficult to execute on some of those initiatives. A part of our strategy is to put everything in place so that we are going to benefit when the market condition improves. And at the same time, we're using those analytics and using our internal team to mitigate some of the cost increases that we are getting from our vendors. And that's, part of our strategy is to maintain the course for now while building up the building blocks for that margin improvement when the time comes.

Our next question comes from the line of Benoit Poirier from Desjardins Securities.

You made some comments about tender rejection, obviously, and we saw the freight waves called that the great freight recession is officially over.

Finally, the elephant in the room.

But I would be curious, so you made some comment about tender rejection, but I would be curious to get your thoughts, Ted, about the capacity with the upcoming implementation of the clearing house 2 regulation over the next week and maybe the political influence post the U.S. election?

So, I'm really glad that you brought that up, Benoit. Yes, of course, I mean, I think I must have read that, I think like maybe an hour from when I finally got to it. That was not one of those 1- to 2-day articles. So, very interesting, obviously. Yes, we are definitely experiencing if you talk to my sales my broad-based sales team across our network, they're definitely giving me kind of a different atmosphere in the last 2, 3, 4 weeks. We've certainly felt this kind of a shift in terms of the type of conversations that they're having. And, yes, we're seeing that tender rejections are improving, which will give us hopefully a little bit more pricing stability in the environment. But and yes, absolutely, I also saw the same strategy as you did with the 177,000 drivers that are currently in SAP status under Clearinghouse. So, in terms of the specific process, I know that this subject also excites Marilyn. So, I'm going to let her give you a little bit more detail on how that's going to work. And, yes, I mean, your guess is as good as mine as to what proportion of these drivers before the end of the month are not going to be able to actually get through at scale. So, that's very interesting.

I think one of the most impactful parts of it is the information that's not out there enough. They haven't done a great job with circulating the hard enforcement announcement. I think it will catch a lot of drivers by surprise, and that will catch a lot of customers by surprise because if they are pulled over or inspected as a scale house and they're found to be in a consortium with a positive result on there, they are not allowed to drive. So, truck, trailer, cargo impoundment sector, there's a big fallout from it. We'll have to see how it rolls out, but it is definitely a step in the right direction in sort of leaving the good guys on the table, I guess, is what we're happy to see.

And obviously, when we look at 2024, you're on track to achieve the revenue guidance of $440 million to $460 million with EBITDA margin of 8% to 10%. But I know it's probably a bit early, but how should we be looking at 2025? And what are the kind of puts and takes and the timing you see in terms of recovery?

We definitely expect a recovery in 2025. So, I think right now, given the new information that we've all experienced since a week ago, we're all trying to put our heads together here and figure out exactly to what extent that's going to impact our ability to generate improved margins and profitability and, of course, improved margins and profitability will even increase cash flow next year even further, which will further reduce debt repayment even faster. From that perspective, obviously, our growth is going to be very controlled on the asset side and hopefully accelerated on the asset-light side. And then using our technology to be able to lever exponential growth without having to really add a lot of costs. So, from that point of view we've got a lot of efficiency in our tech, which does a lot of things automatically. And, of course, we're also dabbling with AI technology, which is really cool. So, from that perspective, we definitely expect 2025 to be an exciting year. There are strong indicators now, Benoit. It's not just that clearinghouse. Again, capacity continues to tighten every month. And as well, just in general, the political environment is more than likely we're predicting to be conducive to growth.

And just looking at the EBITDA margin for the Logistics segment, 6.5%, down from 9.7% a year ago. Obviously, the brokerage business was under a soft spot maybe. How much of the decline do you feel is due to a challenging market fundamentals versus the dilution that could be coming from opening new facilities?

There's no dilution there on our new facilities because we've got a lot of our technology handles the automation and our back office is extremely efficient. So, for us, the growth is exponential in that respect. Really, most of the margin is just pure compression. We have grown year-over-year in volume. We have more customers today, in fact, more volume than we did a year ago significantly. In fact, we are moving right now record volumes. We've had some of the best volume months that this company has ever experienced, which is incredible. So, we're really excited at the fact that the margin compression is just purely pricing pressure. Once that pressure starts to alleviate, then obviously, we're going to be able to see that expansion.

And what's the timing to see a better pricing environment as volume right now is ticking up?

All right. Well, hang on. I'm just going to open my door and pull out my crystal ball on that one, Benoit. I mean, like really a rough guess, I would say we all know that there's cyclicality here and then we've got seasonality, right? I mean, the seasonality of consumerism here is typically there is demand in November and December for the holidays. But then January, February typically are softer months. And that's what I call the recovery months for the kind of more the macroeconomic consumer side of demand. And then I think that really March, April, we're going to really start to experience the uptick. So, that's kind of my my back of the napkin guess.

And maybe last one for me. When we look at the leverage ratio, you were able to improve quarter-over-quarter, now at 2.8x right between the targeted level of 2.5 to 3. So, just curious to have your take about the M&A opportunities you see out there. And, yes, if we could expect you to pull the trigger given what you see these days?

Well, as you know, I mean, we're always very well aware of our debt. You know how we run this business. We like to make sure we've got some really strong foundations. So, for now, we're actually just going to keep paying down our debt. We've got, I think, a really exciting runway ahead of us in terms of the asset-light business, particularly by scaling our technology and the opportunities. In terms of M&A, M&A for us because we're good at it, is never off the table. We did buy Crane in the middle of 2023 with the expectation that we'd see some improvements in the market in '24. It took a little longer. But I would say that a testament to this company is the fact that even though it took a little longer to get to a better market, given the strategic, I guess, the strategic reasons why we bought our first U.S. asset-based company is because we can expand our offerings. And so, having said that, M&A is never off the table. We're good at it, but I think we have to be really careful, and we first need to pay down debt. But I mean, if something really interesting comes up, we will look at it. But first, debt repayment is really important, and then we're going to grow our asset-light side of our business. And then we'll see how we can strategically augment what we've got in terms of assets.

Our next question comes from the line of Adam Schneider from Cormark Securities.

I just wanted to double check something quickly. Did I hear correct that you said that you're fully integrated on Crane now?

Yes, we are. We're fully integrated and now are in the process of optimization and improving the utilization of the existing trucking fleet.

And I was wondering if you guys had a normalized CapEx number for 2026.

2026, talking about 2 years later or 2025? Sorry.

Yes. I guess both, if you have.

We are not anticipating, with our fleet being the age it is, we are not anticipating any substantial CapEx in 2025. If we do end up buying anything, it's for growth and a market recovery. For 2026, a little far out there, but we may purchase some trucks as part of our replacement cycle. It really depends on, number one, market condition; number two, the stage of our fleet. Again, it's 2 years out. So, it's kind of hard to estimate that at this current moment.

I think to some degree, part of that has to do with the arbitrage of used pricing to new pricing. So, we'll have to take a look whether we start our replacement cycle in '26 or perhaps a year later because the average age of our fleet right now is about 2. So, we have a lot of runway on that.

And then just one more quickly here. Just going back to your EBITDA margins. Is your 10% target realistic for 2024? Or like do you expect to hit it in 2024? And or is that more of a 2025 number?

Sorry, you're talking about our 10% on our guidance, correct?

Yes.

Yes. So 8% to 10% is kind of the range that we're comfortable with.

The 8% to 10%, yes. And just to reiterate, it is on our EBITDA margin, which is pre-fuel surcharge.

And that's for 2024, you said you're comfortable with that?

100%.

[Operator Instructions] We have a question from Gianluca Tucci from Haywood Securities.

I just have a question on your asset-light side. Like you guys have done a great job of expanding, growing that business line organically over the last 5 years or so. But what can we expect from here in terms of the cadence of new locations from this point? Are you targeting a certain number of new offices over the next few years? Or how should we be thinking about the pace of organic growth on the logistics side of things, Ted?

So, we're definitely still on target, call it, for lack of a better term, our goal is to hit 10 offices by the end of 2025. And I think at this point in time, we're on target for that. So, I'll let my team also weigh in on this.

No, just to reiterate, we are on schedule, as we've discussed, with the announcement of Virginia, we are already in motion of looking at the next one beyond that, and we will hit our target for the end of 2025, barring anything drastically changing in the marketplace. But that's what we feel we will be doing. We are seeding for that already, and that's in place. As we continue our expansion, we definitely continue to see our U.S. expansion, and we'll grow it as we feel is correct. The 10 offices is something we can function with and something we feel is appropriate. We may not need to go beyond 10. We may be on track to go beyond that should that work out for us in the next little bit. But our growth focus is definitely on that asset-light model in the U.S. as well as the asset base in the U.S. marketplace as well as part of our growth strategy. We will keep both of them on an asset-light model. So our growth with our owner-operator fleet is where we will balance out. We still will always have a company driver fleet, but our growth, we would like to focus more on the growth of the asset-light owner-operator group.

Yes, for sure. And I mean, again, we already know what we're doing as far as the next office goes. And then as far as the 10, we're kind of figuring out we've got a few options. If it happens towards the second half of '25 or at the latest Q1 2026, I mean, it's more about making the right decision, the right people, the right location and then basically giving them the tools that we have, which is our tech and a way to go.

And Ted, like you had a good land sale over the past few months. Are you looking at anything else that's noncore right now, because there's a lot of hidden value there from my perspective. But I'm just wondering if you're exploring anything else on the land side because that was a good unlocking of value there that was noncore. So, I'm just wondering how you're thinking about your other land package that you own.

Yes. Actually, great question, and I appreciate you asking. So, yes, we did earlier this year, sell noncore raw land in Cornwall, and that was a very good transaction. And as well, yes, we are looking at one other piece right now. And in fact, we did rationalize the lanes North, which ran to some degree out of Bolton, and then they ran to some degree out of North Bay. We've rationalized it's more efficient now, and we're running some of those North lanes entirely as rent trips out of the GTA. And so, now we've kept some of that business, and we basically had to rationalize there's a few lanes that just didn't make mathematical sense. So, now what we've got, obviously, is the North Bay property is no longer core, and we do have it listed for sale. So, that is actually in the process.

And then just lastly, perhaps a question for Alex, but how should we be thinking about your net leverage targets exiting next year, if you have rough range in mind?

Yes, sure. So, as Ted mentioned a few times already, our focus continuously is to pay down debt. And obviously, that's going to improve our leverage targets and whatnot. We are aiming to be around that 2 or maybe 2.2 by the end of 2025. If given the opportunity and that we can sustain it, we will definitely be paying more than our contractual obligations, and that's the focus, and that continues to be our focus. Of course, it really largely depends on the recovery of the market because if it stays the course right now, then we'll be able to pay around the $40 million that we talked about before. If the market condition improves, we may be able to up that number and achieve that 2

1 target.

Just lastly, I'm hearing people talk about the nearshoring of activities as a consequence of the election in the U.S. How are you thinking about that, Ted? Is there any opportunities to benefit from that thematic trend?

Yes. Actually, we are excited about that. We are developing our people with respect to Mexico, in fact, and that product line has grown over the last 3, 4 years for us, and it continues to grow. In fact, that is definitely let's colloquialize this from our finance land. It is definitely an upward slope to the right. So, from a near-shoring perspective as well, obviously, that is something that has become in the last week or so. I mean, nobody could predict what would happen with the election, but we all know more or less what the inclination is going to be for the new administration. And we believe that nearshoring is going to become a reality even more so than it is today. We have a fleet in the U.S. Now we bought Crane specifically for opportunity. It was strategic. And we knew that regardless of what happens, it will eventually create opportunity and give us options to be able to function. One way or the other, it was going to create opportunity. It was just a matter of time. It just took a little bit longer. So, nearshoring, I think, is definitely going to have a major impact. I believe that, that's going to have an impact on an increase in Mexican freight. And we are growing on all fronts on that level and we are actually ready, both from a people and a technological perspective to execute on those opportunities and broaden those opportunities.

There are no further questions at this time. Mr. Daniel, please go ahead.

Thank you, operator, and thank you all for joining us today. We appreciate your interest in our company. I look forward to providing an update on our progress and all of our priorities discussed today when we report our Q4 and our full year 2024 results in March. If there are any further questions, please feel free to contact us. Thank you for joining us on the call today.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.