Titanium Transportation Group Inc. (TTNM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Titanium Transportation Group's Q4 2020 Earnings Conference Call. [Operator Instructions] 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 filings made by Titanium on SEDAR. Please note that this call is being recorded today, March 10, 2021. A replay of this call will be made available until midnight on March 24, 2021. Details of the replay can be found on our website under the Investors section. I would now like to turn the call over to Titanium's President and CEO, Ted Daniel. Thank you. Please go ahead.

Thank you, operator. And thank you, everyone, for joining us on the call this morning. 2020 presented one of the most challenging operating environments on record. The COVID-19 pandemic and government mandates have certainly had a significant impact on global economic activity. Against that challenging backdrop, I'm pleased to announce that Titanium was able to deliver a record quarter and year. We successfully navigated through this environment to ensure the safety of our staff and customers. We achieved outstanding operational performance and delivered new financial milestones. The company reported record fourth quarter and full year results. Our consolidated revenues of $65.9 million for the quarter represented a 52% increase from Q4 2019 and and $200.7 million for the year, representing a 20% increase year-over-year. Much of this increase was a result of our decision to leverage our in-house, purpose-built technology to establish a U.S. Logistics segment, which commenced operations in May of 2019. I'm pleased to report that the company generated consolidated EBITDA of $6.5 million in the fourth quarter, a 46% increase from the same time last year. EBITDA for the year was $23.1 million, a 25.1% increase over 2019. In line with our commitment to drive growth, we continue to execute on our U.S. expansion plans. We successfully established our Nashville location in July 2020, and prepared for the opening of our Chicago office at the beginning of 2021. We also delivered on our commitment to grow shareholder value. In November 2020, we declared our first quarterly cash dividend of $0.02 per common share, enhancing our robust return on investment. Our balance sheet remains strong with ample amounts of liquidity to help navigate through uncertainty. With our very strong finish to 2020, we were able to execute on the acquisition of International Truckload Services Group, a full load carrier based out of Belleville, Ontario. ITS also operates terminals in Cornwall and Branford. The company has bought the land in Belleville, along with the land in Cornwall. Our teams are now well underway with the integration process of ITS. This acquisition complemented Titanium with 330 trucks, 1,600 trailers, 470 employees and owner operators as well as added about $80 million in revenue. With the acquisition of ITS, our company is now among the largest transportation companies in Canada. In the early stages of fiscal 2020, Titanium experienced significant disruptions to a number of our key end markets, including automotive and metals, reflecting the impact of government-mandated closures and customer concerns regarding the need to mandate inventory levels, the need to manage inventory levels. These disruptions were offset to some degree by increased demand from industry supporting central household goods and medical products where Titanium was able to shift assets to support increased service levels. The use of technology and an excellent commitment to safety, both on the road and in the offices allowed us to act quickly. In general, economic conditions have continued to improve in North America, which we anticipate will support volume growth, demand and pricing for our Logistics and Trucking segments. We also expect operating conditions to normalize over the coming months as COVID-19 protocols and restrictions gradually relax. With that, I'll now turn the call over to Alex to go over the results.

Thank you, Ted, and good morning, everyone. Consolidated EBITDA was $6.5 million in fourth quarter, up 46.2% from a year ago. For the year, EBITDA was $23.1 million, a 25.1% improvement over 2019. Net income per share was $0.06 for the quarter and $0.17 for the year, both up substantially from prior years and significantly exceeding expectations. For the quarter, the Logistics segment delivered revenue of $40.4 million, an increase of 122.9% from Q4 2019. For the year, revenue came in at $99 million, up 60.3% from $61.8 million in 2019. Our U.S. expansion strategy contributed $24.2 million to revenue in Q4 compared to $3.7 million in Q4 2019. For the full year, the business contributed $2.2 million to the bottom line in 2020, while it broke even in 2019. Segmented EBITDA was $3.3 million in the quarter and a $6.4 million for the year, both new records, representing a substantial increase over prior periods. Truck Transportation segment delivered slight revenue growth of 1.9% in the fourth quarter over Q4 2019, while full year revenues were down a modest 3.5% in the year, reflecting the effects of the pandemic. Segmented EBITDA was 3.9% -- or $3.9 million for the quarter compared to $4.1 million in the same quarter 2019. For all of 2020, segmented EBITDA was $18.6 million compared to $17.2 million in 2019, an 8% increase from the previous year. Supported by these strong results, we continue to improve our capital position and balance sheet strength. We reduced our net debt-to-equity ratio to 1.14 as at December 31, 2020, down from 1.26 at the end of last quarter and 1.63 from a year ago. Net debt decreased by $12.7 million from a year ago and our working capital improved by $13.6 million over the same period. Overall, a strong financial finish to 2020. With that, I'd like to turn the call back to Ted.

Thank you, Alex. I'm very proud of Titanium's performance this year. We delivered strong growth and executed on our strategies in both Canada and the U.S. Titanium overall performed extremely well in a challenging environment. Our drivers were exceptional as were the staff in our offices, all committed and unified for the success of Titanium. Going forward, we have a proven technological platform, a clear and focused strategy and an improving operating outlook for the industry. Our advanced use of technology and custom-built software solutions is a major differentiator and a competitive advantage. As a result, Titanium thrives in times of accelerated disruption. We will maintain this disciplined focus going forward as we look for opportunities to increase shareholder value. In addition to acquisitions, we are focused on balancing our internal capital needs with prudently returning excess capital to shareholders. As seen with our dividend payout, we expect to responsibly grow the dividend as an important aspect of delivering returns for shareholders as part of our overall capital management strategy. Our success has been made possible to support strength and dedication of the company's now over 1,000 employees and owner operators. I want to say a special word of thanks to everyone at Titanium for all your efforts made over the past year. I'm personally and incredibly proud of how everyone pulled together during these unprecedented times. Lastly, I want to thank all of our customers for trusting us with their business. With that, I'll now turn it over to the operator to open the lines for questions.

[Operator Instructions] And your first question here comes from the line of David Ocampo from Cormark Securities.

Since we're a couple of months now into Q1. I was wondering how your revenue is trending coming out of Q4? And perhaps maybe if you could provide an annualized run rate as you've historically done in the past?

So we're very comfortable, David, with our current run rate that we've published. We believe that our start to Q1, which you're right, we're already well into, we're very much on track. And in fact, we're -- we feel very strong about some pretty solid ingredients that are going on at this stage. So definitely up arrow on that one.

And if I can 0 in on the Logistics component of that. In the quarter, you guys just did under $125 million in the U.S. How long is that strong growth rate is going to continue? And more specifically, on the margin profile, too, is pretty strong in the quarter. Is that something that continues for the next quarter or 2 and then drops off to more normalized run rates? Just want to get your thoughts on that.

Sure. So actually, I kind of really like this question because I think about it a lot, especially with historically on people who sort of viewed Logistics to some degree as being a little bit -- sometimes can be a little less sticky than Trucking. But I think under the circumstances and given a lot of macro ingredients due to the pandemic, all sorts of components that have slowed certain things down. And I believe that there's some really strong tailwinds into the industry. But more specifically, at the Titanium level, I mean I'm sure you've heard the expression, offense is your best defense. Well, first of all, we did open Chicago early Q1. We intend to open up more offices in the U.S. this year, in particular, 2 more, at least 2 more this year. So that's number one. We do have a very strong customer base that we continue to leverage. So in other words, prior to being having offices in the U.S., we're primarily a Canadian domestic and cross-border brokers. So we'll just stick to brokerage. But at this point in time, we're leveraging a lot of our relationships, and we're expanding aggressively into the U.S. So that's kind of the offense, strong offense strategy into an existing customer base. And then number two, from a critical mass perspective, we have extremely strong technology. We've been building our technology for several years. We've got a very, very strong and very sophisticated tech team, both on the hardware and software side. So I think that those components are very important ingredients as well to kind of both a defensive and an offensive strategy that's going to continue to support our strategic execution of our Logistics division.

And Ted, can you remind us what the CapEx requirements is for 1 specific office? I imagine it's quite low since the technology is already built out?

Yes. It's actually minimal. So each office costs us under $100,000 of CapEx to open. Again, just -- it's -- I think the CapEx is kind of a minimal component per se. It's more of the fact that we've actually invested. Historically, we've invested years of development. So I think the intangible value is the ability to execute on opening up new offices in the U.S. It's pretty minimal -- minimal hardware, call it that, for lack of a better term.

And maybe perhaps circling back on the 2021 guidance. I know you mentioned that you're comfortable with the $330 million in revenue and $33 million in EBITDA, how does that number look post synergies? And how long will that take to integrate ITS?

With ITS, we do execute on a 30, 60, 90 and then your 3, 6, 9 months. I know Marilyn is going to give you a little bit more detail on that right now.

So we're in the early stages of the integration plan for sure. We have an aggressive plan in terms of being able to leverage our technology investments that we've had over the years and bring it to ITS to improve our -- improve their performance and strategies building a stronger team across the board for both of us. In terms of when will we see the synergies? Some are happening already. Some will happen in the next few months as we sort of align our terminals and we look at efficiencies. We expect to increase ITS' EBITDA by about 5%. That's our goal, and we think that's achievable. The expectation at the moment is that ITS will be 100% fully integrated into Titanium before the year's end, and we are well on track for that.

And Marilyn, is that 5% on the margin line? Or is that 5% on the absolute EBITDA number?

Ted, is that only absolute?

It'd be EBITDA.

Only EBITDA.

Yes.

Your next question here comes from the line of Benoit Poirier from Darden.

Congratulations for the strong finish of the year.

Thank you.

Thanks, Benoit.

Yes. Just to come back on the Logistics. Obviously, 8.5%, a very robust number. We know there are strong tailwinds. If you look at the logistic, the market conditions, the tight supply right now. I would just be curious as the third location contribute -- start to contribute in Q1 and the seasonality, whether we should expect the 8.5% to slightly lower or right now, the integration is much faster, and those tailwinds kind of offset the opening of those locations and let's say, the slight dilution early in the year.