Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited first quarter earnings conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star then zero. I would now like to turn the conference over to Murray K. Mullen, Chair, Senior Executive Officer, and President. Please go ahead.

Thank you and welcome to everyone to our quarterly conference call. And we'll provide shareholders and interested investors with an overview of the first quarter financial results. In addition, we will discuss the main drivers impacting our operating performance, our expectations for the year, and close with a Q&A session. So before I commence today's review, I remind everyone that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of risks and uncertainties. As such, actual results may differ materially. For further information identifying the risks, uncertainties, and assumptions, All these documents can be found in the disclosure documents, which are filed on CDAR and at www.mullen-group.com. So with me this morning, I have our executive team, Richard Maloney, Senior Operating Officer. We have Joanna Scott, Senior Corporate Officer, and Carson Urlacher, who is the Senior Accounting Officer. So let me start off, before I turn it over to Carson, let's start off with a review of the financial and operating performance for Q1. You know, it was a good quarter for our company, and that probably suggests to me that shareholders should be pleased with our performance thus far in 23. So I'm going to discuss the major reasons behind the results, and my good friend Carson will provide a deeper analysis of the numbers. Let's start by looking into the macro issues and the economy, because it all starts there. So from my perspective, there was no sign of that economic recession that so many experts were calling for to actually happen. It didn't happen, but there was a freight recession. And I think we need to differentiate between the two, which was more intense in the United States. Now there are a few reasons for the current challenging transportation environment. And firstly, you'll recall that the freight surge that began in Ernst in late 2021, That's what a time when consumers were loaded with cash and buying what seemed like anything and everything. At the same time, productivity levels declined due to new regulations, health and safety protocols, and the lack of available workforce to meet the surge in demand. So in other words, what we had was a supply shortage. Costs skyrocketed, bottlenecks emerged, prices rose, and inflation pressures became entrenched. But like always, nothing stays the same forever. By late 22, we started to see consumers shifting their spending habits towards doing things such as travel and leisure versus buying things. And when this happened, the demand for freight services softened from peak levels. Quite simply, consumers were still spending, just spending differently. This meant the freight industry started to show signs of fatigue, whereas the travel and leisure industry began to flourish. Now, this shift in spending, however, was not the only reason the so-called freight recession emerged. We have to take into consideration that manufacturers and shippers ordered far too much inventory during the pandemic, either because they misread overall consumer demand or they pre-ordered too much inventory, believing the supply chain issues would last longer than they actually did. Either way, they created an inventory overhang and are trying to rectify this by curtailing new orders. And that translates into no new free shipments. So it's my belief that the mismanagement of inventories by manufacturers and shippers is the single most important reason for last year's freight surge and this year's freight recession. The good news is that inventories will eventually be brought into balance and volumes will normalize. And when this occurs, the freight recession will end. Now I'll speak about future pricing trends and market dynamics in the Outlook section, But for the rest of my comments here, before I turn it over to Carson, I'll say this. The reality of the events that created the freight surge in 22 or unwinding in 23 to what I would call a more normal or traditional freight environment. And I think that investors will soon have enough information to evaluate how companies will perform in today's reality. Clearly, our first quarter was pretty good. And that was despite the fact that that we were generally quite quiet on the acquisition front last year. Now, you might want to take, I'll pause for a second, you might want to just take consideration. I never believed that the freight surge was caused by end consumer demand. I believed it was caused by other supply chain issues. That's why we didn't buy anybody last year. So what are some of the reasons for our solid performance? Well, let me give you a couple of the reasons. Number one, I think it really has to do with our business mix. We have a diversified portfolio of service offerings, which includes some exposure to business investment. Now, this is important because business spending and capital investment is also a key driver of overall economic activity. And from what I saw in the quarter, this part of the economy was still pretty good, particularly here in Western Canada, where we have a significant presence. In fact, one sector of the economy that was quite active was investment in the energy space. Now, notice I said energy space, because we are seeing activity in all sorts of energy, from solar to hydro to renewables to oil and natural gas. In addition, there is renewed interest in mining, because the world needs those minerals and metals to power the next generation of energy deliverability. You don't build batteries without minerals and metals. And it just so happens, and perhaps not by luck, that we provide service offerings to all of these energy verticals in our portfolio of diversified service offerings. Now, in fact, I'll argue that our business is built for any market, and it's built for this market. Let me now turn to the performance of the four operating segments. Now, there's no doubt there was a few challenges associated with the slowing demand for freight as the consumer adjusts their spend. There was the oversupply capacity issue, especially in the long-haul transportation sector. And as I said to you, that was primarily due to the inventory rebalancing trend. And yes, there's a normalization of pricing due to supply and demand dynamics. So not only did all these trends hit the headlines, they negatively impacted our logistics and warehousing segment, along with our U.S. 3PL segment. But this is only one part of our overall business mix. In fact, from my perspective, there's a lot of positive. Now, consider our less than truckload segment. Now, this is the largest segment in our group, and it held pretty steadily, primarily because of the nature of the business company by end, solid end consumer demand. Plus, we added a couple of tuck-in acquisitions that add scale and service coverage over the last 12 months. Now, Specialized Industrial Services had a great quarter. as investment dollars continue to be allocated to the energy sector of the economy. And the last reason I'll highlight for our solid Q1 performance is that our business units did an excellent job managing the margin. They held firm on pricing where it made sense to do so, and they watched costs like a hawk. So I was very pleased with how they managed the business in Q1. So now I'll turn it over to Carson to discuss the details. Carson?

All right. Thank you, Murray, and welcome, everyone. I'll provide a bit more detail, however, our interim report fully explains our financial performance. As such, I'll provide you with some of the highlights. Overall, Q1 is highlighted by generating consolidated revenue of just under $500 million, an increase of approximately $41 million or 9% compared to the prior year, and a record compared to any increase in the first quarter. The $41 million increase in revenue resulted from a $15.4 million increase in fuel surcharge revenue, 15 million of incremental revenue from acquisitions, and 10.5 million from general rate increases along with steady customer demand. OIBDA improved by 27.7% to 77 million and was largely due to growth in the S&I and LTL segments. Earnings per share doubled to $0.34 as compared to the prior year. On a trailing four-quarters basis, we've now generated over $2 billion in revenue along with $346.6 million of OIBDA, and $1.87 in earnings per share. Return on equity improved to 13.2% in the quarter. In terms of operating margin, it improved by 2.3% to 15.5% in 2023 compared to 2022, and was mainly due to rate increases, which more than offset inflationary costs. Let's take a look at how we perform by segment. Starting with our largest segment, the LTL segment grew revenues by 17.2 million to 192.8 million. 10.4 million of this increase was due to higher fuel surcharge. 5.7 million was due to acquisitions, while general rate increases and steady consumer demand added a modest 1.1 million in segment revenue. OIBDA increased by 8.7 million to 31.8 million in the quarter, which was largely due to rate increases while acquisitions accounted for $0.8 million of the increase. The continued strength in consumer spending held freight volume steady. Operating margin improved by 3.3% to 16.5%, primarily due to lower direct operating expenses as a percentage of revenue, resulting from productivity improvements and customer rate increases. Our second largest segment is our L&W segment. This segment generated $144.1 million of revenue, which was essentially flat compared to the prior year period. Fuel surcharge revenue increased by $3.4 million. Excluding fuel surcharge, revenue declined by a modest $1.8 million and was mainly due to a $2.6 million decrease in revenue resulting from the sale of our Hydrovac assets and business in the fourth quarter of 2022. This segment generated $26.1 million of OIBDA and operating margins of 18.1%, both of which remain consistent compared to 2022. Moving to our S&I segments. Revenues were up nicely by $29.5 million to $112.8 million as virtually all business units experienced revenue growth. Rate increases and strong demand for specialized services, including pipeline hauling and straining services, construction projects in northern Manitoba, and from greater activity levels in the energy sector resulted in higher revenue. Acquisitions added incremental revenue of $9.3 million in the segment. OIBDA increased by $7.1 million, or 53.4%. to $20.4 million, while operating margins increased by 2.1% to 18.1% compared to the prior year. Operating margins improved due to lower direct operating expenses as a percentage of revenue, as rate increases and greater demand for the majority of our services resulted in more efficient operations. In our non-asset-based US 3PL segment, revenues declined to $51 million, as freight demand in the United States for full truckload shipments continued to soften compared to the prior year. However, OIBDA remained relatively flat, 1.2 million. Operating margins improved slightly to 2.4% due to the timing of when contract freight rates were entered into compared to spot market pricing and the availability of contractors in the open market. Essentially, we managed the spread in a down market. Operating margin on a net basis was 25% compared to 23.4% in 2022. Net income improved by 93.3% to $31.7 million and was mainly due to the $16.7 million increase in OIBDA and the positive variance in net foreign exchange being somewhat offset by higher income taxes. Earnings per share doubled to $0.34 for common share compared to the prior year due to the combination of higher net income and a reduction in the number of common shares outstanding as we continued to buy back our stock. In the quarter, we repurchased and cancelled 2.2 million common shares at an average price of $14.45. We continue to generate cash in excess of our operating needs, as net cash from operating activities in the quarter was $34.2 million compared to $18 million in 2022. The increase of $16.2 million, or 90%, is mainly due to two things, one being the $16.7 million increase in OIBDA and the other due to a $20.2 million variance in changes from non-cash working capital items. This strong cash flow generation was somewhat offset by a $20.8 million increase in cash tax paid, which resulted from us paying the final taxes owing related to fiscal 2022 due to the strong financial performance that we had last year. Our balance sheet remains strong. Our debt to operating cash flow covenant under our private debt agreement is at 1.74 to 1. We have a total of $250 million of bank credit facilities available to us, of which we had $68.3 million drawn at the end of the quarter, leaving us with over $180 million of room available. So we have ample financial flexibility on both the private debt covenants and on our credit facilities, allowing us to continue our NCIB program and fund acquisition opportunities. Our private placement debt has an average annual fixed rate of 3.93%, the private debt matures in two tranches with principal repayments, net of cross currency swaps of $217 million and $208 million due in October 2024 and October of 2026 respectively. So with that Murray, I will pass the conference back to you.