Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited third 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 a star, then one 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 all to Mullen Group's quarterly conference call. We'll be providing shareholders, once again, and our interested investors with an overview of the third quarter financial results, and in addition, we will discuss the main drivers impacting our operating performance expectations for the year, and of course, we'll close with that Q&A session. Now, before I commence today's review, I remind everyone that our presentation contains forward-looking statements that are based upon our current expectations, and they're subject to a number of risks and uncertainties, and as such, actual results may differ materially. Further information identifying the risks, uncertainties, and assumptions can be found in the disclosure documents, which are filed on CDAR, and at www.mullen-group.com. Now, with me this morning, I have our senior team, but you might recall that last quarter I called in from our new terminal in Kamloops, British Columbia, that our apps group, we were just commissioned it, and I called in from our new terminal. This morning, I'm calling in from the great state of Texas. And earlier this week, I was in Austin, Texas. I was attending the annual American Trucking Association Association conference. Now, that management conference, I can tell you, was very well attended. It showcased the newest technologies, including a preview of the engines of the future, electric, hydrogen, CNG, and hybrids. And I must say, the mood in terms of the prospects for the industry was quite positive. There was a general tone of the current freight recession has found a bottom. And this is all good news for an industry that's so essential to the economy. I can also validate that the industry will be significantly more environmentally friendly in the future based upon the technologies that were on display. So this morning I'm calling in from Dallas, Texas. I'm attending the annual meeting with our station owners and partners that are based throughout North America. That includes Canada, Mexico, and the United States. And this annual event is hosted by Holistic. It's our US3PL business. And they bring... They bring a network of station partners together to strategize about the future, the benchmark and plan. And Allistic utilizes a proprietary IT platform known as Silver Express. That's where we're able to attract these station partners and station owners. And then we have a professional sales group. And what the Silver Express allows us to do is access capacity as well as identify real-time pricing visibility from a network of over 6,000 carriers. We like this business. because it's asset light. It's totally scalable, and it provides Mullen Group with insight into new opportunities within the U.S. market and global supply chain. So it'll come to no surprise to anyone on the line today that technology is the most important differentiator for any business in today's interconnected digital world. For this reason, we believe Silver Express provides a list with one of those competitive advantages. Back in Okotoks, we're joined on the line today by the senior team. I've got Richard Maloney, Senior Operating Officer. Joanna Scott, Senior Corporate Officer, and Ed Carson Erlacher, who's a Senior Accounting Officer, who, by the way, is the primary architect and author of the interim report. Carson will be providing analysis and discussion on our Q3 for financial performance. But before I turn the call over to Carson, I'll provide some opening comments. So what happened in terms of Q3 financial and operating performance? You know, as I was preparing for today, One has to think that one of these days investors will warm up to the fact that we have a damn good company. We continue to generate great results. Just look at the Q3 performance. And I'm confident that our results will show favorably when benchmarked against our peers. Now, furthermore, if I could be so bold as to suggest that if one was to look into other companies that derive business from the supply chain, let's say like Shopify, I will argue that our business is actually involved in the most important part of the supply chain, and that's the delivery to the end user. Now, just to be clear, I know that trucking certainly isn't as appealing to investors as, say, the Shopify world, but let's not forget, if you got it, a truck driver brought it. In simple terms, everyone relies on the trucking industry. It is an essential service to the economy, and here at the Mullen Group, we are one of the largest, most diversified, and most profitable trucking logistics businesses in Canada. Our business is also unique in that not only do we have scale and size, we also have one of those rare business attributes that most in our industry do not have. And that is we are one of the premier liquidity providers to industry entrepreneurs. You know, those people that go out and build small, great small to medium-sized businesses. And eventually they all need a liquidity event. So acquisitions will remain an important element of our long-term growth strategy. We know what to look for, and we don't just look for growth just to grow. We need synergies to derive value for our shareholders. And lastly, I will say this, I'm open to debate anyone who thinks we will not continue to grow, execute at a high level, or be leaders in the communities we serve. So in terms of the quarter, I'll just leave you with these few comments. Really, not much has changed as compared to Q2. at least from a macro perspective. What do I mean by that? The economy continued on a slow growth trajectory. The remnants of the freight recession lingered on, with consumers prioritizing their spend on doing things rather than buying everything, which is precisely what they did last year, accompanied by shippers doing what they needed to do, which is draw down bloated inventories. So, yes, the demand for freight and logistics services was not as robust as it was in 2022. However, this in itself did not deal a serious setback to Mullen. And the reason being, our specialized industrial service segment grew nicely year over year. Now, we all also know that inflation and high interest rate, it bites the average consumer the most. And that's the most troubling part of what we have going on in the economy today. Because the less these individuals have to spend on discretionary items, the greater the impact on the demand for freight services will ultimately be. And lastly, consolidated revenues last quarter, they were negatively impacted by lower fuel prices. That's good for the economy, but that reduces our consolidated revenues. And that's because crude oil prices moderated year over year. So in fact, fuel surcharge revenues Carson will break this down for you, but they were down $20.3 million in the third quarter vis-a-vis last year. And that represents the majority of the revenue declines year over year in our business units that we own for a full year. So in spite of all these challenges and changes to the market, our business performed very well. And I'll say once again, the reasons are the same as last quarter. We have a diversified business model. We service a wide range of verticals. We backstop by 40 independently managed business units. And these teams... They all strive for best-in-class performance every day, every quarter, every year. It is therefore our job at the corporate office, the senior executive team, in fact, all of our 60-plus dedicated professionals at corporate, to help and support our business units to be the best they can be. So I would say this, well done, team. I couldn't be happier. Great quarter. Thank you very much. Now, the second reason we had a good quarter, once again, is acquisition, which is another key responsibility of the senior executive team. And while we didn't find any new acquisitions this past quarter, our previously announced acquisitions and transactions contributed to our strong performance last quarter. And speaking of last quarter, I'll now want to turn the call over to Carson for a more detailed analysis. Carson, you're up, my man.

All right. Well, thank you, Murray, and welcome, everyone. Today I'll provide you with some of the highlights of our third quarter, the details of which are fully explained in our Q3 interim report. Consolidated revenues in the third quarter were $504 million, our sixth straight quarter of generating approximately $500 million of revenue. Revenue declined by a modest 2.8% compared to the prior year period, which was really due to three factors. First, as Murray mentioned, fuel surcharge revenue declined by $20.3 million as diesel fuel prices decreased by 10.5% on a year-over-year basis. Second, revenue declined by $19 million. due to lower freight volumes, particularly in eastern Canada, and from a more normalized pricing environment compared to the elevated levels that we experienced in the prior year. Third, we disposed of our hydrovac business in 2022, which contributed to a $2.7 million reduction in revenue. So somewhat offsetting these declines was a $27.6 million of incremental revenue that we generated from acquisitions. We generated OIBDA of just under $90 million at $88.6 million, which was a decrease of $9.5 million compared to the prior year, largely due to a decline in the LTL and L&W segments. So offsetting these declines was the strong performance of our S&I segment. Operating margins declined by 1.3% to 17.6%. Now let's take a closer look at how we performed by segment. Starting with our largest segment, Revenues in the LTL segment were $194 million, down 3.7% due to lower fuel surcharge revenue, lower freight volumes in eastern Canada, and a more normalized pricing environment. OIBDA was down $6.6 million to $34.5 million. Operating margin declined by 2.6% to 17.8% primarily due to the lower margins experienced by BNR, our most recent acquisition. The financial results of B&R contributed to a 1.1% decline in operating margins within this segment. Our second largest segment is our L&W segment. Revenues in the L&W segment were $137.1 million, down 12.3% due to the freight recession and the continuation of the inventory rebalancing cycle. Other factors contributing to the decrease in revenue consisted of lower fuel charge revenue, and a reduction in revenue from the sale of our hydro-backed business. OIBDA was a respectable 26.8 million or 19.5% of segment revenue and operating margins declined due to higher S&A costs as a percentage of revenue. Moving to our S&I segment, revenues were up 16.6 million to 125.4 million on 16.3 million of incremental revenue from acquisitions. We did experience some revenue declines associated with fuel surcharge, along with the sale of our hydro-backed business and from lower demand for pipeline hauling and stringing services. However, these declines were more than offset by greater activity levels for our drilling-related and production services business units. OIBDA in absolute dollar terms increased by $5.1 million to $29.7 million, with acquisitions adding $3.6 million of incremental OIBDA. Operating margins were strong at 23.7% on lower direct operating expenses as rate increases and greater activity levels resulted in more efficient operations. In our non-asset-based U.S. 3PL segment, revenues declined to $48.8 million due to lower freight volumes in the United States for full truckload shipments. OIBDA declined by a modest $400,000 and margins were down by 0.4%. due to higher direct operating expenses as a percentage of segment revenue. Operating margins on a net revenue basis was 25.5% compared to 28.8% in 2022. When we look at net income, net income increased by $1.1 million to $39.1 million or $0.44 per common share. This increase was mainly attributable to a positive variance in net foreign exchange and lower income tax expense, which was somewhat offset by lower OIBDA and from a reduction in earnings from equity investments. The number of common shares outstanding decreased by 4.5% to 88.7 million common shares in the quarter as we continue to repurchase and cancel shares under our NCIB program. On the balance sheet side, we continue to maintain a very well-structured balance sheet with a book value of over $2.1 billion of total assets Our debt to operating cash flow covenant under our private debt agreement is less than two at 1.98 to one. We have a total of 250 million of bank credit facilities available to us, of which we had 114.2 million drawn at the end of the quarter. In October 2024, we have 217 million of private debt notes coming due. Our ability to consistently generate predictable free cash over many economic cycles and our large unencumbered real estate portfolio has provided us with receiving many different refinancing alternatives. We are currently evaluating a number of these alternatives, and we expect to finalize and announce to the market by the end of this year how we intend to structure our balance sheet going into 2024. So with that, Murray, I will pass the conference back to you.