Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited year-end and fourth 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 0. I would now like to turn the conference over to Murray K. Mullen, Chair, Senior Executive Officer and President. Please go ahead.

Good morning, everyone. Thank you and welcome to Mullen Group's quarterly conference call. We'll provide shareholders and interested investors with an overview of the Q4 2023 financial results. And in addition, we will discuss the main drivers impacting these results, our expectations for 24, and we'll close with Q&A session. So we'll leave most of the time for Q&A. I see there's already people getting in the queue. Before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements, and they're based upon current expectations and are subject to a number of risks and uncertainties, and as such, actual results may differ materially. Further information identifying these risks, uncertainties, and assumptions can be found in the disclosure documents, which are filed on CDAR Plus and at www.mullen-group.com. So with me this morning in Okotoks, I have the entire senior executive team, Richard Maloney, who's our senior operating officer, Joanna Scott, who's our senior corporate officer, and Carson Erlecher, who's our senior accounting officer and who's the primary architect and author of the very informative and detailed annual financial review, that we've already posted. So today Carson will be providing analysis and discussion on our Q4 performance. But before I turn the call over to Carson, I'm going to provide a few opening comments. Let's talk just in terms of Q4 2023 financial and operating performance. It was just a few weeks ago, December 11th to be precise, that we provided investors with a Q4 2023 update, as well as we outlined our business plan for 2024. meaning that really today's call is basically redundant because the actual results for Q4 23 were very consistent with that update. Revenues came in at nearly $500 million for the quarter. That's virtually the same as Q4 2022. And that's despite all of the disruption taking place in the logistics and transportation sectors. And you've all heard or you know by now what those issues are. The general economy just has not been growing at the same robust pace as 2022. And shippers, well, you know what? They needed to adjust inventory levels in 23. These two factors reduced overall freight demand significantly in 2023. In addition, all the supply that flooded into the market when freight demand was elevated is today's Achilles heel to that very same freight market. And we all know that when supply exceeds demand, prices fall. The joys and the sorrows of the market. But what about at Mullen Group? You know what? Why did we generate results in 2023 virtually the same as 2022? Reason number one, we have a strong diversified network of business units. We also operate in verticals of the economy where the marketplace disruptions were not as acute as, say, the long-haul trucking market. And reason number three, we completed a couple of timely acquisitions in 2023. So in summary, our business performed extremely well. We matched the highs that were attained in 2022, and I couldn't be happier, especially knowing all of the challenges that many of our peers are facing today. So I'll now turn the call over to Carson, and he's going to give you a detailed analysis of the fourth quarter. Carson, you're up.

Perfect. Well, thank you, Murray, and welcome, everyone. Today I'll focus on the highlights from our fourth quarter. The details of both the fourth quarter and our 2023 results are fully explained in our annual financial review, which is available on CDAR and on our website. So consolidated revenue in the fourth quarter was $498.6 million. our seventh straight quarter of generating approximately $500 million of revenue. Revenue for the quarter was essentially flat compared to the prior year, declining by less than 1%, or $4.1 million, which was due to the following factors. First, fuel surcharge revenue declined by $11.1 million, as diesel fuel prices decreased by 25% year over year. Second, revenue declined by $13.2 million, due to lower freight volumes and a more normalized pricing environment, particularly in the L&W and US 3PL segments, which was somewhat offset by greater demand for services in the S&I segment, while our LTL segment remained stable and consistent year over year. Third, we disposed of our HydroVac business in 2022, which led to a $1.4 million reduction in revenues. These revenue declines were virtually offset by 21.7 million of incremental revenue from acquisitions. We generated OIBDA of 79.2 million, an increase of 2.1% or 1.6 million compared to the prior year, despite one-time integration costs related to B&R and a more competitive operating environment. Operating margin increased by half a point to 15.9%, reflecting the variable cost structure of our business model and our business unit's ability to adapt to changing market conditions. Now let's take a closer look at how we perform by segment. Starting with our largest segment, revenues in the LTL segment were $190 million, which was virtually flat to last year as lower fuel surcharge revenue was offset by incremental revenue from acquisitions. The slight decline in freight volumes that we experienced in eastern Canada was essentially offset by steady, predictable freight volumes in Western Canada. OIBDA was down $1.9 million to $29.9 million, and operating margin decreased by 1% to 15.7%, primarily due to those one-time integration costs experienced at BNR. Excluding the financial results of BNR, our LTL segment would have generated operating margins of 18% in the fourth quarter of 2023. Our second largest segment is our L&W segment. Revenues in the L&W segment were $140.8 million, down 8.5% due to the lower freight volumes and competitive pricing, lower fuel surcharge revenue, and from the sale of our HydroVac business in 2022. OIBDA was a respectable $29.1 million, or 20.7% of segment revenue, which was almost a full percentage point higher than last year. Operating margins improved as our business units adapted to current market conditions, resulting in lower direct operating expenses as a percentage of revenue. Moving now over to our S&I segment, revenues were up by $14.5 million to $122.5 million on $14.4 million of incremental revenue from acquisitions. We did experience some revenue declines associated with lower fuel surcharge from the sale of our Hydrovac business, and from lower demand for pipeline hauling and stringing services. However, these declines were more than offset by greater activity levels for drilling-related services, while SMUC and Canadian dewatering also experienced greater demand. OIBDA increased by $5.5 million to $24.6 million, with acquisitions adding $3.4 million of incremental OIBDA, while improved pricing for the drilling-related services and the transportation of fluids and servicing of wells also contributed to the increase. Operating margins improved to 20.1% on lower direct operating expenses as rate increases and greater activity levels resulted in more efficient operations. In our non-asset-based US 3PL segment, revenues declined by 9.3% to $47.7 million due to both lower freight demand and pricing in the US for full truckload shipments. OIBDA declined to 400,000 and margins came in at just under 1% due to higher S&A expenses as a percentage segment revenue. Operating margin on a net revenue basis was 9.8% compared to 19.6% in 2022. From a net income perspective, it decreased by 32.1 million, decreased by 32.1 million to 29.4 million, or 33 cents per common share. This decrease was almost entirely due to a 29.3 million negative variance in the gain on sale of property, plant, and equipment, which mainly resulted from a significant gain on sale of non-core real estate in the fourth quarter of last year. The weighted average number of common shares outstanding decreased by 4.8% to 88.4 million shares in the quarter, as we continued to repurchase and cancel shares under our NCIB program. We continue to maintain a well-structured balance sheet with a book value of over $2 billion in total assets with our largest asset class being real estate, which helps us avoid some of those inflationary pressures associated with lease renewals. Our debt to operating cash flow covenant under our private debt agreement is down to 1.83 to 1, meaning we could theoretically add $200 million of debt to our balance sheet and still be a full turn away from our covenant threshold. We consistently generate free cash, so adding new debt to our balance sheet would be to grow our business in verticals of the economy with strong underlying fundamentals via acquisitions that meet our precision-based strategy of being the right fit, the right price, and creating synergies for our existing business units. We now have a total of $375 million of bank credit facilities of which $73 million was drawn at year end, providing us with over $300 million of borrowing availability or liquidity. In October of 2024, we have $217 million of private debt notes coming due that we fully expect to be able to replace with new private debt notes this year. So with that, Murray, I will pass the conference call back to you. Thanks, Kars.