Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited first quarter 2024 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 Mr. Murray K. Mullen, Chair, Senior Executive Officer, and President. Please go ahead.

Thank you. Good morning, everyone. Welcome to Mullen Group's quarterly conference call. So this morning we'll provide shareholders and interested investors with an overview of the first quarter financial results. In addition, we'll discuss the main drivers impacting these results or expectations for the balance of the year, and we'll close with a Q&A session. Before I commence today's review, I'll 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, 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. So this morning, here in Okotoks, the entire senior team, We have Richard Maloney, who's our senior operating officer, Joanna Scott, who's our senior corporate officer, and senior financial officer is Carson Erlacher. And once again, Carson's the primary architect and author of the very informative and detailed Q1 interim report. So today, Carson will be providing analysis and discussion on the Q1 performance. But before I turn the call over to Carson, let me start with some opening comments. If you look at the first quarter results, perhaps what I'll do as an opening comment is remind everyone, we expected some challenges in the freight market, in the economy, and more importantly, in the demand for freight to start the year. In fact, in the 2023 annual financial review, which we released in February of this year, We highlighted that the first half of 24 would be soft, and with economic activity gaining momentum, providing central banks started lowering interest rates. So let's talk more about that in the outlook section. But what happened in this quarter is not really a surprise to us. And I think based upon our quarter results, it's pretty evident that we got the outlook, at least the first part of the outlook, correct. Economic activity was muted, but more importantly to the logistics and warehousing industry, freight demand, it was pretty soft, and this was the case in most verticals. You have less freight to handle, accompanied by the increase in capacity in virtually all parts of the business that were added during the 22-23 cycle. And this all led to competitive and what I would now say sometimes predatory pricing. This basically explains what happened in the first quarter, and not just at MTL, but across the transportation and logistics industry. Quite simply, there just wasn't a lot of demand. And our results, however, on a comparative basis, held up reasonably well because, you know, truthfully, we were prepared for this market softness and we have a diversified business model. So, for example, our emphasis on investing in the LTL segment provides a solid base of revenue and it's not as competitive as the long-haul full truckload business. This is and will continue to be a significant competitive advantage in my view. And as our competitors struggle with the reality of the current soft demand and overcapacity, we think it creates opportunity. So the strong, the nimble, they'll not just survive, they'll capitalize on opportunity. And the most effective way to capitalize on this market is via acquisitions. It's the only bright spot for our organization really in the first quarter. So for example, we added 20.5 million of incremental revenues from acquisitions that we completed in 2023. And primarily that was the B&R Group, which was a very synergistic and strategic acquisition. Not a lot of money, but it did add $20.5 million of revenue in the first quarter, $20.5 million. And the other thing we had, and this didn't show up in our first quarter results, we announced the acquisition of Container World Freight Forwarding. Now, that gets us into a new vertical on the West Coast primarily, but they're in the distribution, the handling, and the logistics warehousing of the liquor business. I'm pleased to report that we have now received all regulatory approvals to proceed with that acquisition, meaning that we will close on May 1, and then we'll include those results starting with the May results. So this transactional loan will get us back onto a growth path, which is, I think, a real positive and otherwise kind of difficult quarter. So I'll turn it over to Carson, and he'll provide you a more detailed analysis of the quarter. Carson, you're up.

Okay. Well, thank you, Murray, and welcome, everyone. Today I'll focus on the highlights from the first quarter, the details of which are fully explained in our Q1 interim report, which is available on CDAR Plus and on our website. So in the first quarter interim report, you know, given the relative consistency and predictability of our business model, We highlight revenue per working day as a way to identify and explain year-over-year financial results and to identify variances in customer demand levels for our services. Consolidated revenue, OIBDA and operating margin in the first quarter of 2024 all declined compared to the same period in 2023. However, all of these financial metrics exceeded the results recorded in the first quarter of 2022. Consolidated revenues in the first quarter was $462.6 million, a decrease of $35.2 million as compared to the prior year, and was due to a combination of a decline in revenue per workday and from one less working day in the quarter. What compounded this effect was the impact of losing three working days in the month of March, which is our most productive month in the quarter. Revenue per working day was $7.5 million in the first quarter of 2024, a decrease of approximately $400,000 per working day, as compared to $7.9 million in the first quarter of 2023. The $400,000 decline of revenue per working day was due to the following factors. Overall freight demand was negatively impacted as suppliers and manufacturers were reluctant to increase inventory levels. Economic activity levels slowed in Canada due to a lack of capital investment in the private sector. There was low demand for major capital construction projects. including pipelines as both the Trans Mountain Expansion Project and the Coastal Gas Link Pipeline Project have essentially been completed. The activity that was generated by these large projects in the prior year have not been replaced. Fuel surcharge revenue also declined by $12 million as diesel fuel prices declined on a year-over-year basis. Somewhat offsetting these declines was $20.5 million of incremental revenue from acquisitions. We generated OIBDA of $66.2 million, a decrease of $10.8 million compared to the prior year due to the decline in consolidated revenues being somewhat offset by $3 million of incremental OIBDA from acquisitions. Operating margin declined to 14.3% as compared to 15.5% last year due to higher S&A expenses as a percentage of consolidated revenues. resulting from the relatively fixed nature of these expenses. DOE, as a percentage of consolidated revenues, remained consistent year over year, despite more competitive pricing conditions in certain markets and a reduction in higher margin specialized business. Now let's take a look at how we performed by segment. Starting with our largest segment, revenues in the LTL segment were $182.5 million, down $10.3 million from last year due to a change in working days compared to last year. a slight decline in revenue per working day on lower freight demand, and a $6.4 million decrease in fuel surcharge revenue. These declines were somewhat offset by a $5.5 million of incremental revenue from acquisitions. OIVDA was down $1 million to $30.8 million on lower segment revenue, while operating margin actually improved slightly by 0.4% to 16.9% due to lower DOE resulting from more efficient operations. Our second largest segment is our LMW segment. Revenues in the LMW segment were $126.3 million, down $17.8 million due to lower freight volumes and logistics demand, a lack of capital investment, and competitive pricing in certain markets, while fuel surcharge decreased by $4 million. OIBDA was $22.5 million, down $3.6 million from the prior year period on lower segment revenues. Operating margins declined slightly by 0.3% to 17.8% primarily due to higher S&A expenses as a percentage of segment revenue. DOE improved due to our variable cost structure and our business unit's ability to adapt to current market conditions resulting in lower DOE as a percentage of revenue. Moving to our S&I segment, revenues were down slightly by $0.9 million to $111.9 million. Lower demand for pipeline hauling and springing services accounted for an $8.1 million reduction in revenue. SMUC contractors experienced a $4.6 million decline in revenue on lower demand for civil construction projects in northern Manitoba. The production services business units experienced a decline in revenue due to inclement weather, delaying the commencement of certain projects, and fuel surcharge revenue declined by $1.6 million. These declines were somewhat offset by $15 million of incremental revenue from acquisitions and greater activity levels in the Western Canadian sedimentary basin, which resulted in higher revenue being generated by our drilling-related services business units. Canadian dewatering also experienced greater demand for the sale of some water management equipment. OIBDA decreased by $3.7 million to $16.7 million. due to lower OIBDA at pre-made pipeline and smooth contractors on reduced activity levels. Canadian dewatering generated lower OIBDA due to a change in sales mix and from preparing equipment for upcoming projects to commence later this year. Somewhat offsetting these declines was $1.9 million of incremental OIBDA from acquisitions. Operating margins decreased to 14.9% from 18.1%, on higher DOE and S&A expenses due to a greater proportion of lower margin business and from preparing equipment for project work to commence later in the year. In our non-asset-based US 3PL segment, revenues declined by $6.6 million to $44.4 million due to a slowing freight volumes and excess trucking capacity in the US market, particularly for full truckload shipments, resulting in lower pricing per shipment. OOIBDA declined to $0.5 million and margins came in at just over 1% due to higher DOE and S&A expenses as a percentage of segment revenue. Operating margin on a net revenue basis was 12.8% compared to 25% in 2023. From a balance sheet perspective, 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. In January, we entered into a new $125 million credit agreement with PNC Bank Canada Branch, increasing the amount available on our bank credit facilities to $375 million. We had $90.8 million drawn on these bank credit facilities on March 31st, providing us with over $280 million of borrowing availability. In October 2024, we have $217 million of private debt notes coming due. that we expect to be able to replace with new long-term debt this year. Our debt to operating cash flow covenant under our private debt agreement was 1.94 to 1, meaning we could theoretically add $180 million of debt to our balance sheet and still be a full turn away from our covenant threshold. We consistently generate free cash, as you know, so adding new debt to our balance sheet would be to grow the business through our precision-based acquisition strategy. So with that, Murray, I will pass the conference back to you.