Mullen Group Ltd.

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

Good morning all and welcome to Mullen Group's quarterly conference call. This morning we're going to provide shareholders and interested investors with an overview of the second quarter financial results. In addition, we will discuss the main drivers impacting these results. our expectations for the balance of the year, and we'll close with Q&A session. Now, before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements. And these forward-looking statements are based upon current expectations and are subject to a number of risks and uncertainties. And as such, actual results may differ materially. So 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'm joined by the senior executive team. We have Richard Maloney, we have Joanna Scott, who happens to be traveling and on the road, and we have Carson Urlacher. In a few moments, I'll be turning the call over to Carson Urlacher, our senior financial officer, who will provide you with an overview of the second quarter financial results. And for those of you interested in details, We've posted the MD&A, a detailed report covering all aspects of our results. So they're available for your viewing pleasure. I will keep my commentary short and provide a few of what I consider are the highlights in the quarter. Let's begin by acknowledging that this is a different market today than the last year. In fact, the last two years. So it is reasonable to expect results to be different than prior years. Besides, A simple comparison to what happened in prior years can be very misleading. What is more relevant is what is the state of the markets today is what will it look like tomorrow? But in addition, asking how we fared in this new market is a relevant question. Now when I look at the markets, I really focus on two fundamentals of the economy, the consumer and business investment. Now nowhere is the change more acute than what the consumer today The average consumer is stretched and understressed, but it's not broken, thankfully. Their income doesn't go as far as it used to, and mostly out of necessity. They've become very price sensitive. This means suppliers must adapt as well. The move by central bankers around the globe to slow inflation by raising interest rates is working. Not only has the consumer been hit hard, so too has business, which has slowed capital investment quite noticeably from our perspectives. And once the economy slows, the supply chain disruption, a major contributor to inflation, these get resolved. So yes, this is a different market, but that doesn't mean there's no opportunity. At The Mullen Group, we thrive in this type of market environment, one where we capitalize as others struggle fundamentally. I believe this is the simple key to our success, and that is that we were prepared for this market. So for example, We didn't bite when times were abundant. We just stayed in our lane and we executed, being quite satisfied to generate as much free cash as we could, never overpaying or overleveraging the balance sheet with overpriced acquisitions. Why? Because we did not believe that the policy-driven good times would last. In other words, we maintained our discipline. Another key to our success is that we take a long-term view. So, for example, over the last 30 years, We've invested in lines of business where we view the competitive landscape as more rational. This is probably the single most important reason why our business is generating solid results today. We invest in business verticals we believe can generate free cash. In summary, we are happy to generate cash at the top of the cycle, we do not overcommit when it seems easy, and then we grow at the bottom of the cycle when opportunity arises. The container world is a prime example. and a major contributor to our strong revenue performance in Q2. More importantly, I'll just advise, we've just started working with the team at Container World on how to improve the bottom line. Now, it'll take our senior team a few quarters, but like all other acquisitions, and we have many examples to prove this point out, profitability will ultimately be enhanced at Container World. This is what we do at Mullen Group. We acquire companies, then we strive to improve performance. So today we have a large and diversified portfolio of business units that operate within multiple verticals in the economy. These business units are led by seasoned industry veterans that understand what it takes to be successful in changing markets. Quarter two just reinforces this. And strategically, we have invested significant capital in the less than truckload vertical, which just happens to not only be the largest component of our business, but also the most stable. The specialized industrial service segment has a cyclical component to it, but it also has the most potential to overachieve in future quarters and years because the business in this segment will eventually need new capital, and this implies higher margins. The logistics and warehousing segment has been bolstered by the acquisition of Container World, adding another large business line to the likes of Banster Transportation and Gleason Group. And lastly, the U.S. 3-3PL business segment business remains solid with the potential to grow as new futures like AI are added to Silver Express, which is our proprietary IT platform on Holistic. So in terms of the quarter, nothing surprises, not the market, not the economy, and not the outstanding performance by our business units. We came into 2024 with a realistic game plan, and we are executing to the plan. Now I'll turn it over, the call over to Carson for more of the financial analysis, and then we'll close with the Q&A session. Carson, you are up.

All right. Well, thank you, Murray, and welcome, everyone. So as Murray mentioned, I will focus on the highlights from the second quarter, the details of which are fully explained in the second quarter interim report, which is available on CDAR Plus and on our website. So before I dive into the second quarter highlights, I would like to make a couple overarching comments to help put our second quarter results into perspective. There are a couple fundamental concepts regarding our long-term investment strategy that enables us to generate free cash every quarter. First is our acquisition strategy. As Marie pointed out, for years we've invested in niche businesses that have a moat or certain barrier to entry that tend to lead to more price stability. Container World is a great example, and had we completed this acquisition at the beginning of the second quarter, our revenues would have easily been in excess of $500 million for the quarter. We also acquire tuck-in acquisitions that drive margin improvement at our well-managed business units, the acquisition of B&R being the most recent example. The second concept is our diversification. Over 40 business units each operate in their own region and are leveraged to a distinct vertical of the economy. Diversification adds stability and predictability to our free cash flows. In the second quarter, consolidated revenues were $495.6 million, which is fairly consistent compared to last year as acquisitions added $26.9 million of incremental revenue, most notably from the two months of financial results from Container World. The main reason revenue is generally flat year over year was due to the lower demand for major construction projects, including pipelines, as both the Trans Mountain Expansion Project and the Coastal GasLink Pipeline Project have essentially been completed. 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. That said, revenue per working day declined by a modest $100,000 per day to $7.7 million in the quarter. However, as at June 2024, revenue per working day improved to $8.3 million. This increase was mainly due to the incremental revenue generated from the container world acquisition. This trend is consistent from a seasonality perspective as we head into Q3, which is now typically our strongest quarter of the year. We generated OIBDA of 85.7 million, an increase of 2.3 million compared to prior year, and is the second highest Q2 ever recorded at Mullen Group, second only to Q2 of 2022. Acquisitions added 4.7 million of OIBDA, and we also experienced improved results in our LTL segment. These increases were somewhat offset by lower OIBDA in the L&W segment and from higher corporate costs. Operating margin improved to 17.3% as compared to 16.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher margin specialized business. DOE as a percentage of consolidated revenues decreased by 0.8%, as our business units did a great job adapting to the current market conditions and controlling costs. S&A expenses as a percentage of consolidated revenue increased, resulting from higher costs experienced at Container World. and from the relatively fixed nature of these expenses. Now let's take a closer look at how we perform by segment. So starting with our largest segment, revenues in the LTL segment were $189.8 million, down $3.6 million from last year due to a softening in overall freight demand, and really from us demarketing underperforming business. These declines were somewhat offset by $1.8 million of incremental revenue from acquisitions. OIBDA was $37.5 million. up $3 million from last year despite lower segment revenue, while operating margins improved by 2% to 19.8%. The main reason for the improved operating margin was due to how we integrated B&R's LTL operations at the start of the year into our existing network, which drove greater lane density as well as using our existing technology platform resulted in more efficient operations. So a great tuck-in acquisition resulting in margin improvements. Our second largest segment is our L&W segment. Revenues in the L&W segment were $150.9 million, up $8 million from last year. Acquisitions added $22.2 million of incremental revenue, which was somewhat offset by lower revenue generated by our existing business units due to shippers electing to keep a tight rein on inventory levels, a lack of capital investment, and from competitive pricing in certain markets. OIBDA was $29 million, down $1 million from last year. due to lower revenues generated by our existing business units excluding acquisitions. This decrease was somewhat offset by $4.2 million of OIBDA generated by Container World. Operating margins declined by 1.8% to a respectable 19.2%, primarily due to a more competitive pricing environment. Now moving to our S&I segment, revenues were up $2.3 million to $109.6 million, which was mainly due to $2.9 million of incremental revenue from acquisitions. Our remaining business units in the segment generated relatively consistent revenue compared to last year. This is really a testament to our diversification strategy. The completion of the Trans Mountain and Coastal Gas projects resulted in a $9.1 million reduction in revenue of pre-made pipeline, and Canadian dewatering also experienced lower demand for their services. These declines were offset by higher revenue generated by our drilling-related services business units, as activity levels in the Western Canadian sedimentary basin increased. In addition, our production services business units benefited from the commencement of plant turnaround and maintenance projects. Our business units participate in large capital projects like Trans Mountain and Coastal Gas from the beginning, to its ongoing use, whereby we assisted in the construction phase, to eventually filling the pipelines through our exposure of providing support services to the natural gas drilling activity, as well as maintenance and turnaround work. OIBDA was $23.5 million, up $2.9 million from last year on higher OIBDA generated by our production services and drilling-related services business units. Operating margins increased by 2.2% to 21.4% despite the loss of higher margin pipeline construction work due to more efficient operations and from plant turnaround projects, which generally provide higher margins. In our non-asset-based US 3PL segment, revenues were $46.9 million, a decrease of $3.9 million from last year due to the ongoing issue of lower freight volumes and excess supply of trucking capacity, creating competitive market conditions. But despite the lower segment revenue, OIBDA was generally flat year-over-year at $800,000. Operating margin on a net revenue basis improved to 20% compared to 18.8% last year. Now moving to the balance sheet. On July 10, 2024, we announced the closing of approximately $400 million of private placement debt. There was strong demand from the bond markets, and the offering was significantly oversubscribed, mainly due to our disciplined approach to acquisitions, our large real estate portfolio, and our ability to generate free cash through all business cycles. These 10-year long-term notes match our long-term investment strategy and, once again, provides us with a well-structured balance sheet for the next decade We intend to use these funds to repay the 217 million notes that are maturing in October, and we also use the portion of these funds to repay the amounts drawn on our bank credit facilities. Speaking of the bank credit facilities, in conjunction with closing the private debt deal, we upsized our facilities from 375 million to 525 million, which is currently undrawn, giving us significant short-term liquidity. Excluding the notes being repaid in October of 2024, The principal amount outstanding on our private placement debt is approximately $608 million. That's net of cross-currency swaps. This amount is less than the $655 million we have in historical costs on our real estate on our balance sheet. Our new blended interest rate, excluding the notes being repaid in October, is approximately 5.3% per annum. So in summary, our balance sheet is well-positioned to take advantage of opportunities that come our way. whether it be tuck-in acquisitions that improve and drive margin improvement, or if we see a new vertical that will continue to diversify our business model. So with that, Murray, I will pass the call back to you.