Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited year-end and fourth 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.

Thank you and welcome to Mullen Group's quarterly conference call. We'll provide shareholders and interested investors with an overview of the Q4 2024 financial results. In addition, We will discuss the main drivers impacting these results, our expectations for 2025, and we'll close with a Q&A session. Now, before I commence today's review, I'll remind everyone that our presentation does contain 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. For further information identifying the risks, uncertainties, and assumptions, These can be found in the disclosure documents which are filed on CDAR Plus and at www.mullen-group.com. So with me this morning, I'm joined in Okotoks by Carson Erlacher. He's our Senior Financial Officer. He's going to be speaking this morning. And online is Richard Maloney, our Senior Operating Officer, and Joanna Scott, our Senior Corporate Officer. Let's start. I'm going to start with the 2024 financial operating performance. And really, there are three topics that I want to touch on this morning before I turn the call over to you for Q&A. So let me begin by talking about the macro environment that we've had to migrate through this last quarter. In fact, all throughout the whole year, which is along with discussing what has changed year over year. Then I'll turn it over to Carson Urlacher. He'll provide an update on Q4 financial results. And for those of you that are interested in detail, we've posted the 2024 annual financial report online. It's a detailed 125-page report covering all aspects of the results and our balance sheet. And it's both on our website, which is www.mullen-group.com and on CDR+. Then I will close with a discussion on the macro environment as we see it and how the results could be impacted. Now, let me just kind of go off topic for just an off script for like two seconds. And I go, you know, the market's difficult. But let me just summarize what I think. Forget about the last quarter or the last year. Let me give you what we've done the last three years. Do you know that in the last three years we've generated two, two, and two? Two billion, two billion, two billion. That's six billions. And during that time, we've generated OBDAW, operating income for depreciation and amortization, of nearly $1 billion in those three years through every market that you could imagine. So really, we've got a pretty stable business these days that we've changed over the number of years. And that's what we've got. The last three years kind of prove the stability of performance. And what we had to do at corporate offices, we had to backfill because the market isn't giving us a whole bunch in 2024. But that's basically, I'll just go off script on that for a little bit, just to summarize it for you, to say this is who we are today. That's the new Mullen Group. So let me start by reiterating what I think should be obvious to everyone by now. You know, we're mired in a no-growth economy here in Canada. Capital investment is not anywhere near it should be. And in the transportation and warehousing industry, there remain lingering issues associated with the inventory rebalancing by shippers and excess capacity that was built up during the 22-23 freight boom era. So 2024 started this year and it ended that way, which is precisely what we anticipated and what we articulated to investors throughout the year. In other words, really nothing changed in Q4. The markets we serve are challenging. There was no growth. It was certainly competitive. And the costs remain elevated due to inflation and the legacy issues associated with facility lease costs that had to be signed at the peak of the market, et cetera. So quite simply, there were no free rides in 2024. Now within that background, how did Mullen do? You know, how did we fare? So anticipating that the macro environment might be challenging, we've been pretty steady on that for quite some time. Accompanied by the lack of new capital projects to replace the major pipeline construction work in 2023, you know, we planned a corporate office to backfill what the market would not provide to our business units. We simply reverted to what we've always done and what we're good at, and that's acquisitions. And this is the number one reason why we held our financial results flat through 2024, including Q4. So not only did we hold our own, but I think we've also positioned Mullen for a bright future by investing in some really good opportunities. You know, what I'm really proud of is not the five acquisitions we completed last year, but it really was that stellar performance of our 39 legacy business units. They did a great job. They did not have an easy market. They managed through what I can only describe as challenging conditions. So I've got to say thank you, team. Your hard work and discipline cost management issues are a really big reason why Mullen Group performed as well as we did throughout 2024. Now, I also fully expect that we can continue to benefit from all this hard work in 2025. So keep your foot on the pedal, team. So how did our four operating segments do last quarter? Well, investors know that the organization's been built up over 30 years by investing in verticals within the economy that we believed offered the most stability and growth potential. But here's what we really focused on. Can the business we invest in generate free cash? From this perspective alone, it is evident that our performance over many years, you know, and Some years were not good and some were not so good, but this validates that this strategic approach to investing your money is a successful formula. Here's the proof. We've returned over 1.5 billion to shareholders over the years. And I believe with much more to come because of our past decisions and investments. Our business is built around an extensive network of great business units. It's operated by passionate and professional management teams. In corporate office, we maintain a healthy balance sheet that we can add new investments as opportunities arise. Carson will speak about that in his presentation. High on the list of great verticals within the portfolio of really good solid business units is our LTL segment. Earlier, you heard me speak about the challenging market conditions, but LTL, it's a little bit different. It is, generally speaking, very steady, and the fourth quarter was no different. Segment revenues were somewhat flat. And this is with fuel surcharge revenues being down year over year by $5.3 million, and that's only because the price of fuel is down. So, you know, you lose $5.3 million from fuel surcharge revenues in the quarter. Most impressive was a nearly 1% improvement in operating margin. The segment's not only resilient, it still offers what we think is the best opportunity for margin improvement. As we continue to invest in technology, better yield management, improved lane density, And we think that comes from tuck-in acquisitions. Now, what about the L&W segment? Well, we saw revenues improve by 14.3%. And that was mainly due to the acquisition of Container World earlier in the year. And the solid performance by our two largest business units in the segment, Cleason Group and Banster Transportation. Margins held steady, which I think in itself is a major win. And we remain of the view that this segment offers the most growth potential as we build out a national network of warehousing and logistic capabilities. You know, combining first-class warehousing with intermodal capabilities and a final-mile delivery network, that's how we're going to provide customers with a valuable end-to-end solution to meet their logistics needs. S&I segment. That's on the other hand. We had a tough quarter. This was not unexpected, though, primarily due to the completion of the major pipeline projects in Western Canada. projects that were not replaced, and we always have articulated to people, you have to build the pipelines, then you drill to fill. The drill to fill has not happened yet, but the pipeline work is done. The next stage will be you've got to fill the lines, and that's with natural gas and with crude oil. So we also decided to exit on some business lines, such as Drilling Services Group, and that was only due to one thing, the high cost to replace capital equipment And we didn't think it was worth deploying new capital. And so we exited the businesses. Plus we chose not to invest in new acquisitions in this vertical due to the lack of quality opportunities. So as a result, revenues were down year over year in the fourth quarter by 18.7 million or 15.3%. These revenue declines were virtually all due to pre-made pipeline business unit. And as the principal reason segment OBDAW declined by 8.4 million. Now, unfortunately for Mullen Group and perhaps even Canadians, is the fact that capital-intensive projects came to a virtual halt in 2024. However, the reigning business units of segment were essentially flat year over year. U.S. 3PL and international logistics segment, you know, actually we generated the same results in Q4 as the prior year period. And to me, that's the first signal that we've seen to suggest that the U.S. logistics market has stabilized. Margins remained under pressure due to competitive markets, but this too could change as revenues improve, primarily due to the fixed cost nature of the S&A expenses holistic, which, by the way, is currently the only business unit in the segment. So in summary, I've got to say, no real surprises. The markets remain competitive. We streamlined businesses where needed. Our business units did a great job given the market conditions. In the corporate office, you know, we were busy looking at opportunities. We found a couple nice gems that we believe fit nicely in the group. But I'll tell you, we passed on all the big acquisitions because of what we believe are structural changes occurring in the transportation or housing industries. And if we're correct in our analysis, this implies that competitive conditions will remain for an extended period. So we'll be ultra-cautious until we see signs of stabilization. But I want to make it clear that being realistic about the current market conditions does not mean that the markets will not eventually improve. wind remains the only unknown to our senior executives. And when the market starts rewarding the industry for the capital invested, we will be there to invest and to acquire. More on this in the outlook section. Now, one more topic I'll talk about this morning, and that's safety. You know, on Tuesday, we held our annual safety award presentation with all our business units. Our director of HS&E and risk management, Randy Mercy, he hosted the meeting providing everyone with a detailed report on our safety statistics for the entire group. And we benchmark every single business unit. And I'll tell you this, you do not want to be the leader of a BU that comes in with poor safety results. But it is more than just about statistics. It's about culture. Annually, we recognize the best of the best with our grand prize safety award. We affectionately call it the bear. And the winner gets to host the bear at their office for the next year. This year, I'm delighted to report that our Grimshaw Trucking business, a business we've invested in nearly 30 years ago, is this year's recipient of the bear. Well done, Team Grimshaw. Celebrate your accomplishments and keep everybody safe out there. So, Carson, I'm going to now turn it over to you for more on the fourth quarter financial analysis. You're up.

Perfect. Well, thank you, Murray, and welcome, everyone. I'll provide some of the additional highlights from the fourth quarter. the details of which are fully explained in our annual financial review. So as Murray mentioned, we are stuck in a no-growth economy. So one of the main reasons we were able to achieve the results that I'm about to summarize was a result of one factor, and that's due to acquisitions. Overall, our fourth quarter results continue to highlight our ability to consistently generate free cash in yet another competitive operating environment. Revenues in the fourth quarter were approximately $500 million, virtually flat compared to the prior year with respect to oibda we generated 85 million in the quarter and 332.2 million for 2024. in terms of cash which is what we focus on we generated cash flow from operating activities before non-cash working capital items of 92.9 million in the fourth quarter and approximately 340 million for 2024. This cash generation continues to be in excess of our requirements, including our interest payments, our cash taxes, CapEx, and our lease commitments. This really comes as no surprise, though, given our acquisition strategy that Murray articulated earlier, which is to invest in businesses that generate free cash. I'll go through the results by segment shortly, but the overall theme is as follows. Top line revenues were flat compared to the prior year as incremental revenues from acquisitions offset the lack of capital investment in Canada, the continued softness in freight demand, and lower fuel surcharge revenue. Operating margins improved due to a combination of our tuck-in acquisition strategy from the niche markets that we serve and from recognizing a positive variance in foreign exchange on U.S. dollar cash balances held in the corporate office. So despite completing five acquisitions in 2024, we continue to maintain a strong balance sheet, which I will highlight shortly. In the fourth quarter, revenue per working day remained consistent to the prior year period at 8.1 million. We generated OIBDA of 85 million, an increase of 5.8 million compared to the prior year, with acquisitions adding $6 million of incremental OIBDA. Operating margin improved to 17% as compared to 15.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher margin specialized business. Direct operating expenses as a percentage of consolidated revenues decreased by 0.7% as our business units did a great job adapting to current market conditions and controlling costs. S&A expenses as a percentage of consolidated revenues decreased by half a point due to the positive variance in foreign exchange being somewhat offset by inflationary pressures and from higher S&A cost experience at Container World. Now let's take a look at how we perform by segment. First, our largest segment revenues in the LTL segment were $189.4 million, a slight decline from last year due to $5.3 million of lower fuel surcharge revenue and from demarketing unprofitable business. Acquisitions virtually offset these two revenue declines. OIBDA was $31.4 million, up $1.5 million from last year, despite lower segment revenue. Operating margins improved by nearly 1% to 16.6%, due to our tuck-in acquisition strategy into our existing network driving greater lane density. Our second largest segment is our L&W segment. Revenues in the L&W segment were $160.9 million, up $20.1 million from last year. Acquisitions added $30.9 million of incremental revenue, which was somewhat offset by lower revenue generated from our existing business units due to a lack of capital investment in Canada and from shippers electing to keep a tight rein on inventory levels. OIBDA was $33.2 million, up $4.1 million from the prior year with Container World adding $5.4 million of incremental OIBDA, while our other business units experienced a slight decline in OIBDA due to more competitive operating conditions. Operating margins remained virtually flat at a respectable 20.6% as compared to the prior year. Moving to the S&I segment, revenues were down $18.7 million. to $103.8 million, driven by a $11.1 million reduction in revenue from pre-May pipeline due to the completion of both TMX and Coastal GasLink pipeline projects. We also experienced lower demand for civil construction services in northern Manitoba for our smooth contractors business unit. OYBDA was down $8.4 million to $16.2 million on lower OYBDA being recognized at pre-May pipeline. Lower OIBDA was also experienced within our drilling-related services business units, including our rig moving divisions and OK drilling experience certain wind-up costs. Operating margins decreased by 4.5% to 15.6% due to the reduction of higher margin business and from slightly higher S&A costs. In our non-asset-based US 3PL segment, revenues were essentially flat at $47.5 million from last year. As the industry continues, to experience lower freight demand for full truckload shipments and lower pricing per shipment. OIBDA improved by $1.1 million and operating margin on a net revenue basis was 28.2% compared to 9.8% in 2023. The increase in operating margin was primarily driven by lower S&A expenses as a percentage of segment revenue. So that's a wrap on our fourth quarter commentary, but let's have a quick look at the balance sheet going into 2025. We closed a $400 million 10-year private placement debt financing in 2024, and we used some of those funds to repay some previous notes that matured in October. We ended 2024 with approximately $126 million of cash on hand. We also have access to $525 million of undrawn bank credit facilities, providing us with ample liquidity. In terms of our debt covenants, we effectively have one main covenant, which is total net debt to operating cash flow. Our total net debt to operating cash flow covenant on our new 2024 notes is 2.24 to 1 and is 2.5 to 1 on our 2014 notes. Now total net debt under this covenant is calculated differently under the 2014 note agreement compared to the 2024 note agreement. Under the new 2024 note agreement, lease liabilities with respect to real property is excluded from debt. while our $125 million of convertible debentures is now included as debt for covenant calculation purposes. The $125 million of debentures is now included as debt under the new notes given that they mature prior to when the 2024 notes become due in 2034. So in summary, our balance sheet is once again well-structured and positions us to make long-term strategic investment decisions and to be able to look for new acquisition opportunities that inevitably generate free cash. So with that, Marie, I will pass the conference.

Yeah, hey, thanks, Carson. Excellent analysis again. And as I mentioned earlier, the 2024 Annual Financial Review, you know, it's loaded with graphs and it's got details about our company, about the business we have and our past performance. So with Carson's presentation, we're officially bringing 2024 to a close. It wasn't stellar by any metric, but it wasn't bad given the changes occurring in the markets. So now we move to focus on the future. We're going to start. We've got a great portfolio of business units. We have a balance sheet to adjust to any market outcome. And the market, I'll just leave you with this, the market might not grow in 25, but MTL can. And let me now turn it to the outlook portion of today's call. So on the third quarter conference call, this is what I said. I outlined my rationale as to why I was of the view that the economy and the markets were most likely not going to change in the short term. Demand was okay, it was stable, but really not growing, and there was just way too much undisciplined supply. And I was of the view that we should stay focused on margin, not growth, let the competition come to their senses, and looking at all of the economic data, looking at all the results from our peers, and our own results, it appears this analysis was pretty accurate. So we also highlighted our strategy, at least in the short term, You know, let's stay focused on margin versus market share and take a very, very thoughtful approach to acquisition, which we did. So, okay, that was last quarter. What about 2025? Has anything changed since we announced our 2025 business plan and budget? What do we see that would signal a change for the better? Well, it certainly isn't Mr. Trump. It seems that we have now entered a period of heightened uncertainty. which is never good for capital investment or planning, and since we have no idea how this will ultimately unfold, there will be no change to our strategy. We'll maintain a very disciplined approach to the business, and most importantly, our balance sheet. Acquisitions, that's a founding principle of our business model, has been for 30 years, must meet three criteria. The target must be a good fit in our company. I'm not wavering on that, it's gotta be a good fit. The price must allow for Mullen shareholders to receive a return on their investment. And you need to find synergies. Those were our three criteria for doing an acquisition in our organization. So we're choosing to maintain our 2025 outlook that's articulated in the 25 business plan. We released that on December 9, 24. And although the first quarter is probably going to be soft, just like it was last year, given all this uncertainty and, you know, people don't know what to do. We're just taking a wait-and-see approach to current trade discussion, but let's be clear on one point. We think there's heightened risk. The problem is we don't know what the risk is. We'll know more as the details emerge. Until then, we just simply stay the course and manage our business for the long term. Listen to our customers because it's our customers that will be impacted, if at all. Then we'll adjust and then we'll adapt as required. I suspect, although admittedly I have no reason to base this on other than logic, There will be tariffs, most likely reciprocal by both countries, and there will be some change to the Canada-U.S. trade flow, which shouldn't in itself really negatively impact Mullen too much because we've really de-emphasized this segment of the market for many years. And our U.S. domestic business, on the other hand, our holistic group, they're poised to grow along with the U.S. economy. We've had some good meetings with them. They're There's some good enthusiasm happening in the U.S., and our holistic group poised to take advantage of that. So if we have one concern, it is certainly the Canadian market, and I have to ask whether politicians are going to get their act together and allow businesses to thrive in this country. Because if you want good long-term jobs in Canada, they might start by changing public policy to attract capital back to this country. Now, earlier I spoke about what I believe are structural issues in many parts of the transportation and warehousing business. I'm happy to say we've avoided most of those industries where most of the pain is at. The issues are in no particular order of importance. There's a lack of demand growth. It's not that there isn't demand. I said there's a lack of demand growth. There's too much capacity that was built up during the last cycle. You've got undisciplined pricing. Most of that is driven by competition right now that is really pricing for what they call cash flow. But honestly, it's just to pay yesterday's bill. So they're very undisciplined. And then there's a willingness of customers to use unsafe carriers. But I think this is ultimately going to change because the industry is not generating a return on capital. Too many carriers are struggling today. We know it because we get the calls. And my instinct suggests that the industry will have failures in 2025. We've actually seen some already this year. I think there's going to be a lot more in 2025. This will be the pivot point towards better returns. We will see a reversion to the mean, and by this I mean acceptable returns on capital employed. And I think we're closer today than we were last year. So this concludes our presentation today. I'll turn it over to the conference operator for the Q&A session. Operator?

We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. The first question comes from Walter Sparaquin with RBC Capital Markets. Please go ahead.

Thanks very much, operator. Good morning, everyone. I guess where I'd like to start the question is really on your outlook, where you said that you kind of see 25 as being the same as 24. One of your peers in the U.S., Knight Swift, was a lot more kind of constructive, many even framing it as calling an end to the freight recession. Is that just because they're in a better marketplace in the U.S., or is it just a level of optimism there? built around what indicators they're seeing versus what you're seeing. Just curious as to whether this is something different or is it just optimism versus pessimism kind of driving their outlook versus yours?

Well, I'll give you my thesis, Walter, and it's mine. When we sit and we look at things from a strategic perspective, I always look at two things. And I'm not trying to oversimplify it, but it really is this simple. I look at demand. How's demand looked? How's the economy looked, Walter? Flat? Okay? Or down? So we've made an assumption that we think it's going to be about the same. I don't see any uptick. I don't see that Canadians have more disposable income. So we think the demand side is going to be relatively flat. Now, let's turn to supply. We've had too much supply. That's why the prices have been so low and customers have just been taking advantage of that situation. Good on them. That's the way business works. The industry got customers when there was, in 22, 23, when there was a spike in demand. Now there's excess supply. They win. But it's going to revert to the mean. So everything that I'm talking about that it's going to be okay is because our competition is weak and they're dying. So we'll be okay. We're stable. And so I don't think you'll see the market improve, but I think our business units are very well positioned. When customers call and say, hey, I called the other guys, but they're not in business anymore. Their phone don't work. Okay, let's make a fair deal. We'll help you be, but we need to have something that's fair for us too. So that's where I think we'll be okay, Walter, on same-store sales. I think we'll hold our own, maybe do a little bit better later in the year. As the failures rise, we'll do better. Until then, it's just a fistfight.

Okay. No, I appreciate that, Collar. In your outlook this year, you put $150,000 in there for M&A that you're going to allocate toward M&A. I don't think you've done that before, Marie. And is this because you're more – like is this something you see imminent or is it just something that you're kind of plugging in there because you've done it in the past? I'm just curious as to why you elected to include that. And do we assume – spread out across the year. I'm trying to gauge your 350 because if 350 million in EBITDA is 150 million in M&A investment, then that could be maybe 30 million of your EBITDA forecast for this year is associated with M&A. And, you know, if you do a deal at the end of the year versus at the beginning of the year, obviously that 30 is going to So I'm just trying to get a better sense of, do we look at your guide as being kind of more 320 and then anywhere from zero to 30 million in acquisitions, depending on when you deploy it? Is that the right way to look at your guide for this year?

Well, I think if you assumed, I think the reason we put in the 150 is because the auditor told us we had to. So, you know, it's just full disclosure is that, you know, it had to do, the auditors are all panicked because of tariffs. Oh my God, the world's going to end. No, it's not going to end. But the auditors, I think that all came from them and then said, well, how do you get to that? Well, we're not changing our outlook because we said, look, if we're going to get, we think we'll get to 350, but we've got to do acquisitions to get there because we don't think the market will give us 350. We think the market will be About the same as last year, just like I highlighted, for three years, we've been two, two, and two. Well, it might be four years, because I don't see any growth in demand. So let's assume that we're about the same on same-store sales, and that's about 330. That's about what we did, of course. 330, 335, pick your number. And then we do acquisitions, and I said, well, we'll probably get to 23 and 350, But, you know, we didn't do any acquisitions out of the gate. It's just the timing. But to get to 350, most likely we've got to deploy 150 of all that dry powder that we've got. So, yeah, I mean, if you're doing acquisitions, you've got to deploy capital. And if we're going to add $300 million of revenue or $200 million, you've got to spend some money. So that's the math on it. No, I think the question is where are we going to spend it? Where are we going to invest shareholders' money? Well, most likely it's not S&I. We've always said we love the LTL business, and if we can find tuck-in acquisitions, we're doing them, because that's how you drive margin improvement, as you get more critical mass and you put your technology in play. But I tell you, I'm being coy right now, but it really depends on Canada's response to how we're going to be competitive with the Americans. If Canada doesn't get its act together, and by this I mean the politicians and Canadians, to say we've got to invest and get capital coming into Canada, we're going to turn our attention to the U.S., which implies our U.S. segment, U.S. business. So I don't know for sure, but I can tell you, Canada, get your act together, or on behalf of our shareholders, I'm going to put our money to work in the U.S., where we think if they're going to win, we've got to follow the money. So I think a lot has to do with public policy, Walter, and they better start getting capital employed in Canada again if we want to get this economy to grow. That had nothing to do with me. I'm just pointing out the obvious.

Yeah. Okay, and then you mentioned the two, one of the twos that you mentioned was on revenue. And like you mentioned, kind of there, sorry, over the last few years on revenue and you're there. Do you think you're going to get there in a different way this year in the sense that, you know, we've seen S&I very volatile. You mentioned it's very contingent on capital deployment and whether it happens or not. do you have an assumption, you know, when you say things are going to be the same kind of same store basis, does that apply at the divisional level where, you know, are you expecting your SNI to be the same, your LTL to be the same, or do you just see, okay, SNI might be down and that'll be offset by LTL growing? Is there, is it, is it flat across the board or is there more, is there more variance within the divisions that, make up your guide for this year, the 2.2 for this year?

Our first take on that is that kind of each segment will be flat to last year. I mean, you won't have any negative draw on the S&I side just because the pipeline business went from doing very, very well to doing nothing. So, okay, it's not going to go down this year. So same store, it'll be about the same. And then the real issue is on the S&I side, is does drilling activity come back to fill those pipelines as those pipelines, particularly the natural gas pipeline out to Kitimat, they have to fill that line if it comes into production. The line is there, but the plant's not done. So there's no sense, you can't ship the gas through the line until the plant's done. So it really goes back to that, Walter. But we're hearing reasonable, having reasonable discussions with customers right now that drilling activity will be okay this year because they got a fill. So that implies that our, you know, our S&I segment should be reasonable, should be flat, maybe up a little bit, but let's call that flat. And LTL, it's not going to change. We did a couple little tuck-ins, but it'll be about the same. And in the logistics warehousing, I don't see significant change on that either. So I'd say most of them are going to be about the same as 2024. Okay.

That's great. Appreciate the call, Murray, as always. Thank you very much.

Thanks, Tom. The next question is from David Ocampo with Coremark Securities. Please go ahead.

Thanks. Good morning, everyone. Murray, I just want to circle back on one of your last comments there on Capital deployment, if you guys would start to direct that more to the U.S., if Canada doesn't get their act together. If I look at your strategy so far, it's mostly just been asset light through the 3PL business that you guys do have. So are you thinking something more of the same in terms of capital deployment if you do start to deploy more assets down in the U.S.? Or are you thinking something on the asset side, which would probably require a lot more scale than you've deployed in the past?

Well, I think, David, that's all under discussion right now. You know, and we're going to present our thesis to the board. I've been reluctant on it, but, you know, when things change, you've got to change. And it's pretty evident with the Trump administration that, you know, well, there's two things. Number one, it's pretty evident Canada's losing the capital investment game already. Just look at our Canadian dollar. It's worth nothing. And then if the Trump administration accomplishes what they want, which is they win and we lose, well, we've got to follow the money. So we're looking at that very, very closely, David. I don't know for sure yet, but I have to change my thought. If Canada's not a place to deploy capital, I'm not going to deploy it here. It's no different than in 2012 from a strategic standpoint. The rules changed on... In the energy space, we were once dominant in the energy business, S&I, oil fill service. Okay, well, it changed, and we pivoted away from it. I hope I don't have to pivot away from Canada, but I got to do what's best for our shareholders. And if pivoting away is required, our shareholders should know I'm going to do what's best for them.

Okay, that's very helpful, Collar. Just circling back on the $150 million of M&A that you're guiding to this year, the files that you're seeing across your desk today, are they mostly fixer-uppers or they may be on the brink of bankruptcy or are they well-run companies?

Well, we thought last year they were going to be on the brink of bankruptcy, which is why we didn't buy them. And now, truthfully, so many are getting into such bad shape, David, I don't know if I want them. I think he just let the market play itself out. And then what we'll do is we'll pick up the pieces and just add, which is why cars, I mean, if you look at it, we increased our capex this year. We did significantly over last year for our business units because we think, you know, now's the time for us to get ready for when that market shifts and customers call and say, can you services? Right now they got too many choices, but that may change in 25. That's my thesis. Check me in later this year.

Gotcha. And then just on that point on the CapEx, I mean, in the S&I Outlook section, I think you guys called out some robotic work that you may look to do this year. Just curious how much of that $100 million of CapEx is allocated to S&I and what types of returns on capital are you guys looking to achieve there since I think this is a division that hasn't received much love in recent years.

It wasn't a whole bunch in S&I.

It would have been about $20 million in total, roughly. It would have been kind of what we've allocated to that segment. A lot of it is, like we mentioned, that specialized type of equipment with robotics and zero entry into tank cleaning.

That's a new technology.

Yes.

Also in our involved group, we're growing a new well because that's our disposal well business that we have on that. That's an exceptional margin. So each segment, the return on capital thresholds, every segment's got to meet the return on capital thresholds. That's 15 plus. Or else you don't call me. Don't call us. Last year... We told everybody tighten up, you don't need capital. You need to tighten up your business. This year, last year they tightened up. This year we're saying, okay, you tighten up, you did your job. Now we'll look at giving you new capital to get market share.

And Murray, what's the timeline on that 15% return threshold? I mean, if you had $15 million that you put out to your business, it doesn't apply to that.

Yeah, return on capital.

With 330, it does seem a little bit like.

That means we look at the life of the CapEx and we say it's got to turn 15% a year or else we're not investing the money. That's minimal.

Okay, gotcha. Thanks a lot for the time.

The next question is from Kevin Chang with CIBC. Please go ahead.

Hey, Murray and team. Thanks for taking my questions here. Maybe if I could ask Walter's question a different way. When I think of some of the optimism that seems to be coming from the U.S. carriers as they get through earnings season, maybe it's less demand driven and maybe more along the lines that some of this excess and undisciplined capacity seems to be exiting the market, I guess, in 2024 and hopes I will see that in 2025. So that should improve the bidding season as we get into maybe the middle of this year, hopefully into the back half of the year. I guess on that side of the equation, it sounds like you're optimistic as well. in terms of some of that capacity exiting. Just, I guess, are you being conservative in your outlook in that you're assuming the bidding season doesn't reflect some of that normalization in supply-demand? Do you take that as upside, or do you think we're maybe a little bit behind what the U.S. carriers are seeing, and maybe that's more of a 2026 story?

As for 2025, how it's going to play out down there?

Yeah, for yourself.

So in the US, they seem to be more optimistic. So the thesis right now is, Kevin, is that we have a footprint in the US with our US 3PL business, our holistic group. And they do about 185 million a year of business with us. And they generate, you know, they don't generate high margin, very, very low margin. It's a lot of revenue, but not a lot of margin. but it's all cash because they have no capex. So we still generate a return on our investment. But the thing that we're getting out of what we're hearing from them is there's real optimism from U.S. shippers and U.S. players on the demand side. So there's a real excitement down there on the demand side. At the same time, Kevin, what we're seeing is There's still failures happening. So you're having an increase in demand. At the same time, you're having a decrease in supply. That's why the U.S. carriers are relatively optimistic. In Canada, we see no increase in demand, but we do see some failure. So it's not going to be – you can't be quite as optimistic under that scenario as if I had a bigger exposure in the U.S., So we're looking very, very seriously at the U.S. market as deploying our next round of capital. That's on our plate. Just alerting our shareholders is that, hey, things have changed, and we're going to go where the capital goes. We're going to put your capital where capital is going because that's where we see opportunities.

No, no, that makes a ton of sense. I know David pressed you a little bit on maybe, you know, what that U.S. strategy might look like.

So, yeah, so really what I'm telling you is, I'm highlighting, that's on our radar. We have to have a bigger exposure in the U.S. market. We're too heavily, we're like Canada, we're too heavy Canadian and in a no growth, and Canada's not growing. So, okay, we've got to look outside the borders.

You mentioned some uncertainty just related to trade, that's maybe obvious in a broader economy. I guess, how does that variable play a role in how you think about M&A? a little more difficult, because obviously I suspect trade would impact some of the targets you're looking at, or am I looking at it incorrectly that way, that for some of the deals you're looking at, these tuck-in acquisitions, from your perspective, trade doesn't dramatically change how you might value those potential targets. Or trade uncertainty, I should say, would impact the valuation you would pay for those assets.

I don't see the valuations Evaluations are a little higher in the U.S., but really there's better opportunities down there, maybe a better chance that you're going to have better returns down there over this next cycle. But thus far we've been very reluctant and passed on those, but I think we're now, we're just highlighting that we've got to take a look at it. You know, that's our response. to the change in the macro environment and the potential change in administration in the U.S., their viewpoint, and they're set that the U.S. wants to win. Well, okay, if they're going to win, not everybody can win. If the U.S. wins, we're going to lose. Like, it's not a – all tides are rising right now, so – We're just highlighting, Kevin, we don't know for sure. I can't get specific, but I can highlight to you we are going to be probably growing on the U.S. 3PL side this year. That's where we're going to be really focusing some of that CapEx. Yes, we're going to focus CapEx on our tuck-ins on LTL because, as I said, that's how we drive margin improvement. You know, you layer in revenue, don't take all the costs, right? But in the U.S., ours would not be – there wouldn't be synergy per se. There would be opportunity for growth. Right. Right. Whereas if I'm doing something to Canada, you know, probably I – you know, one and one, and you end up not having as many people and not as many terminals. And that's how you drive margin. But in the U.S., we do it because we see growth opportunity. That's the only reason we would put capital work down there.

Okay. You know, this has been great, caller. I appreciate all the details you provided. Thank you very much. Best of luck as you execute on your 2025 plan.

Thanks. I appreciate it. We look forward to chatting again on the air.

Thank you.

The next question is from Konar Gupta with Scotiabank. Please go ahead.

Thanks, operator. Good morning, Murray and team. You know, I don't want to beat the dead horse here, but you know, the M&A team is pretty relevant this year. You know, as you spoke, Marie, about, you know, the Korean market macro-wise is not giving a lot of growth, obviously. So, you know, I'm trying to understand your philosophy around the M&A. Obviously, I understand totally, you know, the U.S. market is a stronger market and you might have to focus on that. But if I look at the public companies there and to Kevin's question, obviously, you know, like the multiples in the LTL market and the logistics market in the U.S. are, are quite high, at least for public comms. For truckload companies, they're more reasonable, I guess, right? So, I mean, looking at your sort of, you know, conservative approach to M&A, typically, would you say you would be more attracted, let's say, if you're doing an asset-based acquisition, would you be more willing to do truckload as opposed to less than truckload in the US?

Well, first of all, I can tell you when we go to the U.S., it won't be in the LTL space because we could never get big enough down there. So we won't even – like if you can't get big enough to be a player, don't waste your time. So we wouldn't do that. We will be looking at other verticals that, you know, we identify that we think there's opportunity. So, you know, that's what we're going to look at. And I can't say any more than that. But – I get to say every acquisition we're looking at today has to have some leverage to the U.S. market because you can't just stay in Canada anymore. It doesn't work, Connor. On the valuation side, yeah. Valuations are much higher than they are in Canada, in the U.S. But, you know, we've got the balance sheet, so we can – we're just telling our shareholders, don't worry, we're going to be able to grow our business. We're going to have a bigger business in this next cycle. That's what we're highlighting.

I totally understand what you can comment on on this topic, but just like on the same theme, you know, like not just US, but like across North America, let's say, what's your high visibility, you know, percentage for the $150 million you want to spend on M&A? I mean, like, do you have visibility to spend like 50 in the near term, at least you think, and the 100 is more like an opportunistic number or how should we think about it?

I think the timing is difficult to try and, you know, and measure out there, Conor. Obviously, the sooner that we get an acquisition done, the more we're going to meet our 2025 target. But honestly, if it gets pushed back a little bit, on a rolling 12 months, we're still going to be in line with what we're articulating. But it's very difficult to try and pinpoint when are we going to close our acquisitions in 2025.

You can't reverse engineer back to that, Conor. What we said was, in our business plan for 2025, we think we should get, we can do acquisitions and get to $2.2 billion in 350. That's our goal. That's our plan. The timing of it depends on when we get deals closed and when we finalize them.

Right, right. No, that makes sense. Thanks. And last one for me before I turn it over. In case, you know, some of these deals, the animated transactions don't happen right as you expect, the cash you might have on the balance sheet, I mean, would you be more inclined to kind of like, you know, do some sort of bigger buybacks or some dividend growth, or would you like to keep the positive drive?

Conor, if we don't find the acquisition opportunities that meet our thresholds, okay, a fit price and synergy, we'll buy back stock because we got the balance sheet to do it. But what we're saying is our first priority would be we want to grow. If we don't find something, we'll buy back stock.

Okay, that's great, Connor. Thanks so much. I appreciate the time. Thank you.

Thank you. Thanks, Connor. The next question is from Cameron Dorkson with National Bank Financial. Please go ahead.

Yeah, thanks. Good morning. I wanted to ask about the, I guess, going back to the tariff question. I mean, you did mention that you don't really have much in the way of direct exposure, I guess, to cross-border volumes, so maybe less of a risk there. But thinking about kind of the indirect impacts, where's the risk for Mullen? I mean, is it specific industries that might be impacted by a tariff war, or is it just more, in your view, kind of a general economic impact on Canada from a tariff war. Maybe you can just sort of go into a little more detail where you see the risks there.

Yeah, you know, Cameron, I'm... I have no insight into, direct insight into this any more than anybody else. But, you know, what you've got is a tariff. It's a tax. And tax, whether it's a tariff or a carbon tax... or whatever, it hurts the consumer. That's who it hurts. But governments, why do they put taxes in place? I think they put taxes in place to raise money. So I look at it just, it's just a tax. And depending on the response to that response, what goes in will determine how much Canadians get hit. Because if you put on reciprocal tariffs, Canada imports everything. I'd be careful of going to the store to find everything just made in Canada. You might not get very much. So we're an importer. We know it because we move the damn stuff and we warehouse it. And it all comes from somewhere. And everything's priced in the U.S. dollar. So what I'm concerned about is just the long-term effect on the consumer. That could hurt our business. Specific industry-wise, there'll be this, there'll be that, but you just got to adapt to it. We don't know for sure, but everybody will adapt and adjust. This is not the first time tariffs have been put on trade. This may be the first time for a number of Canadians, but it's not the first time. But, you know, we're vulnerable because the U.S. is playing tough right now. They're playing to win. I like to say Trump doesn't play a win-win game, but then I have to change that and I go, no, no, he does. He plays, he wants to win and win. He doesn't want you to win. And that's the way he negotiates. Do you like it? Only if you're on his team. I'm just telling you, the people at our businesses down there that we got through our listing group, I can tell you they're high-fiving. They're excited because they're getting more business. They're excited about the opportunity. And up here, we're on our heels a bit. Well, that's the way it is. So we're just being very cautious, very practical. And I'll tell you this. It feels damn good to have a really good balance sheet, Carson, and we're not sure what's going to happen because our shareholders don't have to worry about their dividend and our people don't have to worry about their jobs.

No, no, makes sense. You guys are in a good position on that front for sure. Maybe a second question just on the, I guess, I guess maybe the potential offshoots of all this, this tension between the US and Canada is that maybe, maybe there will be some more investment in capital projects in Canada. I guess we'll, we'll, we'll see if that actually happens, but, BC came out with some announcements not too long ago about accelerating some capital projects. Maybe specific to that, is there, I guess, some potential positives here for your business in BC from some of these if they actually do move forward more quickly?

If public policy changes, which means politicians understand that we've got to fast track and make it more pro-business friendly, then we would get more excited about the opportunities in Canada. It's, you know, I'm hoping public policy change, but you've got to make it more pro-friendly for more business or acceptable for capital to come to work. And if you do, great, fantastic. Those are great jobs. But we've already lost that game, Cameron. Look at our dollar. It's crap. And we've already lost the capital game. So, boy, I hope they get it right and they get it turned around and turned around fast. That's good for all Canadians. And then it would be really good for Mullen Group, which is a big provider of freight services. That's how we win. But we need public policy to get their act together and politicians.

Yep, absolutely agreed. Hopefully that is the case. All the rest of my questions were answered, so I'll pass the line. Thanks very much. Thank you, Kevin.

The next question is from Jasrut Bains with TD Cowan. Please go ahead.

Thanks. Filling in for Tim James this morning. Thanks for taking our questions. We have two questions. Firstly, your 2025 guidance implies a slight EBITDA margin percentage decline, about 50 to 100 basis points. However, margin percentage was up year-over-year in 19Q4. Could you maybe talk about some of the factors that will be causing the year-over-year compression to weaken slightly in 2025?

You know, I would say the margins, Jazz Rupert, fairly consistent. If you take a look at what we've generated over the last number of years, we're kind of in that window. You know, there's nothing really set in stone as to why we would think that margins will come off in 2025 versus 2024. They're pretty darn close. There's nothing really to read into that. into why we would think that margins would come off next year.

If you go to our, you know, into the annual financial review, you'll see our margin. You know, we have our margin graphs in there that Carson does a great job on operating margin. And let me just give it to you. I'll just, for everybody on the line, in 2020, we were at 18.7% operating margin. And then we went down to 6%. 21 to 16, 16-5, 16-5, 16-7. And the only reason we're down to 16, 16-5, 16, and not 18-5, 18-7 is because we invested in a holistic, which has a very low margin. It's $185 million of revenue at a very low margin. If you backed out our U.S. 3PL business, we'd be at 18-5, 18-7 for four years stable. So really margins stay pretty consistent. And to do that, we focus on margin, we work with our business units, and then we do tuck-in acquisitions that help us mitigate some of the cost pressures, et cetera, et cetera. So honestly, I think margins have stayed pretty consistent for quite a period of time across most of our business segments and also the corporate side. Yeah, they change. I mean, one time S&I might be up because... pipelines is doing really good or drilling, but generally they're pretty stable.

Okay, perfect. And then could you provide some additional details on the leadership changes and cost saving initiatives that contain a world as well? Are those plans new or were they expected at the time at the time of acquisition?

Well, when we acquired Container World, we knew that the founder, Dennis Christmas, he was obviously looking to transition out. And our philosophy, our motto is always to hire from within. So that next layer of individuals that are going to be running the company are essentially from within Container World. They've been there for years. and they're ready to take on and then they're excited about the opportunity to take the company to that next level. Our strategy has always been hire from within and they've got a great team there that they're looking at ways that they can adapt their business and fit into our network and drive synergy. I would say that with Container World we It's no different than any other acquisition that we do. We go in and we take a look and we observe, and we don't change everything on day one. We learn from what they do, and then over time we improve margin. That's our job. So our goal for 2025 is to improve their margin by 2%. A nice, simple goal, and the management team that's in place there now is – is ready to take that one on and fulfill that for 2025.

It's really in our DNA. It's actually our mission statement is that we acquire companies and strive to improve their performance. Well, okay, how do we improve our performance? Well, we work with the people and we show them how you got to measure and how everything matters. And we are laser focused on being efficient. Not every company we acquire is laser focused on being efficient. They have different agendas. In our organization, you will get laser focused on being efficient or you won't be with us. It's that simple.

Okay, perfect. Thanks, guys. That's it from us.

Thanks, Chester. Thank you. Once again, if you have a question, please press star then 1. The next question is from Ben Thompson with Tenno Transportation. Please go ahead. Mr. Thompson, your line is open on our end. Perhaps you have it muted on yours.

I don't think Ben will be asking a question.

We're good to carry on.

In that case, this concludes the question and answer session. I would like to turn the conference back to Mr. Mullen for any closing remarks.

Hey, thanks, folks. 24 is over. We are 100% laser focused on 25. There's going to be challenges. There's going to be opportunity. and we got the balance sheet. Probably the best thing we did last year as a corporate group. We got the balance sheet, and we didn't waste our bullets. And this year, shareholders can count on us putting that money to work. Thank you very much for joining us, and we'll be talking to you in April, only a few months from now, and we'll give you an update on how the year started out. We'll know more about tariffs in April. Ask us then. Thank you very much. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.