Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited first 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 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 Court of Conference call. The format for today's call is similar to previous investor calls, and we will cover three main subject matters before I'll be turning the call over to you for a Q&A session. So I will provide a review of the macro environment, a recap of Q1, if you will. Carson Erlacher will provide an overview of the first quarter financial highlights. And for those interested in the details, the Q1 interim report has been posted on our website at www.mullen-group.com, as well as on CDAR+. Now, this 47-page document contains all of the information you need as it relates to our Q1 financial results and balance sheet. Then I will close with our very best guess of what we expect in Q2 and beyond. Now, 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, the uncertainties, and assumptions can be found in the disclosure documents. So with me this morning... I'm joined in Okotoks with the entire senior executive team, Richard Maloney, Senior Operating Officer. Carson Erlacher, he's our Senior Financial Officer, and Joanna Scott is our Senior Corporate Officer. In terms of Q1 financial operating performance, let's have an overview of the macro environment. That's where I'll start. And it was really only two short months ago that I provided an overview of our expectations for 2025. I said at the time that we were maintaining our 2025 outlook and business plan as articulated in December 2024. But at the same time, I acknowledge that the risks of the economy were heightened under President Trump's Make America Great agenda. Now, our thesis was that parts of the Canadian economy would be directly impacted by the imposition of tariffs on Canadian goods, but that our business would not necessarily feel the same negative impact because, truthfully, we've been de-emphasizing cross-border shipments for a number of years now. Now, what I also said in February was that I was concerned about how Canadian politicians would react and the reciprocal tariffs would cause more harm to our business and to Canadians in general. I hoped that calmer heads would prevail and a negotiated deal would mitigate a lot of the potential damage. Well, I'm still waiting, as is everyone else. And until these tariffs and trade issues get resolved, it is logical to assume that future business activity and freight demand will suffer. By how much or little, I have no idea. We will simply adapt as required. So for 2025, we expected the economy to be generally in line with 2024. Any growth that we had planned would be attributed to acquisition, and truthfully, not much has changed over two months. The economy is flat at best, and we are actively pursuing acquisitions. For example, like the recent announcement regarding the coal group of companies, which is an absolute gem of a company. And I want to thank Mr. Don Luckey, who unfortunately is not with us any longer, for entrusting the Mullen Group to be the custodians of the great brand that he built. And it will be a great company and organization. So in the first quarter, 25, we did not really see any material drop in freight demand in any of our four segments. And that's just despite all of the chatter. Any decline we experienced was because we demarketed certain customers that had unreasonable rate requests. So when trucking comes to mind here, it was impacted when we gave up a $10 million plus revenue winter ice road project that was servicing the mines and northwest directories. And that was all due to pricing and risk. We just said it is not worth it to take the risk based upon what the customer is asking. So At the end of the day, we just simply do not compromise when customers are unreasonable or they put our people at risk. Overall, our other 38 business units held revenues very close to the first quarter of 2024, which in itself is an accomplishment given the competitive nature of the business these days, the lack of material growth and consumer spending, and along with this virtual capital investment freeze-up in Canada. So our quarterly revenues were up nicely year over year, all because of those previously announced acquisitions, which you recall is the only viable means of growing a business today in our view. So on balance, a decent quarter from an operating perspective. Now looking at the business by a segment basis, our best performing segment, once again, is LTL, with revenues up $9 million year over year, and that's despite that $10 million decline in Grimshaw. So the other business unit, Telflat, And we did a nice couple of tuck-in style acquisitions that we did last year that supported the business. This really is the steadiest part of our business. And primarily because our 12 business units provide an essential service to well over 5,000 communities, Richard. Over 550, 500. And people still need what we deliver, regardless of the state of the economy. tariffs or trade issues. So at Mullen Group, I can honestly say we love LTL. Now, in terms of logistics and warehousing, Container World added all of the incremental revenue growth, which was nearly $26 million in the quarter. And while we think we've turned the corner in terms of profitability, we fully appreciate that we still have work to do The previous owner has just exited the business at the end of the year. So it'll take a little bit of time to get the margins where we expect. But I tell you, once we get there, get the team focused on measurement and process improvement, I honestly believe that the returns will be there. Overall freight demand was similar to 24. But it was here that I have to be a little pragmatic because I'm not sure – if that was due to shippers pre-ordering to front-end any tariff issues. We're not exactly sure on that. I've got to be honest with you. I think the second quarter will tell the rest of the story, in our view, on this issue. In specialized industrial services, we saw a modest increase in revenues and assailant, and those are all due to the Pascate Energy Services team. They had an excellent quarter. The team is winning market share by investing in in new technology like robotics to support plant turnarounds and tank cleanings. This technology is safe, it is efficient, and the customers benefit from really quick response time. So once again, I'll highlight the power of diversification. Cascade, for example, wins market share. Why? Because we invest in a new technology. But when we don't see the returns there, we close the business like we did with the OK Drilling Group. We shut it down. This year, we didn't have their revenues this year. We just don't see how we were getting paid appropriately for the capital. We didn't want to invest anymore, so we shut that business down and we sold those assets. We keep looking at how we can win market share and make acceptable return for our shareholders. In the U.S. 3PL segment, so this one is up to this point in time has been holistic. We held revenues flat, but corporate costs of technology continue to hurt margins. And we either have to grow this business by adding new revenue flows or downsizing it to ensure an appropriate margin is generated. We love this team, but the 3PL business is ultra-competitive these days. And then the second thing I will say is that starting in Q2, we're going to see some real growth in this segment, Carson, because – we're going to be adding our coal group into this segment. So you're going to start to see some real growth in the US RPO. And in fact, one of the real synergies we see from the coal group is the cross-selling of services with the listed. So we now have more options available to both teams to expand their respective businesses throughout North America. And you've got to have a bit of a secret sauce to get business today because it is ultra-competitive. In summary, we were able to accomplish revenue growth primarily due to acquisitions. But it also needs to be noted that our existing business units did a pretty darn good job of managing a lot of moving parts in Q1. So from a profitability perspective, we have some work to do with our new business units. As I said, however, I'm pretty confident we can get them in a better spot before the end of the year, and that is our goal. Corporate costs, got to talk about that a bit. We were higher, but this was mostly by design. We added depth to our corporate team. and in our technology department, because we were anticipating that we were going to be going big acquisition, for example, like the coal group. We kind of anticipated what we knew was going to happen. So I'll now turn the call over to Carson for more of the first quarter financial performance. Carson, take it away.

Perfect. Thank you, Murray, and welcome, everyone. I'll provide some additional highlights from the first quarter, the details of which are fully explained in our first quarter interim report. Overall, our first quarter results continue to highlight the diversity of our organization. Through our acquisition strategy, we have ensured that we are not reliant on any one sector of the economy, which we believe is a competitive advantage, especially in uncertain times. Our 39 business units operate in many different verticals of the economy, allowing us to consistently generate steady revenues and free cash in yet another competitive operating environment. Revenues were nearly a first quarter record and only $700,000 shy of our first quarter of 2023. Revenues increased in all four of our segments and were approximately $500 million, an increase of $34.5 million compared to the prior year. In terms of cash, which is what we focus on, we generated net cash flow from operating activities of $39.9 million in the first quarter, a 3.4% increase from the prior year. This cash generation continues to be in excess of our requirements, including our interest payments, cash taxes, CapEx, and our lease commitments. I will go through the results of my segment shortly, but the overall theme is this. Top line revenues increased due to $37.7 million of incremental revenue from acquisitions, while revenues from our legacy business units were essentially flat compared to the prior year. Within our legacy business units, we demarketed the Winter Ice Road project that Murray referred to earlier, which is a first quarter project. However, we offset this decline in revenue with market share gains at certain other legacy business units. Operating margins as a percentage of net revenue decreased to 14.9% from 15.7% as we continue to work with our newly acquired businesses on margin improvement. But as we know, this takes time and is not achieved in one single quarter. In the first quarter, revenue per working day increased compared to the prior year to $8 million. We generated OIBDA of $68 million, an increase of $1.8 million compared to the prior year period, with acquisitions adding $4 million of incremental OIBDA. Operating margin decreased due to our acquisitions generating lower margins, along with a reduction in certain higher margin business. Direct operating expenses as a percentage of consolidated revenues were generally flat year over year. 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 revenues increased by half a point due to a combination of higher corporate costs, which resulted from a negative variance in foreign exchange, professional fees associated with new acquisitions, and from adding staff to facilitate our future growth initiatives. Our newly acquired business units also experienced higher S&A costs as a percentage of revenue. Now let's take a look at how we perform by segment. First, our largest segment, revenues in the LTL segment were $191.5 million, an increase of $9 million from last year due to $11.6 million of incremental revenue from acquisitions, being somewhat offset by a $10.2 million decline at Grimshaw Trucking that resulted from demarketing the Winter Ice Road project. Revenue growth from our legacy business units almost offset the decline experienced at Grimshaw Trucking through market share gains as some competitors exited certain lanes. OIBDA was $29.3 million, down slightly by $1.5 million from last year, and this decline was due to a $3.2 million decrease at Grimshaw Trucking, again from demarketing the Winter Ice Road project, being somewhat offset by $1.3 million of incremental OIBDA from acquisitions. Operating margin decreased by 1.6% to 15.3%, primarily due to demarketing the Winter Ice Road project. Our second largest segment is our L&W segment. Revenues in the L&W segment were $151.8 million, up $25.5 million from last year. This increase resulted from adding $26.1 million of incremental revenue from acquisitions. OIBDA was $25.4 million. Again, up $2.9 million from the prior year with acquisitions, adding $2.7 million of incremental OIBDA. Operating margins decreased by 1.1% to 16.7%, primarily due to lower margins experienced at Container World. We continue to work with our very talented leadership team at Container World by implementing new technology and process improvements. However, these changes take time to be reflected in operating margin improvements. Moving to our S&I segment, revenues were up slightly to $112.2 million, driven by the strong performance of Cascade Energy Services LP, as they continued to gain market share for their advanced specialized robotic technology systems. Through meticulous planning, skill, and seamless execution, they showcased their abilities and their robotic tool family associated facility and maintenance turnaround work. This increase was offset by a $2.4 million decline in revenue for them. pipeline hauling and streaming services, and a $2.8 million decline in revenue from our drilling-related service business units due to lower drilling activity in the northeast British Columbia region tied to natural gas. OIBDA increased by $2.1 million to $18.8 million on higher OIBDA being recognized at Cascade Energy and Canadian dewatering due to the commencement of facility maintenance work and certain dewatering projects, respectively. These increases were somewhat offset by lower OIBDA from our drilling-related services business units. Operating margins increased by 1.9% to 16.8% on lower direct operating expenses due to the greater proportion of higher-margin project work. In our non-asset-based US 3PL segment, revenues were up slightly at $44.9 million. compared to last year due to the impact of a stronger U.S. dollar relative to the Canadian dollar in the first quarter of 2025 compared to the prior year period, which was somewhat offset by lower freight demand and pricing per shipment, resulting from the ongoing competitive operating environment in the U.S. market. OIBDA decreased primarily due to higher direct operating expenses. Operating margin on a net revenue basis was 2.8% in the first quarter compared to 12.8% in 2024. which is primarily due to higher direct operating expenses as a percentage of segment revenue. So that wraps up our first quarter commentary, but let's have a quick look at the balance sheet before we go. We ended the first quarter with cash on hand of approximately $131 million, working capital of $286.7 million. We also have access to $525 million of bank credit facilities, of which only $7.2 million was drawn at the end of the quarter, providing us with ample liquidity. In terms of our debt covenants, we effectively have one main covenant which we focus on, which is total net debt to operating cash flow. Our total net debt to operating cash flow covenant on our new 2024 notes is 2.23 to 1 and 2.47 to 1 under our old 2014 notes. Our 2014 notes are set to mature in October 2026 with a principal repayment being $207.9 million net of our cross-currency swap. In summary, our balance sheet is once again well-structured and positions us to make long-term strategic investment decisions, like our recently announced acquisition of the Cole Group of Companies, opportunities that generate free cash. So with that, Murray, I will pass the conference call back to you.