Mullen Group Ltd.

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited second 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'll be an opportunity to ask questions. To join the question queue, press star then one 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. The format for today's call will be similar to previous investor update calls. And this morning, we will once again cover three main subject matters before turning the call over to you for the Q&A session. Now, I'll provide a review of the macro environment. That's a recap of Q2. Carson Urlacher will provide an overview of the second quarter financial highlights. And for those interested in all the details, the Q2 interim report has been posted on our website at www.mullen-group.com, as well as filed on CDAR+. Now, this 60-page-plus document contains all of the information you need as it relates to our Q2 financial results and balance sheet. Then I will close with our expectations and plans for Q3 and the balance of 25. 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. With me this morning, I'm joined in Okotoks with the entire senior executive team. That's Richard Maloney. senior operating officer, Carson Urlacher, senior financial officer, and Joanna Scott, who's a senior corporate officer. First item is an overview of the macro environment. So kind of in preparation for today's presentation, I referred to my previous conference calls notes, and no AI for me on this one. I read the transcripts. And in summary, There are two major themes that have been repeatedly articulated to investors since the start of the year. The first was that we expected the overall 2025 economy to be generally in line with 24. No growth, but significant decline. No significant declines either, just let's call it more of the same. In other words, we were not planning on our independently managed business units to generate any internally driven growth. Now the problem you have under this scenario is that when demand is not growing, the competition reversed to survival mode, which from my experience is not a healthy longterm strategy, but it is a short term reality. Furthermore, the longer the economy remains in a no growth territory, the more competitors succumb to lowering rates just to maintain some level of cashflow. Now this is precisely why we asked our business units to buckle up heading into 2025. Simply put, In the absence of any meaningful growth in the economy, the consumer gains the leverage advantage, and one must adopt a lower cost structure, as painful as it is to implement. The alternative is to chase internal growth by offering price concessions, which is a flawed strategy that Mullen Group does not embark upon because, honestly, this would require that we ask employees to take less or investors to make nothing. So we prefer to protect margins rather than attempting to gain market share. when pricing is under attack. The second theme we highlighted was that acquisitions would drive growth. Here at Mullen, we're a counter-cyclical thinker. We prefer to pursue acquisitions when internal growth is difficult, and this strategy allows our organization to grow regardless of the economy. When the economic growth is abundant, we grow with our customers. When the economy struggles, Like it has been for a couple of years now, we acquire good companies in verticals of the economy where we believe there is long-term potential. Now, to be clear, this is not just a growth strategy. It is based upon expanding where we see long-term opportunity and a solid customer base. It just so happens that great opportunities are presented more frequently during times of stress. when others do not or cannot take a longer-term view. We can and we do at Mullen Group. Now, with this as a backdrop, let me turn to a few highlights in the second quarter. How does 9% growth in top-line revenue sound? In this market, I'd say that is fantastic. Our business generated over $540 million in consolidated revenues, and this during a time of economic stagnation. In the second quarter, we reported headline GDP, We didn't report, it was reported that headline Canadian GDP came in very soft for April and May. And that corresponds directly to what we saw in our sales channels. Despite the economic headwinds, however, we grew in revenues impressively. And the main reason is acquisitions, which added $52.6 million in incremental revenues. But I don't want to discount the hard work of all of the teams on our 41 business units. Collectively, they did a really nice job managing in the current economy. I know it was not easy. And the discussions that many of our business units had with their customers were challenging, as they too were dealing with their own set of issues. So to generate same-store sales of $440.8 million, which is after adjusting for fuel surcharge revenues, it came in virtually flat year over year, which is impressive from my perspective. I've got to say, well done, team. Another highlight I have to point out is the issuance of the new long-term bonds, approximately $400 million, which was finalized and closed in July. Now, I'll let Carson talk to the specifics, but let's just say I'm pretty dang proud of the fact that we could close this bond deal at a time when there's so much uncertainty. Not only did we put this organization in a great spot for the next decade, but we've also And we've now got over $100 million in available cash to continue growing our business. Quite simply, there's so much to like about this transaction. And I'd be remiss if I did not thank the investors who made such a meaningful investment in Mullen Group. In terms of profitability, we did okay. But given, you know, especially within the context of the market and the circumstances, there was a lot of noise associated with the big swing in the Canadian dollar versus the U.S. dollar. which negatively impacted corporate costs associated with our U.S. dollar holdings. In addition, as I mentioned earlier, pricing remains under pressure. That's never good for profitability. Our cost-saving initiatives at the business unit level mitigated some of these pressures, but not all. And lastly, the last two acquisitions of size that we completed, you know, they're asset-light businesses, and they don't generate the same OBDA margins as our heavy asset business units do, but here's the number I really focus on. Cash from operations remained a healthy 117 million, virtually the same as 2024. In terms of a little bit of segment discussion, you know, I'm not going to repeat what's presented in the MD&A and the press release, you know, documents that conclude a very detailed analysis, but I'll offer some key highlights for each segment. Let's start with the most stable, and once again, our largest, and that's LTL. Revenues were up 11 million over the same quarters last year, climbing to $200 million mark. Impressive within the context of a no growth economy, and the fact that fuel surcharge revenues were down by nearly 3.2 million. OBDA however, was declined slightly due to cost pressures and higher purchase transportation, but still came in at a very respectable 35.7 million in the quarter. Now the LTL market is steady, But as I noted earlier, price is what matters most today for shippers. So there were no price increases and some modest give-backs in the quarter, and that led to the lower margin. Logistics and warehousing is where we really saw a nice boost, primarily due to acquisitions, of course, rising by a healthy 15% to $173.6 million. What is most impressive about the quarter, in my view, was that the segment business units held revenues close to last year, despite no growth in the economy and issues associated with the trade tariffs still made. Customers, it seemed, were reacting to market conditions rather than forward planning. So OIBDA, it grew, albeit margins fell by nearly 1%, but that's primarily due to the cost structures we inherit with acquisitions. There's no doubt that we have some work to do with these new business units to tighten up on the cost side. You know, and I was mentioning this. I'll go off script a little bit now. When you invest, No different than moving in. If you build a house, it takes a little bit of time before you can move in and out. You've got to put the investment up first. Acquisitions are exactly the same way. You've got to make the acquisition, and just like all the other ones that we've done since we've acquired them, then you improve it over time, which is exactly what our focus will be here at the corporate office. Now, similar story in the U.S. and international logistics segment. We grew the acquisition of Coal USA, boosted revenues by 36.7% to $64 million. And for the first time in a few quarters, OBDAW increased in the segment. Margins are not where we want it, but this segment has no fixed assets other than technology. So margins on gross revenues will be smaller to the nature of the business. What we will be looking at with these U.S.-based teams is improved margins on invested capital. Our specialized industrial service segment, you know, we struggled, declined by 3.7 million to 105.5 million. Drilling activity in Western Canada slowed as producers cut drilling programs due to declines in crude oil and natural gas prices during the quarter. We also took the very necessary step of demarketing some project work. when pricing fell below acceptable levels. Our response was to give up the business rather than invest new capital at unacceptable terms. We thus leave this to our undisciplined competition. One of the business units that did overachieve was our Canadian dewatering group. They opened a new facility in Northwest Ontario, let's call that mining country, where activity levels are accelerating. The overall decline in business was primarily the reason Obidaw fell on the quarter by 2.9 million. But our diversity of service offerings and strong performance by Canadian Dewater definitely helped. So all in all, boy, we were busy at corporate office with an exciting group. It was an exciting time for our group. And I would say it was probably a decent quarter given the circumstances. And along with... And when you do acquisitions, you have one-time costs associated with acquisitions, as I highlighted a little bit earlier. Most importantly, we've been positioned our company for better days. We've expanded into a new vertical within the economy. We're positioned to capitalize once the economy starts growing, that's for sure. Now, when this happens, I don't know. But history tells us it will happen again, just as it has in the past. And the Mullen Group will be prepared. I'll turn the call over to Carson. for more of the second quarter quarterly financial performance and the impact of the new bond deal on our balance sheet.

Carson, take it away. Perfect. Thank you, Murray, and welcome, everyone. I'll provide some of the additional highlights from the second quarter, the details of which are fully explained in our second quarter interim report. Overall, despite a stagnant Canadian economy, we generated record revenues compared to any previous quarter at just over $540 million. an increase of $45.3 million or 9.1% from the same period last year. So acquisitions is what drove this revenue growth by adding $52.6 million of incremental revenue and consisted mainly from including one month of the results of Coal Group, one final month from the results of Container World, and a full quarter from Pacific Northwest. Somewhat offsetting this growth was a $7.7 million decline in fuel surcharge revenue on lower diesel fuel prices. Collectively, though, revenue from our existing business units, excluding acquisitions and fuel surcharge, increased slightly year over year. Revenue per working day in the quarter averaged out at $8.6 million. The best month in the quarter in terms of revenue was the month of June, where we generated almost $200 million worth of revenue, or $9.4 million of revenue per working day, largely from adding the financial results of coal growth. So we finished the second quarter with solid results as we head into Q3, which in terms of seasonality over the past couple of years has typically been our strongest quarter of the year. We generated OIBDA of $76.6 million, a decrease of $9.1 million compared to the prior year. However, most of this decrease was associated with the impact of foreign exchange. Excluding the impact of foreign exchange gains and losses on U.S. dollar denominated debt, held within our corporate segment, a term we've now called OIBDA adjusted, was 83.8 million, down slightly by 1.8 million compared to last year. We experienced lower OIBDA from our existing business units and higher corporate costs as we expanded our team in anticipation of future growth. Somewhat offsetting these declines was 6.7 million of incremental OIBDA from acquisitions, Operating margin on acquisitions was 12.7% due to the non-asset based nature of the operations and from how IFRS accounting standards require us to recognize revenue on a gross basis. OIBDA adjusted as a percentage of consolidated revenues was 15.5% down from 17.3% due to cost escalation, foreign exchange losses experienced at the segment level, competitive pricing conditions and a reduction in higher margin specialized business. Despite lower operating margins generated by our recent acquisitions, they still generate free cash. In terms of cash, we continue to generate strong free cash in excess of our needs, as evidenced by the $77.8 million of net cash generated from operating activities in the quarter. Now let's take a look at how we perform by segment. First, our largest segment, revenues in the LTL segment, were just over $200 million, an increase of $11.3 million from last year, due to $11.8 million of incremental revenue from acquisitions, being somewhat offset by a $3.2 million decline in fuel surcharge revenue. Revenue from our existing business units, excluding acquisitions and fuel surcharge, increased by $2.7 million due to steady customer demand and from some market share gains. OIBDA was $35.7 million, down slightly by $1.8 million last year. This decline was due to the combination of both competitive pricing and cost pressures which resulted in lower OIBDA at our existing business units, which somewhat was offset by 2.5 million of incremental OIBDA from acquisitions. Operating margin decreased by 2% to 17.8% primarily due to the tight market conditions whereby additional cost pressures could not be passed along through customer rate increases. Our second largest segment is our L&W segment. Revenues in the L&W segment were $173.6 million, up $22.7 million or 15% from last year. Acquisitions added $24.3 million of incremental revenue, reflecting the one month of results from Container World and one month from Coal Group's Canadian operations, which was somewhat offset by a slight $3.4 million decline in fuel surcharge revenue. Revenues from our existing business units excluding acquisitions and fuel surcharge increased modestly by $1.8 million and was mainly due to certain project work associated with an oil processing facility in Alaska that led to higher revenues at Mullen Trucking. OIBDA was $31.9 million, up $2.9 million or 10% from the prior year, with acquisitions adding $3.2 million of incremental OIBDA, while our business units excluding acquisitions generated relatively consistent results compared to last year. Operating margins decreased by 0.8% to 18.4%, primarily due to the acquisitions and the resulting change in our revenue mix. Coal Group is a non-asset-based business that generates free cash but at a lower margin. Excluding the impact of acquisitions, operating margins would have been 19.2%, which is virtually flat compared to prior year's results. Our existing business units, excluding acquisitions, did a great job in protecting margin. Moving to our S&I segment, revenues were $105.5 million, down $4.1 million, or 3.7%, due to a lack of large capital projects being sanctioned in Canada, depressed commodity prices, and wildfires that negatively impacted our customers' drilling and production plans. These factors led to a decline in revenue from our production services and drilling-related services business units. We also demarketed certain customers due to pricing, as we will not compromise the safety of our people or put expensive equipment to work at unprofitable rates. Fuel surcharge also decreased by $1.2 million compared to the prior year. Somewhat offsetting these declines were revenue gains made by our specialized services business units tied to infrastructure and mining. as Canadian dewatering experienced greater demand for their services. OIBDA was $20.6 million, down $2.9 million from prior year, as our production services business units experienced a decrease in OIBDA due to a reduction in facility maintenance and turnaround projects. The specialized services business units experienced a decrease in OIBDA, mainly due to lower demand for civil construction services at smooth contractors. while our drilling-related services business units recognized a decline due to lower customer demand. Operating margins decreased by 1.9% to 19.5%, which was mainly due to a reduction in higher-margin business. Within our non-asset U.S.-based 3PL segment, revenues were $64.1 million, up nicely by $17.2 million, or 36.7% from last year as Coal Group's U.S. operations added $16.5 million of incremental revenue in the month of June. Holistic also experienced slightly higher revenues compared to last year. OIBDA was $1.2 million, up $0.4 million from the prior year, with Coal Group's US operations adding $1 million of incremental OIBDA, while Holistic's results were impacted by a $0.5 million negative variance in foreign exchange. Operating margin on a net revenue basis was 20.3%, which was slightly higher than last year due to higher margins experienced at Cold USA. Now moving to the balance sheet. On July the 10th, we announced the closing of a $400 million private placement debt transaction. 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 12-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 use some of these funds to prepay approximately $237 million of private notes that were set to mature in October of 2026 and $207 million of amounts that were drawn on our bank credit facilities which was mainly derived from funds that we used to acquire the coal group. Today, we now have over $80 million of cash on hand, a derivative with a cash value of close to $30 million, and access to $525 million of undrawn bank lines, and we continue to generate free cash. The blended interest rate on our new private placement debt going forward is now approximately 6.1% per annum. In terms of our debt covenants, total net debt to operating cash flow would have been 2.57 to 1 had the July debt refinancing and the repayments occurred in the month of June. In summary, our balance sheet is well structured with long-term financing. We have ample short-term liquidity and debt covenant ratios that are acceptable and within management's comfort range, allowing us to be opportunistic going forward when the right opportunities come along. So with that, Marie, I will pass the conference back to you.