Q3 2019 Earnings Call

Thank you for standing by this is the conference operator, welcome to the Mullen Group Limited third quarter earnings conference call and webcast.

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I would now like to turn the conference over to Mr. Murray came all in Chairman CEO and President. Please go ahead and good day and welcome Tom on Brooks Quarterly Conference call.

As in the past, we'll be discussing our financial and operating performance for the third quarter. This will be followed by an update on the near term outlook as we see it but before I commenced the review I'd remind you all that our presentation contains forward looking statements that are based upon our current expectations and are subject to a number of uncertainties and risks and actual results may differ.

Were materially further information identifying these risks uncertainties assumptions can be found on the disclosure documents, which are filed on SEDAR.

And at Www Dot Mullen heightened group Dot com. So with me. This morning, I have our executive team, which is a <unk> Clark our CFO Richard long as she never be.

The amount of Scott, who is our corporate Secretary VP of corporate services of course, and Urlocker Who's our corporate controller.

So this morning before Oh, so can I turn it over just a man to review the third quarter financial and operating results.

One of them all and group.

And then we'll follow that with them what the outlook for the balance of 19.

And of course, the Q in a session I'll open with a few comments now the third quarter was actually the strongest quarter in 2019.

With consolidated revenue, reaching 325 point Threemillion and although this year's performance was down on a somewhat from last year's robust results of 339.7 million.

Which I would say in itself was a bit of it don't disappointment, but when you look into the reasons.

It's pretty evident that our business model is very stable and we can produce good results. Despite some pretty severe headwinds.

For example, as I mentioned just mentioned last year, we had a really good a year from from an economic perspective for freight demand and for trucking in general.

So from this perspective, we had some high hurdles to clear which to be honest just didn't materialize. This year. Furthermore, the evidence is now log <unk>, obviously, north American economy has definitely slowed.

Going to be impacting freight demand that precisely the same time that the industry supply.

Good news cyclical highs.

I think on just little commentary on this you'll also hear or similar words from the rails CNN CP that says that the economy has definitely slowed and though we would confer with a with those commentaries.

So the scenario that we have on the trucking industry, that's really causing some pain is that we have a slowdown in demand at a exact same time that a bunch of supply hit so pricing obviously comes under pressure.

As for the Canadian markets as a bit of a tale of two different stories from our perspective, the first and the positive continues to be consumer spending which remained strong during the third quarter and it supports our LTL business most notably.

Our guard wine group had a really strong quarter and well from an operational perspective, but also they they they they they did gain some market share. So that's a good news story on the LTL side and LTL is basically tied to the consumer the negative story, however relates to capital investment.

Project work in infrastructure build out here, we witnessed a very challenging quarter as evidenced by declines in our truckload business.

And it was across the board with every one of our trucking logistics segment business units tied to the truckload business.

Experiencing rubbing revenue declined snow and discussions with our customers. There was a definite lack of confidence and conviction, which translated into fewer orders for long lead items not perhaps this was just an inventory rebalancing or short term retrenchment by companies or could be something much more structural which would obviously be a real concern to me.

But my instinct say it was just a blip in the big scheme and the demand will eventually adjust overtime.

No one from almost perspective, a short term downturn actually can be good for our company because many of our competitors do not have the diversified business model are generally and not as well capitalized and as a result, we're seeing some significant trucking failures across and throughout North America. This calling up the heard as.

Painful as it is in the short term is healthy for the industry in the medium to long term and I fully expect our business units to capitalize as others fail, which ultimately strengthens our market share.

Now, let me turn to the continuing and PSEG as it relates to the oil and natural gas industry.

The challenges remain with little light at the end of the tunnel, which is sold disappointing because Canada is oil and natural gas industry is one of the if not the best in the world. Nevertheless, the challenges are forcing a total rethink of the industry and once again the service industry and all the hard working people are built this industry are paying a huge price.

Drilling activity was down 36% year over year during the quarter a direct hit on the demand for oilfield services for revenue for jobs on the like then the where the Alberta government mandated crude oil curtailments curtailments that continue to strain the movement of crude oil shipments enforcing producers to delay service work as a means of protecting cash flows.

All I can say is at the third quarter was a very difficult period for anyone involved in the oil and natural gas business.

But.

I'm going to reiterate but given all the what I just said, let's go back to my opening comments our results for the July to September 2019 period were actually pretty strong the best in 2019, we obviously have a robust and diversified business model, we had a bit of revenue lift from a couple of smaller tuck in acquisitions and while not meaningful.

They do provide some growth within the context of the current macro environment.

But you will notice we have not been that active in the acquisition front, preferring to wait for better opportunities and valuations.

Now if you want to have a bit of green shoot news, our premium pipeline business had a very active quarter positioning big inch pipe for a few major pipeline projects. In fact, one of our biggest customers last quarter was the federal government as the owner of the Trans Mountain pipeline. They just keep spending money, which is good for us, but I really don't know if its money well spent yes.

Will up Big government. The Bottomline is this as it relates to pipelines if pipelines are being built that will eventually provide the infrastructure needed support the oil and natural gas industry and the news surrounding those Massa LNG projects on the West Coast of British Columbia is mostly positive so I would say to all of our shareholders listeners.

There is some light at the proverbial end of the tunnel.

From a profitability perspective, the discussion points are very similar to the revenue story third quarter was the best of the year down slightly from 18, but overall pretty good within the context of them. All so all in all I'm pleased with our Q3 results and we are right on track to generate the annual financial performance I outlined to shareholders at the start of.

2019.

Could've been a lot better if the macro environment with stronger stronger and I would have been even better if we did pursued acquisitions more aggressively which we did not because as we as articulated earlier, we believe that the valuations and the opportunities would become more attractive.

So this all leads me to last point I want to address this morning before I turn the call over to staff for more fulsome discussion on our quarterly performance and that's our stock price. Clearly this is an issue I wish I had a better answer for everyone. Our soft performance has been dismal and its troubling, but as you can see from our results. It does not appear that the pressure on our stock has come off of that our stock has come under his.

Due to operational financial performance, our dividend is rock solid because we have a diversified portfolio, a well managed business units covering a multitude of customers and business lines in Canada, we have a strong connection to the consumer part of the economy, we are well capitalized with ample room to fund our future growth initiatives, we make real hard earned money because a good portion of our but.

This is non asset based just look at our cash flow last quarter as an issue as an example.

And we own the majority of our own real estate portfolio seems to me is a pretty darn good investment for any investment wanting a stable monthly cash return along with upside potential, which I believe we'll either come through acquisition or attrition as our competition sales SFAB Noah alright. Thank you Mary and good morning fellow shareholders, our third quarter internally.

Our contains the details that fully explain our performance as such I will only provide some high level commentary.

We continue to evolve into a dominant trucking logistics company and less so in oilfield service company I would remind our listeners that a short five years ago, our third quarter trucking logistics revenue was 146.7 million. It is now 222.2 million a compounded annual growth rate of 8.7% well above the growth of the.

I want to me five years ago. We also did not have any LTL presence in Vancouver, or Toronto now we have significant presence in both these markets, including our recent acquisitions of Argus carriers and interurban delivery service.

Lower mainland.

Second logistics represented approximately 70% of our year to date revenue with this shift our third quarters now typically our best quarter of the year rather than the first quarter. When we were dominated by the seasonal effects of the oilfield service industry.

Our third quarter revenue improved sequentially to approximately 325 million.

That being said with our shift towards truck and logistics segment and the consumer our seasonal swings are not as large as they once were in other words revenue is more predictable or that is to say less volatile.

Well not stellar the Canadian economy with steady and the same can be said about our third quarter results steady.

Some specifics our revenue for the quarter was positively impacted by the completion of the Argus interpret acquisitions that provided $6.3 million of revenue growth.

We had 9.5 million dollar increase that premade pipeline.

And increased revenue at guard wind, reflecting the strength of the consumer.

These positive factors were offset by a reduction drilling activity that reached.

Nearly all time lows with an average rig count of 132 Africa active rigs, resulting in a 9.1 million dollar decline in drilling and drilling related revenue mandated curtailment.

Also negatively impacted production services to the tune of 12.3 million.

And lower fuel fuel surcharge revenue.

Was due to lower oil prices.

As much as low oil prices hampered our oil field services and fuel surcharge revenue it help reduced.

Fuel costs to 8.1% of revenue versus 9.6%.

Revenue in 2018 that is a significant savings, especially given the context that were nearly nearing a billion dollars of trucking logistics.

Revenue on an annual basis.

As for profitability operating income before depreciation and amortization or what is commonly referred to as EBITDA was 55.6 million an increase of about 1% over 2018. This was despite some well known challenges such as the 35% decline in drilling activity and mandated curtailments, which this.

Actually hurt the service sector as stated previously approximately $3 million or the rise in EBITDA was due to IRS 16, so on an apples to apples basis EBITDA decreased by about two and a half million to 52 to half million as compared to 55.1 million 2018, but adjusted margin was essentially the same as in 2018.

On a segment basis, the truck and logistics segment EBITDA was essentially flat at 35.8 million as compared to 36 million in 2018. However, the adoption of IRS had a $2.7 million positive impact on reported EBITDA on an IRS 16 adjusted basis are comparing again apples to apples margin.

14.9% in 2019 versus 15.9% in 2018 due to the softness and freight demand, especially as it relates to the movement of goods associated with capital investment within Canada.

EBITDA in the oil field services segment improved by 8.7 million of which point 5 million was due die for F. 16, So essentially flat during the during a very challenging quarter margin on an IRS 16, adjusted basis was up to 21% as compared to 18.8% in 2018, we held their own because of the diverse.

City within our business model and the best in class operators are best in class operators concentrating on the cost side of our business.

Full details may be found in our Mdna starting on page 16.

Lastly, a quick word on cash flow everybody knows that cash is king during the quarter, we generated $46.5 billion of net cash from Mapper operations year to date, we have generated 116.4 million of net cash from operations I'll remind listeners that net cash from operations includes the payment of taxes and the funding.

The working capital needs. This 116.4 million was up 32.2 million from the 84.2 million we generated in the first three quarters of 2018. This is significantly above our cash flow needs. This allows us to continue to pursue strategic acquisitions to further enhance cash flows and to ensure our.

Our dividend remains as Mary described rock solid so in conclusion, we have a strong financial position, a strong cash position and and a strong dividend with a clear path for acquisition growth. So with that Murray I'll pass pass the conference back to thank Yous defense.

As we move to the outlook section on what we think to have some views on what could happen over the next quarter I'll keep the outlook short went and thats because nothing changes until something changes therefore remain in the status quo camp.

Now clearly economic growth has slowed both here in the us which negatively impacts freight demand, but the question is for how long will the slowdown stick around.

We see this is an open ended question.

We do see also consumer demand as being the driving force in the economy and this is due to the strong employment numbers, we see as well as the propensity of our governments to support people and programs. They adeptus financing. This supports our thesis that investing in and growing our LTL final mile footprint here in Canada is strategically of.

Very good use of our shareholders' capital not only is the LTL final mall business. The most stable part of our business is going to be extremely difficult for any competitive to match. The scale. The network for service offering we provide I'd love. The most of this business provides our company.

As for the dropped long haul trucking component of our business. We are waiting for better news on the inventory rebalancing that seems to have occurred.

Over the last couple of quarters, and hopefully with the election behind US here in Canada companies will begin to reinvest again.

And this is the driving force behind the movement of top capital goods.

Things such as equipment, just refer to what Caterpillar just noted on their call.

How about to lumber.

And such such things as as as construction equipment and infrastructure projects. These are all.

The movement tied to the movement of capital goods, and we saw a slowdown over the last couple quarters.

Just.

I don't know when it's going to turn but I can't imagine that it's going to be.

It will be slow for too much longer and of course, the oil and natural gas industry has its own set of challenges, but if pipelines get built if our customers can get their crude oil to market. If the LNG project stay on track.

And there is at least a glimmer of hope that the future for Canada is oil and natural gas as gas industry, while perhaps not quite as bright as days gone by it will see better days ahead.

Once again and I would say this to you I think that eventually it turns away from being a headwind.

And that in itself would be a positive how much the tailwind would be I don't know for sure but.

I do sense that we're nearing the end of the of the headwinds.

Until then we see limited opportunity to grow.

Except for the fact that our competition is failing this is how I see our oilfield services segment business units growing in an otherwise flat market is called attrition in fact, I personally believe the 2020 will be the year of consolidation and attrition for the oil and gas sector, we shall bide, our time and weakness. So lastly, I want to common comment on the acquisition and deal.

Overall, we continue to evaluate many opportunities and just like our stock price. So this fall and significantly so we'll have valuations and expectations, we will be active and growing through acquisition, but always within the context that any deal must meet the dual objective of strategic to our long term goals and accretive to our financial results steady as she goal remains aren't.

That mantra and don't forget about the dividends. This defense it is safe because of the diversified business model, we have built out over many many years. So thank you very much and I'll now entertain your questions.

Thank you Sir we will now begin the question and answer session to join the question Q You May Press Star one on your telephone keypad, you will hear atone acknowledging your request. If you are using a speakerphone. Please pick up your handset for pricing any key.

Withdraw your question. Please press star too, we will pause for a moment of colors join the queue.

Our first question comes from Walter Spracklin with RBC capital markets. Please go ahead.

Thanks, very much hi, guys How're you doing warning Walter.

So let's start on just on the topline.

Your you to discuss some of that driving trends in the trucking and office side So trucking.

It certainly sounds like there's a lot more capacity out there.

Can you quantify a little bit about what you're seeing in your business.

On rate declines.

And if any.

And this put that in the broader context of where you see volume going.

From this point forward is a better to look at flat rate flat volume or are you seeing growth growth going forward from here given this environment.

Kind of a tale of two stories again, Walter if you look at the spot market.

The spot markets down significantly year over year.

Talking both.

2% to 5% I'm talking could be 10% to 20% on the spot market.

Now when you have a logistics business.

It's really were in different to what the prices.

With our logistics business, because we just manage the spread as prices come down.

Because there's too much competition that are our contractors and our subcontractors get.

Get less so we still maintain the same spread in this in the spot market.

The challenge becomes one there's not as much in the spot market. So we weren't as busy as we as we have been but we've been made over to manage that spread now on the contract business serves more steady work and and stable we're seeing some cracks in the army there on some pricing.

We're not do you not we're not getting any pricing leverage.

And.

To maintain your business subs.

I'm I'm seeing some 2% to 5% rate reductions.

To maintain your market share in this tough market, how long that last one I'm not sure.

But definitely we are going to have to see some pickup in demand or some more trucking failures that gets.

Most likely will probably happen at exactly the same time and then you'll get your pricing leverage back again, I think it's a temporary thing Walter not not a permanent change.

Turning to affect same question revenue side at feet third quarter fourth quarter last year pretty stable could we see the same kind of pattern in your third to fourth quarter results here in 2019.

Like I missed what the question was really well you did you did the same level revenue in the fourth quarter last year as you did.

The fourth quarter is still pretty strong so I I haven't quite seen.

The have any evidence that there is a pickup in demand yet now I am optimistic the the elections over so let's get over it let's get on with running our businesses and doing it I know that we've said okay. The elections over let's think about life and running our business and planning for the future and.

So there's no don't even we put things on hold.

During that.

In all that less to order too so.

I think most businesses will get back to business and make good long term decisions and that's what really capitals about as long term.

And that's why say I think as or inventory rebalancing issue, but eventually the inventory is gone and then you got to get the new ones.

So what I'm, adding the two up I might be little shy of your 1.3 billion guidance unless your direct me otherwise on revenue, but still able to hit your 200 million EBITDA guidance is that's it's still within.

Within the realm of.

Probability it could be down a little bit, but thats, what I was saying and my commentary.

In the outlook is that look we still think we're on target.

But we have to be realistic is that there are heightened risks that I did not envision.

In the in January of 2019.

Thanks.

Drilling activity has been down significantly that I didn't I didnt envision that drilling was going to be down 30% in the third quarter.

It is I think we're on target to be down similar numbers in the fourth quarter.

Maybe not quite as much but to.

We'll see we'll see how how our customers manage their cash flows and on the on the.

Overall economic front, we're already starting to see some of the data points come in that.

Freight tonnage is improving a little bit in the US August was the first its little bit increase wasn't enough to change pricing, but maybe what through the worst worst of it.

Finally, just on acquisitions I think we're close on it.

So fluid market too.

I'm not getting anybody on the.

That's good color.

On acquisitions.

Last question here it sounded in your prepared remarks, and the disclosure documents that you're.

You said, a little bit more excited about the opportunity that acquisitions can provide.

Where do you think your directing most your energy.

Is it more on on.

Oilfield services is it more toward trucking, where do you see the most value.

Relative to the two given given the current market conditions.

Well, let's look at our game plan in terms of acquisitions hasn't changed since we went public 20 years ago.

I don't do acquisitions, because it makes on trying to make sure. Our numbers are good for a quarter, we do an acquisition because it makes good strategic sense and because it's accretive.

So we we just didn't like the.

The opportunities that we saw over the last.

A couple of quarters and the valuations were clearly coming down as the economy slogan.

And as our stock price fell I mean, I'd just add notice.

It wasn't that excited.

I think somebody a whole bunch when we're not being paid so.

Valuations and opportunities or were there both coming and coming in line now let me talk where are we going to put our capital.

We see the very best opportunities probably in the oil patch, but we're not investing in the oil patch. So we're not we're not doing any deals in the oil and gas sector.

It's just we're just going to play the attrition game, there and we'll gain market share through attrition not through acquisition.

Now on the on the.

Final mile LTL building up the regional network, that's our focus.

That's where I want to put the our balance the rest of our balance sheet work because once you get it you got to move this very very difficult to replicate.

Et cetera. Thank you very much retype. Thank you.

Our next question is from David Ocampo with Cormark Securities. Please go ahead.

Hey, Mary.

I'm wondering if you previously talked about shifting more to asset light when I look at your numbers now do you guys feel like you're at the right mix between company owned assets and over owner operator.

Well the owner operators we.

Really doesn't change much in terms of owner operators because the most majority of our operators are on a percentage basis.

Right Steph.

So.

So really you're getting.

18% to 23% or whatever of the.

The revenue and other revenue may come down it shrinks a little bit.

We got hurt not not on margin, we've got because of.

And the owner operators. It really was we just didnt have an up revenue base or SG name was was up a little bit just because the revenue base wasn't quite as high.

And we.

We have on it.

Changed our cost structure in essence, so that probably hurt on our truckload business, 1%, maybe a little bit more but not on the margin with our owner operators and clearly not on our margin with our subcontractors, which is let's call our subcontractors the luber drivers.

They price there just.

They set the market price and that's based upon what how much supply and how much demand. There is demand was soft lots of supply price down we made a margin.

Yeah, I think the strategy hasn't changed we try and satisfy peak demand through subcontractors and owner operators and we keep that based company fleet, but our two acquisitions here in lower main liner are sort of active two stories, where Argus is very much a fifth founded 1955 accompany fleet LTL operations, where interurban delivery.

The services, 100% owner, operator business again, local PND, but going into the states and little bit different. So it's more managed on a case by case basis and we still are our strategy remains the same that we're looking for returns on invested capital regardless of whether its owner operator business, where a company.

Fleet.

Great and when I look at oilfield services margins are ticking up here, because the more pipeline where.

Do you guys have line of sight to getting above 20% again.

Well Theres no doubt that to the reason our oilfield services did so well is because our pipeline business was active but thats part of our diversified model.

And our Premade pipeline group is the dominant pipeline big inch pipeline.

Company and they had a very good quarter, they've had a very good year and from what we see.

We think we still got another.

Two years of very strong pipeline activity driven by.

You know what appears Trans mountain is going to we're going to start laying pipe starting next week.

So.

That pipeline that that work, we did for Trans mountain was stockpiling and getting ready.

To do the job and now we're going to move it from a stockpile location to the right away and it will go in the ground that appears from what I. Just saw from my group is that next Monday, we're going to start laying pipe.

And.

So we've got that that's all the way from Edmonton all the way to hold now can you get from hope to Burnaby.

I don't know about that.

But.

I'm pretty sure the probably go get most of it that will they get it all built I can't I can't tell you that.

But I think theyre going to go ahead. It is the government and theyre going to bill and they're going to create jobs and we're going to be busy on that so we can see that but the biggest projects are clearly related to LNG and the coastal gas and then that could chevron, which side right behind it so there could be.

Two to four years of steady business coming in the first loads.

We've already offloaded to and they're important up and steward coming in on that on that pipe for coastal gas. So those are those are big.

Those are that's big inch pipeline.

Work and that's a lot of lows that will be hauling I think we're going to have upwards of.

Paul shows our.

President of premium will get get Mad at me, but I think were about 25 to 35 trucks up they're going to run steady for for all of 2019, just on that one project alone. So.

So we see a line of sight on pipeline to be good for a couple of years or three could be longer because it's all tied to LNG and natural gas.

Right and kind of lost one for me you touched a bit about previously in your prepared remarks about owning your real estate last I checked theres, probably $500 million of assets on your balance sheet any thoughts on crystallizing. Some this value or do you or is that thought process still to own the real estate well.

Yeah. That's that's something we debate that always we know we got great value to our real estate portfolio, just like anybody else, who has got real estate, particularly in the big centers of Vancouver, and Toronto et cetera.

But the reason, we're able to pay our dividend as and as a stable as it is because our shareholders are the landowners and and they.

We're not paying rent.

To a landlord, we're paying dividend to a shareholder so I.

If we monetize the land, we probably wouldn't be able to pay the dividend it wouldn't be a stable. So it's kind of.

You know.

Why do it I mean, our shareholders are going to get paid because they're the landlords.

Right that makes sense all possible in order.

Thanks, Jeff.

Our next question is from Aaron Mcneil with TD Securities. Please go ahead.

Hey, good morning, good morning there.

I was hoping to drill down a bit more on revenue performance within LTL, which has.

Grown pretty consistently over the last couple of years certainly since the acquisition of guard wine, but I guess I'm wondering how you characterize the growth I mean has it been driven by the fairly consistent pattern of small tuck in acquisitions organic capital spend.

Or just increased utilization and general market.

Share capture.

Yes, I ask because it seems as though at least over the last couple of years.

The revenue has grown at a bit at a faster pace than what the acquisitions might imply given a range of fairly normal transaction multiples, but any commentary there would be helpful. Well I would say to you on the LTL business, Richard we've been investing heavily since 2012, correct I think thats.

Evan 2011, 12, as it's been strategic to us, but with LTL.

It's been and it's been a long term work in progress to build out this network that we talk about.

And.

We've done it through acquisition.

For the future once we get the whole network then it's just layering in smaller ones with no costs and it's just it's just about your throughput because your fixed costs.

Is your network of terminals and issue infrastructure.

And therefore your contribution margin on on any incremental business.

Is quite nice and that's how we'll get margin improvement overtime and exactly what we've seen in how we have improved margin is just by layering in.

Additional business now that's either because the economy is growing.

What's the economy growing 1%, one and a half okay lets great that gives us a little bit most of that is through productivity improvement little tuck in acquisitions and market share gains.

Through our network, but acquisitions has been an important part and we still are going to as eight you. Just certainly say, we're going to be continue to build out our network because we want to have the strongest network.

From Toronto owed to the Vancouver Island, that's our objective.

And so do you do you build out the network more with M&A or some of the M&A funnel, yes, no M&A is a very important part of building out the network. Once you built out the network then it's just a matter of execution.

And and and leveraging your position in the market.

And then you already touched on it a bit but I.

I guess has margin performance in LTL Dan.

That are the same as as revenue or.

How should I think about that like as LTL margins improve I would say I'll use gargling as an example, we invest in guard wine in 2015.

And we wouldn't took a company that was doing a couple of hundred million dollars, a year and making a 10% margin.

And today that company as well over 250 million and making 16 owns 15, 16% margin.

So that's a combination of.

Of us putting strategic capital to work along with productivity improvements by that senior team, there and and just the critical mass of the.

Of the market share that we've built with them over time through a couple more acquisition. So we've had both revenue lift and we've had margin lift so.

King.

We sit around here and say the acquisition of the Gardline group in 2015 was one of the best we've ever done for our shareholders.

And today, LTL, maybe a quarter or a fifth of total revenue where do you see that it's half of trucking logistics revenue.

And where could that move kind of.

<unk>.

I think it's going to be half of our revenue of our trucking logistics revenue and I fully expect our trucking and logistics revenue to continue to grow so.

That's not going down.

LTL will be at least half maybe more in the future because that's our focus that's where we're putting capital to work, yeah, and thats tied to consumer it's tied to e-commerce tied to everything that's that's good in the economy today.

Okay, well, that's that's all from me I'll turn it over thanks, guys. Thanks art.

Once again, if you have a question please press star one.

Our next question is John Morrison with RBC capital markets. Please go ahead.

Morning.

John .

This is likely or this is likely good questions first the fan, but I have a funny feeling that Mary is going to have some use as well, but how do you think about calibrating dividend sustainability and what would cause you to cut it I realize that dividend yield is an output or the share price and nothing else, but just given the cash yield it continues to drive a healthy degree.

Investor questions. So anything you can give us on comfort around why you believe its rock solid I think would be helpful.

Are you want to start.

Okay.

John I will go back to.

The basic fundamentals number one we're diversified company.

And through diversification were not as subject to.

Those massive cap us swings in the market that if you're not diversified so diversifications number one number two we owned real estate.

And number three is.

We have a.

Nice chunk of our business, that's not asset base that doesn't require.

A lot of any any order hardly any capital. It's we use technology, we use our network we use a.

Our scale in our breadth of business. So that's the.

Those are three fundamentals and the other is we've done well execute we we have we have a great group of business units that.

They're conscious on capital and the they run great businesses. So.

We structured the balance sheet so.

So we don't have any.

At payments until 2024.

Generally speaking nothing so.

And we generate we generate money we generate cash.

Now if you said to me the economy is going to go into a total tank.

Well, I guess, but I'm not predicting that I don't I don't see that as even remotely possible, but the way the governments are spending money enhancing it out like it's free so I.

If the consumer totally falls apart, we might have a problem but.

It's fair to assume that even as you think about stress case stress testing. Your business you don't believe that you're going to have to funded on the balance sheet and secondarily.

Although some companies would take this you have going if you're not getting rewarded for it you cut it that wouldn't be your view of the world is that fair.

Yes, I mean.

Let's let's let's let's put things into perspective, our results are up from last year, and our stock prices down and half from last year. So is it our results that's changed or is it.

You know, we've had a changeover of how of shareholders or whatever.

I don't think weren't control of our stock price, but we are in control of our business and from what we're in control of we've done at least as well or even better than last year.

Yes, and to get a little granular on the modeling in such a John I would do.

Refer you back toward chairman's message from February where we talked about cash flows and we talked about what this free cash look like with the 200 million dollar EBITDA and quite frankly dividend is supported by the trucking logistics segment alone and our Capex and our taxes, we can live on that 900.

A billion dollars of revenue that we're getting from trucking logistics and pay the dividend and not worry about it because we really aren't counting on anything from the oil patch, although weve put in that message and our guidance that we were expecting 60 $570 million, which were on track to do.

So and then we would use the excess cash.

For acquisition. So you take this last quarter, the third quarter, where we said we generated about $45 million and cash roughly and we spent money on acquisitions and we funded the dividend and everything like that in our cash is essentially flat. So we're able to do small tuck in acquisitions and generate free cash and still pay this dividend at this level and.

And we have no concerns that we're going to fall materially from 200, but you'd have to go to about 160 before you start thinking of EBITDA before thinking that you won't be a you go backwards on a cash generating.

Basis, and Thats, considering the capex wouldn't be reduced and a scenario 160, our capex would we produced.

Theres no doubt and we continue to purchase real estate and that gives again as Murray said more to the landlord, which is the shareholder so over time, we keep on building getting rid of the third party rent and giving enhancing that dividends. So EBITDA gets enhanced little bit. So we keep on putting that capital out there for acquisitions and real estate.

And you'll see that again through the fourth quarter and next year, where we're going to enhance that dividend potential.

That's very helpful.

So certainly appreciate that given where the share price is where's your head out Where's your head add on buying back stock versus M&A. At this plan has traditionally even organization that consolidates the market at the right time, but isn't hence the IB and all appetizing right now well, we'll go through our 2020, we always come we always come forward.

With our strategic plan.

For our shareholders. After we've looked on all of our budgets and we've looked at will come up with our annual plan and we'll determine in discussion with our board whether that makes good sense of buying back our stock or investing.

The free cash that we generate a in acquisitions to grow our business.

Or to acquire long lead assets like land and buildings et cetera, et cetera, but will.

That will be part of our our.

Year end review and then we'll come out until our shareholders. This is what we expect for 2020. This is what we're going to do the dividend and this is what we're going to do with the.

On anything else, we're going to do but I think it's premature for me to I don't usually switch gears halfway through the year.

We will look at it and we'll outline a game plan for 2020 based upon what we see at that time and Meanwhile, we just we're just focused on run of the best business we can.

We fully acknowledge and Thats why I talked a little bit about the share price it's frustrating it's terrible.

Of the economy really hasn't changed much but clearly our shareholder we've had we've had a shareholder basis, that's exited us now where they tied too much to the oil patch would do they have did they have fun requirements today.

That's clear we yet we had a change over of the shareholder base for sure.

Because our business hasn't changed.

If I could add further just building on on David or sorry, Aaron's question on the LTL business, you know on how they're getting capital returns and how we talked about capital returns on our involve investments. So when we're talking about LTL investments and what we've seen that guard wine for instance, we bought them for a good multiple.

Granted we but we've improved the margin significantly, but the capital that we deployed into that business is now Fitch patching at 20% return on that incremental new capital that we put into LTL business involve we've talked about capital employed returns of 20% to 25%. So as long as we can see opportunities like that.

Even as much as the yield is attractive and you think about a share buyback I think our bias would still be too goat for growth and organic growth in acquisition growth rather than than share buybacks huts. A view obviously, we'll debated in December when we come up their guidance.

As the lack of M&A today, largely been a function of price or quality of the business that was being shopped because to your point.

Theres a lot of acquisitions that are being shopped what does it just.

Price that isn't getting either.

No it's not just price.

Although.

Sometimes it's wise to be patient.

And just let the market to find an equilibrium.

Before you pursue M&A and Thats, what I said.

We just take a long term gaming we know.

We've got our eyes on certain targets.

Finally get them to the where we can find to.

Entry points Thats, good for for Us and our shareholders and for them and then we'll proceed with but until then we'll just bide our time I'm not going to go out and just.

Spin the.

Got 75 million 78 million Carson of cash yet.

Just.

Just to say, we did it now, but we didnt raise the money and through the debenture to sit on the balance sheet. We will eventually put that cash to work and I think that will come out in our 2020 plan.

Perfect maybe one final one from me can you just talk about the general pricing trends that you're seeing.

Across your TNL platform and whether they are meaningfully different than what you're seeing cresca I guess, if the geographic difference larger than you would expect at this point given all the factors in the various regions of Canada.

Not really capacity.

As an excess capacity.

In the.

Truckload side for sure LTL, there's not an excess capacity in truckload because a consumer stay strong most of the capacity at it was all in the truckload side and Thats across Canada actually that's across North America. This on across Canada. So.

Articulated in the spot market, we've seen deterioration spot market pricing of 20, 30%, but in the contract basis.

Maybe zero to five.

Perfect that's very helpful.

Thanks, John .

Thanks.

Our next question is from cone arc, good data with Scotia Bank. Please go ahead.

Hi, This is immuno today associated cornucopia, I think you touched on the coastal gas pipeline. Initially I was wondering what does the revenue opportunity. The next two years.

Well I think.

I think to first I asked.

Honestly think that it's Scott a multi multi year run into it like we're not talking about.

Our one or two year run my view is though that we've probably got a two to two year run of having pretty steady.

Revenues tied to our oil and gas business, our to our pipeline business.

Once you get the pipeline built the then going to go into the construction phase, which will be very supportive of our overall trucking and logistics is it's a big infrastructure project and there will be a lot of trucking related truckload related to.

Demand thats going to be generated from that those huge capital projects.

And then finally ewald once it's once the pipelines in the ground. Once the construction is done you will then go into that to.

Get the feedstock defeat the pipeline, which will go then into our oilfield services business, which is drilling related. So I think this is we're in the early stages of a multi multi year run.

Based upon.

Everything we hear is there probably will be at least a couple LNG projects not just one the most advanced in the one that's a further ahead is clearly LNG Canada.

But.

All of our indications are suggesting it could be a multi year run.

And.

You know.

What's the number going to be I don't know 50 million a year that I'm just guessing to the honestly I don't know for sure but.

Somewhere in around that number just tied to that but it also adds.

Capacity to the trucking that just or demand of the trucking logistics side and and then gets the economy growing and Thats what were after and that would be very supportive of our whole business.

Okay I do have a question on.

Howard just technology changes in well drilling is impacting your specialized services.

No house technology changing on our specialized services.

I don't I don't did you see from well for drilling wells.

Well John .

Well drilling will clearly that has reduced.

Drilling is no manufacturing is not a drilling so it.

You move the rig on so rig moving will never recover.

The way it was which is why we don't invest in that anymore.

We're just not investing of that into the business.

And they become just manufacturing facilities are gone and they drill multi pad so no but they are you still need consumables.

Whether you move the rig or not it's still going to your drilling these multi laterals. So you'll need lots of pipe lots of fluid will be generated.

And lots of fracking will be required and those kind of things, but definitely it's changed the footprint of how drilling has done there's no doubt about it.

And realistically overall.

So for impact last quarter, because as demand pointed out in drilling activity.

That comes back then the business non rig moving will have.

Little bit better day, because again as Rick pointed out you need money and pipe and then log on our per fracking.

With that work.

We look at the drilling.

The drilling activity will be tied mostly the natural gas as our view.

And.

The prospects for natural gas.

Our.

Totally type LNG and the good news is we're building out the infrastructure right now that's what we've talked.

If you want negative news is a negative users will takes while to build out.

So because we've debated and debated and debated this Canadians for so long we still have.

A few years in our estimation before the drilling activity kicks in.

So more pain on drilling, but in our diversified model, we will be busy in other areas and thats, what we do and we'll put capital work, where we see the opportunity eventually drilling will come back, but thats a few.

I don't know how many years for sure, but it's not I don't see coming back in 2020.

But it will come back because once you build once you build 40 billion dollar plants, you've got to feed it.

Thank you don't have any further questions. Thank you.

Our next question is from Elias plus Carlos with industrial online. Please go ahead.

Good morning.

Sorry.

Fine Thanks got a few follow up questions.

Sorry, I believe you open the call speaking about cost reduction.

That's a controllable factor.

What are you looking at implementing where would it be and.

Possible to quantify the impact.

Well, we've been focused on that all year, because that was one of the strategic initiatives that we said, we we didn't see 2019 as having.

A lot of.

Tailwinds in terms of economic growth or the oil and gas. This as we said while the only thing we can do is focused on cost which is.

We're still in the process of we're rationalizing terminals, where you are we won't have as many business units going into 2020.

In the oil and gas is us, we're just consolidating them together and going with one senior management team rather than three.

Things like that so rationalizing terminals.

Of rationalizing the amount of companies we have that we have operating business units Carson that we're going to have in our group.

Is there.

And then.

No. The other is just I mean, you just got to be.

Very very focused and yes, we use I don't want to say cheap, but we have to be we have pretty focus which is another acronym for cheap and we are using technology to streamline some demonstrated good questions and in our holistic app and things like that or are certainly helping.

Okay.

Just following up on that a bit Murray you still plan on operating the decentralized business unit concept than correct. We yeah, we'll still do that but.

The bottom line is the revenues don't justify having as many business units. So we'll just we'll just aggregate those and then we'll just have like we won't have 16 business units in the oil and gas service side and 16 different management teams going into next year, we'll just short in the bench up and.

You know there will be will be down.

Three or four next year and this will just consolidate we'll keep.

Well keep the operating people but.

We just won't have as many reporting entities.

For sure.

Okay.

Thanks for that.

As you know, we just don't have the revenue base in the oil and gas side, that's why I'm I'm, saying to you I think the oil and gas sector is going to go through a massive.

Calling in 2020.

The stories, we're hearing right now Elias our downright scary.

Well the.

Probably say the investment community seems to be echoing that through many share prices.

But sort of moving beyond that what if I could see one or two indicators that would make you feel more positive about and it's really short term more than long term because I think there's a decent long term trajectory.

A more positive outlook in a couple of indicators that might might make you pull back from that that might be negative.

What are some things that we can look for that that might give us an indication.

In terms of growth for or headwinds is that what you're yeah headwind or tailwind that you would see.

Overall business not related to any one segment, but do you could focus on a segment if you'd like.

I would say.

I would say look we look at a number indicator. So we're not when I when I listened in and we watch.

When we watch the amount of freight movement that same caterpillars moving because we move we move a lot of equipment for caterpillar, where a preferred carrier our business units.

Which is tied to finning as an example up here in Canada, but caterpillars the manufacturer.

You know those those shipments fell off dramatically in Q3 and that was reported bye bye caterpillar and was anticipated for the most part by them by by the market but.

Even caterpillar comes out and says look it's going to normalize we'll get back into a more.

Replacement cycle and will be through this inventory rebalancing is what I, what I refer to it as.

So that's a that's a big data point, we're watching the.

The class eight truck build in the United States. So I'll give you I'll give me one data point.

When we handed off 2018.

The class eight truck market was which is the big trucks long haul trucks was was earmarked to 2019 is going to be 300000 trucks. That's our annual built in North America.

Run rate today, what are they on target for now 200000.

The market is adjusting.

To the economy, so even the smartest people that run these big manufacturer they got it.

Got it wrong by a significant amount.

But.

The Green shoe is okay. There is no capacity being added now we're not even meeting replacement. So eventually that will norm that will shrink the capacity in the trucking business and the market will do its thing so to me.

That's a positive for down the road.

The biggest thing that I do see in.

Canada.

As LNG and Trans Mountain. These are massive projects and I think they're going ahead.

Okay.

And because of the office of the spin off of those projects is massive these are not.

The work that's being done on this the workers that are be employed they're not making money like a Amazon warehouse fulfillment center.

These are high paying jobs that is good for consumer spending and theres going to be a lot of them.

Okay.

One last thing and you might address this in your closing remarks. So you can save it until then if you'd like you do provide an outlook sometimes it's in December seems like when there is an uncertain outlook you might provided in.

And with the Q4 results in February what's here.

Whats your target now for providing an outlook for 2020 as I said, if you want to hold on to your closing remarks, you can you can say, though thats a very good thats a good point I think will.

I will probably wait until February again.

To do that because December is only a month away I can't tell you anything new in a month. So I think right. So we get to.

The year end results and we get through that and then we'll say okay. This is how the year end. It and then this is how we see 2020 shaping up.

So look forward to that in early February .

Great well that's a it for me. Thank you very much Exelis you bet take care bye.

Alright, Okay, great. Thank you very much for joining us and.

We are.

As I said were our results are doing our results are up from last year were doing okay, I'd like them to be better.

I think eventually the headwinds will subside.

And then I'm hopeful that to the shareholders will understand is that there's not many companies out there that can continue to pay a very rock solid dividend and.

Have good opportunity to take advantage of foreign exchange. So thanks for joining us and we will talk to you in early 2020, I didn't say that yes I did.

So thank you very much.

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

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