Q4 2019 Earnings Call
Welcome to the Mullen Group limited fourth quarter earnings conference call and webcast.
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.
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I would now like to turn the conference over to Mr. Moray came on the Chairman Chief Executive Officer President. Please go ahead.
Okay. All tour Moly groups quarterly conference call, we'll be discussing our year end financial and operating performance.
Fiscal 2019, which will include the fourth quarter results.
And then this will be followed by an update on our business plan and outlook for 2020, as we see it so before it commensurate view however.
I would remind everyone that.
Our presentation today contains forward looking statements are based upon current expectations and are subject to a number of uncertainties and risks.
And the actual facts may differ materially further information identifying all at the restaurant and uncertainties and assumptions can be found in the disclosure documents, which are filed on SEDAR and at Www Dot Mullen hyphen group Dot com. So with me. This morning. Once again I have a entire executive team of stand Clark is are showing up all Richard will only seen.
Vice President Joanna Scott was our corporate Secretary VP of corporate services and of course in Urlocker.
As our corporate controller.
So today will focus really our comments on two topics. The first is most of the fan and I will review the financial results when operating performance <unk>, we'll spend more time on the fourth quarter of 2019 on the full year.
And secondly, all line our expectations of business plans for 2020, so before I turn the call over just a man let me open with a the discussion on the important macro issues and developments last quarter overall.
It was a challenging quarter and this was due to a large part to the macro environment. In fact, the trends the storyline everything remains virtually the same as articulated going back to February 2019, when I outlined our 2019 business plan and expectations for the year for example.
I wouldn't be surprised if anyone on this call believes the economy is strong and growing at a rapid pace in fact, everything we experienced this quarter just last quarter was the opposite another words it was stagnant and really know girls on top of this the freight recession that we've spoken about at length about a hit every one.
Involved in the trucking logistics space, a very aggressively in the fourth quarter simply put I characterize last quarter is extremely competitive in challenging now too. Many trucks were chasing too few alone. So from this perspective, the fact that any growth in our trucking logistic segment.
Really became a pleasant surprise to me because we remain very quiet on the acquisition front last year segment revenue of 225 million.
[noise] was actually a record for the fourth quarter by the way and that was versus 220 million in 2018, which is by no means what we'd like or what we should all expect in the future, but all settle for a small when given all the headwinds and thanks in large part to a strong quarter by our guard one group.
It is our largest LTL business unit and the Gleason group, a large trans <unk> transload operation that just keeps executing on all cylinders.
Now in terms of the oil and natural gas industry nothing's changed drilling activity levels remain at or near multi decade lows. In addition, we saw some very intense pricing pressures emerge. So we took the path of lease resistance and we de market. It a few customers in contracts halls, rather than work for nothing and these are the primary reasons.
And our revenue generated in the oil field services segment fell by nearly 23 million year over year in the fourth quarter.
So as I indicated earlier, we just did not find the acquisition market to be are liking last year, not because there were not opportunities because truthfully. Our inbox has been loaded with companies wanting to sell rather we just didn't like the opportunities from a strategic perspective or the source expectations were on lustig unrealistic and our view.
And as I see two of the team patients will be rewarded over.
Overall.
Last quarter as compared to 2018, which I really don't want to call a win but we'll take what we were given so for more of the details on the quarter I'll now turn the call over just a fab.
Thank you Mary and good morning fellow shareholders. Our 2019 annual financial review contains a detailed <unk> that fully explains our performance as such I will only provide some high level commentary.
2019 was on pilot with our guidance in fact almost spot on for the year revenue was nearly 1.3 billion and.
Well be door was 200.9 million.
This was up again from prior year up about 1.4% with the trucking logistics segment generating approximately $880 million or nearly $900 million.
Revenue and the oilfield services segment, roughly $400 million, both segments being up marginally we did however experienced a slowdown in in the oilfield services segment in the fourth quarter. This slowdown was somewhat mitigated by revenue improved prove it out or less than truckload businesses.
And to a lesser degree the acquisitions of Argus and into urban.
I would also like to remind our listeners that as much as lower oil prices hampered our oilfield services segment and our fuel surcharge revenue it helped to reduce fuel costs to 9.4% of revenue versus 10.5% in 2018 that 1% change is a significant savings.
For the year the trucking logistics segment represented approximately 70% of our revenue.
Well field services the remaining 30%.
This is however, likely one of the last time to speak to you about our business in the context of two segments in 2020, we wouldn't be reporting our results in three segments, the less than truckload segment, the logistics and warehousing segment and the specializing in industrial segment details of which can be found on page 19 of Ram DNA and further details and most of the financial.
As for the fourth quarter, Although challenge came with revenue of 314.6 million.
And OBIDA 49.9 million roughly 50 million.
It was another record revenue fourth quarter for their trucking logistics segment with revenue of 224.6 million.
And again record fourth quarter OBIDA of 37.5 million as good as it wasn't a truck and logistics segment truck generally the record was a treat primarily because of strong performance at guard wine and to a lesser degree smoking klasen as well as those two acquisitions.
The same cannot be said to the oilfield services segment, where drilling activity again was at multiyear lows in fact wells completed we're 20% below the five year average this downdraft with somewhat mitigated by yet another strong quarter at premade pipelines revenue and I'll be done the oilfield services segment were 91.4 million and 15 point.
5 million respectively.
Consolidated Ob Dot came in at 49 point.
9 million down three and a half million, but our margin was only down a little bit to 14.7%.
Once adjusted for I have for F 16, the new lease accounting standard as compared to 15.5% in 2000.
On a sequential basis consolidated revenue was $10.7 million lower than the third quarter largely due to the seasonal rhythms of the trucking industry and a stagnant drilling activity in Western Canada full details maybe found in R&D day, starting at page 31.
Lastly, a quick word on cash flow everyone knows a cash is king and we have a proven track record of cash flow generation in 2019, we generated $170.6 million of net cash from operations.
Year over year by 29.9 million in fact, we've generated $453.7 million net cash from operations over the past three years.
Or in another context, we've generated enough free cash to pay out three quarters of $1 billion in the past Dick decade in.
Dividends and distributions and nearly $1.3 billion lifetime.
Bottom line, we generate cash that is significantly above or cash flow needs and I would encourage everyone to read Murray's chairman's message for further insights on how this cash flow will be will allow us to pursue strategic acquisitions to grow the company and provide returns to shareholders.
Lastly, sometimes perspectives can be lost you can see the forest from this trees, so to speak comparing to last year's Gray, but let me provide some further context Mullen group has grown revenue from $1.1 billion in 2000 $17 billion to $1.3 billion.
Good growth, while maintaining margin at a time when the oil patch was let's say tough.
And we're experiencing a freight recession currently.
So that's good context to see that we've performed well.
Not only year over year, but over the last number of years further we have financial flexibility by that I mean, we are not overlevered, we have $80 million of cash plus an unused credit facility of $150 million. The suggestion that we should use our free cash that to de lever makes little sense from my point of view, our average interest rate on all our outstanding debt as for.
4.2%, our maturities our 2024 to 2026 to prepay that low interest debt incurred prepayment penalties and to do so at the expense of not pursuing acquisitions makes little sense, especially given our current debt covenant leverage ratio is about two times versus the viable three and a half times so with that we have ample finance.
So flexibility.
Overall again, an admirable feat given the context of the market and again proves our dividend is rock solid.
So Murray with that I'll pass the conference back to you.
Thanks staff for that overview and for a for those of you that are so inclined all of the details are available as defend pointed out in our 2019 annual financial review, which has been posted on our website.
So perhaps the best where can start my discussion about what you should expect from our company. This year is by reviewing my outlook for 2019 that I. So boldly predicted last February.
And that was up my own peril, but overall I indicated that I was not necessarily optimistic about 2019, but rather I suggested I was constructive in other words I believed one year ago that our company would have another good year with our trucking logistics segment expected to perform in line or slightly better than 2018.
Okay. So what do we do while revenue of about 881 million versus 873 million in 2018 appears to be spot on.
In terms of all be dot virtually flat after adjusting for some IMF us if our S. A accounting changes I also believe that other parts of our business, which we aggregated into the oilfield services.
Other than drilling activity would offer some opportunity now once again results were very close to what I suggested coming in at about 400 million of revenue versus 398 in 2018, and all be dog coming in basically flat now. This is primarily because we saw an opportunity in the pipeline business.
By plant construction business.
So all in all the messaging articulated a year ago was pretty close to the actual results.
No what 2019 now and the rearview mirror, what does the plan and our expectation for 2020, well, let me start by clarifying what I think confuses somebody investing world.
You know that Mullen group is now is a logistics company, we have a small in a declining exposure to the oil and natural gas industry, which by the way we commenced.
On reducing our reliance upon in 2014 way back when when the conventional thinking of the day was it the oil and gas industry and all field services was a great investment I saw it differently and set our company on a new course today I'm proud to say, we weathered a terrible storm and we are now well positioned to grow our business.
And the new decade, but not in oilfield services. This was yesterday. So today, we are focused on logistics, we provide a wide range of trucking warehousing transloading and specialized services to customers across a multitude of industries and today not only are we one of the largest logistics companies in Canada, we have one of the largest.
LTL terminal networks, ranging all away from Toronto to Vancouver Island, we call. This the LTL or final mile network, providing a scheduled service to literally hundreds of communities delivering everything from outlets to packages to parcels. This is where we see the future.
So overall I would expect 2020 to be another solid year, we have some internal growth opportunities.
We see but they'll remain challenging for all of the same reasons as in the past couple of years.
Namely economic growth will be modest at best in our view and the challenges facing the Alberta economy remain but I fully expect we will be way more active on the acquisition front in 2020.
In sense as defined.
As articulated we have a very respectable balance sheet and gas position, we can execute on our plan when the timing and the valuation metrics are right within this context, let me summarize our plan and objectives for 2020.
We in terms of our financial goals, we're targeting consolidated revenue of 1.4 billion and operating earnings are OBIDA as it is referred to in the financial World in the range of 20 210 to 220 million now to achieve these goals.
We will and we need to do the following we need to pursue acquisitions that will expand our network and service coverage.
As well as where we identify synergies with our current business.
Number two we will continue to invest and technology as a way to improve operating efficiencies and changed the way we do business.
Number three will continue to look at ways to reduce cost streamline business processes and reduced redundancies, where practical number four we think we need to invest $50 million and capex.
To ensure our existing businesses can.
Can meet their meet their objectives and service their clients.
And number five most importantly were 100% focused on creating value for our loyal shareholders. Now what does this mean, what do I mean, but as well we're going to continue to pay a 60 cents annual dividend per common share.
Which is where equates to about 63 million in 2020, we're going to initiate a share buyback program by way of a normal course issuer bid in fact, we will initially target of $100 million over the course of the next three years.
We are rebranding the mall and group an earlier I referred to our company as a logistics company and issue ensure our shareholders have a clear line of visibility into our business. We will commence reporting our results as of our January 2020 in the three operating segments that stuff and spoke about less than truckload.
Logistics and warehousing and specialized industrial services now in my chairman as message I outlined in detail our plan and objectives for 2020 and as such I encourage our listeners today to go to our web site for the full report. So thank you and I'll now turn the call over to the operator for the QNX session.
Thank you.
We will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.
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The first question comes from Konark Gupta with Scotiabank. Please go ahead.
Q and a good morning, everyone.
So just wanted to understand.
The guidance a little bit here. So you you said a 1.4 billion revenue and then do want to then Dan do you want to then 20 million dollar.
OIBDA.
And then use I think sounds like you, you're saying that the flex your plans for M&A. So just wondering understand how much of this revenue and EBITDA, you and spanning from M&A or future M&A and how much is organic and that if it can help us on that and then if you. If you talk about also.
What sort of how many opportunities you see I'm like how much.
Cash debt or equity.
On the requirement you see whether it's M&A. Thank you.
Yes, so good question.
I think the.
May be reading between the lines of what I said about I really don't see a lot of growth a park in the Canadian economy, So as such difficult for me to say that you're going to have internal growth opportunities substantial into other growth opportunities I mean, there's going to be song but.
I don't see enough to really move the needle I don't see the economy growing enough from that perspective to be honest with you. So that means that the majority of the growth that we're planning.
It's got to come from our M&A activity now the reason I put intend to tap into two Duane is because it depends on the timing of the acquisitions.
If we do them earlier, then we'll have more of the benefit of we doing later than.
Although be.
We will be closer to the 210, so a lot of it depends on the timing.
I would reiterate.
You know what I said look I.
When I talk to our growth, but I've talked to our board. So we don't run a business here for 2020, we're running a business for the next decade, which is why we'll focus our M&A on where we find good strategic opportunity and where we can drive values, so where do I see that most likely and consolidating the less than truckload business continue to go.
So on that side, that's where we see.
The best opportunity to not only grow but to find synergy in.
And even increase yield so that's the LTL business is a game of yield and it's about.
Having critical mass so.
I think that's probably going to be our number one focus but in saying that we always have to be.
Tune that there are other good gems out there that come available the acquisition opportunities and if they provide great returns on capital employed we're going to look seriously those opportunities and.
Those are maybe more one offs, but strategically I think our primary focus is on building out our expanding LTL network.
Which we think is going to be very very difficult for.
For anyone else to replicate.
That makes sense and then that you didn't talk about in the Mdna.
The kind of the funding or the size I'll do if acquisitions to support those kind of revenue and EBITDA growth number. So if we can throw some context on on the size because I'm like if you if you have kind of.
Baking in the our revenue and EBITDA forecast then I think it's also going to make sense to look at what kind of impact it might have on your net debt position our balance sheet our equity yes. So.
Where we stand pointed out you can just do your do the math on free cash, we'll probably have a cash from operations.
Lastly were 170 million or 172 or something like that.
So that's about what they are current same store test sales business units generate 170 plus million of cash and then as you do acquisitions you will.
Right more so what do we got well as step pointed out we've got 80 million of cash well, there's the starting point.
Star and if we spend 80 million that'll grow our business, but that doesnt add to our debt.
Then you got a $150 million of bank line that sitting there unused.
I don't even know if would pay a standby feeling that we do not negotiated with our bank, we don't even up instead lumpy, but that money is available that winning clichd increase your short term debt.
Wouldn't like that forever, but we.
We would go deeper into that if we saw great opportunities that are going to grow our business, but.
I don't think we have to go much into the to go beyond our cash position in what we generate next year to to get the objectives that we got that.
I've talked about here and 1.44 billion I don't think we have to go a whole bunch in more depth to get to that number. So if we got more debt. Then you should expect will have a more revenue and more EBITDA I think also I'd add further that if you went to Murray's chairman's message on page six or seven we have a nice little graph.
On what free cash and based on our business plan and where we can be there. So I'd encourage you to maybe take a look at the determines message and look at that waterfall graph in and you'll see that gives you a range of Colorado I don't think we need to to get to one for I don't think we have to go and in any debt anymore. Okay. Let's say any significant do okay now that that makes sense that and then.
If I can ask on the Capex front. So you mentioned in the M&A.
This about 50 million dollar of Capex.
Do you expect that's it that's excluding obviously M&A it may make sense, but it also excludes lands and buildings. So if you can help us understand the 15 number it is a gross number and is it maintenance or are there some growth embedded and that as well and then how do you think about any asset sales and then maybe land then building cap.
Thanks.
I would say Capex is probably 50 million. Some is a maintenance capex I think that gives you slight improvements because you're investing in new assets and replacing old assets. So that's that's a productivity gain but.
If I saw a huge opportunity internally than that capex you'd have growth capex, but I'm I'm, telling you I don't see great up great internal growth opportunities. There's a few but not significant enough for me to that would change the needle on a 1.3 1.4 billion dollar company.
So.
50.
Maintenance Capex and your company gets a little bit better because you've got nice new assets rather than old assets.
And that new assets, we get or we get better fuel mileage, there more productive less repairs and maintenance and those kind of thing so.
That's how we view the capex.
Well probably have some asset sales.
And if we do we might put that into new into new capital at the same to you know into this at the same time.
Perfect. Thanks, so much that that's one of my question. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Walter Spracklin with RBC capital markets. Please go ahead. Thanks, very much hey, guys. How are you doing morning Walter.
So just going back to your guidance.
You indicated that there is there's little growth.
In organic growth in in your trucking division.
That most of the growth that you're going to get in your guidance Thats built in your guidance is going to be in the form of.
In the form of acquisition.
If we were to go into just your.
I guess oilfield services or.
Industrial services Division.
Is it fair to say that that you've been embedded in your guidance. There will be continued declines you're calling it a no growth industry. So does that mean, we build in zero and see what happens or is this you know based on your what you're seeing in the near term, there's going to be further declines year over year that business.
No. That's good that's worked so well thought well Paul's question. So let me, let me talk about the trucking and the LTL and then though.
Warehousing and logistics and warehousing segments.
For the areas of economy that we see had the best potential.
Or consolidation in future growth.
However, in saying that we need to be realistic within the context of what's the what's the current growth what's the current.
GDP growth, what's the how's the economy growing.
Appears to us that.
You know, there's not a lot of growth in the economy and therefore, we've got to be smart.
And we'll have to be thoughtful and we'll have to do acquisition to drive future growth find synergy and and then drive yield.
Let me give you an example of doing a good acquisition.
And then driving growth in synergy so let's talk about guard one yes, certainly guard wind group, we acquired in 2015 as you recall January 2015, and the year prior to we've told many people. This city in 2014, they did about $20 million of EBITDA, when we acquired them we improved.
Rather we balance sheet engineering and sites, but we generate about $22 million EBITDA on our first year of ownership now five years down the road were about $37 million of of EBITDA. There. So the returns on.
Capital employed or our trucks that we put into that business is around 15% to 20%. So we'd like to see that where we get a good base of business and then we're able to feed it capital and allow it to grow both in terms of profitability and then get great returns on on.
On.
That those further investments in those trucks and trailers and further I would also just say, we're very proud of guard when group and how they improve their safety record as well. So that also help them improve the bottom line. So it wasn't just the capital was also an attitude.
So that kind of begs the question marry that you will be.
You are really going to have to go outside of Alberta, If trucking logistics is your growth engine going forward.
You know, causing yourself in Alberta and the.
Probably is not the strategy you're going to pursue.
Guarded one by your own example brought you outside of Alberta brought you into northern.
For the Ontario, Manitoba.
You know if there are acquisitions have been a have been a growth area for a number of of national companies here.
Theres not a lot of GERD winds left out there unless you see opportunity that the that I'm not seeing how would you respond to that and it could you see growth into the us if if if it wasn't if you didn't see opportunity in Canada.
Well, let's just say I think there are.
Current white opportunities with the only come around once in awhile.
But I would be very very surprised if more really good acquisition opportunities don't come up in the new decades, and this company, we'll be prepared to do it to do those ones and they don't come around all the time, but I would tell you. There is some really really good companies in Canada, and eventually everybody has to monetize and.
Marlin group is one of the premier liquidity providers in our space.
Right.
In terms of your comments about Alberta, Yes, I think today of our company today as Scott as many are more employees that have a manitoba in Ontario than we do in Alberta. So it's a reflection of how we've changed our company.
We don't mind being based in Alberta.
Tax rate the corporate tax rate to Honenone is the lowest in the country.
This is where we have our corporate office, but our businesses Canada wide.
Our operating businesses are right from Vancouver Island, all the way to Toronto.
But.
Just happens corporate offices here in overdose.
In Alberta, which has lows corp. The corporate tax rate in terms of the oil and gas industry, Let me speak about that.
For a long time, we we rolled the coattails of the oilfield services business, but for a long time, a lot of our business that we classified and all field services really wasnt traditional feel services.
It's very difficult for example, our Canadian de watering businesses in oil we comped at into.
Oilfield services, but it's not really oilfield services.
Our pipeline construction business is really not oilfield services.
It's an infrastructure play.
And then you have some oilfield service.
In terms of production service, while productions always going to go on.
And the oil and gas business is a large business, it's not it's not going away what is going away.
In our view is the growth and growth is tied to the drill bit and we just didn't see any growth on the drill bit side. So realistically I think are part of our business that's tied right to the drill bit to drilling that's rig moving that's moving a pipe moving a flow of drilling muds and things to the drilling site.
I don't that doesn't represent 10% of our business, so really the oil field services.
I wrote that killed tailwind investors were wanted oilfield services. They don't want also serves today well what we're not oilfield services, we got a very small part of our business and it will get probably less and less because our capitals going into the other side.
Which is LTL and logistics and warehousing Thats, where we see opportunity, that's where we find the best yield and by the way and the old days, we used to see great yield when it was tied to the energy business oil and gas why this capital was flowing into the sector, that's where that's where you find yield.
Bout capitals gone, it's just replacing repair business today, and we'll have a segment will have a footprint there but.
It's not a growing footprint.
And so.
Thats why we call specialize in industrial services, we've got our you know all of our business that are tied to the construction business.
Dewatering business the turnaround business.
Cleaning business.
We're doing everything from cleaning railcars to industrial industrial cleaning.
So it's a it's not really not.
We're not focused on all feel we just don't see as a growth business, but if they all business is not going away in Canada, just like the auto sector isn't going away, but it's not a growth business.
Okay. Thank you very much thank you.
The next question comes from Greg Coleman with National Bank Financial. Please go ahead.
Thanks, very much just a couple of quick ones here.
On the energy services business, which we spent a lot of time talking about.
Given your views that you're articulating quite a few times can we assume that effectively everything in that legacy off EESC business segment would be considered for sale would it be something that at the right price, who you would love to get rid of it if it's no longer a growth sector.
Yeah, Greg I think that would be.
All other things being equal.
Yes, we monetize it.
Yes, if you could.
But.
Most of the buyer.
What are they going to pay for it.
And it's small though.
So it's it's not a material it's not material them all in anymore.
And.
As I said in my message and I've been articulated for quite awhile.
Yep.
I've been deemphasizing the energy space since 2014, Thankfully we did.
And then on the other part that you are now.
Not now, but they do you continue to emphasize specifically the.
LTL and the logistics side.
You mentioned the freight recession in your commentary what actions can you take to insulate or combat.
Or or.
I don't know better better weather that type of scenario.
Given given where your position positioned on the truck and logistic side, well I think we did a pretty good job and in our business.
Away the way, we weathered it because if you take a look at our fourth quarter eye tracking a domestic side was not bad in a market that is classified as a freight recession.
Let me talk about the freight recession, the freight recession in my mind is cyclical in 2018, we had a freight boom in 2019 the freight boom.
You know dissipated you had an inventory overhang you had too much trucks supply and you had a slow growth economy. So that led to a very competitive market, but thats a cycle that will eventually.
You know resolve itself and.
So as I started thinking about 2020, I would've thought that the freight recession would have probably ended.
Around mid year.
Now that may.
Quicker that May comes later now given the disruption to the supply chain because of the Corona virus situation that has really disrupting the supply chain.
I don't know, how it's going to all play out but.
I can tell you there are not as many container ships coming over from China today into ports.
And that's going to hit.
Very quickly.
Which means the goods are not coming into the country.
We've got lots of product in the inventory in our warehouses.
So the consumer everybody everything is good for a bit but.
The warehouses are going to get emptied out.
Faster than what people are maybe thinking so.
I think the freight recession cyclical I think it goes away sometime in 2020, I don't know exactly when I would have predicted no later than mid year.
But now with Corona virus that relatively new and it's only a couple months old is I don't know for sure Greg on when it all that's going to work.
[music].
But you take a look at while we handle the fourth quarter in the midst of approval trucking take a look at all the US truckers take a look at all the results they come in and same store sales were down huge we still manage around that.
And a lot of that has to do with LTL LTL is not getting hit as hard as.
The rest the system because consumers are still and job creation still pretty robust so in our LTL.
As a big part of our business they that's.
That's what we know LTL is one third of our business because when you look at how we split it out LTL is one third.
Logistics and warehousing, that's one third.
And then specialize in industrials, one third we didnt craft that that when it's just the way that came up but it's there it's basically a third of 33 now.
So let me I think we handle that we were we anticipated it Greg.
Oh, we use a lot of subcontractors as you know and we use a logistics.
So we don't have a lot of fixed cost the fixed cost we got as an LTL.
On on the logistics said, Greg it's Richard here as Mario pointing out we saw tremendous amount of activity with our move it online app, which were showing we saw a lot of our subcontractors posting their trucks in quarter last half of 2019, which tells us that they were desperate for loads and they were able to so we are logistics groups within each of our business.
Units were able to capitalize on these trend and truckers and being able to manage them movement in freight.
Got it just one last from me.
I just on current activity, we're seeing a lot of protest regarding the coastal Gaslink pipeline does this current social auction change sort of the views or the activity for the probability of your business as it relates to that project the business, you're generating from that project and the related and LNG undertaking.
Greg I'm glad you brought that up because this is a this isn't.
A new.
The new form of eco terrorism.
In commercial terrorism Thats going on.
And once you are seeing is.
That started as a protest to slow down on the coastal Pacific gas project related to the LNG project because of.
So does some disagreement bye.
It doesn't owned by hereditary achieve something on the West coast.
Not by the first nations. The first nations are all part of this they are all signed on they are all part of the the line, but some hereditary achieves.
I don't believe they have joined Canada.
And it's there are have started as a protest, but Greg it's for from the and morphed.
Into a their disrupting the whole supply chain you can't move people one via rail we can.
Can we can't move goods you can't move farmer goods, you can't move anything by rail because these little groups or blocking rail right across the country. The supply chain is being it's chaotic.
Hi, Ken.
I can tell you it is not good news for Canada. Therefore, it must be bad news for Canada, because there's no such thing is it doesn't matter everything there's.
I can't tell him at all play out I can't tell you what the government is going to do about it.
But they better do something or.
A lot of Canadians are going to be hurt by this by the disruption in the supply chain.
I appreciate you visas always does it impact your business as it pertains to the coastal Gaslink pipe.
Well, it's slowing I tell you can't move you can't move pipe up by rail they blockade it.
And we're still busy there, but it's just awkward it's it's just.
Creating issues.
But beyond that I'm I'm not worried about that specific project to be honest figure. That's just one part of our business.
I'm way more concern today about how the whole supply chain as being disrupted.
And if you go beyond that you start thinking about well if the eco terrorists and the commercial terrorists can start disrupting our economy, just a small group.
What what is the big message to Canadians.
Is that a few can decide what the loss of this country are.
There's no way thats good for capital formation in this country.
I appreciate your views as always that's it for me. Thank you.
The next question comes from Elliott, plus Carla with Industrial Alliance Securities. Please go ahead.
Hi, good morning, good morning.
A couple of questions one a bit of a follow up on greg's. If if we rewind did four weeks ago or maybe early January.
Would your outlook has been a little more positive instead of two tend to 220 could we have maybe seen upon both.
10 million or so.
Yes.
When I'm starting to craft up my chairman's message and I write it over the holiday over the Christmas season, I was actually quite optimistic.
At the freight recession would be resolved that we were moving forward on coastal gas that trans mountain pipelines approval or being yeah, Yeah and then.
You get into mid January and all of a sudden you have this this new issue arising in China.
That is called Corona virus and today here, we are six weeks later and you're starting to go okay. Well this isn't good news.
So how's that going to impact us don't know yet, but I don't see those in a positive.
And then just this last week is.
We've got some vigilante groups out there to deciding what the rules what the laws of Canada. In fact, I would say to you. They don't believe in laws otherwise.
It wouldn't be doing what they're doing so.
Is it good news Elias I don't think so how's it going to work I don't know I.
I know the rail served.
Our our in a lot of trouble.
And you can't move anything by rail that's going to impact part of our business. That's in tied to intermodal and tied to logistics, but I think the trucking industry might actually be helped by the rails not being able to move goods, so you're going to have to move it somehow.
And trucks would then be a beneficiary of a lot of freight not being able to move by rail.
All in all I don't think it's a positive but we've got a bit of a hedge in there because were not just in logistics. We also have a pretty large trucking component. So we'll have to see how that plays out over the next but otherwise I can't tell you for sure.
But.
I would say well and it's not that I'm not up but I can tell you. These things like that are happening today are very frustrating.
And you Wonder why are we doing this why are we letting a few.
Impact a whole bunch of Canadians, we've got 6100 employees Joanna and our group.
Contractors dependent contractors and employees.
And were responsible for them and went articulating and make it I just hope it doesn't disrupt the country enough where they don't we don't have as much work on their paychecks aren't as good and you know maybe we have to.
Shorten the venture but.
It's not good news I.
I don't see one didnt one good thing coming out of this.
Okay.
No I.
I would view that is all temporary.
This is an important.
I can't believe our country would be so foolish and that we wouldn't eventually get this resolved one way or another.
But I can tell you.
The longer this goes on the more inks will start happening amongst a lot of other people I can't imagine the farmers going to be happy when they can't get product to market I can't imagine consumers going to be happy when the price of goods goes up because it can't get the Protos moved.
And delivered to them. So I think the longer this goes on.
The more anger will start building amongst the Canadians. That's my take I know I'm frustrated angry because it impacts us right away, but it will eventually go through this whole system, it's not going to stop of Marie.
And a few of us.
Okay.
Moving on to your again sort of sticking with your outlook it.
I'm going to try to simplify things that maybe you can tell me if you agree or disagree I kind of view the base business is flat, maybe oilfield services will be down and trucking and logistics will show some organic op uptick, but sort of overall flat with the increase in your outlook of 10 to 20.
Million coming fueled by acquisitions.
So kind of backing into that you must be budgeting would it be fair to say 50 to 100 million of acquisitions to to get to your 10 to 20 million of growth.
That's a big range 50 to 100, but Thats fair, that's a fair range.
But you know what acquisitions.
They've come around.
I don't care, if its 50 zero 5100, 200 500 million.
If it's the right opportunity.
For the right reasons, we'll figure out how to get it done, but a reasonable target for next year would say 50 50 would be just using.
Part of the cash we have on our balance sheet. So thats for sure 100.
Would be in there in the range that would be reasonable, but I can tell you if the right opportunity come along I do 300, because the right opportunity is something Youd you could use to build your company and.
For the next decade so.
I think the easy one to use is the one for.
That we get them, what we've given as would assume that we would deploy the cash we got on our balance sheet, but not increase our debt.
If we went to 100 and we probably would.
[music].
We'd probably be at the high end or above.
Okay.
[noise] sort of moving onto the issuer bid which is.
New and in in a sense a bit surprising but.
Do you can.
I'll put it this way do you think your company is a bit under levered or.
I guess I before you're not last comment I was thinking that you would use excess free cash flow for acquisitions and the balance sheet to acquire I guess, what youre seeing as you plan to use excess free cash flow to maybe make $30 million a year of.
Talk buyback and and the balance sheet to acquire is is that kind of the way to think of that one way or another that.
You're going to use one of those two you're going to try to double charge growth in a sense.
One by using balance sheet, one by using cash flow.
Step I think Thats, a yes synopsis is that to.
At.
At the current levels.
Our dividend yield is what sixthree six four.
Let's see effective yield on that on a.
After tax bases are probably eight or nine pretax.
I'd go.
That's a pretty good investment thesis from our perspective use the cash we generate.
We are fortunate we've got a good business model is diversified we generate cash.
But we had two joint we have three choices, we had four choices with cash the good news as we generate cash we always avon's step articulated how much we generate so do we use that cash too.
Core business, yet what we've got lots of cash on the balance sheet. We got lots unused bank lines. We can grow do we pay down debt, while we're not going to pay down debt, that's averaging at 4.2% blended interest rate and pay off our long term debt, that's at 3.85% and incur penalty and incur penalties like that.
Not going to pay off 3.85% debt.
That doesn't make any sense. So then you say well, okay lets increase the dividend.
At at a 7% yield or 6.5 ago, while I'm not band anymore.
Evident that the make any sense of assume as a buyback our stock.
So we're going to we've got a dual strategy, we'll buy back stock will invest ourselves and then we'll invest in growth with our coupled with our balance sheet through M&A.
Okay.
Great.
Next question.
Probably near the end to Alaska.
Not an oilfield service company anymore definitely havent been on the index since June.
So do you think we should.
Compare you two or maybe that's up to me to decide but I thought I'd ask you anyway.
Well I mean.
This is that so thats, what I don't know who to compare us to.
I would say this.
Is that.
I take a look at the cash we generate I take a look at the yield that investors get in this I take a look at the strength of our business model, along we've been in business and you'd say and the potential opportunity for M&A and.
And consolidation improving businesses.
Like we just articulated we've done with the Gardline group and many others and I'd say, it's up to shareholders decide whether they.
Like of diversified company that generates a lot of cash that can give it back to shareholders 1.3 billion over the last.
Yes, 20 to 20, a bit and I'd say.
It's up to them to compare us to but.
We're pretty comfortable with the business model, we're building, but I know one thing we've looked at the declines in the oil and gas business as a so not a cyclical decline it's a secular decline.
We just don't see future growth in the energy space and that's because Canada.
Canada Canadians have decided.
That the resource that we're blessed with his Knoxville, we should leave it in the ground.
That's basically what you're hearing.
I don't agree with it but that's the reality of the situation. So I think we're in a secular downturn.
In terms of the oil and gas industry. It will remain a big business, but it's not a growth business and then but the overall economy will continue to model forward and grow well, we grow as fast as if we had a robust energy business, probably not but will still grow and.
We're pretty stable business and the.
As I said, we've we've retooled the business and we feel real good about being a little logistics provider and to us. It doesn't it didnt matter will will follow where we think the best opportunities where and than in previous stays in movies with all of the oil and gas business. We saw capital going in we took advantage of it.
We saw things changing get the hell out of the way.
And now we see opportunity.
In other parts of the economy that will.
Continue do what we're good at which is just run rate business.
Do it safely do it responsibly.
And.
Really good employer to a lot of people like us at 6100 people I think they're pretty happy with some of the decisions we've made.
Lastly, I would further add that Theres no easy comp for US there is no we're unique.
In the Canadian landscape and I would like in us not to another company, but more to an F.
Of western that Western Canadian economy that Canadian economy, Your North American economy, generally and so it's one that really has stable cash flows. So maybe it's more of a right. We have a large real estate portfolio or maybe it's an ETF because we have a broad base of of services that we offer in a broad customer base and you would.
And our our Mdna, we have no customer that's greater than 4% of revenue like it's we really have about our top 20 customers. It.
It's pretty diverse and when you look at the top 100, I mean, it's you're getting such and list of names that it's all over the play so.
But if you want to choose a company maybe you tease apart stock or our Tech company compares to 'cause I'd love that multiple okay.
Yes, I think all I think we should I should I should.
I should comment a little bit more on the on the oil on the oil and gas versus oil gas service sector.
When I look at some of our successful.
Peers and counterparts in the oil and gas service business, we had a choice.
In a few years ago did we want to diversify our company.
Vertically and go into the trucking logistics and the LTL business or do we want to go geographically and go to us.
Many oilfield service companies.
Diversified and moved away from Canada remember this common theme here moving away and they went down to the us so the diversified but they diversified geographically and we diversified by product line.
Because we just saw.
The fossil fuel business as.
Hitting more being just running into more obstacles than.
Then.
Than others that was our our thing but successful companies diversify.
Successful pole portfolio managers diversified.
Okay.
One last question and probably straight forward is going to be more for Stefan but if it's not a question. It's an ask.
Had would you or do you plan to provide some of the re segmented information for 2009.
Quarterly.
For the Q1 results.
We certainly haven't done we have to do it on a retrospective basis and you would see any.
Mdna, where we gave you revenue and EBITDA and then in the financial statements. We gave you EBIT. We gave you assets, we gave you goodwill and such.
On a quarterly basis I don't want to do selective disclosure and certainly would be our intention that on Q1, we would give you either a retrospective comparison on Q1 well have to give some thought to that may be when we think about updating our website.
Yes, I, just don't want to give it to you and not to others. So it will have no I'm not asking for it specifically if you want to do maybe a recast and put it up on the web site at some point in time, we'll we'll take that under advisement, we'll make sure that we give the appropriate information so that.
The people that are following our stock and make the right analysis.
Decision. So yes, we have nothing to hide audit. So we'll take that our advisement thinking out loud, we have 18 and 19 that maybe we could easily recast on the web site.
Great.
That's it for me. Thank you very much I'll turn it down.
The next question comes from Jeff Fetterly with Peters and company. Please go ahead.
Good morning, everyone.
Yes, you're not going to asked me about the oil and gas business area.
I am Marie.
I.
Well very little bit if we if we keep if we if we keep moving away from what I won't know effects going on at me on the gas business.
[laughter].
So involved and Canadian de watering or two businesses with you've allocated growth capital to in recent years, what are your plans and thoughts on those two going forward.
Well Canadian de watering is a very diverse company that that is involved in business from Winnebago, all the way to Vancouver.
After the northwest territories. So we're involved in.
Every aspect of water the movement of water the pumping of water the in some environmental services.
And.
Because the oil and gas business in the sector is quite large and even Coors light by business you're going to.
It doesn't matter, if a civil construction or industrial or mining or oil and gas thats. What the business are involved in is very very multi dimensional.
Involve the strictly tied to the to the drilling side into the production side as you know and.
In our plan is to has made if there's one part of the business, we like that the equity.
The potential for that is.
It's the disposal business and the reason is because.
Every well it produces the older gets the more water it produces and every new well it produces produces water.
So that's something that to.
If we're going to invest anything in that sector it might be that it might be that business now will.
We're taking a cautious approach because.
We'll see.
We'll see how much drilling activity is really going to go on.
There's there's a lot of disposal wells out there it will determine whether we think that business is going to start improving or not unlike my general census, and don't think drilling activity picks up for a few years until after we get Coso gas built and you start moving some gas over to Asia natural gas over the Asia, which means we got to get pipelines belton plants built out on the west.
Yes.
To your comment earlier a boat.
Essentially everything in the specialized services resegmentation being potentially for sale is it reasonable to assume that you would look at those two businesses also on the thing in the same thing.
I don't if we'd sell.
Canadian dewatering as a core business to us.
That's a that's a business that we think continues to grow and.
Good returns on capital employed we've got a great business great team.
Got a great market presence at doubt that that's a that's a good business.
But at the.
You know, we're either going to deploy capital in or we'll look at monetizing goods.
We're.
We're open to anything on that front.
We'll either grower will get or get out of it.
And you're specifically talking about involved I think and the disposal business.
Correct.
Asking in the context of both.
Also in disposal, but it's I mean, that's just that's just one part of our our business but.
General sense is not a really good bid ask on the anything to do with the oilfield services.
I can tell you we're comfortable with returns on capital we've employed there.
But.
That's not our primary focus our primary focus is LTL less than truckload.
Then a follow up on the and see I'd be site, recognizing your comment about implied dividend yield than the incentive to buy back stock, but when I think about it simplistically based on your guidance moments treating a seven times on an EBITDA basis, you've historically done deals between four and six times.
What's the thought process about buying back stock at seven times versus being able to put some capital to work at less than the multiple.
What's the thought process.
So why why buy back your stock at seven times, if you could put the capital's on the M&A side to work.
Four to six times.
Well I think Jeff that you need to take a look at you're talking about EBITDA.
Right when you talk about four to six correct.
Yes, you're not talking cash correct.
I'm referencing the EBIT, you're not talking cash you got that you are using using two different numbers. One is even dawned on US cash we don't you can't buy a company at four times cash.
Or six times cash.
For six times EBITDA of four to six times cash.
I think that should explain it so return on capital.
Do you.
Can I interpret that.
Meaning that you believe the return on capital of Molen.
As a consolidated entity today would be competitive just want to more of what are the best companies in Canada.
But what I'm asking is a return on capital if I, if I could find another moment environment seven times I BIME all day long, they're very difficult defined.
But from a return on capital standpoint, what you can do on the M&A side would be similar to what molen is doing today.
Well I guess at we would do them all day long if I thought if they were out there yes.
Okay and since with the clarity.
So I don't know what the question you're asking we would do it if we found them.
Obviously I haven't found them are also doing.
I think Jeff that we have to put it in context and again at Reed Murray's Chairman's message, it's almost required reading you know.
Here to understand the company, but our.
Our preference is still to do acquisitions, absolutely, but what you've seen in in 2019 is what we saw because we had a bid ask spread we've had bid that dynamic and we also suffered from a low stock price I mean sure were nine whatever 15 today, but I mean, we were Lois $7.50 at one point So you got to do.
Something different we just can't sit on our cash and grow the cash and do nothing. So now we're just telling everybody we're going to have another option there and yes. If we can reduce the number of shares outstanding that will also benefit to shareholders. It's just another form of return on capital and Thats.
I think what the market is telling us is that you're above 9%.
Yield pretax guaranteed buying back your own stock today so.
That's a guarantee whereas when we're doing cash on cash acquisitions.
Theres lot of uncertainty on the oilfield services side, but on the truck and logistics side, you're targeting 10%, maybe 12%, but that's not a guarantee so we have the balance those were very good at finding and providing liquid quitted for acquisitions, but.
We're not going to be on disciplined and so this gives us another outlet to for our free cash.
And again, just read the chairman's message the first few pages, especially about acquisitions and where we're headed.
Thanks for the clarity.
This concludes the question and answer session I would like to turn the conference back over to Mr. Moray came online for any closing remarks.
Thanks folks of where.
We put closure on 19 as of today.
And we look forward to.
Growing our business and doing some exciting things in 2020.
And then we'll we'll monitor these two things that cash situation is very very carefully over the next fit which is the krona virus.
Situation that we all hope doesn't.
Morphed into something much more complicated than what it already is and more devastating and then also weather.
Canada will get to.
Get control of up of unruly group here and make sure that.
This country can move forward. Thanks, so much further for joining us today and we'll talk to you in April of.
Only a few months away take care. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Okay.
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Yeah.
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