Q2 2020 Mullen Group Ltd Earnings Call
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I'd now like to turn the conference over to Mary Kay Mollin, Chairman Chief Executive Officer President. Please go ahead.
Welcome everyone to mall and groups quarterly conference call.
Once again, we will be discussing our financial and operating performance for the second quarter and this will be followed by an update on the near term outlook as we see it.
Before I commence today's review I should remind everyone that the our presentation contains forward looking statements that are based upon current expectations and are subject to a number of uncertainties and risks and actual results may differ materially no further information identifying the risks the uncertainties and assumptions can be found in the disclosure documents, which are filed on.
Cedar and Www Mullen hype and group Dot Com. So with me. This morning, I have our executive team I have to defend Clark our CFO.
Who is practicing the art of social distancing and as attending via telephone.
Richard Maloney senior VP have Joanna Scott corporate Secretary of VP of corporate surfaces, and Karsner locker who's our corporate controller.
Q2, 2020 financial and operating performance well that was a quarter that I'll start with that we all probably want to forget.
Started off with no one having a playbook, having no idea about how bad of a health crisis cope at 19 would be how much business, we would have or how many people would lose their jobs and not knowing can be very scary certainly it was stressful now today, we provide commentary in the second quarter 2020.
As well as provide some of our thoughts about what the next few quarters will look like from our perspective I think we all know want to understand the business activity will return to the norm once cobot 19 as either run its course like many pass pandemics or they're really smart people. This world find a vaccine or some therapeutic drugs that stops us.
Iris and as tracks. It's the timing were all uncertain about so realistically everything we applying a boat today is less than an educated guesstimate. What we can tell you is what we are seeing happening in real time as it relates to our business, which by the way. It covers numerous sectors of the Canadian economy. So from this perspective.
We have a pretty good viewpoint.
Now I'll provide a macro overview of our results and stuff and Clark will provide additional segment commentary as well as provide an update on our balance sheet, which we have strategically structure to ensure we have flexibility as well as being positioned to capitalize on opportunities of course all of the detailed concerning Q2 can be found in our Mds.
Okay.
Now most of you will recall that we provided stakeholders with a pretty detailed mid quarter update on June 11th as such today's call may be somewhat repetitive. So we will keep our comments to a minimum.
We all know recorded started out with a heightened level uncertainty, but as a quarter unfolded. It became evident that the sky was not falling and that the crisis could be managed not without issue not without change and certainly not without having to adapt but the best news is a by the ended the quarter. There were at least at the very lease some really green shoe.
Potential providing some room for optimism economically speaking as well as from Healthcare's perspective. So how is the Mullen group non since the onset of cobot 19.
Well first I'm pleased to report that we've only had one reported case of Cobot 19, and it was managed we had a young fellow that came in contact with the with the.
With a friend and he he made the right call and with site. So vice related and that was the only case that we know low.
Our all of our whole group. So we've had lots of six days because no. One has allowed at work if we have any healthcare system symptoms. So just so we are on the safe side. So from this perspective.
We're really confident that steps, we've initiated worked exceptionally well.
Second from a business perspective, we actually did okay. Given what we had to deal with revenues were down by 61.5 million or about 20% year over year. Now there are several reasons for the decline some of which are obvious to everyone. For example, it'll come as no surprise that the Canadian economy was hampered.
Hammered by government mandated closures, resulting in plant and business shutdowns as well as changes in consumer spending patterns Canada's GDP. The standard measurement of economic activity and health of an economy was the worst since the great Depression depression with estimates, having GDB falling by a staggering 25% and.
Realized and this is from the conference Board of Canada job losses were in the millions and even as of June we had 1.8 million Canadian still unemployed since March and then the unemployment rate is now well above 12%.
The energy industry was one of the hardest hit sectors of the economy economy, but not the only one of course, resulting an unprecedented declines in crude pricing and really undermining the financial stability of the entire industry effecting jobs activity levels and sentiment, but there were other reasons for the revenue declines and let me explain.
Lower crude prices negatively impacted the industry. However, this also led to lower fuel prices, which is somewhat of a positive for consumers of fuel, but devastating for the oil and gas gas industry, obviously and not surprisingly the province of Alberta.
Our industry fuel costs are generally a flow flow through cost to shippers and recorded as fuel surcharge revenue in many cases as such Q2 revenues were down by 9.4 million due to lower fuel surcharges clearly a negative from a revenue perspective, however on the flip side, our fuel costs were also down.
8.2 million because of fewer trucks on the road, but mostly because fuel prices declined all in all I would call. This a wash from our perspective in the quarter. The other reason I will highlight for our revenue decline deals with what I referred to as counterparty risk and given the uncertainty surrounding financial risk we.
Strategically decided to be market certain customers limit customer credit and exit certain markets when pricing fell to ridiculous levels, let's refer to this is managing the risks.
So as I highlighted there are many reasons for our revenue declines last quarter, but let me be crystal clear on this.
Issue the news wasn't on all that normally 20% declines would be caused for major concern. However, let me highlight some of the positives firstly not every part of the Canadian economy was shutdown consumers still consumed meaning that the freight still had to move LTL.
The less than truckload business is the business of delivering goods to consumers and businesses that serve consumers and it remains strong. In addition, many businesses were allowed to remain open during after being deemed essential services by the authorities that make such decrease let's take for example, our premium hype pipeline hauling business they hit.
Another outstanding quarter, hauling stockpiling and stringing pipe for projects like Trans mountain and coastal gas.
Municipalities and businesses still required de watering services, because the snow melted in the spring rains. Once again arrived Canadian de watering has a strong market presence in western Canada and had another strong quarter and some of the business units, we have like Gleason group, the operator of our Transload operations gain new business.
So, yes revenues were down but by the ended the quarter, we could see a clear path towards a full requires recovery as the economy emerged from mandated closures and we should take note of all of the government and financial stimulus that has been added and will most likely be continuing added and provided to the economy. My view is that consumers will continue to do with.
They always have done and that is consumed so from this perspective, the economy has a solid backdrop.
And the more consumer spend that quicker we get people back to work now if we can get business back to investing than the path towards a full recovery becomes clear but more on this later so now let me turn the call over just the fan.
Who will comment on our operating profitability, which let me just say there. This it's up from last year enough said simple that turn it over to you'd prefer to listeners with how we did it.
Well, Thank you Mary and good morning fellow shareholders, our second quarter interim report contains the full details.
Of our performance as such our will only provide some high level commentary in the midst of a global recession economists governments and investors.
Have rightly focused on the depth duration and consequences of Corona virus led crisis the effects of coal with 19 or widespread however, the impact on modeling group.
We're not as bad as one thought revenue in all three segments declined yes, and in the Mdna. We gave more specific information how each segment faired on a monthly basis trying to give a sense of the depth of the recession in the pace of the recovery on a consolidated basis revenue declined by approximately 16% in April 28% in May.
Okay and.
And then recovered to year over year decline of approximately 12% in June but not all segments follow these exact patterns with specialized in industrial segment experienced the deepest declines and the LTL segment almost fully recovering in June and you could refer to page 23 of the Mdna to see how our LTL segment did specific.
Buckley month by month and same could be said for the other two segments.
But specifically revenue in the LTL Alan W and Asinine segment for declined by 9.3%, 18.9% and 30.1% respectively. So let's call. It 10, 20 and 30%.
Year over year revenue decreased by 61, and a half million to 257.5 million, including 5.4 million of acquisition revenue.
And an offsetting approximately $10 million decrease in fuel surcharge revenue, excluding the effects of acquisitions in fuel surcharge fluctuations revenue decreased by a normalized $56.9 million or 19.2%.
On a segment basis, the LTL revenue decreased by 10.5 million or 9.3% to 101.9 million as compared to 112.4 million in 2019, including $5.4 million of acquisition revenue, which I spoke to earlier and a $5.6 million decrease in fuel surcharge revenue.
During the effects of acquisitions and fuel surcharge fluctuations the LTL segment revenue decreased by $10.3 million or 10.7% largely due to declines in our Alberta based business units.
The Allen W segment revenue fell by 19.3 or 18.9% to 82.8 million.
The ethanol high segment decreased by 31.6, and I had our largest declined to 30.1% obviously due to the covert 19 collapse in oil prices being somewhat offset by improved results at premium pipeline hauling smoothing Canadian dewatering.
As for profitability operating income before depreciation and amortization, commonly referred to as EBITDA increased by 3.6 million or 7% to 55 million.
55 million is a new record new Q2 record, but a record within aster. If the underlying number is 44.1 million and revenue was reduced by approximately 60 million at our historic margin. This equates to $10.5 million have EBITDA lost.
Well government took away and government replaced with queues the underlying EBITDA reflects the strength of our business model, but also one the underlying fundamental diesel prices fell by an average of 15% during the quarter. This benefited our businesses and reduced fuel as a percentage of revenue to 7.1% from 9.5.
Seven this benefit came about because we set the fuel surcharge rate at the beginning of the month and said it for the entire month as the price of diesel falling rapidly during the month, we capture a bit of profit, but those that have followed us for a long time would note we have been on the losing ended that formula in the past.
The formula really designed to be neutral or fair. So I'll add another caveat or asterisk to our performance as fuel prices rise fuel expense as a percentage revenue will come back to more normal range now for more detail the less than truckload segment was up $1 million in EBIT dollar, 5.1% to 20.5 million.
EBITDA improved due to the incremental EBITDA generated by the acquisitions of Argus and into urban last year and from $1.9 million of cues recognized during the quarter. These increases were somewhat offset by a weakened Alberta market operating margin increased to 20.1%, but accuse adjusted 18.
0.3% from 17.3% in 2019 due to lower diesel fuel prices and cost control initiatives. So asterisk up by 1% as a percentage of revenues still a strong performance logistics and warehousing segment was up by $2 million or 12.9% to 17.5 million operate.
Adding margin improved to 21.1% from 15.2% again asterisk due to the $2.7 million of queues in this segment.
But also because of the strong performance by Klasen lower diesel prices and other cost control measures. The cues adjusted margin was 17.9% are up 2.7% as a percentage of revenue that was strong execution by our business units and a waiting as I said towards higher margin Klasen work.
Especially as an industrial services segment was up.
1.7 million or 9.4% to 19 point.
$8 million of EBITDA EBITDA improved due to recognizing $6.3 million of Q save received the majority of our.
Wait subsidies during the quarter.
And also benefited from higher margin large diameter pipe handling and stringing revenue. These increases were partially offset by lower EBITDA in those business units involved in transportation of fluids in servicing of wells also from those abuse directly tied to drilling activity operating margin improved to 26.9% again big asterisk.
From 17.2.
In.
2019, primarily due to queues, but also a greater proportion of higher margin revenue lower diesel prices and cost control measures cues adjusted margin was 18.4% as compared to 17.2% saw an improvement of 1.2% as a percentage of revenue again strong execution and good diversity, where we are not type.
I had to just one segment of the oilfield service or the economy.
Last a quick word on the balance sheet net income from operating activities was up to approximately 85 million. This also comes with an asterisk as we stop making corporate tax installments.
But.
It's overall, a very good cash generating quarter, and we continue to build on our cash.
We also use some of this cash to buy back shares while they want a discount and continued our capital expenditure program year to date, our Capex is $24.1 million about half of the announced $50 million budget halfway through the year again, we're on pace, but we may see a slight delays in capital.
Hi, both.
Plants in factories were shut down during the second quarter.
We have approximately $110 million of cash up $25 million from Q1.
In addition to our cash we have an undrawn $150 million line of credit and substantial positive working capital. Our total net debt to operating cash flow financial covenant under a private placement agreement, which gives us the benefit of our into money currency hedges was 2.22 to one so about tuna quarter times cash flow.
Our rather conservative position.
During the height of recession.
So with that I would call that a strong balance sheet and with that I'll pass the conference back to you Mary. Thank you, yes, thanks steps.
So just to summarize what steps.
Highlight a couple of things that he said.
I think that the number one takeaway that I'll leave with everybody today is that.
Yes, there was that there was a downturn from coal that 19, the government stepped in and the government togut.
Government gave bet.
At the end of the day.
What we what we noticed and ours is that that our reported results are virtually spot on with our budget at the start of the year and the and the basic plan that we had articulated to all of our shareholders.
For 2020, so we in the absence of co bid our our models show that we were we were spot on and the government just gave back.
Back some cues that to a lot of our competitors are probably needing that to survive, but I'll tell you are our objective here is we don't needed to survive, but we will be using that to reinvest in the economy and too.
To invest in our company for growth and and to create jobs. So we're going to be reinvesting that those funds in future quarters. So I think what you heard thus far is that not only did we survive a major economic disruption again, but more importantly, we're actually stronger than ever.
And just to reiterate a little bit what steps said.
We have a well structured balance sheet, we over 110 million in cash we got a $150 million an unused committed bank lines, we have a diversified business model leveraged to the consumer part of the economy.
Which is performing.
But the best levels in the economy right today.
We also have presence in some high torque industries that flourish once capital begins to flow again into these sectors.
We are positioned to grow they acquisition, which we will we will do again.
We announced a couple letters of intent.
And we'll have more on that as we do our due diligence and due diligence is is a little bit a little bit awkward. These days as part of the new lack of travel and safety protocols, we have to taking a little bit longer but really what we're announcing to everybody is we're going to be.
Making acquisitions and strengthening our business over the next bit.
And but we'll always be focused on strategic objectives.
We've already repurchased 6.3 million shares of the share buyback under the share buyback.
What I would say when the market was clearly misunderstanding our company over some other crazy reason of some of them I heard over the last quarter I don't know where the heck those ideas came from but we were happy to buy back stock.
And Weve repurchased 6.3 million on our way to the share buyback that will be finished in August of 8 million.
And that will be it will be tapped out for our share buyback for this year.
But all these initiatives are adding so thus far have added 5.75, 0.5% and value to our existing shareholders by time, we do all of the share buybacks. It will be a reduction of share share count by 7.5%.
We've already commenced rehiring about 50% of our workforce that was either furloughed are laid off and we sure the headcount to bring back more so all in all on more than pleased with the steps that we implemented last quarter and our overall performance. So now what do we think is going to happen in the next let me turn my attention to that so first.
From a market perspective, I believe that the economy's turned the corner than we can expect more of the same from the consumer demand perspective.
This provides the steady base of business for our company you already heard were in June where our LTL business was was flat or even up a little bit from a from previous year. So that's all good news thats the consumer part of the business.
We also believe business business investment might start returning.
But truthfully I'm still on offense on this one a little bit it just seems that business executives and entrepreneurs are still skeptical about the future. Unlike the confidence to begin the reinvestment cycle again.
That might take a little bit longer.
The consumers are very reactive business takes a little takes a little more thought.
And you got to make sure they got the right balance sheet and have confidence in the future, but I think thats going to return the timing might be a little bit delayed, but once that happens the economy's back on really good solid footing.
So we'll have to watch this carefully.
Clearly some sectors economy will remain under duress for little while longer and let's just for for obviously big say the travel business the oil and gas sector.
But I think the basis being established for better days next year and it just takes a little time to adjust and all in all it wouldn't be surprised to see similar results overall in the next couple of quarters of what we just experienced in the second quarter. So the balance of the year looks to be looks to be okay.
And then we'll use that kind of okay to build off of and plan for the future.
No second part I would highlight is we have way too much cash on the balance sheet for our needs as such acquisitions or in our priority.
But we're going to remain disciplined we don't grow just to grow and just to be clear. Our primary objective remains focused on the consumer part of the economy. During this part of the cycle.
Third we will compete complete our authorized share buyback program in August as I talked about that will be 8 million shares acquired at well below but every metric that I can think of so to our loyal shareholders. You can think those that do not believe aireon or understand our business model and the exciting future. We are poised to deliver on now fourth.
Given our balance sheet to our performance and our outlook.
We've been reinstituted the dividend now it's not quite the same level as what it was prequaled at 19.
But it's in line with.
Our next few quarters cash flow projections and aligned with actually to be honest with the which is the return of our workforce, which as you know was a very important reason why as shareholders to except the suspension the dividend in April I simply said it was inappropriate for shareholders to continue to get paid.
And so many of our people were being left with unemployment with employment and there was so much uncertainty, but that was yesterday today, we move forward once again and shareholders or the landlords of our business and are entitled to return on their capital. So.
They've invested in our organization, we're going to reinstitute the dividend at three cents, a month, which works up to 36 cents annually now we'll do that for the next couple of quarters and then we'll reevaluate as we get into 2021 jus the yourself oversold.
Not that far away.
Could we could have easily gone back to the full amount, but I did I didn't think it was appropriate to do it and the board bought the thesis that we'll get back to the full.
Once we get employment back and once the economies on more solid footing and.
And we're not going to use any of the the.
Permanent funding the cues for dividends were going to use that for growth in the economy and thats. The message that we are we're going to stick with so.
I think the other thing was to be honest with new of what was really personally irritated that we have such a high high yield and.
So that makes no sense for a company of ours. That's that's really met every.
Downturn in every every crisis head on and we've always come out stronger the other side, our future looks great and so we implemented what we think as a balanced.
A balanced approach on the dividend for the next to next few quarters, we looked at.
Here's the things that we looked at on the on the dividend do we have the cash flow, yes, do we have the cash EPS.
And what were the primary motives of that we thought about that our shareholders wanted we heard from lots of shareholders should we want growth, we heard lots of shareholders, we want dividend.
So we had to balance that.
I was very concerned as I talked about the yield what's the level that is appropriate.
And we we struck a balance based upon where the our stock price trades and what our cash flow is an ever and truthfully we.
We're going to have lots of cash because we're going to be finished with the.
Normal course issuer bid here in August so we can generate lots of cash we can we can balance it by giving some back to shareholders and the balance will be used for growth in this company. So.
That's what we're.
Thats our presentation for today and I'll now turn it over the operator, and we'll go to the Q and a session.
We will now begin the question and author session.
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The first question comes from Kotak Gupta from Scotia Bank. Please go ahead.
Good morning, and thanks for taking my question.
Justin it's probably on on your commentary that made that the next couple of quarters could be similar to Q2 I just wanted to kind of dig in little bit do that how many when you see a flat does that mean youre, excluding the cws subsidy.
In the earnings and you expect.
Flattish margins, excluding those subsidies and against the us maybe.
Stable remedy environment here or do you expect some some improvement as you saw grown the towards the end of Q2. So just some clarification on that.
Yes, so thats it thats the thats the adjusted number that we talk about so.
As the economy improves and the and we bring back people then you will generate less of the.
The Q so.
They'll balance they'll probably balanced themselves out to be honest will either get it from the government on they've announced they're going to continue on till the end of the year I think CFM that yes, it's going to be all the details come out but.
I just want to be clear on this where you know.
Whether we get it from the government we earn it in our preferences, we'd rather get the economy back at people employed again and get going obviously, everybody would like to do that so I think as the economy improves then.
Our operating earnings go up and the cues go down so I think.
Something similar.
Seems to make sense, that's that's our best estimate and I call. It a best guesstimate at the moment.
Lots of uncertainty, but based upon what we saw in June.
There was a pretty nice recovery, particularly on the consumer side of the economy. So.
And every all of us can see it.
It just it it just things are busier now.
More businesses are more active and so that gives us a little bit of cover if you will that.
The next but doesn't look to bed now we're always subject to you never know this damn virus is going to work out and and then what are the policies of the government's going to have to implement or whatever but based upon what we know today.
We think the next couple of quarters could be something similar to the last couple to the last quarter.
Okay that makes sense that and then visits to comment on non recalling about 50% of the workforce I think last time in early June you will recall thing, but 20% of the workforce is obviously gone up and does it.
Is it because of.
You are kind of expecting growth ahead, and so that brings a foot that growth or is it that you have already seen the demand go up and recalling those people in house when those people can come back to you.
Yes, I think that that that's one that that we just take a lot of time and we think about here we have parts of our economy.
In which.
We're having difficulty getting people to come to work so in our LTL business and where there's there's parts, where it's we're having some shortages of people.
No part of that reason could be that they gave us some of them.
Maybe get paid a little bit too much by the government are.
Maybe.
Not quite as aggressive as they should be looking for jobs some of that might be that some of the jobs that were lost are not always transferable to the next part of the economy that is doing well, let's take for example, the energy business a lot of jobs have been lost in the energy business.
Those those jobs don't necessarily lend themselves to well I'm going to go to work.
In a warehouse or in delivering freight or something like that I would say the same thing about the hospitality business a lot of people have lost their jobs in the hospitality business, but they're not going to go to work on our warehouses. There. So it's kind of it's a mixed bag there.
I'm I'm hopeful that as the economy continues to recover we can continue to inch back and add people. It seems like we're adding a few more people every week.
And we hope that trend continues but.
What we'd be back to full employment Theyve ended the year truthfully I noted but to.
2021, I would say, yes, we'll probably be there in 2021, which means our business will be back to where we thought it was in at the first of this year.
Thank you and the last one for me before it and it over on the couple of tuck in said that you've disclosed in the Mdna I was just wondering one if you can.
This out.
She disclosing what you cannot.
What does the nature of those acquisitions on the sounded like they are more on the consumer side of things.
And what could be potential contribution sense on those M&A have you baked those in many states that next couple of quarters.
Well I think this is what will be announced here. This time is significantly different than we've done in the past.
The messaging that I'm, giving to shareholders is we are going to be doing acquisitions.
We've been we've now got letters of intent sign typically we don't.
Announced the letter of intents until we've actually got all of the due diligence done. So we don't have a head fake or whatever it and then we can speak to those of what they are we're not announcing what those.
Candidates are that we're looking at that still we're still quite on those but I am saying, we've signed two letters of intent. We're looking at acquisitions, we've got lots in the hopper, but two of them. We've done we are back on the acquisition front and we're going to be very strategic don't be surprised if they're not in the consumer part of the economy.
And in Big markets, but I think we'll just leave it at that till we get the due diligence done until you get the purchase sales done and everything.
It's just conjecture as to how they might work out so.
We're going to be doing more acquisitions that were that's what we're telling shareholders. We got too much cash on the balance sheet and.
Told the team and the board.
We need to be thinking about future growth and part of that's acquisitions part of its strategy as to what parts of the economy do we think are going to be the winners in the future. The next five years or so and that's what we are deploying that that strong cash position in over the over the next great. That's our objective and Thats what were that's why we announced.
That were signed a letter of intent but.
More on the details of that once we get them Doug.
Okay. Thank you.
Any comments on the great quarter.
Yeah.
Thanks for the comments.
The next question comes from Walter Spracklin from RBC capital markets. Please go ahead.
Hi, how are you doing.
Well.
We survive we adapt.
And we change right I mean, all of us are doing it and I think what to.
That's the best I can put in my happy no, but we adapt than we change in our lives of unchanged for a bit absolutely and that.
Looking about change and touching on what you were highlighting as your reinvigorated.
Move on acquisitions here.
Really curious to see and to get your sense of your strategy.
Even if you could ballpark.
Free cash flow that you expect to generate for every dollar.
How much are you kind of earmarking or would you like to earmarked for acquisitions and then what's the pipeline.
Or if you're looking at Western Canada is there enough in the pipeline there to satisfy that that thirst or do we start to see you move more towards the east I know you mentioned.
These acquisitions were in the larger.
Consumer markets than I thought that might mean some of the large ones.
Easter view, but I think by by referencing them as tuck in that might that might you might be referring to.
Western Canada, So just curious pipeline in western Canada, and how much you're looking to devote of every dollar in free cash toward acquisition.
Let me, let me just highlight the free cash.
From our existing operations. So let me let me frame this for everybody.
Is that typically well the way I look at it is that the free cash that we generate so the cash we generate we used to operate our existing business to to put indoor existing business units to strengthen them.
And to.
Reward our shareholders with some type of a dividend or so something like that so the free cash that our existing business generates would be used to strengthen our existing businesses and to give money back to shareholders.
The cash that we have on the balance sheet and the bank lines that we.
Our not using right now are all your March for acquisitions and growth.
So.
The truth of the acquisition, what we're saying as our acquisition is not strategy is not change because of coal that 19. It was delayed because of cobot 19, and most of us were quite uncertain as to what the future look like and et cetera. So would it didnt appear to make any sense that we go.
When do acquisitions, one we're unsure of what the what was going to happen. So we put it on pause for a few months, but we're now announcing we're back and we're looking at to some of the ones. We were looking at before and now we've got a bunch of new ones.
That are crossing our desk a lot of them. We just discount we go they don't fit our strategy.
So if they don't fit the strategy im not going to do them just to show a we got growth no I don't want just growth we want to do it thoughtfully.
And we think how it's going to how thats going to work out for our shareholders over the next fit so.
Yeah, we're going to deploy the capital that we've got that cash.
To grow our business and position us for the future.
No were we going to grow.
Well you know we've got a very strong presence in the east with our investment in the Chriscoe group.
And they continue to grow and continue to add acquisitions and grow their business. So we've already got a really nice presence back there and one day. The Cresca group will be part of the Mullen group and that.
You know that so we've got a big presence down there and then we're looking at some other opportunities also because we've got some business down there you know our guard wind group.
Is one of the largest LTL providers in northern Ontario, and Manitoba I mean.
There are biggest business unit. So we'll continue to do tuck in acquisitions, because I'll tell you those are bunsen singles, but as I said to some shareholders. That's moneyball you do Budson singles you can win games with that and then we'll look at at bigger ones if its strategic.
And that's how we're looking at it but.
But more on the acquisitions as we get them done Walter.
But if you're going to be in them.
Just on the consumer it only makes eminent sense that we've got to be in the bigger markets.
Okay that makes a lot as and when you look at the consumer markets are you looking at.
On a pure LTL operations are you tempted to go into truckload at all.
We will you move a little bit more into last mile. How how do you look at when you mentioned it doesn't fit your strategy do you have a a maybe maybe maybe relate to its a little bit your strategy within those consumer Americans.
Well.
If you're going to deal with the consumer it's kind of all parts of those things.
You can't deliver LTL at somebody doesn't deliver the full mile if thats basic the truckload.
But we're not theres lots of there's lots of competition in the truckload business.
And our primary focus and the truckload businesses too.
Is to be more in the logistics side of that and use our network and subcontractors and whatever.
So that's that's how we do that but.
The final mile.
LTL business, that's really where you're delivering those are really complicated difficult businesses for a lot of competition to get into we like the platform we've got.
And as you can see from our numbers, that's probably we seem to know what we're doing we got some excellent businesses that we've invested in over the last bit I am absolutely delighted with those management teams of how they're driving value and.
And working on the margin side so.
That's a focus.
One other thing.
For our shareholders.
Yeah and valuation on these acquisitions, what are expect where our expectations right now among the sellers what if we were to take the cash on your balance sheet and assume some EBITDA growth.
Through acquisitions.
Plugging in a multiple well through seven times that you is that something way above you would what you would generally contemplate for the the type of quality of acquisition, you're you're looking for.
Got I hate to negotiate view of US my negotiator. So I think a better just leave not comment on that.
Good.
Throw a number out there do you dig further.
For the seller the buyer so.
Okay. I appreciate your time has always Marie.
I'm going to I'm going to be signing die on that one okay. Okay.
The next question comes from Michael Robertson from National Bank Financial. Please go ahead.
Hey, good morning on congrats on the stock morning.
Just a quick one on the potential tuck ins.
I'm trying to get an idea for potential size the too that you signed Ela wise for.
You've mentioned in the past Theres no need to carry an elevated level cash on the balance sheet could we assume that these two little light would be.
Funded by cash on the balance sheet or would they also made you acquire leaning on the credit facility.
Yes, no will use our cash.
On our balance sheet.
Okay, great for the offshore or short that's.
But I mean, thats why we have cash and for shirts for sure we'll be using the cash in the balance sheet.
Okay.
And switching gears just trying to wrap my head around how we should be thinking about the impacted accused moving forward.
Should we be expecting a similar impact in Q3 as we did in Q2.
How should we think about that sort as we move further in 2020.
Yes, I think I'll take this one I've been the one that's been closest to the cues that feels like some days they come a government worker rather than working for shareholders, but.
The changes that they announced earlier this week will allow us to.
Essentially get a few more of our business units on there, but not as many as you think at the height of the recession here. We had 18 business units on the cues program. This has been reduced to 12 and as you can surmise, they're all largely in what we would call traditionally the oilfield services segment or the asinine segment. So for.
The third quarter, though with the announced.
Changes, it's more of a sliding scale, but we would expect a similar amount in the third quarter as far as subsidies go.
Unless there is a a larger recovery than we anticipate but I really think that because it's really oilfield services segment focused and the price of oil than activity. There will remain low in the third quarter better will be a similar number.
Okay, that's great color I really appreciate it and I'll turn it back.
Thanks, Michael.
Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from John Gibson from BMO Capital markets. Please go ahead.
Morning, guys John.
So if you look at your mid quarter update I took place in in mid June and then you take a look at revenue mechanic kind of came in at the high end of the guidance do you think.
That the second two week or the last two weeks in June were better than expected just based on sort of where your revenue came in at <unk>.
<unk>.
You know Thats, we thought we've talked we discuss that here John and one of two Theres two conclusions you can draw in my view from.
Our.
Our mid quarter update in June.
Number one is we either sandbagged everybody.
Or number two is.
The second hand, the say they last few weeks were stronger than what we have them. What we saw in the first two weeks and I would tend to say, it's the latter.
Is that we were pleasantly surprised with the that demand response, the rehiring response as the month of June.
As a month at June unfolded so.
We deliberately we typically don't send a we typically tell everybody exactly the way we see it so I would have to say two out what we were pleasantly surprised with the.
With a number the business units and how strong the economy was performing in that.
As the month of June unfolded, it wasn't evident the first week avoided it did well as we finished off and we're hopeful that continues on.
It appears that may be the consumer were at that.
At the Max about the what the consumers doing right now.
I don't know if it gets substantially better from this I don't know how the consumer can spend more unless the government gives them more.
If they do they will.
Bill can they spend more will they continue to spend I think they will continue to spend the most important part that I'm really focused on right. Now is what our business is doing we have not seen a massive rebound in some of the capital goods yet.
Movement, we've seen lots of consumer goods, moving but we havent seen that that capital goods moving yet and that's the last part of this equation that I think we need to see for us to give the all clear.
But clearly from the consumer side.
The consumer appears to have money theres appears to be liquidity in the system.
And that consumers are.
Oh spending.
Okay, great. Thanks for the color and then second question.
Let me know if I'm wrong, but.
So that the next few quarters could be similar to these to this quarter adjusted EBITDA.
What happens whether at the year you could even get close to your original Creek whole bid what do you want to goals.
As it turns out operating earnings and part of those goals were maintaining a dividend at 60 cents a share so.
Say that happens by year end, you think you could see.
Further dividend is almost back to where it was pretty cold it.
Well, we believe we debated that at the.
You know what the board.
And as I said, we we probably could have have taken the dividend right back to where it was and and not been.
Not harm our balance sheet one iota.
In fact, we think we to the earnings would have been strong but.
The truth the matter as as I said I'm very sensitive that we are getting shareholders shareholders. We still have brought everybody back to work and I'm very sensitive about the messaging that that goes with the with that I also don't want any perception that shareholder.
Those are benefiting from queues I want I want zero that shareholders are not getting anything to do with accuse that's all going to be funds that were going to put back ended the economy to create jobs and build a better.
This is probably we're not going to use it for shareholders what shareholders are getting as basis, just off of our or above our operations now as the economy recovers and we move away from queues. All all have I'll have more cover with which to be able to go back to shareholders and say, okay. We have the all clear, but I'm very very concerned about messaging right now.
You know one how that is perceived by.
By everyone by our people that don't have a job.
They want to go back to work I'll bet you most of those people that are sitting at home and waiting for us to calling back would love to be able to come back to work in one form or another so we're going to do everything we can to get them back, but there's only a certain level, what I'm comfortable with to give back to shareholders. Now look one of the biggest private shareholders as me on that.
I'm uncomfortable.
Giving money to shareholders that for money that came from government I don't like that connotation, one iota so let's get the economy back let's get the jobs back and then the dividend our shareholders can get the yet the dividend back.
Second part is I would say to this.
Im just im not you said to me I'm going to have a seminar and 8% yield our dividend I go that's crazy.
Doesn't make any sense to me.
Okay, great. Thanks, the color and again congrats on the saw a quarter.
Okay. Thank you very much.
This concludes the question answer session I would like to turn the conference back over to Mr. Alan for any closing remarks.
Well, thanks for joining us folks everybody its a.
The World, we're all adapting to what's going on everybody does their part we're doing our part here, you're all doing airport and as I said really looking forward to the day that we can get to get this economy back full going so stay safe enjoy the rest of the summer as best you can and will talk to you in.
End of the third quarter, so look forward to having some positive results again, 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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