Q4 2020 Mullen Group Ltd Earnings Call
Thank you for standing by this is the conference operator, welcome to the Mullen Group Ltd, yearend and fourth quarter earnings conference call and webcast.
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Zero.
I'd now like to turn the conference over to Murray, K, Mullen, Chairman and CEO and President. Please go ahead.
Thank you good morning, all and welcome to Mullen group's quarterly conference call.
And once again before I commence today's review I'll remind everyone.
The whole presentation.
And excuse me 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 so.
Further information identifying the risks and uncertainties and assumptions can be found and the disclosure documents, which are filed on SEDAR and at.
And at Www.
Dr Mullen and heightened group Dot com and so with me. This morning, all social distancing is the entire executive team and Clark was received before Richard Maloney Senior VP.
And as Scott corporate Secretary and VP of corporate services, and Carson Urlacher Who's our corporate controller.
So thank you for joining us today and.
And with just a few short weeks ago, we held our 2021 budget and business plan update.
And with our shareholders and investors and as such we're really there's not much that has changed since early December 2020.
Either as it relates to our business or that accurately and COVID-19, So let's keep everything I say today within the context and it all depends on Covid.
I am going to turn the call over to Stfan here, shortly who will discuss our 2020 results, but before I do here.
Here's a recap of what I saw is the big picture and this is clearly from my perspective.
Number one and the cash.
And similar range to play and this economy.
Now after that dreadful second quarter.
And the buying power of the Canadian consumer just took off and they seem to want to buy everything and site, which is music to our L. T. L teams.
And.
And by the way they did a fantastic job adapting to all of the necessary safety protocols for essential workers.
And meeting the demands of the consumer.
And of our and of our customers.
And even our our L. P L businesses, and Alberta did okay, which is also down day, because everyone knows and Alberta was tough with low oil prices and are struggling and Scott and me.
Number two since we're on the theme of consumer driven economy.
And so its transition to the E commerce direct to consumer trend that absolutely hit another gear. In 2020. This is probably the single highlight trends, we see and the logistics industry today and one that we believe we are going is not going to go away anytime soon and we know firsthand what this.
Changing landscape can have on your business. If you are E commerce ready our AWS group for example, based in Toronto, absolutely crushed it for their customers. So much so that I personally receive calls from our customer thanking the team for helping them meet the challenges associated with E commerce deliveries.
And that spike during 2020.
And so.
The third thing that I'm going to talk about it is they are big picture its diversification pays dividends.
And it's pretty evident that are not all of our business units had an easy year, especially those that were tied to the resource sector of the economy.
Yeah and in spite of some of these or this business struggles we had a very successful year.
The fourth Big picture trend I would say is acquisitions were on our radar, but we just didn't get to the goal line because of our view on valuations.
Along with trying to rationalize how do you drive margin improvement given the no travel environment.
Et cetera, et cetera under Covid, we got a couple of nice tuck ins completed but nothing to move the needle. So truthfully from that perspective, I'd have to say, that's a bit of a disappointment.
So let me summarize twenty-twenty display revenues were down and margins were up and that equals a pretty darn good year. So within this backdrop I'll turn the call over to Suzanne who has the details as it relates to 2020 set the choice.
Thank you Mary and good morning, and fellow shareholders.
A little bit more granular however, our annual financial review contains the full details that explains our performance as such I will only provide some high level commentary as Marty alluded to it has been a year for the record books, although revenue and all three segments declined each segment continued its long March to a full recover coverage.
And that started in Q3 and continued in the fourth quarter for the quarter consolidated revenue declined by approximately 5% the effects of COVID-19 are widespread. However, it appears investors have shed their hesitancy and are looking past COVID-19 and towards the wide distribution of a vaccine and the consumer confidence to spur.
And we saw.
Signs of this in the fourth quarter.
However, in the meantime efforts to contain the virus will continue to constrain the economy revenue and the consumer driven less than truckload segment rose by one 8%.
More or less flat when you adjust for acquisitions, however, the logistics and warehousing and specialized and industrial services segments declined by 5.3, and 15, 2% respectively. This is considerable improvement from the lows and Q2 and reasonable given the current crisis, we are seeing regional differences, but for.
The most part the consumers back spending again and usual seasonal fashion. The resurgence of the virus has prompted government to reimpose containment measures and the start stop and nature of the economy will likely hot and test for the foreseeable future.
Overall year over year revenue decreased by $16 9 million to 290 <unk> sorry.
Alright, yeah year over year for the quarter decreased by $16 9 million to $297 7 million and including the effects of $8 $6 million of acquisition revenue and $6 million decrease and fuel surcharge revenue, excluding the effects of acquisitions and fuel surcharge fluctuation.
Revenue decreased by approximately $20 million or 7% largely due to the weakness and the F&I.
Specialize and industrial services segment on a sequential basis consolidated revenue increased by 6.8.
$8 million for the quarter from $290 9 million achieved in Q3 of 2020, reflecting signs of a strengthening economy as for profitability operating income before depreciation and amortization, commonly referred to as EBITDA for the quarter increased by $2 3 million or four.
6% to $52 2 million segment, EBITDA increased and the L. T L L and W and S F&I segments.
By $2 1 million half a million dollars and $9 million respectively of course. This number comes in part as a result of queues, but the underlying number of $46 9 million as compared to $49 9 million and and Q4 of 2019 is virtually flat dollar wise and reduced revenue.
The underlying EBITDA and number reflects the strength of our business model, but also one underlying fundamental diesel price prices fell by an average of 29% during the quarter. This benefited our business, but also reduced fuel surcharge revenue and reduced fuel as a percentage of revenue from nine four.
Sent to seven 6%. This difference of one 8% added about $3 $9 million to the bottom line.
Now I will note that some issuers prefer to report adjusted EBITDA margin by reducing the revenue and the cost by the quantum of the fuel surcharge revenue of course. This is a non-GAAP measure and by making this the judge this adjustment to the denominator and this fashion results and a contrived margin expansion, we prefer to report and.
Generally accepted fashion. So our margins are based on full revenue and forecast.
So without any accounting trickery, our operating margin improved to 17, 5% from 15, 9% and 2019 <unk>, primarily due to a greater proportion of higher margin revenue and thank you pre made pipeline.
Lower diesel prices and cost control measures Qs was also a factor, but it was not as large as it was in previous quarters. The Qs adjusted margin was 15, 8% or more or less on par with prior year.
Revenue for the year declined by eight 9% to $1 2 billion down from $1 3 billion. However, EBITDA improved by eight 3% to $217 6 million up from $200 9 million and was due to the strong performance by all three segments operating margin adjusted for Qs and <unk>.
<unk> by <unk>, 7% to 16, 4% as compared to 15, 7% in 2019 full details, including a segment breakdown can be found starting on page 23 of our annual financial review.
Looking at other notable items net cash from operating activities for the year was up to approximately $225 million with some of this cash to invest and our company firstly by buying back stock for $53 million and by purchasing $35 million of trucks trailers and other equipment as well as $15 million of much.
<unk> facilities for total net capex of approximately $50 million. We also funded the acquisitions of Pacific Coast Express and IW D for approximately $20 million after those investments as well as paying our taxes and interest obligations, we still have excess cash and we paid about $35 5 million.
And dividends.
So after all of that we remained with approximately $105 million of cash on the balance sheet and 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 our private placement agreement, which gives.
And as the benefit of our in the money currency hedges was $2, one zero to one or about two times cash flow rather conservative position to be during a recession lastly.
Lastly, a quick word on ESG and lots of people ask me about this much talked about by some but some conversations regarding ESG lacks common sense outside rating agencies do a poor job of assessing ESG and my opinion. So consider these facts when reading their reports.
Our safety record as measured by lost time injury frequency is less than half the industry average and fact world class at less than one.
Last time claim injury frequency.
That is just absolutely hitting it out of the park and but some rating agencies, let's say you've seen a trend where you've gone from 9% to one.
So your youre going the wrong way well of course, if you are an acquisitive company, sometimes you acquire companies that don't have a good safety records and your average up but I can assure you that we see improvement and all our businesses every year secondly, our smart way partnership is not very well understood by many of the ESG rating firms smart ways.
The partnership between industry.
EPA and natural resources, Canada, and is committed to reducing greenhouse gases and we were one of the first to enroll and today. There are approximately 4000 participants why would you voluntarily subject yourself to a governmental annual review of your greenhouse gas emissions, because youre committed to ESG committed to ESG long before it was <unk>.
<unk> understood Smartway firms are reviewed annually and benchmarked against their peers, our subsidiary place and group is one of only 12 with high performer status and Egypt other of our B you see annual improvement.
And lastly, if you are concerned about ESG. Please consider our commitment to our frontline workers during the Covid crisis has articulated.
And our March 2020 news release action like these simply do not fit and and ESG ratings box, putting aside $5 million for our frontline workers before government programs were instituted speaks volumes to our commitment to ESG and our frontline workers and on that note I would like to personally thank our front.
And workers, who tirelessly delivered essential goods, each and every day, ensuring our coverage our full and our economy moves on and so with that and Maria I'll pass the conference back to you.
Yeah, Thanks debt well run today.
So.
Let me just as we're moving into this next section before we get to the Q&A.
What is it that I really see today that it didn't see eight weeks ago well, let's.
Let's start with we still have COVID-19 to deal with that so that hasn't changed and in fact, if anything I would have to view the recent actions by governments and.
And as harmful to business and the economy.
And now all we have to do is look at the recent employment numbers and to be blunt. They are just awful.
So will all of this altered consumer behavior.
And this is truly the unknown to us from my perspective, and it's one that bears watching carefully it.
It is pretty evident however that if you give consumers money if you give them a reason to buy.
And certainly will and until we see and returned to growth and the overall economy I can tell you that our focus will be on margin.
Number two the supply chain remains under stress.
The evidence is clear we see it and the shipyards, we see that the rail yards, we see it at our terminals and handle container freight this suggests to us the increased efficiency and the supply chain.
Bring and need for more warehousing and it's all going to bring little odd moving along increased cost into the system. In fact, the bottlenecks in the supply chain that that everyone is noticing.
And it's slow and it's really slowing everything down and from my perspective.
That combination of an increase and consumer demand, which was which was real.
But it's been masked a little bit because when you layer that on top of and inefficient supply chain, which what we have today and it creates the illusion and it's actually busier than it really is.
While this bears.
And this bears a lot of close attention.
It's Mike and Mike.
You and is that yes consumers are strong and they are probably going to remain the best part of the economy, but the supply chain is bottleneck. That's got some we were hearing at all about whether its chips or whether it's some food stuffs.
Its container traffic all of that stuff, we have to be very very careful on watching whether this is a you know what's this long term trend. So our job is to be thoughtful and and to strategically position our company to capitalize on these on these trends so.
That's what we'll be doing LTE all remains the most resilient part of the freight business. The consumer is still spending.
Maybe it's because we're more and we're sitting at home and we just go and do stuff I'm not sure but.
The packages seem to still be delivering at the houses.
But the other reasons that our <unk> business is doing well I've got to highlight them.
You know we're investing in this part of our business. We are we've got some new terminals that we've opened up our work.
And to expand coverage.
And this improves operational efficiency, but it also we're changing so that we can have the capabilities to handle more E. Commerce deliveries, which is as you. All know is direct to the consumer not to the retail store and direct to the consumer as well as.
You know the the move towards ambient and freight which is a form of L. T. L movement. So LCL remains the most resilient part of the freight business and and.
And the state the staple of our business.
Higher commodity prices and what has changed well clearly.
Higher commodity prices are and are in the or and the news. These days and that's changing a lot of the prospects for the oil and gas industry.
We see the rig count up from last year, although not up to where it was in 2019. So I think we still have a long ways to go.
But this is a welcome change that we see in the marketplace today and everything we see suggests that 2021 will be a lot better than 2020, and the oil and gas industry thankfully.
So here's here's what I'm going to leave you with the World wants what Canada has that's pretty evident.
The question is will Canada participate.
<unk>, Canada's oil and natural gas initially industry simply make more money as commodity prices worldwide increase and it seems to me.
No one watched the industry to invest which keeps the lid on commodity prices.
And no one should complain when prices rise.
And the last discussion point I've got is on acquisitions now clearly the capital markets and growth and that will reward companies that have a growth trajectory. There is an unlimited amount of capital and the system the lowest bond yields are.
And we're a hit and the United States. This week, it's easy to see how valuations can get stretched the challenge as I see it is finding growth that makes sense over the longer term.
We have our work cut out given the current easy money environment, but until then we have a big cash position that is looking for a really good home.
So all and all I would say to you and not much has changed from our perspective, and we remain focused on achieving our 2021 budget and business plan.
We outlined on December nine 2020, so I would just summarize it by saying this I think it's gonna be slow out of the starting gate due to Covid and.
And I would not be surprised to see a nice strong finish to 2021, that's our prognosis for today, thanks for joining with us and I'll now be glad to entertain some questions.
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At this moment, we have five callers in queue and the first question comes from Qunar Gupta with Scotiabank. Please go ahead.
Sure.
Good morning.
Good morning, Steve and maybe the first one for you. So looking at the Q4 numbers I can see there seems to be some and.
Negative foreign exchange impact and logistics and corporate and as well as below the line and and there was probably an increase and the laws and asset sales for $3 million.
And the numbers just confirming and these items are not adjusted out of the 52, and then EBITDA and dense and EPS and if that's the case Guinea suggest a what would be just didn't and must be.
Okay. So for foreign currency, what we have as we go mark to Mark on the foreign currency. We then primarily are our logistics and warehousing division, where we have receivables and payables and so we mark to Mark those and those are in the table.
Don't have the page number in front of me, but you will see that within that segment, primarily and you'll see it on the consol on the SG&A costs below the EBITDA line that foreign currency really relates to the mark to Mark that we have to do on our on our hedges or swaps.
And our debt.
So accounting wise, there's a bit of variation there and we normalize that portion and our adjusted.
Normalized earnings, which you will find in our annual.
Report on page 28, and so it's adjusted for that but I would remind you that it's not our intention to really trade those hedges and the market, we have those and our intention to hold those to maturity and 2024 and 2026 and we have the net present value those using a discount rate for <unk>.
Counting purposes. So if it comes up with a little bit of a variation, but from an economic point of view, we're fully hedged on that debt all $229 million of U S. Currency is is fully hedged at about a $1 10 $1 11, we lock those in when we took out the debt so from that perspective, that's the noise there.
And we could talk get more into detail off line. If you want to yes, no absolutely and thanks for that and the $4 $3 million loss on asset sales the increase.
And lots of lessons last year, what was that about we just cleaned up the garage and.
And some older equipment.
It was just not a great time to be selling used equipment and Q4. So we took some some asset losses, there and we also sold a property and Drayton Valley that we also experienced a loss on.
Okay. Thanks.
Moving on and the second question is on margins I guess.
Excluding cues of course, all three segments, our newly expanded margins from last year.
We also saw back in Q3 as well.
But this time the margins in Q4 were not not as much better as they were in Q3, So just curious as to.
Is there anything between Q3, and Q4 that seasonality and that's non seasonality that would have diluted the margin a little bit here.
I don't see a P C ex being dilutive as much as I think people and my depart before so any any thoughts there on the margin from and there'll be appreciate it.
Yes.
And it's more a good morning.
Oh, I don't want and if there's anything real serious I think what I think what you're really starting to see though.
And you won't modest opinion is I think youre starting to see some cost.
Coming into the system.
You know, there's inefficiencies and the bottleneck.
And in the supply chain that we talked about so we're not quite as efficient as we once were.
We did bring back people and anticipation and it was going to get busier.
So I just think that's the that's the primary reason to be honest, there and there's nothing alarming.
But you're spot on is are the the initial initiatives that we had to reduce costs.
Couldnt keep pressing the button on those forever you have to let off the let off the pedal a little bit and.
And a lot of it had to be you've got to bring the people back and you've got to pay them and I.
I think that's the single biggest reason along with those inefficiencies and the supply chain. We're just.
Darden and it's just it's awkward and you'd get go on you.
And then you know a customer cancels there you don't have to shut down their factories. So that happens and then you get trucks moving so theres been some inefficiency that.
It's not it's not changing everything but it does incrementally it does it does impact margin and that's for sure.
Yeah, Okay that makes sense.
And we also saw a little bit of the cost of contractors go up as a percentage of revenue. So we see and freight rates go up but we also had to pay our subcontractors those third parties a little bit more so.
And that's also a bit of a factor.
Yeah, and I actually I was about to ask you on the contracting front as well it seems like that that went up so is it a spanish debt because of the contract out of rates going up.
Minus the volume decline or is it both volume growth on track I mean like you have you started using it incrementally more contractors.
It's mainly the rates, mainly and the al and W and our our fluid hauling businesses, where you're playing the spot market for a lot of that stuff and trying to to fulfill and customers' needs that way and and there was some strengthening in the fourth quarter and although our guys are usually very good at managing the spread.
We got caught behind a little bit.
During the quarter.
Okay. Thank you and that that's not true.
Thank you.
Our next question comes from Kevin Chiang with CIBC capital markets. Please go ahead.
Good morning, Kevin.
Good morning, and and and.
Hope hope hope it doesn't wilmar and Stefan maybe if I could.
And ask a question on one of your comments you made them early on and maybe 2020, I think a little bit of a disappointment on the M&A front, because you didn't do a bigger diligent and see a bigger deal.
I know you have the dry powder, you know 250 million of liquidity just wondering what the appetite is to do one, especially when you. When you look at some of your other publicly traded Canadian trucking.
And so having.
And having started this year with some pretty transformative deals do you see an opportunity to do something similar and your front or do you think 'twenty and 'twenty, what's more of a a.
A repeat of 2020 and its more and more of a tuck in variety.
Yeah, that's and that's just.
A really good question and.
And I touched on it a little bit.
We all know the liquidity that's in the system and that has been driving our acquisitions, it's just unbelievable.
Some of the transactions that have happened.
The the issue that.
I have struggled with to be honest with you is.
Is there something fundamentally changing and the economy.
That would say that.
The margins are going to change.
And the trucking business and.
I don't see unless we have some.
Real.
Bump in the car.
And the economy, I don't see massive demand you'd need a significant demand increase.
For us to see a.
A big step change and pricing.
The United States has seen it better than we have in Canada.
And there's way more opportunity and the United States and there is in Canada, but Thats, just fact and endo.
No.
I was probably not as aggressive as what the capital markets would've liked.
Theres no doubt from.
And that perspective, but in each case, when I looked at and acquisition that and say, okay. How do I change the denominator, how do I change, what you're buying because and most of these transform.
Transformational acquisitions Youre talking about.
The companies that they are buying and don't have good margins, but the management team say they've got a good plan on how to change the.
The change the change and the denominator and change the.
Change the profitability of those business units.
We I didn't see that so we didn't go ahead with the major with the major ones, but we.
We sit and looking for the right one.
And we play the long game Kevin.
We'll be patient and what I brought when I find the right ones that I think can change and then we're going to be very very aggressive on those and so those would be L. T. L. You know, we like L. T. L. That's a good part of our business and we like regional L. T. L. I don't like a.
Big L T L and the big centers, because the big centers.
To be honest with you I think we're going to get crushed Oh, it's going to get hurt by direct to consumer because they're not going to be going.
And the storefront and youre going to be going direct to the consumer so that implies.
More warehousing and E commerce, and it does L T L per se.
And so.
And blunt with everybody you know and by the outside of it last year and 2020, certainly within the context that there was so much money available and everybody, we're chasing things and.
You know, we'll see how it plays out from from that way.
The others have got their work cut out, but I give them credit for being aggressive.
We were not we.
And we focus on margin.
But I.
I can tell you we look every day.
At lunch and what I've seen ones that I think we can make the change we're going to be extremely aggressive.
Absolutely.
And as I said last year quarter.
We were aggressive last year and acquisition, we bought back our own stock when the market and those prices.
That was the most aggressive book we did so so far so good that was that was a good move no.
We want top line.
And we're gonna have to do acquisitions, because it's pretty evident the Canadian economy installed.
Its going nowhere.
And the consumer remains robust, but the consumers not going to be on its own and be able to drive growth and the Canadian economy and need to get that pool of capital as you know growing and and being deployed and the economy not just in the stock market. So.
And I suspect that acquisitions is your only clear path towards it so within that we know there's a clear path towards margin and margin improvement with tuck ins we hold that.
We've been good at it and we will continue to pursue that as number one and then we'll do a transformational or a big one.
When we see that that gives us a growth growth platform and a new growth market.
For sure no.
I've got to make a you know over the next day and we're gonna have to think long and hard about.
Our U S strategy, because as I said the opportunities appear to be down south.
Not in Canada.
You took the you took the words out of them in and out there.
[laughter].
Yeah.
And so that's it.
If youre going to do that you have to have a well thought out strategy.
You just can't go play and that Big Sharp turn and and expect to be to go you know to go in there and and it will just take over.
Youre going to have to be if you go in there you're going to have to be as aggressive as the American carriers are you can't go in and just dip your toe youre going to have to go in and you're going to have to fight art and youre going to have to grow like crazy.
Okay makes sense.
Stefan maybe just a book.
And Oh I'll call. It a clarification question I noticed you did have an impairment and impairment assessment of goodwill for S and ice segment, which.
It looks like you've addressed just looking at the disclosure and and it looks like a lot of the sensitivities.
Suggests you'll be able to recover the future cash flows just looking at the MD&A, there, but I'm just wondering.
How do you see the risk of a potential and Pam and with an additional.
And kind of mid tier S and nine segment, especially given that the movement and rig counts and then and and energy prices as we sit here today versus maybe when this assessment was done.
And late 2020.
Yeah. So there's a lot of subjectivity to those models and it's a discounted cash flow model and by IRS regulations Youre doing it for a five year time horizon, we're certainly expecting a lift in the rig count and the revenue over time.
More than the two and 5%, but we're not talking and 50% increase this year. So we were thinking that more or less 2019 would be more of a comparative base here and if we did what we did in 2019 going forward and 2020 was below that that will do okay, and we won't have impairment I'll remind you that we did take a 100 and.
And impairment hit in 2018, so we wrote off quite a bit there and so what's left there $78 million is mainly and companies like Canadian dewatering as you can see on the list and the financial statements on page whatever it is it's pretty.
They are around page 100, but so there's there's not a lot left necessarily and that clearly no impairment and L. T O R or logistics and warehousing. So you're right that segment is the only one that still at risk, but as I say, if you look at the list and see Who's got a.
Goodwill that's still left there.
Like Canadian dewatering, and such and theirs.
There is not much risk there and we're just really counting on the economy improving back to at least 2019 levels, which we think is a fair given especially today I can tell you in January we were ahead of our models.
But you know, it's only one month, but I think thats a fair assessment to say 2019, when oil was $50 $55 a barrel, we're not counting on $100 a barrel.
I think thats, a reasonable you know macro environment based on our model and so that's what we did at the end of 'twenty and 'twenty.
No I appreciate the color there and that's it from me. Thank you very much for taking my questions. Thank you. Thanks, Jeff.
Our next question comes from Walter Brooklyn, with RBC capital markets. Please go ahead.
Thanks, very much operator, good afternoon, everyone.
And so should I guess, what I characterize your comments around your guidance, which you know to your point and where you you had provided just a couple of months and I need a couple of months ago.
Let me be demand is maybe a touch more complete complicated you like that the consumer is still buying supply chain I hear Ya is.
He is a negative from from that period I guess.
Your LDL Brasilia and she is unchanged and higher commodity prices are positive and and acquisitions.
I mean.
I'm gauging you've called that a question Mark I don't know.
And I put all of that and the mix you're effectively saying gave the guidance is unchanged, we're starting off weaker than we had hoped but.
We'll wait and see is that the right message here Murray or are you are you you're indicating.
Yes, no it's pretty close.
And.
You know.
And I didn't know that every provincial jurisdiction was going to lock down nearly everybody.
The issues that youre, having with some of the supply chain are real you can see that even in the auto sector now where your.
And you can't get apart and you have to shut down the line well that net backs that that's backing everything up so the system is not working as efficiently I would tell you where they are working really really.
The economy is doing fantastic.
China.
China is making everything that the world buys at the consumer buys and the supply chain is bottleneck coming out of China on the containers so they're busy.
<unk> is a busy day.
And we're busy consuming.
But they're busy creating and building and.
And that's some of the supply chain has been bottleneck you can see it and the shipping rates you can see it and the and the container companies AR and AR.
And the and.
And the big porch and backed up and so the costs are there.
And that's that's troubling and.
And it doesn't help the bottom line and it slows things down a little bit as I said I think it creates the illusion that where when you have bottlenecks that you're busier than what you really are it's not we're sitting and waiting wait too much and then of course, the fight comes on and what the customer who's going to pay and is it a dry.
Or is it us as if the customer is at the ship line is it Oh My God. It's everybody is fighting with everybody. These days because it's all those supply changes is not working on adjusted time business model anymore. So.
Yeah, I think it's gonna be slower coming out of it.
2020 and into 'twenty one.
And that shouldn't surprise anybody.
And.
Nobody can do anything and so that shouldn't be a surprise.
And what we're all waiting for is okay. When do we when do we get out and when do we go back to getting the economy going again and.
I don't have the answer to that nobody does but you know clearly.
It's been slow out of the gate to start the year, Oh I'll be blunt with you.
Well, the one thing and hasn't been slow on it and I'm going to I'm going to just make this this caution again is on the commodity price side and the.
The reason the commodity prices are up this because China and other places and the world are absolutely booming.
You know and commodity prices are going up and and that's going to help those and the energy space, particularly those that.
What are the producers and then you know theyre spending a little bit more money.
And I'm hopeful that that by the end of the year that they are.
You know that they spend even a little bit more so.
But that's also going to raise fuel prices and then fuel prices lead to fuel surcharges and you know your fuel costs will go up so.
Theres, some theres, some stresses and the system, but overall.
So one of the gate, but the thesis is intact. Once you get the consumer out and about and they can spend their gotta spend.
And that will be.
That will lead to a decent and a pretty good second half and.
And that.
That's how we're looking at it.
Okay, and just as a follow up then on the M&A side would you characterize.
And your lack of activity there has been.
Was it because theres just nothing available in the regions that you at the time were looking or was it what you know theres lots available, but just at a price that was above what you were willing to pay.
That was a combination thereof, some of the bigger ones that are.
The debt, we know about and.
And the marketplace and some of my peers.
We were not involved in those transactions and so what one of them.
Wouldn't have looked at it all.
Actually we would've looked at and at any of them and they wouldn't have been on a regular and Sweden is something that we would have done the ones that we did look at.
The valuations are.
And have moved and when one would have to have a very good.
I think net growth the market, we can get growth to our shareholders problem.
But bottom line growth. This is how do you change and the denominator.
And you got to be able to find synergies.
And because I'll be blunt wasn't very few acquisitions do I look out there do they make the same margin.
Our business volume.
And really difficult so and you say, okay, well, how do you change there and how.
How do you change it.
I got it.
And it would be.
And we've got to be sure.
But we know how to go about changing and that group.
Looking for synergies.
No.
And if you looked at lots and we've looked at a ton of them and.
And.
And in hindsight I could easily say knowing what the.
How the market will know reward growth.
Oh jeez, we should have been more aggressive and the market would've liked that.
Yeah I guess.
And the market comes to market goes.
And.
And then and those kinds of things, but but you're right. We're sitting here with lots of cash and talking about acquisitions and we havent done any so I got to take responsibility for that.
Yes, it's a bit of a virtuous cycle right I mean, the market is rewarding and at the more you do it on the shelf.
And your share price goes lower your cost of capital and the more you can afford it.
Get the same returns at a higher price, but I guess now with everything that you've seen.
And if youre looking at it a little differently, but not only differently from valuation, but also scope and and did I read it right that you you.
You should look only and kind of Alberta, Western Canada, Youre, considering now eastern Canada now and my.
Am I correct and in Ash.
You know and inferring here that you are now.
Willing to look into what you've decline you described in the past is that a cut throat type of read and being in the U. S. Are you are you looking at kind of regional opportunities and the U S now, whereas perhaps you weren't before.
I am I'm, not I haven't focused on anything, but I would say.
I think I'm gonna be forced to look at and the U S. Because the opportunities in Canada.
And none and I, just don't see the Canadian economy.
Having a lot of growth potential.
<unk> growth potential is probably going to happen and the U S and.
Much more aggressive.
So you know what I'm going to be probably force to.
And so far.
And to my attention on that to be honest with you. So.
Yeah do you in the east we've done acquisitions, we've done we've done it for you we're going to do more we're expanding our some terminals. We're expanding <unk> did a couple of acquisitions. We've got a couple more we're looking at and then our other actually you know the company and we own 30 per cent of our Chriscoe group and they've been extremely aggressive on acquisitions and so.
And they've already done a couple more this year and they continue to grow their business I'm really really pleased with it.
You know what.
What we've got and our partnership we have with Mark Seymour and his team there.
They're good.
And we looked at some of the other ones are debt went down with some of our peers and we passed on it we just said.
That's what I've talked to Mark and he says mortgage loans, that's not ones to go after I go well I think I listen to people that are on the ground and no more and I do so.
So we.
We passed on some yeah.
Yeah makes sense, okay. It takes it sounds I know it sounds boring, but let's be blunt the Canadian economy is not growing and so if you're gonna group, you're going to grow even my good friends at transports Elaine has done a fantastic job that that Guy is just a start and I'll tell you if he pulls off this acquisition with the.
With U P. S freight if he pulls that off and get those margins up and give him the seal of a decade and Canada that guy.
If he pulls that off he deserves every accolade that goes and you should get it and get all the all the stars.
And that is gutsy.
But oh.
And clearly the market's I'll bet and against them and I wouldnt either but.
You even look at his number I mean, they can get 13 acquisitions last year.
Our growth and no growth from the business and we find exactly the same thing.
There is no growth and the economy, and if you want to grow yet and do acquisitions and even the lane he likes to talk to you and sees he's been really good at the tuck in one and and.
And that's our business model too.
Makes sense, Okay. I appreciate the time and as always Mary Thank you.
And Walter.
Our next question comes from Michael Robertson with National Bank Financial. Please go ahead.
Hey, good morning, Thanks for taking my question and I was wondering if you could provide some more color on the margin for the <unk> segment in Q4 like specifically looking at margin excluding queues.
Both in 'twenty, and 'twenty and in 2019, and the fourth quarter L. T. L margins are down.
And the 300 basis points.
Relative to what you posted in the second and third quarter I know you've gone past seasonality for LTE, all with with lower profitability and revenue in Q1, following a busy holiday season.
Maintenance and fuel expense and the winter months. So I was wondering if we're lucky and have been a dot net.
In Q4, or if theres something else behind it.
Maybe it's just a coincidence because I'm admittedly looking at a small sample size here.
I'll, let <unk> and.
And Paul it after I have but I don't think there's anything major I'm pretty impressed with.
Our business units, you know manage that but typically what happens when you head into the fourth quarter.
You have a reduction in volume.
And just because the stores and shop are stocked.
And they'll tell volume start to decline a little bit which means your terminal network was just not as busy.
Don't have as much throughput going through.
Two three Q2 and Q3 are typically the busiest months for.
For LCL this year and went into the fourth quarter and little bit more than regular because of what we talked about that.
The bottlenecks and the supply chain so.
All in all there was nothing in there that disturb me or give me a cause for concern.
We're going to hold our own we're going to continue to work on our margin and we're going to continue to make investments so that we drive margin.
And.
That's what we're going to do it but the market.
It does get a little softer in Q4 and Q1, so that's what's up.
In Canada, that's a natural trend.
So I wouldn't read anything more into that.
There is no other increased costs or anything that I and all of other than just <unk>.
And you just don't have as much a revenue volume through your Cogs.
Okay.
Yeah, Okay, that's great I appreciate the color.
Yeah, Michael I would just echo that and just on the fourth quarter and particularly its the first full quarter that we have Pacific Coast Express, which is a 100% owner operated business. So it does have slightly lower margins, but that's the only thing thats different. This fourth quarter, then and then fourth quarter, it's a seasonal effect of buying.
Patterns that stores are followed by channel.
Beginning in December.
Got it got it okay.
And I'll turn it back.
Thank you Matt.
Once again, if you have a question. Please press Star then one.
The next question comes from David Ocampo, with Cormack Securities. Please go ahead.
Good morning, Murray and Stefan David how are you.
Pretty good pretty good I just wanted to follow up quickly on one of the comments that net in your prepared remarks I was just wondering if you could provide us with sort of a split between your traditional L. T L and the ambient temperature control LDL and and perhaps building on that is there any difference in performance that you saw between the group.
And 2020, and maybe even and your outlook for 'twenty and 'twenty one.
So we don't have.
Well, we don't drill into down to that that later and I know one.
It's not it's not a huge part of the.
And the mix ambient and their whole L. T O world and it's gonna be a very very small.
Overall part of the <unk> network and it will be with us, but it's incremental to our LTE network. That's something we've never participated in so it's all incremental growth for us.
And we've got a focus on that to be able to provide and then particularly out in the and all of the remote areas that we serve and that's primarily what we're talking about.
With our LPL network, we serve literally hundreds and hundreds of communities across from Toronto right to the West coast. So that'll be an increase along with E. Commerce will be an increase to our business. That's why I say to U L. P. L will do fine and then we're doing things to make L. T L better than what the <unk>.
It is because we're focusing on direct to consumer from our terminals and also adding that ambient capabilities and which is incremental and free it's not it's not going to double our revenue, but it's going to be incremental and will help us improve the margin because it's higher margin business relative to <unk>.
Additional LDL free.
Now that sounds very helpful and that's all I had for today. Thanks, a lot guys.
Thanks, Kevin.
Our next question comes from Matthew Weekes with I E capital markets. Please go ahead.
Hi, Thank you for taking my question I really just have one.
With our with the re segmentation and now, including smoothed contracting and and light industrial services segment and kind of looking at how Q4.
Relative to Q3 has occurred over the past couple of years using those results.
And that there there may be sort of seasonality and that business that.
And that that we could expect to be maybe regular going forward I was wondering if you'd just be able to provide a little color on how kind of the seasonality and those industrial focused business works within that segment.
Yes.
Yes.
Does that and you're going to tackle them and I don't see it.
Uh huh.
And we typically have and increasingly and in certain sectors of that segment like oil and gas typically when it gets winter and you go to work and so it's a little busier.
Virtually all of our Canadian Dewatering business for example, there's not as many water projects going on and expose them.
And youre not youre not doing as many projects. So Canadian dewatering has a kind of a cyclical.
Component to it along with our business up and.
Up and Manitoba called smoke, which is the construction side and that typically slows down and the winter construction projects and then picks up and the summer so.
There's nothing.
I don't think Theres anything.
Corky about it.
But it will be a little choppy.
Into the winter months, particularly until we see whether the increased cash flows and we're seeing and the energy space now whether that translates into.
More drilling activity and if that turns into more drilling activity and then our winter months are going to be busy again.
I've seen a little bit more than what they were talking about but not back to where we were in 2009 yet.
But.
It sure looks a lot better right now their balance sheets and a pretty good shape. So we're we're waiting for.
For more activity for sure, thus far and little better and what we anticipated, but not back to where we want it.
Yeah. Matthew this is the first quarter and that we're really reporting smoothed within that segment and used to be in the trucking and logistics segment for.
And for some strange reason so it's one of those odd ducks that really doesn't fit anywhere right like wiser and trucking firm into.
Civil construction, but it represents about 10 percentage of the segment revenue just to give you a quantum of how large it is in terms of annual revenue, but fourth quarter revenue for them is half of what it is and third quarter and the same thing can be said for Canadian dewater, and you're just not moving a lot of water and December and and and.
Last half of November and.
And Conversely, it depends on when it gets cold and what the price of oil is and whether youre going to be billing and.
Busy and that drilling.
Segment or category and this year and always better.
You know, it's sequentially moved up but not to the same rhythms and patterns as it has in years past there were still some capital hesitancy and and maintenance <unk> and such.
And on our customers' part and in the fourth quarter now we've seen a dramatic change and the first quarter, where the rig count is up handsomely, but maintenance side on.
And you know the oil sands plants, which is a big part of our business now and the F&I business still COVID-19 delayed COVID-19 slowed down and constrained you know you can't have people working together and and whatever so it's still a bit of I.
I would say and unusual year and would continue to be an unusual year. This fall and there's as regular seasonality goes I think that this is just another year for the record books, where nothing worked like it did the previous year.
Okay. That's helpful. Thank you I'll leave it there and turn it back.
And just on this book.
Why why do we have a construction company and Tom cruise and.
And it's real easy or a <unk> group, one of their largest customers and sort of Thompson Manitoba.
And L a and <unk>.
This company did a lot of work with valley and we were kind of asked by the customer would with this kind of work out is as this company came available and so our cleats and group is one that.
And that really oversees this and looks at it it's just that's.
And that's why it was and the trucking logistics segment before because it was really an extension of our of our police and group, but we segregated it when we went.
With our three segments just to clarify that for everybody.
Our next question comes from Jeff Fetterly with Peters and company. Please go ahead.
Good morning, everyone.
Hey, Jeff.
Two quick ones the within us and I what is your line of sight and expectation in terms of pre me and the overall pipeline piece.
Line of size at least.
And at least 2021, it looks like the way it's gone probably.
2022.
A good chunk of it are these projects are.
Or just.
Going brutally slow.
And I know our customers don't want to hear that.
You know to do anything in Canada, and these days you.
You know you interest.
It's just tough to get anything done so.
At least at least 2021, probably 'twenty most of the 2022 on the pipeline side, which we think gets us closer to win.
And then the spend goes into the drilling side to fill the pipe so.
It'll just it'll just I think the spend will move and the and the results will move from the pipeline side being busy and producing nice results to more of the AR related to the drilling side is our.
It was our thesis on that side so.
The market's a little bit tight right now if you open those lines up.
Italy coastal gas.
And he's got to fill them and so that probably leads to more drilling and that helps our drilling services component of our business and those kind of things so.
Right now we're fortunate we've got a pipeline side, that's that's doing well and it looks like we've got at least a couple of more years on that.
And then it will translate and just move right into drilling.
And so from Mullen, which and the pipeline piece do you expect to 'twenty, one will be a better year than 2020, because I know you've no I wouldn't no I wouldn't say a better year.
Yeah.
Last year was it was an exceptional year.
It'll be we've highlighted there'll be another good year because.
Yeah.
We have a we have a number of the projects that will work and adar are still and still and the throat. So it'll be another good year, but I don't think it'll be a better year that that's going to be tough to beat last year. So.
And what we think will be better than last year as the drilling side.
Cause it was just the ships last year so.
Just to put it bluntly, but that's line side will be.
Oh. This is project related so coming right out of the chute right out of the chute what did we see government do.
And you see government said you can't go onto these job sites and unless you have a COVID-19 action plan and he got there so they shut the projects down till February.
So.
And that doesn't.
And that does has pushed the project own it doesn't it doesn't doesn't cancel the project. It just shifts it. So that's why I'm, saying to you and it's I don't I don't know how smoothed that's going to go and now we've got massively cold weather, but you cant do these projects right now, it's just too freaking cold so.
But once we get into this into the spring and the summer.
We'll hit our full stride again and again.
And some real productivity then.
Yeah.
A second thing.
Back in the December call, you mentioned that flock debt flat deck had been underperforming and 2020.
What are you seeing and fruits and you free up a very good point very good point I didn't highlight on that but I.
I think I've touched around the basis on it Jeff when I say the Canadian economy is not growing.
The consumer part of the economy is okay, but anything to do with capital investment and and the and which would translate into move for our plastic business. It's stubbornly high.
Quiet and it remains that way today.
And that's the biggest underperformer and our trucking logistics and our logistics and warehousing segment.
And that's that's that's problematic and then.
Till we see capital going to work with and I think our plastic business will underperform once capital goes to work well, but we're gonna be and great position, but you need to see and the capital go to work and the country and I haven't seen that.
That catalyst for that to happen yet.
Thanks for the color I appreciate it.
Take care.
Our next question comes from Connor <unk> with Scotia Bank. Please go ahead.
Yeah, Thanks, and just as a quick follow up Murray.
And back in December when you up for weighted that 'twenty, 'twenty, one and business outlook.
You you guys were expecting and and the business plan roughly each segment and it'll be roughly of total put it towards perhaps L. P. L, maybe slightly bigger than a throat and F&I smaller than a third.
And given what you have said today.
Is it still kind of fair to expect those kind of ratios and perhaps maybe a slightly greater skew toward the F&I here and given the drilling activities rebounding or would you say well what do you what do you disclosed and Albany, and yes, no I think I'll stay with a third a third a third.
We need to see.
We've given you kind of some some green shoots.
That we think would happen, but I still think LPL is solid.
And that's probably not going to change a whole bunch I think logistics and warehousing will be probably falling after a slow and what are the gate for the reasons. We talked about it's just there's just bottlenecks and then letting system, maybe on the C&I, a little bit better, but there's not enough I havent seen enough.
All true conviction to go and and really drill.
From the oil and gas companies, yet I still see M&A as you'll see some things so I'm going to stick with that original one of a third a third a third.
Okay. That's great. Thank you.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr. Mullen for any closing remarks.
Yes, thanks folks for everything.
Glad to put 2020 behind us it was a year for AR, we none of US all forget too soon.
We have our work cut out this year, there's no doubt the economy is going to be probably.
And I have some fits and starts and those kind of things but.
And Oh, and then we're going to have a real work cut out to make sure we identify.
Good acquisitions that can add value to our shareholders. That's my number one objective and.
Until we get to that we're going to focus on cost and on margin improvement thanks for joining us and take care.
This concludes today's conference call you may disconnect. Your line. Thank you for participating and have a pleasant day.
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[music].