Q2 2021 Mullen Group Ltd Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the Mullen Group Ltd second quarter earnings Conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question.
Q you May Press Star then 1 on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Murray K Mullen, Chairman and CEO and President. Please go ahead.
Thank you and welcome to our quarterly conference call, we will be discussing our second quarter financial results, our operating performance and that will be followed by a review of what investors and.
And and shareholders can probably expect and the second half of 2021.
From our company and of course, we'll close the call with a Q&A session, So and I encourage all interested participants.
Ask follow up questions. So before I commence today's review I'll remind everyone that our presentation contains forward looking statements that are based on current expectations and are subject to a number of uncertainties and risks and actual results may differ materially further information and identifying the risks uncertainties and assumptions can be found and the disclosure documents, which.
Filed on SEDAR and at Www Dot Mullen Hyphen group Dot Com. So with me this morning on the line.
We're we're calling in from all over I'm actually touring facilities of some of the new acquisitions, we've done we've done.
And the fan is on call and Richard Stfan, Clark, our CFO, Richard Maloney, Joanna Scott and Carson Urlacher, our calling and some corporate office. So that's who we have on the call with US. This morning. So let's start today's call with an overview of the highlights and accomplishments that are there.
We achieved last quarter and I think the first thing that I'm going to highlight is that.
Acquisitions has to be the first highlight so for some time.
They've been challenged now perhaps rightly so as to why we were holding so much cash on the balance sheet and had not actively pursued acquisitions. While the truth is we are always looking at acquisitions, but and saying this our long term shareholders know, we do not chase growth, we identify strategic fits and opportunities knowing full well that this was the only.
The way to create real shareholder value.
So this quarter everything just seem to come together at the same time, meaning that our corporate office team.
Including those that I talked about earlier it was off the chart busy so negotiating and finalizing contracts 5 transactions and a quarter is both a highlight and I would say is an accomplishment so wi 5.
But because these are good companies and they're all in line with our strategic thinking now we may have deployed a significant and all of our capital I'd say 100, Brown and 185 million and in fact.
And with this aggressive acquisition spree.
However, we did so without putting the balance sheet risk never have never will in fact, our overall debt ratios are well within our comfort zone and approximately 2 and a half to 1.
The wind from all of these transactions is that our shareholders are going to see many many quarters maybe years of solid growth commencing in Q3, 2021, where the full benefit of all the transactions will be realized.
Now in 1 year, we've completed 7 acquisitions, we've added close to 400 million and new revenues.
Now this is not transitory this is transformational and so our go forward annualized revenues are now going to approach $1.6 billion and puts us much closer to reaching our goal of annual revenues of $2 billion years ahead of plan.
Yeah.
Second highlight that I've got to talk about and I'm sick of talking about it but it's COVID-19. It remained the headline news and perhaps.
This will be the last quarter, we have to qualify our results with a health services disclaimer Covid, obviously will not disappear. However, the vaccination plan is working to Canadian and much of the spread and harm. So countries that have high vaccination rates are in recovery mode, which is fantastic news on many levels Canada.
Now appears to have joined this exclusive club.
Number 3 the consumer through all everything we've talked about reign Supreme and the evidence is compelling and its widespread and yes, COVID-19 has impacted all of our lives.
Nightmare, it's a disaster from a health care perspective, but nothing seems to stop the insatiable appetite of the consumer.
So even though in store visit the and stores visit has been disrupted the ease with which consumers can buy online has transformed the shopping experience and E. Commerce has revolutionized how consumer spend.
This is also I must tell you this change the supply chain dramatically. So today consumer goods are shipped direct to the home from warehouses and fulfillment centers.
It's usually and packages and boxes.
Which means the cardboard industry as I've talked about before is booming.
But the trees occurring distress. So we will see more deliveries and I suspect smaller packages and lots of boxes that all need recycling.
So to us the consumer.
This is now the safest most convenient and cheapest way to shop.
Besides if you don't like it and send it back and this emerging trend has not.
Has not necessarily change the truckload industry. It has however kept freight demand, especially the van and container shipment industry strong so where the change is really a core does that final mile component of the of the delivery process and.
And as I mentioned more and smaller packages delivered to the home as compared to pallets delivered to the storefront. So in essence, a significant amount of consumer grade.
And to be diverted from the retail malls to warehouses and this trend is the primary reason our L. T. L. R. First and final mile business is outperforming in fact, I can tell you I'm touring facilities and our warehouses are packed I can tell you firsthand.
Number 4 highlight trend that we've seen as freight demand for virtually everything.
Appears to have hit the highest levels and several quarters with June being the strongest which corresponds nicely to Iraq relaxation and government mandates and fewer business closures. So we saw a resurgent and customer activity along with a more positive tone, indicating the business is beginning to restore the inventory and planning cycle now.
This was and will be great news for our logistics trucking and warehousing business units.
Number 5 highlight is got to be commodity prices they've started to influence finally producers investment and spending decisions and we saw that.
Start to emerge and the second quarter, so oil and gas drilling natural gas drilling activity in Western Canada was up significantly over the same period of last year, but I've got to qualify that with how could it not last year was a disaster.
We have not seen a recovery to pre pandemic levels, but I can tell you the tone is very encouraging.
Now offsetting all of these positives we had 2.2 number so 2 things that influenced our results. Let me call them challenges that influenced our second quarter performance. So last year, we recall a premier pipeline group had a fantastic second quarter.
As we expected given the order backlog and given what we expected from the orders of pipe that were coming in for these 2 major projects, particularly which is.
Trans mountain and crude oil pipeline and the coastal gas project and Kitimat. Unfortunately for this year as we start taking that pipe from stockpile location and stringing. We had a couple things that impacted all of that business and that is firstly COVID-19 restrictions on workplace and work camp activity.
And then.
Because of environmental concerns, specifically rebated to hummingbird nesting and I'm not kidding. The projects were shut down first and foremost because of Covid and then because of federal law that protects hummingbird mystic. So as a result, both projects would.
Put on hold during the second quarter and that would that really impacted our quarter over quarter results, including our revenues and the second quarter by $12.6 million year over year and even though this was a negative last quarter I would tell you the projects and are cancelled they've just been pushed out.
So we expect premium pipeline to be back on the job this summer.
And and pick those pick up the pace on that it might be pushed out some of it into 2022.
The second issue relates to Qs now that's that government funded program that gave money to virtually every business negatively impacted by COVID-19.
This quarter, we received less government support payments as business activity returned close to pre pandemic levels. In fact total cues and the quarter were $6.4 million versus $10.9 million last year. During the same period now the good news is businesses, we're nearing full recovery and as such we will not qualify for future funding.
But here I think this is the real story on Qs Mullen group, we never needed the funding because we were well capitalized going into March of last year. Many of our competitors. However relied on these funds and to stay afloat. So the federal government distributed billions and billions of dollars and keep the majority of Canadian companies, including many in the trucking industry from failure.
Im left to surmise that there are no free markets and Canada, just fair markets, but it is what it is and.
And we haven't necessarily gain market share it sure yet, but I can tell you that we've used these funds to invest and new assets.
Which positions our business units nicely for future growth and I say this with a high degree of confidence that we will eventually gained market share all and all folks are very busy quarter, a very positive quarter and with all the details I will now turn the call over to Stfan Clark and stuff.
Thank you Murray and good morning, fellow shareholders I'll get a little more granular. However, her interim report contains the details that fully explains our performance and.
Such I will only provide some highlights and high level commentary.
Year over year revenue increased by $55 million to $312.5 million, including $34.6 million of acquisition revenue and $8.6 million increase and fuel surcharge revenue on a same store basis excluding.
The effect of acquisitions and fuel surcharge fluctuations revenue, including <unk>.
Increased by $11.8 million or 4.8% largely due to the strength of the <unk> and our logistics and warehousing segments.
And being offset by the weakness and our specialized and industrial segment of course in many respects a comparison to the second quarter of 2020, when the North American economy experienced a sudden and sharp decline in economic activity due to the initial onset of COVID-19 is somewhat out of context during the second quarter.
2020 revenue and the L. T L. The logistics and warehousing and specialized and industrial services segments declined by $9.318, 9 and 30% respectively.
So perhaps a comparison on a sequential basis is better well those are also somewhat out of context due to the number of acquisitions. We did on a sequential basis consolidated revenue increased by $22 million from $290.5 million achieved in Q1 'twenty 1.
Due to the acquisitions being partially offset by this slowdown and pipeline activity. So what has changed from a year ago, a lot what has changed since last quarter even more.
For those keeping track our news releases set out and estimated revenue for each acquisition and that series of news releases added up to $355 million of annualized revenue.
Our second quarter MD&A speaks to $400 million of annualized revenue being added.
It appears our time and couldn't have been better and we have resigned revised our estimates upwards.
From what our acquisitions did in the past 12 months prior to closing to what we now expect going forward.
Case in point and bench strength in the news release, we estimated that they would add $65 million of revenue on an annualized basis low.
And behold they added about $21 million of additional revenue for the first 2 and a half months being under our umbrella. We acquired them mid April and then you would see that additive to the logistics and warehousing segment annualize.
Annualize that trend a trend that is up both to the end of the COVID-19 restrictions and too.
And and you get a much higher number than we first announce so not 65, but maybe on trend for $80 million to $90 million.
Perhaps we're all getting a bit more bullish now that COVID-19 is behind us, but that is our current estimates and Murray spoke to it early and being more of a $400 million number rather than the $3.55.
And I'm getting a bit more granular revenue and the consumer driven less than truckload segment rose by $24.8 million or 24, 3% to $126.7 million as compared to $101.9.002 million 20.
And part due to the acquisition of.
Pacific Coast Express however, adjusting for this acquisition and the fluctuation and fuel surcharge revenue, which is generally a flow through revenue grew by 12, 8% due to the strength of consumer spending and market share gains.
Aided by the acquisition of <unk> and other acquisitions as well.
The logistics and warehousing segment rose by 45, 7% year over year to $120.6 million as compared to $82.8 million.
In 2020 adjusted for fuel surcharge fluctuation and acquisition revenue of 25 million. This segment grew by 13, 1% year over year comparatively this segment experienced an 18, 9% decline in revenue and the second quarter of 2020, so as I spoke to earlier, we got to be careful on the comparative but nonetheless the trim.
And it's certainly very constructive and as Maria said June was a much the differentiator and getting much stronger as the quarter progressed.
On a sequential basis, excluding the Baxter and Tri Pointe acquisitions revenue in this segment grew by approximately 8% I would say that's pretty good and.
And the specialized and industrial services segment revenue declined by $7.1 million and 9.7% to $66.4 million as compared to $73.5.002 million 20, Covid still lingered and restricted many close contact construction jobs. These restrictions negatively affected not only pre made pipeline, but smoke and Canadian <unk>.
<unk> as well.
Thankfully a surge in oil and gas prices created more demand for other specialized services.
As for profitability operating income before depreciation and amortization, commonly referred to as EBITDA was $59 million or 18, 9% of revenue as compared to $55 million or 21, 4% and 2020 of course that was a bit higher because of Qs.
And for the period as Murray mentioned earlier Qs accounted for $6.4 million of subsidy versus $10.9 million, a decrease of 4 and $5 million year over year. So excluding queues EBITDA increased by $8.5 million to $52.6 million.
For an operating margin of 16, 8% fairly consistent with a 17, 1% of operating margin achieved in 2020. The majority of the $8.5 million dollar increase was due to the $7.9 million of incremental EBITDA.
Generated by our acquisitions.
So a little bit of a change there, but largely the margin was the same just down a little bit and that was really because of the revenue mix and the loss and some higher margin prepaid pipeline work.
So looking at other notable items net cash from operating activities for the period was a healthy $55.8 million, however, our cash balance changed materially.
In the quarter and after the quarter due to the series of acquisitions. We made during the quarter. We are now borrowing about $70 million on our demand facility. It's been a long time since I've said that however, our leverage rate ratio calculated under our private placement agreement with 2.54 to 1 without giving.
Or 2.2 times, rather than 2 and a half times. So again, we feel very comfortable with the level of debt that we have.
Lastly, a quick word on E S.
We refrained from reaching for any additional platform companies of the markets just don't appear to be rewarding aggressive acquisition growth. So, we'll just pivot into what I call harvest mode.
The exception is gonna be if we find a suitable bolt on strat target for our newest venture Quad express which assumed to be rebranded.
And that's just in in being.
Certified right now and we'll talk more about that as that comes out, but we will be rebranding Quad express this quarter.
Quite express puts us squarely into the very large U S <unk> market.
Which really expands the opportunities for us on a go forward basis.
The second trend that I see relates to the economy and the markets from now on this issue.
Honestly I don't know if I could be more confident.
Clearly there's concerns, but generally speaking I'm quite positive, believing that the freight demand and economic activity will be will best.
We know for example, the monetary policy remains accommodative, it's providing ample liquidity and fuel to keep the fire going and of course governments love spending and giving money away. So you have to love. This new economic theory, that's being advocated which essentially saying that doesn't that doesn't matter. So let the good times roll until it stops of course.
The.
The third macro trend that everyone is now aware of is the supply chain remains tight.
Maybe borderline.
Chaotic right word, but it certainly is under strength.
It's driven by a combination of strong consumer demand and supply chain disruptions. So theres currently a reduction in manufacturing capacities.
Due to workplace issues additional sickness and safety protocols.
Things have slowed down and that's the result bottlenecks are now occurring regularly and that's placing tremendous strain on that age old concept of just in time management in fact, I personally believe and some of you have heard me talk about this before that I believe Mrs business must be prepared.
To pivot towards just in case inventory management and this implies higher costs forward planning and lots of warehousing. So I'm happy to report we have lots of warehousing capacity in our portfolio of business units, Although I would say, it's getting pretty full.
Difficult to see how we can add a whole bunch more when when when we're pretty fulsome.
So that's the good news there.
Finally, let's never for let's not forget about technology remains a dominant theme. We we will continue to invest in our business to remain should make sure. We invest best in class market leaders will search for new and creative ways to meet society's changing narratives Steph.
<unk> talked a little bit about electrification of our fleet, it's a given and to this end.
We're all pleased to report will be ordering new units, especially for the short haul and didn't see.
So the city service units with battery powered capabilities.
So in summary, it is reasonable to expect some very solid results from our company through the balance of the year acquisitions are going to supercharge your revenue growth relative to last year folks. That's that's why we did them.
The consumer portion of the economy is on solid footing.
E Commerce and direct to consumer drive continue to drive demand, our less than truckload and logistics and warehousing segments, both will benefit from the strong economy.
The robust consumer demand and changes in the supply chain. So there is growing optimism even.
In the oil and natural gas service sector. So all in all of them.
The positive outlook of.
Of the segments that we serve.
Now of course, we must be mindful of the trouble could be brewing, especially it relates to let's call. It the inflationary pressures.
I'd also say the labor shortage, which is either real or perceived.
Don't know, which 1 you want to call it but I will tell you finding quality people all of the sudden as a real challenge.
And that.
And then of course, we got supply chain bottlenecks. So that's going to put a cap on how much new business companies can take in.
All of these.
Trends that I talk about our business units are all informed about them and we're going to manage our business. According accordingly, so I think that to the extent that you can't get people that theres lots of freight.
I think what youre going to see is inflation.
Is really on the cusp of the of hitting hitting.
Hitting home to a lot of businesses.
Lastly, and ill remind our shareholders of listeners of my prediction for 2020.
I said, we'd be slow out of the gate and with the strong strong finish so we're on target.
Just to meet our 2021 goals, but to exceed them and we will continue to repurchase our own stock from the free cash flow of Janet business generates as long as the investment community under appreciates the true value of 1 of Canada's largest logistics of companies. So with this backdrop I'll now turn the call over to the operator, and we will go directly to the <unk>.
Q&A session operator over to you.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then 1 on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then 2 we'll pause for a moment.
Callers join the queue.
Our first question comes from David Ocampo of <unk> Securities. Please go ahead.
Good morning, good morning.
David.
First question is on the U S logistics business and you guys mentioned in your remarks that you could potentially do a bolt on.
Transaction to continue to build out of that platform.
And is this something that you could also do organically.
I look at 1 of your competitors in Canada out of there they are building out the brokerage business.
Basically all of them from organics.
Is that a logical solution or is it not possible with the technology that you guys have.
Clearly you want to grow organically if you can.
And I think that's the big thing that debt.
We see in this platform they have a they have a really nice technology platform called Silver Express.
And we think thats, the enabling technology along with this with logistics is what becomes scalable. So we should be able to grow internally.
No we've got to David the first part is we've got to get the integration done.
And the.
And we've got to get this debt the.
An agreement done in all of those kind of things. So next quarter will be a little choppy for us because we've got to get that all the migrated over into our new name and and those kinds of things but.
I see plenty of opportunity from both side I see it from leveraging off of that technology platform that they've got the obviously is a good technology platform because they're doing a fair amount of business and we've got a lot of customers using it so they've.
They've already got from stickiness, there and then what we're going to do is we're just going to put the technology platform on steroids were going to invest in it like crazy.
Because we can see that is the key to <unk>.
2 of our future growth along the way.
I think you can also look at it from some.
<unk> of my opinion and I.
I'm really impressed with the senior team that we got down there they can.
They can grow this thing they know what theyre doing and with us.
Wanting to invest in this business and build it out I think there's some good opportunities on both fronts. So <unk>. That's the business we like it's 1 of the key strategies that we talk about.
We like 3 P M.
The 3 PL.
But I would tell you it's 3 peel with technology, otherwise, it's just freight brokerage and I'm not interested in freight brokerage we are interesting in the value add which is true with technology platform.
You know, we love L T O because the the consumer.
In logistics and warehousing.
It is a key part of the of the supply chain. So.
This is a new market for us and the.
The new opportunity like the management team like the technology.
So I'm pretty optimistic about debt.
We can take that in the future revenue growth platform for our company for share.
I know, it's only been few weeks since you had caught under your belt, but you guys have a finer point on the margin profile, especially with the becoming its own division next quarter.
No you've got to be careful on that side because you are talking.
It's it's just the spread you got to look at and so were.
We haven't narrowed it down yet because we're just in the middle middle of that.
But.
Typically.
Kind of 3 Peel your tuck in.
10% gross margin something like that.
You got it you got to take off from there. So I think youre looking at kind of 5%.
The margins, but that on a return of capital is pretty significant so and then on the net basis that it's not 5% the net being the spread between what the revenue is in what you pay the subcontractor.
The net spread is going to be is the thing that we look at and it's pretty attractive I think the other thing about this thing David is I'm not really worried about margins in the short term because I'll be honest with you. We're building up the technology and we're building on our platform here that's.
That's gonna be of marketplace.
This is just another add on tour the investments that we've made in our move to the online platform in a holistic.
And I, just see a great opportunity to.
The build this out there and so because of the reason is they have they have the loads and the loads is what attracts.
The carriers and so we think.
So that's where we're going to go on this.
We're planning for the future with this 1 so I'm not going to get too stressed out.
What the margin is on this because I'm only worried about building out the platform and getting more and more content. After I get the content. Then we can't then we can monetize for sure and the content and 3 P. L is lodz Lodz is we've got to get the shippers on that's why I really liked silver expressed because it is the shipper centric.
Because.
No I think moving forward it will reported all separately. So that it's you know it's totally visible to everybody.
But this will be can we add new agents can we add new business.
And.
Are we getting more carriers on the platform.
Yeah. That's helpful. And then maybe switching gears for my last question here.
The great thing season coming up in the next few months.
Just curious if you had any initial discussions with any of the shippers about a potential rate increase in Canada, especially since the market has been largely flat over the last year.
Compare that to the U S, which seems to be doing quite well.
With them, having reopened a lot sooner than us.
Yeah.
The we are in early stages of that.
I can tell you.
We've started that just recently.
Yes.
If this market keeps going the way it's going.
The increases are.
Nearly of given.
And when I said that there was certain trends that I saw demand staying strong supply chain tight.
And it's really difficult.
It's really going to be really difficult to get the more drivers to get more workers for all of us.
And there's lots of Canadians hard working Canadians to working now but.
I don't know if there's a whole bunch more there's lots of people available, but increasingly what we hear from that from that labor force that hasn't been working for a bed is.
Well you know.
I'm not sure what's my time up 8 week, we can't run a business of that so I suspect if freight demand is going to stay as strong as it is.
That pricing is inevitable.
And that will be the storyline for the next day it will catch up to what the U S is doing it.
It just we're just going to be a little bit behind the U S I suspect.
And I guess, a quick follow up to that.
Do see.
The rate increases, but that would be with.
Would that lead to margin expansion when it offset all of the inflated operating costs that you guys are seeing with higher driver pay.
It's there's definitely youre going to have the race.
Raise rates because youre going to have to protect your workforce.
We're seeing higher fuel prices, we're seeing higher.
The cost across the board maintenance costs tires.
Equipment parts of everything so there is there sort of inflationary pressures.
But we're not gonna do with the Steven I would expect debt when we get pricing leverage that we will get some margin expansion. That's what we're going to be focused on that's what I'm telling people.
If I can hire more people.
To all of our base of the funds have you can't hire good people.
Take the freight the pay us more money in particular, the people on that and that should lead to margin expansion and we compare of people more.
That's great I'll hand, the call over.
Thank you.
Our next question comes from current Gupta of Scotiabank. Please go ahead.
With the money and thanks for taking my questions.
Good morning.
Mike maybe I can start with my Japan.
I don't think I heard on the call. What's your new 2021 revenue and EBITDA targets out of it but all of these acquisitions than Guinea also have equipped understand you.
You mentioned the annualized revenue of upgrade its now 1.6 so what seems to be a good margin for that are of good EBITDA of proxy for that someday.
<unk>.
Yeah, Steph I don't think we put.
In a number of it said, what 2021 was going to be.
I think what I said kind of arcos that we're going to be a heck of a lot of above the 1.2 that we had originally had.
We had put out of our plan I said that was our goal of.
And then I said the annualized is now about 161.
I think you can do the math, okay. If we got all of these acquisitions for 6 months.
It'll be a hybrid of in between that is what I would suggest margin is I expect it's going to hold of boat.
Flat.
Until we start seeing some pricing leverage and debt.
Yes.
The smoke with David about the margin.
And the pricing leverage is coming in the Canadian marketplace.
And that will be somewhat accretive to margins I don't know, particularly how it is going to do the worst cases, we're going to stay the same with margin of the best as we have margin improvement.
It's a little early to predict when we get that because.
You got to you got to let the.
Let the market catch up to itself.
The move to early you're going to run into trouble. The thing we are seeing park is.
The customers really have nowhere else to go.
Because everybody is maxed out right now you can't put more freight on our dock as an example.
Now I'm, just working with the business units to say okay.
What freq goes on our dock.
Total.
That's what we'll be working on what they are because of him over the over the.
Last half of the year, which is what I said of doing a trip from rate and maybe margin improvement goes up.
That would be the goal.
But I don't have the faith and many of them for you and I think that's the.
That'd be a little too presumption with us, but I suspect we will do I think we'll do just fine.
No I understand that that's good color thank Mike.
And then you mentioned I think in the EMEA and answered on the call June seemed to be a pretty good month of solid month, all across the business lines virtually.
Just wanted to kind of get more context behind that so what was your normal June like pre COVID-19 and what was it this year and then.
Is it is it like a good proxy for revenue run rate organically in the I can add maybe the apps and the other 2 acquisition of Quad Harris for July I guess are the ones Theres something kind of 1 off in June like you were catching up on some backlog of something that that benefited the lock.
Okay.
Steph I think.
That's the granular.
The question refer over to you that you are so good at but it doesn't at appear the June I think we were back June same.
Same store sales, let's call. It that I think June was actually.
Even a little bit above June of 19, if I'm not mistaken Oh, yes, it was essentially flat, but it depends on what segment you're looking at the oil services segment or what we used to call of oilfield services segment. Now is the F&I segment was still below 19.
As the rig count is still below the 5 year average or historical trends. Despite the fact that oils quite healthy and more importantly, natural gas prices are.
Very healthy if you go back to 2019.
You were about $2.50, now you're about 4 bucks. So we're starting to see that trend change, but it hasnt quite translated I think our customers are still rebuilding the balance sheets. When you look at the <unk> market.
Clearly the consumer has improved since 2019, and it's clearly above trend and everything what we do for apps and Pacific Coast is additive to those historic trends the.
The logistics and warehouse segment, if we look at it on a historic basis, it's still down.
I spoke to earlier.
Alan W being down about 18%, 19% last year from 2019, and then the rebounding about 13% ex acquisition. So it's 1 where it's still.
Down a little bit the Canadian economy, lags, a little bit behind the U S, which appears to be more on fire then it's probably the way to describe it.
No.
A little bit to get granular.
It's a little bit different in every segment, but we certainly see the trend for June again still coming.
Much much stronger and that shouldn't come as the surprise of the supply chain is beginning to repair certainly consumer demand is there and government.
Propping up whether it's from the states with the a trillion dollars of of stimulus or in Canada, where we still are running a 100.
You can get them.
Deficits are estimated for 'twenty.
Next fiscal year, so it's after coming off of.
Total 300 billion dollar of deficit. So deficit financing governments are still playing a role of the consumer is still spending the economy's repairing itself and in fact I'm sure you follow the Gd teeth GDP stats, just like I do.
It's back to pre Covid levels. So we're back to December of 2019 levels in April of 2021. It took us a long time to get back to where we were and of course, there's a few more Canadians our population has grown so we're still.
Ways and run room to go and there's still some slack in the economy and you know about 8% unemployment. So there's still room to run, but it's certainly for US we saw a lot of improvement in June we saw a lot of the COVID-19 restrictions come off and for the most part it's still that are.
Specialized <unk> industrial services segment, that's lagging for the most part <unk>, well above and logistics and warehouse is still almost on par, but still a little bit behind the pre COVID-19 levels.
That's great color. Thank you so much.
The only thank Conor I don't think that as we get into the third quarter that debt.
Our logistics and warehousing business will be behind 2019, there's too much demand right now.
And it really just started to come in and.
In June so I would think that of the last half of the year will be above 2019, I'd be very surprised to be honest with you.
Yes that makes sense of my thanks, and thank you for that and then this 1 recent issue of unmet and you spoke about supply chain I think of the 1 major issue of weighing on a lot of transportation companies and their customers.
Of the BC wildfires, but just kind of sort of continue its kind of curious on like the rails had a pretty.
The huge backlog of work there on NBC, especially between Kamloops, and Boston bar going to Vancouver did you guys see any benefit or any kind of negative impact of those supply chain issues at all in July.
It just backs everything up I'm sitting in Toronto, and we have those containers that come in and now those containers are so you know the we don't have as many backed up blind to come in because they're not coming in at the same stage.
Steady pace, but that flood is about to come in and so when my guys are giving me the update here right now.
They're handling containers coming in but the.
There's a massive amount of backlog, that's going to hit and the.
Then that's going to cause the bottle. The bottleneck go will go from the ports to the rails to the warehouses to the trucking it'll just just it's kind of just back up for a while and it appears that there's always something there as always.
This theres always that so the certainty of the supply chain is very very tight the demand is there, but the supply chain is not as efficient as it once was.
So that creates ebbs and flows in.
Difficult to manage but that's what we have to do and the but you're right. It's backed everything up.
Uh huh.
And it creates the surges that come in the we know that the.
Ports are plugged, we know that Union Pacific put an embargo on freight traffic going into Chicago white, because it couldn't take any shipment of couldn't take any boxes intermodal container transport. So they just kept it at the port or they kept the.
On the ships in the port.
So.
It's not just Canada, it's kind of North America wide and.
Maybe.
Even beyond North America right now.
Okay. That's great and then last 1 from me before I turn it over Capex are we probably did not touch on that lately.
All of the acquisition so may I understand obviously, there were some asset light businesses, there that he got but what about.
You know like the Capex requirement as part of these acquisitions and in aggregate.
Where would you see our of kind of this year's budget next year.
But if it would probably have to wait, but where does capex go that'd be the side yes.
Yes, typically what kind of of climate.
Typically when we when we do acquisitions, we would update of our Capex. We have said we came out with the $50 million Capex plan for this year of exit facilities ex of.
Some of those some of the things, but St requiring basically $50 million of sustainable Capex.
We're actually behind the curve on that because of the supply chain is so messed up that were not the actually going to hit the $50 million. This year everything is pushed out to 2022 so.
We know that these companies are going to need some capex, our capex will go up next year.
The first blush, let's call it $70 million from 50.
But.
We can't get the product in this year so.
Our capex for this year will probably.
If we're fortunate we'll hit $50 million of that means the assets of arrived but for example trailers there pushed out to late 2022 now so it doesn't matter if you put the order in.
It's a long ways off before it comes in so no increase for this year not because we wouldnt because we can't get it and then next year first blush will updated at the end of the year, but I would say steps of $70 million is a reasonable capex expectation going forward yes.
Yes agreed.
And that's it for me. Thank you so much guys.
Thanks Connor.
Our next question comes from Walter <unk> of RBC capital markets. Please go ahead.
Hey, everyone. This is odd James in the arable I'm on for Walter the top name of everyone doing.
The good James welcome.
Thank you.
I thought I'd tell you I got to tell you year over year behind because Walter is always first.
So all of your.
Youre already starting behind I was waiting for your call James.
Yeah.
I appreciate it.
So the question on the M&A and some of the recent Canadian acquisition.
Anything to highlight the kind of in the first few months of working with any of these businesses just spoke of.
Quickly around using our technology on the organic opportunities that you might not have seen initially when you acquired the businesses and then I was looking at in the U S. A.
Acquisition of Quad expressed in a similar vein any of the information that you've caught by using their technology.
Do you think that might open up from opportunities in the U S. We're looking into 2022.
I don't I don't think anything's changed.
From what we expected when we negotiated the negotiated the deal. These deals what we do know is is that the markets are quite robust right now.
So you know that lends to whats the fan had said that our timing it appears our timing is.
It is pretty good on all of those acquisition, so they'll probably be from form.
At or above expectations is what I sort of just what I suspect so nothing no.
Material. There. These were good companies, we got good management teams I can tell you as a tour of the facility is now finally.
Is that I'm very impressed even more than what I.
When we did our virtual due diligence or actual due diligence now very impressed with the with the teams. The work force the people all of that so I'm really happy with that side.
And.
So you know so that kind of covers out of them on in the U S. We got a little bit more work to do there because we were in the transition of of carving out if you will.
This platform.
Platform of cloud Xpress from Quad corporate.
And Quad graphics is refocus their business away from print to digital to a digital platform. So this this wasn't as our core business to them. So we took it on but we've got to carve it out of from them. We've got a transition agreement. We're working the same et cetera, that'll that's gonna be messy for the first quarter.
That's just well.
But we knew that going in.
But the great.
Great solid team.
There on every issue and the work with us.
To streamline and get that transitioned to an asbestos possible than what we're going to do is turn our attention towards the growth side.
And 1 of the REIT space I can tell you that of that.
That's where capital is going that's where everybody from Uber freight everybody's talking about what this company like Quad does they're talking about building an out of.
The building of technology, just what we acquired 1 we got a good 1 and what we're going to do is just make it better that's all.
That's gonna be our secret sauce.
The proficient.
Lots of for me. Thank you.
Thank you.
Our next question comes from Kevin Chiang of CIBC. Please go ahead.
Hi, good morning Mullen team.
If I could just.
Turn to your <unk> segment.
A pretty optimistic outlook that you provided in your disclosure.
If I look the pre pandemic I'm, just looking where oil prices are low.
We're doing let's call it about 100 million.
A quarter in revenue do you think that's something you could hit in the back half of the year, just given given what youre seeing today or what do you think it's still low still a ways away before we kind of make up the makeup the gap from where you are running today versus maybe where you were running back in 2019.
It's gonna be interesting Kevin on that side because.
Even though it's much stronger I think the rig counts now of provoked in Western Canada, let's call it.
150.160.
That's <unk>.
Substantially above 2020, let's forget about 2020 that's of write off.
But it's much closer to 2021, but not.
You know, we're still behind 2021.
The big issue that we got to watch and see what happens.
Is there any workers left to go into the oil patch. So there may be.
The.
There may be some limits as to how many rigs can actually go to work and its not.
The commodity price it may be availability of Oh.
The skilled workforce because they've all left.
So I think.
It's early stages, maybe we can attract them back maybe the industry can do.
We're going to have to see what happens from the last half of this year I can tell you.
You either got attract more people back to the industry.
Or I can tell you I suspect that.
The prices in the oil patch of Gonna go up dramatically.
Even though activity levels may not go up dramatically because there will be the man for that limited rig that Ltd.
Rig moving equipment that Ltd.
Service offering that you have so 1 of 2 things has to crack because the commodity prices.
I don't know whats going to derail net right now natural gas prices are true are exponentially higher than they have been.
And.
The Western Canada is still a natural gas basin, it's not in the Wild basin, It's an oil sands basin.
And it's a natural gas basin. So the key to me is that I watch is natural gas price model oil price.
That's for oil price would be for Suncor, and Syncrude and those kind of things but.
The others like the natural gas players like a tour of the line of Pete on all of them.
The natural gas and there's a lot of positive momentum of natural gas weighted at the moment.
So I think it's way more constructive I talked to our groups now and.
You know the trend that happened in June continues on.
And gains momentum.
But we may be bumping.
Bumping up against so much we can really do it no different than what I'm torn the the warehouses. So therefore I can't take much more freight so all youre going to do is just triage it and manage your.
You're just going to price accordingly, but the week.
No more deals there.
It's nowhere to pricing.
I don't know I don't know if that's going to be I don't know if we're going to get the top line back again that for the reasons I just explained.
Pretty sure we're going to get the bottom line back.
Right that makes a ton of sense.
And then just with the turning to the RTL segment.
I think historically, we've seen <unk>, Canada underperform on a yield perspective versus the.
Versus the U S.
I think people have talked about the use of having more of industrial exposure.
The other industries more fragmented in Canada, but as you can.
City of today, Marie the consumer economy, lifting and lowering the.
It seems like the the market is tighter than it might be more structural now.
Do you see an opportunity of where what where yields in Canada can really start to converge on what youre seeing in the U S and maybe you start outpacing of the pricing growth.
You may be seeing from the U S TL carriers.
I can tell you we got pockets, we've got some of our business units that have the that are in the alltel business.
That have margins the same as the best in class use of set certain certain parts of our business, that's not universal yet but.
That's my expectation.
Is that the <unk> business is.
Is.
You know it's a it's a good it's a great business to be in where I'm happy to report with the 1.1 of the largest platforms of L. T O in Canada.
And.
<unk> working on.
We're going to make sure that we continue to drive towards the.
Margin improvement.
Some of it.
Yield management some of that's a you know.
All of our facilities are full now so I said, we're just going to triage the freight and customers you have to pay more.
I've got to.
Pay more for people in those kinds of things. So we're going to drive towards continued margin improvement in our <unk> business.
It's Scott.
That's what we're going to strive towards and part of that's just running a better business part of it's pricing and part of it is yield management by.
The mix of freight so we will be aggressively pursuing higher margin freight yes.
Yes.
That's the that's.
Helpful. Thanks for the color that's it from the congrats on a good quarter.
Thank you so much.
Once again, if you have the question. Please press Star then 1 are.
Our next question comes from Elias first class of <unk>.
<unk> capital markets. Please go ahead.
Good morning Elias.
Good morning, Ann Marie and good morning to all of the team.
Got a few questions first of all marine I want to thank you for your macro view and Stefan Thanks for the the granular commentary. They they were both the helpful. As we were scratching our heads on a run rate revenue numbers from acquisition.
Murray I'm going to focus a bit on acquisitions.
Historically, you've made equity investments in companies.
A couple of highlights I can think of P. C acts are involved.
And you also talked last year about making some acquisitions into Canadian companies I'm wondering because that's been the seat of <unk>.
Growth in the past is that of strategy that youre going to continue or just haven't shown off for Rob.
Things along that line.
Yeah.
Yeah, we will probably continue it in <unk>.
Why have we.
Bought a made a minority of meat in the minority investments and certain companies was because of the whole company wasn't available, but I still like the company is so then we wait until the whole company's available.
Some of them will look at some of minority interest, but the market has changed so dramatically and the.
Theres, so many acquisition opportunities now.
At.
No.
We'll just stop the pivot I think of little bit on that and.
The focus on where we think we can get the biggest bang for our shareholders I think really now in the short term of the longer term play that I've got that I'm focused on now is the U S market, because I think longer term, we have to be there for our shareholders and for our company we need another growth platform.
Outside of the Canadian marketplace, the Canadian marketplace, there's going to be good, but eventually it's not going to be a growth platform and we needed to have another opportunity to growth. So we planted some trees down there now.
And we will get bigger down there overtime.
That's our plan.
But in Canada will continue probably a lot of is just doing tuck ins, because that's where we can get.
Good work force, that's where we can get because you can't put it on the paper and get to work force to day folks it doesn't work that way.
We'll get a good workforce.
And then what we'll do is we'll we'll just.
Make sure that we look after our highest paying customers.
The past the most of them that's what we're going to get margin improvement from where we can give us the make sure that our employees are paid properly.
So we're going to focus on that side I don't know about more platform as I said about more platform.
The acquisition of growth opportunities.
Just don't know what the investment community is.
They certainly don't appear to be rewarding us for us. So we're just going to sort.
Just kind of go on harvest and make as much money again and run a great business per people more money in.
We'll make more money for shareholders. So we're going to do.
Yeah.
Okay.
Appreciate that.
Maybe a question that might be more directed to stephane.
And again, thanks, very much for the granularity on where your debt to EBITDA.
Call it that ratio.
B.
Pro forma acquisitions. It seems to me you have room for more debt and specifically I'm thinking of private placement debt.
Number 1 do you have room are you looking at that and to what level would you feel comfortable.
Given that the business is quite a bit different today than when you wrote the covenants in 2014.
Yeah, and I think we look at all alternatives, we look at our you know why.
Other we get something with the syndicated bank line or something more structured rather than just at the band facility. Although the demand facility for us has been pretty good and I say that because we're notoriously cheap and we don't like paying fees and standby fees and in all of these sorts of things and quite frankly.
<unk> you know RPC has been very good to us, giving us the demand facility without fees, knowing that we never really stretch out our debt and when we did the debt or historically you know earlier than in 2.
2014, and such we were really an oilfield services company with a lot of beta in our numbers.
We've really gotten rid of a lot of that beta. So when you think about how much we're tied to the drill bit it's not as much as we were a decade ago. So.
Then we were comfortable with getting.
Or having leverage of about 2 to 2 and a half times I remember going to New York and talking to those folks and saying I don't want to be too in the quarter times, we might expand that at times. If we see of really good acquisition and we feel comfortable but I don't think the philosophy has really changed although the company has changed the debate is low.
Is not there the earnings are a lot more stable the consumer.
The largest part of the Canadian or North American economy is stable. So we could in theory, you know increase our debt leverage.
And feel still very comfortable but that's just not us that's not our nature, we're not really.
You know high leverage start promoting guys were more conservative thoughtful and we do these very deliberately and we don't stretch out and go to 4 times like some other trucking competitors may do although I would tell you going to 4 times is not unusual in our within our peers.
Set would would feel comfortable doing that within North America. So.
Long answer to tell you that we're very comfortable where we're at or are we going to do the next round of acquisitions. Our next round of growth as it kind of be private placement debt, perhaps isn't going to be a bank debt, perhaps I think whats out of market right now and if you just have to look at the cost of borrowing.
Equity doing another round for equity right now with the yield and the way that Oh the.
The share price is currently at just isn't very attractive to us and I know every shareholder every CEO thinks theres shares are undervalued, but again, we really feel that and evidenced by our share buyback debt. We continue to do and invest back into a pretty premier of a great company in Canada. So a.
Long story short when we buy EBIT dollars, we can get up a little bit more debt, we bought a lot of EBITDA here.
In the last quarter.
Quarter end, we've reduced our of.
The leverage so because although we're buying at 5 times.
It's just the way that the whole momentum of the synergies and everything works that were coming out of this virtually at the same debt leverage as we came into it.
Into the quarter and we're going to exit the year as you see the annualized the issue as you see these acquisitions start coming into that formal calculation.
That it'll be reduced and so.
I don't know what to tell you of life other than we're comfortable where it is more than comfortable from where it is and the next financing round is yet to be determined but we have lots of opportunities out there to do all of the above private placement debt.
Equity converts the money will be there we have a great track record of finding good acquisitions and exceeding the cost of capital materially so.
And then of cricket and simplified even more.
We're not issuing of equity at these low [laughter] forget it.
I forget the number 2 is do we want to put on more debt yeah, we will put on more debt.
Put on more debt to acquire really really good companies that are strategic fits.
But if we didn't do anything.
I can tell you with the cash flow, we generate will have no bank debt next year.
So we're going to generate a lot of cash and then we'll just figure out whether we're going to continue to do tuck ins and growth or whether we're going to want to pay off the debt what are we going to.
What we do next work for the shareholders, but.
It really I think of life depends on the opportunity coming in but the new equity and of the debt and the other thing about our debt.
We've acquired a lot of great.
Real estate over the since we did this long term debt so.
We feel pretty good about the position of where that where they were in the fat to be honest with you.
Okay.
But for now we see it back from.
For now we're coming up for air after doing 5 acquisitions, and we will look at at Tuck ins, where we can amalgamate things into these the.
36, I think we got 36 business she goes low.
I've been so busy I from maybe a long track here, but we.
We got a lot of great management teams out there that can we can do tuck ins of the 36, well, we have 37 day normal debolt kind of fun.
Okay.
The spot market, it's a strong market. If you do acquisitions now youre kind of looking at you're getting a good workforce and then you just.
Truthfully, you're just allocating the work force to where you you know because you need it and you've got higher margin business over here, you don't want to turn down.
Okay.
I have more questions, but maybe I'll leave it.
With 1.
You mentioned $2 billion of revenue if I do some very simple math, it's probably all of them capable of I can see of reaching that number within 2 to 4 years what would you.
Yeah, we would originally.
When we talked about that well you know in the next 5.
5 to 10 years, we can get up to 2 billion will require all the great companies that we want in Canada.
And we will continue to do that and Oh Heck I didn't know we were going to get off of all of them done here and so fast, but the market changed we move quickly we're well positioned we have the money.
And the we've got a great reputation of doing acquisitions. So.
We'll continue to do some sort of more acquisitions in Canada, but of Bp's would be selective.
But we had to enter the U S market. So that we had another growth platform for our shareholders and the.
That 1 will emerge and it will evolve, but we're in that market now and.
From kind of excited about it.
Sorry, I have to make a follow up with that marine with the U S. It on top of revenue do you think the U S. It is actually of multiple is it multiple factor too.
Multiple of in other words, you know I look at Marlin in 2014, Mullen today more stable business and yet the multiples of lot lower.
We did have a better multiple per having yeah.
You know what.
Elias you're going to I'm going to defer this over to you to go talk to the shareholders and then and those kinds of things.
There's I, it's someone's eye I've, given up trying to figure out what Mr and Mrs marketer of thinking.
All I can report to everybody is what we've done how we've positioned the company and what we have.
And on those free fonts, we check a lot of boxes number 4 is I'll leave it to the shareholders to figure out how they want of values, but Meanwhile, we're just going to run a great business. We've got a great team and we got great operating teams.
The known what the heck, they're doing and low so that gives us a great chance of continuing to build on our great company.
Okay.
Appreciate the color thanks very much 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.
No closing marks folks. Thank you very much everybody's busy it's of little over an hour here that we've been on the line of appreciate everything and we look forward to chatting with you and give you an update on <unk>.
In October.
So thank you very much enjoy the rest of your summer take care.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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