Q2 2022 Mullen Group Ltd Earnings Call
Speaker 1: Thank you, welcome to our quarterly conference call. We'll provide shareholders and interested investors with an overview of the second quarter financial results. And in addition, we will discuss the main drivers impacting our operating performance or expectations for the year, or close with a Q&A session. We'll close with a Q&A session. We'll close with a Q&A session.
Speaker 1: Before I commence today's review, I remind everyone that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of risks and uncertainties.
Speaker 1: And as such, actual results may differ materially. Further information identifying the risks, the uncertainties and assumptions can be found in the disclosure documents which are filed on Cedar and at www.mollandhyphengroup.com www.mollandhyphengroup.com
Speaker 1: With me this morning, I have our executive team. I have Joanna Scott, Senior Corporate Officer and Carson Urlacker, Senior Accounting Officer. And Richard Maloney is our Senior Operating Officer. He is on the line. I'd like to refer to Carson as our Senior Accounting Officer and some like to say the CFO , or Chief Financial Officer, but at the Mullen Group, we do not have chiefs. We have senior executives.
Speaker 1: So let me pivot towards the next topic this morning and that is the discussing our Q2 2022 financial and operating performance. And as I was preparing my comments, I came across an old saying that I believe pretty much sums up how the market has viewed our performance really for quite some time. It goes like this.
Speaker 1: If a tree falls in the forest and there's nowhere there to hear it, does it make a sound?
Speaker 1: $38.8 million compared to $55.9 million in 2021. This decrease of $7.1 million was due to our revenue growth, resulting in us financing our working capital requirements. Our balance sheet remains strong. Our debt to operating cash will covenant under our private debt agreement is down to $2.37 to $1, providing us with over one full turn of room available under this covenant. We have a total of $250 million bank credit facilities available to us, of which we had $142 million drawn at the end of the quarter, leaving us with over $100 million of room available. Lafayette would just like to point out our highlights within our Q2 in-term financial report to take a look at the chart under the summary of quarterly results. The chart on that page highlights our results over the trailing 12 months, whereby revenue is just shy of $1.9 billion, while our OIVDA is roughly $285 million. Our net income over the trailing 12 months is approximately $97 million. Basic earnings per share is $1.2 per common share over the last 12 months. So with that, Marie, I will pass the conference back to you. Thanks, Carson. As we talked about, it's always nice when you give good numbers like that, and it always feels good. So thanks for that very, very good report. So as I move to the next section and I'll talk about the outlook, what do I see? How will the economy perform for the balance of the year?
Speaker 1: How will our business units perform? Let's be clear, my crystal ball is no better than anyone else. As such, I'll take a very pragmatic and practical approach when it comes to predicting future outcomes. I'll start with the obvious. We all know that risks are elevated as central bankers adjust monetary policy due to inflation.
Speaker 1: caused by the way by central bankers flooding this monetary system with too much liquidity. So now they start correcting their last mistakes.
Speaker 1: Hopefully they will get it right this time.
Speaker 1: When you layer on some very disruptive war, a very disruptive war, tight labor markets, stretch supply chains, system-wide bottlenecks, high commodity prices, you have a pretty good recipe for inflationary pressures to remain uncomfortably high. It is a very close line with a little? and growth order intent on evaluating several hardware requests from the operating team. Therefore we are paying more trust on Expedition to highlyfried business partners via ? Real?? for inflationary cukayer customers to pertain incomprehensible neglectun owner and the staff to take it, as having a positive mindset Bye.
Speaker 1: So slowing for sure, but it's difficult to see inflation returning to the old norm of 2%. I don't see that, but we do think that inflation starts to slow as the year progresses and into 23.
Speaker 1: Now of course central bankers may play top and take the job of taming inflation seriously, but this will require a step resolve and governments to temper their spending habits.
Speaker 1: So what does this mean? I'll focus on a few key metrics in determining the directional move we see for the economy in our business. I'll start with jobs number one. As long as the job market remains on solid ground, and I believe it will, then consumers have money. Government fiscal policy is also right there. I have not heard one policymaker, politician, talk austerity. As such, I conclude that governments will continue issuing checks for everything.
Speaker 1: Capital flow is obviously crucial to the financial system, but this one I am struggling with, to be honest, because it's capital that is what is required to help us get out of the inflationary spiral we're experiencing.
Speaker 1: Quite simply, I believe we need more supply. And supply is the fuel needed, and capital is the fuel needed for investment activity. So yes, we need the capital market to stabilize in order for the economy to move forward in any meaningful way.
Speaker 1: With all of this as a backdrop, here's how I see the balance of the year unfolding. I'll start with the so-called freak recession investors have been spooked about.
Speaker 1: I don't see it. Consumer demand is not collapsing, although spending habits are changing. Slowing, yes. But at the same time, there's less capacity to move available freight. So from my perspective, our business will do just fine. I expect the LTL, logistics and warehousing, and US 3PL segments all to have a good second half. Perhaps not growing, but results should be just fine, especially with sticky freight rates.
Speaker 1: In the specialized and industrial service segment, however, I expect a very good second half in 2022 driven by increased investment activity by all the natural gas producers. In particular, I anticipate drilling activity in Western Canada will hit reach capacity of 250 to 300 active drilling rigs by year end.
Speaker 1: But this is only if the supply chain cooperates.
Speaker 1: This means higher revenues and improved margins for our business units and the level of the oil and natural gas industry. The oil and natural gas industry
Speaker 1: Also, many in our logistics and warehousing statement, because by the way, all of those consumables must be moved by truck and we have one of Western Canada's best networks.
Speaker 1: As for the housing market, higher interest rates are not good.
Speaker 1: New buyers will be bought out of the market because of higher mortgage rates.
Speaker 1: Builders will slow home construction, which will only set up tomorrow's problems.
Speaker 1: because immigration remains a priority for the Canadian government.
Speaker 1: These people all need accommodations and a lot of other goods and services.
Speaker 1: My hope, my expectation is that infrastructure spending and construction activity accelerates because as I indicated earlier, this is the key to adding capacity.
Speaker 1: Whether it's new roads, hospitals, airports, expansions, freight terminals, warehouses, you name it, the economy needs it.
Speaker 1: Now of course this implies we need a robust labor force.
Speaker 1: And this may be the single biggest impediment to future growth and productivity improvement without people, without a good work ethic containing inflation could be problematic.? zu.
Speaker 1: So in summary, I fully expect 2022 to be an excellent year for our organization, just as I suggested on the April 22 call when I said, and if I'm right,
Speaker 1: than many more solid quarters in our future and i am sticking with my April outlook
Speaker 1: We will generate record results.
Speaker 1: We will work on margins. We will continue to invest capital in new equipment when we can get it.
Speaker 1: New facilities, when we can get approvals.
Speaker 2: But we slow acquisitions.
Speaker 2: And the main reason is because the capital markets are in a state of flux.
Speaker 2: which implies that our growth rate levels.
Speaker 2: We are monetizing some non-core assets of our Resign 3 Letters of Intent
Speaker 2: Now the due diligence period for these yellow eyes expires this quarter and if all close as we expect by year end, we free up around $60 million of cash. Proceeds will use to grow in areas of our strategic focus or will strengthen the balance sheet.
Speaker 2: So in closing, I know inflation bites. It bites hardest on the working class.
Speaker 2: But job loss has hurt.
Speaker 2: So I suspect policymakers will only push so hard. Under this scenario, we do very well. And with that closing comment, let's open the lines to the Q&A session. Thank you.
Speaker 3: Thank you. We will now begin the question and answer session.
Speaker 3: To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request.
Speaker 3: If you are using a speaker phone, please pick up your handset before pressing any keys.
Speaker 3: To withdraw your question, please press star then 2.
Speaker 3: Our first question comes from Conard Gupta of Scotia Capital. Please go ahead.
Speaker 1: Good morning, thanks operator. Morning, Marie. Good morning, Marie. Morning, Marie. How are you? I wanted to firstly appreciate you pre-ment ago you mentioned, we will probably see good deals at a lot of balance and stores. And that's happening right now. So you nailed the outlook in the short term for sure. So I want to kind of figure a brain on how you see things.
Speaker 1: involving now as we go ahead and as you pointed out the pre-decession, everyone is talking about the respect to your businesses in Canada especially.
Speaker 1: Have you noticed any significant changes in demand or pricing as in the recent weeks as inflation and raise increases had started to flip through or impact consumer sentiment at least, and maybe the spending habits are shifting? So what are you observing? Because it doesn't feel like we don't have a clear direction from a lot of data points. We are getting a lot of mixed messages at this point.
Speaker 1: So yeah, curious as to what you think about where they call me, is heading from your perspective.
Speaker 4: Hello?
Speaker 2: Connor, can we, uh...
Speaker 5: We all of them!
Speaker 2: All of the, from all of the discussions we have done with our peers. We have done with our peers.
Speaker 2: What we see with all of our business, and this is both sides of the border. What doaicap true
Speaker 2: Everything you know we have not seen any meaningful decline in demand yet right cars agreed. Yeah so
Speaker 2: I know that the markets are anticipating
Speaker 2: the freight recession. And once social media gets older than everybody thinks it will happen. But then everybody thinks it will happen.
Speaker 2: until new data comes out that challenges that new thesis.
Speaker 2: What we see as of today.
Speaker 2: as we have seen no meaningful decline.
Speaker 2: in demand across any of our business platforms. And when I speak to my peers, it's the same thing. And when I speak to my peers, it's the same thing.
Speaker 2: Now we don't see any growth.
Speaker 2: Let's be blunt, and we can't add growth because you can't get equipment and you can't get people and we've lost productivity. And you can't get people and we've lost productivity.
Speaker 2: What we have seen, Connor, is
Speaker 2: It's remained tight and we've raised prices.
Speaker 2: and raising prices to protect our margin from rising inflationary costs, and along the way we improved our margin. Last quarter, we improved it by, depending on what number you want to look at, but just over 1% just on state and up results. But if you back out our US 3PL, if you back out Qs from last year, which is a funny number,
Speaker 2: It's up by 3% quarter over quarter on a year over year basis.
Speaker 2: That's what we've seen today.
Speaker 2: Tomorrow, maybe the market's right, maybe.
Speaker 2: Consumers in trouble and maybe job losses will hit hard. If job losses hit hard, give me a call back and let's have a future to that. I'm not predicting it.
Speaker 6: But...
Speaker 2: It's a prediction. I don't know.
Speaker 2: But I don't see it as of right now. And we're not anticipating it. And I can tell you, we're not, but we have no job losses here. We're still actively trying to recruit so that we can be as productive as we can.
Speaker 2: And that's what we see right now.
Speaker 7: That's great, Klaumari. Thanks. As a follow-up, if I can ask you, what are sort of the obvious differences in your mind between the Canadian and the US trade markets, if you have noticed anything, the recent times.
Speaker 2: LTOs remain quite strong, which is really tied to the consumer.
Speaker 2: and, uh.
Speaker 2: And that's getting right through and to the end part of the consumer. Where it has slowed down particularly in the US. Where it has slowed down particularly in the US.
Speaker 2: has been in the truckload side, but that's just because I think it was super juiced up last year because of the, you know, the inventory rebuild by retailers and by manufacturers. So they're slow to the inventory, but it's not stopped. It's still a mess.
Speaker 2: The ports are plugged.
Speaker 2: the rails can't get product moved. So the supply chain remains inefficient.
Speaker 2: It's still moving, but it remains inefficient.
Speaker 8: I don't know.
Speaker 2: I feel for the retailers, particularly small ones, because they're costs are up, and the consumers are... because they're costs are up, and the consumers are...
Speaker 2: are not happy with prices, so they're pushing for price declines. I feel for those retailers, particularly the small ones right now, that there's nothing we could do about the cost site. Our warehouses are plugged. I can't get rail service.
Speaker 2: We're losing trucking capacity.
Speaker 2: because of high fuel prices, good quality companies.
Speaker 2: Like ourselves.
Speaker 2: or in good shape.
Speaker 7: That's great, buddy. Thanks. And last thing for me on the M&A front, I think you mentioned, obviously, the rising interest rates and your prudence about balance sheet and the volatility of the couple markets, everything. It's kind of making you cautious, perhaps in the short term on M&A side of things. Now, my question on M&A is, maybe given the environment, VRN and the rates and the position, etc. I'm like, it might push a few players over the edge in terms of opportunities.
Speaker 7: So how do you look at your balance sheet with Stents today versus the incremental opportunities that may come out because of the downturn?
Speaker 2: Well, let me start with the MN market. The MN market, I must get.
Speaker 2: My in-basket is plugged. I gotta get to a day.
Speaker 5: opportunity.
Speaker 2: which is not normal. That tells you the stress in the market.
Speaker 2: That tells you that maybe some of the sellers think they can catch the buyer asleep at the wheel.
Speaker 2: Let me just tell our investors, you don't catch us asleep at the wheel.
Speaker 2: We were aggressive on acquisitions in 2021. When we felt if we got these acquisitions and then we saw pricing coming up that our shareholders and our investors would do exceptionally well when we got that book of business and then we raised prices. normally raised prices.
Speaker 2: Our results reflect those decisions.
Speaker 2: But today, I'm cautious. I will show good numbers, just like us. I will show good numbers, just like us.
Speaker 2: But we're not biting.
Speaker 2: I'll just wait it out. I think there'll be a better day because I think some people have got them stretched. They've overspanned. So we'll just wait. And the second thing is, um...
Speaker 2: You know, I read the tea leaves.
Speaker 2: If investors are not excited about the future.
Speaker 2: I'll take a cue card from that.
Speaker 2: And I'm not going to stretch the balance sheet just to add some more growth.
Speaker 2: Because they'll be blunt with you, it doesn't appear our shareholders and our investors give us any credit for it, so why would I risk the balance sheet?
Speaker 2: Man, we got a big company right now and we're just acing it. So yeah, we'll either strengthen the balance sheet or we'll give some more back to our current investors. But I'm not going fishing right now. I don't like it. world granted and manage the value of a product that's going to affect our technologies
Speaker 7: Perfect. Thanks so much, Murray, and all the best.
Speaker 4: Thank you.
Speaker 3: Our next question comes from David O'Campill of Cormark Securities. Please go ahead.
Speaker 4: Thanks, good morning, Mark. Good morning, David.
Speaker 1: I just wanted to touch on the SNI division. We talked about continued strength, at least for the balance of the year. I just give them a strength in the commodity prices. But does that change your mid or longer term outlook on how much cat-x you spend on that division? Because it's been relatively muted in recent years. And then two, do you guys stop a lot of unused capacity? Where you can really go off the current base on the top line there?
Speaker 4: You don't do that. We're going to have to have a...
Speaker 2: Even internally, that will be a major point of discussion.
Speaker 2: with the senior execs and then finally with the board.
Speaker 2: But let's just say we wanted to increase CapEx in the Opil site because man we see things really taking off.
Speaker 2: David, we can't get it.
Speaker 2: The supply chain, we're out, you can't get a new truck till 2023. And we're on our location in 23.
Speaker 5: So,
Speaker 2: Will new capital be required in that sector? Absolutely! Nobody's invested for years.
Speaker 2: just like we didn't drill, so now they've got to go back drilling. But we need to see first and foremost the recovery. And we need secondly,
Speaker 2: to see the commitment that the producers are gonna make that they say I need you, and then we'll go out and we'll consider. I said we'll consider it at in capital into that sector. But in the meantime, I'm raising prices because the capital we got is coveted.
Speaker 2: And the people we have are outstanding. We stuck with them during the toughest times and everybody said get rid of that stuff. And everybody said get rid of that stuff.
Speaker 2: Now it's our time to make a good profit and a return on those investments.
Speaker 1: No, that makes a lot of sense. And then on your trucking side on the house of base there, you guys regarding the $60 million of the CAPEX and any risk that you guys don't hit that number, just given all those supply chain issues that we're seeing today.
Speaker 1: Well, of course. What do you think? I would say that's going to be difficult to hit. You take a look at our results in six months here to date, we're net cap X at 24 million.
Speaker 1: Well, of course, what do you think? I would say that's going to be difficult to hit. You know, when you take a look at our results in six months here to date, we're MedCap X, a 24 million.
Speaker 1: So you look at the next six months out for 2022, a hit in 60 is going to be tough, especially with the delay in getting our oars in.
Speaker 1: The products ordered is just a matter of timing as to when we can get this stuff back. I'm going to say we don't hit the $60 million mark by the end of the year. Is it off by?
Speaker 1: Ten percent maybe.
Speaker 1: I can see a $50 million mark for NetCap X by end of the year. That, and again, this is contingent upon us, not closing any of those non-core asset sales that we're looking at.
Speaker 2: David, what we do know is this, is that the requests from our business units are significantly higher than our ability to get capital delivered. So what you see is what we spent. That wasn't what was requested by our business units. Correct. So, what we do know is that the requests from our business units are significantly higher than our ability to get capital delivered.
Speaker 2: And in fact, what we articulated earlier was we were going to have a higher cap X-Pen this year than what we're on target for. So that tells you the supply chain is tight. If remains, I don't see that loosening up. We're already on allocation, David, for 23.
Speaker 1: And you guys have a sense on how much that is weighing on margins. You guys are running over the equipment. You guys are running over the equipment. You guys are our equipment equipment netted.
Speaker 1: You know, under basis points, 50 basis points.
Speaker 1: That would be very difficult for us to calculate, David.
Speaker 9: No, you really understand.
Speaker 10: Yeah, I think.
Speaker 2: I think what it is, we've always maintained a steady capex.
Speaker 2: program of a throw time. That's why we kept investing.
Speaker 2: David, I think that we'll continue to do that, replace capital so we always have the most efficient equipment.
Speaker 2: But you can't add to what you've got. You cannot grow our fleet right now because we cannot get it. At best we're able to replace what we're trying to... Always improve, always have a better fuel mileage, always do our part for the environment, always grow our repairs and maintenance costs.
Speaker 2: And we continue to do that. But we can't add incremental to it. There's not enough capacity in the system for us to add more company trucks. And by the way, there's no drivers anyhow, so it doesn't matter.
Speaker 9: Those are my questions. I'll hop back in, Kate. Thanks a lot, guys.
Speaker 11: Thanks.
Speaker 3: Our next question comes from Tim James of TD Securities. Please go ahead.
Speaker 1: Thank you. Good morning, congratulations. Good morning, the great result. Thank you. Thank you.
Speaker 1: My first question, I'm sorry if you could kind of update us on Mullen's exposure to
Speaker 1: spot market pricing in LTL and logistics more specifically and if you're seeing customers, I mean you mentioned you've been able to raise prices and there may be more of that to come. Are you seeing customers move towards
Speaker 1: wanting or locking into sort of contractual pricing, maybe some longer term pricing, or what what trend are you seeing in that?
Speaker 12: side of the business.
Speaker 2: Yeah, that's a really good observation, Tim. avoid market pricing has
Speaker 2: definitely softened.
Speaker 2: So what we, and that tells me
Speaker 2: that...
Speaker 2: The customer is starting to push back.
Speaker 2: There was a time when they just get it. I just want it, because they were caught short. But today people are pushing back saying, no, no, I'm not going to pay a stupid number. No, no, I'm not going to pay a stupid number.
Speaker 2: So we've seen that. Now a lot of our pricing in the spot market, we would have also had spot market pricing from our contractors. So we just managed to spread on that between how that worked out.
Speaker 2: But that, the spot market's definitely, definitely soft.
Speaker 2: Now you'd say, okay, our customers wanting to go more to the contract market. No, I don't see it.
Speaker 2: And I got to be blunt, everybody talks about contract pricing.
Speaker 2: Now Tim, they all got a 30 day cancellation clause both sides. So, we're going to be able to get a 30 day cancellation clause. So, we're going to be able to get a 30 day cancellation clause.
Speaker 2: Let's not pretend that you're locking into a three-year fixed price, no adjustment clause contract. I don't, we don't have any of those, maybe somebody else has, but we don't do that. So...
Speaker 2: Customers definitely, when they've made commitments to their carriers, they're going into the contract pricing.
Speaker 2: rather than the spot market. So, you know, demand has softened a bit. That's softened the spot market pricing. Contract pricing, we haven't seen any significant pushback. Although I would tell you, it feels like customers, everybody wants, we all want to get inflation under control. All of us do.
Speaker 2: The problem that you've got, if customers overcook...
Speaker 2: and they want to really reduce pricing, unless fuel prices really come down significantly.
Speaker 2: All you're going to do is push more of the independent contracts into bankruptcy. We're already seeing too many contractors fold the tent, not be around, and that's where I talked about the supply side is really at risk in my view.
Speaker 2: And because the contractors don't get great fuel mileage.
Speaker 2: And that's your single biggest cost by two right now.
Speaker 2: The other thing about the independent contractors are real risk.
Speaker 2: is availability of parts. That is not that easy to get right now. So if you're an independent contractor and your truck goes down because your clutch went out and you're not going to be able to get your truck out. So if you're an independent contractor and you're not going to be able to get your truck out. So if you're an independent contractor and you're not going to be able to get your truck out. So if you're an independent contractor
Speaker 2: You had to get new brakes or whatever you could be down for quite a while
Speaker 2: Okay, that's 100% of your fleet. If 20% of our fleet is down at any given time because we can't get parts that's 20% because we can't get parts that's 20%
Speaker 2: But then if they go down at 100 percent that
Speaker 2: is not sustainable. And you can't just go in and get serviced quickly today. So I suspect the supply side is going to keep the market and pricing up pretty firm.
Speaker 2: with all of the major careers. I don't see us really dropping contract rates too much to be honest with you. I don't see you. I don't see you.
Speaker 12: Okay, that's helpful. Just, it's me to elaborate on that a bit. So, you're contractors that you use. You're maybe benefiting a little bit from the softness in the spot market, I assume there. But from your transportation equipment that's generating revenue, you've talked about being able to raise prices and maybe some more upside there. Could you just kind of talk about your ability to do that in the face of this softening spot market?
Speaker 2: freight surge that happened in 21 as I talked about. But not on the contract side. Those are staying from nobody's I don't hear anybody really capitulating and saying because you can't get any drivers I can't get anybody to go to work.
Speaker 2: They either got the sniffles or they don't want to go to work or...
Speaker 2: And golly, we got a lot of people retiring in the transportation sector, so the demographics is not working in our favour at the moment. So we're not dropping prices. It's that simple.
Speaker 2: I don't know if we're going to increase prices. And we certainly won't be at the same rate as we have. But inflation is up 8% to 9%. Clearly, we had to get that. What's inflation tomorrow? It's not going to be 8% and 9%. I don't believe that. It's going to fall back into line. Is it going to be 2% as I talked about? I doubt it very much. But I don't think it's going to be 8% or 9%, either. So it'll start trending downward.
Speaker 2: So that means we'll...
Speaker 2: You know, we will get pricing increases in the future and contract rates to cover inflation
Speaker 2: But I don't think much more than that.
Speaker 2: All of the margin improvement that we will get in the future is because of productivity improvements, that we have better equipment than somebody else, and that we've made better decisions.
Speaker 2: And, uh...
Speaker 2: We'll continue to work on that. We always work on that, Tim. And we'll continue to work on it.
Speaker 12: My second question just looking at EBITDA margins, is it possible just to discuss a little bit the trajectory of margins kind of through the balance of the year that gets you to your EBITDA target for the year? I think historically and granted with the new presentation, we don't have a lot of history, but Q4 there's typically a bit of a step down in the margin percentage in LTL and logistics or sorry LTL and maybe specialized.
Speaker 2: year over year.
Speaker 4: for the balance of the year.
Speaker 12: Okay, so the year over your changes that we've seen after the first part of the year should be.
Speaker 2: sustainable through the second half. Is that, am I interpreting that correctly? That's what we think, which is why I said, I think we're on target for.
Speaker 13: I.
Speaker 2: for 300 of even dollars this year.
Speaker 12: Okay, great. And then my final question, just you mentioned just more of a confirmation here, you'd mentioned it puts some non-core asset sales. Did I, I may have missed the number, but did I hear $60 million potentially if in terms of the three allies that you've got?
Speaker 12: would be completion of those sales in 2022.
Speaker 12: change that kind of, you know, $50 million sort of gross cat-backs number that Carson mentioned earlier, or should we just think about that? If that comes through that simply, extra cash that sits on the balance sheet, it wouldn't be redeployed this year. Yeah, we can't redeploy it in New Capital, forget it. Now, I could, you know, we might redeploy it in acquisitions.
Speaker 2: perhaps but not a new capital because we can't get new capital.
Speaker 2: So we're already behind the curve on our 2022 CAPEX. But...
Speaker 2: you know we might be able to uh... we might deployed into into growth capEx uh... just repositioning that capital or we might just strengthen the balance sheet and just pay down debt and you know it will just played by your over the balance of the years to whether the with a capital markets are not total fluxes i call them and they're gonna have a hissy fed for our long i have no no idea all i know is this
Speaker 2: The capital markets didn't have a hissy fit at the start of the year, but now they do. So I don't know what the markets are going to be like at the end of the year, but at least we have options. If I think that the markets are in a bit of disarray, well, we'll strengthen the balance sheet. Good Viewers!
Speaker 2: things normalize and whenever and we'd free up 60 men well we'll go do acquisitions and grow.
Speaker 2: So that's a great thing about our business model. We got flexibility galore.
Speaker 12: And are those non-core assets, are they in a particular segment or are they spread across the businesses?
Speaker 2: Yeah, you know what, we're in a quiet period on our, you know, on our L.O.I. So I think I'm just, I'm just highlighting to everybody that, you know, what we're looking at monetizing non-core assets that really are adding is a lot of, keep it tough. So, it will just strain it up, okay? Great, thank you very much. You bet you, thanks.
Speaker 13: You.
Speaker 3: Our next question comes from Walter Sprachlin of RBC Capital Markets. Please go ahead. Thanks very much. Hi everyone. How are things? Good.
Speaker 3: Today they are Walter, yeah. It's a very good day. No, these are great results in your head. Yeah. I want to touch on that. I mean one of the things that when I look at your guidance, um...
Speaker 3: and I compare it to what you've commented on on a line by line or on a business segment perspective.
Speaker 3: I came into this call wondering if, you know, I could engage by the press release that there was anything one time in the second quarter that was not, not, not a trend. So when I look at the segmented, I see you, you know, you say that less and truckloads second half will be equal to or better than the first half.
Speaker 3: When you say logistics and warehousing will continue to produce strong results.
Speaker 3: and specialized industrials should be better than in the first half.
Speaker 3: when I reflect all that in on a segment of bases, I'm coming up with north of 315 million, and that's assuming you might have a little bit of conservatism in those segmented commentary.
Speaker 3: which would mean it might be above 3.15. So am I reading something wrong into it? Is there some corporate elimination or something like that that is going to offset the segmented commentary that you provided? Or is the guidance that you provided just have a nice dose of conservatism even even if you add up the commentary on the segmented basis as you provided?
Speaker 5: Well, you know, you... You... you...
Speaker 2: How do I say this? We said we can, I probably wouldn't say we could do 300 if I thought we weren't going to do 300.
Speaker 2: So we always under commit and try and over perform. So I think you have a...
Speaker 2: you know, you have a pretty good analysis, a pretty good take on it, what you said. And if it plays out as we think it might, you know, you could be spot-on in your analysis. I'll leave that to you to kind of...
Speaker 2: you know, make your best guess. But you know, I've given you our best take on what we see.
Speaker 2: and how we see it. And you know, clearly we're on target.
Speaker 2: you know for a good end of the year so long as there's no job losses unless there's no major capitulation in the real economy.
Speaker 2: which i'm not predicting but i think carsten uh... we've talked about i think last year r two three was our best quarter
Speaker 1: Yeah, typically traditionally our third quarter is now our strongest quarter. And then Q4 obviously falls off because you lose half of the month of December with holidays and and that sort of thing. And that sort of thing.
Speaker 2: Okay, that's great color. So here you can see it's plausible, Walter, although I'm not...
Speaker 2: You know, I'm reluctant. It's a very fluid market, but it's plausible that the third quarter could be our best quarter.
Speaker 2: And then the fourth quarter falls off typically, but if I'm right that the drilling rate count is going to hit that cyclical high of 250 to 300, then our SNI statements are going to have a good fourth quarter. So, yeah, we've got the stars are lining up pretty good for this business model right here. We feel pretty good about them. All right. And then on the non-corassets, you're in a quiet period trouble, but I want to ask whether you have
Speaker 3: That sale is an indication of what you might do. Sort of all of bill. or should I say that?
Speaker 3: of what you might do.
Speaker 10: yeah
Speaker 3: Sorry, say again.
Speaker 3: Sales more than that. Yeah, it's not just one. Yeah. Is this an indication of a broader strategy to, because you own a lot of your land, you're looking to monetize more of your balance sheet and your holdings. and your holdings.
Speaker 3: Is this an indication of further of a strategic shift in that regard?
Speaker 2: No, I don't think it's strategic. You know, from that is just the opportunity came up and the opportunities that came up were just too compelling for us not to consider on behalf of our shareholders. And then it's just as I said, if they come to fruition. And then it's just as I said, if they come to fruition.
Speaker 2: You know, everybody, everybody.
Speaker 2: You know, we were always in LOIs on acquisitions.
Speaker 2: In this case, we're on LLIs of, uh, of, of, of, vestitures. You never know how to play out. You got to go through dealer diligence and you got to come up with funding and all these kind of things. So I'm just highlighting is that, you know, if it comes to fruition, that's a game changer for our balance sheet, and then we'll figure out whether it just, we just reduced that by 60 or whether we, uh, use it to grow in 2022, uh, 2023, which is, uh,
Speaker 3: further acquisitions. I can tell you we got good options on both sides. Yeah and that was the next part of my question is that let's just say it comes to fruition. You're generating a lot of good free cash. You're holding back on acquisitions right now.
Speaker 3: I mean, you've got the option of, of sure, or to return, but I didn't hear you say much about that. So in the form of divvint or even buyback, so it sounds like you want to maybe reduce debt, knowing you can always scale it back up, reduce leverage, effectively park that drive powder and keep it on hand for either a bigger cap X-pen next year if the opportunities present themselves or acquisitions. So by reading that.
Speaker 2: I'm reading that the right way. We got really good, four good uses of cash, but we are, I'm just totally steadfast that I'm not gonna go try and grow this company and leverage the balance sheet given the uneasiness in the capital markets. That is gambling and we do not gamble with our shareholders money.
Speaker 2: It's too risky. So we'll just take a prudent look at it. You know, clearly we're not face you up stock. Come in.
Speaker 2: investors.
Speaker 2: Don't believe that in our business model, I guess, that's why our stock prices were at that. But so we have to be, and I'm not gonna leverage the balance sheet, so we'll just do it.
Speaker 4: One step at a time, but.
Speaker 2: There's not many other ways to do it, Walter. Acquisitions are damn expensive.
Speaker 2: and they don't pay themselves off in one year.
Speaker 2: It's a long-term investment and I don't see where the investors
Speaker 2: or the debt markets want to make long term commitment today. So why wouldn't the hell would we? We'll just manage our business. We've got a great business. It's twice what we were when we entered COVID, twice.
Speaker 3: And our stock price is not up. Yep. I rest my case. There you go. Okay. That's all my questions. Thanks very much. There was nobody in the forest to hear the trees fall. I hear you. Yeah.
Speaker 3: Thanks again, appreciate the time. Thank you.
Speaker 4: appreciate the time.
Speaker 14: Our next question comes from Kevin Chang of CIBC. Please go ahead.
Speaker 1: Thanks for taking my question. Congrats on a very strong set of results there, Murray and team. Yeah, we had a pretty good one. Yeah, we hit it out of the park and so.
Speaker 2: you know every analyst missed of we what was the average like sixty six i think the one thing that most nearly everybody miss kevley everybody got kind of the top line right except for one thing nobody believe that we were gonna get the pricing increases and pricing increases if you increase by ten percent on four hundred fifty million that's forty five million of incremental revenue
Speaker 2: And we took and we maintain margin actually we grew it. I think that's one most everybody missed the, they thought we were gonna do the same as last year, which is where the 66 came in. Maybe beat it by a little bit. So yeah, I felt pretty good about our quarter for sure. No, no, you definitely hit it out of the park there. Maybe I could ask Walter's question differently, because it does feel like you saw accelerated pricing growth in Q2 and maybe less so in.
Speaker 7: in Q1 which was also impacted by Omucron to start the year. If I just look at the 94 million of EBIT done, it sounds like again this is outside of some sort of economic slowdown, so maintain the status quo which looks pretty good for you.
Speaker 7: It's hard to see how you normalize earning on an annualized basis isn't something like $350 million or something worth of that I know you'll give us a business update
Speaker 7: You know, sometime in December this year, but is there anything off about just taking what you did in Q2, you know, finding what could be normal seasonality for your business?
Speaker 7: and assuming again kind of the economy status quo that you're not like a mid 300 company or should or my often my very simplistic math
Speaker 2: Yeah, it sure feels like it. It presses remains sticky. It presses remains sticky.
Speaker 2: which I'm predicting they will then
Speaker 2: You know, we made a major step change.
Speaker 2: in the revenue side with the acquisitions and then in the pricing side.
Speaker 2: We've done that, our business units. It was very, it was really difficult.
Speaker 2: For all of your businesses that have lived in a non-inflationary environment.
Speaker 2: for 20 years.
Speaker 2: to adjust on a dime.
Speaker 2: to the rising inflation. We talked to them about it, but it was really difficult for them to have those discussions with customers until it became so painfully obvious.
Speaker 2: that inflation was running rampant, that we had to raise the prices. And those were tough discussions we had of our business units. And March, they finally... Reaching in March they finally...
Speaker 2: had the wherewithal to go and implement them and you can see the end result of that. Not only did we cover off the inflationary pressures, but we actually added the margin and I suspect that...
Speaker 4: I don't wanna go back.
Speaker 2: I don't think they want to go back.
Speaker 4: Unless the market...
Speaker 2: Force is is to go back.
Speaker 2: And I'm not, I don't think it will. And then we're not going back. And then we're not going back. And then we're not going back. And then we're not going back.
Speaker 7: And then just on the pricing, if I kind of look at it from a young perspective, so you mentioned pricing of 10%, was any 10 ones related to?
Speaker 7: To mix, because I have to think that and tell me for a moment. I have to think that Q2, you probably saw a better recovery than it can be the B-values. And then, again, can be the B-values. And then, again, can be the B-values.
Speaker 7: Just as things reopen, I kind of think of that as being heavier and that's generally a positive makeshift when I think of yields. Is that something that also helped in terms of the broader unit revenue trends or is that something that wasn't material in the quarter? That wasn't material in the quarter.
Speaker 13: Out
Speaker 4: I don't think so, Kevin, Carson.
Speaker 1: I didn't see any one-off type changes that...
Speaker 2: that really impacted the quarter. There can. The one off change, given the one off change was pricing increases. Yeah. That is not something we've seen. That is not something we've seen.
Speaker 2: Now we used to see that when the oil and gas sector was booming.
Speaker 2: So that means we haven't seen it in over a decade in our company.
Speaker 2: But in the general economy, haven't seen it in two decades. So yeah, I would say the one I've changed was pricing increases. But no, we're not going to have another 10% rate increase in Q3 over Q2.
Speaker 2: But you have a...
Speaker 2: Q3 pricing increases will be 10% above.
Speaker 2: Q3 of 2021, Ray.
Speaker 7: That makes a ton of sense. Just last one for me. I've noticed port congestion out of the West Coast ports here in Canada. The rail dwell times have been kind of picking up here. Just wondering what you're seeing within your intermodal franchise. Anything concerning or anything that you're worried about as you kind of think about fluidity in the back half of the year and as you kind of progress to 300-plus million of you. How much of a risk is this? Is it something that seems manageable?
Speaker 2: Kevin, I can tell you, I talked about their jam pack. So that means we can't get any more inventory in, but there's inventory in the water. There's inventory on the trains.
Speaker 2: So you can't bring the container to us because it can't handle.
Speaker 2: So then if you can't bring it to us, it can't get out of the railway station. It can't get out of the railway station. They can't. There's always a bottleneck.
Speaker 2: And it appears that the freight is not moving out of the warehouses.
Speaker 2: at a faster enough clip to let new freight in. So that's why I say to you, really feel for the retailer right now because...
Speaker 2: They're in a bit of disarray.
Speaker 2: The railways, they're good friends of ours. We use them a lot, but man, it's a mess. We use them a lot, but man, it's a mess.
Speaker 2: And now you've got particularly issues down in California that could...
Speaker 2: you know that could morph into other parts which is labor disruption and you've heard about AB5.
Speaker 2: and you know the independent contractors are striking in California.
Speaker 2: because the state of California has ruled that independent contractors can't be independent contractors and they're fighting mass and the pork union workers in Oakland will not cross thePEG in that
Speaker 2: California has ruled that independent contractors can't be independent contractors and they're fighting mad and the port union workers in Oakland will not cross the picket lines. Freed.
Speaker 2: is not moving until this gets resolved in. So it's a Mexican standoff. It's a shooter, the OK girl. I don't care what the hell you want to call it. It is going to bottleneck the supply chain.
Speaker 2: That means you can't offload the ships.
Speaker 7: Right, no, no, that makes sense. That makes sense. I'll leave up there, Mary. Congrats again on the good Q2. I'll say we all heard the tree fall on this quarter. Thank you. Thank you. We'll forward to jam again. Take care now.
Speaker 14: Our next question comes from Matthew Weeks of I.A. Capital Markets. Please go ahead.
Speaker 15: Good morning. Thanks for taking my question. Congrats on the good quarter. I think most might have been answered at this point, but I just want to ask, and you talked about sort of the different dynamics you're seeing between spot and contracts rate a little bit recently here. I'm just wondering if you could provide any kind of commentary or color on how much your business would you say roughly is exposed to spot market versus how much typically contract.
Speaker 2: Um, geez, uh, mold, like I would say nearly all...
Speaker 2: LTL business is contract rate. It's either book rate contract rate, whatever. So LTL is very sticky.
Speaker 2: LTL business is contract rate. It's either book rate contract rate, whatever. So LTL is very sticky in terms of whatever the rate is, what the rate is.
Speaker 2: in the logistics and warehousing business, so the long haul.
Speaker 2: business, the spot market, a lot goes on load boards and it's posted, the trucks post the trucks and the freight brokers.
Speaker 2: freight broker would post what they're afraid is and you know that kind of sets what the market is for the spot market you know that's soft
Speaker 2: But still, it's the independent contractors that are taking it on the chin in the spot market, not
Speaker 2: bigger companies because we typically don't play in the spot market.
Speaker 2: Our logistics business plays the spot market. But as they said to you, we just manage the spread between what the market pays and what we can buy a contractor on the market for. So we still manage the spread. Our spread hasn't changed. I don't think has the car. The prices, the price of the contractors went out three-raised to bust the customers. The price of the contractors has gone out three-raised to bust the customers.
Speaker 2: If the spot market changes, we don't get as much from the customer the trucker doesn't get as much. It's the independent contractor that's at risk here as the spot market, with just whatever the economy is at that day, whereas the larger carriers, we typically don't play the spot market that much. We'll go with our company equipment. We'll go with our company equipment. We'll go with our company equipment.
Speaker 1: Yeah, our margins on our in the LTL or sorry the L&W segment actually improved here in the last quarter year over here. Okay, thanks, so appreciate the commentary on that. I'll turn the call back. Thanks.
Speaker 13: Thank you.
Speaker 14: Once again, if you have a question, please press star then 1.
Speaker 14: Our next question comes from Michael Robertson of National Bank Financial. Please go ahead.
Speaker 12: A, good morning all, great quarter. Cognizant of the time here, so I'll just, I'll have a quick follow up, I guess. Just wanted to touch on your updated guidance for the year. If I look at those numbers and back out, you know, what you've done in the first half of the year, it looks like you're pointing to margins.
Speaker 12: going down from what we saw in Q2 and I guess in H1 as a whole. We was just wondering if you're seeing some specific drivers behind that and that you can speak to or maybe that's just as you noted earlier, you know, airing the bits on that the conservative side.
Speaker 2: Well, I think we were conservative. I'm always conservative, Michael.
Speaker 2: I'm not a promoter. We tell people this is our best analysis. We tell people this is our best analysis.
Speaker 2: I can tell you that
Speaker 16: that
Speaker 2: You know, I don't I don't ever want to perform under perform what we tell the market.
Speaker 2: So I would say to you, I would think that...
Speaker 2: I would not say 300 if I didn't think it was baked in the cake.
Speaker 12: I was just wondering if there was a cost creep or something that you saw catching up in the back half of the year that might put pressure on those margins relative to what you've seen date. I don't see that because I think that the prices are sticky for the reasons I've explained. I don't think that freight volumes are increasing.
Speaker 2: Yes, freight volumes are increasing and demand is increasing in the specialized industrial side.
Speaker 2: There's no doubt about that. And that's because the drilling rate count is going up. In fact, we're seeing it go, the rate count is going up like 10 a week right now. So we'll hit that 250 to 300, and that's kind of the peak where I think that industry settles out up it. You know, we've raised the prices, we'll have good margins in a good second half or S and I side. In the rest of our business, you know, we're gonna bust our butts here and make sure that margins that we add in a second quarter.
Speaker 2: there but if you take the 3PL out
Speaker 2: And you take you, you know, we'll have a nice increase. That's our expectation. It'll be up by at least one or two percent of the margin. Over last year. Not over the second quarter. Over last year. We're talking about the rate of change year over year.
Speaker 17: Got it. Appreciate the color as always. Great quarter. I'll be back. Thanks, Jen.
Speaker 2: Thanks Mike, appreciate that. Thanks, Barry.
Speaker 14: This concludes the question and answer session. I would like to turn the conference back over to Mr. Mullin for any closing remarks.
Speaker 2: I just want to wrap up and say thanks folks. Early start to the day we got the numbers out. We're already focused on Q3 and and and
Speaker 2: We got a lot of work ahead of us, but we feel pretty good about the last half of the year. But we watch carefully. We got a keen eye on the capital market, just in case the capital markets are right and the world is coming to an end. So we watch it carefully, but we don't predict it. Take care. We'll see you next summer in the state state.
Speaker 14: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. Thank you.
Speaker 18: The.