Q2 2024 Mullen Group Ltd Earnings Call
Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Ltd. 2nd Quarter 2024 Earnings Conference Call and Webcast.
Operator: Welcome to the Mullen Group Ltd. second quarter 2024 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 will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad.
Operator: Welcome to the Mullen Group Ltd. second quarter of 2024 earnings conference call at webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded.
Speaker Change: As a reminder, all participants are in listen-only mode and the conference is being recorded.
Operator: After the presentation, there will be an opportunity to ask questions. To join the question queue, you may first start, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.
Murray Kim: I would now like to turn the conference over to Murray Kim. Chair, Senior Executive Officer, and President, please go ahead.
Operator: Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Murray K. Mullen, Chairman, Senior Executive Officer, and President. Please go ahead. Good morning all, and welcome to Mullen Group's quarterly conference call. We're going to provide shareholders and interested investors with an overview of the second quarter financial results. In addition, we will discuss the main drivers impacting these results.
Operator: Our expectations for the balance of the year, and we'll close with Kunesha. Now, before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements. These forward-looking statements are based upon current expectations and are subject to a number of risks and uncertainties, and as such, actual results may differ materially. Therefore, further information identifying the risks, uncertainties, and assumptions can be found in the disclosure documents, which are filed on CDAR Plus and at www.mullen-group.com. Now with me this morning, I'm joined by the senior executive team. We have Richard Maloney, we have Joanna Scott, who happens to be traveling and on the road, and we have Carson Urlacher.
Murray Kim: Morning all and welcome to Mullen Group's quarter of the conference call. This morning we're going to provide shareholders and interested investors with an overview of the second quarter of financial results. In addition, we will discuss the main drivers impacting these results, our expectations for the balance of the year, and we'll close with today's session.
Speaker Change: Good morning all and welcome to Mullen Group's quarterly conference call.
Speaker Change: This morning we're going to provide shareholders and interested investors with an overview of the second quarter financial results.
Murray Kim: Now, before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements. These forward-looking statements are based on current expectations and are subject to a number of risks and uncertainties. And as such, actual results may differ materially. So further information identifying the risks on certainties and assumptions can be found in the disclosure documents, which are filed on Seed or Plus, and at www.MullenHeifendgroup.com.
Speaker Change: can be found in the disclosure documents which are filed on CDAR Plus.
Murray Kim: Now, with me this morning, I'm doing what the Senior Executive Team have, Richard Maloney. We have Joanna Scott, who happens to be traveling and on the road, and we have Carson Furlacher.
Murray Kenneth Mullen: In a few moments, I'll be turning the call over to Carson Urlacher, our Senior Financial Officer, who will provide you with an overview of the second quarter financial results. And for those of you interested, we've posted the MD&A, a detailed report covering all aspects of our results, so they're available for your viewing pleasure.
Murray Kim: In a few moments, I'll be turning the call over to Carson Furlacher, our Senior Financial Officer, who will be providing you with an overview of the second quarter financial results. And for those of you interested in detail, we've posted the MDNA, a detailed report covering all aspects of our results, so they're available for your viewing pleasure. I will keep my commentary short and provide a few of what I consider or the highlights in the quarter.
Murray Kenneth Mullen: I will keep my commentary short and provide a few of what I consider are the highlights in the court. Let's begin by acknowledging that this is a different market today than the last year, in fact, the last two years. So it is reasonable to expect results to be different than prior years.
Murray Kim: Let's begin by acknowledging that this is a different market today than the last year; in fact, the last two years. So, it is reasonable to expect results to be different than prior years. Besides, a simple comparison to what happened in prior years can be very misleading. What is more relevant is what the state of the markets today is, what will it look like tomorrow? But in addition, asking how we fair it in this new market is a relevant question. Now, when I look at the markets, I really focus on two fundamentals of the economy: the consumer and business investment.
Murray Kenneth Mullen: A simple comparison to what happened in prior years can be very misleading. What is more relevant? is what the state of the markets today and what will it look like tomorrow? But in addition, asking how we fared in this new market is a relevant question. Now when I look at the markets, I really focus on two fundamentals of the economy: the consumer and the business investor. Nowhere is the change more acute than with the consumer. Today, the average consumer is stretched and under stress. But it's not broken, thank you.
Speaker Change: A simple comparison to what happened in prior years can be very misleading. What is more relevant is what is the state of the markets today, is what will it look like tomorrow.
Speaker Change: But in addition, asking how we fared in this new market is a relevant question.
Murray Kim: Now, nowhere is the change more acute than what the consumer today. The average consumer stretched and understressed, but it's not broken, thankfully. They're income doesn't go as far as it used to, and mostly out of necessity, they become very price sensitive. This means suppliers must adapt as well. The move by central bankers around the globe to slow inflation by raising interest rates is working. Not only has a consumer been hit hard, so to his business, which is slow capital investment, fight noticeably from our perspective. And once the economy slows, the supply chain disruption, a major contributor to inflation, these get resolved.
Speaker Change: But it's not broken, thankfully. Their income doesn't go as far as it used to, and mostly out of necessity. They become very price sensitive. This means suppliers must adapt as well.
Murray Kenneth Mullen: They've become very price sensitive, and this means suppliers must adapt as well. The move by central bankers around the globe to slow inflation by raising interest rates is working.
Speaker Change: The move by central bankers around the globe to slow inflation by raising interest rates is working. Not only has the consumer been hit hard.
Murray Kenneth Mullen: Not only has the consumer been hit, but so too has business, which has slowed capital investment quite noticeably from our perspective. These get resolved. So yes, this is a different world.
Speaker Change: So, to his business, which has slowed capital investment quite noticeably from our perspective.
Murray Kenneth Mullen: But that doesn't mean there's no opportunity. At the Mullen Group, we thrive in this type of market environment, one where we capitalize on others' struggles. I believe this is the simple key to our success, and that is that we were prepared for this moment. So, for example, we didn't bite when times were abundant. We just stayed in our lane, and we were quite satisfied to generate as much free cash as we could, never overpaying or overleveraging the balance sheet with overpriced acquisitions. Why?
Speaker Change: I believe this is the simple key to our success, and that is that we were prepared for this market.
Speaker Change: So for example, we didn't bite when times were abundant, we just stayed in our lane and we executed.
Speaker Change: Being quite satisfied to generate as much free cash as we could. Never overpaying or overleveraging the balance sheet with overpriced acquisitions. Why? Because we did not believe that the policy-driven good times would last. In other words, we maintained our discipline.
Murray Kenneth Mullen: because we did not believe that the policy-driven good times would last. In other words, we maintained our dis- Another key to our success is that we take a long-term view. So, for example, over the last 30 years, we've invested in lines of business where we view the competitive landscape as more rational. This is probably the single most important reason why our business is generating solid results today. We invest in business verticals we believe can generate free cash.
Speaker Change: Another key to our success is that we take a long-term view. So, for example, over the last 30 years,
Speaker Change: We've invested in lines of business where we view the competitive landscape as more rational. This is probably the single most important reason why our business is generating solid results today. We invest in business verticals we believe can generate free cash.
Murray Kenneth Mullen: In summary, we are happy to generate cash at the top of the cycle; we do not overcommit when it seems easy, and then we grow at the bottom of the cycle when opportunity arises. The potato world is a prime example and a major contributor to our strong revenue performance in Q2. I'll just advise you, we've just started working with the team at Canadian World on how to improve the bottom line. Now it will take our senior team a few minutes. But like all other acquisitions, and we have many examples to prove this point, profitability will ultimately be an issue in the container world. This is what we do at Mullen.
Speaker Change: In summary, we are happy to generate cash at the top of the cycle, we do not overcommit when it seems easy, and then we grow at the bottom of the cycle when opportunity arises.
Speaker Change: The potato world is a prime example and a major contributor to our strong revenue performance in Q2.
Speaker Change: I'll just advise, we've just started working with the team at Canadian World on how to improve the bottom line.
Speaker Change: Now, it will take our senior team a few quarters, but like all other acquisitions, and we have many examples to prove this point out, profitability will ultimately be enhanced at Container World. This is what we do at Mullen Group. We acquire companies, then we strive to improve performance.
Murray Kenneth Mullen: We acquire companies, then we strive to improve performance. So today, we have a large and diversified portfolio of business units that operate within multiple verticals in the economy. These business units are led by seasoned industry veterans that understand what it takes to be successful in changing markets. Quarter 2 just reinforces this.
Speaker Change: So today we have a large and diversified portfolio of business units that operate within multiple verticals in the economy.
Speaker Change: These business units are led by seasoned industry veterans that understand what it takes to be successful in changing markets. Quarter 2 just reinforces this.
Murray Kenneth Mullen: And strategically, we have invested significant capital in the less-than-truckload vertical, which just happens to be the largest component of our business but also the most stable. The specialized industrial service segment has a cyclical component to it, but it also has the most potential to overachieve in future quarters and years because the business in this segment will eventually need new capital, and this implies higher margins. The Logistics and Warehousing Statement has been bolstered by the Acquisition of Contingencies.
Speaker Change: And strategically, we have invested significant capital in the less-than-truckload vertical, which just happens to not only be the largest component of our business, but also the most stable.
Speaker Change: The specialized industrial service segment has a cyclical component to it, but it also has the most potential to overachieve in future quarters and years because the business in this segment will eventually need new capital, and this implies higher margins.
Speaker Change: The logistics and warehousing segment has been bolstered by the acquisition of Container World, adding another large business line to the likes of Bannister Transportation and Cleason Group.
Murray Kenneth Mullen: Adding another large business line to the likes of Bannister Transportation and Police. And lastly, the U.S. 3PL segment business remains solid, with the potential to grow as new futures like AEI are added to Silver Express, which is our proprietary IT platform on the list. So in terms of the quarter, nothing surprises us, not the market, not the economy, and not the outstanding performance by our business. We came into 24 with a realistic game plan, and we are executing on that plan. Now I'll turn the call over to Carson for more of the financial analysis, and then we'll close with the Q&A session. Carson, you are up. All right.
Speaker Change: And lastly, the U.S. 3PL segment business remains solid, with the potential to grow as new futures like AEI are added to Silver Express, which is our proprietary IT platform on Holistic.
Speaker Change: We came into 24 with a realistic game plan, and we are executing to the plan.
Speaker Change: Now I'll turn it over the call over to Carson for more of the financial analysis and then we'll close with the Q&A session. Carson, you are up.
Carson P. Urlacher: Well, thank you, Murray, and welcome everyone. As Murray mentioned, I will focus on the highlights from the second quarter, the details of which are fully explained in the second quarter interim report, which is available on CDAR Plus and on our website. So before I dive into the second quarter highlights, I would like to make a couple overarching comments to help put our second quarter results into perspective. There are a couple fundamental concepts regarding our long-term investment strategy that enables us to generate free cash every quarter.
Carson: Well, thank you, Murray, and welcome, everyone. So, as Murray mentioned, I will focus on the highlights from the second quarter, the details of which are fully explained in the second quarter interim report, which is available on CDAR Plus and on our website.
Carson: So, before I dive into the second quarter highlights, I would like to make a couple overarching comments to help put our second quarter results into perspective.
Carson P. Urlacher: First, is our acquisition strategy. As Murray pointed out, for years, we've invested in niche businesses that have a moat or a certain barrier to entry, which tend to lead to more price stability. Container World is a great example, and had we completed this acquisition at the beginning of the second quarter, our revenues would have easily been in excess of $500 million for the quarter. We also make tuck-in acquisitions that drive margin improvement at our well-managed business. The acquisition of BNR being the most recent example.
Carson: First is our acquisition strategy. As Murray pointed out, for years we've invested in niche businesses that have a moat or certain barrier to entry that tend to lead to more price stability.
Murray: Container World is a great example, and had we completed this acquisition at the beginning of the second quarter, our revenues would have easily been in excess of $500 million for the quarter.
Murray Kim: We also acquire a tuck-in acquisition that drive margin improvement at our well-managed business units, the acquisition of B&R, the most being most recent example. The second concept is our diversification. Over 40 business units each operate in their own region and are leveraged to a distinct vertical of the economy. The diversification is stability and predictability to our free cash flows. In the second quarter, consolidated revenues were 495.6 million, which is fairly consistent compared to last year, as acquisitions added 26.9 million of incremental revenue. Most notably from the two months of financial results from Container World. The main reason revenue is generally flat year over year was due to the lower demand for major construction projects, including pipelines, as both the Trans Mountain Expansion Project and the coastal gasoline pipeline project had essentially been completed.
Murray: We also acquire tuck-in acquisitions that drive margin improvement at our well-managed business units. The acquisition of B&R being the most recent example.
Carson P. Urlacher: The second concept is our diversification. Over 40 business units each operate in their own region and are leveraged to a distinct vertical of the economy. Diversification adds stability and predictability to our free cash flow. In the second quarter, consolidated revenues were $495.6 million, which is fairly consistent compared to last year, as acquisitions added $26.9 million of incremental revenue, most notably from the two months of financial results from Container War. The main reason revenue was generally flat year over year was due to the lower demand for major construction projects, including pipelines, as both the Trans Mountain Expansion Project and the Coastal Gas Link Pipeline Project have essentially been completed. Overall, freight demand was negatively impacted as suppliers and manufacturers were reluctant to increase inventory levels.
Murray: The second concept is our diversification. Over 40 business units each operate in their own region and are leveraged to a distinct vertical of the economy. Diversification adds stability and predictability to our free cash flows.
Murray: In the second quarter, consolidated revenues were $495.6 million, which is fairly consistent compared to last year as acquisitions added $26.9 million of incremental revenue, most notably from the two months of financial results from Container World.
Speaker Change: The main reason revenue is generally flat year over year was due to the lower demand for major construction projects, including pipelines, as both the Trans Mountain Expansion Project and the Coastal Gas Link Pipeline Project have essentially been completed.
Murray Kim: Overall, freight demand was tangibly impacted as suppliers and manufacturers were reluctant to increase inventory levels. Economic activity levels slowed and can't either due to a lack of capital investment in the private sector. That said, revenue per working day declined by a modest $100,000 per day to $7.7 million in the quarter. However, as at June 2024, revenue per working day improved to $8.3 million. This increase was mainly due to the incremental revenue generated from the Container World acquisition. This trend is consistent from a seasonality perspective as we head into Q3, which is now typically our strongest quarter of the year.
Murray: Overall, freight demand was negatively impacted as suppliers and manufacturers were reluctant to increase inventory levels. Economic activity levels slowed in Canada due to a lack of capital investment in the private sector.
Carson P. Urlacher: Economic activity levels slowed in Canada due to a lack of capital investment in the private sector. That said, revenue per working day declined by a modest $100,000 per day to $7.7 million in the quarter. However, as of June 2024, revenue per working day improved to $8.3 million. This increase was mainly due to the incremental revenue generated from the Container World acquisition. This trend is consistent from a seasonality perspective as we head into Q3, which is now typically our strongest quarter of the year.
Murray: That said, revenue per working day declined by a modest $100,000 per day to $7.7 million in the quarter.
Murray: However, as at June 2024, revenue per working day improved to $8.3 million. This increase was mainly due to the incremental revenue generated from the Container World acquisition.
Murray: This trend is consistent from a seasonality perspective as we head into Q3, which is now typically our strongest quarter of the year.
Carson P. Urlacher: We generated a YBDA of $85.7 million, an increase of $2.3 million compared to the prior year, and it's the second highest Q2 ever recorded at Mullen Group Ltd., second only to Q2 of 2020. Acquisitions added $4.7 million to OYBDA, and we also experienced improved results in our LTL segment. These increases were somewhat offset by lower OIBDA in the LMW segment and from higher corporate operating expenses. Operating margin improved to 17.3% as compared to 16.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher-margin specialized... And DOE as a percentage of consolidated revenues decreased by 0.8%, as our business units did a great job adapting to the current market conditions and controlling. S&A expenses as Now, let's take a closer look at how we perform by segment.
Murray Kim: We generated a YBDA of 85.7 million, and increased up to $2.3 million compared to prior year, and is the second highest Q2 ever recorded at my own group. Second only to Q2 of 2022. Acquisitions added $4.7 million of a YBDA, and we also experienced improved results in our NLTL segment. These increases were somewhat offset by lower a YBDA in the LW segment and from higher corporate costs. Operating margin improved to 17.3% as compared to 16.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher margins specialized business. DOE is a percentage of consolidated revenues decreased by 0.8% as our business units did a great job adapting to the current market conditions and controlling costs.
Murray: We generated a YBDA of $85.7 million, an increase of $2.3 million compared to prior year, and it's the second highest Q2 ever recorded at Mullen Group, second only to Q2 of 2022.
Murray: Acquisitions added $4.7 million of OIBDA, and we also experienced improved results in our LTL segment. These increases were somewhat offset by lower OIBDA in the L&W segment and from higher corporate costs.
Murray: Operating margin improved to 17.3% as compared to 16.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher margin specialized business.
Murray: DOE is a percentage of consolidated revenues decreased by 0.8% as our business units did a great job adapting to the current market conditions and controlling costs.
Murray Kim: SNA expenses as a percentage of consolidated revenue increased, resulting from higher costs experienced that container world, and from the relatively fixed nature of these expenses.
Murray: S&A expenses as a percentage of consolidated revenue increased, resulting from higher costs experienced at Container World, and from the relatively fixed nature of these expenses. Now let's take a closer look at how we perform by segment.
Murray Kenneth Mullen: Now let's take a closer look at how we perform by segment. So starting with our largest segment, revenues in the LTL segment were 189.8 million, down 3.6 million from last year due to a softening in overall freight demand, and really from us demarkening underperforming business. These declines were somewhat offset by 1.8 million of incremental revenue from acquisitions. OYBDA was 37.5 million, up 3 million from last year despite lower segment revenue, while operating margins improved by 2% to 19.8%. The main reason for the improved operating margin was due to how we integrated BNR's LTL operations at the start of the year into our existing network, which drove greater lane density, as well as using our existing technology platform resulted in more efficient operating.
Carson P. Urlacher: We're starting with our largest segment; revenues in the LTL segment were $189.8 million, down $3.6 million from last year due to a softening in overall freight demand and really from us demarketing underperforming. These declines were somewhat offset by $1.8 million of incremental revenue from acquisitions. OIBDA was $37.5 million, up $3 million from last year despite lower segment revenue, while operating margins improved by 2% to $19.8 million The main reason for the improved operating margin was due to how we integrated BNR's LTL operations at the start of the year into our existing network, which drove greater lane density as well as used our existing technology platform which resulted in more efficient operations.
Murray: So, starting with our largest segment, revenues in the LTL segment were $189.8 million, down $3.6 million from last year due to a softening in overall freight demand, and really from us demarketing underperforming business.
Murray: These declines were somewhat offset by $1.8 million of incremental revenue from acquisitions.
Murray: OIBDA was $37.5 million, up $3 million from last year despite lower segment revenue, while operating margins improved by 2% to 19.8%.
Murray: The main reason for the improved operating margin was due to how we integrated BNR's LTL operations at the start of the year into our existing network, which drove greater lane density as well as using our existing technology platform resulted in more efficient operations.
Murray Kim: So a great tuck-in acquisition for resulting in margin improvement.
Murray: So, a Crete Tuck-in Acquisition resulting in margin improvement.
Carson P. Urlacher: So the Crete Tuck-in Act was resulting in large, Our second largest segment is our LMW segment. Revenues in the LMW segment were $150.9 million, up $8 million from last year. Acquisitions added $22.2 million of incremental revenue, which was somewhat offset by lower revenue generated by our existing business units due to shippers electing to keep a tight rein on inventory levels, a lack of capital investment, and competitive pricing in certain markets. OIBDA was $29 million, down $1 million from last year, due to lower revenues generated by our existing business units excluding acquisitions.
Murray Kim: Our second largest segment is our LNW segment; revenues in the LNW segment were 150.9 million, up 8 million from last year. Acquisitions added 22.2 million of incremental revenue, which was somewhat offset by lower revenue generated by our existing business units due to shippers electing to keep a tight reign on inventory levels, a lack of capital investment, and from competitive pricing in certain markets. OIBDA was 29 million, down a million from last year, due to lower revenue generated by our existing business units, excluding acquisitions. This decrease was somewhat offset by 4.2 million of OIBDA generated by Container World.
Murray: Our second largest segment is our L&W segment. Revenues in the L&W segment were $150.9 million, up $8 million from last year.
Murray: Acquisitions added $22.2 million of incremental revenue, which was somewhat offset by lower revenue generated by our existing business units due to shippers electing to keep a tight rein on inventory levels, a lack of capital investment, and from competitive pricing in certain markets.
Murray: OIBDA was $29 million, down $1 million from last year, due to lower revenues generated by our existing business units excluding acquisitions. This decrease was somewhat offset by $4.2 million of OIBDA generated by Container World.
Carson P. Urlacher: This decrease was somewhat offset by $4.2 million of OIBDA generated by container, primarily due to a more competitive pricing environment. Now moving to our S&I segment, revenues were up $2.3 million to $109.6 million, which was mainly due to $2.9 million of incremental revenue from acquisitions. Our remaining business units in the segment generated relatively consistent revenue compared to last year. This is really a testament to our diversification strategy. The completion of the Trans Mountain and Coastal Gas Projects resulted in a $9.1 million reduction in revenue from pre-made pipelines, and Canadian Dewatering also experienced lower demand for their services.
Murray Kim: Operating margins declined by 1.8 percent to a respectable 19.2 percent, primarily due to a more competitive pricing environment.
Murray: Operating margins declined by 1.8 percent to a respectable 19.2 percent, primarily due to a more competitive pricing environment.
Murray Kenneth Mullen: Now, moving to our S&I segment, revenues were up 2.3 million to 109.6 million, which was mainly due to 2.9 million of incremental revenue from acquisitions. For a remaining business units in the segment, generated relatively consistent revenue compared to last year. This is really a testament to our diversification strategy. The completion of the Trans Mountain and Coastal Gas projects resulted in a $9.1 million reduction in revenue of pre-made pipeline, and Canadian D-Watern also experienced lower demand for their services. Meet declines were offset by higher revenue generated by our drilling-related services business units, as activity levels in the Western Canadian Sedimentary Base and increase.
Murray: Now moving to our S&I segment, revenues were up $2.3 million to $109.6 million, which was mainly due to $2.9 million of incremental revenue from acquisitions.
Murray: Our remaining business units in the segment generated relatively consistent revenue compared to last year. This is really a testament to our diversification strategy.
Murray: The completion of the Trans Mountain and Coastal Gas projects resulted in a $9.1 million reduction in revenue of Pre-May Pipeline, and Canadian Dewatering also experienced lower demand for their services.
Carson P. Urlacher: These declines were offset by higher revenue generated by our drilling-related services business as activity levels increased in the Western Canadian Sedimentary Basin. In addition, our production services business units benefited from the commencement of plant turnaround and maintenance. Our business units participate in large capital projects like Trans Mountain and Coastal Gas from the beginning to its ongoing use, whereby we assist in the construction phase, to eventually filling the pipelines through our experience in providing support services to the natural gas drilling activity, as well as maintenance and turnaround work.
Murray: These declines were offset by higher revenue generated by our drilling-related services business units, as activity levels in the Western Canadian Sedimentary Basin increased.
Murray Kim: In addition, our production services business units benefited from the commencement of plant-turnaround a maintenance project. Our business units participate in large capital projects like Trans Mountain and Coastal Gas from the beginning to its ongoing use, whereby we assisted in the construction phase, to eventually filling the pipelines through our exposure, the providing support services to the natural gas drilling activity, as well as maintenance and turnaround work. OIBDA was 23.5 million, up 2.9 million from last year on higher OIBDA generated by our production services and drilling-related services business units. Operating margins increased by 2.2% to 21.4% despite the loss of higher-margin pipeline construction work.
Murray: In addition, our production services business units benefited from the commencement of plant turnaround and maintenance projects.
Murray: Our business units participate in large capital projects like Trans Mountain and Coastal Gas from the beginning to its ongoing use, whereby we assisted in the construction phase.
Murray: to eventually filling the pipelines through our exposure of providing support services to the natural gas drilling activity.
Carson P. Urlacher: OIBDA was $23.5 million, up $2.9 million from last year on higher OIBDA generated by our production services and drilling-related services. Operating margins increased by 2.2% to 21.4% despite the loss of higher-margin pipeline construction, due to more efficient operations, and from plant turnaround projects, which generally provide higher... In our non-asset-based US3PL segment, revenues were $46.9 million, a decrease of $3.9 million from last year due to the ongoing issue of lower freight volumes and an excess supply of trucking capacity. But despite the lower segment revenue, OIBDA was generally flat year-over-year at $800,000.
Murray: well as maintenance and turnaround work. OIBDA was $23.5 million, up $2.9 million from last year on higher OIBDA generated by our production services and drilling related services business units.
Murray: Operating margins increased by 2.2% to 21.4% despite the loss of higher margin pipeline construction work due to more efficient operations and from plant turnaround projects which generally provide higher margins.
Murray Kim: Due to more efficient operations and from plant-turn around projects, was generally provided higher margins.
Murray Kim: In our non-asset base US-3PL segment, revenues were $46.9 million, a decrease of $3.9 million from last year due to the ongoing issue. A lower freight volumes and excess supply of trucking capacity creating competitive market conditions. But despite the lower segment revenue, OIBDA was generally flat year over year at $800,000. Operating margin on a net revenue basis improved to 20% compared to 18.8% last year.
Murray: In our non-asset-based US3PL segment, revenues were $46.9 million, a decrease of $3.9 million from last year due to the ongoing issue of lower freight volumes and excess supply of trucking capacity, creating competitive market conditions.
Murray: But despite the lower segment revenue, OIBDA was generally flat year-over-year at $800,000.
Carson P. Urlacher: Operating margin on a net revenue basis improved to 20% compared to 18.8% last year. Now, moving to the balance sheet. On July 10th, 2024, we announced the closing of approximately 400 million private places. There was strong demand from the bond markets, and the offering was significantly oversubscribed, mainly due to our disciplined approach to acquisition. Our large real estate portfolio and our ability to generate free cash through all business cycles. These 10-year long-term notes match our long-term investment strategy and once again provide us with a well-structured balance sheet for the next decade. We intend to use these funds to repay the $217 million notes that are maturing in October.
Murray: Operating margin on a net revenue basis improved to 20% compared to 18.8% last year.
Murray Kim: Now moving to the balance sheet. On July 10, 2024, we announced the closing of approximately $400 million of private place of debt. There were strong demand from the bond markets and the offering was significantly over-subscribed. Mainly due to our disciplined approach to acquisitions, our large real estate portfolio, and our ability to generate free cash through all business cycles.
Murray: Now moving to the balance sheet.
Murray: On July 10, 2024, we announced the closing of approximately $400 million of private placement debt. There was strong demand from the bond markets, and the offering was significantly oversubscribed.
Murray: mainly due to our disciplined approach to acquisitions, our large real estate portfolio, and our ability to generate free cash through all business cycles.
Murray: These 10-year long-term notes match our long-term investment strategy and, once again, provides us with a well-structured balance sheet for the next decade. We intend to use these funds to repay the $217 million notes that are maturing in October , and we also use a portion of these funds to repay the amounts drawn on our bank credit facilities.
Carson P. Urlacher: And we also use a portion of these funds to repay the amounts drawn on our bank credit facility. Speaking of the bank credit facilities, in conjunction with closing the private debt deal, we upsized our facilities from $375 million to $525 million, which is currently undrawn, giving us significant short-term liquidity. Excluding the notes being repaid in October of 2024, the principal amount outstanding on our private placement debt is approximately $608 million, and that's net of the cross-currency swap. This amount is less than the $655 million we have in historical costs on our real estate owner balance.
Murray: Speaking of the bank credit facilities, in conjunction with closing the private debt deal, we upsized our facilities from $375 million to $525 million, which is currently undrawn, giving us significant short-term liquidity.
Murray: Excluding the notes being repaid in October of 2024, the principal amount outstanding on our private placement debt is approximately $608 million. That's net of cross-currency swaps.
Murray: This amount is less than the $655 million we have in historical costs on our real estate owner balance sheet.
Carson P. Urlacher: Our new blended interest rate, excluding the notes being repaid in October, is approximately 5.3% per annum. So, in summary, our balance sheet is well positioned to take advantage of opportunities that come our way, whether it be tuck-in acquisitions that improve and drive margin improvement, or if we see a new vertical that we will continue to diversify our business. So with that, Murray, I will pass the call back. Great job.
Murray: Our new blended interest rate, excluding the notes being repaid in October , is approximately 5.3% per annum.
Murray: So, in summary, our balance sheet is well-positioned to take advantage of opportunities that come our way, whether it be tuck-in acquisitions that improve and drive margin improvement, or if we see a new vertical that will continue to diversify our business model.
Murray: So, with that, Murray, I will pass the call back to you. Great job. Thanks, Carson.
Murray Kenneth Mullen: Thanks, Carson. Now, just before we get into the last, what the last half of 24 might look like. Let me take you back to our 2-1-24 conversation. On that call, I reiterated that in our 23 financial review, we expected the first half of 24 to be soft, and that economic activity would be slow, but might start gaining momentum as the year progressed, as long as central bankers started lowering interest rates. Today, it appears, at least from the Bank of Canada's perspective, that they now recognize that the economy has slowed dramatically.
Murray: Now, just before we get into the last, what the last half of 24 might look like and...
Murray: ...give you what we call the outlook. Let me take you back to our Q1-24 conference call.
Murray: Now, on that call, I reiterated that in our 23 financial review, we expected the first half of 24, it would be soft and that economic activity might start gaining momentum as the year progressed, as long as central bankers started lowering interest rates.
Murray: Well, today it appears, at least from the Bank of Canada's perspective, that they now recognize that the economy has slowed dramatically. In fact, Mr. Macklem noted in his most recent remarks,
Murray Kenneth Mullen: In fact, Mr. Macklin, I want to see economic growth pick up. So maybe, just perhaps, the economy might start turning. But, as you know, hope isn't on a stretcher. So we'll stay true to our plan, and that means the only way to grow in the short term is via acquisitions, preferably, and Carson mentioned this, through tuck-ins, because this is one of the surest ways we know of to drive margin improvement. And on margin improvement, we're going to stay laser focused on margins. In fact, we will sacrifice growth as we endeavor to increase it.
Speaker Change: I quote, that they want to see economic growth pick up. So maybe, just perhaps, the economy might start turning a corner soon. At least that's our hope.
Speaker Change: But as you know, hope is not a strategy.
Speaker Change: So we'll stay true to our plan, and that means the only way to grow in the short term is via acquisitions, preferably, and Carson mentioned this, through the tuck-ins, because this is one of the surest ways we know of to drive margin improvement.
Speaker Change: And on margin improvement, we're going to stay laser-focused on margins. In fact, we will sacrifice growth as we endeavor to increase margins.
Murray Kenneth Mullen: Margin improvement is our highest priority today. Last quarter, we generated some decent results, especially within the context of the slowdown in consumer spending and the dramatic decline in capital investment in Canada. And furthermore, you will recall that the major pipeline projects in Western Canada have been completed, leaving quite a void in terms of economic activity, especially in Western Canada.
Carson: Margin improvement is our highest priority today.
Speaker Change: Last quarter.
Speaker Change: We generated some decent results, especially within the context of the slowdown in consumer spending and the dramatic decline in capital investment in Canada. And furthermore, you will recall that the major pipeline projects in Western Canada have been completed, leaving quite a void in terms of economic activity, especially in Western Canada. Yet despite these headwinds, our results are pretty acceptable.
Murray Kenneth Mullen: Yet, despite these headwinds, our results are pretty acceptable, so our belief is that we can build off of these results during the last half of 2024. And while we're not predicting any meaningful growth in the economy quite yet, we believe that demand has stabilized across most verticals we serve. In other words, we believe we have a bit of momentum on our side, and with the potential to add additional revenue through M&A. That's our plan, but I remind everyone that we are more than just disciplined; we are picky when it comes to acquisitions. We will not chase growth.
Speaker Change: So our belief is that we can build off of these results during the last half of 2024. And while we're not predicting any meaningful growth in the economy quite yet, we believe that demand is stabilized across most verticals we serve.
Speaker Change: In other words, we believe we have a bit of a momentum on our side, and with the potential to add additional revenue through M&A,
Speaker Change: That's our plan, but I remind everyone.
Speaker Change: We are more than just disciplined. We are picky when it comes to acquisitions. We will not chase growth. On the other hand, we will aggressively pursue opportunities that can help drive margin growth.
Murray Kenneth Mullen: On the other hand, we will aggressively pursue opportunities that can help drive margin growth. Now, lastly, let me just speak to the... There really are two important reasons why the board decided to increase the amount of given and unpayable insurance.
Speaker Change: Now lastly, let me just speak to the dividend.
Speaker Change: There really are two important reasons why the board decided to increase the amount of give and end payable to shareholders.
Murray Kenneth Mullen: Firstly, it should be obvious now that we have a constructive view of the prospects of our business. And, secondly, we now have the balance sheet in place where we are both comfortable for the longer term and for pursuing our acquisition strategy. So, starting in September.
Speaker Change: Firstly,
Speaker Change: It should be obvious now that we have a constructive view for the prospects of our business. And secondly, we now have the balance sheet in place where we are both comfortable for the longer term and for pursuing our acquisition strategy.
Murray Kenneth Mullen: Your monthly dividend increases to 7 cents. And last quarter, I reiterated that your dividend is sacred. So with today's announcement, your dividend just increased by nearly 7%. So thank you for joining us, and now let's go straight to it. Thank you. To join the question queue, you may press star then 1 on your telephone keypad.
Speaker Change: So, starting in September .
Speaker Change: Your monthly dividend increases to $0.07 per share per month, $0.84 annually, and last quarter I reiterated that your dividend is sacred. So with today's announcement, your dividend just increased by nearly 17%. So thank you for joining us, and now let's go straight to the Q&A.
Speaker Change: Thank you. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request.
Operator: You will 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 two. The first question comes from Konark Gupta with Scotiabank. Please go ahead. And good morning, everyone. Good morning, Murray.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2.
Speaker Change: The first question comes from Konark Gupta with Scotiabank. Please go ahead.
Konark Gupta: Murray, you mentioned, you know, like the second quarter was pretty good, I know, but you also mentioned that you are seeing some stability across your business. I just wanted to kind of dig in a little bit here, especially on the freight side. You know, from what a lot of your competitors are telling or saying or reporting, it seems like, you know, we are still kind of finding an inflection point in the market. So I just want to kind of like get your thoughts.
Konark Gupta: Good morning, everyone.
Konark Gupta: Morning. Morning, Murray. Murray, you mentioned, you know, like the second quarter was pretty good, I know, but you also mentioned that you are seeing some stability.
Konark Gupta: I just wanted to dig in a little bit here, especially on the freight side, from what a lot of your competitors are telling or saying or reporting.
Speaker Change: Seems like, you know, we are still kind of finding an inflection point in the market. So, I just want to kind of like grab your thoughts. Where do you see the stability and where do you see sort of green shoots in your businesses today? And what could be your differentiating factors versus, you know, some of those competitors who are still struggling?
Murray Kenneth Mullen: Where do you see the stability, and where do you see sort of green shoots in your businesses today? And what could be your differentiating factors versus, you know, some of those competitors who are still struggling? Well, you're spot on. You know, most of our competitors, and we're talking about our public company competitors or those of us that are in supply chain logistics. It doesn't matter if it's real or my fellow competitors in trucking, blah, blah, blah.
Speaker Change: Well, you're spot on, is that...
Speaker Change: You know, most of our competitors, you know, and we're talking about our public company competitors or those of us that are in the supply chain logistics.
Speaker Change: It doesn't matter if it's real or my fellow competitors in trucking, blah, blah, blah.
Murray Kenneth Mullen: But at the end of the day, I think all of us see the same thing at the same time. The market looks like demand is stabilized. It doesn't appear to be going down anymore, which is really good news. So that's the good news, Konark, is that it's stabilized. But the other part of that is, if you're in the wrong verticals, it's stabilized, and it's cracked.
Speaker Change: But at the end of the day, I think all of us see the same thing at the same time.
Speaker Change: which is the market, it looks like demand is stabilized. It doesn't appear to be going down anymore, which is really good news. The supply chain...
Speaker Change: Issues have generally been have been resolved.
Speaker Change: So that's the good news, Konark, is that it's stabilized.
Speaker Change: The other part of that is, though, if you're in the wrong verticals, it's stabilized and it's crappy. Like, it's, you know, it's stabilized at virtually variable cost. So if you're in the wrong verticals, it's still going to be a tough grind in our view.
Murray Kenneth Mullen: Like it's, you know, they're stabilized at virtually variable cost. So if you're in the wrong verticals, it's still going to be a tough grind in RV. But not every vertical is in that position. Every vertical has become more competitive. For the general part, we have avoided investing in those verticals over the years. But most of our competitors, you know, everybody, everybody wants it to improve. We do, too.
Speaker Change: But not every vertical is in that position. Every vertical has gotten more competitive, but some have become ridiculously competitive. But for the general part, we have avoided investing in those verticals over the years.
Murray Kenneth Mullen: But It's going to take some time for it to prove. Our point is we think it's stabilized. And we think that the verticals that we're in and the businesses that we've got, they'll be able to hold their own and, as the competitive competition, the little guys are really getting squeezed, Konark, in this market. That might take a couple more quarters, but it's just going to be part of a natural cycle, in our view. We're pretty good. Okay, that makes sense. Thanks for that.
Speaker Change: Bye.
Speaker Change: And we think that the verticals that we're in and the businesses that we've got, they'll be able to hold their own and as the competition
Speaker Change: You know, customers will have no choice to that to.
Speaker Change: That might take a couple more quarters, but it's just going to be part of a natural cycle in our view.
Speaker Change: We're situated pretty good.
Konark Gupta: In the case of M&A, if you can help us map out the lay of the land, the new debt issuance and the payment or the retirement coming up in October, plus the facilities you have, so a net net, it seems like you have maybe more than half a billion of capital to deploy. How do you want to allocate the capital here? Like the dividend obviously is growing, I don't think it's going to have a huge impact on our consumption of your capital, maybe, but you continue the buybacks.
Speaker Change: Okay, that makes sense. Thanks for that.
Speaker Change: In terms of M&A, if you can help us map out the lay of the land.
Speaker Change: The new debt issuance and the payment or the diamond coming up in October , plus the facilities you have, so a net-net, it seems like you have.
Speaker Change: Maybe more than half a billion of capital to deploy.
Speaker Change: How do you want to allocate the capital here? Dividend, obviously, is growing. I don't think it's going to be a huge impact or consumption on your capital, maybe, but you continue the buybacks. How much do you really want to put aside for M&A?
Konark Gupta: How much do you really want to kind of put aside for M&A and where are you seeing sort of more imminent opportunities? Well, now that's, you know, that's a really important discussion that we have at the senior executive level and at the board level too, which is about M&A, which implies growth. That implies growth on the top line. But it doesn't always really translate into the bottom line or in free cash. It is complicated, and we are extremely disciplined, Konark. I do not change.
Speaker Change: And where are you seeing sort of more imminent opportunities?
Speaker Change: Well, now that's, you know, that's a really...
Speaker Change: Deep discussion that we have at the senior executive level and at the board level too, which is M&A, which implies growth.
Speaker Change: That implies growth on the top line. It doesn't always really translate into bottom line or free cash.
Speaker Change: Acquisitions, particularly major acquisitions, are...
Speaker Change: Complicated, and we are extremely disciplined, Konark. I do not chase...
Murray Kenneth Mullen: I want every acquisition we do to have the ability for us to generate free cash over and above our cost of capital. That's why we say to you, the easiest ones, the best ones, the ones that give us the best opportunity for us to drive margin growth are tuck-ins, because we already have the infrastructure in place, we already have great, And, you know, realistically, you get rid of an undisciplined market player. It's really not art.
Speaker Change: I want to every acquisition we do must have
Speaker Change: the ability for us to generate free cash over and above our cost of capital.
Speaker Change: That's why we say to you the easiest ones, the best ones, the ones that give us the best opportunity for us to drive margin growth is tuck-ins because we already have the infrastructure in place. We already got great
Speaker Change: We are a small company, we have a few seasoned management teams and all we have to do is layer in more business to them and realistically you get rid of an undisciplined market platter when you do that.
Murray Kenneth Mullen: Unless we see one that is really, really strong. And that might be LTL as an example. The last big one we did, Richard, was GARPONT 2015 in the LTL business. So we're picky. We're not going to lose that discipline, I can tell you right now. That's not going to happen, and every acquisition that we do, we will do it to drive margin. I'm not doing it just for top-line growth; that's a fool's game, in my view. We're not pursuing that strategy. That means we've got lots of capital available. Carson just explained that we have a lot of capital available.
Speaker Change: It's really not our game, unless we see one that is really, really strategic.
Speaker Change: And, you know, that might be LTL as an example, as the last big one we did, Richard, was GARP One. And that was 2015, in the LTL business.
Speaker Change: So, we're picky.
Speaker Change: We're not going to lose that discipline, I can tell you right now. That's not going to happen. And every acquisition that we do, we will do it to drive margin improvement.
Speaker Change: I'm not doing it just for top line growth. That's a fool's game in my view.
Speaker Change: We're not pursuing that strategy. That means we've got lots of capital available. Carson just explained that. We've got a lot available, and we can use that to continue to invest in the strong business verticals we've got.
Murray Kenneth Mullen: Continue to invest in the strong business verticals we've got. The little shareholders that we've got, the individuals that invests in our stock, and we have a lot of... The dividend is very, very important. We've got some big shareholders, big funds that are in us; that's not important to them, but to the small investor, the increased dividend is very, very important. So we took the path that says, you know what? We're going to look after those. The Little Shareholder
Carson: And some tuck-in acquisitions, and we'll give the rest of the money back to shareholders. And then it's, when you give it back to shareholders, it's either through dividend or share buyback. And I think we've, with the dividend increase, we've highlighted is that...
Speaker Change: The little shareholders that we've got, the individual that invests in our stock, and we have a lot of them.
Speaker Change: The dividend is very, very important to them.
Speaker Change: We've got some big shareholders, big funds that are in us, that's not important to them, but to the small investor, the increased dividend,
Speaker Change: It's very, very important. So we took the path that says, you know what, we're going to look after those, the little shareholder and we gave them a nice return because our balance sheet's in great shape and our business is solid.
Konark Gupta: We gave them a nice return because our balance sheet's in great shape and our business is sold. That's our strategy. Makes sense. Thanks so much for the answers.
Speaker Change: That's our strategy.
Speaker Change: That makes sense. Thanks so much for the answers. Thank you.
Operator: Thank you. The next question comes from David Ocampo with Konark Securities. Please go ahead. Thanks. Good morning, everyone.
Speaker Change: The next question comes from David Ocampo with Konark Securities. Please go ahead.
David Ocampo: Hey David, morning. Murray, just speaking of verticals that are operating on thin margins, I think in your MD&A, you guys did call out exiting some businesses in the specialized and industrial space that aren't meeting your return thresholds. And it may be a bit too early to comment on that, but maybe you can speak to some of the general pockets that you're seeing that are no longer attractive, and maybe even comment on whether that's a large portion of One is, like, we just don't have any businesses that are generating some type of cash. We will shut them down. We don't have to wait.
David Ocampo: Thanks. Good morning, everyone.
Speaker Change: Hey David, good morning.
Speaker Change: And Murray, just speaking of verticals that are operating on thin margins, I think in your MD&A you guys did call out exiting some businesses.
Speaker Change: In the specialized and industrial space that aren't meeting your return thresholds, and it may be a bit too early to comment on it, but maybe you can speak to some of the general pockets that you're seeing that are no longer attractive, and maybe even commenting if that's a large portion of your S&I book.
Speaker Change: On the verticals, there's two parts of the verticals that don't meet the
Speaker Change: We just don't have any businesses that aren't generating some type of cash. We'll shut them down. We don't wait on them. Where we get concerned, David, is we start taking a look, and this is primarily in the specialized side, where
Murray Kenneth Mullen: Where we get concerned, David, is we start taking a look, and this is primarily in the specialized side where they are unable to justify those capital replacement cycles, so we said, well, we might as well cut bait, and ROK Drilling and TRIO Drilling, Richard, are prime examples of that. So we just said, you know what? They might need more capital in a year or two. But we just said, you know what? We're not going to support the new capital.
David Ocampo: Future capital requirements, we don't know whether the market will...
Richard: be able to justify those capital replacement cycles. So we said, well, we might as well cut bait and our OK Drilling and TRIO Drilling, Richard, are prime examples of that. So we just said, you know what? There's no growth
Richard: They might need more capital in a year or two, we just said, you know what, we're not going to...
Murray Kenneth Mullen: So we might think, if you're not going to support it, you might as well get out of it. So, you know, that's what we're going to do. And we'll just have a transition plan for some of them. Those are not big verticals for us.
David Ocampo: Support the new capital so we might if you're not going to support it. You might as well get out of it. So You know, that's what we're going to do and we'll just have a transition plan for some of them Those are not big verticals for us Those are involved
Murray Kenneth Mullen: Those who are involved in, Right now, they're breakeven, but pretty soon, they're going to need new capital. I said, he ain't getting it, so we might as well... Take them to Ritchie Brothers and sell the assets, and we'll redeploy that capital somewhere else, right? Absolutely.
David Ocampo: We're involved in, you know, in the heydays when drilling activity was very strong, they made us a ton of money. But right now they're break-even, but pretty soon they're going to need new capital. I said, you ain't getting it, so we might as well just...
Speaker Change: Take them to Ritchie Brothers and sell the assets and we'll redeploy that capital somewhere else, right?
Murray Kenneth Mullen: Yeah, we're on that. Well, and part of that is, you know, if that comes back, you know, the people. It's hard to get the people as well.
Murray Kenneth Mullen: So we just looked at the winding this down. It was a different day and a different time in terms of how it would impact specialized and industrial services. Carson is very de minimis, virtually nothing, because we haven't been busy in those operating lines for the last... Yeah, that's correct, Rich. Those two business lines haven't really generated much, if anything, over the last couple of years. They haven't really cost us much, David, but what we're concerned about is that the capital replacement cycles start to come in, and there's not enough activity in those for us That's primarily why we decided to, I'll streamline that down. And I think the second part of your question, I think, had to do with, was it a sure buyback? No. I think that was a Konark question.
Speaker Change: If that comes back, you know, the people. It's hard to get the people as well.
Speaker Change: and the windings down. It was a different day and a different time. In terms of how it will impact specialized and industrial services Carson is very de minimis, virtually nothing. We haven't been busy in those operating lines for the last few years.
Rich: Yeah, that's correct, Rich.
Rich: Those two business lines haven't really generated much, if anything, over the last couple of years.
Rich: They haven't really cost as much, David, but what we're concerned about is that the capital replacement cycles start to come in and there's not enough activity in those for us to justify new capital. That's primarily why we decided to streamline that down in those.
David Ocampo: And I think the second part of your question I think had to do with, was it share buybacks?
David Ocampo: Just shifting gears here. I mean, container world is now under your corporate umbrella, but if I take a look at the margins, they're already pretty close to the L&W Group average. So maybe you can walk us through some of the operational improvements that you've already identified and where you see margins ultimately going once it's fully integrated.
David Ocampo: No, I think that was...
Konark Gupta: That's a Konark question.
Speaker Change: Just shifting gears here, I mean, container world is now under your corporate umbrella, but if I take a look at the margins, they're already pretty close to the L&W group average. Maybe you can walk us through some of the operational improvements that you've already identified and where you see margins ultimately going once it's fully integrated.
Murray Kenneth Mullen: So let's just be clear. Yes, they've got margins, but those margins are being eaten up by your right-of-use assets, which are really leased facilities. So the company's paying its bills. It's generating enough cash to pay its bills, but it doesn't generate free cash yet. That's where you can get a little tricked by IFRS rules, right?
Speaker Change: Yeah, so let's just be clear, Doug, yes, they've got margin.
Speaker Change: But those margins are being eaten up by your right-of-use assets, which is really lease facilities. So the company is paying its bills. It's generating enough cash to pay its bills, but it doesn't generate free cash yet.
Speaker Change: so that's
Doug: That's where you can get a little tricked by IFRS rules, right?
Murray Kenneth Mullen: So it generates EBITDA; it generates EBITDA, it pays all of its bills, but it's not generating free cash. That's where we come in as a senior team, is that we will work with them on how to drive new, better business processes, better measurement, and a better focus on the bottom line. That's where our investment, the capital investment we made in the shares, we will get that return for our shareholders. And we have a long history of improving performance in the business units that we acquire.
Doug: So it generates the EBITDA, it generates the EBITDA, it pays all of its bills, but it's not generating free cash. That's where we come in as a senior team.
Speaker Change: is that we will work with them on how to drive better business processes, better measurement, and a better focus on bottom line. That's where our investment, the capital investment we made in the shares, we will get that return for our shareholders.
Speaker Change: And we have a long history.
Speaker Change: of improving performance in the business units that we acquire. And that will be, I'm pretty sure, the same at Container World. But they've got to move away from
Murray Kenneth Mullen: That will be, I'm pretty sure, the same at Container World, but they've got to move away from running the business just to pay their bills to where we generate free cash. And that's our job, and that's what shareholders pay this senior. David, it's covering its bills, it's covering all the lease payments on a cash basis, so it's not a cash drain.
Speaker Change: We're running the business just to pay their bills to where we generate free cash and that's our job and that's what shareholders pay this senior team to do.
Murray Kenneth Mullen: But we don't invest to break even. We invest to make money. That's why we focus on free cash.
David Ocampo: David, it's covering its bills, it's covering all the lease payments on a cash basis, so it's not a cash drain. But we don't invest to break even. We invest to make money. That's why we focus on free cash. And we just saw so many opportunities there when we did our due diligence.
Murray Kenneth Mullen: And we just saw so many opportunities there when we did our due diligence. And there's some low-hanging fruit that we'll get in the short term and early next year, and then process improvements will drive margin improvements for many, many years for our shareholders because it's a great vertical. And if I can add, David, as we say, that line, as we've articulated in prior calls, that is a very difficult business to get into. This is a very strong presence with roughly 1.3 million square feet.
David Ocampo: And there's some low-hanging fruit that we'll get in the short term and early next year, and then process improvements will drive margin improvements for many, many years for our shareholders, because it's a great vertical to be in.
Speaker Change: And if I can add, David, as we say, that line, as we've articulated in prior calls, that is a very difficult business to get into.
Speaker Change: The Sufferance Bond requirements to bring alcohol and wine into the country and to move that around and the requirements to provide all the payments to the excise tax and so on. They have a very, very strong presence with roughly 1.3 million square feet.
Speaker Change: We have a lot of great people in the space in BC that gives us a great opportunity and when we bring our disciplines to this team and we have a very eager leadership team that is looking to move forward on a go-forward basis here. So we're pretty excited about the opportunity. It will take time but we think it's a great opportunity.
Murray Kenneth Mullen: [inaudible] When we bring our disciplines to this team, and we have a very eager leadership team that is looking to move forward on a go-forward basis here, so we're pretty excited about the opportunity. It will take time, but we think it's a great opportunity. Okay, that's all I had for you guys. That was perfect.
Speaker Change: Okay, that's all I had for you guys. That was perfect.
Operator: The next question comes from Cameron Doerksen with National Bank Financial. Please go ahead. Yeah, thanks. Good morning.
Speaker Change: The next question comes from Cameron Doerksen with National Bank Financial. Please go ahead.
Cameron Doerksen: I just wanted to maybe ask a little bit about the, I guess, the full year outlook. I mean, obviously, Q2 was a pretty solid quarter in a tough market, but at the beginning of the year, you kind of highlighted a target of $325 million in EBITDA. I'm just wondering what your updated thoughts are on hitting that number and, you know, just hitting the broader targets as well. Yeah, Cameron. I think that
Cameron Doerksen: Good morning. I just wanted to maybe ask a little bit about the full year outlook. Obviously, Q2 was a pretty solid quarter in a tough market, but beginning of the year you kind of highlighted a target of $325 million in EBITDA. I'm just wondering what your updated thoughts are on hitting that number and hitting the broader targets as well.
Murray Kenneth Mullen: You know, once again, you'll probably take a look, and at the end of the year, it will all shake out. Personally, I doubt if we're going to be far off the 325 we highlighted. You know, and that was totally predicated upon the fact that we thought the first part of the year would be difficult.
Speaker Change: Yeah, Cameron, I think that...
Cameron: You know, once again, you'll probably take a look and at the end of the year it will all shake out. Personally, I doubt if we're going to be far off the 325 is what we highlighted.
Cameron: You know, and that was totally predicated upon the fact we thought the first part of the year would be difficult. We cautioned everybody, this is a difficult market. In fact, I would highlight that many of our competitors
Murray Kenneth Mullen: We cautioned everybody, this is a difficult market. In fact, I would highlight that many of our competitors, both sides of the border here, North and South, were way more optimistic about the economy than we were. We were just very realistic. And we did say, but it won't last forever. But the first part's gonna be tough. Well, guess what? The first part was goddang tough.
Cameron: Both sides of the border here, North and South, were way more optimistic about the economy than what we were. We were just very realistic.
Cameron: And we did say, but it won't last forever, but the first part's going to be tough. Well, guess what? The first part was God-dang tough.
Murray Kenneth Mullen: But the central bankers will have no choice. But to help the consumers on the lower end of the scale, the average consumer that just grinds it out every day, they'll have no choice but to help them. That will stabilize our business, and we'll be just fine as it is. So yeah, I think the full-year outlook is pretty much... I feel pretty good about that.
Speaker Change: But the central bankers will have no choice.
Speaker Change: But to lower interest rates, and the governments will have no choice but to help the consumers on the lower end of the scale. The average consumer that just grinds it out every day, they'll have no choice but to help them. That will stabilize our business and we'll be just fine, is our view.
Cameron: So, yeah, I think the full year outlook is pretty much, I feel pretty good about that. You know, we're clearly on a path now of 500 again, Carson, and I think we've always said
Murray Kenneth Mullen: You know, we're clearly on a path now of 500 again, Carson, and I think we've always said, The third quarter now, traditionally, has been our... And I would expect that to show up. Because, as Carson reiterated, even in the second quarter, if we would have had Container World in for the full quarter, we would have... 505, 507 million. We would have been up nicely on revenue. I don't see much change.
Cameron: Cameron, you know, the third quarter is now traditionally has been our stronger quarter And I would expect
Speaker Change: That will show up in this quarter, because as Carson reiterated, even in the second quarter, if we would have had Container World in for the full quarter, we would have had...
505 507 million we would have been up nicely on revenue and I don't see any I don't see much change I see the market's pretty stable right now so that implies we're generating Carson somewhere around eight million eight one eight
Murray Kenneth Mullen: I see the market's pretty stable right now, so that implies we're generating, Carson, somewhere around $8 million, $8.1 million, per working day in revenue, and those kind of things. And then if we do additional M&A, that will pump up our full year. So Cameron, if you look at our trailing 12 months' OIBDA or EBITDA, we're sitting right around 320. So, you're right in that ballpark of what we articulated at the beginning.
Speaker Change: For a working day. For a working day. Of revenue. Of revenue and those kind of things.
Speaker Change: And then if we do additional M&A, that will pump up our full year of guidance.
Speaker Change: So Cameron, if you look at our trailing 12 months OIBDA, EBITDA, we're sitting right around $320 million. So you're right in that ballpark of what we articulated at the beginning of the year.
Murray Kenneth Mullen: So we're coming into the back half of 2024. In Q2, we were up a little bit in EBITDA this quarter compared to last year, very close to what we articulated when we came up with the budget. Okay, no, that's very good.
Speaker Change: So, coming into the back half of 2024, Q2, we were up a little bit in EBITDA this quarter compared to last year. The trend is very close to what we articulated when we came out with the budget in January .
Cameron Doerksen: Maybe just a quick follow-up on the M&A and balance sheet, just sort of wondering about your comfort level around leverage at this point. I mean, obviously, you've got a little more stable market, free cash flow is good, but just wondering where you'd potentially take the leverage if you were to get more aggressive on the Tuck and M&A. I think it would be a major transaction. I don't think we'd be comfortable in... We've got lots of bank lines available, but we'd be awfully careful of stretching that over. If we see a great opportunity, like a superstar opportunity, yes, we will stretch, and then we'll go back to shareholders and say, look, let's do it again.
Cameron: Okay, that's very good. Maybe just a quick follow-up on the M&A and...
Speaker Change: Balance sheet, just sort of wondering about your comfort level around leverages at this point. I mean, obviously, you got a little more stable market, free cash flow is good. But just wondering, you know, where you'd potentially take the leverage to if you were to get more aggressive on the Tuck and M&A.
Cameron: [inaudible]
Speaker Change: I think it would be a major transaction.
Speaker Change: If we see a great opportunity, like a superstar opportunity, yes, we will stretch and then we'll go back to shareholders and say, look, let's do it again.
Murray Kenneth Mullen: You know what? I can tell you we can continue to talk here all day long with the balance sheet we have and with the cash we generate, and that will help us drive our revenue growth, but more importantly, drive our margins. So, don't look for us to go do a monster deal. We've grown. You know what? We've doubled the company since COVID hit. Revenue side and everything else, and I go. We've grown a whole bunch, whatever, where we're now focused 100% on margin improvement. In fact, if you go to March,
Speaker Change: You know what, I can tell you we can continue to talk ends.
Speaker Change: All day long, with the balance sheet we got and with the cash we generate, and that will help us drive our revenue growth, but more importantly, drive our margin improvement. So, don't look for us to go do a monster deal. We've grown...
Cameron: You know what, we've doubled the company since COVID hit, since 2020.
Cameron: Revenue side and everything else and I go
Speaker Change: We've grown a whole bunch. We're now focused 100% on margin improvement. In fact, if you go to margin,
Murray Kenneth Mullen: In 2020, our operating margin was 21.4%. And then we grew like a son of a gun, and we acquired companies, and we're still working on improving the margins of these business units. And we hit the low point in 23 at 16.9, but we're on our way back up, 17.3 this quarter. And in fact, if you back out our U.S. 3PO biz, which is a low margin business but has no capital requirements, we'd have been 18.9%.
Speaker Change: In 2020, our operating margin was 21.4%.
Speaker Change: And then we grew like a son of a gun, and we acquired companies, and we're still working on improving the margins of these business units.
Cameron: And we hit the low point in 23 at 16.9, but we're on our way back up, 17.3 this quarter.
Cameron: And in fact, if you back out our U.S. 3PL business, which is a low-margin business but has no capital requirements, we'd have been 18.9%. So our focus is right now 100% on operating margin, not growth. We've already done the growth.
Murray Kenneth Mullen: So our focus is right now 100% on operating margin, not growth. We've already done the growth. We're just going to make more money now, and then when we get more money, we'll give it back to shareholders, probably in the form of a dividend, to be honest. That's what we've highlighted. Everything costs more, and these people do not, our smaller enterprises do not want to compete anymore, so we get calls virtually daily from people looking to sell. We will not buy them all, but we will look at ones that fit in, and as tucking in implies, doesn't mean we're going to go and overpay for them. I'll use B&R as an example.
Speaker Change: We're just going to make more money now, and then when we get more money, we'll give it back to shareholders, probably in the form of dividend, to be honest with you.
That's what we've highlighted. Cameron, I think it's worth pointing out as well, in terms of M&A, the phone, the emails are constant right now, with smaller, medium-sized companies who are looking.
to sell, because as we've projected and prognosticated, the operating environment is very difficult now with higher interest rates, labor costs that are sticky.
Speaker Change: Everything costs more, new people do not, smaller enterprises do not want to compete anymore, so we get calls virtually daily on looking to sell. We will not buy them all, but we will look at ones that tuck in, and as tuck in implies, it doesn't mean we're going to go and overpay for them.
Murray Kenneth Mullen: Last year we bought B&R; we looked at, and you see our operating results within the LTL side, which, as we pointed out in the report, MD&A, that we tucked them into Highway 9 and which both reported improved results. We are now going to destinations with fuller traders; that's called lane density and load factors. Those are the types of M&A opportunities we're going to look at, not some giant. The easiest way for me to really summarize it, Cameron, for everybody that's on the line and all of our shareholders, is this: We're not going big.
I'll use B&R as an example, last year we bought B&R, we looked at it and we see our operating results within the LTL side, which as we pointed out in the report, MD&A, that we tucked them into Highway 9 and Grimshaw, which both reported improved results. We are now...
Speaker Change: going to destinations with fuller trailers, that's called lane density and load factor. Those are the types of M&A opportunities we're going to look at, not some giant.
The easiest way for me to really summarize it, Cameron, for everybody that's on the line and all of our shareholders, investors, we're not going big game hunting.
Cameron Doerksen: We're going to be pinpoint accurate, and we're out to improve. Hopefully, that clarifies our M&A. Absolutely. It makes total sense. Appreciate the call. Thanks very much.
We're going to be pinpoint accurate and we're out to improve margins.
Hopefully, that clarifies our M&A strategy for you.
Cameron Doerksen: Absolutely, it makes total sense. I appreciate the call. Thanks very much.
Operator: The next question comes from Walter Spracklin at RBC Capital Markets. Please go ahead. Yeah, thanks very much, operator. So, Murray, I'm going to ask kind of the same question, but more in the context of your share price. I mean, you know, obviously having a good run here today, but still, even after today's run, it's only up 3% year to date. Your valuation, I mean, you got an 11% free cash flow yield now. You're trading at, by my metric, a 40% discount to your two Canadian peers.
Thank you.
The next question comes from Walter Spracklin at RBC Capital Markets. Please go ahead.
Thanks very much, operators. So, Murray, I'm going to ask you kind of the same question, but more in the context of your share price. I mean, you know, obviously you're having a good run here today, but still, even after today's run, it's only up 3% year-to-date.
Walter Noel Spracklin: So, you know, you're not getting the credit for, when I look at your business, I mean, you pointed to a stabilized market, but you've done a fantastic job of managing your cost base. Your margins are poised now for any macro growth that comes along that should come with nice operating leverage. Your leverage is, your debt leverage is reasonable. It's even opportunistic.
You pointed to a stabilized market, but you've done a fantastic job at managing your cost base. Your margins are poised now for any macro growth that comes along. It should come with nice operating leverage. Your debt leverage is reasonable. It's even opportunistic.
Walter Noel Spracklin: I'm struggling to understand why valuation levels are where they are, what causes it, and it goes back, I guess, to M&A. I mean, you want to garner some attention for your share price, and tuck-ins, I hear you, they're the way to a kind of low-risk capital allocation. But I'm wondering, you know, if a larger, good opportunity came along, I think certainly that would be a catalyst and garner some attention. Do you start looking a little bit more...
I'm struggling to see the valuation levels where they are, what causes it, and it goes back I guess to M&A.
Speaker Change: You want to garner some attention in your share price, and tuck-ins, I hear you, they're the way to kind of low-risk capital allocation, but I'm wondering, you know,
You mentioned if a larger good opportunity came along, I think certainly that would be a catalyst and garner some attention. Do you start looking a little bit more...
Walter Noel Spracklin: I want to say broadly about those type of opportunities that maybe that acquisition maybe is not in your core market but maybe adjacent enough to open up a new growth avenue for you. Is that something you contemplate going adjacent with a larger transaction? I remember back in the day you did Livingston or you made a run at Livingston, right?
Broadly, at those type of opportunities, that maybe that...
That acquisition maybe is not in your core market, but maybe adjacent enough.
to open up a new growth avenue for you.
Is that something you'd contemplate going adjacent with a larger transaction? I remember back in the day you made a run at Livingston, right? I mean, that kind of thing, is that in the cards at all? I'd just love to hear your thoughts on that in terms of...
Murray Kenneth Mullen: I mean, that kind of thing. Is that in the cards at all? I'd just love to hear your thoughts on that in terms of a catalyst to kind of get that valuation addressed. That's something we talk about here. That's something you and I have talked about, and others have talked about it. But here's the fact.
So that's something we talk about here, that's something you and I have talked about and others have talked about. But here's the facts.
Murray Kenneth Mullen: We've doubled the company since COVID hit, so we've done a lot of acquisitions, and I don't think we really got a lot of credit. So I can understand, Walter, but we are not going to do an acquisition to show top-line growth. I'm not interested in that one iota.
We've doubled the company since COVID hit, so we've done a lot of acquisitions. I don't think we really got a lot of credit for it. So I can understand.
You know, this thesis that, well, you're not going to grow. I said, well, we doubled the company in about four years. How's that for growth? Will we do additional ones? Yes, we'll do them if they're the right ones.
But we are not going to do an acquisition to show top line growth. I'm not interested in that one iota.
Murray Kenneth Mullen: Here's what you need to think of our country. We're not going to be this, you know, fast-paced growth. I'll tell you what we do... We focus, and we study like a son of a gun. ODFL, Old Dominion.
Here's what you need to think of our company.
We're not going to be this.
You know, fast paced growth. I'll tell you what we are. We focus and we study like a son of a gun.
Murray Kenneth Mullen: I've known them for years, and I love this. The senior team has heard me here. Okay, we've now got huge critical mass. We're $2 billion in sales and a little bit more. And I love what ODFL does.
All Dominion Framelines. I've known them for years. I love this and the senior team has heard me here. Okay, we've now got huge critical mass. We're $2 billion in sales and a little bit more.
Murray Kenneth Mullen: Now, ODFL is maybe $5 billion, maybe $5.5 billion in the U.S. So us at two, we're bigger on a relative basis because we're just in this small little market called Canada. They make money. And they do not chase acquisitions, Walter; they chase margins. We are Chasing Marks. We just happen to be in more verticals than ODFL because they've got up to 350 million people. But they're not, they're not, they're not growth hogs, Walter.
And I love what ODFL does. Now ODFL is maybe five billion, maybe five and a half in the U.S. So us at two, we're bigger on a relative basis because we're just in this small little market called Canada.
They make money.
And they do not chase acquisitions, Walter. They chase margin.
We are Chasing Margin.
We just happen to be in more verticals than ODFL
They're not growth hogs, Walter. They are just a great company, and that's what we are, and that's what we're going to focus on.
Murray Kenneth Mullen: They are just a great company. And that's what we are, and that's what we're going to focus on. So what I'm hearing is you want to focus on being a great company in your core market that you could parlay that into an adjacent segment that has great returns, like again I go back to when you took a run at Livingston, what caused you to do that, do you look back at that and say okay you know what I probably wouldn't have done that if I had my time back or is that just, what I'm asking is, is there another Livingston out there that might lure you in to an adjacent market if you saw the same type of shareholder, if we saw a vertical that we thought had.., the same opportunities to say LTL did in 2012, when we really started to go into that. So LTL was a vertical that I thought was ripe for consolidation and for margin improvement or whatever. That was over 10 years ago.
So what I'm hearing is you want to focus on being a great company in your core market.
You could parlay that into an adjacent segment that has great returns. Again, I go back to when you took a run at Livingston. What caused you to do that?
you know, that might lure you in to an adjacent market if you saw the same type of shareholder Yes, if we saw a vertical that we thought had
The same opportunities as, say, LTL did in 2012, we really started to go into that. So LTL was a vertical that I thought was ripe for consolidation and for margin improvement, whatever. That was over 10 years ago.
Walter Noel Spracklin: Yes. So if we see another vertical like LTL that we think has a 10 year run and a longer run that we can, it's underappreciated. Yes, we would make that investment, and we'll go back to shareholders and make our case for it. Those only come around once in a while.
Yes, so if we see another vertical like LTL that we think has a 10-year run and a long-year run that's underappreciated, yes, we would make that investment and we'll go back to shareholders and make our case for it.
Murray Kenneth Mullen: Yeah, you're not actively looking at anything there right now, right? If we see it, we're going to do it. And that's the discussion we have internally and with the board and everything else. Of course, we're going to continue to look at those. You know, those don't come around as often as we're talking every 10 to 12 years.
Those only come around once in a while. Yeah, you're not actively looking at anything there right now, right? If we see it, we're going to do it.
You know, and that's the discussion we have internally and with the board and everything else. Of course, we're going to continue to look at those.
You know, those don't come around as often as we're talking every 10 to 12 years. So if it comes around, yeah, we'll look at it. But let's not count on that. Let's count on just running a great business, improving margins over the next bit. If I see something opportunistic.
Murray Kenneth Mullen: So if it comes around, yeah, we'll look at it. But let's not count on that. Let's count on just running a great business, improving margins over the next bit. If I see something opportunistic.
Murray Kenneth Mullen: In 2009, when we looked at Livingston, right after the financial crisis, we saw the energy space starting to get... That was way back when Murray projected, hey, we're going to have problems in the oil space, energy, because we can't get stuff out of here. So we looked at Livingston. Why?
You got it. I'll come and make my case.
Walter, I got to ask, in 2009 when we looked at Livingston, right after the financial crisis,
We saw the energy space starting to get, and that was way back when Murray projected, hey, we're going to have problems in the oil space, energy, because we can't get stuff out of here. So we looked at Livingston. Why? Because it's a different vertical that is tied to the bigger economy. So we looked at it very seriously, took a run at it.
Murray Kenneth Mullen: Because it's a different vertical that is tied to the bigger economy. So we looked at it very seriously and took a run at it. And that demonstrated forward thinking and that we needed to diversify our business. We lost out to CBP IB and Sterling, who basically had an infinite chess board, basically, but, as we demonstrated, shortly thereafter, started pivoting to LTL. All right, we appreciate the color, as always, guys. Thank you. Once again, if you have a question, please press star then 1. The next question comes from John Gibson with BMO Capital Markets. Please go ahead.
So, would we, and that demonstrates the forward thinking and that we needed to diversify our business. We lost out to CBP IB and Sterling, who had an infinite chess book basically, but as we demonstrated shortly thereafter, started pivoting to the LTL side.
All right. We appreciate the color as always, guys. Thank you.
Once again, if you have a question, please press star then 1. The next question comes from John Gibson with BMO Capital Markets. Please go ahead.
Operator: Thanks, and congratulations on a strong quarter and a tough market. I guess I'll ask... Walter's question, in another way. Wondering if you could talk about internal discussions around the dividend increase versus share buybacks, and just given where your valuation is, you're holding quite a bit of dry powder, and you've talked about tucking M&A, but could you potentially look at something like an SIV, just given Oh, we talk about that, John, all the time. That's a question that we get. And I don't know if there's a right or wrong answer to that.
Thanks, and congrats on a strong quarter and a tough market. I guess I'll ask...
Walter's question, in another way, wondering if you could talk about internal discussions around the dividend.
Increase versus share buybacks.
And just given where your valuation is, you're holding quite a bit of dry powder and you've talked about tucking M&A, but could you potentially look at something like an SIB, just given where your valuation is sitting?
Oh, we talk about that, John , all the time. That's a question that we get.
John Gibson: But under our NCIB over the last number of years, Carson, we've acquired and bought back roughly... Just shy of $19 million. We're about 200 million. So, let me flip it around on you, John, and I would say, okay, if we bought BAC-19 and we spent $200 million, which obviously meant we generated free cash to be able to buy it back. And our stock price doesn't really reflect that. Why are we doing a bunch of share buybacks? And the problem is when you do a share buyback, you lose eyes that are following you. So I go.
But, under our NCIB over the last number of years, Carson, we've acquired, we've bought back roughly... Just shy of 19 million. Just 19 million shares.
We're about 200 million. So.
Let me flip it around on you, John , and I would say, okay, if we bought back 19 and we spent $200 million, which obviously meant we generated free cash to be able to buy it back,
And our stock price doesn't really reflect, like why are we doing a bunch of share buybacks?
And the problem is when you do a share buyback is you lose eyes that are following you.
Murray Kenneth Mullen: You know what? We're going to focus on the little investor, and we're going to reward them for their loyalty with higher... That's our primary focus. You're going to get paid more, and we're going to generate free cash. That's what we're all about.
So, I go, you know what, we're going to focus on the little investor and we're going to reward them for their loyalty with higher dividend. That's our primary focus right now.
You're going to get paid more and we're going to generate free cash. That's what we're all about and then we can give that back. But share buybacks, I don't know if they're working. I'll be blunt with you.
Murray Kenneth Mullen: And then we can give that back. But share buybacks, I don't know if they're working. I'll be, I'll be blunt with you. That's fair.
Murray Kenneth Mullen: We're going to find out whether shareholders want more money paid to them every month, which is dividends. I know our employees want more money every month, probably bet that the individual shareholder, and we've got lots of small shareholders, I guarantee you they're out. Some big funds, eh, they're probably not going to be happy with us. Well, you should buy back the stock. So they can go invest in something else. It's not working for us.
We're going to find out whether shareholders want more money paid to them every month, which is dividends. I know our employees want more money every month.
probably betting that the individual shareholder, and we've got lots of
Small shareholders, I guarantee you they're happy today. Some big funds, eh, they're probably not going to be happy with it. You should buy back the stock from me, so they can go invest in something else. Okay, yeah, but...
It's not working, for us.
John Gibson: So, I think you should be prepared. We're going to make as much money as we can, and we're going to give it back to shareholders with an emphasis more on dividends rather than share buyback. That's probably our strategy for the next few years. Okay, great. And last one for me, something I guess hasn't really been touched on.
so
I think you should be prepared. We're going to make as much money as we can and we're going to give it back to shareholders with an emphasis more on dividend rather than share buyback. That's probably our strategy for the next bit.
John Gibson: We're seeing strong energy-driven activity in the WCSB, and it's, obviously, showing up in your results, the outlook, and from my perspective, also looks strong into 2025. Could you see yourselves putting more capital to work here or even looking towards some M&A in the segment, or is that, okay? Yeah, remember what I said in my comments about the S&I segment.
Okay, great. And last one for me, something I guess hasn't been really touched on, we're seeing strong energy-driven activity in the WCSB and it's
Obviously showing up in your results, the outlook.
From my perspective, also look strong into 2025. Could you see yourselves putting more capital to work here or even looking towards some M&A in the segment?
Remember what I said in my comments about the S&I segment, I said over the next few quarters and the next few years, I do suspect
Murray Kenneth Mullen: I said, over the next few quarters or the next few years, I do suspect that we're gonna have to have a capital replacement cycle in that business, and that implies higher margins. That's why we like S&I as a vertical in our company. And yeah, I can see, you know, I see pretty good growth.
That we're going to have to have a capital replacement cycle in that business and that implies higher margins. That's why we like S&I as a vertical in our company. And yeah, I can see...
Murray Kenneth Mullen: Opportunities there, LTL is rock solid. That's only going to get stronger as we've just proven it over and over and over again. So we'll stick with that game plan, Carson, Rich, and Joe. We're focused on that. S&I, we think, has got good potential because we're going into a capital replacement cycle on that and that segment, and that means you've got to have growth and some higher margins. So we like that. Logistics and warehousing, that's the big market.
You know, I see a pretty good...
Opportunities there. LTL is rock-solid.
That's only going to get stronger as we continue to do tough-hit acquisitions.
We've just proven it over and over and over again, so we'll stick on that game plan, Cars, Rich, and Joe. We're focused on that. S&I, we think, has got good potential because we're going into a capital replacement cycle.
In that segment, and that means you've got to have, that implies some growth and some higher margins, so we like that. Logistics and warehousing, that's the big market, and we will invest where we see
Murray Kenneth Mullen: And we will invest where we see an opportunity for us to get some good votes. And then even our U.S. 3PL, we like what we're doing down there. We've got a great team down there that's got a new business plan. We're going to really expand the sales agent, the independent sales market as our major company. The big 3PLs are laying off 50% of their sales staff. We're not.
Opportunity for us to get some good moats.
And even our US3PL, we like what we're doing down there.
We've got a great team down there.
That's got a new business plan. We're going to really expand the sales agent market. The big three PLs are laying off 50% of their sales staff. We're not.
Murray Kenneth Mullen: And we're creating opportunities for these people that have been laid off, and we're giving them an opportunity to be the uber salesperson, if you will, because we have the technology platform and we are doubling up our investment in that to make sure that we've got the right tools for that market. So we're okay with where we're at. We like our business model. We've got 40 business units. We've got lots of work to do to help each of them improve their margins, and when we do, we're going to get more back to show. Okay, great. Great quarter. I'll turn it back. The next question comes from Tim James with TD Collins. Please go ahead.
And we're creating opportunities for these people that have been laid off, and we're giving them an opportunity to be the uber salesperson, if you will, because we have the technology platform, and we are doubling up our investment in that to make sure that we've got the right tools.
For that market, so we're okay with where we're at. We like our business model. We've got 40 business units We've got lots of work to do to help each of them improve margin and when we do we're going to get more back to shareholders
Okay, great. Great quarter. I'll turn it back.
The next question comes from Tim James with TD Carlin. Please go ahead.
Operator: Thank you. Good morning. I just have one question, Murray, just kind of a big picture question. When I think about the quarter and the performance, I mean, organic revenue was down. You had some headwinds from, You talked about acquisitions and a bit of dilution while you get those streamlined, and yet your overall margin was up 40 basis points year over year. You also talked about capital equipment spending headwinds and consumer headwinds. Should we be thinking about that improvement in your margin percentage, is this just because, And I'm oversimplifying a little bit, but you guys were really just ahead of the game and sort of getting ready for this, and so you were one step ahead with the cost structure, or are there places you're getting some pricing as well that may be helping offset all these headwinds? No price
You know, acquisitions and a bit of dilution while you get those streamlined. And yet your overall margin was up 40 basis points year over year. You also talked about capital equipment spending headwinds and consumer headwinds.
And I'm oversimplifying a little bit, but you guys were really just ahead of the game in sort of getting ready for this, and so you were one step ahead with the cost structure. Or are there places you're getting some pricing as well that may be helping offset all these headwinds? No pricing.
Tim James: I will tell you right now, no way, that the market we've entered is virtually a deflationary cycle too, or I'd say minimal, just in the LTIE. Get your costs, and Focus, Focus, Focus as... Then you get costs down because, unfortunately, when we did B&R... But, unfortunately, 50 people had to find employment somewhere else because it just wasn't worth it.
I will tell you right now, no way.
that the market we've entered virtually a deflationary cycle to.
Or I'd say minimal, just in the LTI you get some minimal price. But let me just highlight, no pricing improvements all on the cost side, and it's all on synergy. Get your cost down.
And focus, focus, focus.
Then you get costs down because, unfortunately, when we did B&R,
I think we have...
Fifty-plus. Fifty-plus, yeah.
50-plus people that we were redundant as part of that acquisition. We knew it going in, Tim, but you know, unfortunately, 50 people had to find employment somewhere else, but not because it just wasn't at any value.
Murray Kenneth Mullen: And we were able to layer that into our network. And when you talk about synergy, really, what are you talking about? You're talking about fewer people and fewer terminals.
And we were able to layer that into our network. And when you talk about synergy, really what are you talking about? You're talking about less people and fewer terminals. That's it.
Murray Kenneth Mullen: That's what we mean. But it's all the verticals you're in of whether you can drive margin improvement by getting more critical mass and more operating efficiency. It's all about operational efficiencies and watching your costs like a hawk. And as you said, Yes, we prepare our business units going back to. We hold our budget sessions in September of each year, and we'll be outlining our game plan to all of our senior teams in September of this year and what we expect for the next year.
what we mean by synergy.
And, but the vertical, it's all the verticals you're in of whether you can drive margin improvement by getting more critical mass and more operating efficiency. There is no pricing leverage in this market. That maybe comes.
Later, 25, 26, as the market, as the competition just falters, but for right now, we're not counting on that.
It's all...
Operational efficiencies and watching your costs like a hawk. And as you said,
Yes, we prepared our business units going back to...
We hold our budget.
sessions in September of each year, and we'll be outlining our game plan to all of our senior teams in September of this year, what we expect for the next year. That's our job as senior executives, is to prepare our business units, and their job is to execute with the market that we've got. But we caution everybody, don't count on pricing yet. It's not here yet.
Murray Kenneth Mullen: That's our job as senior executives, to prepare our business units, and their job is to execute with the market that we've got. But we caution everybody, don't count on pricing yet. It's not here yet.
Tim James: Okay, well that's great. Congratulations. I mean, it's working well.
Okay, well that's great. Congratulations. I mean, it's working well. Kim, I would also add that we really got to tip our hats to our business units. You look at the performance that they've done.
Murray Kenneth Mullen: Thank you. Kim, I would also add that, you know, we really have to tip our hats to our business units. You look at the performance that they've done. These are long-tenured people that have been with us through many cycles. They've seen this before.
Murray Kenneth Mullen: They know how to react and know how to make the changes that are needed. So them, and their executive teams at each of our business units, we are really going to tip our hat to them too. Okay, thank you. Thanks, Jim. This concludes the question and answer session. I would like to turn the contents back over to Mr. Mullen for any closing remarks. Thanks for joining us, folks, and we'll look forward to chatting with you in... We're going to be working with our business units. Thanks for joining us; I appreciate all the commentary and good questions. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
These are long-tenured people that have been with us through many cycles. They've seen this before. They know how to react and know how to make the changes that are needed. So them and their executive teams at each of our business units are really going to tip our hat to them too.
Thank you.
Thanks, Jim. Cheers.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks.
Murray Kim: Thanks for joining us, folks, and we'll look forward to chatting with you in, I guess, late October, right in the end. We've got, we're going to be working with our business units to focus on our game plan and go from there. So thanks for joining us. I appreciate all the commentary and good questions. Cheers.
Thanks for joining us, folks, and we'll look forward to chatting with you in...
I guess late October , right? Until then, we're going to be working with our business units to focus on our game plan and go from there. So, thanks for joining us. I appreciate all the commentary and good questions. Cheers.
Operator: This concludes today's confidence call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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