Mullen Group achieves record revenues of over $560 million in Q3, driven by acquisitions, while managing cost pressures amid a challenging economic backdrop.

OPERATOR - (00:01:29)

Thank you for standing by. This is the conference Operator. Welcome to The Mullen Group Limited 3rd Quarter Earnings Conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. To join the question queue you may press star, then one or two on your telephone keypad. Should you need assistance during the conference, you may signal an operator by pressing Star then zero. I would now like to turn the conference over to Marie K. Mullen, Chair, Senior Executive Officer and President. Please go ahead.

Marie K. Mullen - Chair, Senior Executive Officer and President - (00:02:11)

Thank you and welcome all to Mullen Group's quarterly conference call. This morning I'll provide a brief overview of the quarter. Then I'll turn the call over to Carson for a more in depth look at the results. But for those of you that are interested in all of the numbers, the team headed by Carson and by Nick Woodward, they prepared the MDA for the period ending September 30, 2025. This 42 page document contains all of the details which can be found on our website also at www.mullen-group.com or on SEDAR Plus. So our intent this morning is to provide the highlights. I will close with some Outlook commentary before turning the call over to you for the Q and A session. So before I commence today's review, I shall remind you once again that the presentation contains forward looking statements that are based upon 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, the uncertainties and assumptions can be found in the disclosure documents. Once again with me this morning I'm in Okotoks with the entire senior executive team. I got Richard Maloney who's a senior operating officer, Carson Erlacher, Senior Financial Officer and Joanna Scott who's our senior Corporate officer. Moving right into let's start by talking about the impact of acquisitions are having on our results and why I believe that shareholders should be pleased with how this well thought out acquisition strategy sets our organization apart from from many of our industry peers. So acquisitions are really a critical component of our growth strategy. However, this is not the only means. So what do I mean by that? Well, basically we look at growth this way. It is derived from two sources, internal, some call that same store, sales growth, and external, which is clearly acquisitions. So when we take a view that the economy is strong, when economic activity is robust, when capital isn't being invested, we work with our business units to take advantage of these trends to expand service offerings. We aggressively Deploy capital and we raise rates. In other words, this is when we rely upon internal growth. Now, I suspect that you're all well aware that we do not believe that Canada's economy is currently in a growth mode. Actually, I don't know of anyone that believes this other than a few misinformed politicians. But this does not imply that the economy is in decline either, because I do not believe it is. In other words, it is okay. There is work to do, there is freight to haul. However, in the absence of growth in the economy, the balance of negotiating power shifts to the customer. And I will tell you that customers are demanding these days. Why? Because they can. So this forces us to focus on managing costs as well as limit capital investment because the returns just cannot be justified when rates are too low. I'd also add that new capital is very expensive to acquire these days. New trucks, new trailers, new everything. So, given the current market conditions, we cannot rely upon increased rates to mitigate cost pressures. This is why we must manage the cost. We strive for productivity gains in order to maintain margin. And on this front, I'm telling you, I'm very pleased with how the vast majority of our business units are handling the difficult market conditions. They are staying focused with a steady hand on the wheel, as I like to say. So let me turn to the other source of growth, the one that Mullen has relied upon for over 30 years. via acquisitions. These are the quickest ways to grow. However, once again, if not done carefully with a well thought out as to how the investment will work out in the future, the early wins can fade away very, very quickly. So this is why we refer to our well thought out acquisition strategy. We stay focused and invest only in opportunities and in verticals in the economy that we believe have strong fundamentals and hopefully future growth potential when market conditions turn more favorable. Okay, with this short strategy overview, how did we do last quarter? As predicted, we grew the top line nicely, with acquisitions being the main reason. But so too was that steady performance of our existing business units. The lone exception being those business units that provide service to the oil and natural gas business in Western Canada. So I will lay the blame squarely on low commodity prices, not the good folks that operate these business units we have because customers either delayed spending or they pivoted to playing the lowest price game. And that is a game we do not partake in, especially if the business is very capital intensive like it is in the oil and gas service side. So we took a few lumps and we moved on. And I'll just tell you this, folks. You know, sometimes things aren't fair, but at Mullen, it's not a reason to complain or vent. We simply go about our business and fix what needs to be fixed. So, Carson, we'll now provide some color and discuss the reasons behind our record revenues and cash from operations. Don't forget that record cash. Right. Cars. So, Carson, you're up.

Carson - (00:07:30)

Okay, well, thank you Murray and welcome everyone. I'll provide some additional highlights from the third quarter, the details of which are fully explained in our third quarter interim report. Our third quarter financial results were impacted mainly by acquisitions as we continue to grow and build out our network by adding additional logistics service offerings to our customers. This quarter is the first in which we recognized a full three months of financial results from the Kohl Group. We generated record revenues compared to any previous quarter at just over $560 million, an increase of 29.8 million or 5.6% from the same period last year. Acquisitions drove revenue growth by adding 66.4 million of incremental revenue and consisted mainly from the results from the Coal Group and from Pacific Northwest. Revenues from our existing business units, excluding acquisitions and fuel surcharge, decreased by 30.5 million and was primarily due to a reduction in the S and I segment. Not only did we generate record revenues, but more importantly, we also generated a record amount of cash as cash from operating activities increased to over $100 million or $1.18 per common share in the quarter, well above our cash requirements. This strong cash generation creates value for our long term shareholders and along with our well structured balance sheet provides us with optionality regarding capital allocation. This enviable financial position enabled us to announce our intention to redeem in full prior to maturity the 125 million of convertible debentures that are outstanding. Conversion of the debentures into Mullen Group common shares is permitted at the discretion of the holders of the debentures until November 21st of 2025. Any debentures not converted into Mullen Group common shares will be settled with cash. We generated OIBDA of 97.6 million, a slight increase compared to the prior year period. Excluding the impact of foreign exchange gains and losses on US Dollar denominated cash within our corporate segment, a term we've called OIBDA adjusted was 96.4 million, virtually flat compared to the prior year. OIBDA from our existing business units was down 8.9 million and corporate costs were up as we expanded our team to accommodate future growth. These declines were offset by 11.2 million of incremental OIBDA from acquisitions. OIBDA adjusted as a percentage of consolidated revenue decreased to 17.2% from 18.2% mainly due to lower margins generated from the asset light business model of the Kohl Group and from a lower proportion of higher margin specialized business. Now let's take a look at some of the highlights by segment. First in the consumer driven LTL segment which remains stable and consistent. Revenues in the LTL segment were 1.97.8 million, an increase of 9.1 million from last year due to $10.2 million of incremental revenue from acquisitions. This was somewhat offset by a $2.2 million decline in fuel surcharge revenue. Revenues from our existing business units excluding acquisitions and fuel surcharge increased by 1.1 million due to steady customer demand and from some market share gains. Oibda was $36.4 million which was up slightly from last year. This increase was due to 2.6 million of incremental OIBDA from acquisitions while cost pressures and competitive pricing resulted in lower OIBDA from our existing business units. Operating margin, while still very respectable, decreased slightly to 18.4% due to the inability to implement customer rate increases to offset greater cost pressures. Second is our LNW segment. Revenues in the LNW segment were $208.1 million, up $39 million from last year. Acquisitions added $46.4 million of incremental revenue and was mainly driven by Cole Group's Canadian operations which was somewhat offset by a $2.8 million decline in fuel surcharge revenue. Revenue from our existing business units excluding acquisitions and fuel surcharge revenues decreased by $4.4 million and was mainly due to a decline in freight and logistics demand resulting from a lack of private capital investment in Canada. OIBDA was 38 million, up 2.8 million from prior year with acquisitions adding 5.2 million of incremental OIBDA. While our business units excluding acquisitions generated lower OIBDA due to a lack of demand for their services. Operating margins decreased by 2.5% to 18.3% primarily due to the impact of the lower margins generated by the asset light acquisition of Coal Group's Canadian operations. Now if you exclude coal, operating margin would have been virtually flat compared to the prior year period at 20.6%. So really what this says is our existing business units excluding acquisitions did a great job in protecting margin under difficulty market conditions. Moving to the S and I segment, revenues were 105.1 million down 26.7 million from last year due to a lack of large capital projects being sanctioned in Canada from demarketing some customers in certain markets and from depressed commodity prices that negatively impacted our customers drilling and Production Plans these factors led to a decline in revenue from our production services and drilling related business units. Somewhat offsetting these declines were revenue gains made within our specialized services business units that were tied to infrastructure and mining as Canadian dewatering and SMOOC contractors saw greater demand for their services. OIBDA was 23.6 million down 4.9 million from the prior year as our production services business units recorded a decrease in OIBDA due to E and P customers choosing to delay facility maintenance and turnaround projects. The specialized services business units had an increase in OIBDA primarily due to greater customer demand at SMOOC and Canadian dewatering which was somewhat offset by a decline in demand for services at Premay Pipelines. The drilling related services business units recognized a $1 million increase in OIBDA despite that lower revenue that I spoke of, operating margins increased to 22.5% from 21.6% which was mainly due to demarketing low margin business and from cost control measures and more efficient operations. Another highlight was that we deployed over $10 million of CapEx into this segment in the quarter mainly to drill two new disposal wells for involved energy services to increase capacity at our processing and disposal facility to meet strong customer demand. Our diverse business model enables us to deploy capital where we see acceptable returns within our non asset based US3PL segment revenues were $53.9 million up $8.2 million from last year as Cole Group's US operations added $9.8 million of incremental revenue in the quarter. In transitioning Coal Group's US operations to IFRS accounting standards, we determined that duties and taxes collected by Coal USA and remitted to government agencies on behalf of customers should be presented on a net basis. Now presenting this revenue on a net basis has no impact on OIBDA cash flow or net income. Holistic's generated lower revenues compared to the prior year as many customers remain cautious on ramping up manufacturing and ordering inventory. OIBDA was $4 million up $3.7 million from the prior year with Coal Group's US operations adding 3.4 million of incremental OIBDA. While Holistic's results also improved compared to the same period last year, operating margins improved to 7.4% from 0.7% due to the higher margins experienced at Coal USA. Now moving to the balance sheet In July, we closed a private placement debt offering of 12 year long term notes of approximately $400 million. We used these funds to prepay approximately $237 million of private placement notes that were set to mature in October of 2026 and $207 million of amounts that were drawn on our bank credit facilities which was mainly used to fund the Kroll group acquisition. At September 30th we had working capital of $286 million which included $151 million of cash on hand. Not included within this working capital is our derivative that hedges US$112 million into Canadian dollars at a foreign exchange rate of 1.1148. This derivative has an economic cash value of approximately $32 million and since it matures in November of 2026, it will be included within working capital at year end. We also have access to $525 million of undrawn bank lines. In terms of our debt covenants, total net debt to operating cash flow at September 30th was 2.6 to 1. With the announcement of the redemption of the convertible debt debentures, our pro forma total net debt to operating cash flow covenant, assuming all other factors remain constant, would have been approximately 2.25 to 1. So in summary, we continue to generate cash in excess of our needs. Our balance sheet is well structured and we have ample short term liquidity of over 150 million of cash, providing us with the ability to continue to build out our network and grow when the right opportunities come along. So with that, Murray, I will pass. The call back to you.

Marie K. Mullen - Chair, Senior Executive Officer and President - (00:17:48)

Thanks cars. Well done again. And you know, you provided our listeners with a really nice detailed report. So there's a lot of information there. But let me just, there's a couple highlights I'd like to reiterate because I believe these will impact how we can take advantage of opportunities that I personally believe are just inevitable to arise in this market. So the first is record revenues from acquisitions, which really means is that we've entered new verticals to expand in as and when the economy improves. And we believe that eventually it does. So we're going to be larger and bigger in more verticals that we can sell to customers in the future with our acquisition strategy. The second is, and Carson alluded to this at the end, is the record cash from operations funds that along with our current strong balance sheet, we can use to pursue acquisitions that meet our investment criteria. So we're going to continue to grow the acquisition strategy, we just have to pick where should we put that money to work. And that's what the senior executive team is highly focused on. So in other words, I sure like the way that we position this organization. So let me just now give you my best take on what I think the near term might look like. As evidenced by our results last quarter, it appears the general economy has found what appears to be stable ground economic activity is in a better spot than we've seen for quite some time. That is good for freight demand. We see it in our results. There's freight to move and it's reasonably, reasonably active. Yes, there are still remaining issues like tariffs and trade concerns that have impacted cross border traffic. But I believe these things will subside over time. In fact, if you get beyond all the headlines really, there's not much tariffs on trade between Canada and the United States. Nearly everything's been exempted. So we got to be careful on what we listen to all the time. But it definitely has impacted the psyche of people that invest capital. We also think that the primary reason why Canada will continue to underperform is the lack of private investment capital. So this is our view, but the reality is in the meantime, the Canadian government will deficit finance to sustain the current economy. So from my perspective, the Canadian economy is in a balanced spot, not the deficit. I said the economy. It's not growing rapidly, but it's not declining either. So it's okay. And that's from within this perspective. That's what we have to manage the business within. On that front, pricing still remains a challenge. But here too I'm starting to see some emerging signals that could impact supply, especially as it relates to the availability of certified drivers. For example, in the United States, if the United States Department of Transportation is accurate in their analysis and they remove over 190,000 CDL authorized drivers from the market, there will be a shortage of professional drivers in the United States. So we're watching this very carefully because once the market tightens in the U.S. it will also tighten in Canada. In addition, there appears to be a shift happening in Canada where there's more of a focus by the regulatory authorities and the government on ensuring that safety standards are enforced across all carriers. So we also know that industry capacity is really not growing, excuse me, as evidenced by the lack of class A truck orders sales. So based upon these factors, it appears that there's a new demand supply balance forming which will be good for margins eventually, perhaps even as early as next year. I suspect we will know in early 26, if the market tightens enough for our business units to start having a little more leverage with customers and having some thoughtful discussion about what the rates should be. But this is not the case today. As such, we continue to ask our business units to focus on controlling costs and look at ways to improve productivity. Now here's an example of what I mean by improving productivity. We're investing in new technologies, we're investing in robotics for our warehouse operations initiatives that will reduce cost and improve efficiencies and safety. So we're not stopping because we think the future will eventually come around our way. Now, one vertical that we think will continue to struggle in the short term, I don't think long term, but in the short term that's the reality is the oil and natural gas service sector which is included in our S and I segment. Now commodity prices have been under pressure all year and this has impacted the cash flow for the EMP industry. And in response our customers have curtailed capital investment. They delayed major turnarounds and aggressively pursued lower costs throughout their supply chain. And as I suggested, I don't think this is a long term scenario, but it is the reality in the short term and we expect this portion of our business to underperform until commodity prices improve. We are however, still, as I think Carson alluded to, investing in the segment and invested 8.1 million in two new disposal wells that are involved Energy Services Group facility in Grand Prairie. It's a first class facility and we drill two new wells that will give us additional capacity to handle customers fluids. So this investment will undoubtedly double our capacity. And one day there will be a day when new pipelines are built to feed natural gas to LNG facilities on the west coast and we'll be ready to handle our customers fluid disposal requirements. So this is another example of how we think about deploying capital and we think about tomorrow. So lastly, before I turn it over to you, what about future acquisitions? Well, as Carson highlighted, the balance sheet structured in a manner that we can pursue opportunities. We really like the tuck in model because this is how we can improve margins quickly. We just roll them into one of our best in class business units. In my got 41. So we've got lots of really good talent out there that we can roll in tuck in acquisitions and when you do that, you can reduce overall costs and improve density quickly. And lastly, if the right platform company comes available and a platform company, let's say like a Cole did, this is a company that's in the right vertical with lots of future potential. We'll consider it. So folks, now it's your turn. I'll turn the call over to the operator and we can go straight to the Q and A session.

OPERATOR - (00:25:08)

Thank you. We will now begin the question and answer session. To join the question queue, you May press star then 1. On your telephone keypad you 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 Walter Sprachlin with rbc. Please go ahead.

Walter Sprachlin - Equity Analyst - (00:25:40)

Yeah, thanks very much. Hey everyone, how are you doing?

Murray - (00:25:43)

Hey, good morning. Walter Murray. This one's for you.

Walter Sprachlin - Equity Analyst - (00:25:47)

Let's start with their guidance. You've got 350 million out there, of which 30 was to come from Acquisitions. You mentioned that in your release. That's going to be or it's uncertain as to achieving that and that it should be achievable on a 12 month forward basis. Now I might. Is that suggestive then that this is now going to be your 26? Are you saying that this is now the 26th guidance of 350 for 2026? Am I reading that correctly?

Murray - (00:26:18)

You know, that's a pretty good observation, Walter. We did guide to I think 2.25 billion in 350 for this year. Two things that I missed, I'll be blunt, I missed that the commodity prices were going to be as soft as they were. And that's really impacted our S and I segment. I didn't think that that was going to occur. So you saw how last quarter our S and I was down like 25 million. So I missed that part. There's no doubt. Do I think it's permanent? No, I don't believe that. And then I think second one we missed is that when we had originally evaluated our coal group on the revenue side, we had thought that the revenues were up around 300. But when we did our final purchase price equations, we did not like the way they accounted for revenue in terms of tariff and taxes and tariffs. So we just consider that a flow through. So we just netted those out. So on those two fronts, that's where we missed the revenue side. On the EBITDA side or OIBDA side, whatever you want to call it. Well, coal we didn't get done as fast as we thought it was going to be. Early we thought we had this in the bag. We had a deal and Mr. Lucky fortunately passed away before we went to sign. The night before we went to sign so that delayed the deal had to go to the courts to get. So that delayed it and then the Competition Bureau delayed us by about two months. So we probably lost a quarter Walter that we were counting on when we gave the guidance early on. So I think that's why we missed. We're going to be off by a little bit, but it's not going to be off by significant. I think if you pro forma really is what you're saying is 2026, you're taking away our thunder for the December 3rd budget meeting. But. You can see the business we've got. We've made all the right steps to get us to that 225 and and 350 and then we'll articulate in December what we really think is happening in the market. Is the market changing for 2026? You know, I gave a couple suggestions that said, you know, maybe the market tightens a little bit next year and if that does, then you know, we got a bigger book of business that you maybe get a margin improvement in 1%. Just a 1% margin improvement is a pretty significant welfare. So we'll give our best analysis on that in December when we after we've collated and talked with all of our business units. But for right now, I think our pro forma 12 month we would have been pretty close to the 2025 guidance but we'll be off a little bit for calendar 25. Yes. Right.

Walter Sprachlin - Equity Analyst - (00:29:31)

Okay, that makes sense. You made reference to the US Clampdown and that's certainly creating an effect and that's good. I mean I'd prefer a demand solution rather than a supply solution to this, but we'll take the supply solution if it is. Is it as big a problem in Canada? And second, is there any avenue where regulators or authorities are seeing what the success it's having in the US and is there any view that perhaps it'll happen in Canada? If your answer to the first question is yes, it is as big an issue in Canada, then is there any avenue that seeing the success they're having in the US that they might do it in Canada in short order?

Murray - (00:30:20)

I think the systemic problem is the same on both sides of the border. We had too many new entrants come into the business that were not properly trained and certified and there was some gamemanship going on on some of the certification that is CDLs and as a result that, you know, you just had inexperienced people out driving on the highways and that led to a number of high profile, very serious incidents on the road by participants of our industry. But from our perspective, those, you know, the people were not properly trained. So we've had them in Canada, they've got them in the US where the US is taking a more aggressive stand. Walter, is they've gone that you've got to be fluent in English now. What does that mean? I have no idea. But if they are right that they're going to take off 190,000 and that's their prerogative. I have. They didn't ask me for my opinion. But if you take off 190,000, that's too many at once. And that will really tighten the market in the US there's already some indication that the enforcement standards on both sides of the border have been accelerated over the last bit to make sure that the regulations that are currently in place are applied equally to all carriers. If that happens, that will force everybody into compliance and that will tighten the market in our view.

Walter Sprachlin - Equity Analyst - (00:31:54)

And you mentioned that a tightening in the US Will create a bit of a tightening here. Is that just essentially because they're drawing qualified workers from Canada and luring them down in the US and that's tightening it up. Is that the logic there? Is there any other reason that would cause it to tighten in Canada as well?

Murray - (00:32:10)

Well, I just think that it's. It will when the market tightens in terms of. I don't know about the availability of drivers, but when the market tightens and rates go up in the US Then if you're Canadian, that's where you benefit from that. You'll follow up.

Walter Sprachlin - Equity Analyst - (00:32:26)

Yeah. Okay. And then last question is on M and A. You mentioned some of the, you mentioned that your acquisitions have been a good surrogate for offsetting any macro driven declines. So presumably they've been modest in terms of covering off what would have been declines in 2025. You indicated that 2026 should be similar. You mentioned, but you touched on platform and that's what I think get people excited. How much of that is really you waiting for what comes available? Because I know you have to have a seller in order to buy something, but are you waiting for those sellers to just come to you or are there any areas, and I'm talking in terms of plat, not tuck in, but platform verticals or what have you that you're looking at and you're exploring proactively rather than waiting for kind of sellers to pop up and come to you?

Murray - (00:33:30)

Yeah, it's a combination of both. Walter, we have certain parts of our business that we really think is investable you know, we like the LTL business that's in our pieces. It's now not the biggest though. Carson. That acquisition, because we put coal in to LNW, is now. LNW is now the largest segment. But those are the two primary ones for platform companies. Not really interested in the long haul trucking business. I get a call all day, Rich, Joanna, these. We're not really interested in that part of the business because we don't see what's the long term strategic advantage that having trucks has. We like warehousing, we like technology, we like, we like LTL where you can, you can drive the margin improvement over time by being smart and employing technology. So we've got some. There's no doubt. But you know, you've got to be careful when you're talking and most of the time you're talking about entrepreneurs. Entrepreneurs are different ducks. They decide when they want to sell, not you decide when you want to buy. You're trying to pry something out of a piece of cement that doesn't work very. So we just got to take the high road. Everybody knows. I know everybody knows. And it's been in our thesis and our strategy plan since day one. Everybody needs liquidity. Just bide your time, make sure you got the balance sheet when the good ones come around. And I think we've done the right thing there.

Walter Sprachlin - Equity Analyst - (00:35:12)

Sounds like a good plan. I appreciate your time as always, Murray. Thank you.

Murray - (00:35:16)

Thank you very much.

OPERATOR - (00:35:17)

Good job. The next question comes from Cameron Dirksen with National Bank Financial. Please go ahead.

Cameron Dirksen - Equity Analyst - (00:35:26)

Thanks very much. Good morning. Just wanted to ask, I guess about the outlook in the specialized industrial segment. I mean, you explained the reasons for the revenue decline. Just wondering if some of that gets the deferral of turnaround work and maintenance work that you've seen in 2025 is something that can't be deferred forever and may come back in 2026. I'm just wondering if you have an early look into next year. How that. Segment might trend, you know, just based on some of the deferrals we've seen this year.

Murray - (00:36:01)

Once again, that's a really good observation, is that for sure some of the big turnarounds were delayed because they're very expensive and everybody was really, everybody was managing cash flow. I mean, we were here, we cut off Capex. We really reduced Capex quite significantly here. So really everybody did that. Some of it was uncertainty, some of it was commodity prices. But there's no doubt they delayed them. They can't. You can delay, but you can't you can't. Can't quit. So our thesis is, well, they'll come back. It's just a matter of timing and we'll be positioned to do it. But you know, you got to be in business once you miss the deal doesn't mean you're guaranteed to get it next time. So I'd rather get, I'd rather get it done when it's hot. But we'll make sure that our business units are in the best position to take advantage of that because when those turnarounds go, and this is exactly what we had last year with our Cascade Energy Services Group, they just blew it out of the park with major projects because why we invested in technology, in robotics. We went in aced it, did a great job for the customer. The customer was happy, they got back online faster and we made a nice profit on that. But they've delayed it this year. So let's see what happens again next year. I'm hopeful, Cameron, but you know, we'll have more to say on that when we get, hopefully it wasn't one and done. It was just delayed but for this year, definitely been delayed. And then as I said, the other part of this equation was, you know, boy, some of these, these big oil companies, they really became very, very sensitive on cost. And we will not take a long term contract at the bottom of the market. Forget it. We protect margin rather than market share because when business returns, I'd rather have our price than a low price. And I think Cameron as well, it's Richard. We're going into the typical budgeting plan cycle for the big oil and gas companies and over the next month or two, we will get a better idea of what will be happening. And what they're projecting for the future will be subject to commodity prices and everything else. So we follow that and look and see what comes from there. But we are well positioned. Marie said we've made investments particularly in turnaround related equipment and we're ready to roll whenever it comes. So. And it will come, it's just a matter of when. Some parts of our S and I did fantastic Carson, they did. Our dewatering group is an example that did well. Construction up in northern Manitoba did very well. Our involved group, we've already made the capital investment that'll help us next year because we've doubled capacity. So we're, you know, like I said, when things happen, they happen, just move on. We don't whine about it, we don't cry, we just about our business, let's.

Cameron Dirksen - Equity Analyst - (00:39:04)

Go okay, no, that's super helpful. And just on the, I guess in the very interim here in the next couple quarters, just wondering about the margins in that segment. Obviously business mix makes a big difference on the margin and it was pretty strong in the third quarter just given where the revenue was. I mean, should we expect kind of that strength in margin just based on the business mix the next couple of quarters?

Murray - (00:39:26)

Yes. The reason the margin stayed strong is some of our businesses said, well, and we gave up the low margin business in which they wanted lower rates. I didn't like that scenario.

Cameron Dirksen - Equity Analyst - (00:39:38)

Okay, makes sense. Just one quick final clarification for me. Just on the US International logistics segment, I mean there's been this accounting change. I guess it reduces revenue but has no impact on ebitda. I'm just wondering about, I guess the reported EBITDA margin which is obviously much higher than what we've seen in that segment throughout its history. Is that kind of the sort of the sustainable kind of go forward margin? Obviously there's some seasonality to it, but just wonder if you can provide any context there.

Carson - (00:40:07)

Yeah, Cameron, I would say you're pretty spot on there with the US3PL segment. That's the Q3 numbers kind of give you a good run rate to kind of benchmark going forward in terms of revenue and margin. Now this is all things, you know, all things considered constant obviously. But yeah, you know, that's our thesis. You know, tariffs are going to impact that obviously, but we've taken that duties and taxes and tariff noise out of the revenue line. So you can see a true, clear indication for Q3 as to what that would look like going forward.

Murray - (00:40:52)

You know, in all, in all honesty, when we, when we did our final purchase price equation on this, Cameron, when you go in, really, tariffs are relatively new this year. So I'm not going to blame that, that they gave us the wrong information when we bought the company. Tariffs are relatively new this year. So taxes and duties and all that stuff that was always embedded within the revenue side. But the tariff thing, I mean, you know, all of a sudden one day you had 100% tariffs. Well, you know, that all of a sudden inflated the revenue number up. And when we did our final purchase price equation, we went, well, hold it, that doesn't, we're not going to add tariffs in as revenue. So that's really where that change came from. But you can see from the margin that was a very good investment. Yep.

Cameron Dirksen - Equity Analyst - (00:41:39)

Okay. No, that's great. Very helpful. Thanks very much.

OPERATOR - (00:41:41)

Thank you. The next question comes from Tim James with TD securities, please go ahead.

Tim James - Equity Analyst - (00:41:50)

Thanks very much. Good morning. Good morning, Tim.

Murray - (00:41:54)

I guess a question for Murray here. I'm wondering if, you know, this approach out of Washington that we've seen kind of this year and some might say unpredictable or maybe volatile, does that change? And obviously this could last for four. Years. Does that change how you approach your business at all? I mean, you know, hopefully there'll be some stability and some visibility that improves. But I mean, is there a part of you that says, hey, let's be cautious because we don't know how long this will last? I'm just wondering if it kind of changes any aspect of how you approach, whether it's capital allocation or how you run any of these businesses. Well, my personal take on it is, Tim, is that I think there's been a lot of noise around tariffs and trade and Canada against US, US against Canada and those kind of things. But if you take a look at the detail, there really hasn't been that much tariff put on most of the product under the U.S. for trade, U.S. mexico, Canada, U.S. free Trade Agreement is duty free. So it really hasn't been impacted. But if you talk to the average person, oh my God, everything's got big tariffs on it. That's not the case. There's been a couple and that's. For. Reasons that are, I don't understand them. But it's not as, I don't think it's quite as big an issue as what, what everybody thought it was going to be. So I think that will eventually common sense will rule and everybody will go back to make the business the best decision they can. So we're a little bit optimistic that all the big noise is over. I mean, if you read the headlines and they're correct, then Carney's saying, you know, we're going to be able to sign an agreement here pretty quick. So. The biggest risk that we see to the economy, Tim, is that the US Is winning the private capital game. The amount of private capital going to work in the United States, which is good jobs, and I'm assuming long term jobs, is the US has won that game hands down. We don't even Canada's really not even participating in that side. So that leaves all the heavy lifting to the Canadian government to publicly fund any project because we haven't seen too many private companies step up yet. I haven't seen them and we haven't heard from our customers that they are aggressive on that. So, you know, that's just all the heavy lifting is going to go to the federal government and higher deficits is what we suspect. Hey, from our perspective, just make a decision, you know, let's quit talking and let's get some things done. Because that's when you create good jobs and that's when, you know, we can, you know, there'll be more freight to haul and the economy gets going. But you got to quit talking and get going now. There are some major, I will tell you right now, there are some major, major capital projects that are happening in the United States and we are looking at, particularly through our pre med pipeline hauling side as to how we participate in those projects. We've been having serious discussions with the contractors on that. And that happens, you know, to us, our trucks and our. We're in both countries. So we'll go where the business goes, that's what we'll do. And our capital go where we think we can get the best returns.

Tim James - Equity Analyst - (00:45:47)

Okay, thank you. That's a good segue. Actually, to my next question, you know, the Q3 report calls out the nation building projects and some, you know, some optimism there. Are there any particular projects that you would call out as maybe potentially offering more opportunity to the Mullen Group companies? Any that are kind of noteworthy that we should watch more closely to see progress with positive implications for the businesses?

Murray - (00:46:20)

I think the one that we're seeing the early wins on is probably on the mining side. And for example, our Canadian dewatering set up in northwest Mount Ontario, we set up in Thunder Bay. And that's why they've grown as the capital has gone into the mining sector. So you hear a lot about rare earth minerals and, you know, and those kind of things. Well, that's mining and that's just hard rock. But you still got to have water. You still move water. You need water, you got to move water. So we'll be involved in those projects. Lots of talk about big projects, mining projects happening in British Columbia and of course that's where Vanster Group is situated. We'll be up in Prince Rupert looking at opportunities up there and scoping out with our master group here in a couple weeks. Rich, myself and Richard and Lee are going to go up to that. So there's opportunities, but it hasn't happened yet, Tim. But there's lots of, there's a lot of chatter and after chatter, maybe that turns into activity on the energy side, oil pipelines. I think that makes for good headlines, but I don't see it. Probably not in the short term for sure. LNG yes, there's lots of talk about Prince Rupert and the Pacific, that project of lng. So. That'S a big project, you know, that would. But what we're really after, what is one project to one project comes, then it's gone. We need to have a strategy that says it's going to be a decade or two, decade long strategy and then that's what would really get us excited. That's what we're waiting to hear from the federal government and we better hear it soon because we know as Murray mentioned, there's major LNG projects going on up in Alaska and it's coming and they're planning and thinking. So there's only so much capacity for this specialty equipment and whoever goes first gets the, gets the capacity. And I'm afraid of this. Canada keeps talking and the US says go and then is it okay, we're gonna go. And then the capacity is already used up. So there's only so much capacity for Bingage pipeline. There's only so many places that's built in the world. Then you got to code it, you got to move it and then you got to lay it in the, in the ground and there's only so many people that do that. So that's kind of highly skilled jobs. Thank you very much. We're hopeful that Canada in the business world, if you sit and wait too long, it's over, like somebody else gets the market. So you know, these are big inch pipelines. We're talking 5 bcf a day of natural gas that would hit the LNG market. Well, you know, there's only, there's only so many countries in the world that are going to take 5bcf a day of production. So I don't like the fact when the High Commissioner for India says, you know, Canada's not really a stable and secure supplier of energy supply yet. That's a wake up call which says get your damn button gear and make a decision. Either either be a secured supplier or quit talking to us because we got to, we got to do what's best for our economy and for our country. So I hope today that the government can make a good business case for LMG because we missed it in the last three years, in the last 10 years we missed that opportunity. So we're behind the eight ball here. Let's get going.

OPERATOR - (00:50:18)

The next question comes from Konark Gupta with Scotiabank. Please go ahead.

Konark Gupta - Equity Analyst - (00:50:25)

Thanks. Good morning everyone. I have a few. Morning guys. I have a few questions actually going through here, so hopefully I'll try to be quick on each here. First on the CLARIFICATION on the core revenue side. So I get it, you have to net out the studies and taxes in that 3 PL segment. But is there any ripple effect on Kohl's other revenue that is reported in the LNW segment?

Carson - (00:50:54)

No, Conark, there's no impact on the, on the revenue that we recorded within the Canadian operation. So there's. Yeah, we've got CARM here in Canada and, and you don't in the US so really it's a. This issue is just related specifically right. To the US3PL segment.

Murray - (00:51:20)

Full stop. Yeah, that makes sense. Thank you so much for full disclosure on that. Canada and the U.S. were always the same. The customs broker always collected the duties on behalf of the customer and the intermediary for the government. They collected it from the customer, cleared it and then they sent the money to the government, either the Canadian government or the U.S. government. Canada implemented a new program just earlier, started this year, did it not, Joel? It's called parm and that really meant that every importer had to register directly with the government, not with the go through the intermediary which is the broker. So all those duties and taxes and whatever go direct to the government. Now they don't go through our coal group but in the US that's not the case. It's still handled by the customs brokerage company. Hopefully that brings some clarity to that.

Konark Gupta - Equity Analyst - (00:52:18)

No, absolutely, that's really helpful. Thank you. And I think on the capex side, I think I heard you guys saying that you are taking down your capex numbers as well. I think the original budget you had when you set up the 2025 was not $100 million I believe. I think you're tracking much lower any sense in terms of how much lower can we see this year? And are you preserving the CapEx that CapEx you're not spending this year maybe to spend next year or it's gone. Yeah.

Carson - (00:52:53)

Our original guide con art was $100 million is what we originally came out with. We're sitting at 50 million net here at the end of the third quarter. So obviously we're going to be well below that I would say in terms of our maintenance capex. What do we need on an annualized run rate that's pretty close to what our depreciation is, is around 70, 75. I think is your, you know, your. Kind of maintenance capex budget. We, we deferred and delayed a lot of capex as Murray alluded to earlier. There's many factors. Obviously the demand isn't there and the rates aren't there from our customers to support expensive equipment. You know, you're looking at $250,000 a truck now. They're not cheap and they don't give you better fuel mileage. They don't give you.

Murray - (00:53:51)

They're a tool, they're not a technology. And we're just looking at that and waiting for some normalization before we put in some big orders. Yeah. On two fronts. One is the customers have to realize is that you can't go invest in new capital and you keep asking for lower rates like we're not going to invest in new capital. So that's the marketplace trying to figure out what's the right equilibrium there. Connor. But for right now, the customers have been overly aggressive on the right side and the rates that we're seeing don't justify a $250,000 truck. So the trucks have got a little bit older. We had to run them a little bit longer. The second part of that equation and what Carson a little bit alluded to is we have been have been really aggressive with our suppliers to say quit raising your prices. Give us a better product, not just a higher price and a newer, pretty looking truck. I don't want a pretty truck. I want an effective, efficient truck. And so we had to put pressure on them, and you can't put pressure off them if you keep buying trucks from them. So we quit buying for a bit until you get your prices in line and prices have come down.

Richard - (00:55:12)

Richard. Yeah. You and Lee are working on that side and I think they've got the message loud and clear, not just from me, but from other large buyers where we're going, we need a better product, not just higher price. And realistically, the entire trucking industry, particularly in Canada, and you see that when you look at the big operators in the state, you know, the OEMs, their sales are down. So people are just, you know, it's hard to go out and justify a 250,000 plus expenditure. And if you want to have a CNG truck, add another 80 grand to that. It just doesn't make sense at this point. You're not getting the fuel mileage as Murray and Carson alluded to, and it's across the industry. So Connor, just to summary, part of it was economics. It just didn't make sense. But part of it was messaging. Right, that makes sense.

Konark Gupta - Equity Analyst - (00:56:05)

Thank you. And yeah, and on the convertible debenture side, I think so you guys are redeeming on December 1st first. I mean, given the converts are in the money right now, they're likely to probably convert, I think, to some degree, if they convert to equity, I mean, that does not take away your cash. Do you see the use of cash to maybe incrementally buy back some of your stock in December or after?

Murray - (00:56:33)

Yeah, we'll do one or two things, Connor. If the debenture holders convert to equity in Mullen, that increases our share count, but it sure strengthens our balance sheet. So we go from 2, 6 cars to down to 2, 2. Maybe a net out cash. We'd be now to 2 to 12 times. Right. On EBITDA, then we're going to have. We've still got all the cash on the balance sheet and lots of, lots of room on the credit side. So, you know, we'll have. We'll just make the best decision as the board as to, you know, what we do. Do we buy back stock or what do we do? But our first objective is, I will tell you right now, we are a growth company. So we would look at adding really good companies into our network. That's what be our first priority. We want to be a growth company. If we don't see the right opportunities, we'll go buy them back, invest in a really good company I know of. It's called Mullen. There are various levers we could pull. Right. Yeah. The good news is our balance sheet is probably as well structured, as good a shape as it's been in a long time. And we have lots of, lots of, lots of potential options for us to do that. You know, the debenture thing actually worked out, I got to tell you, because we did it in 2019, 125 million. We more than doubled the company. Since we took that 125 million, we raised no other equity. Yeah. At the time, our stock price when we did the debenture deal was $7, and we had a strike price of 14 on the convert. If you look at our EBITDA in 2019, we were 200 million. We deployed that capital in 2021 and by the end of that year, we were 260 million of EBITDA. And now you're well in excess of 300. So the debentures served its purpose for Mullen shareholders back then, and we deployed it quite nicely. But I think it's run its course. Yeah, we're done with the debentures and we thank those that invested in us back then, but it's time to move on and. And we're in a different spot than we were in 2019. Yeah, that's fair. Absolutely.

Konark Gupta - Equity Analyst - (00:58:56)

And then perhaps just wrap up from a high level perspective. Marie, I guess what is the right MA strategy in this current environment? I mean you mentioned a lot of things in terms of like how Canada's probably slow in inviting private capital and US is kind of accelerating on that front perhaps. But obviously there's a lot of complications in the US and all that. Right. Like it's like tariff policies and whatnot. How do you pursue M and A here in this market?

Murray - (00:59:29)

Just, I think we'll just stick to our meeting which is we'll be pinpoint accurate of where we see really good companies. The first our MA is really this. I'm a Warren Buffett and Charlie Munger. I look for good great companies at a fair price, not at poor companies at a really good price. Because that's just our strategy. We look for really good companies, we want to be fair and they have, in our view, they have much longer run room to them and you can get a better return over time. So the key thing is just look for really good companies. But you can't go, you can't go find them every day. But over 30 companies years, we've acquired a number. Nothing's going to change on our MA side. But I'm patient. I don't push just to grow. I push to make sure we get the right deals and the right companies. Came up earlier on the call too, Conor, about platform companies and you know, whether we go looking for them, whether they come looking for us. And I can tell you within our space right now that there's not many companies in our space that have the financial position that we do. So platform companies, when they do become available, we're one of few options that they have to go to to monetize. So we get to see pretty much all of them that become available. Right, right. In your coverage space, conarc, which is in the logistics and transits, there's not a lot that can go out and do M and A today or that's why we say we're kind of in a unique position. There's only a couple. No makes sense. Patience is worth you, I guess. And yeah, timing is important. There's very. We don't have a lot of competition when it comes to acquisitions. There's only a few that can do it and there's only a couple of us that have the balance sheet to do it. So you got to have both of those to be able to get it done. And it's just a matter what's your disciplined approach to it or what your strategy? So that's ours. Ours is being pinpoint accurate and waiting till we get really good companies. That's our strategy, right? No, understood. Thank you so much for the time.

Konark Gupta - Equity Analyst - (01:01:51)

I appreciate it, guys. Thank you.

OPERATOR - (01:01:54)

The next question comes from Benoit Dorier with Desjardins Capital Markets. Please go ahead.

Benoit Dorier - Equity Analyst - (01:02:01)

Yes, good morning, Marie. Good morning, Carson. Just to follow up very quickly on CO Group, you gave a lot of explanation with respect to revenue. So quick one, should we expect the 55 million contribution in the quarter? Is it kind of the number we should expect going forward? Is there some seasonality that we should take into account?

Murray - (01:02:29)

I wouldn't say there's a lot of. Seasonality to the not we know of yet. If it does, that would totally surprise us, Benoit. So everything we've looked at, not just at coal, but in other companies that we've looked at, we don't see a lot of seasonality with it. So if there is, it will be a. That would catch us off guard. So our view right now is no, we don't see a lot of suit anomaly. Okay, so. But we've only had it for one quarter. So I'm giving you my best advice. We don't think it is, but, you know, don't hold my feet to the fire on that until we get it. We'll know more after we've been able. We've had one full year underneath our belt. We're giving you our best estimate right now. Once we've had it for a year, we'll know.

Benoit Dorier - Equity Analyst - (01:03:23)

Okay, and perfect. And SGA was up, obviously, versus a year ago due to some acquisitions. So I'm just wondering how should we look at SGA expenses going forward and if you see, see maybe an opportunity to bring the number a bit lower as you integrate those acquisitions?

Murray - (01:03:47)

Well, you know, honestly, Benjamin, that's going to really be determined, I think, by what happens with the strength of the economy. If the economy strengthens, you'll probably see us pivot away from using capital to go do acquisitions to putting capital to work in the business units. If the economy starts growing, you know, more or no better than we do. You have your economist and you do your own analysis. But if you see strong nation building projects come in and strong economic and growth in Canada, then we will have to pivot and add more to Capex, Carson and those kind of things. And then MA will take a back seat to internal growth. I'm not quite at that space yet. We still think we would like to add some more, use our balance sheet. But we need Great quality companies. We're not just going to trade dollars to get growth, Benoit. We want great companies in the verticals that we see long term potential, period.

Benoit Dorier - Equity Analyst - (01:05:00)

That's great. And Murray, you're always very rational when looking at the market fundamentals with demand and supply. And obviously you provided the great color on the call about the supply and the regulation enforcement we are seeing in the US that will eventually and also in Canada. And when you look at the pricing these days, would you say that the slight optic we see in the pricing is mostly driven by hope that capacity is coming down?

Murray - (01:05:38)

It's kind of a mixed bag right now, Rich. We hear from some of our customers where we've taken a strong stand with some customers and we lose the contract. And then, you know, oh and behold, they come back and a couple weeks later and say, well, you know, we took the low price but they can't service well. We tried to tell you that, but you know, you went with low price. So, okay, if you want, we had a very major client come to us and wanted a major rate reduction. And I said, well, we'll give you the major rate reduction if we need your loads. If we need a load from you. Well, yeah, but we want the service. No, no, that's the other price. So you got to pick your poison. What do you want? You want service or price? Because if it's just price, it's at our convenience. If it's you want service, it's at your convenience. We need a little higher price so we can commit our capacity. But we're seeing a mixed bag, you know, but I'm seeing, I'm hearing more now that customers are coming back and. Saying. Well, maybe the low price wasn't as good as what I thought it was. We didn't hear that as much last year as we thought. Now not overwhelming more of needs to tighten a little bit more so that customers understand just sit with us and make the right deal. But if you try and game us and go for all low price, we're happy to walk away and say, go try it out. We know this business. Good luck.

Benoit Dorier - Equity Analyst - (01:07:15)

That's a great comment. And just on M and A, you mentioned a lot of color about the M and A. The way you approach M and A obviously and the leverage also with the converts that is poised to go from 2.6 to 2.2 times to with the cash. So what is kind of your comfort level? Where do you do you see the optimal or the willingness to increase the leverage with M and A or kind of the Flexibility, you would have to pursue the m and a.2.5.

Murray - (01:07:52)

We like to be a full turn away from the covenant. If you grow your business, you grow the Ovida. So it actually, it actually increases the amount of debt you could take. Right. So it's. But let's just say 2.5. Perfect. 2.5 at where we're at today, running probably three and a quarter, three something, you know, three. Somewhere between three and a quarter 350. So you can just pick and say what's the number at three and a quarter 350. And you know, we think our company, the way it's structured right now, once the market returns to some stability, where, you know, the rates aren't being totally seward, is that, you know, we're somewhere around 2, 5 and 400, that this business unit could do with just a little bit of strengthening in the market and tightening on the supply side. Great.

Benoit Dorier - Equity Analyst - (01:08:43)

Very good caller, folks. Thank you.

OPERATOR - (01:08:46)

Thank you. Again. If you have a question, please press Star then one. The next question comes from Kevin Chang with cibc. Please go ahead.

Kevin Chang - Equity Analyst - (01:09:01)

Hey. Hey, gentlemen. And Joanna, thanks for. Thanks for taking my questions here. Just two quick ones maybe, I guess one just on the debentures, just maybe from a bigger picture perspective, it sounds like you want to simplify your capital structure. Just looking to see if this is part of that broader strategy where maybe debentures aren't the right source of funding moving forward. If you do need to tap the market, is that kind of the, the right REIT as well, too?

Murray - (01:09:30)

Yeah, I think, you know, I think what I'll tell you what I've learned from the debentures, Kevin, is that the debt guys consider debentures debt and the equity guys consider it equity. So you kind of don't please anybody and, you know, so you go, well, what is it? Is it debt? Well, it's a high. Well, it's of this or that. And the other thing that you had. You can take a look at the short position on our company. Yeah. You know, I'm not the one doing the trading, but there's a direct correlation between the number of shorts in our company that have shorted our stock and when we did the ventures. So if I was sitting at a table and had to make a guess, I would say they were using the debentures as a form to trade and that hurt our stock price. Yeah, that's a fair point. When they shorted the stock, they de facto put more stock into the market. Right. So that makes sense. You know what I think It's. I said to you, I think they served the purpose for us when we were at seven, you know, we, you know, I mean, we want. Let's talk about valuation. Where's our valuation relative to our peers? You know what, we don't worry about what somebody else does or what they're valued at. We worried about what we're doing and we let the market tell us what they think the value of us is. Let's see what happens once the converts are out and we get rid of that noise and let's see where we come from. But at the end of the day, we're going to continue to grow this business and do the right things for shareholders. I can tell you that. Yeah, that makes sense to me. And maybe this is a difficult question to answer on a call like this, but you did mention earlier, Murray, that, you know, full truckload really isn't a strategic interest to you. You do have a minority interest in Crisca. And I guess if I think back almost 10 years ago, more than 10 years ago, I guess I had the assumption that that was something you probably would vend in over time. But maybe that's the wrong assumption moving forward. Just I guess how you think about strategically, that minority investment in the context. So for clarity to everybody, we own a nice position in what I think is a really, really good company in Crisco. Otherwise, why in the heck do we invest in them? But they're trapped in the. They're more full truckload. So the more company trucks you've had, the more truckload business you do. This is a terrible market for them. They could be the best run company and they are a first class organization, but they're in a terrible vertical right now. Now, will that vertical stay terrible forever? Probably not, Kevin, but for today, full truckload ones are just. It's just awful, you know, so. But eventually it will turn and then at that point in time, you know, we'll work with our Crisca group and monetize that investment. For right now, we're just working with them to make sure that, you know, they just do the same thing as what we're doing here. Watch your cost, stay in your lane and just wait, wait for a cue that the market's changing. Then we'll go all in. I haven't seen that cue card yet.

Kevin Chang - Equity Analyst - (01:12:47)

That makes a ton of sense. I appreciate you taking the time to answer that question. Best of luck as you close out the year here. Thank you very much. Thank you, Kevin. Thanks, Kevin. And thank you to all.

OPERATOR - (01:12:58)

This concludes the question and answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks.

Murray - (01:13:06)

Thanks, everyone. Look, we've already started. I think we mentioned this. We started work on the budget. The good news is we knew that we were just finishing the Q3, but then everybody was going to be asking our 26 budget. So we're prepared for that. We're going to keep we're going to be releasing our 2026 budget and business plan before the end of the year. So we're going to meet with our board on December 4th. We'll present as a senior executive team to the board that will have the business plan. What we're going to focus on that here's our budget and here's our capital requirements for next year. And then we will press release out to you and then be open to chat with you about that. Until then, thanks everybody. Good questions and thanks for participating today. We'll talk to you soon. Bye bye.

OPERATOR - (01:13:59)

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. .