Mullen Group Ltd. Reports First Quarter Financial Results including Record Revenue in our Trucking/Logistics Segment

OKOTOKS, Alberta, April 25, 2018 (GLOBE NEWSWIRE) — (TSX:MTL)  Mullen Group Ltd. (“Mullen Group“, “We“, “Our” and/or the “Corporation“), one of Canada’s largest suppliers of trucking and logistics services as well as specialized transportation services to the oil and natural gas industry in Canada, today reported its financial and operating results for the period ended March 31, 2018, with comparisons to the same period last year.  Full details of our results may be found within our First Quarter Interim Report, which is available on SEDAR at www.sedar.com or on our website at www.mullen-group.com.

Key financial highlights for the first quarter of 2018 with comparison to 2017 are as follows:

HIGHLIGHTS  
(unaudited)
($ millions)
Three month periods ended
March 31
2018  2017  Change 
  $ $
Revenue      
Trucking/Logistics 207.5   180.9   14.7  
Oilfield Services 84.6   104.6   (19.1 )
Corporate and intersegment eliminations   (0.6  
Total Revenue 292.1   284.9   2.5  
Operating income before depreciation and amortization (1)      
Trucking/Logistics 25.8   21.4   20.6  
Oilfield Services 12.5   21.6   (42.1 )
Corporate (0.4 (1.3 )  
Total Operating income before depreciation and amortization (1) 37.9   41.7   (9.1 )
Operating income before depreciation and amortization – adjusted (1) 37.8   42.7   (11.5 )
(1) Refer to notes section of Summary      

Mullen Group operates a diversified business model combined with a highly adaptable and variable cost structure.  The financial results for the three month period ended March 31, 2018 are as follows:

  • generated consolidated revenue of $292.1 million, an increase of $7.2 million, or 2.5 percent, as compared to $284.9 million in 2017 due to:
    • record revenue in the Trucking/Logistics (“T/L”) segment, a $26.6 million increase to $207.5 million
    • a $20.0 million decline in the Oilfield Services (“OFS“) segment to $84.6 million
  • earned consolidated operating income before depreciation and amortization (“OIBDA“) of $37.9 million, a decrease of $3.8 million as compared to $41.7 million in 2017 due to:
    • an increase of $4.4 million or 20.6 percent in the T/L segment
    • a $9.1 million decrease in the OFS segment
    • a $0.9 million decrease in Corporate costs due to a $1.1 million positive variance in foreign exchange
  • adjusting for the impact of foreign exchange at Corporate Office, operating income before depreciation and amortization (“OIBDA – adjusted“) was $37.8 million, or 12.9 percent of revenue, as compared to $42.7 million, or 15.0 percent of revenue, in 2017.  These results more accurately reflect our operating performance.

First Quarter Financial Results

Revenue increased by $7.2 million, or 2.5 percent, to $292.1 million and is summarized as follows:

  • T/L segment grew by $26.6 million, or 14.7 percent, to $207.5 million – a record compared to any previous quarterly period.  Incremental revenue from acquisitions was $9.9 million while fuel surcharge revenue rose by $4.2 million.  Growth resulted from a combination of increased demand in western Canada, particularly for our truckload services, and price increases in the spot market as transport capacity tightened.
  • OFS segment declined by $20.0 million, or 19.1 percent – a decline of $16.1 million in our specialized services Business Units, most notably from Premay Pipeline Hauling L.P. and Canadian Dewatering L.P., due to a combination of project timing, regulatory issues and inclement weather, was the primary reason for the year over year revenue shortfalls.  Lower drilling activity combined with greater competition, particularly at our pipe and tubular Business Units, also led to revenue declines.  These decreases were somewhat offset by $1.9 million of incremental revenue from Envolve Energy Services Corp. and an increase in revenue from those Business Units involved in the transportation of fluids and servicing of wells.

OIBDA decreased by $3.8 million, or 9.1 percent, to $37.9 million and is summarized as follows:

  • T/L segment grew by $4.4 million, or 20.6 percent, to $25.8 million – our truckload Business Units accounted for $4.7 million of this increase and was partially offset by lower OIBDA from our regional less-than-truckload Business Units.  As a percentage of revenue, operating margin increased by 0.6 percent to 12.4 percent due to higher margins on truckload services due to the effect of rate increases and tightening industry capacity.
  • OFS segment down by $9.1 million to $12.5 million – specialized services Business Units declined by $5.4 million while those Business Units tied to drilling related activity including pipe handling and storage declined by $3.0 million.  Operating margin decreased to 14.8 percent from 20.7 percent in 2017 due to higher direct operating expenses related to fuel and repairs and maintenance and higher selling and administrative expenses as a percentage of segment revenue due to the fixed nature of these expenses, along with the loss of revenues in our specialized services Business Units, which typically have higher operating margins.

Net income decreased by $13.0 million to $1.5 million, or $0.01 per Common Share due to:

  • An $8.5 million negative variance in net foreign exchange due to the $0.0349 weakening of the Canadian dollar vis-à-vis the U.S. dollar that impacted our U.S. dollar debt, a $3.8 million decrease in OIBDA, a $1.5 million negative variance in the gain on fair value of equity investment and a $1.0 million increase in amortization of intangible assets.
  • The above was partially offset by a $2.2 million decrease in finance costs due to the repayment of the Series E Notes (U.S. $85.0 million at 5.90 percent) and Series F Notes ($20.0 million at 5.47 percent) on September 27, 2017.

“Our results in the first quarter are a reflection of what is happening here in Canada.  Robust job growth has supported consumer spending and contributed to an improving trucking and logistics industry.  This trend accompanied by recent acquisitions were the two primary reasons our Trucking/Logistics segment generated the highest quarterly revenue in our history.  We also started seeing, for the first time in many years, signs that pricing leverage is returning to the industry.  From this perspective the Canadian economy appears to be on solid ground.  However, business sentiment and capital investment remained subdued particularly in western Canada.  As a result our Oilfield Services segment really suffered this quarter.  Drilling activity was down from last year, projects remained mired in consultation or were delayed and generally there was a lack of confidence.  Quite simply there was a lack of demand across nearly all of our Oilfield Services segment and until capital starts to be invested in the oil and natural gas industry, our oilfield services business will suffer.  This is why we will continue to focus all of our attention on growing both the top line and the operating margins in our Trucking/Logistics segment.  It was a difficult quarter for our company and I am hopeful that our political leaders can find a way to encourage capital investment to return to Canada.  When this occurs we will once again consider investing in the oil and gas services industry,” commented Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

A summary of Mullen Group’s results for the three month periods ended March 31, 2018 and 2017 are as follows:

SUMMARY    
(unaudited)
($ millions, except per share amounts)
Three month periods ended March 31  
2018 2017  Change   
  $ $  
Revenue 292.1 284.9   2.5    
         
Operating income before depreciation and amortization(1) 37.9 41.7   (9.1 )  
Operating income before depreciation and amortization – adjusted(2) 37.8 42.7   (11.5 )  
Net foreign exchange loss (gain) 6.2 (2.3 (369.6 )  
Decrease in fair value of investments 1.5 1.0   50.0    
Net income 1.5 14.5   (89.7 )  
Net Income – adjusted(3) 9.3 11.6   (19.8 )  
Earnings per share(4) 0.01 0.14   (92.9 )  
Earnings per share – adjusted(3) 0.09 0.11   (18.2 )  
Net cash from operating activities 21.8 4.3   407.0    
Net cash from operating activities per share(4) 0.21 0.04   425.0    
Cash dividends declared per Common Share 0.15 0.09   66.7    
Notes:
(1)  Operating income before depreciation and amortization (“OIBDA“) is defined as net income before depreciation of property, plant and equipment, amortization of intangible assets, finance costs, net foreign exchange gains and losses, other (income) expense and income taxes.
(2)  Operating income before depreciation and amortization – adjusted (“OIBDA – adjusted“) is defined as OIBDA adjusted for the gains and losses recognized on U.S. dollar cash held within the Corporate Office.
(3)  Net income – adjusted and earnings per share – adjusted are calculated by adjusting net income and basic earnings per share by the amount of any net foreign exchange gains and losses, the change in fair value of investments, and the gain on fair value of equity investment.
(4)  Earnings per share and net cash from operating activities per share are calculated based on the weighted average number of Common Shares outstanding for the period.

Non-GAAP Terms – Mullen Group reports on certain financial performance measures that are described and presented in order to provide shareholders and potential investors with additional measures to evaluate Mullen Group’s ability to fund its operations and information regarding its liquidity.  In addition, these measures are used by management in its evaluation of performance.  These financial performance measures (“Non-GAAP Terms“) are not recognized financial terms under Canadian generally accepted accounting principles (“Canadian GAAP“).  For publicly accountable enterprises, such as Mullen Group, Canadian GAAP is governed by principles based on IFRS and interpretations of IFRIC.  Management believes these Non-GAAP Terms are useful supplemental measures.  These Non-GAAP Terms do not have standardized meanings and may not be comparable to similar measures presented by other entities.  Specifically, operating margin, OIBDA – adjusted, operating margin – adjusted, net income – adjusted and earnings per share – adjusted are not recognized terms under IFRS and do not have standardized meanings prescribed by IFRS.  Management believes these measures are useful supplemental measures.  Investors should be cautioned that these indicators should not replace net income and earnings per share as an indicator of performance.

Financial Position

The following summarizes our financial position as at March 31, 2018, along with some of the key changes that occurred during the first quarter of 2018:

  • Exited the first quarter of 2018 with working capital of $174.7 million that included $124.0 million of cash and cash equivalents.
  • Total net debt ($438.1 million) to operating cash flow ($172.4 million) of 2.54:1 as defined per our Private Placement Debt agreement.
  • Our Covenant Relief Period expires after March 31, 2018, whereby our cash in excess of $50.0 million is no longer used in our calculation of total net debt (reduced by $74.0 million at March 31) for covenant purposes.  However, we intend to repay $70.0 million of Series D Notes that mature in the second quarter of 2018.  Assuming the $70.0 million of Series D Notes had been repaid and the Covenant Relief Period had expired prior to March 31, 2018, our total net debt to operating cash flow would have been 2.56:1 (threshold of 3.50:1) at the end of the first quarter for financial covenant calculation purposes.
  • Net book value of property, plant and equipment of $910.5 million consisting of $465.8 million of real property (carrying cost of $528.5 million).
  • Total debt increased by $7.5 million to $547.5 million mainly due to an $8.0 million foreign exchange loss on our U.S. $229.0 million debt.
  • The value of our cross-currency swaps increased by $1.8 million to $27.5 million which swaps the principal portion of our U.S. $229.0 million debt to a Canadian currency equivalent of $254.1 million.

This news release may contain forward-looking statements that are subject to risk factors associated with the oil and natural gas business and the overall economy.  Mullen Group believes that the expectations reflected in this news release are reasonable, but results may be affected by a variety of variables.  The forward-looking information contained herein is made as of the date of this news release and Mullen Group disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable Canadian securities laws.  Mullen Group relies on litigation protection for “forward-looking” statements.  Additional information regarding the forward-looking statements is found on pages 1, 41 and 42 of Mullen Group’s Management’s Discussion and Analysis.

Mullen Group is a company that owns a network of independently operated businesses.  The Corporation is recognized as one of the leading suppliers of trucking and logistics services in Canada and provides a wide range of specialized transportation and related services to the oil and natural gas industry in western Canada two sectors of the economy in which Mullen Group has strong business relationships and industry leadership.  The corporate office provides the capital and financial expertise, legal support, technology and systems support, shared services and strategic planning to its independent businesses.

Mullen Group is a publicly traded corporation listed on the Toronto Stock Exchange under the symbol “MTL“.  Additional information is available on our website at www.mullen-group.com or on SEDAR at www.sedar.com.

For further information, please contact:
Mr. Murray K. Mullen – Chairman of the Board, Chief Executive Officer and President
Mr. P. Stephen Clark – Chief Financial Officer
Mr. Richard J. Maloney – Senior Vice President

121A – 31 Southridge Drive
Okotoks, Alberta, Canada   T1S 2N3
Telephone:  403-995-5200
Fax:  403-995-5296