Mullen Group Ltd. Reports Third Quarter Financial Results including Record Trucking/Logistics Segment Revenue

OKOTOKS, Alberta, Oct. 25, 2017 (GLOBE NEWSWIRE) -- Mullen Group Ltd. (TSX:MTL) ("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 September 30, 2017, with comparisons to the same period last year.

Key financial highlights for the third quarter of 2017 with comparison to 2016 are as follows:

HIGHLIGHTS
(unaudited)
($ millions)
Three month periods ended
September 30
2017
2016
Change
$$%
Revenue
Trucking/Logistics 190.7 173.3 10.0
Oilfield Services 93.6 86.8 7.8
Corporate and intersegment eliminations (0.4)(1.5)-
Total Revenue 283.9 258.6 9.8
Operating income before depreciation and amortization (1)
Trucking/Logistics 30.7 31.5 (2.5)
Oilfield Services 19.8 21.0 (5.7)
Corporate (5.8)1.1 -
Total Operating income before depreciation and amortization (1) 44.7 53.6 (16.6)
Operating income before depreciation and amortization - adjusted (1) 49.2 52.1 (5.6)
(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 ending September 30, 2017 are as follows:

• generated consolidated revenue of $283.9 million, an increase of $25.3 million, or 9.8 percent, as compared to $258.6 million in 2016 due to:

  • a $17.4 million increase in the Trucking/Logistics segment (record quarterly revenue of $190.7 million)
  • a $6.8 million increase in the Oilfield Services segment

• earned consolidated operating income before depreciation and amortization ("OIBDA") of $44.7 million, a decrease of $8.9 million as compared to $53.6 million in 2016 due to:

  • a $0.8 million decrease in the Trucking/Logistics segment
  • a $1.2 million decrease in the Oilfield Services segment
  • a $6.9 million increase in Corporate Office costs mainly due to a $6.0 million negative variance in foreign exchange

• adjusting for the negative impact of foreign exchange losses at Corporate Office, operating income before depreciation and amortization ("OIBDA - adjusted") was $49.2 million, or 17.3 percent of revenue, as compared to $52.1 million, or 20.1 percent of revenue, in 2016. These results more accurately reflect our operating performance.

Third Quarter Financial Results

For the three month period ended September 30, 2017, revenue increased by $25.3 million, or 9.8 percent, to $283.9 million as compared to $258.6 million in 2016. This was attributable to a $17.4 million increase in revenue in the Trucking/Logistics segment and a $6.8 million increase in the Oilfield Services segment. The increase in the Trucking/Logistics segment was mainly due to $12.5 million of incremental revenue related to our recent acquisitions of Caneda Transport Inc., Kel-West Carriers Ltd., RDK Transportation Co. Inc., Golden Transport Ltd., E.C.R. Enterprises Ltd. and Motrux Inc. Revenue also increased due to greater demand for freight services in western Canada largely due to the modest recovery in the oil and natural gas sector along with a $1.7 million increase in fuel surcharge revenue. These increases were somewhat offset by the completion of several major capital projects, most notably the Suncor Fort Hills oil sands and North West Upgrader projects that have not been replaced. The increase in the Oilfield Services segment was attributable to improved drilling activity which benefited those Business Units most directly tied to oil and natural gas drilling activity, those Business Units involved in the transportation of fluids and servicing of wells and from the $1.9 million of incremental revenue generated by Envolve Energy Services Corp. ("Envolve"). These increases were partially offset by the loss of revenue at both Canadian Dewatering L.P. and Heavy Crude Hauling L.P. resulting from a pipeline failure that occurred in Saskatchewan in the fall of 2016, which has since been recommissioned. Revenue also decreased from lower demand for heavy haul freight services due to the completion of several major capital projects and from a decline in demand for pipeline hauling and stringing services due to the timing and regulatory hurdles of various projects.

OIBDA for the third quarter was $44.7 million, a decrease of $8.9 million or 16.6 percent as compared to $53.6 million in 2016. This was attributable to a $0.8 million decrease in the Trucking/Logistics segment, a $1.2 million decrease in the Oilfield Services segment and a $6.9 million increase in Corporate Office costs due mainly to foreign exchange. The Trucking/Logistics segment generated OIBDA of $30.7 million, a decrease of $0.8 million from the $31.5 million in 2016. This decrease was mainly attributable to a change in revenue mix resulting from the completion of some major capital projects that have not been replaced. This decrease was somewhat offset by the incremental OIBDA generated from our recent acquisitions. The Oilfield Services segment generated OIBDA of $19.8 million, a decrease of $1.2 million from the $21.0 million in 2016 due to lower demand resulting from the completion of certain major projects in 2016. These decreases were somewhat offset by improved drilling activity, the continued effects of cost control measures previously implemented and from the acquisition of Envolve. As a percentage of segment revenue, operating margin in the Trucking/Logistics segment decreased to 16.1 percent from 18.2 percent in 2016. Operating margin in the Oilfield Services segment decreased to 21.2 percent as compared to 24.2 percent in 2016. Adjusting for Corporate Office costs related to the impact of foreign exchange on U.S. dollar cash held, OIBDA - adjusted was $49.2 million, a decrease of $2.9 million or 5.6 percent as compared to $52.1 million in 2016. Stated as a percentage of consolidated revenue, operating margin - adjusted decreased to 17.3 percent as compared to 20.1 percent in 2016.

In the third quarter of 2017, we recorded net income of $26.0 million or $0.25 per share, an increase of $8.4 million, or 47.7 percent, compared to net income of $17.6 million or $0.17 per share in 2016. The $8.4 million increase was primarily due to the $16.3 million positive variance in net foreign exchange, a $2.7 million decrease in income tax expense, a $2.0 million gain on contingent consideration and a $0.8 million decrease in deprecation of property, plant and equipment. These increases to net income were somewhat offset by the $8.9 million decrease in OIBDA and a $4.5 million negative variance in the fair value of investments.

"Overall I was pleased with our performance last quarter and the progress we have made in transitioning our organization for the future. Our Business Units did a great job managing through what I can only describe as very competitive markets. We completed three acquisitions, all of which are smaller in size but are excellent fits in our organization, a meaningful contributor to the 10.0 percent year over year revenue growth in the quarter. Our operating profitability, while down from last year, was still respectable given that there were no new capital projects of size in 2017. We continued to make progress on the build out and development of MoveitonlineTM, our proprietary online logistics marketplace, which included a strategic investment in Trakopolis IoT Corp., a Calgary, Alberta based technology company. And we deleveraged the balance sheet," commented Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Financial Position

On September 27, 2017, we used cash and cash equivalents to repay U.S. $85.0 million of Series E Notes and $20.0 million of Series F Notes. The Series E and Series F Notes matured on September 27, 2017. The repayment of these notes will reduce our annual interest obligation by approximately $7.5 million when using an average Canadian to U.S. dollar exchange rate of $1.2855 (or $0.7779). The weighted average interest rate on our U.S. dollar debt and our Canadian dollar debt after repaying the Series E and Series F Notes is 3.89 percent and 4.51 percent, respectively. At September 30, 2017, we had $181.4 million (December 31, 2016 - $243.1 million) of working capital that included $123.6 million (December 31, 2016 - $270.3 million) of cash and cash equivalents, of which $6.6 million (December 31, 2016 - $81.0 million) was denominated in U.S. currency. Included within non-cash working capital items is $71.3 million of current portion of long-term debt mainly related to the Series D ($70.0 million) Notes, which mature on June 30, 2018 and $12.4 million of convertible unsecured subordinated debentures (the "Debentures") which mature on July 1, 2018. Each $1,000 of Debentures are convertible into 93.2 Common Shares of Mullen Group (or a conversion price of $10.73). Thus, an aggregate of approximately 1,159,874 Common Shares of Mullen Group would be issued if all holders convert their principal amount. At September 30, 2017, net debt was $273.9 million (December 31, 2016 - $316.3 million) and we continued to have access to our $75.0 million undrawn bank credit facility. The Corporation's long-term debt consists mainly of its Private Placement Debt of U.S. $229.0 million and Canadian $241.0 million. The majority of this debt matures on October 22, 2024 and October 22, 2026. In July 2014, we entered into two cross-currency swap contracts to swap the principal portion of $229.0 million of U.S. dollar debt into a Canadian currency equivalent of $254.1 million for an average exchange rate of $1.1096. At September 30, 2017, the carrying value of these cross-currency swaps was $25.5 million and was recorded within derivative financial instruments on the consolidated statement of financial position. The net book value of property, plant and equipment was $932.9 million, the majority of which consists of $464.6 million of real property (carrying cost of $523.1 million) and $371.3 million of trucks and trailers.

"The trends we have spoken about throughout the year continue to be confirmed with economic activity levels remaining positive accompanied by a rebound in the oil and gas sector, which we believe is still in the early stages of a recovery. Unfortunately there is one negative trend for the oil and gas industry and that relates to the lack of development of major capital projects such as the oil sands, LNG development and large diameter pipeline undertakings, an essential component required to facilitate Canada's oil and gas industry access to new markets and away from the dependence on the U.S. market," added Mr. Mullen.

Nine Month Period Ended Financial Results

For the nine month period ended September 30, 2017, revenue increased by $65.1 million, or 8.4 percent, to $842.4 million as compared to $777.3 million in 2016. This was attributable to a $38.3 million increase in revenue in the Trucking/Logistics segment and a $22.9 million increase in the Oilfield Services segment. The increase in the Trucking/Logistics segment was mainly due to the $33.8 million of incremental revenue related to our recent acquisitions, market share gains and an increase in demand for freight services in western Canada. These increases were partially offset by the completion of various major capital projects in western Canada. The increase in the Oilfield Services segment was attributable to improved drilling activity which benefited those Business Units most directly tied to oil and natural gas drilling activity, from greater demand for pumps and related dewatering services and from the incremental revenue generated by Envolve. These increases were partially offset by a decline in demand for pipeline hauling and stringing services due to the timing and regulatory hurdles of various projects.

OIBDA - adjusted for the first nine months of 2017 was $134.2 million, a decrease of $10.0 million or 6.9 percent as compared to $144.2 million in 2016. This was attributable to an $11.9 million decrease in the Trucking/Logistics segment. This decrease was somewhat offset by a $1.4 million increase in the Oilfield Services segment and a $0.5 million reduction in Corporate Office costs. The Trucking/Logistics segment generated OIBDA of $78.5 million, a decrease of $11.9 million from the $90.4 million in 2016. This decrease was mainly attributable to the completion of some major capital projects that have not been replaced. This decrease was partially offset by the incremental OIBDA generated from our recent acquisitions. The Oilfield Services segment generated OIBDA of $58.8 million, an increase of $1.4 million from the $57.4 million in 2016 due to improved drilling activity, the continued effects of cost control measures previously implemented and from the acquisition of Envolve. These improvements were somewhat offset by lower demand for pipeline hauling and stringing services due to the timing of certain projects. As a percentage of segment revenue, operating margin in the Trucking/Logistics segment decreased to 14.1 percent from 17.5 percent in 2016. Operating margin in the Oilfield Services segment decreased slightly to 20.3 percent as compared to 21.6 percent in 2016. Stated as a percentage of consolidated revenue, operating margin - adjusted decreased to 15.9 percent as compared to 18.6 percent in 2016.

In the first nine months of 2017, we recorded net income of $60.1 million or $0.58 per share, an increase of $7.4 million, or 14.0 percent, as compared to net income of $52.7 million or $0.54 per share in 2016. The $7.4 million increase was primarily due to the $5.8 million positive variance in net foreign exchange, a $7.1 million decrease in depreciation and amortization, a $2.6 million decrease in finance costs, a $2.0 million gain on contingent consideration and a $1.9 million decrease in income tax expense. These increases were partially offset by the $12.3 million decrease in OIBDA.

A summary of Mullen Group's results for the three and nine month periods ended September 30, 2017 and 2016 are as follows:

SUMMARY
(unaudited)
($ millions, except per share amounts)
Three month periods ended
September 30
Nine month periods ended
September 30
20172016Change 20172016Change
$$% $$%
Revenue283.9 258.6 9.8 842.4 777.3 8.4
Operating income before depreciation and amortization(1)44.7 53.6 (16.6) 126.2 138.5 (8.9)
Operating income before depreciation and amortization - adjusted(2)49.2 52.1 (5.6) 134.2 144.2 (6.9)
Net foreign exchange (gain) loss(11.3) 5.0 (326.0) (23.0) (17.2) 33.7
Decrease (increase) in fair value of investments0.1 (4.4) (102.3) 1.3 (0.1) (1,400.0)
Net income26.0 17.6 47.7 60.1 52.7 14.0
Net Income - adjusted(3)13.0 18.9 (31.2) 34.5 36.2 (4.7)
Earnings per share(4)0.25 0.17 47.1 0.58 0.54 7.4
Earnings per share - adjusted(3)0.12 0.18 (33.3) 0.33 0.37 (10.8)
Net cash from operating activities44.0 44.4 (0.9) 83.8 127.8 (34.4)
Net cash from operating activities per share(4)0.42 0.43 (2.3) 0.81 1.31 (38.2)
Cash dividends declared per Common Share0.09 0.09 - 0.27 0.47 (42.6)
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 net income before depreciation of property, plant and equipment, amortization of intangible assets, finance costs, net foreign exchange gains and losses, other (income) expense, income taxes and foreign exchange gains and losses recognized 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, the gain on contingent consideration 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 and Additional 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 and Additional 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 and Additional GAAP Terms are useful supplemental measures. These Non-GAAP and Additional GAAP Terms do not have standardized meanings and may not be comparable to similar measures presented by other entities. Specifically, OIBDA, 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.

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, 57 and 58 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

Source: Mullen Group Ltd