Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited second quarter 2024 earnings conference call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Murray K. Mullen, Chair, Senior Executive Officer, and President. Please go ahead.
Good morning, all, and welcome to Mullen Group's quarterly conference call. This morning, we're gonna provide shareholders and interested investors with an overview of the second quarter financial results. In addition, we will discuss the main drivers impacting these results, our expectations for the balance of the year, and we'll close with the Q&A session. Now, before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements. These forward-looking statements are based upon current expectations and are subject to a number of risks and uncertainties, and as such, actual results may differ materially. Further information identifying the risks, uncertainties, and assumptions can be found in the disclosure documents, which are filed on SEDAR+ and at www.mullen-group.com. Now, with me this morning, I'm joined by the senior executive team.
We have Richard Maloney, we have Joanna Scott, who happens to be traveling and on the road, and we have Carson Urlacher. In a few moments, I'll be turning the call over to Carson Urlacher, our Senior Financial Officer, who will be providing you with an overview of the second quarter financial results. And for those of you interested in detail, we've posted the MD&A, a detailed report covering all aspects of our results, so they're available for your viewing pleasure. I will keep my commentary short and provide a few of what I consider are the highlights in the quarter. Let's begin by acknowledging that this is a different market today than the last year, in fact, the last two years. So it is reasonable to expect results to be different than prior years.
Besides, a simple comparison to what happened in prior years can be very misleading. What is more relevant is what is the state of the markets today, is what will it look like tomorrow? But in addition, asking how we fared in this new market is a relevant question. Now, when I look at the markets, I really focus on two fundamentals of the economy: the consumer and business investment. Now, nowhere is the change more acute than with the consumer. Today, the average consumer is stretched and under stressed, but it's not broken, thankfully. Their income doesn't go as far as it used to, and mostly out of necessity, they've become very price sensitive. This means suppliers must adapt as well. The move by central bankers around the globe to slow inflation by raising interest rates is working.
Not only has the consumer been hit hard, so too is business, which has slowed capital investment quite noticeably from our perspective. Once the economy slows, the supply chain disruption, a major contributor to inflation, these get resolved. So yes, this is a different market, but that doesn't mean there's no opportunity. At the Mullen Group, we thrive in this type of market environment, one where we capitalize as others struggle. Fundamentally, I believe this is the simple key to our success, and that is that we were prepared for this market. So, for example, we didn't bite when times were abundant. We just stayed in our lane and we executed, being quite satisfied to generate as much free cash as we could, never overpaying or over-leveraging the balance sheet with overpriced acquisitions. Why? Because we did not believe that the policy-driven good times would last.
In other words, we maintained our discipline. Another key to our success is that we take a long-term view. So for example, over the last 30 years, we've invested in lines of business where we viewed the competitive landscape as more rational. This is probably the single most important reason why our business is generating solid results today. We invest in business verticals we believe can generate free cash. In summary, we are happy to generate cash at the top of the cycle. We do not overcommit when it seems easy, and then we grow at the bottom of the cycle when opportunity arises. Container World is a prime example and a major contributor to our strong revenue performance in Q2. More importantly, I'll just advise, we've just started working with a team at Container World on how to improve their bottom line.
Now, it'll take our senior team a few quarters, but like all other acquisitions, and we have many examples to prove this point out, profitability will ultimately be enhanced at ContainerWorld. This is what we do at Mullen Group. We acquire companies, then we strive to improve performance. So today, we have a large and diversified portfolio of business units that operate within multiple verticals in the economy. These business units are led by seasoned industry veterans that understand what it takes to be successful in changing markets. Quarter two just reinforces this, and strategically, we have invested significant capital in the less-than-truckload vertical, which just happens to not only be the largest component of our business, but also the most stable.
The specialized industrial service segment has a cyclical component to it, but it also has the most potential to overachieve in future quarters and years because the business in this segment will eventually need new capital, and this implies higher margins. The logistics and warehousing segment has been bolstered by the acquisition of ContainerWorld, adding another large business line to the likes of Bandstra Transportation and Kleysen Group.... And lastly, the US 3PL business, segment business remains solid, with the potential to grow as new features like AI are added to SilverExpress, which is our proprietary IT platform on Haulistic. So in terms of the quarter, nothing surprised us. Not the market, not the economy, and not the outstanding performance by our business units. We came into 2024 with a realistic game plan, and we are executing to the plan.
Now I'll turn the call over to Carson for more of the financial analysis, and then we'll close with the Q&A session. Carson, you are up.
All right. Well, thank you, Murray, and welcome everyone. So as Murray mentioned, I will focus on the highlights from the second quarter, the details of which are fully explained in the second quarter interim report, which is available on SEDAR+ and on our website. So before I dive into the second quarter highlights, I would like to make a couple overarching comments to help put our second quarter results into perspective. There are a couple fundamental concepts regarding our long-term investment strategy that enables us to generate free cash every quarter. First is our acquisition strategy. As Murray pointed out, for years, we've invested in niche businesses that have a moat or certain barrier to entry that tend to lead to more price stability.
ContainerWorld is a great example, and had we completed this acquisition at the beginning of the second quarter, our revenues would have easily been in excess of CAD 500 million for the quarter. We also acquire tuck-in acquisitions that drive margin improvement at our well-managed business units. The acquisition of B&R are the most-- being the most recent example. The second concept is our diversification. Over 40 business units, each operate in their own region and are leveraged to a distinct vertical of the economy. Diversification adds stability and predictability to our free cash flows. In the second quarter, consolidated revenues were CAD 495.6 million, which is fairly consistent compared to last year, as acquisitions added CAD 26.9 million of incremental revenue, most notably from the two months of financial results from ContainerWorld.
The main reason revenue is generally flat year-over-year was due to the lower demand for major construction projects, including pipelines, as both the Trans Mountain Expansion Project and the Coastal GasLink pipeline project have essentially been completed. Overall, freight demand was negatively impacted as suppliers and manufacturers were reluctant to increase inventory levels. Economic activity levels slowed in Canada due to a lack of capital investment in the private sector. That said, revenue per working day declined by a modest CAD 100,000 per day to CAD 7.7 million in the quarter. However, as at June 2024, revenue per working day improved to CAD 8.3 million. This increase was mainly due to the incremental revenue generated from the ContainerWorld acquisition.
This trend is consistent from a seasonality perspective as we head into Q3, which is now typically our strongest quarter of the year. We generated OIBDA of CAD 85.7 million, an increase of CAD 2.3 million compared to prior year, and is the second highest Q2 ever recorded at Mullen Group, second only to Q2 of 2022. Acquisitions added CAD 4.7 million of OIBDA, and we also experienced improved results in our LTL segment. These increases were somewhat offset by lower OIBDA in the L&W segment and from higher corporate costs. Operating margin improved to 17.3% as compared to 16.9% last year, despite more competitive pricing conditions in certain markets and a reduction in higher-margin specialized business.
DOE, as a percentage of consolidated revenues, decreased by 0.8%, as our business units did a great job adapting to the current market conditions and controlling costs. S&A expenses as a percentage of consolidated revenue increased, resulting from higher costs experienced at ContainerWorld and from the relatively fixed nature of these expenses. Now, let's take a closer look at how we performed by segment. So starting with our largest segment, revenues in the LTL segment were CAD 189.8 million, down CAD 3.6 million from last year due to a softening in overall freight demand and really from us demarketing underperforming business. These declines were somewhat offset by CAD 1.8 million of incremental revenue from acquisitions.
OIBDA was CAD 37.5 million, up CAD 3 million from last year, despite lower segment revenue, while operating margins improved by 2% to 19.8%. The main reason for the improved operating margin was due to how we integrated B&R's LTL operations at the start of the year into our existing network, which drove greater lane density, as well as using our existing technology platform, resulted in more efficient operations. So a great tuck-in acquisition resulting in margin improvement. Our second largest segment is our L&W segment. Revenues in the L&W segment were CAD 150.9 million, up CAD 8 million from last year.
Acquisitions added CAD 22.2 million of incremental revenue, which was somewhat offset by lower revenue generated by our existing business units due to shippers electing to keep a tight rein on inventory levels, a lack of capital investment, and from competitive pricing in certain markets. OIBDA was CAD 29 million, down CAD 1 million from last year due to lower revenues generated by our existing business units, excluding acquisitions. This decrease was somewhat offset by CAD 4.2 million of OIBDA generated by ContainerWorld. Operating margins declined by 1.8% to a respectable 19.2%, primarily due to a more competitive pricing environment. Now, moving to our S&I segment, revenues were up CAD 2.3 million to CAD 109.6 million, which was mainly due to CAD 2.9 million of incremental revenue from acquisitions.
Our remaining business units in the segment generated relatively consistent revenue compared to last year. This is really a testament to our diversification strategy. The completion of the Trans Mountain and Coastal GasLink projects resulted in a CAD 9.1 million reduction in revenue of Premay Pipeline, and Canadian Dewatering also experienced lower demand for their services. These declines were offset by higher revenue generated by our drilling-related services business units, as activity levels in the Western Canadian Sedimentary Basin increased. In addition, our production services business units benefited from the commencement of plant turnaround and maintenance projects.
Our business units participate in large capital projects like Trans Mountain and Coastal GasLink from the beginning to its ongoing use, whereby we assisted in the construction phase to eventually filling the pipelines through our exposure of providing support services to the natural gas drilling activity, as well as maintenance and turnaround work. OIBDA was CAD 23.5 million, up CAD 2.9 million from last year on higher OIBDA generated by our production services and drilling-related services business units. Operating margins increased by 2.2% to 21.4%, despite the loss of higher-margin pipeline construction work, due to more efficient operations and from plant turnaround projects, which generally provide higher margins.
In our non-asset-based U.S. 3PL segment, revenues were CAD 46.9 million, a decrease of CAD 3.9 million from last year due to the ongoing issue of lower freight volumes and excess supply of trucking capacity, creating competitive market conditions. But despite the lower segment revenue, OIBDA was generally flat year-over-year at CAD 800,000. Operating margin on a net revenue basis improved to 20%, compared to 18.8% last year. Now moving to the balance sheet. On July 10th, 2024, we announced the closing of approximately CAD 400 million of private placement debt. There was strong demand from the bond markets, and the offering was significantly oversubscribed, mainly due to our disciplined approach to acquisitions, our large real estate portfolio, and our ability to generate free cash through all business cycles.
These 10-year long-term notes match our long-term investment strategy, and once again, provides us with a well-structured balance sheet for the next decade. We intend to use these funds to repay the CAD 217 million notes that are maturing in October, and we also used a portion of these funds to repay the amounts drawn on our bank credit facilities. Speaking of the bank credit facilities, in conjunction with closing the private debt deal, we upsized our facilities from CAD 375 million to CAD 525 million, which is currently undrawn, giving us significant short-term liquidity. Excluding the notes being repaid in October of 2024, the principal amount outstanding on our private placement debt is approximately CAD 608 million. That's net of cross-currency swaps.
This amount is less than the CAD 655 million we have in historical costs on our real estate on our balance sheet. Our new blended interest rate, excluding the notes being repaid in October, is approximately 5.3% per annum. So in summary, our balance sheet is well positioned to take advantage of opportunities that come our way, whether it be tuck-in acquisitions that improve and drive margin improvement, or if we see a new vertical that we will continue to diversify our business model. So with that, Murray, I will pass the call back to you.
Great job. Thanks, Carson. Now, just before we get into the last, what the last half of 2024 might look like and give you what we call the outlook, let me take you back, to our Q1 2024 conference call. Now, on that call, I reiterated that in our 2023 financial review, we expected the first half of 2024, it would be soft, and that economic activity might start gaining momentum as the year progressed, as long as central bankers, started lowering interest rates. Well, today it appears, at least from the Bank of Canada's perspective, that they now recognize that the economy has slowed dramatically. In fact, Mr. Macklem noted in his most recent remarks, I quote, "That they want to see economic growth pick up." So maybe, just perhaps, the economy might start turning the corner soon. At least that's our hope.
But as you know, hope is not a strategy. So we'll stay true to our plan, and that means the only way to grow in the short term is via acquisitions, preferably, and Carson mentioned this, through the tuck-ins, because this is one of the surest ways we know of to drive margin improvement. And on margin improvement, we're gonna stay laser focused on margins. In fact, we will sacrifice growth as we endeavor to increase margins. Margin improvement is our highest priority today. Last quarter, we generated some decent results, especially within the context of the slowdown in consumer spending and the dramatic decline in capital investment in Canada. And furthermore, you will recall that the major pipeline projects in Western Canada have been completed, leaving quite a void in terms of economic activity, especially in Western Canada. Yet despite these headwinds, our results are pretty acceptable.
So our belief is that we can build off of these results during the last half of 2024. And while we're not predicting any meaningful growth in the economy quite yet, we believe that demand has stabilized across most verticals we serve. In other words, we believe we have a bit of a momentum on our side, and with the potential to add additional revenue through M&A, that's our, that's our plan. But I remind everyone, we are more than just disciplined. We are picky when it comes to acquisitions. We will not chase growth. On the other hand, we will aggressively pursue opportunities that can help drive margin growth. Now lastly, let me just speak to the dividend. There really are two important reasons why the board decided to increase the monthly dividend payable to shareholders.
Firstly, it should be obvious now that we have a constructive view for the prospects of our business. Secondly, we now have the balance sheet in place where we are both comfortable for the longer term and for pursuing our acquisition strategy. So starting in September, your monthly dividend increases to CAD 0.07 per share per month, CAD 0.84 annually. And last quarter, I reiterated that your dividend is sacred. So with today's announcement, your dividend just increased by nearly 17%. So thank you for joining us, and now let's go straight to the Q&A.
Thank you. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. First question comes from Konark Gupta with Scotiabank. Please go ahead.
Thanks, and good morning, everyone.
Morning.
Morning, Murray. When you mentioned, you know, like, the second quarter was pretty good, I know. But you also mentioned that you are seeing some stability in across your business, I guess. I just wanted to kind of dig in a little bit here, especially on the freight side. You know, from what a lot of your competitors are telling or saying or reporting, seems like, you know, we are still kind of finding an inflection point in the market. So I just wanna kind of, like, grab your thoughts. Where do you see the stability, and where do you see sort of green shoots in your businesses today? And what could be your differentiating factors versus, you know, some of those competitors who are still struggling?
Well, but you're spot on, is that, you know, most of our competitor, you know, our-- and we're talking about our public company competitors or those of us that are in the supply chain, logistics, and it doesn't matter if it's rail or my fellow competitors in trucking, blah, blah, blah. But at the end of the day, I think all of us see the same thing at the same time today, which is the market, it, it looks like demand has stabilized. It doesn't appear to be going down anymore, which is, which is really good news. The supply chain issues have generally been, have been resolved. So that's the good news, Konark, is that it's stabilized. The other part of that is, though, if you're in the wrong verticals, it's stabilized and it's crappy.
Like it's, you know, they're, we're—it's stabilized at virtually variable cost. So if you're in the wrong verticals, it's still gonna be a tough grind, in our view. But not every vertical is in that position. Every vertical's got more competitive, but some have become ridiculously competitive. But for the general part, we have avoided investing in those verticals over the years. So. But most of our competitor, you know, everybody wants it to improve, Konark. We do, too, but it's gonna take some time for it to prove. Our point is, we think it's stabilized, and we think that the verticals that we're in and the businesses that we've got, they'll be able to hold their own. And as the competition, the little guys are really getting squeezed, Konark, in this market.
You know, customers will have no choice but to start migrating more towards the stability of those that are gonna be around for the longer term. That might take a couple more quarters, but it's just gonna be part of the natural cycle in our view, and we're situated pretty good.
Okay, that makes sense. Thanks for that. And in terms of M&A, you know, if you can help us, you know, map out the lay of the land. You know, the new debt issuance and, you know, the payment or, or, or the dividend coming up in October, plus the facilities you have. So net-net, it seems like you have maybe more than CAD 500 million of capital to deploy. How do you wanna, you know, allocate the capital here? Like, dividend obviously is growing. I don't think it's gonna be a huge impact on or consumption on your capital, maybe, but you continue the buybacks. How much do you really wanna kind of put aside for M&A, and where are you seeing sort of more imminent opportunities?
Well, now, that's, you know, that's a, a really, deep discussion that we have, with us at the senior executive level and at, at the board level, too, which is M&A, which implies growth. I said that implies growth on the top line. It doesn't always relate and translate into bottom line or in free cash. Acquisitions, particularly major acquisitions, are complicated, and we are extremely disciplined, Konark. I do not chase, growth. I wanna-- every acquisition we do must have the ability for us to generate free cash over and above our cost of capital. So, that's why we say to you, the easiest ones, the best ones, the ones that give us the best opportunity for us to drive margin growth is tuck-ins, because we already have the infrastructure in place.
We already got great seasoned management teams, and all we've got to do is layer in some more business to them, and, and, you know, realistically, you get rid of a, you know, undisciplined market buyer when you do that. But doing big transactions. That's really not our game, unless we see one that is really, really strategic. And, you know, that might be LTL, as an example, as the last big one we did, Richard, was Gardewine.
Yeah, 2015.
2015, in the LTL business.
Yeah.
So we're picky. We're not gonna lose that discipline, I can tell you right now. That's not gonna happen. And every acquisition that we do, we will do it to drive margin improvement. I'm not doing it just for top line growth. That's a fool's game, in my view, and we're not pursuing that strategy. That means we've got lots of capital available. Carson just explained that. We got a lot of available, and we can use that to continue to invest in the strong business verticals we've got, and some tuck-in acquisitions, and we'll give the rest of the money back to shareholders. And then it's, when you give it back to shareholders, it's either through dividend or share buyback.
And I think we've with the dividend increase, we've highlighted, is that on the little shareholders that we've got, the individual investors in our stock, and we have a lot of them, the dividend is very, very important to them. We've got some big shareholders, big funds that are in us. That's not, that's not, that's not important to them. But to the small investor, the increased dividend is very, very important. So, we took the path that says, "You know what? We're gonna look after those, the little shareholder," and we gave them a nice return because our balance sheet's in great shape, and our business is solid. That's our strategy.
Makes sense. Thanks so much for your answers. Thank you.
Good.
The next question comes from David Ocampo with Cormark Securities. Please go ahead.
Thanks. Good morning, everyone.
Hey, David. Morning.
Yeah, Murray, just speaking of verticals that are operating on thin margins, I think in your MD&A, you guys did call out exiting some businesses in the specialized and industrial space that aren't meeting your return thresholds. It may be a bit too early to comment on it, but maybe you can speak to some of the general pockets that you're seeing that are no longer attractive, and maybe even commenting if that's a large portion of your SNI book.
On the verticals, there's two parts of the verticals that don't meet our thresholds. One is they're—like, we just don't have any businesses that aren't generating some type of cash. We'll shut them down. We don't wait on them. Where we get concerned, David, is we start taking a look, and this is primarily in the specialized side, where future capital requirements, we don't know whether the market will be able to justify those capital replacement cycles. So we've said, "Well, we might as well cut bait," and our OK Drilling and Treo Drilling, Richard, are prime examples of that. So we just said: You know what? There's no growth. They might need more capital in a year or two. We just said: You know what?
We're not gonna support the new capital, so we might as well. If you're not gonna support it, you might as well get out of it. So, you know, that's what we're gonna do, and we'll just have a transition plan for some of them. Those are not big verticals for us. Those are involved in, were involved in, you know, in the heydays when drilling activity was very strong, they made us a ton of money, but right now they're break even. But pretty soon they're gonna need new capital. I said, "You ain't getting it, so we might as well just take them to Ritchie Bros. and sell the assets, and we'll redeploy that capital somewhere else." Right, Richard?
Yeah, absolutely.
Got out there on that.
Well, and part of that is, you know, if that comes back, you know, the people, it's hard to get the people as well. So we just looked at it, you know, the winding this down, and hey, it was a different day and a different time. In terms of how it will impact specialized and industrial services, Carson, is very de minimis, virtually nothing, because they haven't been, we haven't been busy in that, in those operating lines for the last, you know, few years.
Yeah, that's, that's correct, Rich. Those two business lines haven't really generated much of anything over the last couple of years.
Yeah, but they haven't really cost us much, David. But, what we're concerned about is that, the capital replacement cycle is starting to come in, and there's not enough activity in those for us to justify new capital. That's primarily why we decided to, streamline that down in those. And I think the other part-
That, that-
The second part of your question, I think, had to do with, was it share buybacks?
No. That, I think that was a Connor question.
Yeah. Okay.
Just shifting gears here. I mean, ContainerWorld is now under your corporate umbrella, but if I take a look at the margins, they're already pretty close to the Mullen Group average. So maybe you can walk us through some of the operational improvements that you've already identified and, and where you see margins ultimately going once it's fully integrated.
Yeah, so let's just be clear. Yes, they've got margin, but those margins is being eaten up by by your right of use assets, right, Carson? Which is really lease facilities. So the company's paying its bills. It's generating enough cash to pay its bills, but it doesn't generate free cash yet. So that's, you know, that's where you can get a little tricked by IFRS rules, right?
Right.
So it, it generates the EBITDA, it generates the EBITDA, it pays all of its bills, but it's not generating free cash. That's where we come in as a senior team is that we will work with them on how to drive new better business processes, better measurement, and a better focus on bottom line. That's where our investment, the capital investment we made in the shares, we will get that return for our shareholders. And we have a long history of improving performance in the business units that we acquire, and that will be, I'm pretty sure, the same at Container World. But they've got to move away from running the business just to pay their bills to where we generate free cash, and that's our job, and that's what shareholders pay this senior team to do.
In terms of timing of the integration process?
Yeah, David, it's covering its bills.
Yeah.
It's covering all the lease payments, you know, on a cash basis, so it's not a cash drain. But we don't invest to break even. We invest to make money. That's why we focus on free cash. And we just saw so many opportunities there when we did our due diligence, and there's some low-hanging fruit that we'll get in the short term and early next year, and then process improvements will drive margin improvements for many, many years for our shareholders because it's a great vertical to be in.
If I can add, David, as we say, that line, as we've articulated in prior calls, that is a very difficult business to get into because of the sufferance bond requirements to bring alcohol and wine into the country, and to move that around, and the requirements to disclose or provide all the payments to the excise tax and so on. These. They have a very, very strong presence with roughly 1.3 million sq ft of space in BC. That gives us a great opportunity, and when we bring our disciplines to this team, and we have a very eager leadership team that is looking to move forward on a go-forward basis here. So we're, we're pretty excited about the opportunity. It will take time, but we think it's a great opportunity.
Okay. That's all I had for you guys. That was perfect.
The next question comes from Cameron Doerksen with National Bank Financial. Please go ahead.
Yeah, thanks. Good morning. I just wanted to maybe ask a little bit about the, I guess, the full year outlook. I mean, obviously, you know, Q2 was a pretty solid quarter in a tough market. But beginning of the year, you kind of highlighted a target of CAD 325 million in EBITDA. I'm just wondering what your updated thoughts are on hitting that number and, you know, just on hitting the broader targets as well.
Yeah, Cameron, I think that, you know, once again, you know, you'll probably take a look and at the end of the year, it'll all shake out. I personally, I doubt if we're gonna be far off the 325 is what we highlighted. You know, and that was totally predicated upon the fact we thought the first part of the year would be difficult. We cautioned everybody, this is a difficult market. In fact, I would highlight that many of our competitors in both sides of the border here, north and south, were way more optimistic about the economy than what we were. We were just very realistic, and we did say, "But it won't last forever, but the first part's gonna be tough." Well, guess what? The first part was goddang tough.
But the central bankers will have no choice but to lower interest rates, and the governments will have no choice but to help the consumers on the lower end of the scale, the average consumer that just grinds it out every day, they'll have no choice but to help them. That will stabilize our business, and we'll be just fine, is our view. So yeah, I think the full year outlook is pretty much, I feel pretty good about that. You know, we're clearly on a path now of 500 again, Carson, and I think we've always said, Cameron, that you know, the third quarter is now traditionally has been our stronger quarter.
And I would expect that will show up in this quarter, because as Carson reiterated, even in the second quarter, we would have, if we'd have had ContainerWorld in for the full quarter, we would have had CAD 505 million-CAD 507 million. We would have been up nicely on revenue. I don't see much change. I see the market's pretty stable right now, so that implies we're generating, Carson, somewhere around CAD 8 million, 81, 8-
Per working day.
Per working day, and-
Of revenue.
Yeah, of revenue and those kind of things. So I think the... You know, we and then if we do additional M&A, that will bump up our full year guidance or work that we had at the start of the year.
So, Cameron, if you look at our trailing twelve months OIBDA or EBITDA, we're sitting right around CAD 320 million. So you're right in that ballpark of what we articulated at the beginning of the year. So we're coming into the back half of 2024. Q2, we were virtually, you know, we were up a little bit in EBITDA this quarter compared to last year. So the trend is, you know, very close to what we articulated when we came out with the budget in January.
Okay. No, that, that's very good. Maybe just a quick follow-up on just on the M&A and balance sheet. Just sort of wondering about your comfort level around leverages at this point. I mean, obviously, you got a little more stable market, free cash flow is good, but just wondering, you know, where you'd potentially take the leverage to, if you were to get more aggressive on the tuck in M&A.
I think it would be a major transaction. I don't think we'd be comfortable in doing a major. We got lots of bank lines available, but we'd be awfully careful of stretching that over too much, Cameron, to be honest with you. If we see a great opportunity like a superstar opportunity, yes, we will stretch, and then we'll go back to shareholders and say, "Look, let's do it again." But, you know what? I can tell you, we can continue to do tuck-ins all day long with the balance sheet we got and with the cash we generate, and that will help us drive our revenue growth, but more importantly, drive our margin improvement. So don't look for us to go do a monster deal. We've grown... You know what?
We've doubled the company since COVID hit, since 2020, revenue side and everything else, and I go, we've grown a whole bunch and whatever. We're now focused 100% on margin improvement. In fact, if you go to margin, in 2020, our operating margin was 21.4%, and then we grew like a son of a gun, and we acquired companies, and we're still working on improving the margins of these business units. We hit the low point in 2023 at 16.9%, but we're on our way back up, 17.3% this quarter. In fact, if you back out our U.S. 3PL business, which is a low-margin business but has no capital requirements, we'd have been 18.9%.
So we're—our focus is right now 100% on operating margin, not growth. Now, we've already done the growth. We're just gonna make more money now, and then when we get more money, we'll give it back to shareholders, probably in the form of dividend, to be honest with you. That's what we've highlighted.
Cameron, I think it's worth pointing out as well, in terms of M&A, the phone, the emails are constant right now with smaller, medium-sized companies who are looking to sell, because just as we've projected and prognosticated, the operating environment is very difficult now with higher interest rates, labor costs that are sticky. Everything costs more, and if people do not—our smaller enterprises cannot, do not want to compete anymore. So we get calls daily—virtually daily on looking to sell. We will not buy them all, but we will look at ones that tuck in, and as tuck in implies, doesn't mean we're gonna go and overpay for them. I'll use B&R as an example. Last year, we bought B&R.
We looked at it, and you see our operating results within the LTL side, which, as we pointed out in the report, MD&A, that we tucked them into Hi-Way 9 and Grimshaw, which both reported improved results. We are now going to destinations with fuller trailers. That's called lane dancing and load factor. Those are the types of M&A opportunities we're gonna look at, not some giant deal that's gonna stretch our balance sheet after we've done all this work getting our balance sheet in order, you know, we're not gonna stretch that.
Yeah, so the easiest way for me to really summarize it, Cameron, for everybody that's on the line and all of our shareholders, investors, we're not going big game hunting. We're gonna be pinpoint accurate, and we're out to improve margins. Hopefully, that clarifies our M&A strategy for you.
Absolutely. Makes total sense. I appreciate the color. Thanks very much.
Thank you.
The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.
Yeah, thanks very much, operator. So, Murray, I'm gonna ask you kind of the same question, but in a more in the context of your share price. I mean, you know, obviously, you're having a good run here today, but still, even after today's run, it's only up 3% year to date. Your valuation, I mean, you got an 11% free cash flow yield now. You're trading at a, by my metric, a 40% discount to your two Canadian peers. So, you know, you're not getting the credit for... When I look at your business, I mean, you know, you pointed to a stabilized market, but you've done a fantastic job at managing your cost base.
Your margins are poised now for any macro growth that comes along, it should come up with nice operating leverage. Your debt leverage is reasonable. It's even opportunistic. So I'm struggling to see why, you know, the valuation levels where they are, what causes it, and it goes back, I guess, to M&A. I mean, you wanna garner some attention in your share price and tuck-ins, I hear you, they're the way to kind of low risk capital allocation. But I'm wondering, you know, you mentioned if a larger, good opportunity came along, I think certainly that would be a catalyst and garner some attention.
Do you start looking a little bit more, I would say, broadly at those type of opportunities, that maybe that acquisition maybe is not in your core market, but maybe adjacent enough and to open up a new growth avenue for you? Is that something you'd contemplate going adjacent with a larger transaction? I remember, you know, I remember back in the day, you did Livingston, or you made a run at Livingston, right? I mean, that kind of thing. Is that in the cards at all? I just love to hear your thoughts on that in terms of a catalyst to kind of get that valuation addressed.
Yeah, so that, you know, that's something we talk about here. That's something you and I have talked about, and others have talked about this. But here, here's the facts: We've doubled the company since COVID hit, so we've done a lot of acquisitions, and I don't think we really got a lot of credit for it.
Mm.
So I can understand, you know, this thesis that, well, you're not gonna grow. I said, "Well, we doubled the company in about four years. How's that for growth?" Will we do additional ones? Yes, we'll do them if they're the right ones, Walter, but we are not going to do an acquisition to show top line growth. I'm not interested in that one iota. Here's what you need to think of our company. We're not going to be this, you know, fast-paced growth. I'll tell you what we are. We focus and we study like a son of a gun, ODFL, Old Dominion Freight Line.
Mm-hmm.
I've known them for years. I love this, and the senior team has heard me here. Okay, we've now got huge critical mass. We're CAD 2 billion in sales and a little bit more. And I love what ODFL does. Now, ODFL is maybe $5 billion, maybe $5.5 billion in the US. So us at CAD 2 billion, we're bigger on a relative basis because we're just in this small little market called Canada. They make money, and they do not chase acquisitions, Walter. They chase margin. We are chasing margin. We just happen to be in more verticals than ODFL because they've got up 350 million people, but they're not growth hogs, Walter. They are just a great company, and that's what we are, and that's what we're going to focus on.
So what I'm hearing is you want to focus on being a great company in your core market that, you know, you could parlay that into an adjacent segment that has great returns. I mean, like, again, I go back to when you took a run at Livingston. I mean, what caused you to do that? Is that—would you do you look back at that and say, "Okay, you know what? I probably wouldn't have done that if I had my time back," or is that just... You know, what I'm asking is, is there another Livingston out there that might, you know, that might lure you in to an adjacent market if you saw the same type of shareholder?
Yes.
You know, share-
If we saw a vertical that we thought had the same opportunities as, say, LTL did in 2012-
Yeah.
-we really started to go into that. So LTL was a vertical that I thought was ripe for consolidation and-
Yeah
For margin improvement, whatever. That was in two-- that was over 10 years ago. Yes. So if we see another vertical like LTL, that we think has a 10-year run and a longer run that we can-- that's underappreciated, yes, we would make that investment, and we'll go back to shareholders and make our case for it. But, those only come around once in a while.
Yeah, you're not actively looking at anything there right now.
Look, if we see it, we're going to do it. You know, and that's the discussion we had internally and with the board and everything else. It's, of course, we're going to continue to look at those. But let's, you know, those won't come around as often as, you know, we're talking every 10-12 years. So if it comes around, yeah, we'll look at it, but let's not count on that. Let's count on just running a great business, improving margins over the next bit. If I see something opportunistic, you got it. I'll come and make my case.
Awesome.
Walter, can I add?
Yeah.
In 2009, when we looked at Livingston, right after the financial crisis, we saw the energy space starting to get... And that was when, way back when Murray projected, "Hey, we're going to have problems in the oil space, energy, because we can't get stuff out of here." So we looked at Livingston. Why? Because it's a different vertical that is tied to the bigger economy. So we looked at it very seriously, took a run at it. So would we-- and that demonstrates the forward thinking and that we needed to diversify our business. We lost out to CPPIB and Sterling, who had a, you know, an infinite checkbook, basically. But as we demonstrated shortly thereafter, started pivoting to the LTL side.
Okay. All right, appreciate the color as always, guys. Thank you.
Thank you.
Thanks.
Once again, if you have a question, please press Star, then One. The next question comes from John Gibson with BMO Capital Markets. Please go ahead.
Thanks, and congrats on a strong quarter in a tough market. I guess I'll ask Walter's question in another way. Wondering if you could talk about internal discussions around the dividend increase versus share buybacks. And just given where your valuation is, you're holding quite a bit of dry powder, and you've talked about talking M&A, but could you potentially look at something like an SIB, just given where your valuation is sitting?
Oh, we talk about that, John, all the time. That's, that's a question that we get, and I don't know if there's a right or wrong answer to that. But under our NCIB over the last number of years, Carson, we've acquired-- we've bought back roughly-
Just shy of, just shy of CAD 19 million.
Just 19 million shares.
For about CAD 200 million.
So let me flip it around on you, John. And I would say, okay, if we bought back 19 and we spent CAD 200 million, which obviously meant we generated free cash to be able to buy it back, and our stock price doesn't really reflect, like, why are we doing a bunch of share buybacks? And the problem is when you do a share buyback is you lose eyes that are following you. So I go: You know what? We're going to focus on the little investor, and we're going to reward them for their loyalty with higher dividend. That's our primary focus right now, and you're going to get paid more, and we're going to generate free cash. That's what we're all about, and then we can give that back. But share buybacks, I don't know if they're working.
I'll be, I'll be blunt with you.
Okay, that's fair. Second-
We're going to find out whether shareholders want more money paid to them every month, which is dividends. I know our employees want more money every month, and I'm probably betting that the individual shareholder. And we've got lots of small individual shareholders, I guarantee you they're happy today. Some big funds, eh, they're probably not gonna be happy with us. "Hey, you should buy back the stock from me," so they can go invest in something else. And well, okay. Yeah, but it's not working for us. So I think you should be prepared. We're gonna make as much money as we can, and we're gonna give it back to shareholders with an emphasis more on dividend rather than share buyback. That's probably our strategy for the next bit.
Okay, great. And, and last one for me, something I guess hasn't been really touched on. We're seeing strong energy-driven activity in the WCSB, and it's obviously showing up in your results. The outlook from, from my perspective, also looks strong into 2025. Could you see yourselves putting more capital to work here or even looking towards-
Yes
... some M&A in the segment, or is-- Okay.
Yeah, yeah. Remember what I said in my comments about the S&A segment? I said, over the next few quarters or the next few years, I do suspect that we're gonna have to have a capital replacement cycle in that business, and that implies higher margins. That's why we like S&A as a vertical in our company. And yeah, I can see, you know, I see a pretty good opportunities there. LTL is rock solid. That's only gonna get stronger as we continue to do tuck-in acquisitions in LTL. We've just proven it over and over and over again, so we'll stick on that game plan for us, Rich and Joe. Yeah, absolutely. We're focused on that.
S&A, we think, has got good potential because we're going into a capital replacement cycle in that, in that segment, and that means you've got to have... That implies some growth and some higher margins, so we like that. Logistics and warehousing, that's the big market, and we will invest where we see opportunity for us to get some good moats. And that's so we're- And then even our U.S. 3PL, I- we like what we're doing down there. We are, we got a great team down there, that's got a new business plan. They're, they're- we're gonna really expand the sales agent- Independent sales agent. Independent sales market as our major co- Our, our big, the big 3PLs are laying off 50% of their sales staff.
We're not, and we're creating opportunities for these people that have been laid off, and we're giving them an opportunity to be the uber salesperson, if you will, because we have the technology platform, and we are doubling up our investment in that to make sure that we've got Silver Express. And Silver Express. We've got the right tools for that market. So we're okay with where we're at. We like our business model. We've got 40 business units. Yes. We've got lots of work to do to help each of them improve margin, and when we do, we're gonna give more back to shareholders.
Okay, great. Great quarter. I'll turn it back.
Thanks so much.
The next question comes from Tim James with TD Cowen. Please go ahead.
Thank you. Good morning. I just have one question, Murray, just kind of a big picture question. When I think about the quarter, and the performance, I mean, organic revenue was down. You had some headwinds from, you know, acquisitions and a bit of dilution while you get those, you know, streamlined. And yet your overall margin, you know, was up 40 basis points year-over-year. You also talked about sort of, you know, capital equipment spending headwinds and consumer headwinds. Should we be thinking about that improvement in your margin percentage? Is this just because... And I'm oversimplifying a little bit, but you guys were really just ahead of the game in sort of getting ready for this, and so you were one step ahead with the cost structure?
Or are there places you're getting some pricing as well that may be helping offset all these headwinds?
No pricing. I will tell you right now, no way, that, the market we've entered, virtually a deflationary cycle, Tim. No pricing, or I'd say minimal. Just in the LTL, you get some minimal pricing. But let me just highlight, no pricing improvements all on the cost side, and it's all on synergy. Get your costs down and focus, focus, focus. And, then you get costs down because unfortunately, when we did B&R, I think we had—50 plus. 50—plus, yeah. 50 plus people that we were redundant as part of that acquisition. We knew it going in, Tim, but, you know, unfortunately, 50 people had to find employment somewhere else, but not—because it just wasn't at any value. And, we were able to layer that into our network. And, and when you talk about synergy, really, what are you talking about?
You're talking about less people and fewer terminals. That's what we mean by synergy. And, but the verticals, it's all the verticals you're in of whether you can drive margin improvement by getting more critical mass and more operating efficiency. There is no pricing leverage in this market. That maybe comes later 2025, 2026, as the market, as the competition just falters, but for right now, we're not counting on that. It's all operational efficiencies and watching your costs like a hawk. And as you said, yes, we prepared our business units going back to we hold our budget sessions in September of each year, and we'll be outlining our game plan to our all of our senior teams in September of this year, what we expect for the next year.
That's our job as senior executives, is to prepare our business units, and their job is to execute with the market that we've got. But we caution everybody, don't count on pricing yet. It's not here yet. No way.
Okay. Well, that's great. Congratulations. I mean, it's working well.
Yeah. Thank you.
That's the only question I had.
Tim, I would also add that, you know, we've really got to tip our hats to our business units. You look at the performance that they've done, these are long-tenured people that have been with us through many cycles. They've seen this before. They know how to react and know how to make the changes that are needed. So them and their executive teams at each of our business units are really we've got to tip our hat to them, too.
Great. Okay. Thank you.
Thanks, Tim. Cheers.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks. Please go ahead.
Thanks for joining us, folks, and we'll look forward to chatting with you in, I guess, late October, right? Yeah. Of course. And until then, we've got, we're gonna be working with our business units to focus on our game plan and go from there. So thank you for joining us. Appreciate all the commentary and good questions. Cheers.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.