Mr. Murray Mullen reports

MULLEN GROUP LTD. REPORTS 2023 SECOND QUARTER FINANCIAL RESULTS

Mullen Group Ltd. has released its financial and operating results for the period ended June 30, 2023, with comparisons with the same period last year. Full details of the results may be found within Mullen's second quarter interim report, which is available on the corporation's issuer profile on SEDAR or on its website.

"This was another very good quarter for our organization, especially taking the slowing economy and changing consumer spending patterns into consideration, generating quarterly revenues of nearly a half a billion dollars. As the economic landscape changes, one of the competitive advantages we have is a large and diversified portfolio of logistics companies that provide service to a wide range of verticals in the North American economy. Equally important to this diversified service offering is our commitment to the independently managed business unit model. Our leaders, in fact all of our people, understood the changes occurring in the market and adjusted accordingly, ensuring we captured market share but at the same time maintained margin. I could not be more pleased," commented Murray K. Mullen, chair and senior executive officer.

"Thus far in 2023, we have exceeded even our own projections. And while there are valid reasons to believe that the economy will continue to defy the recession prognosticators, we remain on alert. The high interest rate policy, adopted by central bank officials, does have the potential to really negatively impact the consumer pocketbook. Under this scenario economic growth would stagnate, or even decline, leading to very competitive markets, which is the exact opposite of 2022. But thus far we see no evidence that a downturn is imminent. As such we remain on target to meet our 2023 business plan and budget," added Mr. Mullen.

Key highlights for second quarter:

• Second quarter revenue of $494.3-million, down 5.2 per cent due to softer demand for freight and logistics services along with a more normalized pricing environment in 2023 compared to the prior year;
• Operating income before depreciation and amortization (OIBDA) of $83.4-million, down 11.2 per cent, primarily due to a decrease in the LTL (less-than-truckload) segment;
• Net income of $36.5-million, down 14.5 per cent, and earnings per share down 10.9 per cent to 41 cents;
• Repurchased and cancelled 2,079,640 common shares for $31.5-million, representing an average price of $15.11;
• Return on equity improved to 15.4 per cent.

Revenue: second quarter consolidated revenues decreased by $27.2-million, or 5.2 per cent, to $494.3-million:

• LTL segment down $17.3-million, or 8.2 per cent, to $193.4-million -- revenue declined by $17.3-million due to a $13.5-million decrease in fuel surcharge revenue and from a $13.2-million reduction in revenue resulting from lower freight volumes, particularly in Eastern Canada along with a more normalized pricing environment in 2023 compared with last year. These decreases were somewhat offset by $9.4-million of incremental revenue from acquisitions.
• L&W (logistics and warehousing) segment down $13.8-million, or 8.8 per cent, to $142.9-million -- revenue was down by $13.8-million due to the continuation of the inventory rebalancing cycle and softer freight demand as consumers shift their spend toward leisure and travel versus buying goods. Other factors contributing to the decrease in revenue were a $5-million decline in fuel surcharge revenue and from a $2.1-million decrease in revenue resulting from the sale of hydrovac assets and business in the fourth quarter of 2022.
• S&I (specialized and industrial services) segment up $6.8-million, or 6.8 per cent, to $107.3-million -- revenue increased by $6.8-million on $13.3-million of incremental revenue from acquisitions being somewhat offset by lower revenue from the company's business units involved in the transportation of fluids and servicing of wells as demand for their services declined due to extreme wildfires curtailing activity levels and from the timing of certain maintenance and turnaround work. Fuel surcharge revenue decreased by $2.3-million while the sale of hydrovac assets and business in the fourth quarter of 2022 accounted for a $1.5-million reduction in revenue.
• U.S. 3PL (United States and international logistics) segment down $6.4-million to $50.8-million -- revenue decreased by $6.4-million due to lower freight demand for full truckload shipments, which resulted from the impact of higher interest rates on economic growth in the U.S. market.

OIBDA: OIBDA decreased by $10.5-million, or 11.2 per cent, to $83.4-million while operating margin decreased slightly by 1.1 per cent to 16.9 per cent:

• LTL segment down $7.9-million, or 18.6 per cent, to $34.5-million -- OIBDA declined by $7.9-million due to a more normalized pricing environment in 2023 and from lower freight volumes, predominately in Eastern Canada. Operating margin decreased by 2.3 per cent to 17.8 per cent as compared with the prior-year period, primarily due to lower margins experienced by the acquisition of B&R Eckel's Transport Ltd. and higher selling and administrative (S&A) expenses as a percentage of revenue, which resulted from lower segment revenue and the fixed nature of S&A expenses.
• L&W segment down $500,000, or 1.6 per cent, to $30-million -- OIBDA declined slightly due to lower freight volumes, which resulted from the impact of the freight recession. Operating margin improved by 1.5 per cent to 21 per cent due to lower direct operating expenses as a percentage of segment revenue resulting from the strong results at Kleysen Group Ltd. and the company's ability to use owner operators and subcontractors more efficiently.
• S&I segment up $100,000 to $20.6-million -- OIBDA increased slightly as acquisitions added $2.8-million of incremental OIBDA. This increase was somewhat offset by lower OIBDA resulting from the sale of the corporation's hydrovac assets and business in the fourth quarter of 2022 and from lower OIBDA generated at Smook Contractors Ltd. due to certain one-time maintenance and project costs. Operating margin decreased by 1.2 per cent to 19.2 per cent as compared with the prior-year period, primarily due to higher S&A costs as a percentage of segment revenue.
• U.S. 3PL segment down $1.3-million to $900,000 -- OIBDA declined primarily due to the combination of lower segment revenue and higher S&A costs that resulted from higher wages from adding support staff to continue the development of Mullen's proprietary software known as SilverExpress, the negative impacts of foreign exchange and from higher inflationary costs. Operating margin decreased by 2 per cent to 1.8 per cent due to the combination of lower segment revenue and higher S&A costs. Operating margin as a percentage of net revenue was 18.8 per cent as compared with 43.1 per cent in 2022.

Net income: net income decreased by $6.2-million, or 14.5 per cent, to $36.5-million, or 41 cents per common share due to:

• A $10.5-million decrease in OIBDA, a $2.7-million decrease in earnings from equity investments, a $1.3-million increase in depreciation of right-of-use assets, a $700,000 increase in finance costs, and a $600,000 increase in depreciation of property, plant and equipment.
• These decreases to net income were somewhat offset by a $3.3-million decrease in income tax expense, a $2.9-million positive variance in net foreign exchange, a $2.2-million increase in gain on sale of property, plant and equipment, a $1-million decrease in amortization of intangible assets, and a $200,000 change in the fair value of investments.

Financial position

The following summarizes Mullen's financial position as at June 30, 2023, along with some key changes that occurred during the second quarter:

• Repurchased and cancelled 2,079,640 common shares for $31.5-million, representing an average price of $15.11;
• Working capital of $71.7-million, including $115.7-million of amounts drawn on the company's $250-million of bank credit facilities;
• Total net debt ($656.6-million) to operating cash flow ($337.6-million) of 1.95:1 as defined per the company's private placement debt agreement (threshold of 3.50:1);
• Private placement debt of $473.8-million (average fixed rate of 3.93 per cent per annum) with principal repayments (net of cross-currency swaps) of $217.2-million and $207.9-million due in October, 2024, and October, 2026, respectively;
• Book value of derivative financial instruments down $5-million to $42.7-million, which swaps Mullen's $229-million of U.S.-dollar debt at an average foreign exchange rate of $1.1096;
• Net book value of property, plant and equipment of $1-billion, which includes $643.2-million of carrying costs of owned real property.

About Mullen Group Ltd.

Mullen Group is one of Canada's largest logistics providers. Its network of independently operated businesses provide a wide range of service offerings including less-than-truckload, truckload, warehousing, logistics, transload, oversized, third party logistics and specialized hauling transportation. In addition, the company provides a diverse set of specialized services related to the energy, mining, forestry and construction industries in Western Canada, including water management, fluid hauling and environmental reclamation. The corporate office provides the capital and financial expertise, legal support, technology and systems support, shared services, and strategic planning to its independent businesses.

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