Mr. Murray Mullen reports

MULLEN GROUP LTD. ANNOUNCES 2023 FOURTH QUARTER FINANCIAL RESULTS AND FILING OF DISCLOSURE DOCUMENTS

Mullen Group Ltd. has released its financial and operating results for the quarter and year ended Dec. 31, 2023, with comparisons with the same period last year. Full details of the financial and operating results may be found within Mullen's 2023 annual financial review, which is available on the corporation's issuer profile on SEDAR+ and on the company's website.

"Results for the fourth quarter were consistent with our previously released Dec. 11 update, although demand was light in all four segments as the year came to a close. Basically, we lost a week's worth of revenue due to the timing of the holiday schedule. In addition, we accelerated the restructuring of the B. & R. Eckel's group, acquired earlier in 2023, resulting in one-time restructuring charges of approximately $2.9-million in the quarter.

"Mullen Group continued to deliver industry-leading results for a couple of reasons. The first is our diversified business model. Over the course of three decades, we have acquired a portfolio of quality brand names, business units that operate in multiple different verticals in the economy and in segments where we believe there are strong underlining fundamentals. The less-than-truckload segment is an excellent example, which happens to be the largest segment in our group. This business is generally more predictable and stable than the long-haul full truckload business, for instance. We have also invested in a wide selection of businesses that provide specialized services offerings, in sectors of the economy where there is generally more pricing discipline. But the other important reason our business continued to produce strong results, even though economic growth slowed year-over-year, I attribute to the adaptability of our 40 business units. Quite simply, our teams did a great job managing the changing market dynamics. I am very proud to represent such a talented and dedicated group of professionals," commented Murray K. Mullen, chair and senior executive officer.

"We enter 2024 with a greater sense of optimism than at this time last year for a couple of reasons. The first is that the North American economy continues to show a resiliency that supports a strong job market, one of the most important factors influencing end consumer demand. Furthermore, if inflationary pressures continue to moderate and interest rates start declining, consumers will have more disposable income, a precursor to increased freight demand. We also believe the inventory rebalancing cycle is basically over, implying that shippers will need to replenish, or at the very least rebuild, inventory levels if they want to capture the ever-demanding needs and wants of consumers. And, even though the current overcapacity issue in the logistics and trucking industry is limiting growth and profitability, this will change. Many competitors are struggling with high debt levels and shrinking profitability, an unsustainable situation in our view. This leads to the other reason we are optimistic, acquisitions. We believe there will be consolidation opportunities and business failures in 2024, events that will not only drive revenue growth but also lead to tomorrow's pricing discipline. We will look to add strong brands to our network and will continue to pursue tuck-in acquisitions that drive scale and enhance operating margins," added Mr. Mullen.

Fourth quarter highlights:

• Generated revenue of $498.6-million -- seventh consecutive quarter of generating revenues of approximately $500-million.
• Operating income before depreciation and amortization (OIBDA) of $79.2-million -- up 2.1 per cent from prior year despite one-time integration costs related to B. & R. Eckel's Transport Ltd. and a more competitive operating environment.
• Operating margin improved to 15.9 per cent from 15.4 per cent, reflecting the variable cost structure of Mullen's business model, resulting in lower direct operating expenses (DOE) as a per centage of revenue, which was somewhat offset by a rise in selling and administrative (S&A) expenses.

Revenue: A slight decrease of 0.8 per cent to $498.6-million due to lower fuel surcharge revenue and softer freight and logistics demand being almost completely offset by incremental revenue from acquisitions.

• LTL segment down $800,000, or 0.4 per cent, to $190-million -- the slight decline in revenue is attributable to a $7.1-million decrease in fuel surcharge revenue being offset by $7.4-million of incremental revenue from acquisitions. Revenue from business units (excluding fuel surcharge and acquisitions) declined slightly due to lower freight volumes in Eastern Canada being somewhat offset by steady freight volumes in Western Canada.
• Logistics and warehousing segment down $13-million, or 8.5 per cent, to $140.8-million -- lower freight volumes and competitive pricing resulting from the freight recession led to a $9.7-million reduction in revenue while the sale of the company's hydrovac business in December, 2022, resulted in a $700,000 decrease in revenue. Fuel surcharge revenue decreased by $2.5-million due to lower diesel fuel prices.
• Specialized and industrial services segment up $14.5-million, or 13.4 per cent, to $122.5-million -- acquisitions added $14.4-million of incremental revenue. Greater activity levels in the Western Canadian sedimentary basin resulted in higher revenue by the drilling-related services business units while Smook Contractors Ltd. and Canadian Dewatering LP also experienced greater demand for their services. Fuel surcharge revenue decreased by $1.5-million, lower demand for pipeline hauling and stringing services accounted for a $1.4-million reduction in revenue, while the sale of Mullen's hydrovac assets and business resulted in a $700,000 reduction in revenue.
• U.S. 3PL (United States and international logistics) segment down $4.9-million, or 9.3 per cent, to $47.7-million -- the 3PL industry in the U.S. experienced a notable decline in activity in the fourth quarter as compared with the same period last year because of slowing freight volumes and excess trucking capacity. This trend was evident at HAUListic LLC, which also experienced lower freight demand for full truckload shipments and lower pricing per shipment.

OIBDA: Generated $79.2-million of OIBDA, an increase of $1.6-million, or 2.1 per cent, due to improved DOE margins. Operating margins improved to 15.9 per cent from 15.4 per cent.

• LTL segment down $1.9-million, or 6 per cent, to $29.9-million -- the decrease was due to recognizing one-time costs associated with the B. & R. integration, a more normalized pricing environment in 2023 and from lower freight volumes predominately in Eastern Canada. Operating margin declined by 1 per cent to 15.7 per cent as compared with 16.7 per cent in the prior-year period, primarily due to one-time integration costs associated with B. & R. and higher S&A expenses. Excluding the financial results of B. & R., the LTL segment would have generated operating margins of 18 per cent.
• L&W segment down $1.3-million, or 4.3 per cent, to $29.1-million -- the decrease was mainly due to the impact of the freight recession resulting in lower freight volumes and competitive pricing. Operating margin increased to 20.7 per cent as compared with 19.8 per cent in 2022, primarily due to lower DOE as a percentage of segment revenue and the strong performance at Kleysen Group Ltd.
• S&I segment up $5.5-million, or 28.8 per cent, to $24.6-million -- acquisitions added $3.4-million of incremental OIBDA while greater demand for drilling-related services and the transportation of fluids and servicing of wells contributed to the increase. These increases were somewhat offset by the sale of the corporation's hydrovac assets and lower OIBDA at Premay Pipeline Hauling. Operating margin improved to 20.1 per cent as compared with 17.7 per cent on lower DOE as greater activity levels resulted in more efficient operations along with rate increases being implemented at several business units.
• U.S. 3PL segment down $500,000 to $0.4-million as compared with $900,000 -- the decrease was mainly due to a combination of lower segment revenue and the relatively fixed nature of S&A expenses. DOE as a percentage of segment revenue remained fairly consistent compared with the prior-year period. Operating margin decreased to 0.8 per cent as compared with 1.7 per cent last year due to higher S&A expenses as a percentage of segment revenue. Operating margin as a percentage of net revenue was 9.8 per cent as compared with 19.6 per cent in 2022.

Net income: Net income decreased by $32.1-million, or 52.2 per cent, to $29.4-million, or 33 cents per common share, due to:

• A $29.3-million decrease in gain on sale of property, plant and equipment, which mainly resulted from a significant gain on sale of non-core real estate in Surrey, B.C., in the fourth quarter of 2022. Other factors contributing to the decrease in net income include a $2.8-million decrease in gain on fair value of equity investments, a $1.7-million increase in depreciation of right-of-use assets and a $1.3-million negative variance in net foreign exchange.
• These decreases were somewhat offset by a $2.8-million decrease in income tax expense and a $1.6-million increase in OIBDA.

Financial position

The following summarizes Mullen's financial position as at Dec. 31, 2023, along with some key changes that occurred during the fourth quarter:

• Reduced borrowings on the credit facilities by $41.2-million in the quarter to $73-million at year-end.
• Working capital deficit of $119.1-million, which is mainly due to reclassifying $217.2-million of private placement debt notes (net of cross-currency swaps) maturing in October, 2024. The company expects to be able to replace these notes with new private placement notes in 2024.
• Total net debt ($604.8-million) to operating cash flow ($330-million) of 1.83:1 as defined per Mullen's private placement debt agreement (threshold of 3.50:1).
• Private placement debt of $473.6-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. Private placement debt decreased by $6.7-million due to the foreign exchange gain on Mullen's $229-million (U.S.) debt recognized in the fourth quarter of 2023.
• Book value of derivative financial instruments down $5.9-million to $43.4-million, which swaps the company's $229-million (U.S.) debt at an average foreign exchange rate of $1.1096.
• Net book value of property, plant and equipment of $1-billion, which includes $651.8-million of historical cost of owned real property.
• Repurchased 545,954 common shares at an average price of $13.47 per share under the company's normal course issuer bid during the fourth quarter of 2023.

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, Mullen's 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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