Mr. Murray Mullen reports

MULLEN GROUP LTD. REPORTS 2024 FIRST QUARTER FINANCIAL RESULTS

Mullen Group Ltd. has released its financial and operating results for the period ended March 31, 2024, with comparisons with the same period last year. Full details of the results may be found within the company's first quarter interim report, which is available on the corporation's issuer profile on SEDAR+.

"Using our first quarter results as a barometer for the state of the general economy, one could conclude that the economy is definitely slowing. Across each of our operating segments we witnessed a softening in demand, accompanied by competitive market conditions. Consumer demand continued to decline, capital investment in Canada was noticeably weaker and major project construction activity virtually ground to a halt. It's no wonder our results were down year-over-year," commented Murray K. Mullen, chair and senior executive officer.

"Fortunately, we have a diversified business model that helps mitigate rapid changes in the market and we have the capacity to pursue acquisitions, a core competency and competitive advantage of the Mullen Group. In the current period, for example, acquisitions added approximately $20.5-million in incremental new revenues, and we announced a transaction to acquire ContainerWorld Forwarding Services Inc., subject to regulatory approvals, one of the few bright spots in an otherwise challenging quarter. Shareholders will recall that we anticipated demand to be soft entering 2024. As such, we were well prepared, focusing on controlling those issues we could manage, like costs, restructuring initiatives and productivity initiatives, steps that will provide future benefits. During these challenging times we have already started preparing for the next business cycle. And we will pursue acquisitions to grow our extensive network of profitable well-managed business units," added Mr. Mullen.

First quarter highlights:

• Generated revenue of $462.6-million -- down 7.1 per cent on slowing economic activity levels in Canada due to a lack of capital investment in the private sector, from lower demand for major construction projects, including pipelines, a softening in freight and logistics demand, and lower fuel surcharge revenue.
• Operating income before depreciation and amortization (OIBDA) of $66.2-million -- down 14 per cent from prior year due to lower consolidated revenues being somewhat offset by $3-million of incremental OIBDA from acquisitions.
• Operating margin declined to 14.3 per cent from 15.5 per cent due to higher selling and administrative (S&A) expenses as a percentage of consolidated revenues, resulting from the relatively fixed nature of S&A expenses. Direct operating expenses (DOE), as a percentage of consolidated revenues, remained consistent year-over-year despite more competitive pricing conditions in certain markets and a reduction in higher-margin specialized business.

Revenue: A decrease of $35.2-million to $462.6-million due to softer freight and logistics demand, a lack of capital investment and projects, competitive pricing in certain markets, and $12-million of lower fuel surcharge revenue being somewhat offset by $20.5-million of incremental revenue from acquisitions.

• Less-than-truckload segment down $10.3-million, or 5.3 per cent, to $182.5-million -- this decline is mainly attributable to $9.4-million of lower revenue from business units (excluding fuel surcharge and acquisitions) due to a change in working days compared with last year, a slight decline in revenue per working day on lower freight demand, and a $6.4-million decrease in fuel surcharge revenue being offset by $5.5-million of incremental revenue from acquisitions.
• Logistics and warehousing segment down $17.8-million, or 12.4 per cent, to $126.3-million -- lower freight volumes and logistics demand, a lack of capital investment, and competitive pricing in certain markets led to a $13.8-million reduction in revenue while fuel surcharge revenue decreased by $4-million due to lower diesel fuel prices.
• Specialized and industrial services segment down $900,000, or 0.8 per cent, to $111.9-million -- lower demand for pipeline hauling and stringing services at Premay Pipeline Hauling LP accounted for an $8.1-million reduction in revenue while Smook Contractors Ltd. experienced a $4.6-million decline in revenue on lower demand for civil construction projects in Northern Manitoba. The production services business units experienced a decline in revenue due to inclement weather delaying the commencement of certain projects and fuel surcharge revenue decreased by $1.6-million. Somewhat offsetting these declines was $15-million of incremental revenue from acquisitions and greater activity levels in the Western Canadian sedimentary basin, which resulted in higher revenue by the drilling-related services business units while Canadian Dewatering LP also experienced greater demand for the sale of water management equipment.
• U.S. 3PL (United States and international logistics) segment down $6.6-million, or 12.9 per cent, to $44.4-million -- the 3PL industry in the U.S. continues to experience a notable decline in activity levels due to slowing freight volumes and excess trucking capacity. This trend was evident at HAUListic LLC, which experienced lower freight demand for full truckload shipments and lower pricing per shipment.

OIBDA: Generated $66.2-million of OIBDA, a decrease of $10.8-million, or 14 per cent, due to lower consolidated revenues. Operating margins declined to 14.3 per cent from 15.5 per cent.

• LTL segment down $1-million, or 3.1 per cent, to $30.8-million -- this decrease was due to lower segment revenues being somewhat offset by $1.1-million of incremental OIBDA from acquisitions. Operating margin improved by 0.4 per cent to 16.9 per cent as compared with 16.5 per cent in the prior-year period, primarily due to lower DOE resulting from more efficient operations.
• L&W segment down $3.6-million, or 13.8 per cent, to $22.5-million -- the decrease was mainly due to the impact of lower segment revenues. Operating margin declined slightly by 0.3 per cent to 17.8 per cent as compared with 18.1 per cent in 2023, primarily due to higher S&A expenses as a percentage of segment revenue resulting from the fixed nature of S&A expenses.
• S&I segment down $3.7-million, or 18.1 per cent, to $16.7-million -- the decrease was due to lower OIBDA at Premay Pipeline and Smook Contractors on reduced activity levels. Canadian Dewatering experienced lower OIBDA due to a change in sales mix and from preparing equipment for coming projects to commence later this year. The production services business units experienced a decline in OIBDA, which was somewhat offset by $1.9-million of incremental OIBDA from acquisitions and improved OIBDA by Mullen's drilling-related services business units. Operating margin decreased to 14.9 per cent as compared with 18.1 per cent on higher DOE and S&A expenses due to a greater proportion of lower-margin business and from preparing equipment for project work to commence later in the year.
• U.S. 3PL segment down $700,000 to $500,000 as compared with $1.2-million -- the decrease was mainly due to lower segment revenues. Operating margin decreased to 1.1 per cent as compared with 2.4 per cent last year due to higher DOE as a percentage of segment revenue, which resulted from competitive market conditions and the timing of when contract freight rates were entered into with customers as compared with spot market pricing and the availability of contractors in the open market. Operating margin as a percentage of net revenue was 12.8 per cent as compared with 25 per cent in 2023.
• Corporate costs up $1.8-million to $4.3-million -- the increase was mainly attributable to higher information technology costs and higher salaries due to cost of living increases.

Net income: Net income decreased by $9.5-million, or 30 per cent, to $22.2-million, or 25 cents per common share, due to:

• A $10.8-million decrease in OIBDA, a $1.7-million negative variance in foreign exchange, a $1-million increase in depreciation of right-of-use assets, a $900,000 decrease in earnings from equity investments and a $800,000 increase in finance costs.
• These decreases were somewhat offset by a $3.1-million decrease in income tax expense, a $600,000 increase in gain on sale of property, plant and equipment, a $600,000 decrease in depreciation of property, plant and equipment, a $600,000 loss on fair value of equity investment recognized in 2023, a $400,000 positive variance in change in fair value of investments, and a $400,000 decrease in amortization of intangible assets.

Financial position

The following summarizes the company's financial position as at March 31, 2024, along with some key changes that occurred during the first quarter:

• Increased the borrowing capacity on the bank credit facilities to $375-million by entering into a new $125-million credit agreement with PNC Bank Canada Branch.
• Borrowings on the bank credit facilities increased by $17.8-million in the quarter to $90.8-million. The borrowing availability on Mullen's bank credit facilities was over $280-million as at March 31, 2024.
• Working capital deficit of $111.7-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 long-term debt in 2024.
• Total net debt ($619.8-million) to operating cash flow ($319.2-million) of 1.94:1 as defined per the company's private placement debt agreement (threshold of 3.50:1).
• Private placement debt of $481-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 increased by $7.4-million due to the foreign exchange loss on Mullen's U.S. $229-million debt recognized in the first quarter of 2024.
• Book value of derivative financial instruments up $7.2-million to $50.6-million, which swaps the principal portion of the company'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 $653.6-million of historical cost of owned real property.
• Repurchased and cancelled 56,608 common shares at an average price of $13.98 per share under Mullen's normal course issuer bid during the first quarter of 2024.

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, it 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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