Mullen Group Ltd. Reports Third Quarter Financial Results and Operating Update

OKOTOKS, ALBERTA--(Marketwired - Oct. 19, 2016) - Mullen Group Ltd. (TSX:MTL) ("Mullen Group" 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, 2016, with comparisons to the same period last year.

Key financial highlights for the third quarter of 2016 and 2015 are as follows:

HIGHLIGHTS
(unaudited) ($ millions)		Three month periods ended September 30
		2016		2015		Change
		$		$		%
Revenue
	Trucking/Logistics	173.3		183.1		(5.4	)
	Oilfield Services	86.8		122.0		(28.9	)
	Corporate and intersegment eliminations	(1.5	)	(0.4	)	-
Total Revenue		258.6		304.7		(15.1	)
Operating income before depreciation and amortization (1)
	Trucking/Logistics	31.5		33.7		(6.5	)
	Oilfield Services	21.0		27.6		(23.9	)
	Corporate	1.1		4.2		-
Total Operating income before depreciation and amortization (1)		53.6		65.5		(18.2	)
Operating income before depreciation and amortization - adjusted (1)		52.1		59.4		(12.3	)
(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, 2016 were negatively impacted by: (i) the continued lack of demand in the Oilfield Services segment with drilling activity experiencing multi-year lows; (ii) the ongoing economic slowdown in Alberta; and (iii) a slowing of investment in major capital projects.

The highlights for the quarter are as follows:

• increased cash balance by $25.1 million to $261.3 million
• generated consolidated revenue of $258.6 million, a decrease of $46.1 million, or 15.1 percent, as compared to $304.7 million in 2015 due to:
  • a $35.2 million decline in the Oilfield Services segment
  • a $9.8 million decline in the Trucking/Logistics segment
• earned consolidated operating income before depreciation and amortization ("OIBDA") of $53.6 million, a decrease of $11.9 million as compared to $65.5 million in 2015 due to:
  • a $6.6 million decline in the Oilfield Services segment
  • a $2.2 million decline in the Trucking/Logistics segment
  • a $3.1 million increase in Corporate Office costs due to a $4.6 million negative variance in foreign exchange
• adjusting for the impact of foreign exchange gains at Corporate Office, operating income before depreciation and amortization ("OIBDA - adjusted") was $52.1 million, or 20.1 percent of revenue, as compared to $59.4 million, or 19.5 percent of revenue in 2015. These results more accurately reflect the operating performance of Mullen Group.

Third Quarter Financial Results

For the three month period ended September 30, 2016, revenue decreased by $46.1 million, or 15.1 percent, to $258.6 million as compared to $304.7 million in 2015, due to a $35.2 million decline in revenue in the Oilfield Services segment and a $9.8 million decrease in the Trucking/Logistics segment. The $35.2 million decrease in revenue in the Oilfield Services segment was due to the prolonged decline in drilling activity and reduced capital investments in western Canada. Revenue declines were most notable in those Business Units involved in the transportation of fluids and servicing of wells, from those Business Units most directly tied to oil and natural gas drilling activity and to a lesser extent, lower demand for services related to large diameter pipeline construction projects and dewatering services. These decreases were somewhat offset by an increase in demand for specialized freight services associated with Alberta's oil sands region. The Trucking/Logistics segment experienced a $9.8 million decrease in revenue, which was mainly due to lower demand for freight services predominately within Alberta and lower fuel surcharge revenue. These decreases were somewhat offset by $3.3 million of incremental revenue generated from acquisitions as well as from greater revenue generated by Smook Contractors Ltd. and Mullen Trucking L.P. ("Mullen Trucking").

OIBDA for the third quarter was $53.6 million, a decrease of $11.9 million or 18.2 percent over the same period in 2015. Adjusting for the Corporate Office costs related to the impact of foreign exchange gains and losses on U.S. dollar cash held, OIBDA - adjusted was $52.1 million, a decrease of $7.3 million or 12.3 percent as compared to $59.4 million in 2015. The Oilfield Services segment generated OIBDA of $21.0 million, a decline of $6.6 million due to reduced drilling activity and a very challenging operating environment, while the Trucking/Logistics segment generated OIBDA of $31.5 million, a decrease of $2.2 million or 6.5 percent from 2015. Stated as a percentage of consolidated revenue, OIBDA - adjusted increased to 20.1 percent as compared to 19.5 percent in 2015. As a percentage of segment revenue, margins in the Oilfield Services segment increased to 24.2 percent from 22.6 percent in 2015 due to our highly adaptable and diversified business model along with cost control initiatives. Margins in the Trucking/Logistics segment decreased to 18.2 percent as compared to 18.4 percent and was mainly due to slightly higher selling and administrative expenses as a percentage of this segment's revenue.

In the third quarter of 2016, Mullen Group generated net income of $17.6 million or $0.17 per share, an increase of $10.3 million, or 141.1 percent, compared to $7.3 million or $0.08 per share in 2015. The $10.3 million increase in net income was mainly attributable to an $11.8 million positive variance in the fair value of investments and a $5.2 million positive variance in net unrealized foreign exchange. These increases were partially offset by an $11.9 million decrease in OIBDA.

"The markets remained under stress during the quarter with demand levels hampered by a lack of growth in the overall economy and continued weakness in the oil and gas sector. In addition, pricing pressures across most sectors of our markets continued to be negatively impacted by undisciplined competitors. As a result, both operating segments underperformed relative to last year. However, we were able to maintain respectable operating margins due to our continued focus on managing costs and improving operating efficiencies throughout all of our Business Units. In the absence of any growth we have adjusted our cost structure," said Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Financial Position

At September 30, 2016, Mullen Group had $238.8 million of working capital (December 31, 2015 - $187.1 million) including $261.3 million of cash and cash equivalents (December 31, 2015 - $147.2 million), net debt of $314.4 million (December 31, 2015 - $522.0 million) and had access to additional funding of $75.0 million from our undrawn bank credit facility. On May 17, 2016, Mullen Group closed a bought deal offering and a non-brokered private placement for net proceeds of $153.1 million. The Corporation's long-term debt consists mainly of its Private Placement Debt of U.S. $314.0 million and Canadian $261.0 million. The weighted average interest rate on our U.S. dollar debt and our Canadian dollar debt is 4.43 percent and 4.58 percent, respectively. The majority of this debt matures on October 22, 2024 and October 22, 2026. In July 2014 Mullen Group 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, 2016, the carrying value of these cross-currency swaps was $34.4 million and is recorded within derivative financial instruments on Mullen Group's consolidated statement of financial position. The net book value of property, plant and equipment was $954.5 million, the majority consists of $459.7 million of real property (carrying cost of $510.7 million) and $397.5 million of trucks and trailers.

Corporate

Also in the quarter, Mullen Group acquired three small businesses at compelling valuations. First, Motrux Inc., a truckload carrier based in the lower mainland of British Columbia, operating a fleet of 17 owner operators was integrated into Mullen Trucking. Second, Mullen Group acquired the business and assets of Northern Frontier Logistics LP and Northern Frontier GP Corp. (collectively, "Northern Frontier") from a receiver. Formerly known as Central Water & Equipment Services Ltd., Northern Frontier provides hydrostatic-testing services to the pipeline industry and midstream sector, as well as fluid transfer and water management services to construction and mine sites, municipalities and the energy sector. Northern Frontier's business and assets were integrated into Canadian Dewatering L.P. Third, Mullen Group executed an agreement to acquire Calgary based Caneda Transport Inc. ("Caneda") and its Calgary terminal on October 1, 2016. In addition to Calgary, Alberta, Caneda operates terminals in Mississauga, Ontario and Mira Loma, California and provides less-than-truckload, truckload, dedicated and intermodal services throughout Canada and western United States. Caneda operates a fleet of 55 power units and 110 trailers, employing 50 personnel and 41 owner operators. Caneda will operate as a stand-alone Business Unit within the Trucking/Logistics segment.

"The challenging market conditions are now creating acquisition opportunities that we have not seen for many years. In the quarter we completed a sequence of investments that fit our strategic as well as our disciplined financial approach to acquisitions. And while not significant in terms of size, these transactions do indicate that the market for acquisitions has changed significantly this year. Acquisitions are the only viable way of mitigating this slow growth business cycle and I fully expect we can use our strong balance sheet as a competitive advantage, positioning Mullen Group for the future," added Mr. Mullen.

Nine Month Period Ended Financial Results

Consolidated revenue in the first nine months of 2016 decreased to $777.3 million, or 16.1 percent, as compared to $926.7 million in 2015. Revenue in the Oilfield Services segment decreased by $125.3 million, or 32.0 percent, to $266.1 million as compared to $391.4 million in the same period one year earlier. This decrease was due to lower revenue generated by those Business Units involved in the transportation of fluids and servicing of wells, a reduction in revenue from those Business Units most directly tied to oil and natural gas drilling activity in western Canada, lower demand for services from Alberta's oil sands region along with the cancellation of core drilling programs. These decreases were partially offset by greater demand for services related to large diameter pipeline construction projects. Revenue in the Trucking/Logistics segment decreased by $20.8 million, or 3.9 percent, to $516.5 million from $537.3 million in 2015. This decrease was due to decreased demand for most freight services in western Canada, and Alberta in particular and lower fuel surcharge revenue. These decreases were partially offset by revenue generated by Kleysen Group L.P. related to increased demand for transload services, modestly increased demand and market share gains in Manitoba and Saskatchewan as well as the incremental revenue related to the acquisition of Courtesy Freight Systems Ltd.

OIBDA - adjusted for the first nine months of 2016 decreased to $144.2 million, or 12.2 percent, as compared to $164.3 million generated in the same period last year. The decrease of $20.1 million was primarily due to the Oilfield Services segment that experienced a $23.0 million decrease in OIBDA. This decrease was somewhat offset by the Trucking/Logistics segment that experienced a $2.3 million increase in OIBDA. Excluding the impact of foreign exchange gains and losses on U.S. dollar cash held, the Corporate Office recorded a $0.6 million decrease in its operating loss on a year over year basis due to lower salaries and stock-based compensation expense.

Net income in the first nine months of 2016 increased to $52.7 million, as compared to $11.0 million in 2015. The increase of $41.7 million was mainly attributable to a $46.3 million positive variance in net unrealized foreign exchange, a $16.0 million positive variance in the fair value of investments and an $11.2 million decrease in income tax expense. These increases were somewhat offset by a $38.2 million decrease in OIBDA.

A summary of Mullen Group's results for the three and nine month periods ended September 30, 2016 and 2015 are as follows:

SUMMARY
(unaudited) ($ millions, except per share amounts)	Three month periods ended September 30					Nine month periods ended September 30
	2016		2015	Change		2016		2015	Change
	$		$	%		$		$	%
Revenue	258.6		304.7	(15.1	)	777.3		926.7	(16.1	)
Operating income before depreciation and amortization(1)	53.6		65.5	(18.2	)	138.5		176.7	(21.6	)
Operating income before depreciation and amortization - adjusted(2)	52.1		59.4	(12.3	)	144.2		164.3	(12.2	)
Net unrealized foreign exchange loss (gain)	5.0		10.2	(51.0	)	(17.2	)	29.1	(159.1	)
Decrease (increase) in fair value of investments	(4.4	)	7.4	(159.5	)	(0.1	)	15.9	(100.6	)
Net income	17.6		7.3	141.1		52.7		11.0	379.1
Net Income - adjusted(3)	18.9		24.1	(21.6	)	36.2		60.2	(39.9	)
Earnings per share(4)	0.17		0.08	112.5		0.54		0.12	350.0
Earnings per share - adjusted(3)	0.18		0.26	(30.8	)	0.37		0.65	(43.1	)
Net cash from operating activities	44.4		42.2	5.2		127.8		146.8	(12.9	)
Net cash from operating activities per share(4)	0.43		0.46	(6.5	)	1.31		1.60	(18.1	)
Cash dividends declared per Common Share	0.09		0.30	(70.0	)	0.47		0.90	(47.8	)

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 unrealized 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 unrealized foreign exchange gains and losses, other (income) expense, income taxes and foreign exchange gains and losses recognized within its 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 unrealized foreign exchange gains and losses and the change in fair value of investments. (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, OIBDA - 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, 50 and 51 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 management and financial expertise, 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.