Mullen Group Ltd

TSX:MTL

Earnings Call Transcript 2018-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited Third Quarter Earnings Conference Call and Webcast. [Operator Instructions]I would now like to turn the conference over to Mr. Murray K. Mullen, Chairman, CEO and President. Please go ahead.

[Murray K. Mullen, Chairman, CEO & President]

Good morning, everyone. Welcome to Mullen Group's quarterly conference call. We will be discussing our financial operating performance for the third quarter, and this will be followed by an update on the near-term outlook as we see it.Before I commence the review, however, I would remind you that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of uncertainties and risks and actual results may differ materially. Further information identifying these risks, uncertainties and assumptions can be found on the disclosure documents, which are filed on SEDAR and at www.mullen-group.com.So with me this morning, I have our senior executive team of Stephen Clark, who's our CFO; Richard Maloney, Senior Vice President; Joanna Scott, who's our Corporate Secretary and VP of Corporate Services; and Carson Urlacher, our Corporate Controller.Stephen will review the financial and operating results of Mullen Group for the third quarter, after which I'll provide an outlook for our organization and discuss my near-term expectations, expectations for both the oil and natural gas industry and the overall economy and that's obviously from my perspective. We will then follow with the Q&A session.So before I turn the call over to Stephen, I'd like to open with a few comments. I view Q3 2018 as a pivotal period for our organization highlighted by solid revenue growth and improved profitability. As well, we completed another acquisition, #8 Freight and final mile carrier based in Vancouver area that has been added into our channel transportation business unit.In one investment, in the LTL business, Pacific Coast Express once again based on Lower Mainland of British Columbia, servicing the LTL network in British Columbia, Alberta, Saskatchewan and Manitoba. And this company will eventually be owned entirely by the Mullen Group.These are the types of results and overall performance that we are more used to generating and our shareholders expect. What is most impressive I believe is that we achieved these results in spite of the macro environment. Now let me explain what I mean. As every investor knows, the oil and natural gas sector here in Canada is a total mess, including the service industry, where we had previously derived the majority of our growth, revenue and profitability from but not today. In fact, this sector only represents about 30% of our total business, whereas in years prior it was more like 70%. So the reality is that our Oilfield Services segment continues to battle significant headwinds and quite simply remains stuck in status quo mode.The second macro issue that we often refer to as a major driver of our business model is the Canadian overall economy. And because consumer consumption and behavior represents nearly 66% of GDP, I refer to this part of the economy as the consumer economy. Looking at the stats and channel checking these against our results, it's pretty evident to me that the Canadian consumer economy is doing okay. But certainly, there is very little growth to cheer about. As such, internal growth opportunities are limited.Now let's compare Canada to the U.S., for example. Now you may not like everything about the U.S., but the fact is they know how to grow an economy, like 4.5% GDP. Under this scenario, internal growth can easily be achieved. But since we have limited exposure to the U.S. market, we are left with really only one viable means to grow our business and that is by way of acquisitions, which is precisely how we achieve double-digit growth in our third quarter. In fact, I'm of the view that Q3 '18 is more like what shareholders should expect from the Mullen Group well into the future. Furthermore, the optimist in me believes that one day, when, I'm not so sure of, even Canadians will come to understand, that every Canadian loses when our country does not seek to realize on the true value of our crude oil and natural gas. Natural resources we're so blessed to have and that other countries need to grow their economies, to create jobs and to help improve the lives of their citizens.Now for years, we've relied upon the United States market to accept all of our exports for crude oil and natural gas. Today they discount our crude oil and natural gas retaining this discounted value or at least a majority of it for their refineries, for their companies and for their consumers. I, along with our entire industry group, would obviously prefer to keep these dollars in Canada, invest right here, generate great jobs right here and pay taxes right here. This is why I say the optimist in me believes this situation will eventually change. Until this happens, however, we will continue to grow and invest in the consumer -- Canadian consumer economy. At Mullen, we love diversification. Enough said.All in all, a very satisfying quarter. And with more details, I will turn the call over to Stephen Clark.

[P. Stephen Clark, Chief Financial Officer]

Thank you, Murray, and good morning, fellow shareholders. Our third quarter interim report contains the details to fully explain our performance. As such, I will only provide some high-level commentary.The third quarter saw growth in both segments, something I haven't been able to say in quite some time. The Trucking/Logistics segment achieved yet another set of all-time records for quarterly revenue and OIBDA. Another record in a series of records, quarterly records have started in the summer of 2017. These records came not as a result of a particularly strong economy but rather moderate Canadian economic growth, sound industry fundamentals in the U.S. and a series of acquisitions completed in the past 12 months, including #8 Freight acquired on August 1, 2018.These strong results were bolstered by improved Oilfield Services segment results due to the acquisitions of the AECOM Industrial Services division and Canadian Hydrovac. Consolidated revenues $340 million, an increase of approximately $55 million or 20% compared to 2017. On a sequential basis, consolidated revenue was $44 million higher than the second quarter, reflecting our acquisition strategy and to a lesser degree, higher trucking and logistics revenue and the seasonal effects of the oil patch. On a sequential basis again, Trucking/Logistics was up about $7 million but Oilfield Services was up about $38 million. Specifically, the Trucking/Logistics segment contributed approximately 66% of preconsolidated revenue and grew year-over-year by $36 million or approximately 19% to $226.7 million as compared to $190.7 million in 2017. This included $12.5 million of acquisition revenue and $7.6 million rise in fuel surcharge revenue.Excluding the effects of acquisition and fuel surcharge, the Trucking/Logistics segment revenue rose by $16 million or approximately 9%, demonstrating the underlying overall strength of the industry and our diversification strategy.The Trucking/Logistics segment generated OIBDA margin of 15.9% compared to 16.1% in 2017, fairly flat but this was as a result of rising labor and fuel costs and acquisition -- and the acquisition of lower-margin businesses being offset by cost controls. Wholesale diesel prices, for instance, though, I would tell you rose by more than 25% in Alberta. And fuel surcharge revenue always lagged behind price increases. This was the major factor in explaining why fuel rose by 1 percentage point over last year as a percentage of revenue and the recently acquired asset-light companies, again, continue to generate lower-than-average segment margins. That being said, this segment was able to generate $36 million of OIBDA as compared to $30.7 million in 2017, again, this is a new record.The Oilfield Services segment contributed approximately 33% of the preconsolidated revenue or approximately $115 million, which was an increase of $21 million or 22%. This was due to the acquisition of AECOM and Canadian Hydrovac. Without these acquisitions, this segment would have suffered a decline in revenue of approximately $1.7 million. Quite simply, it was a challenged industry environment especially during the last few weeks.OIBDA improved by $1.8 million to $21.6 million, but margin declined by 2.3% to 18.9% as compared to 21.2% in 2017, primarily due to lower margins generated by our newly acquired companies. Overall, consolidated margin was 16.2%, an increase -- an improvement of 0.5% despite the fact we're still integrating our acquisitions. Many of these acquisitions have yet to produce the margins we expect, and we continue to work with them to -- margin improvement will remain the priority of this senior executive team in the near future.When it comes to net income, our earnings per share was reduced by $0.04 to $0.21 per share. The negative variance on foreign exchange of $9.5 million had a great impact on earnings per share. On Page 21 of our interim report, you will find a calculation of net income that adjusts for this factor. EPS, earnings per share adjusted, as defined in our interim report, improved to $0.19 per share versus $0.12 per share in Q3 of 2017. Again, I would say that our balance sheet remains strong, but our cash position was reduced.We purchased $35 million in CapEx, invested $9.6 million for acquisitions and equity investments. We funded working capital needs for the AECOM acquisition and returned $16 million of profits to shareholders in the form of dividends. Moreover, we generated $55.7 million in cash from operating activities before noncash working capitals during the quarter. This did, however, result in us borrowing $24 million on our bank credit facility. We further took the prudent step of increasing our line to $125 million. Thank you, RBC, for providing us with the increased financial flexibility. Currently, our debt covenant leverage is about 2.5x. The simple math would suggest that with a 3.5x leverage covenant and the current level of level of -- leverage of 2.5x, we have about 1 turn of EBITDA to borrow approximately $200 million. Of course, this does not take into account the effect of purchased EBITDA would have on our borrowing capacity.So in conclusion, I would say less cash on the balance sheet but still ample dry power to accelerate growth for the right opportunity.So with that, I'll pass it back to you, Murray.

[Murray K. Mullen, Chairman, CEO & President]

Thanks, Steph. Let me now take a stab at an outlook, which is getting increasingly complex these days. And I'll start with Stephen just outlined our third quarter results, that I think we're pretty good, highlighted by another record performance on our Trucking/Logistics segment. And this bodes well for the foreseeable future for our business in our Trucking/Logistics business units more specifically, particularly given the outlook for the Canadian economy.Just yesterday, the bank economy -- Bank of Canada released its latest update and I just left a meeting here this morning with them, indicating that the overall economy is operating at/or near capacity, along with their expectation for a relatively stable 2% GDP growth rate for the next couple of years. In other words, steady as she goes for the Canadian economy. And with this as a backdrop, I believe it is reasonable to assume our Trucking/Logistics segment will continue to dominate our results. However, I must caution that we're seeing some cost push throughout the supply chain and from the labor markets. This is precisely why we will continue to look at ways to improve productivity and reduce redundant costs.With the many acquisitions we've completed over the last 2 years, I know there are ways that we can streamline these businesses and drive margin improvement. This will be a focus of the senior executive team over the course of the next year.Now one area I'm watching carefully is the spot market for freight shipments. There has been a marked drop in this pricing since July of this year back to now what I would refer to as a more balanced market condition. The contract market, which is primarily where our business units participate, these rates remain range-bound as they're now more a consumer service lane specific issue. This is in contrast to earlier this year when contract pricing was to being increased virtually across the board. Once again, this indicates we must remain vigilant on the cost side of our business.Now let me turn to the most out-of-favor sector of the Canadian economy, the oil and natural gas industry. As I mentioned earlier, this sector is in a state of total mess. No access to new markets, no real government support, no capital from investors. And now we have a situation where price differentials are killing Canadian E&P companies.Last quarter, I indicated that I was optimistic, the headwinds faced by the industry group were subsiding and given the rise in commodity prices, why wouldn't we be more optimistic. Today, however, there are real concerns of the Canadian crude oil discounting and lack of market access for Canadian natural gas, is really restricting E&P cash flows. And this means only one thing to me, less drilling activity in Canada. This situation eventually gets resolved but there's more short-term pain for the Canadian oil and gas industry and by extension, our Oilfield Services segment.So that -- what's going to resolve this messy situation? Well, first, as we all know, it's pipelines. Whether it be Enbridge through Line 3, Keystone XL, or perhaps even that public sector owned Trans Mountain line. Maybe more rail is involved, crude by rail, which if you listen to the rail companies, they're predicting significant volume growth into 2019.Second, is LNG. The best news for the Canadian natural gas industry in years. And lastly, maybe even the government of Canada will come to realize that a healthy and robust oil and natural gas industry is good for all Canadians. Furthermore, as the average Canadian becomes more upset with autocratic societies like Saudi Arabia, we might start questioning why are we selling military hardware to these dudes or buying crude oil from them at world prices while at the same time, selling our Canadian oil to the U.S. at a big discount to true market value, which only serves to help those dastardly U.S. companies and consumers, all at Canadians' expense.Just this week, the Prime Minister of Canada was saying that canceling the controversial contract to sell armored vehicles to Saudi Arabia would leave taxpayers on the hook for $1 billion. Where is he when Canada is losing $1 billion a day because of the lack of infrastructure and takeaway capacity for our energy products? All I can say is, are you listening Québec and Ottawa? This is hypocrisy at its finest.In the meantime, what do we do? Well, in the short term, we fully expect our Oilfield Services competitors are going to be under a lot of pressure, which is terrible. But for Mullen shareholders, I suggest this, this is ultimately going to play out in our favor. We are diversified. We are well capitalized to weather out the short-term pain, whereas our competitors will struggle mightily because they lack 2 very important ingredients required to survive difficult times. I've talked about it over the years: diversification and a strong balance sheet.Now my last comment before we turn to the Q&A session relates to acquisitions. Since 2016, we've completed 15. We made 2 equity investments in companies we would like eventually to own more of. We're generating annual pro forma revenue of nearly $0.25 billion from these acquisitions. Now we've invested $140 million of shareholders capital as we transformed our company, but the early results seem to be pretty favorable. And even better results to come in my view as we transition these privately owned companies into well-run, professionally managed business units, which is really what Mullen Group is all about.The deal flow continues unabated and while we analyze every opportunity, we only proceed with those that meet our strategic and financial objectives. With over $200 million of debt capacity as Stephen talked about, available under our long-term debt -- private debt covenants, we have the capacity to continue growing via acquisitions.So thank you, and I'll now turn the call over to the operator for the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Walter Spracklin of RBC.

[Walter Noel Spracklin, Analyst]

So when I look at your guidance, you've done some acquisitions now but, I think, would it be fair to say that the guidance that you provided before, given some of the change in the industry, but offset by your acquisitions, still holds? And that is for 2018 the revenue of $1.2 billion or over $1.2 billion and EBITDA of $190 million to $200 million?

[Murray K. Mullen, Chairman, CEO & President]

Yes, I think we'll be above the $1.2 billion now because of the acquisitions. On the EBITDA side, I have to preface it with -- I think we'll still be in that range, but the reality is I'm not sure how these widening differentials are going to impact the cash flows of E&Ps. And then what are they going to do in terms of their CapEx budgets for the last little bit of this year and then going into Q1 of '19. I don't know, but widening differentials are not good. Now a number of them hedge, so they're protected and there's other offsetting things to that but generally, I would say to you is that I doubt if widening differentials are positive for our customers in general. So we have to -- we have to -- that's the only negative that I see. The Canadian economy continues to do well. Our Trucking/Logistics side is now bigger and it's pretty -- it's really stable. We got some productivity improvements we'll continue to work on but that's really a '19 issue, not an '18 issue. So it's the really just a little wild card, is just what's going to happen with drilling activity. The rest of the business is pretty stable.

[Walter Noel Spracklin, Analyst]

So you're breaking those 2 apart going into 2019 for Oilfield Services. It sounds like you're leaning more toward it being worse before it'd be better, net before looking at -- the impact of your acquisitions just on a run rate basis. It sounds to me like you're bracing for 2019 to be worse rather than better than 2018.

[Murray K. Mullen, Chairman, CEO & President]

In terms of drilling activity, based upon I know today, I think that makes reasonable -- is a reasonable assumption but as we've learned, I mean, it changes quarterly. But overall, I would say I wouldn't be surprised to see '19 be pretty close to '18, which is pretty -- it's down a little bit from '17 but it's certainly -- it's not up from '17. So it's down a little bit in '18. And then '19, based upon what we know now, it could be -- it should be roughly the same as '18.

[Walter Noel Spracklin, Analyst]

That makes sense. And you've guided long term in that segment of margins of 15% to 17%. It looks like you might actually come in at the higher end of that this year. This was a good quarter for margins. Should we look for you being kind of more toward the top end of that range or bottom end of that range given to where '19 is shaping up as you see it now?

[Murray K. Mullen, Chairman, CEO & President]

Well, we've -- as we said, we've got some -- we'll continue to work on margin improvement. I mean, that's going to be one of the -- a high priorities for this company. Now in saying that we've bought a lot of asset-light companies over the last bit and they traditionally have lower margins. So they bring you down a little bit but on a cash basis, whether you're making 14% or 15% with capital employed or you're making 10% with -- or 11% with a non-asset based, the cash, cash is about the same because there's no CapEx, obviously. But to the extent that we invest in non-asset light businesses, you're not going to make high margin on those. Make good cash but not high margin. But all in all, I think margins will be up a little bit next year, about the same, up a little bit. We've got -- we'll make some margin improvement, there's no doubt about it. But we've got some cost push that is creeping into the system. And that can always will cause you some headwinds, so we got to manage through. But all in all, I like the direction we're going on the margin. We made -- we've made good improvement and we'll continue to make improvement next year. That's my ...

[Walter Noel Spracklin, Analyst]

That was on OFS only? Or is that for the combined?

[Murray K. Mullen, Chairman, CEO & President]

Combined, but I still got to make margin improvement in the oilfield side. And we'll have to do it and manage our business accordingly.

[Walter Noel Spracklin, Analyst]

And you see margin improvement on trucking as well in that...

[Murray K. Mullen, Chairman, CEO & President]

Yes, I think we got a -- these acquisitions, it'll take us a little bit of time to really realize the maximum potential of these companies that we saw when we buy them. So you buy them, then you work with them. You've got to work through some issues in the first little bit and then you identify, you get management on site, and you convince them that they may think they are doing well but they don't meet our expectations, which we'll eventually get them to come around.

[Walter Noel Spracklin, Analyst]

Right. And then, your -- just your CapEx budget for this year and maybe if you have any view into next year on a net CapEx spend. What you see the year rounding out? Are you still at the, I think, last time, it was $60 million you're guiding us to and whether that's changed now with some of the moves that you've made, and any insight as to whether that would be generally up or down compared for next year would be very interesting.

[Murray K. Mullen, Chairman, CEO & President]

We're at $60 million for this year and then we exclude acquisitions and real estate out of those -- out of that $60 million. And then next year, well, we'll come out -- I think we come out in early January with our prognosis on that. But...

[P. Stephen Clark, Chief Financial Officer]

In mid-December.

[Murray K. Mullen, Chairman, CEO & President]

Yes, so we'll come out with that, in the next couple of months. But $60 million is kind of a base number now for that you should be thinking about, and then we'd go up if we see opportunity and we'd go down if we see challenges.

[Walter Noel Spracklin, Analyst]

Got it. And last question here, Stephen. You mentioned dry powder. Do you -- what do you see as your dry powder? What does that roughly equate to, given the -- your comfort level with leverage? And what do you see as acquisition potential dry powder you have on your balance sheet?

[P. Stephen Clark, Chief Financial Officer]

Well, I think obviously, is that we certainly improved our position here with our line of credit, moving that up to $125 million. And let's say we found a great opportunity, I think we'd balance that through a combination of debt, as we said. Currently, what we have is room for $200 million of debt. I think the capital markets would be receptive if we found a good deal and we have something sizable that's over $200 million or even sizable within those confines. We'd probably do maybe an equity issue or some other instrument. So I think the markets, although, generally unfavorable to some oil and gas guys, I think for us, they're still open just because we've been a pretty stalwart acquirer and we've been pretty disciplined and so, I won't say limitless. I think our comfort level would be somewhere around 3x max although we have the flexibility to go 3.5x. So we'd do a combination of debt and equity if something sizable comes along. But even when you run the numbers for next year and you look at what we're going to generate for cash, you would say that we'd still generate free cash next year. And we won't have debt repayments like we did this year. Like this year, we paid off $70 million of debt. Last year, we paid off about $110 million of debt and we were still able to acquire quite a bit of revenue. And so we'll still generate enough free cash for tuck-in acquisitions. We're a little bit behind on the cash position today, but as I've tried to explain, that was all capital investments and acquisitions in the last quarter. We still generated $55 million of operating cash flows. That's still a pretty good space to be in. So I'd say at least minimum $200 million but as I say, the right opportunity, we could always do some creative things with the balance sheet because I think we have a strong balance sheet otherwise.

[Murray K. Mullen, Chairman, CEO & President]

So let me opine on that, okay? First of all, our existing business, we don't need anything. We generated a significant amount of free cash on our existing business. The question I think that you're asking is on future acquisitions. Okay, well, if we identify a great opportunity, we can -- we still have plenty of run room because we're only at 2.5x or less than 2.5x on our EBITDA and our bank private debt covenants. So we can go up another term, which is roughly $200 million. But that's only for growth. Well if you do the $200 million and you reverse engineer back and say, "Well, how much would you pay 4x or whatever for that EBITDA?" That gives you a pretty significant EBITDA bump. So we're not going to spend $200 million for no growth. So we've got lots of run room to do within our current balance sheet structure to grow our business with the right -- when the right opportunities come around and I can virtually guarantee you they'll continue to come around because there's just not many companies that can do acquisitions in our space. That's a fact. And there will always be opportunities come around. We look at them every week.

[Operator]

Our next question comes from Turan Quettawala of Scotiabank.

[Turan Quettawala]

I guess, Murray, if the math works out here really quickly, if you think about margins, going up a little bit I guess on both segments and then potentially flattish revenues on OFS and maybe a bit of growth in trucking, fair to assume that you can get over that $210 million, $250 million EBITDA next year, roughly?

[Murray K. Mullen, Chairman, CEO & President]

Yes, I feel pretty comfortable on that based on the current run rate and what we see and -- but the -- the pent-up capacity we have, if we ever get any momentum on the drilling services side, we would be well above that number but on our current business, yes, that based upon what we know today and what the Canadian economy is going to do, I don't see a scenario that says our Trucking/Logistics side is going to be down next year over this year. I don't see one. On the Oilfield Services side, the only negative side is that damn drilling-related business. It's just -- I don't know. It's just an unknown. Clearly, the differentials -- like real commodity prices are just fine. It's this made in Canada problems that we've created for ourselves that is holding back our drilling-related business in the short term. So I'd expect another challenging year next year but some of the steps we took this year, we'll continue to improve on those things next year, so Oilfield Service will be roughly the same, I think. And Trucking/Logistics will drive us forward next year on a run rate that we've got.

[P. Stephen Clark, Chief Financial Officer]

And I would add that the AECOM acquisition will obviously be accretive going forward. You've just seen the first quarter of us having that asset. But that's more maintenance related, not really drilling related. That's a little bit more stable than just the drill bit.

[Turan Quettawala]

Got it. And then I guess, one more in terms of the -- if you think about the margins on the OFS side, do you think these margins are enough for reinvestment levels? Or maybe if I ask it differently, what do you think is the minimum margin you would need to, kind of, be at a reinvestment level here? To be reinvesting in that business?

[Murray K. Mullen, Chairman, CEO & President]

In the oil sands?

[Turan Quettawala]

For the Oilfield Services.

[Murray K. Mullen, Chairman, CEO & President]

In the Oilfield Services. We're going to be still underweight in Oilfield Services, Turan. I mean I -- the margins are not up at the point to justify, in my view, significant CapEx. So we'll do some but we'll still underweight.

[Turan Quettawala]

Okay, but at what point I guess -- what margin do you need to say, okay, you know what, I can invest in this now?

[Murray K. Mullen, Chairman, CEO & President]

20%.

[Turan Quettawala]

Okay. That's helpful. And I guess one more, I know it's, kind of, crazy idea, but do you think there's room for you guys to maybe pick up on the liquidity movement on the oil side? I mean, with the way the differential is right now, is there, sort of, any business there? Or do you think that's just the cost is too high to make that work?

[Murray K. Mullen, Chairman, CEO & President]

No, it's funny you say that. I think that's good. The oil is still moving. And it's moving at record volumes. It's just moving -- our customers aren't getting the net value, which means they can't do drilling activity. But they're moving. They're trying to move their oil every which way they can. For the first time in 3 years, we're moving oil from down into North Dakota, as an example. And we haven't seen that in 3 years. At least 3 years. So -- and there's lots of calls we're getting on move this oil over to here and move that oil over to there. So the oil is moving, it's in record volumes. It's just not turning into cash flow so that our customers can go drilling and look for more.

[P. Stephen Clark, Chief Financial Officer]

Yes, and truck is an inefficient way to move oil, quite frankly. Even with the super 2 -- 1 truck and 2 trailers, you just don't have the volumes. It's going to cost you about $1 an hour per barrel to move oil by truck. And you're one way empty. So if you're going out of like high, pie in the sky scenarios, people are thinking, well can you truck oil from Alberta to Texas. Well, it's just purely uneconomic. You get something where you're moving it 3 hours one way, and 3 hours one way, unloaded, right? So that's $6 a barrel, yes, and this differential market, you can do that. And that's why we're starting to see trucking to North Dakota. But you can't go much further than that. I mean, it starts to really -- it's just too costly.

[Operator]

[Operator Instructions] Our next question comes from Greg Colman of National Bank Financial.

[Greg R. Colman]

Just a couple of quick ones. In Q3, we saw better-than-expected OFS OIBDA margins, kicking up around that 19%. Murray or Stephen, could you give us some color as to how this was achieved? Was it pricing? Was it utilization? Or was it specific energy services operating subs that were getting back to work?

[Murray K. Mullen, Chairman, CEO & President]

Yes, it was all of them. We made a pretty good acquisition on behalf of our shareholders, which is the AECOM acquisition. And that acquisition, the way we structured it, actually helped our overall business on the production services because it was that acquisition as we ended up the way we did it actually helped all of our production services side. So production services was up. I think specialized services was about -- was up a little bit because Canadian Dewatering had a really strong quarter. You might recall the first quarter was -- because of weather-related stuff, they just were behind the curve, but they had a really good quarter. Pipelines were still awkward. Our premium pipeline side was still little bit awkward, their team. Just because of delays and, oh, my goodness, go, don't go. So they were actually down little bit. But the big win was, I think, was our Canadian Dewatering and then we've added...

[P. Stephen Clark, Chief Financial Officer]

We saw growth in revenue, which helped us dollar average our S&A, and that's down by about 1%.

[Murray K. Mullen, Chairman, CEO & President]

Yes, the only part of our business that didn't perform well was anything to do with drilling related. It just was stubborn. It was -- it underachieved again and that is against everything I thought would happen when world commodity prices were doing quite nicely. So conventional wisdom would say, well, our customers will do well, and they'll drill more. Well, then all of a sudden came these bottlenecks. And so that's impeded drilling activity. There's no doubt about it. So that's the only part of our business that really is down from the -- on a year-over-year basis. And it was down a little bit, but if it would have been same-store sales, as last year, we would have been much closer to the $60 million range of EBITDA rather than the $55 million.

[Greg R. Colman]

That's great color and taking those in projecting the future, you mentioned Canadian Dewatering had a really good quarter. Premay was soft and going actually down a little bit. If we projected out into Q4 and beyond, first of all, on dewatering, was that a flash in the pan? Did they start and stop in the quarter and they're kind of back on the fence now? Or is that something that we should continue to have, a margin buoyancy effect into Q4 and beyond? And then secondly, on Premay, are you seeing any more consistency in those results? Or is that one where it's continuing to be the stop and go?

[Murray K. Mullen, Chairman, CEO & President]

But I think, Richard, Canadian Dewatering comes down a little bit in the fourth and first quarter, just because water is not moving as much when we freeze it up. So they go down into a more traditional slowdown period and then will ramp right back up again in Q2, Q3 of next year. So and then on the pipeline side, we're busy right now but it's always subject to what's the next work stoppage? What's the next delay and those kinds of things. Lots of projects on the go for next year. And as we've talked about on many occasions, Greg, LNG projects look to go but this is Canada. These things can be delayed and pushed back. So I can't make a definitive, it's going to go in Q1 or Q2. I think it's going to go but we have to please a lot of people to get final approval these days.

[Greg R. Colman]

And Murray, that sort of leads into my last question there. Over the course of the call, you've guided to 2019 being another challenging year for energy services. I don't think anyone would disagree with you. But because of your exposure more on the infrastructure side than the drilling side, I'm wondering if your comments for it being another challenging year and similar to 2018, is that inclusive or exclusive of some of those infrastructure projects we see kicking in like Enbridge Line 3, like LNG Canada, Coastal Gas Link? Even with those, do you expect to see 2019 flat to 2018? Or would that be additive?

[Murray K. Mullen, Chairman, CEO & President]

Well, I think that those will -- they come online next year but they're really not going to benefit the E&P companies till sometime next year. So the only question, Greg, it really is, I don't know -- you'll have -- we'll have to see it as they come out with their budgets, what's happened to their cash flows. And my cautionary words are, and that's what I said about outlook, I'm just -- I'm making a call. I don't know which way it's going to go. But my instincts tell me that they'll have to live within their means. I look at their stock prices, I look at their ability to raise capital and I think they've got to live within their means and their cash flows are down and constrained, so we'll have to see how that plays out. I can't see a scenario right now that says cash flows will be up significantly and that will lead to activity levels. So I think, when I caution on the Oilfield Services side, my caution is based upon what I see in drilling activity. The rest of our business, the moving of fluid and the acquisitions we've done and all those kinds of things, it will be an okay year. But on balance, that will be okay, maybe up a bit, maybe drilling down a little bit, so that's about flat. And so there's no doubt that LNG is wonderful. But it's not all going to happen in 2019. It's going to start happening and that's good, but it's not all happening in 2019. It's a long time before $40 billion is spent. That's my view.

[Operator]

Our next question comes from David Tyerman of Cormark Securities.

[David Bruce Tyerman, Analyst of Institutional Equity Research]

My first question's on Trucking and Logistics. So if I'm understanding what you're saying correctly, it sounds like it's still good market, maybe not quite as increasing as rapidly as it did earlier in the year. I'm just wondering for next year, if you continue to see, at this point, sort of this more stable kind of situation? Or do you see another step up, perhaps, driven by something like implementation of ELDs in Canada?

[Murray K. Mullen, Chairman, CEO & President]

I haven't factored out the last point in on ELDs yet. That has the potential to limit some supply and cause some ripple effects there. I haven't factored that in, Dave. I've suggested that the Canadian economy is going to be okay. So that means our business, traditionally, would be okay. We've done some acquisitions. There'll be a full year of those in our business model next year. We'll continue to work on the cost side of the acquisitions. So all in all, I would say we should have some more record orders and record year next year for our Trucking/Logistics side. Although the market appears to be soft -- just kind of more imbalanced now. I don't see, when we look at all the data, we don't see the markets out of balance right now. I don't see them down, but I don't see huge demand happening right at the moment. But on the supply side, you're exactly right. If ELDs come in -- but I think, Rich, that's late next year if I'm not mistaken. End of '19. So David, I -- it could be a 2020 thing we’re talking about. But for '19, I wouldn't -- most -- not most. Most responsible companies will be ready and compliant. You're talking about the 10% that maybe can't get it or don't get it or won't get it or haven't heard about it. I don't know. But it's not going to be -- most all of responsible companies will move and be ready and compliant. But you only have to take -- you don't have to take 10% out of the supply to have a tightening in the market. It might only take 2%.

[David Bruce Tyerman, Analyst of Institutional Equity Research]

Right. No, it makes sense. So just to make sure I understand correctly, was it stronger? Like they -- were you seeing good improvements in the first part of the year and now it's more balanced? And that's kind of where we are right now? Is that the way I should be thinking about it?

[Murray K. Mullen, Chairman, CEO & President]

No, I think what we saw in the spot market, we saw it out of balance. We saw a huge spot marking pressure. So that is both a win and a loss. It's -- because we use a lot of subcontractors, so we just manage the spread. But I'm just saying the canary in the coal mine is, is that the economy is not growing at the same robust pace as it was in the first half of the year. And I think that's evident in a number of statistics that come out. We do know that all the trades issues we had kind of slowed investment decisions down and made people cause, and do I buy inventory? Don't I buy inventory? There's no doubt that caused a little bit of slow down going on. It wasn't a debacle, but it definitely took some steam out of the economy in our view. I don't know -- so I don't see that as being a headwind right now. That's why I say on balance, I'm reasonably optimistic that we'll continue to hit more record numbers in our Trucking/Logistics side next year. And our objective will be focusing on the bottom line next year. Right, team? That's everything we've talked about here is integration, integration, integration.

[David Bruce Tyerman, Analyst of Institutional Equity Research]

Okay. That's helpful. And then the other question I had, is just when you talk about asset-light, I guess think of a couple of ways to get there. And I'm just wondering which you do or whether you do both. One is to use a lot of contractors and just take the spread. And then the other is to lease a lot of trucks. And I guess if that's the -- if it's the latter, does IFRS 16 change things on that side?

[P. Stephen Clark, Chief Financial Officer]

David, it's Stephen here. Like we really don't lease trucks. That's not our way. When we're talking asset-light, we're talking about having the owner operator or using third-party subcontractors. But you hit on a point, what's IFRS 16 going to do for Mullen Group? We haven't gone through all the math yet, but we estimate that it will add somewhere between $10 million to $15 million of EBITDA and somewhere around $45 million of debt to our balance sheet or right of use asset, I guess, is the proper IFRS term. But essentially, not a big deal for us, and most of that is lease payments on property. DWS, you've seen in the numbers here, on our S&A side, on the Trucking/Logistics side in the last couple of quarters, where rent is up significantly. So they're going to be the lion share of that rent, but we have other properties that we are renting. But that's sort of the numbers in -- for 2019 as a guideline for now. We haven't quite finished that.

[Murray K. Mullen, Chairman, CEO & President]

We'll update that, David, at the year-end. So everything I've talked about now has not talked about any changes in accounting rules. I'm just talking about from an operational perspective. But we'll clarify that in our update, in our projection for 2019 and our business plan as we come forward with that, later this year. In terms of asset-light, Stephen is touching on one, so let's use diversified warehousing system. They're a warehouser, well, they don't have assets. They have some forklifts and some other things but basically, that's what I call asset-light. In our 3PL businesses that we've acquired, those are asset-light. And anything to do with logistics, where you're just using subcontractors, that's asset-light. You're just owning the customer but not the asset.

[P. Stephen Clark, Chief Financial Officer]

That #8 Freight doesn't have ...

[Murray K. Mullen, Chairman, CEO & President]

The #8 Freight is -- owns virtually no -- nothing but they have 80 contractors running around working for them, delivering freight every day. So we don't have any CapEx need there whatsoever.

[P. Stephen Clark, Chief Financial Officer]

Yes, so you're just not going to make a 20%, 15% margin when you don't own any of the assets. You're looking more, think back to Contrans, it's 10%.

[David Bruce Tyerman, Analyst of Institutional Equity Research]

Yes, that make sense. It's very logical. Okay, so the $10 million to $15 million from IFRS 16, sounds like it goes on top of the...

[Murray K. Mullen, Chairman, CEO & President]

Yes, yes, everything we've talked about now is just same-store sales.

[Operator]

Our next question comes from Elias Foscolos of Industrial Alliance Securities.

[Elias A. Foscolos, Equity Research Analyst]

Most of my questions have been asked already. I do have one question. It's probably not a modeling impact question but more a bit philosophical. Typically, the Mullen Group has focused on term debt and now just yesterday, you expanded your banking facility. Would you be looking, structurally at filling in with the term debt if you could? Is there a different sort of philosophy? Of course, I'm tying that in directly into potential acquisitions. I'm trying to understand that.

[Murray K. Mullen, Chairman, CEO & President]

Yes. That's a good point. We've talked about it here at the senior executive level and with the board. So in terms of the -- going into our operating line now and why we do it, well the facts are alias that we've added like a $0.25 billion of annualized revenue. So you've got to finance the working capital out of that. So that's really why we increased the bank line. It's not -- we're not going to increase the bank line to go do growth targets or acquisitions or whatever. So to the extent that we see great opportunities to continue to grow this business through acquisition, then we would structure that debt to make sure that it's more long term in nature or whatever the balance sheet structure is as Stephen talked about. But those will be things we will look at the appropriate time once we identify those great opportunities. But we're into the operating line because we spent $140 million or thereabouts over the last couple of years of shareholders' capital to acquire new companies that are generating $250 million of sales and we -- you got working capital issues. So it's really more working capital than anything else. It's not really for growing the business and acquiring things. But we'll make sure our balance sheet is always well structured. I will not let this company get ahead of our skis and go gambling by just taking a bunch of bank debt and not structuring it properly. I mean if you're doing an acquisition, those are long-term asset -- long-term deals.

[Elias A. Foscolos, Equity Research Analyst]

Correct, that's why I was leading into that question just to sort of understand the mindset more than anything.

[Murray K. Mullen, Chairman, CEO & President]

Yes, we'll look at what is best for our shareholders and we've got -- the thing that we've got right now on our balance sheet is we've got no long-term debt due until 2024 and we've structured that debt at $3.95 million at -- roughly. So I doubt if we could get $3.95 million in the marketplace today on a long-term debt basis that -- with interest rates going up and the tightening of spreads and all those kind of things. So we're really comfortable with that. And -- but we haven't really had the desire or the need to go out and raise a bunch more capital, either on the debt side or the equity side. But if we're going to fund new growth, then we would. And as I said, we'll always have opportunities come our way, just as we've done over the last 2 years. 15 acquisitions or thereabouts, and I would be surprised if we don't do more over the next number of years.

[Elias A. Foscolos, Equity Research Analyst]

Agreed. That's why, that was sort of the lead into that.

[Murray K. Mullen, Chairman, CEO & President]

Yes, it will all be structured, whether it's on the debt side or some combination or whatever. We're constantly, as you know, investment bankers in to see us about what they think is potentially best for us and for our shareholders, and thus far we've just stayed within our lane. But as we position for '19, we'll be thinking about what's the best structure on a go forward basis for our shareholders.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks.

[Murray K. Mullen, Chairman, CEO & President]

I really don't have any, folks. It was good questions. The color were on balance. I think you've heard what we were saying. I think we're going -- on our next call is going to be is we outline our capital budget and business plan for 2019 and we look forward to engaging with you at that time with some more color on '19. Thank you very much.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.