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Mullen Group Ltd
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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.
Good day, and welcome to Mullen Group's quarterly conference call. As in the past, we'll be discussing our financial and operating performance for the third quarter, this will be followed by an update on the near-term outlook as we see it.But before I commence the review, I'd remind you all that our presentation contains forward-looking statements that are based upon our current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially.Further information identifying these risks, uncertainties, 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 executive team, which is Stephen Clark, our CFO; Richard Maloney, Senior VP; Joanna Scott, who is our Corporate Secretary and VP of Corporate Services; and Carson Urlacher, who's our Corporate Controller.So this morning before Stephen -- I turn it over to Stephen to review the third quarter financial and operating results of the Mullen Group and then we'll follow that with the outlook for the balance of '19 and of course, the Q&A session, I'll open with a few comments now.The third quarter was actually the strongest quarter in 2019 with consolidated revenue reaching $325.3 million and although this year's performance was down somewhat from last year's robust results of $339.7 million, which I would say in itself was a bit of a disappointment, but when you look into the reasons, it's pretty evident that our business models are very stable, and we can produce good results despite some pretty severe headwinds.Now for example, as I mentioned -- just mentioned last year, we had a really good year from an economic perspective, for freight demand and for trucking in general. So from this perspective, we had some high hurdles to clear, which to be honest, just didn't materialize this year. Furthermore, the evidence is now obvious. The North American economy has definitely slowed, negatively impacting freight demand at precisely the same time that the industry supply hit new cyclical highs.I think on -- just a little commentary on this, you'll also hear similar words from the rails, CN and CP that says that the economy has definitely slowed, and we would concur with those commentaries.So the scenario that we have in the trucking industry that's really causing some pain is that we have a slowdown in demand at the exact same time that a bunch of supply hit, so pricing, obviously, comes under pressure.As for the Canadian market, it's a bit of a tale of 2 different stories from our perspective. The first and the positive continues to be consumer spending, which remains strong during the third quarter and it supports our LTL business, most notably our Gardewine Group had a really strong quarter and both from an operational perspective, but also they did gain some market share. So that's a good news story on the LTL side. And LTL is basically tied to the consumer.The negative story, however, relates to capital investment, project work and infrastructure build-out. Here, we witnessed a very challenging quarter as evidenced by declines in our truckload business and it was across the board with every one of our Trucking/Logistics segment business units tied to the truckload business experiencing revenue declines.Now in discussions with our customers, there was a definite lack of confidence in conviction, which translated into fewer orders for long lead items. Now perhaps this was just an inventory rebalancing or short-term retrenchment by companies or it could be something much more structural, which would obviously be a real concern to me, but my instincts say it was just a blip in the big scheme and that demand will eventually adjust over time.Now from Mullen's perspective, a short-term downturn actually can be good for our company because many of our competitors do not have the diversified business model, are generally not as well capitalized and as a result, we are seeing some significant trucking failures across and throughout North America. This culling of the herd, as painful as it is in the short term is healthy for the industry in the medium to long term, and I fully expect our business units to capitalize as others fail, which ultimately strengthens our market share.Now let me turn to the continuing saga as it relates to the oil and natural gas industry. The challenges remain with little light at the end of the tunnel, which is so disappointing because Canada's oil and natural gas industry is one of the, if not the, best in the world. Nevertheless, the challenges are forcing a total rethink of the industry and once again, the service industry and all the hard-working people who've built this industry are paying a huge price. Drilling activity was down 36% year-over-year during the quarter, a direct hit on the demand for oilfield services, for revenue, for jobs and the like. Then there were the Alberta government mandated crude oil curtailments that continued to strain the movement of crude oil shipments, enforcing producers to delay service work as a means of protecting cash flows. All I can say is that the third quarter was a very difficult period for anyone involved in the oil and natural gas business.But, and I'm going to reiterate but, given all of what I just said, let's just go back to my opening comments, our results for the July to September 2019 period were actually pretty strong, the best in 2019. We, obviously, have a robust and diversified business model. We had a bit of revenue lift from a couple of smaller tuck-in acquisitions, and while not meaningful, they do provide some growth within the context of the current macro environment. But you will notice we have not been that active in the acquisition front, preferring to wait for better opportunities and valuations.Now if you want to have a bit of green shoot news, our Premay Pipeline business had a very active quarter positioning big-inch pipe for a few major pipeline projects. In fact, one of our biggest customers last quarter was the federal government. As the owner of the Trans Mountain pipeline, they just keep spending money, which is good for us, but I really don't know if it's money well spent. You got to love big government. The bottom line is this, as it relates to pipelines: if pipelines are being built that will eventually provide the infrastructure needed to support the oil and natural gas industry, and the news surrounding those massive LNG projects on the West Coast of British Columbia is mostly positive. So I would say to all of our shareholders, listeners, there is some light at the proverbial end of the tunnel.From a profitability perspective, the discussion points are very similar to the revenue story. Third quarter was the best of the year, down slightly from '18, but overall pretty good within the context of the market.So all in all, I'm pleased with our Q3 results. And we are right on track to generate the annual financial performance I outlined to shareholders at the start of 2019. Could have been a lot better if the macro environment was stronger and it would have been even better if we'd have pursued acquisitions more aggressively, which we did not because as we -- as I articulated earlier, we believe that the valuations and the opportunities would become more attractive.So this all leads me to the last point I want to address this morning before I turn the call over to Stephen for more fulsome discussion on our quarterly performance and that's our stock price. Clearly, this is an issue. I wish I had a better answer for everyone. Our stock performance has been dismal and it's troubling. But as you can see from our results, it does not appear that the pressure on our stock has come -- that our stock has come under is due to operational and financial performance. Our dividend is rock solid because we have a diversified portfolio of well-managed business units covering a multitude of customers and business lines in Canada. We have a strong connection to the consumer part of the economy. We are well capitalized with ample room to fund our future growth initiatives. We make real hard-earned money because a good portion of our business is non-asset based, just look at our cash flow last quarter as an example. And we own the majority of our own real estate portfolio, seems to me is a pretty darn good investment for any investor wanting a stable monthly cash return along with upside potential, which I believe will either come through acquisition or attrition as our competition fails. Stephen, you're now up.
All right. Thank you, Murray, and good morning, fellow shareholders. Our third quarter interim report contains the details that fully explain our performance. As such, I will only provide some high-level commentary.We continue to evolve into a dominant trucking and logistics company and less so an oilfield service company. I would remind our listeners that, a short 5 years ago, our third quarter Trucking/Logistics revenue was $146.7 million. It is now $222.2 million. A compounded annual growth rate of 8.7%, well above the growth of the economy. Five years ago, we also did not have any LTL presence in Vancouver or Toronto. Now we have significant presence in both these markets, including our recent acquisitions of Argus Carriers and Inter-Urban Delivery Service in the Lower Mainland. Trucking/Logistics represented approximately 70% of our year-to-date revenue. With this shift, our third quarter is now typically our best quarter of the year rather than the first quarter when we were dominated by the seasonal effects of the oilfield service industry.Our third quarter revenue improved sequentially to approximately $325 million. That being said, with our shift towards Trucking/Logistics segment and the consumer, our seasonal swings are not as large as they once were. In other words, our revenue is more predictable or that is to say less volatile.While not stellar, the Canadian economy was steady and the same can be said about our third quarter results, steady.Some specifics. Our revenue for the quarter was positively impacted by the completion of the Argus and Inter-Urban acquisitions that provided $6.3 million of revenue growth. We had $9.5 million increase at Premay Pipeline and increased revenue at Gardewine, reflecting the strength of the consumer. These positive factors were offset by a reduction in drilling activity that reached nearly all-time lows with an average rig count of 132 active rigs resulting in a $9.1 million decline in drilling and drilling-related revenue. Mandated curtailments also negatively impacted production services to the tune of $12.3 million. And lower fuel surcharge revenue, was due to lower oil prices. As much as low oil prices hampered our Oilfield Services and fuel surcharge revenue, it help reduced fuel cost to 8.1% of revenue versus 9.6% of revenue in 2018. That is a significant savings, especially given the context that we're nearly -- nearing $1 billion of Trucking/Logistics revenue on an annual basis.As for profitability, operating income before depreciation and amortization, or what is commonly referred to is OIBDA, was $55.6 million, an increase of about 1% over 2018. This was despite some well-known challenges such as the 35% decline in drilling activity and mandated curtailments, which disproportionately hurt the service sector. As stated previously, approximately $3 million of the rise in OIBDA was due to IFRS 16. So on an apples-to-apples basis, OIBDA decreased by about $2.5 million to $52.5 million as compared to $55.1 million in 2018. But adjusted margin was essentially the same as in 2018.On a segment basis, the Trucking/Logistics segment OIBDA was essentially flat at $35.8 million as compared to $36 million in 2018. However, the adoption of IFRS added $2.7 million positive impact on reported OIBDA.On an IFRS 16 adjusted basis or comparing again apples-to-apples, margin was 14.9% in 2019 versus 15.9% in 2018 due to the softness in freight demand, especially as it relates to the movement of goods associated with capital investment within Canada.OIBDA in the Oilfield Services segment improved by $0.7 million, of which $0.5 million was due to IFRS 16. So essentially flat during a very challenging quarter.Margin on an IFRS 16 adjusted basis was up to 21% as compared to 18.8% (sic) [ 18.9% ] in 2018. We held our own because of the diversity within our business model and the best-in-class operators -- our best-in-class operators concentrating on the cost side of our business. Full details may be found in our MD&A starting on Page 16.Lastly, a quick word on cash flow. Everybody knows that cash is king. During the quarter, we generated $46.5 million of net cash from operations. Year-to-date, we have generated $116.4 million of net cash from operations. I'll remind listeners that net cash from operation includes the payment of taxes and the funding of working capital needs. This $116.4 million was up $32.2 million from the $84.2 million we generated in the first 3 quarters of 2018. This is significantly above our cash flow needs. This allows us to continue to pursue strategic acquisitions to further enhance cash flows and to ensure our dividend remains, as Murray described, rock solid.So in conclusion, we have a strong financial position, a strong cash position and a strong dividend with a clear path for acquisition growth.So with that, Murray, I will pass the conference back to you.
Thank you, Stephen. As we move to the outlook section of what we think -- has some views on what could happen over the next quarter, I'll keep the outlook short and to the point and that's because nothing changes until something changes. Therefore, will remain in the status quo camp.Now clearly, economic growth has slowed, both here and in the U.S., which negatively impacts freight demand, but the question is for how long will this slowdown stick around. We see this as an open-ended question. We do see also consumer demand is being the driving force in the economy and this is due to the strong employment numbers we see as well as the propensity of our governments to support people and programs via deficit financing. This supports our thesis that investing in and growing our LTL final mile footprint here in Canada is strategically a very good use of our shareholders' capital. Not only is the LTL final mile business the most stable part of our business, it's going to be extremely difficult for any competitor to match the scale, the network or service offering we provide. I love the moat that this business provides our company.As for the long-haul trucking component of our business, we are waiting for better news on the inventory rebalancing that seems to have occurred over the last couple quarters, and hopefully, with the election behind us here in Canada, companies will begin to reinvest again. And this is the driving force behind the movement of capital goods, things such as equipment. Just refer to what Caterpillar just noted on their call about lumber and such things as construction equipment and infrastructure projects. These are all the movement -- tied to the movement of capital goods, and we saw a slowdown over the last couple of quarters. I just -- I don't know when it's going to turn, but I can't imagine that it's going to be -- it will be slow for too much longer.And of course, the oil and natural gas industry has its own set of challenges. But if pipelines gets built, if our customers can get their crude oil to market, if the LNG projects stay on track, then there is at least a glimmer of hope that the future for Canada's oil and natural gas industry, while perhaps not quite as bright as days gone by, it will see better days ahead. Once again, and I would say this to you, I think that eventually it turns away from being a headwind and that in itself would be a positive. How much the tailwind would be? I don't know for sure, but I do sense that we're nearing the end of the headwinds. Until then, we see limited opportunity to grow except for the fact that our competition is failing. This is how I see our Oilfield Services segment business units growing in an otherwise flat market. It's called attrition. In fact, I personally believe that 2020 will be the year of consolidation and attrition for the oil and gas sector, we shall bide our time and wait this out.Lastly, I want to comment on the acquisition and deal flow. We continue to evaluate many opportunities and just like our stock price that has fallen significantly, so have valuations and expectations, we will be active in growing through acquisition, but always within the context that any deal must meet the dual objective of strategic to our long-term goals and accretive to our financial results, steady as she go remains our mantra and don't fret about the dividends, as Stephen said. It is safe because of the diversified business model we have built out over many, many years.So thank you very much, and I'll now entertain your questions.
[Operator Instructions] Our first question comes from Walter Spracklin with RBC Capital Markets.
So let's start on -- just on the top line. You did discuss some of the driving trends in -- on the trucking and OFS side. So trucking certainly sounds like there is a lot more capacity out there. Can you quantify a little bit about what you are seeing in your business on rate declines and -- if any? And just put that in the broader context of where you see volume going from this point forward. Is it better to look at flat rate, flat volume? Or are you seeing growth going forward from here given this environment?
Kind of a tale of 2 stories again, Walter. If you look at the spot market, the spot market's down significantly year-over-year, and I'm not talking about 2% to 5%, I'm talking it could be 10% to 20% on the spot market. Now when you have a logistics business, it's really we're indifferent to what the price is with our logistics business because we just manage the spread. As prices come down, that's because there's too much competition, then our contractors and our some subcontractors get less. So we still maintain the same spread in the spot market. The challenge becomes when there's not as much in the spot market so we weren't as busy as we have been, but we've been [ able ] to manage that spread. Now on the contract business, so it's more steady work and stable. We're seeing some cracks in the armor there on some pricing. We're not getting any pricing leverage and to maintain your business, I'm seeing some 2% to 5% rate reductions to maintain your market share in this tough market. Now how long that lasts for, I'm not sure. But definitely we're going to have to see some pickup in demand or some more trucking failures. It's -- most likely they'll probably happen at exactly the same time and then you get your pricing leverage back again. I think it's a temporary thing, Walter, not a permanent change.
Turning to OFS, same question, revenue side, I see third quarter, fourth quarter last year pretty stable. Could we see the same kind of pattern in your third to fourth quarter results here in 2019?
I missed what the question was really...
Well, you did the same level of revenue in the fourth quarter last year as you did in the third quarter...
Oh, I think yes. The fourth quarter was still pretty strong. So I haven't quite seen any evidence that there is a pickup in demand yet. Now I am optimistic, the election's over, so let's get over it, let's get on with running our businesses and doing it. I know that we've said, okay, the election's over, let's think about life, and running our business and planning for the future. And there's no doubt. Even we put things on hold during that last quarter or 2. So I think most businesses will get back to business and make good long-term decisions and that's what really capital is about, it's long term. And that's why I say, I think it's a inventory rebalancing issue. But eventually the inventory is gone, then you got to get the new ones.
So when I'm adding the 2 up, I might be a little shy of your $1.3 billion guidance unless you direct me otherwise on the revenue, but still able to hit your $200 million in OIBDA guidance. Is that...
Yes. That's -- it's still within the realm of probability. It could be down a little bit, but -- and that's what I was saying in my commentary in the outlook is that, look, we still think we're on target, but we have to be realistic is it there are heightened risks that I did not envision in January of 2019.Drilling activity has been down significantly that I didn't envision that drilling was going to be down 30% in the third quarter. I don't -- it'll -- I think we're on target to be down similar numbers in the fourth quarter, maybe not quite as much, but we'll see how our customers manage their cash flows. And on the overall economic front, we're already starting to see some of the data points come in that freight tonnage is improving a little bit in the U.S., August was the first it saw a little bit of increase, wasn't enough to change pricing, but maybe we're through the worst of it.
Finally, just on acquisitions...
I think we're close on it. But it's a fluid market too. I'm not kidding anybody on that.
Yes. It's good color. On acquisitions, last question here. It sounded in your prepared remarks and the disclosure documents that your -- you sounded a little bit more excited about the opportunity that acquisitions can provide. Where do you think you're redirecting most of your energy? Is it more on the Oilfield Services? Is it more toward trucking? Where do you see the most value relative to the 2, given the current market conditions?
Well, let's look at it. Our game plan in terms of acquisitions hasn't changed since we went public 20 years ago. I don't do acquisitions because it makes -- I'm trying to make sure our numbers are good for a quarter. We do an acquisition because it makes good strategic sense and because it's accretive. So we just didn't like the opportunities that we saw over the last couple of quarters and the valuations were clearly coming down as the economy slowed and as our stock price fell. I mean I just had no -- I wasn't that excited about paying somebody a whole bunch when we're not being paid. So valuations and opportunities are -- they're both coming in line.Now let me talk about where we're going to put our capital. We see the very best opportunity is probably in the oil patch, but we're not investing in the oil patch. So we're not doing any deals in the oil and gas sector. We're just going to play the attrition game there, and we'll gain market share through attrition, not through acquisition.Now on the final mile, LTL, building out the regional network, that's our focus. That's where I want to put the -- our balance -- the rest of our balance sheet to work because once you get it, you got a moat that's very, very difficult to replicate.
Our next question is from David Ocampo with Cormark Securities.
You previously talked about shifting more to asset light. When I look at your numbers now, do you guys feel like you're at the right mix between company-owned assets and owner-operator?
Well, the owner-operators we -- it really hasn't unchanged much in terms of owner-operators because the most -- majority of our owner-operators are on a percentage basis, right, Steph?
Yes.
Yes. So that -- so really you're getting 18% to 23% or whatever of the revenue. Now the revenue may come down and it shrinks a little bit. We got hurt not on margin, we got -- because of paying the owner-operators, it really was we just didn't have enough revenue base so our SG&A was up a little bit just because the revenue base wasn't quite as high, and we haven't changed our cost structure in S&A. So that probably hurt on our truckload businesses, 1%, maybe a little bit more, but not on the margin with our owner-operators and clearly, not on our margin with our subcontractors, which is, let's call our subcontractors the Uber drivers. They price, they're just -- they set the market price and that's based upon how much supply and how much demand there is. Demand was soft, lots of supply, price down, we made our margin.
I think the strategy hasn't changed. We try and satisfy peak demand through subcontractors and owner-operators and we keep that base company fleet. But our 2 acquisitions here in the Lower Mainland are sort of a tale of 2 stories where Argus is very much, founded in 1955, a company fleet, LTL operations, where Inter-Urban Delivery Services, a 100% owner-operator business, again, local P&D but going into the states and a little bit different. So it's more managed on a case-by-case basis, and we still -- our strategy remains the same that we're looking for returns on invested capital regardless of whether its own or operator business or a company fleet.
Great. And when I look at Oilfield Services margins, they're ticking up here because of more pipeline work. Do you guys have a line of sight to getting above 20% again?
Well, there is no doubt that the reason our Oilfield Services did so well is because our pipeline business was active. But that's part of our diversified model. And our Premay Pipeline group is the dominant pipeline, big-inch pipeline company, and they had a very good quarter. They've had a very good year. And from what we see, we think we still got another 2 years of very strong pipeline activity driven by -- it appears Trans Mountain is going to -- we're going to start laying pipes starting next week. So that pipeline -- that work we did for Trans Mountain was stockpiling and getting ready to do the job and now, we're going to move it from a stockpile location to the right-of-way and it will go in the ground. That appears from what I just saw from my group is that next Monday, we're going to start laying pipe. And -- so we've got that. That's all the way from Edmonton all the way to Hope. Now can you get from Hope to Burnaby? I don't know about that. But I'm pretty sure they will probably go -- get most of it built. Will they get it all built, I can't tell you that. But I think they're going to go ahead. It is the government and they're going to build -- they're going to create jobs, and we're going to be busy on that. So we can see that, but the biggest projects are clearly related to LNG and the Coastal Gas and then the Chevron Woodside right behind it. So there could be 2 to 4 years of steady business coming in. The first loads, we've already offloaded and they're in port up in Stewart, coming in on that pipe for Coastal Gas. So those are big. Those are -- that's big-inch pipeline work and that's a lot of loads that we'll be hauling. I think we're going to have upwards of -- Paul Schultz, our President of Premay, will get mad at me, but I think we're about 25 or 35 trucks that they're going run steady for all of 2019, just on that one project alone. So -- but we see a line of sight on pipeline to be a good for a couple of years or 3, could be longer, because it's all tied to LNG and natural gas.
Great. And kind of last one for me here. You touched a bit about this previously in your prepared remarks about owning your real estate. Last I checked there's probably $500 million of assets on your balance sheet. Any thoughts on crystallizing some of this value? Or you -- or is the thought process still to own the real estate?
Well, that's something -- we debate that always. We know we got great value in our real estate portfolio just like anybody else has got real estate, particularly in the big centers of Vancouver and Toronto, et cetera. But the reason we're able to pay our dividend as -- and as stable as it is, is because our shareholders are the landowners and they -- we're not paying rent to a landlord, we're paying dividend to a shareholder. So if we monetize the land, we probably wouldn't be able to pay the dividend, it wouldn't be as stable. So it's kind of a, "Why do it?" I mean, our shareholders are going to get paid because they're the landlords.
Our next question is from Aaron MacNeil with TD Securities.
I was hoping to drill down a bit more on revenue performance within LTL, which has grown pretty consistently over the last couple of years, certainly since the acquisition of Gardewine. But I guess, I'm wondering how you'd characterize the growth. I mean has it been driven by the fairly consistent pattern of small tuck-in acquisitions or organic capital spend or just increased utilization and general market share capture? I guess I ask because it seems as though, at least over the last couple of years, the revenue has grown at a bit of a faster pace than what the acquisitions might imply, given a range of fairly normal transaction multiples, but any commentary there would be helpful.
Well, I would say to you on the LTL business, Richard, we've been investing heavily since 2012.
Correct. Yes.
I think that's...
2011.
2011, '12, it's been strategic to us. But with LTL, it's been a long-term work in progress to build out this network that we talk about, and we've done it through acquisitions. In the future, once we got the whole network, then it's just layering in smaller ones with no costs and it's just about your throughput, but your fixed cost is your network of terminals and it's your infrastructure. And therefore, your contribution margin on any incremental business is quite nice and that's how we'll get margin improvement over time. And exactly what we've seen and how we have improved margin is just by layering in additional business. Now that's either because the economy is growing. What's the economy growing? 1%, 1.5%, okay, well that's great, that gives us a little bit. Most of it is through productivity improvement, little tuck-in acquisitions and market share gains into our network, but acquisitions has been an important part, and we still are going to -- as you just heard me say, we're going to be continuing to build out our network because we want to have the strongest network from Toronto out to the Vancouver Island. That's our objective.
And so do you build out the network more with M&A or does some of the organic capital?
Yes. No, M&A is a very important part of building out the network. Once you build out the network, then it's just a matter of execution and leveraging your position in the market.
And then you already touched on it a bit, but I guess, has margin performance in LTL been better, the same as revenue? Or how should I think about that? Like has LTL margins improved over time or...
I would say -- I will use Gardewine as an example. We invested in Gardewine in 2015 and we took a company that was doing a couple hundred million dollars a year and making a 10% margin. And today, that company is well over $250 million and making...
16% almost.
15%, 16% margin. So that's a combination of us putting strategic capital to work along with productivity improvements by that senior team there and just the critical mass of the market share that we built with them over time, through a couple more acquisitions. So we've had both revenue lift, and we've had margin lift. So I can -- and we sit around here and say the acquisition of the Gardewine group in 2015 was one of the best we've ever done for our shareholders.
And today, LTLs maybe a 1/4 or a 1/5 of total revenue. Where do you see...
Yes. It's half of Trucking/Logistics revenue.
And where could that move, kind of...
I think it's going to be half of our revenue -- of our Trucking/Logistics revenue, and I fully expect our Trucking/Logistics revenue to continue to grow. But it's not going down. LTL will be at least half, maybe more in the future because that's our focus. That's where we're putting capital to work.
And it's tied to consumer. It's tied to e-commerce. It's tied to everything that's good in the economy today.
[Operator Instructions] Our next question is Jon Morrison with CIBC Capital Markets.
This is likely -- or this is likely a good question for Stephen, but I have a funny feeling that Murray is going to have some views as well. But how do we think about calibrating dividend sustainability? And what would cause you to cut it? I realize that dividend yield is an output of the share price and nothing else. But just given the cash yield that continues to drive a healthy degree of investor questions. So anything you can give us on comfort around why you believe it's rock solid I think would be helpful.
Murray, do you want to start?
Okay. Jon, I will go back to the basic fundamentals. #1, we're a diversified company and through diversification, we're not as subject to those massive swings in the market than if you're not diversified. So diversification is #1. #2, we own our own real estate. And #3 is we have a nice chunk of our business. That's non-asset based that doesn't require a lot -- any or hardly any capital. It's -- we use technology, we use our network, we use our scale and our breadth of business. So that's the -- those are 3 fundamentals and then the other is we damn well execute. We have a great group of business units that they're [ conscious ] on capital and they run great businesses. So we've structured the balance sheet so we don't have any -- we've got no debt payments till 2024 generally speaking. Got nothing, so. And we generate money, we generate cash. Now if you said to me the economy is going to go into a total tank. Well, I guess, but I'm not predicting that. I don't see that is even remotely possible, not the way the governments are spending money and handing it out, like it's free. So if the consumer totally falls apart, we might have a problem, but...
It's fair to assume that even as you think about stress testing your business, you don't believe that you're going to have to fund it on the balance sheet and secondarily, although some companies would take this view of going, if you're not getting rewarded for it, you cut it. That wouldn't be your view of the world. Is that fair?
Yes. I mean let's put things into perspective. Our results are up from last year and our stock price is down in half from last year. So is it our results that's changed or is it we had a changeover of how -- of shareholders or whatever. I don't think we're in control of our stock price, but we are in control of our business. And from what we're in control of, we've done at least as well or even better than last year.
And to get a little granular on the modeling and such, Jon, I would refer you back to our Chairman's message from February where we talked about cash flows, and we talked about what does free cash look like with a $200 million OIBDA. And quite frankly, the dividend is supported by the Trucking/Logistics segment alone. And our CapEx and our taxes, we can live on that $900 billion of revenue that we're getting from Trucking/Logistics and pay the dividend and not worry about it because we're really aren't counting on anything from the oil patch, although we've put in that message and our guidance that we were expecting $65 million, $70 million, which we're on track to do. And then so we would use the excess cash for acquisitions. So you take this last quarter, the third quarter, where we said, we generated about $45 million in cash roughly, and we spent money on acquisitions, and we've funded the dividend and everything like that. And our cash is essentially flat. So we're able to do small tuck-in acquisitions and generate free cash and still pay this dividend at this level, and we have no concerns that we're going to fall materially from $200 million, but you have to go about $160 million before you start thinking of OIBDA before thinking that you won't be -- you go backwards on a cash-generating basis and that's considering that CapEx wouldn't be reduced. In a scenario of $160 million, our CapEx would be reduced. There is no doubt. And we continue to purchase real estate and that gives again, as Murray said, more to the landlord, which is the shareholder. So over time, we keep on building, get rid of the third-party rents and giving -- enhancing that dividend, so OIBDA gets enhanced a little bit. So we keep on putting that capital out there for acquisitions and real estate. And you'll see that again through the fourth quarter and next year where we're going to enhance that dividend potential.
That's very helpful. Sincerely appreciate that. Given where the share price is, where is your head out -- where is your head at on buying back stock versus M&A at this point? As traditionally, even an organization that consolidates the market at the right time, but is an NCIB at all appetizing right now?
Well, we'll go through 2020. We always come forward with our strategic plan for our shareholders after we've looked on all of our budgets and we've looked -- and we'll come up with our annual plan, and we'll determine in discussion with our Board whether that makes good sense of buying back our stock or investing the free cash that we generate in acquisitions to grow our business or to acquire long-lead assets, like land and buildings, et cetera, et cetera. But we'll -- that will be part of our year-end review and then we'll come out and tell our shareholders this is what we expect for 2020, this is what we're going to do with the dividend and this is what we're going to do with -- on anything else we're going to do. But I think it's premature for me to -- I don't usually switch gears halfway through the year. We'll look at it, and we'll outline a game plan for 2020 based upon what we see at that time. And meanwhile, we just -- we're just focused on running the best business we can, and we fully acknowledge and that's why I talked a little bit about the share price. It's frustrating. It's terrible. The economy really hasn't changed much, but clearly, our shareholder -- we've had a shareholder base that's exited us. Now were they tied too much to the oil patch or did they have fund requirements [ to date ] but that's clear. We had a changeover of the shareholder base for sure. Because our business hasn't changed.
If I can add further. Just building on David's -- sorry, Aaron's question on the LTL business and how we're getting capital returns and how we talked about capital returns on our involved investments. So when we're talking about LTL Investments and what we've seen at Gardewine, for instance, we bought them for a good multiple, granted, but we've improved the margin significantly. But the capital that we deployed into that business is now fetching a 20% return on that incremental new capital that we've put into LTL business involved. We've talked about capital deployed returns of 20% to 25%. So as long as we can see opportunities like that, even as much as the yield is attractive and you think about a share buyback, I think our bias would still be to go for growth and organic growth and acquisition growth rather than share buybacks. That's a view. Obviously, we'll debate it in December when we come out with our guidance.
Has the lack of M&A today largely been a function of price or quality of the business that was being shopped? Because to your point, there is a lot of acquisitions that are being shopped, but is it just price that isn't getting you there?
No. It's not just price, although sometimes it's wise to be patient and just let the market find an equilibrium before you pursue M&A, and that's what I said. We just take a long-term gaming. We know -- we've got our eyes on certain targets, and when we finally get them to the -- where we can find an entry point that's good for us and our shareholders and for them, then we'll proceed with it. But until then, we'll just bide our time. I'm not going to go out and just spend -- what have we got $75 million, $78 million, Carson, of cash?
Yes.
Just to say we did it. Now -- but we didn't raise the money and -- through the debenture to sit on the balance sheet. We will eventually put that cash to work, and I think that will come out in our 2020 plan.
Perfect. Maybe one final one for me. Can you just talk about the general pricing trends that you're seeing across your T&L platform? And whether they're meaningfully different than what you are seeing in Kriska? I guess is the geographic difference larger than you would expect at this point given all the factors in the various regions of Canada?
Not really. Capacity, there is an excess capacity in the truckload side for sure. LTL, there is not an excess capacity in truckload because the consumers stay strong. Most of the capacity added was all in the truckload side and that's across Canada -- actually, that's across North America and it's all across Canada. So I articulated in the spot market. We've seen deterioration of spot market pricing of 20%, 30%, but in the contract basis, may be 0 to 5%.
Our next question is from Konark Gupta with Scotiabank.
This is Amina Djirdeh, associate of Konark Gupta. I think you touched on the Coastal Gas pipeline initially. I was wondering what is the revenue opportunity in the next 2 years.
Well, I think the first -- I honestly think that it's got a multi, multiyear run to it. Like, we're not talking about a 1- or 2-year run. My view is though that we probably got a 2 to -- 2-year run of having pretty steady revenues tied to our oil and gas business -- to our pipeline business. Once you get the pipeline built, they're then going to go into the construction phase, which will be very supportive of our overall trucking and logistics. Because it's a big infrastructure project and there will be a lot of trucking related, truckload-related demand that's going to be generated from that -- those huge capital projects. And then finally, once it's -- once the pipeline is in the ground, once the construction is done, you will then go into -- you got to get the feedstock to feed the pipeline, which will go then into our Oilfield Services business, which is drilling related. So I think this is -- we're in the early stages of a multi, multiyear run based upon everything we hear is there probably will be at least a couple LNG projects, not just 1. The most advanced and the one that's furthest ahead is clearly LNG Canada. But all of our indications are suggesting it could be a multiyear run. What's the number going to be? I don't know, $50 million a year. I'm just guessing, to be honest with you. I don't know for sure. But somewhere around that number just tied to that. But it also adds capacity to the trucking -- or demand to the Trucking/Logistics side and then gets the economy growing and that's what we're after and that would be very supportive of our whole business.
Okay. I do have a question on how are the technology changes in well drilling impacting your specialized services.
So how is technology changing on our specialized services? I don't --
Did you say for wells -- for drilling wells?
Yes, well drilling.
Oh, well drilling. Well, clearly, that has reduced. Drilling is now manufacturing. It's not a drilling. So you move the rig on. So rig moving will never recover the way it was, which is why we don't invest in that anymore. We're just not investing in that end of the business. And they become just manufacturing facilities that go on and they drill multipads. So but you still need consumables. Whether you move the rig or not, it's still going -- you are drilling these [ multi-bilaterals. ] So you will need lots of pipe, lots of fluid will be generated and lots of fracking will be required and those kind of things, but definitely it's changed the footprint of how drilling is done. There is no doubt about it.
Realistically, overall, the results were impacted last quarter because, as Stephen pointed out, the drilling activity comes back then the business nonrig moving will have little bit of a better day because, again, as Murray pointed out, you need mud and pipe and then water for fracking and we just [ do that ] work.
We look at the drilling -- the drilling activity will be tied mostly to natural gas is our view, and the prospects for natural gas are totally tied to LNG. And the good news is we're building out the infrastructure right now. That's what we talked. If you want negative news, the negative news is, well it takes a while to build out [ this ]. So because we've debated and debated and debated as Canadians for so long, we still have a few years in our estimation before the drilling activity kicks in. So more pain on drilling, but in our diversified model, we will be busy in other areas and that's what we do, and we'll put capital to work where we see the opportunity. Eventually, drilling will come back, but that's a few years -- I don't know how many years for sure, but it's not -- I don't see it coming back in 2020. But it will come back. Once you build $40 billion plants, you've got to feed it.
Our next question is from Elias Foscolos with Industrial Alliance.
I've got a few follow-up questions. Murray, I believe you opened the call speaking about cost reduction. That's a controllable factor. What are you looking at implementing? Where would it be? And possible to quantify the impacts?
Well, we've been focused on that all year because that was one of the strategic initiatives that we said. We didn't see 2019 as having a lot of tailwinds in terms of economic growth or the oil and gas business. So we said, well, the only thing we can do is focus on cost, which is -- we're still in the process of -- we're rationalizing terminals. We are -- we won't have as many business units going into 2020 in the oil and gas business. We're just consolidating them together and going with one senior management team rather than 3, things like that. So rationalizing terminals, rationalizing the amount of companies that we have operating business units, Carson, that we're going to have in our group is there. And then, the other is just -- I mean, you just got to be very, very focused. And I don't want to say cheap, but we have to be pretty focused, which is another acronym (sic) [ synonym ] for cheap.
And we're using technology to streamline some administrative functions and our [ Haulystic ] app and things like that are certainly helping.
Just following up on that a bit, Murray. You still plan on operating the decentralized business unit concept then, correct?
We -- yes. We'll still do that, but the bottom line is the revenues don't justify having as many business units. So we'll just aggregate those in, and we'll just have -- like, we won't have 16 business units in the oil and gas service side and 16 different management teams going into next year. We'll just shorten the bench up and they'll be -- we'll be down 3 or 4 next year and just -- we'll just consolidate. We'll keep the operating people, but we just won't have as many reporting entities for sure.As you know, we just don't have the revenue base in the oil and gas side. That's why I'm saying to you, I think the oil and gas sector is going to go through a massive culling in 2020. The stories we're hearing right now, Elias, are downright scary.
Well, the -- I'd probably say the investment community seems to be echoing that through many share prices. But sort of moving beyond that, what -- if I could see 1 or 2 indicators that would make you feel more positive about and it's really short term more than long term because I think there is a decent long-term trajectory, a more positive outlook and a couple of indicators that might make you pull back from that, that might be negative. What are some things that we can look for that might give us an indication?
In terms of growth or headwinds, is that what you are...
Yes. Headwind or tailwind that you would see. Just overall business, not related to any one segment, but you could focus on a segment, if you'd like.
I would say, look, we look at a number of indicators. So when I listen in -- and we watch -- when we watch the amount of freight movements that, say, Caterpillar's moving because we move a lot of equipment for Caterpillar. We're a preferred carrier, our business units, which is tied to Finning as an example up here in Canada, but Caterpillar's the manufacturer. Those shipments fell off dramatically in Q3 and that was reported by Caterpillar and was anticipated for the most part by the market, but even Caterpillar comes out and says, "Look, it's going to normalize. We'll get back into a more replacement cycle and will be through this inventory rebalancing" that's what I refer to it as. So that's a big data point. We're watching the Class 8 truck build in the United States. So I'll give you one data point. When we ended off 2018, the Class 8 truck market was -- which is the big trucks, long-haul trucks, was earmarked 2019 is going to be 300,000 trucks. That's our annual build in North America. Run rate today, what are they on target for now 200,000. The market is adjusting to the economy. So even the smartest people that run these big manufacture, they got it wrong by a significant amount. But the green shoot is, okay, there is no capacity being added now. We're not even needing replacement. So eventually that will norm -- that will shrink the capacity in the trucking business and the market will do its things. So to me, that's a positive for down the road. The biggest thing that I do see in Canada is LNG and Trans Mountain. These are massive projects, and I think they're going ahead.And because the spinoff of those projects is massive, these are not -- the work that's being done on this, the workers that are being employed, they're not making money like Amazon warehouse fulfillment center, these are high-paying jobs that is good for consumer spending and there is going to be a lot of them.
Okay. One last thing, and you might address this in your closing remarks so you can save it until then if you'd like. You do provide an outlook, sometimes it's in December seems like when there is an uncertain outlook, you might provide it in with the Q4 results in February, what's your target now for providing an outlook for 2020? As I said, if you want to hold onto your closing remarks, you can save.
No. That's a good point. I think we'll probably wait until February again to do that because December is only a month away, I can't tell you anything new in a month. So until we get the year-end results and we get through that and then we'll say, "Okay. This is how the year ended and this is how we see 2020 shaping up." So look forward to that in early February.All right, folks. Thank you very much for joining us, and we are, as I said, our results are doing -- our results are up from last year. We're doing okay. I'd like them to be better, and I think eventually the headwinds will subside, and then I'm hopeful that the shareholders will understand is that there is not many companies out there that can continue to pay a very rock solid dividend and have good opportunity to take advantage [ of the foreign exchange. ] So thanks for joining us. And we'll talk to you in early 2020, I didn't say that. Did I? Yes, I did. So thank you very much.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.