Mullen Group Ltd

TSX:MTL

Earnings Call Transcript 2021-Q3

[Operator]

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

[Murray Kenneth Mullen, Chairman, CEO & President]

Thank you all, and welcome to Mullen Group's Quarterly Conference Call. So we'll be following our standard format today and providing shareholders and investors with an overview of our third quarter financial results, discuss the main drivers impacting operating performance, our expectations for the balance of the year, and of course, we'll open the lines to answer your questions. So before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of uncertainties and risks, and the actual results may differ materially. Further information identifying the risks, uncertainties and assumptions can be found in the disclosure documents, which are filed on SEDAR and at www.mullen-group.com.So on the line with me this morning, I have the majority of our executive team. I have Richard Maloney, Senior Vice President; I have Joanna Scott, Corporate Secretary and VP of Corporate Services; and I have Carson Urlacher, Corporate Controller. Stephen is not with it this morning, Stephen Clark, our VP of Finance. Stephen has been called into elective surgery. He's got to get his ankle operated on again. So today, he's in the hospital getting well cared for. So Carson will be filling in for Stephen today.So let me move in right into the Q3 '21 financial and operating performance, and I will start with this. 3 quarters are completed. We've got a year that's quickly passing us by. And while it appears the worst of the health crisis associated with COVID is now close to being contained, the reality is the negative effects of this pandemic are not over. So the crisis just seems to mutate from one issue to another.Let's take, for example, some of the newest challenges. Inflation, surging commodity prices and the supply chain shortages. These are just a few of the economic issues now front and center. And now we have labor shortages. So we all ask the question, are these the result of extremely -- of an extremely robust and strong economy or a fundamental shift in the market? And need I mention to anyone that our health care system is in need of some major spending. Quite simply, all of these types of systems are under duress these days, and these are not easy issues to resolve.So despite all of these issues, though, that I just talked about, we have relentlessly pursued an aggressive growth strategy, and we've acquired 6 companies in 2021, the vast majority, which are tied to consumer activity. Now, I believe the moves we have already taken, accompanied with a constructive outlook for the economy, is a nice combination that sets us up to deliver strong results, not just for the balance of '21, but also for a long period of time.So let's begin today's discussion with some highlights from the third quarter and the most obvious is revenue growth. The economy was good, but there was one standout reason for the big increase and that's acquisitions. In Q2 of this year, we finalized a number of transactions, acquiring, what I would call, really good companies. So Q3 is the first full quarter, our results reflect the previously announced acquisitions, and it's the primary reason why consolidated revenues increased by $142 million in the quarter year-over-year. And while I'm on the topic of acquisitions.Anyone that knows anything about our history will recall that acquisitions have been an integral part of our growth strategy ever since we went public in 1993. And I doubt this changes anytime soon. Our strategy remains clear and steadfast. We acquire good companies, and then we improve their performance, which is precisely what we will do with each of these companies that we acquired this year. As I've always said, growth first, followed by improved profitability. We have an excellent track record when it comes to integrating companies into our organization as well as delivering performance, and I expect nothing less this time.The second highlights that I deliver or that I want to -- I believe deserves mentioning, today is the discussion on the overall state of the economy. The markets our company serves and the impact these macro issues have on our business units. And sometimes the best way to look at how the economy is working is to review the results and performance of those business units that we've owned for a full year. Now, this is often referred to in other movies as same store sales.Looking at the diversification of our business, you will see that we cover a large part of the economy, particularly here in Canada, where we are one of the largest logistics providers. This provides us with a very good overview of the economic activity by region as well as by subsector of the economy. So for example, our largest segment, Less-Than-Truckload or LTL, as it is commonly referred to, it's the bellwether when it comes to consumer activity.In Canada, consumer demand remained strong throughout the quarter. However, we started to witness disruptions in the supply chain, impacting everything from the availability of many goods to productivity levels. In other words, demand continued to be strong, but overall freight volumes appear to have peaked, at least in the short-term due to supply chain issues. In fact, I'm beginning to wonder if these supply chain problems may become the Achilles heel of future growth in the economy, but more on this later.Now, turning to Logistics & Warehousing segment, which includes full load trucking services, it continued to improve, but we have not hit our full stride as of yet. And by this, I mean, we have not seen the pricing increases that are both required and inevitable as capacity here in Canada tightens, but it is coming. As demand returns, especially as capital goods start moving again, we are telling all customers, we can service your logistics needs, but you need to pay our price. This may end up being the new trend, the new normal, especially given the driver shortage facing the industry. Because without access to new professional drivers, there's precious little the industry can do to drive growth. In other words, limited top line growth, but improving margins due to pricing increases.By the way, this has already occurred in the United States. In Canada, we have lagged on this market change but as I have suggested, I am of the view that we are in the early days of improved pricing. I can tell you this, our business units have heard me loud and clear, prices must rise.The Specialized & Industrial Services segment is closely correlated to capital investment in Canada, including construction, major project development, oil and gas, natural grilling and pipeline construction. During the quarter, this segment continued to be the most impacted by COVID restrictions, project delays, base camp quarantine protocols didn't just curtail revenues, it also led to increased costs. A challenging period for most of our Specialized & Industrial business -- and Services business units is all I can say.The most positive takeaway during the quarter was the continued improvement in oil and natural gas drilling activity. It certainly appears that this part of the economy will only improve as commodities prices hit multiyear highs, driven, of course, by improving demand fundamentals accompanied by tight supply. I think, ultimately, this is going to be good for our business.Our newest segments, U.S. & International Logistics is off into a very strong start. Recall that this segment is focused on 3PL, it's basically a non asset-based business, except for our investment in technology. As such, gross margins on stated revenue are typically lower, and this is why we look at operating performance on a net revenue basis because it shows how well the senior team is managing the spread. The difference between gross revenues, less cost of moving the goods via third parties. On both metrics, the team at HAUListic LLC did a great job beating our initial expectations in terms of total sales and net margin.The U.S. freight market is by -- and I'm not stretching this. It's on fire. It's driven by strong economic fundamentals and a tight supply chain. The most exciting encouraging aspect of this investment is we're still in the early innings of transitioning the business from the previous ownership group, Quad/Graphics, into a standalone business unit within our organization. This was not an easy acquisition, given that we needed to carve out the business from Quad, we needed to establish a new U.S.-based operating entity, which, by the way, we rebranded as HAUListic LLC and ensure a continuity of operations. Kudos to you all at HAUListic, well down team. And from my perspective, there's nothing but upside, a great business model, operating in a big market with an experienced and motivated senior management team. We have an excellent technology platform that will only get better as we invest to ensure HAUListic maintains its industry leading capabilities.Now the next discussion point, and while I don't like referring to COVID as a highlight, there is a certain reality that we must deal with. It continues to cause havoc, both from a health perspective, but now from a supply chain perspective. Disruptions, slowdowns, delays, plant closures, have all contributed to reduced productivity. That implies increased costs and more generally speaking, I believe it's leading to inflationary pressures, which we all know has its own set of consequences. So we are watching this very, very carefully.And speaking of inflationary pressures, this is the last highlight, I will comment on before turning the call over to Carson Urlacher, as I said, who's subbing in for Stephen Clark this morning. Rising costs, lack of productivity and now increasing wages driven by a labor crunch. Across North America, there appears to be a shortage of workers. And in our case, we know it is difficult to recruit and hire truck drivers, dock workers, mechanics and other frontline workers. So the question we're all trying to determine is, where did they go? I'm not exactly sure, but this I do know for sure, labor shortage, it's widespread and wages are going up. But here's the rub. Along with higher wages and higher costs, more generally speaking, comes higher pricing. And this all sounds inflationary to me. Whether you believe all of this is transitory is up to your interpretation of the current trends. But from my perspective, admittedly, I don't know for sure, this I can say with confidence, unless we get more Canadians back working, rising wages will continue as long as demand remains at current levels. There are no quick or easy fixes to the driver shortages or more generally speaking, to the labor shortage.So overall, let me summarize the quarter this way. Revenues at record highs, and we had a solid performance, operating performance, and that's driven by a couple of factors. First is the new acquisition, they just take time to get to the profitability levels we expect. Second, in our Q3 2020 performance, which was over-the-top good for 2 reasons. The first contributing factor was due to pipeline construction activity here in Canada and the strong performance of our Premay Pipeline group. This year, pipeline construction has been disrupted time and time again. The projects remain, but they are not on schedule and they're not as profitable.The second factor, of course, was CEWS. Last year, government subsidies were $10 million this year, virtually 0. In other words, when you look at this quarter's results, you will see we successfully replaced both the loss of the profitable pipeline construction business and CEWS. More importantly, what we have today is a larger, more stable and sustainable business, and this, I feel really good about.Carson, I'm going to turn it over to you to provide a more in-depth review of the financial performance for Q2 2021 year up. Carson?

[Carson P. Urlacher, Corporate Controller]

Perfect. Well, thank you, Murray, and welcome, everyone. I'll get a little more granular. However, our interim report contains the details that fully explains our financial performance. As such, I'll provide you with some of the financial highlights for the third quarter of 2021.For the quarter, we generated record revenue as compared to any previously quarter period. A greater proportion of our revenue is now directly correlated to consumer spending. Year-over-year, revenue was up $141.6 million or almost 50% to $432.5 million. And as Murray alluded to earlier, this record revenue was mainly achieved through acquisitions, which added incremental revenue of $136.5 million.We also experienced modest same store sales growth within our LTL and Logistics & Warehousing segments, which was somewhat offset by a decline in same store sales in our Specialized & Industrial Services segment. Including fuel surcharge, same store sales were up about $5.1 million and was due to the net effect of an $8.5 million increase in the LTL segment, a $7.4 million increase in the Logistics & Warehousing segment, and these increases in same store sales were somewhat offset by a $10 million decline in the Specialized & Industrial Services segment.Our fuel surcharge revenue rose year-over-year because of higher diesel fuel prices. Total fuel surcharge revenue, including amounts from acquisitions, was $32.9 million, an increase of 18 point -- $18 million as compared to $14.9 million in 2020. And it's important to note that no margin is made on fuel surcharge revenue. So as this increased, it's actually detrimental to our overall margin, but more on this later.Now going a bit more granular on our segment revenue. First, starting with our largest segment, that being the LTL segment, grew by over $56.4 million to $169.1 million as compared to $112.7 million in 2020. Acquisitions accounted for $47.9 million or 85% of this rise in revenue. The remaining increase of $8.5 million was due to increases at all business units due to the continued strength in consumer spending, providing a steady flow of freight for our LTL group of companies. On a same store sales basis, adjusting for acquisitions and fuel surcharge, this segment experienced a 3.7% increase in revenue, which was largely due to gains at Gardewine.Revenue in the Logistics & Warehousing segment rose by $35.7 million to $121.9 million compared to $86 million in 2020 due to the $28.3 million of incremental revenue from acquisitions as well as a $2.8 million increase in fuel surcharge revenue. Same store sales adjusted for acquisitions and fuel surcharge fluctuations, were up 5.6% during the quarter. The freight market is improving as overall economic activity continued to improve and drive greater demand for freight services.Revenue in the Specialized & Industrial Services segment declined by $6.7 million to $85.7 million as compared to $92.4 million in 2020, primarily due to an $11 million decrease at Premay Pipeline Hauling, which came off a stellar performance in the third quarter of 2020. We also experienced a $5.8 million decrease in revenue at Smook Contractors. As Murray had mentioned, COVID-19 restrictions and other temporary delays resulted in a significant decline in major pipeline construction activity in BC as well as civil construction work in Manitoba. These decreases were partially offset by greater drilling-related activity in Western Canada as higher crude oil and natural gas prices resulted in an $8.2 million increase in revenue from our drilling-related services group of companies. This segment also generated $3.3 million of incremental revenue from acquisitions.Revenue generated by our new non asset-based U.S. & International Logistics segment were strong, exceeding our expectations by adding $57 million of revenue in the quarter. Our team at HAUListic continues to grow in the 3PL space by adding new regional station agents to our SilverExpress technology platform as the U.S. market continues to benefit from strong economic fundamentals, coupled with a tight supply chain.Now, in terms of profitability, operating income before depreciation and amortization, commonly referred to as EBITDA, decreased by $0.7 million to $64.5 million as compared to $65.2 million in 2020. This, however, is a misleading indicator of our underlying results from operations. Given we included $10.3 million of CEWS in Q3 of 2020 as compared to only $100,000 of CEWS in 2021.We measure our success by measuring the sustainable underlying business performance, and we adjust our senior management and executive profit share performance plan to exclude any amounts received from CEWS. That said, we included in within our MD&A, a non-GAAP measure this quarter, we call adjusted OIBDA. The definition and reconciliation of adjusted OIBDA to OIBDA can be found within our reconciliation of non-GAAP terms within our interim report. But essentially, it's OIBDA, excluding CEWS.Our adjusted OIBDA was $64.4 million for the quarter, an increase of $9.5 million compared to $54.9 million in 2020. The $9.5 million increase in adjusted OIBDA was due to acquisitions, which generated $15.7 million of incremental adjusted OIBDA. This, however, was partially offset by lower profitability at Premay Pipeline and Smook. Let's take a look at adjusted OIBDA by segment.In the LTL segment, adjusted OIBDA increased by $6.2 million to $26.9 million as compared to $20.7 million in 2020. This increase was due to $6.8 million of incremental adjusted OIBDA from acquisitions, which was somewhat offset by higher purchase transportation costs. As a percentage of revenue, adjusted operating margin decreased to 15.9% as compared to 18.4% in 2020 due to lower margin generated by our recent acquisitions. Currently, our recent acquisitions in this segment are generating margins below the segment average. But for those that have followed us for a while know that our reputation of improving margins is intact. In fact, that is our mission statement. We acquire companies and strive to improve their performance, both in terms of profitability and in terms of safety and other ESG metrics.Adjusted OIBDA in the Logistics & Warehousing segment increased by $7.3 million to $22.7 million as compared to $15 million in 2020. $5.7 million of this increase was due to incremental OIBDA from acquisitions, with the remaining increase being due to the improved performance by most business units in this segment. Adjusted operating margin increased to 18.6% as compared to 17.9% in 2020 as some rates started to improve, and our cost control initiatives remained intact.Adjusted OIBDA in the Specialized & Industrial Services segment decreased by $5.6 million to $15.6 million compared to $21.2 million. The $5.6 million decrease is attributable to a $6.5 million decrease in those business units providing specialized services, a $1.2 million decrease in those business units involved in the transportation of fluids and servicing of wells, which was offset by a $2.1 million increase from those business units type drilling-related activity. So the largest decline in this segment came from specialized services group, which was almost entirely due to the $5.3 million decline in adjusted OIBDA by Premay Pipeline. Again, Premay's performance was outstanding in 2020 and could not be repeated. As a result, adjusted operating margin decreased by 4.7% to 18.2% as compared to 22.9% in 2020 due to the change in revenue mix.So now, if we strictly look at margin now on a consolidated basis, adjusted OIBDA as a percentage of revenue was down 4% to 14.9% compared to 18.9% in 2020. This 4% reduction is explained by the following factors: first, the shift in revenue mix that I just mentioned, between Premay Pipeline and Smook being down $17 million in revenue and $6 million of adjusted OIBDA. High-margin project work with respect to pipeline activity in the third quarter of 2020 was exceptional, whereas this year's projects have been met with setbacks from COVID-19 restrictions and other project delays.Second, we expect lower margins to be generated from our new $50 million acquisition of HAUListic in our non asset-based U.S. & Industrial Logistics segment, which added $57 million of new revenue this quarter.Gross margin was $5.3 million or 9.3% of revenue and adjusted OIBDA was $2.9 million or 5.1% of total revenue. This margin alone accounted for 1.5 points of the 4% lower consolidated adjusted operating margin. As without this segment's results, consolidated adjusting margin would have been 16.4% as compared to 14.9%. From a strictly cash perspective, adjusted OIBDA in this segment is virtually the same as EBIT.Third, we generated $32.9 million of fuel surcharge revenue and an 18 point -- an $18 million increase from the $14.9 million generated in 2020. Fuel surcharge is detrimental to our operating margin since it's effectively a flow-through to compensate for rising diesel fuel prices. Some of our peers exclude fuel surcharge when they report margins, whereas we do not. If we were to exclude the $32.9 million of fuel surcharge revenue in the third quarter of 2021, our adjusted operating margins would have improved by 1.2% to 16.1% from 14.9%.And lastly, we generated $47.9 million of incremental revenue from acquisitions in our LTL segment that achieved an adjusted operating margin of 14.2%, which is 1.7% below the segment average. This provides us with the opportunity that Murray spoke to earlier, which was for what we -- which is, for us to do what we do best, and that's acquire companies and improve their performance.Now just a quick word on CEWS. As you know, we recorded virtually no CEWS this quarter as we are currently in the process of evaluating the legislative framework surrounding the payback provisions for public companies. We'll complete our evaluation in the fourth quarter, and we will know whether we'll be applying for CEWS or not.Looking at some other notable items, we continue to generate cash in excess of our operating needs as cash -- net cash from operating activities for the period was $37.3 million. Although this is a decrease of $10 million from the prior year, the decrease is mainly due to growth and business expansion from our acquisitions as we were required to finance our working capital requirements. We now have a total of $250 million of bank credit facilities available to us, to which we had $85 million drawn at the end of the quarter, thus leaving us with over $160 million of room available.Our basic earnings per share was down $0.18 as compared to $0.27 on a reduced share count as we bought back 2.3 million shares in 2021. The main reason for the decrease in earnings per share this quarter was due to the $4.6 million increase in amortization of intangible assets, which is a non-cash item. Virtually, all of our intangibles consist of customer relationships and competition -- non-competition agreements acquired on acquisitions. And at Mullen, our intangible assets are amortized over a 5-year period from the date of acquisition, which is pretty aggressive and may not be comparable to other reporting issuers.Lastly, a quick word on ESG. For those that know us, it's no secret that we have always had an unwavering commitment to safety and our people. Our year-to-date lost time claims ratio in 2021 is 0.81, which is only slightly higher than the 0.79 for the same period in 2020. In fact, our total recordable injury rate was down year-over-year to 2.57 from 2.79 in 2020. Our safety results continue to be best-in-class, which is a testament to not only our core business but also our new acquisitions, knowing that we have similar views when it comes to our safety culture.So with that, Murray, I will pass the conference back to you.

[Murray Kenneth Mullen, Chairman, CEO & President]

Thanks, Carson. Just a great summary. I appreciate that. So to all, with the third quarter now completed, I'll spend the next few minutes outlining our outlook for the balance of '21. And in just a few short weeks, we will post our 2022 business plan and operating budget, at which time, we will be better prepared to talk about what we expect in 2022.As for the fourth quarter, there are a lot of issues to consider with a lot of moving parts. Nevertheless, on balance, I have a pretty constructive view for the majority of our business units and for the markets we serve, which leads me to believe we will finish '21 on a positive note and generate some good results, and let me explain why I say this.No, I'll start with the obvious. Acquisitions will drive top line growth. And earlier, I spoke of 6 acquisitions completed this year. Well, 5 were completed in the second quarter alone, and we just completed one and finalized one on October 1. So you've heard our discussion and rationale for the earlier acquisitions, which are substantive and a game changer for our business. As such, there's no need for me to expand further. I will, however, provide some details on the transaction we recently completed. It's not large. They're generating around $15 million annually, which is why we did not press release. It's a small acquisition. But it does foretell what we are thinking strategically.DirectIT Group of Companies is the leading provider of courier and small package deliveries in the Calgary market. They have an excellent reputation, providing best-in-class service. They have the critical mass that's required in the career business to be profitable. They utilize a fleet of independent contractors and minimizes capital required, and they have a proprietary technology to manage the business. It's a platform, I believe we can use to enter new metropolitan markets. So I like this transaction, not just for the good company we acquired, but also because it has the potential to be scalable. Plus, I see how there's potential for us to leverage the e-commerce business that we have and expand our ambient delivery footprint.Now, the reason being is that the courier business is better suited to capitalize on these opportunities than our current LTL business for one simple reason. Small package requires small delivery units, not trucks. And once again, DirectIT has the critical mass in the small package business to make this happen profitably.Now, in addition to acquisitions, from the evidence I see the economy remains on solid footing, which is very supportive to the markets we serve. Now, I do not expect, however, to see a lot of internal growth, and that's for 2 fundamental reasons. The first is the supply chain. You've heard me speak about that earlier. There's far too much inventory that's stuck somewhere in the system that's limiting consumer choice or factory productivity. Retailers cannot sell what they cannot access and factories cannot build without every component delivered on time. There are quite simply too many bottlenecks for the system to be productive.The second and perhaps the more long-lasting issue is the labor shortage. Yes, there are a lot of people working. But will the next qualify -- where will the next qualified worker come from? And everyone in business knows that without additional labor joining the workforce, it is difficult to see how a company can grow. And furthermore, when labor markets are as tight as they currently are, it's undoubtable that wage pressure will not arise.So in summary, from a top line revenue perspective, we should deliver some really nice results in Q4. Consumer spending remains strong, but probably not growing. So this is a solid indicator for what to expect in our LTL segment. Logistics & Warehousing, along with trucking, appear pretty steady with some early indications that capital investment is finally starting to accelerate here in Canada, which would be very positive for our flat deck businesses.And then, there is higher crude oil and natural gas prices. One would expect the drilling activity and investment by the producers would increase given the cash flow they are generating. There is, however, a dark side to rising energy prices, higher fuel costs come to mind, inflationary pressures are building. As such, we are mindful of these impacts. And the one negative I see, again, this quarter is the decline in year-over-year pipeline activity. The pipeline projects are still bottlenecked with just issue after issue. And recall, once again that in 2020, our Premay Pipeline group had an outstanding year, capitalizing on just an active pipeline year project wise.This year, the drama on these projects is nearly laughable, if it were not so sad. Delays of every sort you could think of have hampered activity and productivity and to our shareholders, I doubt these changes in the fourth quarter. So revenues associated with pipeline construction would be down year-over-year. That's negative to our Specialized & Industrial Services segment again in Q4. However, we do expect drilling activity to be up somewhat to mitigate part of that.And lastly, a comment on our U.S. & Industrial Logistics segment, our newest reporting segment, the freight market in the U.S., as I suggested earlier, is on fire. And our logistic -- HAUListic team is doing a great job capturing market share. They're managing the demand flow and at the same time, working through the transition of the old QuadExpress business into HAUListic. It's taken a total team effort and a lot of support from people at Quad/Graphics, the previous owner. I want to thank them tremendously for everything they've done to help with this transition. It has gone just about as seamless as possible, particularly to our customers and to our people. We'll continue to make progress on the transition plan in the fourth quarter and with business remaining strong, I'd expect another really solid quarter performance from our U.S. team.A couple of comments on profitability before I close out today's formal presentation. Profitability is -- it's measured today, could be measured as OBIDA, O-I-B-D-A. It should be similar to Q3 results, given the top line growth I spoke about, which is -- it just hasn't grown at our revenues with the top line growth to record highs. It really has fundamentally altered the structure of our business. The acquisitions completed this year are generally on the asset-light side, meaning we really don't have a lot of CapEx required to maintain the business and that's a good thing. But less capital employed also means lower OBIDA numbers, but not operating income folks.I wanted to make this distinction clear because while our OBIDA will grow, the margin will fall as we include more light asset business units into our network of wholly owned subsidiaries. And this, by the way, is all by design. In addition, we have a couple of non-recurring items that occurred in Q4, 2020 that will not be repeated this year, CEWS and reduced pipeline activity in the province of BC. I guess the best way for me to summarize what to expect is that we will have replaced these recur -- non-recurring items with sustainable, long-term profitable business. I sure feel good about that.Now earlier, you heard that we've increased our banking facilities by about $100 million, and that's providing ample liquidity in the event we identify additional acquisition targets. But to be blunt, I'm not sure we'll need these additional lines of credit because I do not like the valuations today, but we're also ready if the right opportunity presents itself.So thank you again for joining us today, and let's now open up the phone lines for that always interesting and informative Q&A session. Operator, I'll turn it over to you.

[Operator]

[Operator Instructions] Our first question comes from Michael Robertson of National Bank Financial.

[Michael Storry-Robertson]

Carson, nice job subbing in for Stephen. Wishing him a speedy recovery. Wanted to maybe start with something you sort of touched on at the end of your comments there, Murray. Looking at the inaugural quarterly results for the U.S. & International Logistics segment. You noted revenue was above expectations given the strength of the U.S. freight market and the addition of regional station agents. But looking at the 2020 revenue highlighted for that business at the time of the acquisition, it looks like a really strong quarter. So I was just wondering how lumpy you would expect this business to be from quarter-to-quarter, whether there's some seasonality at play here?

[Murray Kenneth Mullen, Chairman, CEO & President]

I think typically, you kind of have 3 buying seasons in the freight business. You have -- because a lot of freight is consumer driven. You have the holiday season, which is coming up, so the fourth quarter should be pretty strong. First quarter would probably be your softest, and then you'll get ready for the summer season, and then you have the back-to-school. So if you have a softer quarter, it's probably Q1 but 3 pretty strong ones. And Q1, there'll probably be a little bit of consumer hangover from all the buying and -- at Christmas and whatever. That's typically what you see. And I wouldn't be surprised that happens again this year. Now, that might give a little bit of cover for the supply chain bottlenecks that we've got to maybe catch up a little bit in Q1. I wouldn't be surprised. But I would suspect Q4 will be similar to Q3, maybe stronger. The team has indicated that the market is still on -- still doing extremely robust activity right now. But Q1 might be a little bit softer, but that's just traditional. Yes. 3 strong, one soft, typically.

[Michael Storry-Robertson]

Murray, and good to hear regarding Q4 as well. Just sort of switching gears here. Do you see the M&A landscape shifting at all right now, given the change in the government subsidy programs that you referred to?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes, that's -- you know what, I think if you want one reason why the Canadian marketplace has not had the same pricing leverage as the U.S., it's simply called CEWS. Everybody in Canada got money and that protected every business unit. So -- and we got money too. Full disclosure, our company qualified for a lot of CEWS, but that's the system. We were prepared without CEWS, and we would have probably -- if there was no CEWS, we would've probably picked up some really good companies at a really good discount price, but that's not the case. So everybody survived, but CEWS is now running out. Now they got to survive with CEWS. And remember, CEWS are bottom line numbers, it's not top line numbers. So everybody was protected. Now, you've got rising costs and you got this. I think it's only a matter of time until that catches up in this marketplace. When we look at all the business units, Michael, that we look at acquiring, I can tell you right now, we discount CEWS. We do not pay for CEWS. We take a look and make sure the company can recover from that. And if we aren't convinced of it, then we don't bite on those targets. But I would suspect some problems coming up in 2022 if companies don't -- if they don't adjust their pricing, they will be in a lot of trouble.

[Michael Storry-Robertson]

Maybe last one for me here. Is it too early to ask about Cap expectations looking out to 2022? I may have to wait a few weeks for your business plan. But I know some of the planned expenditures you had this year were disrupted by supply chain challenges. So wondering if you see that spilling over into next year and what that might entail?

[Murray Kenneth Mullen, Chairman, CEO & President]

Well, I can tell you, you can put it whatever you want in, in Capex, the bottom line is, you can't get it. So -- and everybody is on allocation right now. So I would suspect that in 2022, that it will be difficult to really to ramp up CapEx because you just can't get the product. But another comment on CapEx for us. We've grown the business substantially. We've grown by 50%. But I don't think our CapEx will grow over 50% because a lot of the business we acquired are non-asset based companies, they're asset light. So for example, our business in the United States HAUListic, we own no trucks. We own no trailers. We own no facilities. We only invest in technology. So that's a pure 3PL, very asset light. So what you get in OIBDA, is what you get in operating income really. So we -- by design, we went more asset-light because we just saw some problems in the market on the asset side base. And we'll invest in asset businesses, but I want to return. And if you invest in an asset-based business, you better have a 5% margin built-in for the asset because that's depreciation. So that's what you need. So if I go asset-light, 15% tomorrow might be the same as 18% or 19% of yesterday because we've changed the -- we've just fundamentally changed the structure of our business.

[Operator]

Our next question comes from Walter Spracklin of RBC Capital Markets.

[Walter Noel Spracklin, MD & Analyst]

So maybe starting on margins and the input costs and labor inflation that -- and difficulty in getting drivers and wage inflation and so on. Do you think, given the pace of your contracts, customer discussions, are you able to keep ahead of that in your pricing? Not so much for this year but for next year, in other words, do you think you can protect margin with pricing to offset the cost pressures for next year? Or is there a disconnect or a lag there that is not going to be -- not going to allow you to grow margin because of that dynamic?

[Murray Kenneth Mullen, Chairman, CEO & President]

That's the one that everybody is struggling with. I'll give you a couple comments on that, Walter. So let's start with the most obvious price increase, that's fuel because it's representative on fuel surcharge. That shows up as revenue, but you make no margin on fuel surcharge. In fact, you're actually behind as fuel prices go up because that's -- you always adjust fuel surcharge 45 days or 60 days after the price increase. It's not on a daily basis, and you have to build that into your rate structure. So as fuel prices keep rising, you're a little bit behind on that. It's when the fuel prices level off, that you'll be able to catch up and get normalized. So we're behind the curve on fuel prices. Now, let's go -- let me go to the other -- some of the other. Capital costs coming in, that's more long term. I can just tell you right now, trucks, trailers, everything we do, not only does it take longer to get, but it's more money. So we have to build that into our cost structure. That really hasn't hit us quite yet. What has hit us, Walter, is parts and labor. And so we probably lost -- we were behind the curve a little bit in the third quarter. There's a little bit of noise in there because so much was on our pipeline side. But I would say to you, I suspect we're behind on -- a little bit on that just because parts pressure is quite significant. The labor issues, it's just -- it's the newest one, Walter, and all of our business units have heard us loud and clear. We've had our calls. You can give your wage increases to your employees and they won't be 2%, there's going to be a heck of a lot more than that, but you've got to recover it from the customers. So our plan is to stay at least equal on the labor front and then, let's see what happens when these carriers that have been getting CEWS, I think they're going to have to raise the prices. The marketplace has been more competitive in Canada, substantially more competitive than in the United States. Let's see what happens in 2022. This cost curve is catching up to everybody and mind, we're going to at least stay even. I can tell you that.

[Walter Noel Spracklin, MD & Analyst]

Okay. That's great. Moving over to Industrial Services. Obviously, with the downturn in that sector previously, you saw your revenue follow suit as capital spending dried up there. Now, with commodity prices coming down, how much are coming back up? How much of a line of sight do you have on those projects? In other words, are we likely to see -- and I know you gave guidance already for fourth quarter that it's going to be probably the same. So presumably, we're probably going to see another quarter of similar contribution from Industrial Services. But do you have line of sight for next year that on the capital spending front that we might get a step function increase in your revenue in that segment as capital projects start to pick up amid higher commodity prices?

[Murray Kenneth Mullen, Chairman, CEO & President]

Walter, I don't think so. I'm concerned because there's no labor. And there's not a lot of capital going into that -- into the sector. So I suspect that there will be -- it will be better next year, but I don't see a substantial increase because there's just no labor to do the work. What I can tell you is, is that I'm not satisfied with the returns, and we're going with pricing. So I expect our margin to go up, but I don't think our revenues will go up a whole bunch, but we're raising prices. That's all there is to it. And if you don't want to pay the price, then give your business to somebody else, I'm okay with it. I can't get to people anyhow, so don't worry about it. But if you want our people and you want our service, you're going to pay more, and that's what we're telling the oil companies. You're charging the consumer more, you're paying more to us. But I don't know if that leads -- I don't know with all the money they're making is going to be put back into the drill bit because of ESG because of -- there's just -- there's not support from shareholders or from government or policy for the industry to go and invest to grow. So it looks to me like it's going to be pretty difficult to grow supply unless you go drill. Like, it doesn't just come out of thin air. And as an industry, as a service provider, you make money, not when the oil companies make money, but when they spend money. And I keep hearing more and more, they're going to pay dividends, buyback stock, reduce debt, not put it into -- investing into adding supplies. I think that's -- I don't see that yet. So we won't be putting any capital into that business. But I can tell you, we're going to charge more money and those customers don't want to pay it, well, give somebody else to call, don't call us. We're -- I don't need to take your call.

[Walter Noel Spracklin, MD & Analyst]

That makes sense. Final question for me, Murray. You've been following, no doubt, the drama at Canadian National, and you've heard that they're under pressure to perhaps divest of some of their non-rail assets. Do those -- would those fit into your strategy? Are they consistent with the type of growth that you want to see, assuming it comes at the right price? Or are these businesses completely not what you're interested in terms of your -- where you're looking to drive growth?

[Murray Kenneth Mullen, Chairman, CEO & President]

No. I mean, the -- and what you -- I think what you're talking about is the, let's call it, the TransX assets, the H&R assets. A lot of the business that CN acquired, there was not the trucking per se. They wanted to protect the intermodal business, and which is why they bought TransX and H&R. That intermodal business is a key part of our future because we think that it's going to be really difficult to get long-haul truck drivers. It's going to be really difficult to get trucks that will not need diesel to go long-haul. We like the intermodal business. We think that's the way freight is going to move. And if CN decides, we'll be -- we'll look at that, just like some others will. And that's why we bought APPS. APPS has a big intermodal business. Our Kleysen Group is very big in the intermodal business. And we continue to see that as the way that freight will move across Canada, East West is intermodal. So yes, we take a look at it. And we have really strong relations with the CN Group. So we'll engage with them when their time is right. But as you said, they've got -- they're working through some issues and -- but we do a lot of intermodal work with them right now. So we'll talk with them for sure.

[Operator]

Our next question comes from Konark Gupta of Scotiabank.

[Konark Gupta, Analyst]

Murray, so I wanted to ask -- maybe the first question I wanted to ask on the cost inflation, which was the real detriment, I think, on the quarter in terms of margin performance, even though obviously, revenue performance is phenomenal. So I wanted to ask you on the purchase transportation side. So the purchase transportation cost, which is pretty heavy in LTL segment compared to the other segments, was up more than, I think, 100%, maybe 140%, 150% or so. How much of that was driven by onetime purchase transportation due to lack of quality subcontractors versus driven by acquisitions or rate increases by those guys?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. A lot of it's driven by acquisitions. Our -- the newest acquisition of APPS, they use a lot of purchase transportation. They're the asset-light business model that I talk about. And you use third parties too that make the investment in the truck and sometimes the trailers. So APPS is really -- they're a hybrid 3PL provider because they have some of their own delivery. But basically, they move a lot of freight by -- with third parties. And it's -- the market started to tighten in the third quarter. So the price of third parties started to go up, and we'll have to make sure that we recover that in our pricing. Those are things that everybody is looking at as we do our 2022 budgets. But the majority of it was -- came from -- associated with our new acquisitions. Carson, I think I got that right, did I now? Carson's my expert on this.

[Carson P. Urlacher, Corporate Controller]

Yes, you hit that one spot on, Murray.

[Murray Kenneth Mullen, Chairman, CEO & President]

Okay. Yes. Oh, geez, okay. I knew the numbers. That's good. So mostly it was because of the new acquisitions we did and because they're asset-light business models. Meaning, I don't have a lot of CapEx with these businesses, so -- which is precisely why we've invested in them. Our thesis right now is, Konark, is that we want to own the customer, not the asset.

[Konark Gupta, Analyst]

All right, makes sense. Makes sense. And then, like, these costs going up, how quickly can you pass on these costs to your customers? Like you pointed out at the Logistics & Warehousing segment, for example, prices have not gone up yet to the extent that you like. What's keeping pricing rates to go up at Mullen's subsidiaries?

[Murray Kenneth Mullen, Chairman, CEO & President]

Well, I would tell you, prices are going to go up. It may have been a bit of a lag in the third quarter, but not significantly, Konark. What we see happening right now is the market is getting tight and tighter. And the biggest thing that's going up now is labor. And there's other in pricing pressures going up. So we'll be at least with the curve, as I said, all our business units know it. And you have got to remember, and this is to all the listeners, it's that, we've been -- 10 years of really not having a lot of pricing leverage in the market. So we've been aware that it's coming, and customers would have always been 1%, 2%. It's not 1% to 2% now. It's 5% to 10%. And those are difficult discussions to have, but everybody knows it that prices are going up throughout the whole supply chain. So I think it's 5% to 10% now, it's the new norm. But boy, that's a big jump from a couple of percent. But that's the new world that we're living in, and we're just telling people you're paying it or don't call us.

[Konark Gupta, Analyst]

Right. And do you have certain periods when you renew your pricing as typically, Q4, Q1 timeframes, which we are moving in for?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes, you know what, we're all over the map on that because we're so diversified. We've got 40 different business units. There's not one set time of year. But typically, for most, we start setting our strategy in October as we do budgets. So we will be looking at wages and benefits for next year. This is the time we do our strategy, and then we do the strategy on the pricing for our customers at the same time. So this market is very, very fluid at the moment. I'm struck by how, in certain segments, it just happens like overnight in the shipping industry. I can tell you right now, the railways are moving prices like crazy. They are not being kind to anybody that is -- and they're a big subcontractor. When you see our contract expense go up, well, that's because we're using the rails. They're a big subcontractor because we do a lot of intermodal. And those prices are going up, which implies that we got to pass that on to our customers. So I just tell -- I'm telling everybody, I'm telling all our business units. None of our business units are going to take this on the gin for too long because everybody's paid on profit share in their business unit. So they're going to make sure we get -- we're kept at least hold. [indiscernible] And they've heard from me.

[Konark Gupta, Analyst]

Yes. And then, quickly on the Quad or HAUListic and great set of results in the first quarter, so congrats on that. Just wondering, I think to an earlier question, these guys were doing $135 million U.S. revenue last year. Now, if you analyze their Q3, which I know than the Q1, it's seasonably softer, but still if your NOI is $57 million, you get to a 35% growth rate this year. Is it growing at a significant double-digit rate, you think in the next couple of years? Or is the growth going to soften down to single digits?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. That's going to be the -- that's going to be the issue we've got to take a look at. I'd be extremely surprised if the market can continue to grow at the same robust pace that we've seen this year, and I'm talking about the whole trucking industry and everything else. All trucking, logistics, warehousing, everything. I can't see the same type of growth rate next year. I would tell you, though, that I really like the business model these folks have, and we would hope that we can beat the overall trend because we've got an excellent team and a great business model. So will they be in the 35% range going into next year? No, probably not. But they'll -- I wouldn't be surprised to see them in double-digit. This team continues to amaze me. And I tell you that's been a -- we've had no negatives out of that acquisition.

[Konark Gupta, Analyst]

That's great. And then last one for me before I turn it over, Premay Pipeline. I think it's been a few quarters of decline given the delays, right now. The delays, it seems like more like not a lost opportunity, more seems like a delayed opportunity. So whatever you're pushing out from this year is going into probably 2022 and maybe some part of 2023. A, is that correct, and second, when do we start lapping the Premay easy (sic) comps?

[Murray Kenneth Mullen, Chairman, CEO & President]

Well, I think what you're going to -- we had a really strong year last year. That was -- a good chunk of that was just a special moment, and they just did a fantastic job last year. We expected it to come down this year, and we highlighted that, but we didn't expect every project to be -- to have the delays they have, and it's pushed it out, you're correct, into '23, '24, even now. These projects have just been delayed so much. I think the problem I have is that profitability is not going to be as high because the delays don't allow you to make a lot more profit because you're just less productive. So the projects are not going away, but I don't think they'll be as productive and profitable as we were in '20. But let me just make a comment on that. That's the power of our diversified business model. When the rest of the world was struggling, we have this wonderful business unit just aces it for us, one of our business units. And that gave us a great -- that buffeted us last year. They -- when the others were struggling. Now, they're coming down, and now we've got the consumer strong. So that's the power of our diversified business model. And I got to tell you, I make no apologies for it. On the pipeline side, when there's a pipeline project to go, that team over there, led by Paul Schultz and his team, they're the industry leader. They'll do fantastic. What you need to have in Canada is Canada, do you want more pipelines to move the product? Yes or no? I doubt if it's going to be crude oil pipelines, but it might be natural gas pipelines because there is a huge shortage of natural gas in the world. Is Canada going to provide that -- some of that or not? That's up for Canadians to debate.

[Operator]

Our next question comes from David Ocampo of Cormark Securities.

[David Ocampo, Analyst of Institutional Equity Research]

I just had a quick one for you on the packages and courier business that you acquired. You mentioned that you wanted to expand it to cut in other regions across Canada. Are you going to be able to do that all organically? Or are you going to have to step in and make other acquisitions as you enter new markets?

[Murray Kenneth Mullen, Chairman, CEO & President]

That's what we're debating with the mana -- with the team that we got over there. The 2 previous owners have stayed on. I mean, there are keys to this business. Part of it's going to be organic that we've got going on. For example, our Gardewine group has a very -- has a good part of their group of their business is in the courier business in Winnipeg and Northern Manitoba, Northern Ontario, they have a really good network. But it will -- I think it will be a combination. And I'll tell you why. You can do it organically, but it's -- you're going to invest and you're not efficient right off the bat, if you do it organically because you have to have the critical mass in order to be profitable. And so, if you want to be profitable in LTL or you want to be profitable in packaging and courier, you better have critical mass. You can't have one shipment in the back of your little delivery down. You got to have 50. That's how you make money in that business. And these guys happen to have -- they just got a great platform in the Calgary market. The Calgary market is -- it's not a jump chain. I mean, Calgary market's one point some million people. But I can tell you, we got the business model, and I can tell you, they got just one of the best technology platforms I've seen. So yes, stay tuned on that. That's going to be part of our growth, packaging and courier, and these guys are competitive. Their pricing is exponentially below the rest of the competitors, which is why they have all the business, and they're profitable. That's a tough competitor. So we'll continue to look at opportunities to expand that business. I think, David, over the next bid.

[Operator]

Our next question comes from Aaron MacNeil of TD Securities.

[Aaron MacNeil, Equity Research Analyst]

You already had a couple of questions on HAUListic's revenue. So maybe I'll ask the margin question. I'm just recalling the last conference call, you mentioned, in general, 3PL gross margins are typically around 10%. You sort of downplayed margin expectations for the near-term at that time. Just looking at Q3 margins of 9%, you said that the team exceeded expectations. So I guess I'd just follow-up and ask for a bit more context. Is this business performing better than you expected out of the gate? You mentioned improving performance for acquisitions, is that something you still think you can do here? Or is it running pretty efficient already in your view?

[Murray Kenneth Mullen, Chairman, CEO & President]

So it's about 10%. So 9% to 10% is the industry standard there. You just look at all the big 3PL providers and you've got 2 measures. One is how much freight did you move, that's the gross revenue. And then the net revenue is just the delta that I talked about, that spread. And the spread is your net revenue, and their margins are very, very high on a net margin basis. And the 9% to 10% is probably the number that we're after. I can tell you, they've really outperformed on the revenue side. And we still have some integration costs that we've got -- when we first get the business and some transition costs that are embedded in there. But overall, they beat my expectations, particularly on the top line. They just they continue to amaze me, to be honest with you. So maybe that's a good chunk of the market, and they're taking advantage of that. But I also think it's also what they're doing internally and growing the business, expanding their network of station agents. So yes, that's the way I look at that.

[Aaron MacNeil, Equity Research Analyst]

Okay. Maybe one other follow-up on DirectIT and just a small package and courier business in general, but is this something that you can leverage your existing warehousing infrastructure to build out? Or is that something you need to do in addition?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. Yes. Yes. That's a good point, and that's part of the synergy, part of the opportunity that I see. Really, if you think about what's a warehouse? A warehouse, it's a big spot where all the delivery guys come into and then you deliver out to the consumer. And that's just called e-commerce. So courier and e-commerce go -- fit hand and glove. So yes, our warehousing business. I mean, I'm sitting at our warehousing business in Toronto today at DWS, having the meeting with that group here and introduce them to that technology and said, look, we do the warehousing, and they do a fantastic job, but the opportunity is we actually do the delivery too. And now we have a technology that would allow them to be very, very efficient. What you need then is the delivery mechanism and network to make sure it's profitable. So yes, I see opportunity with warehousing, with final mile delivery and having that technology platform, that's a good potential opportunity for us to continue to grow and expand our footprint with our customers. Absolutely.

[Operator]

Our next question comes from Kevin Chiang of CIBC.

[Kevin Chiang]

I've just got one here. Hope everyone is doing well on the Mullen team. I guess I'm a little bit surprised by maybe the cautiousness around margin expansion into next year? I know there's a lot of moving parts, I get the inflation angle. But I guess if I look at your, let's say, your same store sales in your Logistics & Warehousing and LTL, in Q3, you're kind of in that 4% to 5% range. And then if I look at U.S. HAUListic, it was somewhat calculated earlier, significantly double-digit. It feels like capacity is constrained on both sides of the border, like, you're getting a premium for capacity out there. Are you seeing a difference in how customers are pricing or thinking about how they get priced for that capacity? Or are U.S. customers or shippers more open to the pricing that's being pushed through, recognizing capacity is scarce and that's just been harder to do in Canada? If that's the case, just wondering why you think that is? To just tie it with everyone. I'm surprised you don't get the same reaction in Canada as we see in the U.S.

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. Well, that's something that I've highlighted over the last bit is the Canadian marketplace is different than the U.S. marketplace. So let me talk about HAUListic first. Prices can go up in the marketplace but if the cost of contracting goes up too, you're still only managing the spread. You're only making 10% off the delta, right? So the biggest thing that happened in the United States is massive amount of growth in logistics and demand and all those kind of things, but also those that have the asset did exceptionally well. So they priced accordingly, too. So you just manage the spread. Now, conversely, if it slows down, they still manage the spread. That's why I like that business. It's -- you're not going to ride this, oh, things are great, oh, things are not great and whatever, it's quite stable because we just manage the spread there. So in the U.S., yes, prices have gone up, but so have the cost of contracting on up. So they've made more money because they get more gross revenue and those kind of things. So that's the U.S. market. We have not seen the same pricing leverage in the Canadian market. It's starting, Kevin, but it's not the same as the U.S. We're at least 6 months, maybe 12 months behind the U.S. market, and I told you why. It's CEWS. Everybody got CEWS. They didn't have to raise prices. They were making money because the government gave me money. Well, now you're not getting money, you got to make money. Well, costs have gone up. So I suspect they're going to have to raise and now, you've got wage push from drivers. You hear it. Nobody can get any drivers. So the market is in -- it's just about -- it is where it is right now. I don't think the market is growing all much right now, Kevin, I don't know how it can grow. I mean, our warehouses are full. You can't put more freight through the warehouses, it's full. So now, it's -- we've been through -- the Canadian marketplace just hasn't moved on prices as fast as the U.S. market. But I would suspect that 2022 is going to be a lot different than what we've seen for a long period of time. What I articulate is what I think will happen in the fourth quarter, and then I'll come up with my game plan in December of what I think will happen in 2022. Suffice to say, I've said, we're not going backwards. That's an absolute. That is not negotiable. And then, it's just a matter of, okay, how much are you going to press your customers and those kind of things. I can tell you, though, there's a lot of pressure building on pricing right now. I've not seen pressures like this in my career.

[Kevin Chiang]

Can I ask -- the U.S. is a bit of a crystal ball, if Canada is 6 to 12 months behind. Are you seeing your customers maybe proactively come to you to look at secure -- looking to secure capacity that you allocate to them in 2022, given all the supply chain disruptions you're seeing in the U.S. Are you seeing any of your customers proactively come to Mullen and say, Hey, I want to make sure I get so much trucking capacity, so much warehousing capacity because I can see where this is going to go, if I don't line this up soon enough?

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. Yes. So we don't have a lot of that business in the United States. And when I talk to my peers down there, there has been some of that. But everybody is cautious right now because nobody wants to get trapped. So everybody is kind of playing in the spot market. It's kind of like the ship lines, the marine lines. Nobody wants to sign a long-term contract because prices have just gone through the frigging roof. So everybody is a little bit afraid of that in getting trapped. In Canada, we've not heard that. But I'm telling you, the balance of power has shifted now, where we're saying to customers -- sorry, it's easier for me to get a customer than it is for me to get employee. So here's my price. These are very awkward discussions because we haven't had these discussions before, but the pressures, the inflationary pressures in the system, everybody gets it. There's not one customer that's saying, yes, we get it. Okay. And then, it's just a matter, okay, how much are we going to get? That's where we're at right now.

[Kevin Chiang]

No, that's great color. It sounds like we'll get some more details in the coming weeks here. That's it for the moment.

[Murray Kenneth Mullen, Chairman, CEO & President]

One more comment on pricing folks, and this is a general comment to everybody, is that look, we have long-term customer relations. We are not going to treat our customers and take advantage of them in the short-term at the expense of losing them long-term. We sit with the customers, we'll get -- we'll make sure our costs are covered. And I suspect we might get a little bit more, but I am not going to play this game of making -- of trying to catch our customers and trap them and those kind of things. We've been in business too long to know that, that will come back and haunt you. So we're not playing that game.

[Operator]

Our final question comes from Elias Foscolos of iA Capital markets.

[Elias A. Foscolos, Equity Research Analyst]

I know it's been a long call, so maybe a couple of short questions. And maybe the first one, and maybe a bit if I can direct it towards Richard. Did you turn down work in Q3 or into Q4? And is it substantial? Or are you just seeing that as a potential trend of turning down work if you don't get the right price?

[Richard J. Maloney, Senior Vice President]

Thanks for the question. Well, I think we've covered that, and Murray has been alluding to what we're doing with the customer and the challenges we're facing here right now as well. It's just simply kind of a supply-demand imbalance. Customers are looking for things, and we're working with each of our customers to provide the right service at the right price. So I don't know if there was a kind of a cataclysmic issue of saying, Hey, there's ultimate -- we're not doing your work, but we're being smart about it. And we're being mindful working with each and every of our business units in the segments that we operate in because they're all -- because it's a little different in each area. The LTL people are going into their annual discussions as Murray said, with the customers, and what we need to be to move forward. But we are working with our customers, Murray, literally just talk to that point here as well. So, Elias, any color you need on that?

[Murray Kenneth Mullen, Chairman, CEO & President]

Elias, what we are is turning down. We have a number of new opportunities that come our way and I suspect that could be market churning, and we're saying we can't take it because you have to have either a facility, you have to -- or you have to have access to equipment or people. And so, no, we're not -- we can't take a lot of new business because there's no people available.

[Richard J. Maloney, Senior Vice President]

And not at the expense of existing customers and relationships we've had with them as well. These are the people that we work with.

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. So I think what that happens when we get a bunch of that is that customers are playing in the market to see, wow, I'll go and check it out. No, there's nowhere to go. Everybody's full. Every one of our competitor is full. Every one of our warehouses is full. Here's the market. This is what we have to pay, and we have to make sure that we maintain margin. And if we do our job properly and things work out, then our margin should improve. But we're an asset-light business model now, and we use a lot of subcontractors, so we don't -- we're not going to have the same CapEx requirements that we used to have in the glory days with the old patch, where we're having a $150 million CapEx spend a year. No, we're not going to have that. We're re going to be kind of right in the middle of where we're at now. I think last year, we were at $50 million. And this excludes -- folks, that $50 million excludes acquisition and excludes real estate. Those are long-term investments. But on the pure CapEx, replacing the rolling stock, we might be up a little bit from that next year. We'll see the budgets that they all come in, but it doesn't matter. You can't get it. Everybody is on allocation. We'll be lucky to be able to meet our threshold for this year. I don't know if we'll get there. I don't think it will all be delivered.

[Elias A. Foscolos, Equity Research Analyst]

Okay. Thanks very much for that color, Richard. Murray, you touched upon the next one I wanted to bring about, which is your non-depreciating asset, it's real estate. So a 2-part question, one for maybe you, one for Carson. You have a lot of real estate. We are in an inflationary environment. Is this going to give you a competitive advantage going into the future, owning that? And the next thing for Carson is we have -- and by the way, I just want to thank you for some of the disclosure you put in the results because I was able to get a good handle on incremental margins out of Premay and drilling related. So thanks to that, beyond everything else. But are you going to look at revaluing your real estate at some point to give us an idea of what that might be worth. So 2 questions. Can you leverage the fact that you own that non-depreciating asset? And can you give us an idea of what it's worth at some point in time?

[Murray Kenneth Mullen, Chairman, CEO & President]

I'll answer the first one for sure. Yes, we're going to leverage our real estate. I can tell you owning your real estate is a competitive advantage. And when the -- some of the acquisitions I'm looking at and we look at the real estate, I go, it's -- real estate has gone through the roof. So in an inflationary environment, the more real estate you own, probably the better off you are. And Carson, I think the real estate value, our portfolio is around $600 million, $650 million of book value?

[Carson P. Urlacher, Corporate Controller]

Yes. Our carrying cost is about $615 million of the $978 million that we've got on our balance sheet. So that's the lion share.

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes, that's what our carrying cost is. To answer the second part of the question, Elias. We haven't thought about that. I can tell you, we look at our real estate as a pure competitive advantage. And so, we'll be leveraging that to make sure that, that embedded cost of the fair market value of that real estate is reflected in the pricing models that our business units are using and selling them. Real estate prices are up. It's not free. You're paying your fair rent. So charge accordingly. In terms of re-looking at that, we may do it. But I don't know if we will do that or not. I'll have to take that under advisement.

[Elias A. Foscolos, Equity Research Analyst]

Okay. I appreciate the color because I was looking, one, for pricing on that to give you an advantage or to make sure that you're passing through what cost would be. And the second really was, from the ability to leverage the real estate from a borrowing -- indirect borrowing perspective. So that was really the angle I was coming from.

[Murray Kenneth Mullen, Chairman, CEO & President]

Yes. So look, if we -- Elias, if we needed more money, which we don't need more money, but if we needed more money, and the only reason we need money is because we do more acquisitions. We don't need money to run our business and do all that kind of stuff. We make lots of money. But if we wanted to find a -- raise capital and leverage our real estate portfolio, yes, we could do that. We would look at it at that time for sure, because there's embedded value within our real estate portfolio. You're correct.

[Elias A. Foscolos, Equity Research Analyst]

Great. And Murray, have you set a date for the business plan?

[Murray Kenneth Mullen, Chairman, CEO & President]

I think we're going to do it about December 8, and then we'll submit our -- we'll do a press release out on -- after the Board has approved it. So the management will prepare it. Our business units present their budgets to us. Corporate office will review it, we'll package everything together, we'll present it to the Board. The Board will debate it, and then we'll put out our plan on our budget for 2022 just after December 8.

[Elias A. Foscolos, Equity Research Analyst]

Great. Appreciate that. Look forward to the closing comments.

[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 Kenneth Mullen, Chairman, CEO & President]

Thanks all for joining us folks. Carson, a fantastic job. And to our good friends, Stephen, who is in there, he'll be out shortly and back at it. But that shows you the power of the team we have here. Stepped in and wonderfully well. Well done on that. And thank you very much, folks, and we will be looking forward to outlining 2022 in early December. Thank you, again. Buh-bye.

[Operator]

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