Mullen Group Ltd

TSX:MTL

Earnings Call Analysis

Modest Revenue Dip with Strong Segments

The company's revenue slightly declined by 2.8% to $504 million in the third quarter due to three main factors: a drop in fuel surcharge revenue by $20.3 million, $19 million from lowered freight volumes, and a $2.7 million cut from selling a business. OIBDA stood robust at $88.6 million. The LTL and L&W segments saw revenue and margin reductions primarily from normalized pricing and ongoing freight recession. Conversely, the S&I segment presented a revenue increase of $16.6 million and enhanced operating margins to 23.7%, largely from acquisitions. The company's net income increased by $1.1 million to $39.1 million or $0.44 per share due to positive foreign exchange variances and lower taxes, slightly offset by a decrease in OIBDA. With a stable balance sheet and $250 million in credit facilities, the company is preparing to refinance $217 million in private debt maturing in 2024. Future focus includes solid Q4 performance with stable freight demand, potential expansion in LNG, and strategic acquisitions amidst an industry poised for consolidation.

Modest Revenue Decline with Strong Acquisitions

In the face of modest revenue decline, the company has shown resilience by maintaining approximately $500 million in revenue for six consecutive quarters. A 2.8% decrease in consolidated revenues to $504 million was primarily attributed to three factors: a $20.3 million fall in fuel surcharge revenue tied to a 10.5% year-over-year dip in diesel fuel prices; a $19 million drop due to reduced freight volumes, particularly in Eastern Canada; and a $2.7 million decrease from the sale of the hydrovac business. These declines were partially offset by $27.6 million in incremental revenue from acquisitions.

Operating Margin and Segment Performance

There was a decrease in Operating Income Before Depreciation and Amortization (OIBDA) by $9.5 million, and the operating margin dipped by 1.3% to 17.6%. Within the segments, the Less than Truckload (LTL) segment saw revenues slip by 3.7% with OIBDA down $6.6 million, leading to a 2.6% drop in operating margin due primarily to the lower margins from recent acquisition B&R. The Logistics and Warehousing (L&W) segment faced a 12.3% revenue downturn, impacted by the freight recession and ongoing inventory rebalancing. While the Services and Industrial (S&I) segment actually increased revenues by $16.6 million bolstered by acquisitions, even though some revenue was lost due to the surcharge and lower demand in specific service areas. The US third-party logistics (3PL) segment saw a revenue drop due to lower freight volumes.

Steady Direct Operating Expenses Amid Margin Pressures

Management has noted that despite a freight recession, the company's direct operating expenses remained quite flat, reflecting tight cost control and productivity improvements. However, an increase in Selling, Administrative, and General (S&A) expenses due to a slight reduction in revenue impacted margins by approximately 1%, a challenge that the company will focus on in the coming year. As part of their strategy, the company intends to gain market share by capitalizing on competitors' missteps and corporate management is aiming to improved S&A efficiency if business units do not achieve margin improvements.

M&A Strategy and Market Positioning

In terms of mergers and acquisitions (M&A), the company completed one in the third quarter. Their strategy revolves around either deriving synergies through tuck-in acquisitions among their 40 business units or decreasing costs through corporate tightening. The company is positioned to leverage competitor weaknesses in 2024, aiming to capture additional market share and provide shareholder value. This approach is seen as a means to enhance margins, and the management emphasizes the importance of both protecting existing margins and acquiring complementary business units that offer strategic advantages.

Earnings Call Transcript 2023-Q3

[Operator]

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

[Murray Mullen, executive]

Thank you, and welcome all to Mullen Group's quarterly conference call. We'll be providing shareholders once again in our interested investors with an overview of the third quarter financial results. And in addition, we will discuss the main drivers impacting our operating performance expectations for the year. And of course, we'll close with that Q&A session.Now before I commence today's review, I'll remind everyone that our presentation contains forward-looking statements that are based upon our current expectations and are subject to a number of risks and uncertainties and as such actual results may differ materially. Further information identifying risks, uncertainties and assumptions can be found in the disclosure documents, which are filed on SEDAR and at www.mullen-group.com.Now with me this morning, I have our senior team. But you might recall that last quarter I called in from our new terminal in Kamloops, British Columbia, that our Apps groups we were just commissioned it and I called in from our new terminal.This morning, I'm calling in from the great state of Texas. And earlier this week, I was in Austin, Texas. I was attending the Annual American Trucking Association Conference. Now that management conference, I can tell you, was very well attended. It showcased the newest technologies, including a preview of the engines of the future, electric, hydrogen, CNG, and hybrids. And I must say, the mood in terms of the prospects for the industry was quite positive. There was a general tone that the current freight recession has found a bottom. And this is all good news for an industry that is so essential to the economy. I can also validate that the industry will be significantly more environmentally friendly in the future based upon the technologies that were on display.So this morning, I'm calling in from Dallas, Texas. I'm attending the annual meeting with our station owners and partners that are based throughout North America. That includes Canada, Mexico, and the United States. And this annual event is hosted by HAUListic, it's our U.S. 3PL Business. And they bring a network of station partners together to strategize about the future, the benchmark and plan. And HAUListic utilizes a proprietary IT platform known as SilverExpress, that's where we're able to attract these station partners and station owners.And then we have a professional sales group. And what the SilverExpress allows us to do is access capacity as well as identify real-time pricing visibility from a network of over 6,000 carriers. We like this business, because it's asset-light. It's totally scalable, and it provides Mullen Group with insight into new opportunities within the U.S. market and global supply chain.So it will come to no surprise to anyone on the line today that technology is the most important differentiator for any business in today's interconnected digital world. For this reason, we believe SilverExpress provides HAUListic with one of those competitive advantages.Back in Okotoks, we're joined on the line today by the senior team. I've got Richard Maloney, Senior Operating Officer; Joanna Scott, Senior Corporate Officer; and got Carson Urlacher, who's the Senior Accounting Officer, who by the way, is the primary architect and author of the interim report. Carson will be providing analysis discussion on our Q3 financial performance. But before I turn the call over to Carson, I'll provide some opening comments.So what happened in terms of Q3 financial and operating performance. As I was preparing for today, one has to think that one of these days investors will warm up to the fact that we have a damn good company. We continue to generate great results. Just look at the Q3 performance, and I'm confident that our results will show favorably when benchmarked against our peers.Now furthermore, if I could be so bold as I suggest that, if one was to look into other companies that derive business from the supply chain, let's say, like Shopify. I will argue that our business is actually involved in the most important part of the supply chain, and that's the delivery to the end-user.Now, just to be clear, I know that trucking certainly isn't as appealing to investors as say, the Shopify world. But let's not forget, if you got it, a truck driver brought it. In simple terms, everyone relies on the trucking industry. It is an essential service to the economy. And here at the Mullen Group, we have one of the largest, most diversified and most profitable trucking logistics businesses in Canada.Our business is also unique in that not only do we have scale and size. We also have one of those rare business attributes that most in our industry do not have. And that is we are one of the premier liquidity providers to industry entrepreneurs, those people that go out and build small, great small to medium-sized businesses. And eventually, they all need a liquidity event.So acquisitions will remain an important element of our long-term growth strategy. Now, we know what to look for, and we don't just look for growth just to grow. We need synergies to drive value for our shareholders.And lastly, I would say this, I'm open to debate any one of the things we will not continue to grow, execute at a high level or the leaders in the communities we serve.So in terms of the quarter, I'll just leave you with these few comments. Really, not much has changed as compared to Q2, at least from a macro perspective, what do I mean by that? The economy continued on a slow growth trajectory. The remnants of the freight recession lingered on, with consumers prioritizing their spend on doing things rather than buying everything, which is precisely what they did last year, accompanied by shippers doing what they needed to do, which is draw down bloated inventories. So yes, the demand for freight and logistics services was not as robust as it was in 2022. However, this in itself did not deal a serious setback to Mullen. And the reason being, our specialized and industrial service segment grew nicely year-over-year.Now, we all also know that inflation and high interest rate, it bites the average consumer the most, and that's the most troubling part of what we have going on in the economy today because the less these individuals have to spend on the stationery items, the greater the impact on the demand for freight services will ultimately be.And lastly, consolidated revenues last quarter, they were negatively impacted by lower fuel prices. That's good for the economy, but that reduces our consolidated revenues. And that's because crude oil prices moderated year-over-year. So in fact, fuel surcharge revenues, personal break is down for you, but they were down $20.3 million in the third quarter vis-a-vis last year, and that represents the majority of the revenue declines year-over-year in our business units that we own for a full year.So in spite of all these challenges and changes to the market, our business performed very well, and I'll say once again. The reasons are the same as last quarter. We have a diversified business model. We service a wide range of verticals. We backstopped by 40 independently managed business units.And these teams, they all strive for best-in-class performance every day, every quarter, every year. It is therefore, our job at the corporate office, the senior executive team. In fact, all of our 60-plus dedicated professionals at corporate to help them support our business units to be the best they can be. So I would say this, well done, team. I couldn't be happier. Great quarter. Thank you very much.Now, the second reason we had a good quarter. Once again, is acquisition, which is another key responsibility of the senior executive team. And while we didn't finalize any new acquisitions this past quarter, our previously announced acquisitions and transactions contributed to our strong performance last quarter.And speaking of last quarter, I'll now want to turn the call over to Carson for a more detailed analysis. Carson, you're up my man.

[Carson Urlacher, executive]

All right. Well, thank you, Murray, and welcome, everyone. Today, I'll provide you with some of the highlights of our third quarter, the details of which are fully explained in our Q3 interim report.Consolidated revenues in the third quarter were $504 million, our 6th straight quarter of generating approximately $500 million of revenue. Revenue declined by a modest 2.8% compared to the prior year period, which was really due to 3 factors.First, as Murray mentioned, fuel surcharge revenue declined by $20.3 million as diesel -- fuel prices decreased by 10.5% on a year-over-year basis.Second, revenue declined by $19 million due to lower fuel or freight volumes, particularly in Eastern Canada and from a more normalized pricing environment compared to the elevated levels that we experienced in the prior year.Third, we disposed of our hydrovac business in 2022, which contributed to a $2.7 million reduction in revenue. So somewhat offsetting these declines was a $27.6 million of incremental revenue that we generated from acquisitions.We generated OIBDA of just under $90 million at $88.6 million, which was a decrease of $9.5 million compared to the prior year, largely due to a decline in the LTL and L&W segments. So offsetting these declines was the strong performance of our S&I segment. Operating margins declined by 1.3% to 17.6%.Now, let's take a closer look at how we performed by segment. Starting with our largest segment, revenues in the LTL segment were $194 million, down 3.7% due to lower fuel surcharge revenue, lower freight volumes in Eastern Canada and a more normalized pricing environment.OIBDA was down $6.6 million to $34.5 million. Operating margin declined by 2.6% to 17.8%, primarily due to the lower margins experienced by B&R, our most recent acquisition. The financial results of B&R contributed to a 1.1% decline in operating margins within this segment.Our second largest segment is our L&W segment. Revenues in the L&W segment were $137.1 million, down 12.3% due to the freight recession and the continuation of the inventory rebalancing cycle.Other factors contributing to the decrease in revenue consisted of lower fuel surge revenue and a reduction in revenue from the sale of our hydrovac business.OIBDA was a respectable $26.8 million or 19.5% of segment revenue and operating margin declined due to higher S&A costs as a percentage of revenue.Moving to our S&I segment. Revenues were up $16.6 million to $125.4 million on $16.3 million of incremental revenue from acquisitions. We did experience some revenue declines associated with fuel surcharge along with the sale of our hydrovac business and from lower demand for pipeline hauling and stringing services. However, these declines were more than offset by greater activity levels for our drilling-related and production services business units.OIBDA in absolute dollar terms increased by $5.1 million to $29.7 million, with acquisitions adding $3.6 million of incremental OIBDA. Operating margins were strong at 23.7% on lower direct operating expenses as rate increases and greater activity levels resulted in more efficient operations.In our non-asset-based U.S. 3PL segment, revenues declined to $48.8 million due to lower freight volumes in the United States for full truckload shipments. OIBDA declined by a modest $400,000 and margins were down by 0.4% due to higher direct operating expenses as a percentage of segment revenue.Operating margins on a net basis -- on a net revenue basis was 25.5% compared to 28.8% in 2022.When we look at net income, net income increased by $1.1 million to $39.1 million or $0.44 per common share. This increase was mainly attributable to a positive variance in net foreign exchange and lower income tax expense, which was somewhat offset by lower OIBDA and from a reduction in earnings from equity investments.The number of common shares outstanding decreased by 4.5% to 88.7 million common shares in the quarter as we continue to repurchase and cancel shares under our NCIB program.On the balance sheet side, we continue to maintain a very well-structured balance sheet with a book value of over $2.1 billion of total assets. Our debt to operating cash flow covenant under our private debt agreement is less than 2 at 1.98:1. We have a total of $250 million of bank credit facilities available to us, of which we had $114.2 million drawn at the end of the quarter.In October 2024, we have $217 million of private debt notes coming due. Our ability to consistently generate predictable free cash over many economic cycles and our large unencumbered real estate portfolio has provided us with receiving many different refinancing alternatives.We are currently evaluating a number of these alternatives, and we expect to finalize and announce to the market by the end of this year, how we intend to structure our balance sheet going into 2024.So with that, Murray, I will pass the conference back to you.

[Murray Mullen, executive]

Thanks, Carson, and well done once again.Now, let's now turn to what we think might happen in the future. That's always important to all the listeners. We'll add in a little bit of the vision of what we think will happen in the last quarter of '23. And then how we're looking at the markets we service.So, I'll start with some expectations for Q4. And I would say based upon everything we see and know today, the consumer-driven part of the economy can and most likely will remain at levels consistent with the last 3 quarters. And the reason we say that is primarily because the job market looks pretty steady.So, let me summarize that. I say, it's solid, but it's not spectacular, and we don't see growth, but it should remain pretty solid going into Q4.In addition, as I mentioned earlier, there are signs that this inventory rebalancing cycle that shippers and manufacturers had to adjust their inventories by it now seems to have found the bottom. All the indications suggest that that's the case. And this suggests that the freight market is now in balance, at least from a demand perspective.So from that point of view, we can start now talking about a recovery in freight demand vis-a-vis a freight recession. Our view is pricing that's probably going to be the main challenged for a while and that's because at the moment, there's excess capacity that was built up during '21,'22 when times were so good, everybody had a little added capacity.It's not significant, but it's just enough to impact pricing at the margin. So in other words, we believe that our LTL or L&W and U.S. 3PL segments can deliver another -- strong quarter that's consistent with the first 3, but I don't see any growth rate at the moment.Now, let's talk about our S&I services segment. The news is generally more positive, primarily because commodity prices are pretty attractive. In fact, we're bullish on this segment. And except for one part, and that's the large diameter pipeline business. The big projects that our Premay Pipeline group has been working on for the last 3 years, they're nearing completion. So that's the bad news.The good news is for our group is that the pipeline is now being built, capital is going to be deployed by oil and natural gas companies into drilling, or as I like to say, now we drill to fill, otherwise, why build. So on balance, we should have another strong quarter in S&I segment.And if we want to take a longer-term view for this saving, there's some positive developments that all of us are hearing recently, increased talk of LNG expansion plans and, of course, the Supreme Court Canada ruling on Bill C-69, the Federal Government's Impact Assessment Act, was deemed to be unconstitutional by the Supreme Court.Now, this is welcome news, not just for the oil and gas business is welcome news for any major capital project plan for Canada, and it will make sure that there's a more balanced approach to how we -- how these big projects are viewed. So that's any good capital projects, I can tell you, is very good for S&I segment.Lastly, let me comment on acquisitions. Never seen so many opportunities across our desk, our challenge is to kind of pick through these ones that meet our main criteria, and I'll reiterate what those are. That's the right fit. It's the right price point, and there must be synergies to be at. And when we find them, we'll acquire these companies.And furthermore, there's no doubt in my mind that, I think this trucking industry is ripe for a major consolidation trend. Many carriers have overextended their balance sheets added way too much capacity during '21, '22 and they're now paying the price, especially with interest rates where they're at today. So that's causing stress amongst those that got overextended.Let me just make a comment about that how did we handle '21-'22. We actually didn't really add any capital for our business. We sold off assets. We stayed disciplined and we didn't do a bunch of acquisitions and overpaid.So we think that discipline will pay huge dividends for our shareholders in the future. But for some, the day of reckoning is close. There's going to be other carriers that are going to be looking for a liquidity event, and we'll acquire brand name companies in Canada, especially in the LTL segment.In the U.S. market, I see exactly the same thing. They've got the same dynamics that's going on in Canada. And we will look at U.S.-based opportunities. But as of today, our preference, it's going to be in this 3PL non-asset-based business logistics market. That's where we think we provide the middleware for the shippers, and also for the carriers and there's a lot of carriers out there.So providing that middleware, which is what SilverExpress does is we think that's an opportunity for our group, and we'll be capitalizing on that as best we can. And by the way, that's why I'm down in Dallas right now, meeting with all our partners down here in station owners.And lastly, the energy and mining sectors of the economy, they look interesting to us. We'll continue to add to our service coverage that we can find good fits, especially where we see the valuations in the segment today, which are quite reasonable.So that concludes our presentation. And I'm going to turn back over to the conference coordinator, and we'll go straight to the Q&A session. So thank you very much, folks, and we look forward to answering some of your questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Konark Gupta with Scotiabank.

[Konark Gupta, analyst]

I just wanted to follow-up on your commentary on inventory rebalancing. We have been hearing similar commentaries from other companies about destocking cycle has almost done and I think the retailers are kind of a little bit afraid of restocking in this cycle given the consumer demand is not really certain here. Just wanted to understand, like from your conversations with your customers and shippers, what are they thinking or planning in terms of restocking cycle? And like is there a pent-up in restocking that could happen big time next year because they did not restock this year?

[Murray Mullen, executive]

You know that, Konark, that appears to be some of the general consensus from some of the people that we speak to. My personal opinion is, I think some of that is wishful thinking. The whole inventories today, it's very, very expensive. Cost of moneys through the roof vis-a-vis the last cycle. Everybody is a little bit -- the consumer is just about in balance right now, but there's stress points there. So I suspect that the freight recession is over. So I don't think it's going to get any worse, but I think it's basically in balance right now. We still on our floors, in our facilities, we've got capacity now to take more business in, and we're seeing. We're hearing about that all over the place.So within that kind of overlay, I think it's going to stay pretty price competitive. So you better have a damn good business model, or you're going to be trapped. And I think that's our general thesis and our job at corporate is to take advantage of situations where we think that we like the markets, but maybe the management made a couple of missteps. And that's where we're going to look at opportunity. We think the market is in balance. You might get a little bit uptick here or there. But on -- I don't see a lot of growth color. It's not going to get much worse. I don't think everything is back in balance. So now you've got to be pinpoint accurate in your business models.

[Konark Gupta, analyst]

Okay. Makes sense. And that's kind of is a good segue into what I wanted to kind of hear about how you plan for the next year, knowing what you know today, like given where the environment is and the rate increases are kind of now starting to impact the consumer and the Canadian consumer, obviously, moving on lot of variable rate mortgages and all those sort of things, might see a little bit more pinch next year. How do you approach the business planning from a demand perspective next year? You said, you have capacity, but are you assuming a stable environment next year or a big change in either direction, especially for your freight businesses?

[Murray Mullen, executive]

I don't see a lot of change for next year, to be honest with you, where I see is disruption. And then it's just a matter of who can take advantage of the disruption.So let me just point out. If you look at our third quarter, if you look at our year-to-date, you take a look at our direct operating expenses. We just come through a major break recession of the massive highs of last year in '21. And our DOE stayed very, very flat.Our folks do a great job of managing those costs and finding productivity gains, and we're asking them to up their game on that. Where we lost some margin is in S&A. And that's because our revenues came down a little bit, gross revenues are down, fuel surcharges down, blah-blah. And so we lost, I think, Carson maybe a 1, 1.5 points as S&A is higher. And we're going to have to focus on that part of our cost structure next year unless we can -- our businesses can gain market share at the expense of people that have got overextended.I think that's going to be our overall game plan for next year, and we're challenging all of our business units. Remember, they're independently managed that they know the game plan. Take advantage of your competitors and made some missteps, gain some market share and corporate office doesn't have to be quite so tough on S&A.

[Konark Gupta, analyst]

Great. I'll turn the call over, and I appreciate the color.

[Operator]

The next question comes from Kevin Chiang with CIBC.

[Kevin Chiang, analyst]

A solid results here. So congrats on that to the Mullen team. I noted in your MD&A, you talked about a little bit of, I'll call it, transient headwinds as you integrate the B&R acquisition, and you spoke of some of the margin impact that had in some of your segments, specifically LTL. It seems like you're on the way to kind of rectify some of that stuff, and it seems like you're pretty confident you'll get LTL margins back to historical levels as that integration progresses here.Maybe you can give us a sense of the timeline of that. Is that a 2024 comment? Or do you actually see some of that benefit in Q4 here as you exit this year? And maybe just a level set, like what are -- what do you consider historical LTL margins should we look at last year as kind of the benchmark, just because you kind of re-segmented and then the pandemic hit. So there's been a little bit of volatility there.

[Murray Mullen, executive]

Yes. So when we acquired B&R, Eckel's, was a brand name company in Alberta, and they really were involved in 2 main verticals. One was the energy business. They were servicing the oil and gas business and the energy business in Northern Alberta. And another part was servicing all the communities in the LTL. So when we do our due diligence and we acquire, we knew that they were not performing as they should in the LTL side in the -- in the other part of the business, they were superstars.So -- but when we acquire companies and we from families, we have to be somewhat respectful of -- and not trying to scare the people off too much. We gave a time. We tried to figure it out, make sure we're doing the right things. And then we just now announced for October 1st, we've entered Phase 3 of our integration plan, which is we're going to be shutting that LTL business down and integrated it in with our -- with 2 of our other companies, which is Grimshaw Trucking and Hi-Way 9.So we've already got the technology there. We've got the systems and the process of their terminals. So we were just too much duplicated. So we'll -- once we layer that into those other business units, we'll get their margins, maybe margin improvement, if we're so fortunate on that. But we're probably going to have about 50 people that we consider as duplicated people now, headcount, and that's about $5 million on a run rate for 50 people, if you average about $100,000 a year per head. And so we're going to make sure that's all buttoned up in the fourth quarter.So we don't think it will help our LTL division in the fourth quarter, because we've got to go through all of them, all of the last of the phase of the integration. But we hit 24%, with no real lingering legacy based costs. We're going we're just going to lay that in and it will not be part of the B&R group. B&R is going to focus 100% on energy services. That will be a big company on its own, and that is very complementary to many of the other service offerings that we have within our S&I group.So yes, we think we are -- basically, our LTL folks a pretty darn good job of maintaining margin. We lost some revenue just because it just wasn't quite as active and those things as last year. But generally, they did a very good job of protecting margin. But we did in the fourth quarter, we lost about 1.1%. I think it was 1.1%, wasn't it, Carson of?

[Carson Urlacher, executive]

Yes, it was 1.1%.

[Murray Mullen, executive]

1.1% in our LTL division about 1.1%. So add that back in for next year would be a pretty good rule.

[Kevin Chiang, analyst]

That is super helpful.

[Murray Mullen, executive]

That's what we're doing. Yes. Yes. So LTL is also a core part of our business, Kevin, that it's our biggest segment that we have, we'll continue to add. Because in LTL, it's not a transaction, you can actually change the nominal, you can manage the spread by getting either content or making sure that you have got good density in your lanes.So -- and the reason that we rolled B&R, the LTL side into our other business units is because our business units have a really good technology, and we're big investors in that, B&R did not invest in technology. So they were left kind of on an island by themselves, the people there. And -- but that's what we're good at as a company. And we take smaller carriers, and we layer them into our network where we've got professional management and good networks and great technology. And we should be able to drive margin over time. LTL should improve over time with density and technology.

[Kevin Chiang, analyst]

That is great color, very helpful. Just in your S&I division, as you pointed out, obviously, the standout segment, especially this past quarter, and the outlook is maybe a little bit more differentiated versus your more freight exposed segments. If I run some quick math here, it looks like backing out acquisitions, some of the fuel surcharge headwinds, it looks like you posted organic growth of roughly call it, 4% to 5%. You also called a premium was a headwind. If you were to back-out Premay, what did the rest of the business grow at? Because it seems like you're going to lap some of the Premay headwind in 2024. So just trying to get a sense of what the rest of that S&I revenue might be growing at x some of the large diameter pipeline headwinds you're facing in 2023 here?

[Murray Mullen, executive]

Carson, this sounds like a question for you. I can give -- I can give a general comment, but I think Carson might have a little more detail on that. So let me give him that one to that one, Kevin.

[Carson Urlacher, executive]

Sure, sure, Kevin. So I would say on a go-forward run rate, you're going to start seeing Premay Pipeline. As you mentioned, start to come back to a position where it's -- you're not seeing those big headwinds going next year as you start looking at the comps. I think going into 2024, there's still going to be -- they're still going to be down year-over-year, but I don't think it's going to be as significant as what we're seeing right now. So, I think that's the general trend that you're going to see for pipeline stringing and hauling in that segment for 2024.The other parts of our business within that segment are looking fairly strong and fairly robust. And I think we're just at the beginning stages of it. You know now that those pipelines are in the ground, and they're nearing completion, now you got to fill it. So we kind of participate in that market all the way through its life cycle. Now, it's going to switch more to demand for our production services group or drilling-related services group. So it's going to backfill some of what those downdrafts are going to be that Premay Pipeline is going to experience next year. So hopefully, that answers your question.

[Kevin Chiang, analyst]

No, that gives me a sense just to kind of level set trajectory-wise, how to kind of think of S&I as we look out into next year. So that's helpful. And maybe just maybe another housekeeping question, maybe this is to you, Carson as well. You know, a little bit less activity on the NCIB in Q3 versus what we saw in the first half. It seems like you're keeping some dry powder available given some of the M&A comments that have been made on this call. As we think of the activity on the buyback through the remainder of the year, should we think of something slimmer to Q3 just given the M&A pipeline looks pretty robust for you guys?

[Carson Urlacher, executive]

Yes, I would agree with that comment, Kevin. You know, we want to obviously keep some powder available based on the number of opportunities being presented to us. You want to make sure that you're able to capitalize on the ones that we want to end up executing on. So I would say, all-in-all, NCIB, you're probably -- Q4 is probably going to be somewhere comparable to Q3, obviously, depending on what the stock price does. But I'd say, all things equal, I don't foresee it changing that much.

[Kevin Chiang, analyst]

That's great. I'll pass it along here and best of luck as you close out the year.

[Murray Mullen, executive]

Kevin, just for -- just to add on to that, I would say, is on the M&A side. I think our primary objective is we don't want to put the cart before the horses here. So we -- Carson spoke earlier about the balance sheet and making sure that we button up and we have the balance sheet all squared away and stuff like that. We have multiple options that we're looking at as we said. We're going to pick the best one for our shareholders. And we will have that done before the end of the year. Once that's all tidied up and buttoned up and you got all of them, we're going to turn our attention to growth again.And there is on the growth, there's no hurry, because there's not going to be -- in my view, there is no big fast rebound here in the economy. So we'll be able to just cherry pick what we want, and that's very good for our -- for our investors and our shareholders. And remember, we'll get aggressive at the bottom of the market. I was not aggressive at the top of the market.

[Kevin Chiang, analyst]

That makes a ton of sense.

[Operator]

The next question comes from David Ocampo with Cormark Securities.

[David Ocampo, analyst]

Murray, I guess, I appreciate all the commentary that you've made on the outlook, particularly on the near-term. And even in the release you guys called out that you expect to come ahead of your initial guidance for '23. I was wondering, if you could firm up the numbers there, maybe just on EBITDA and free cash flow?

[Murray Mullen, executive]

Well, Carson -- I'll just – I'll turn that over to Carson and let him answer that one for you, David.

[Carson Urlacher, executive]

Yes. So, if you take a look at what we had originally came out with, David, we guided towards $2 billion in revenue for 2023 and, call it, $300 million of EBITDA for this year. If you look at our year-to-date results, we're right in line with our original guidance. And in fact, one might argue that we may be slightly ahead in terms of operating income.Now, the $300 million that we talked about earlier in the year was based on our traditional business units, so ex-acquisitions. So we're -- you add in a little bit of acquisition EBITDA into 2023, and you're probably going to be slightly above what that guidance was. You can also do a comparative and look at what we did in Q4 of last year, and kind of get a sense of what Q4 of this year might look like just based on the trend analysis that we're currently tracking for 2023. And again, it would probably suggest that we're going to close out a little bit better than our original guidance.

[David Ocampo, analyst]

Got it. That makes sense. And then just another housekeeping question on the integration plan for B&R, is there any real estate that potentially comes out of that as you consolidate into other LTL segments?

[Murray Mullen, executive]

Yes. Good question. So we didn't buy the real estate from them. We entered into the facilities that we thought we needed long term. We entered into longer-term leases, 5-year leases with options on the leases. And the real estate we considered as "noncore", we just took a 1-year lease on. So we matched that, I think, pretty well. I think, Richard, we're only off by maybe 1 or 2 terminals or facility --

[Richard Maloney, executive]

Yes, 1 or 2 locations agreed to.

[Murray Mullen, executive]

-- all of the ones they had of that initial – of our initial due diligence and negotiating with the family. So we didn't buy that real estate. We have the option to buy. We always get that when we take leases where we can. But we took 5-year leases on the facilities that we consider core to the business on the long term.

[David Ocampo, analyst]

Got it. That makes sense. And I guess is the noncore factored into that 110 basis point improvement that you guys are seeing?

[Carson Urlacher, executive]

I would say though --

[Murray Mullen, executive]

If I heard that -- if I gathered that question. The noncore will expire in April. So we won't have anything past on those legacy based costs after April.

[David Ocampo, analyst]

Got it.

[Murray Mullen, executive]

So, if I just add a comment. So last year, I took heat, because we came out and said, look, it's -- the economy might not be as good, and we came out early and said, we still think we can do $2 billion, but some of this fluff that we saw that happening in '21-'22 that most people didn't want to talk about, but we tried to be rational about it. So we came out and said we'll do 300 of OIBDA.And as Carson highlighted, it looks like you might be off by a 2% because when you add in the acquisitions we did, it might add about $10 million on top. So we're going to beat 300, but we did some acquisitions to beat it. But our initial -- our same-store sales and our existing businesses and what we saw in the market, we're not off by much. So from that perspective, I think that tells you when we take a look at the markets, we take a look at it on a very practical basis, and we don't look at it on a hope basis.

[Operator]

The next question comes from Cameron Doerksen with National Bank Financial.

[Cameron Doerksen, analyst]

I guess, my question is on the sort of the competitive capacity situation that you mentioned, not significant excess, but still some excess capacity out there, I guess particularly in the L&W segment and sort of your expectation that we'll see a bit of a shakeout in the market here, either with smaller carriers in financial difficulty or some consolidation.Just wondering, if that's something you're seeing already as far as companies maybe going out of business or scaling back operations due to financial difficulty. And if that's something you're seeing already, I mean, how do you kind of expect that to kind of play out? Is that something that you're going to take a couple of years to play out? Or is that something you think will happen more quickly?

[Murray Mullen, executive]

Yes, that's a good question. So for the most part, I would say, the freight recession, Cameron, really hits the L&W's segment more than the LTL segment. LTL segment is still in consumer demand. That's basically what that is. L&W, that's full truckload, that's a part of the inventory balancing, blah-blah, all those kind of things. So that's what we saw, we saw most of the risk on the freight recession.Now, some of our businesses are not really that in L&W are not really tied to the consumer that loaded inventory Kleysen, as an example or Bandstra, those are 2 pretty good sized businesses in our group. But the industry talk that you heard about all the negative and the difficulties, most of it is going to be in the logistics and long-haul business or warehousing side as we classify them.And it's been pretty nasty on people. So if you were an asset-based carrier, in other words, you have a lot of company trucks, and you're in the long-haul business, last year was fantastic, and this year is a disaster, and that's because of pricing.So when will pricing turn? When I'm talking to everybody down here at the conference kind of the big U.S. carriers, I'm now talking to them, I'm getting their viewpoints. They were caught off guard by it. And of course, now they think it's going to turn quick. I'm not of that thing. I think this is a lot of independent contractors in the market that are really hungry and they're tough competitors. And so it could take a little bit longer on the full truckload side than what people are anticipating.Unless, you said to me, the economy is growing and demand increases. If demand increases, I have to change my thesis. But I don't see demand increasing. Therefore, we're stuck in this in a lower price environment, you better focus on your costs, better be pinpoint accurate, and we're back to old school and from my perspective on that side. So, I think it's going to take a little bit longer than a couple of quarters. We're at the bottom, it's not going to get worse, but I don't see an uptick for a long.

[Richard Maloney, executive]

Cameron, it's Richard, if I could add. You know, when we do see the acquisition opportunities presented to us, I think part of your question was, are they coming now? And are we seeing these challenges, these financial challenges? And the answer is yes. As we get them a couple yesterday, they just are looking simply to get out. They won't have been, in some instances provide financial information, they say buy my assets. Because if you think about it, some of these smaller people who are fully drawn on an operating line have gone from 2% to 8% in terms of real financial cost they got to bear. And they have an old fleet 5 years or older, is an old fleet. They can't afford to get a new truck. And they just said, we're done, can you buy me?And as Murray said, in our acquisition, our precision-based acquisition strategy, we're very precise, and we will look at things that add value to us. So in those instances, those people, you know what, will this assume that somebody else acquire them. But yes, it's present right now.

[Cameron Doerksen, analyst]

Okay. No, that's very helpful. And just maybe quickly, I mean, on the LTL side of the business, obviously, you're more exposed Western Canada versus Eastern Canada. But you did call out Eastern Canada, at least in Q3 as being obviously where most of the weakness was in LTL. Are you seeing any signs of stabilization in the Eastern Canadian LTL at this point?

[Murray Mullen, executive]

Yes. We saw a little bit of it. The LTL side got a little bit of a bump when Yellow announced that they're shutting the doors. And you saw how that capacity, and that all that phrase was just gobbled up like within 2 weeks, like nobody cared. It was just all taken. So, that added a little bit of capacity, everybody. I'm sure you'll hear that from all the other carriers as well.Okay. But that's over now. There's been a little bit of consolidation in that business that's very healthy for margin. It's not healthy for demand, overall demand, but it's healthy for margin, and it allows you those that are able to take advantage of it and fill their lanes and get density that was an unexpected win for most of this in that.So, it went down and then it -- we got a little bit -- we got a little benefit from that. The economy is in -- I still see it in balance right now. I don't see a lot of growth. But it's in not a bad spot. If this is bad, we'll take it all day long.

[Cameron Doerksen, analyst]

Right. No, that's great. Appreciate the time.

[Operator]

[Operator Instructions] The next question comes from Tim James with TD Cowen.

[Tim James, analyst]

My first question, I'm thinking out to 2024. I know, it's early. I just want to -- wondering if you can kind of frame how we should think about pricing in your LTL business, just given sort of spot pricing versus contract and your mix? And if there's any sort of remaining adjustments lower that are required to pricing in that business just because of all the pressure over the last couple of years and maybe there's a -- the last couple of years, the last year, 1.5 years and maybe there's a lag effect there. Is there any kind of residual? Or is the pricing in the LTL business sort of been reset to kind of align with current market conditions and there shouldn't be any sort of material change? Obviously, other than changes in sort of market conditions or spot pricing in 2024?

[Murray Mullen, executive]

Yes. I think, if you look at the LTL side of the package business, you watch -- you pick your queue from UPS from FedEx or whatever. They're generally in the 4% to 5% range that -- that they're going to get in terms of pricing that goes off the book and then the contract, it was down from there. If you've got big shippers, you can negotiate deals. We had FedEx at our meeting here with our station agents, and we drive scale and we told them we can't do that because we can't pass it on. So we have good discussions on that.I think, there'll be enough pricing leverage to hold margins. Margin improvement comes because we run a better business, better technology. That's how we're looking at margin improvement. Can we get better lane density, can we acquire a nice tuck-in business that gives us a lane density and that layered in, and then we're really, really focused on accessorial charges and technology. Richard, we're working on some really neat things in our business in some of our business units that are just absolutely doing a bang-up job, and that we'll be taking to all of our LTL businesses in the very near future, if I'm not mistaken, Rich?

[Richard Maloney, executive]

Agree. Yes, some of the systems we're working on, just the reweighing system, for example, that we do within our organization, customer says, it weighs 100 pounds, and it shows up in a weight 1,000 pounds. You don't have to charge them anymore in terms of rate, you just charge them more on the weight that they forgot to tell you that they missed by a few pounds type of things. We have technology that is able to identify that and we send it right back to the customer. It's all interlinked to our ERP or our enterprise resource planning system, and that's the efficiency and productivity improvements that we talked about. And all of our business units are working to that. That's why we moved B&R into the other entities, because they do that very, very well.

[Tim James, analyst]

Okay. That's helpful. My second question and you talked and provided some good detail in B&R and the integration of that into the business. And I know you haven't been as active lately on M&A. But are there any other sort of underlying past acquisitions that still provide synergy opportunities at this point? Or have all sort of passed M&A transactions, the synergies have been more or less realized from those ones?

[Murray Mullen, executive]

Yes, most of -- we derive most of those synergies. But our business units, I think you heard me say that earlier, they have their marching orders for 2024. We'll look at doing additional tuck-in acquisitions with our 40 business units, if not, the smaller business units if you're not performing at a high level, you'll be tucked-in with one of our high performers, and we'll find either synergies within our group or by acquiring people outside.So everybody's got their margin orders up your game, up your margins, protect your margins, and then we'll look at acquiring some really good value-add tuck-ins for our businesses. That's how we think we can really add margin. If we can't, we'll find the margin corporately because we're going to shorten our bench. But our first objective is and our priority is let's go after and gain market share from our competitors. We think there's a -- we think a lot of people have trapped themselves in 2022, and we'll be here to take advantage of that for our investors and our shareholders.

[Operator]

The next question comes from Trevor Reynolds with Acumen Capital.

[Trevor Reynolds, analyst]

As most of the questions that I had have been answered. But you know, I was just wondering if there's any takeaways from the conference that you attended that changed your view in terms of the viability or timing of investments in CNG electrification?

[Murray Mullen, executive]

Well, that's a great question and good observation. Generally speaking, I would tell you, there was just a real sense of -- there was a positive attitude. Everybody was relatively up. They thought that the worst was over. I think that some of the big carriers in the truckload side, I think they're living on hope. LTL is different. LTL, there's no new capacity coming in and you can work on your margin. That's why it's the biggest part of our business.But on the basic truckload side, I think they missed the boat that, there's a lot of competition. The competition is tough and pricing isn't going to go up and big carriers, they increased their cost structure over this last bit, particularly on driver wages.And if you bought equipment last year, you bought -- did an acquisition last year, you overpaid, because those acquisitions are not going to give you the return that you thought that you don't, no way. Not in this market. So it was -- overall, there's a pretty good tone that the consumer is still okay in the U.S. There's a concern about things in the market, of course, there is. But everybody is pretty much in the same viewpoint as I am, which is growth will be difficult, but everybody thinks they're going to win at the expense of the other guy. So everybody else has screwed up except me. That's what I heard.There's going to be a lot of -- there's going to be some more pain in 2024. And this is really going to get back to now. You've got to run a good business. Those who running good businesses are going to win and get market share. But you're hearing about difficulties and failures every day in the market.Look at today, you just read about Convoy, which was a start-up and they're a broker and their load, they're shutting the doors. Yellow shut the doors, and there were LTL. I mean, there's going to be a lot of -- there's going to be a lot of reshuffling of the deck, and the well-run companies that have a long-term game plan and good verticals, they will do quite well.

[Trevor Reynolds, analyst]

That's very -- that's helpful. Just so just -- and I guess, the question was around the viability and timing of investments in CNG and electrification. Just curious what sort of takeaways you had from that conference?

[Murray Mullen, executive]

It's all over the place. Every major manufacturer OEM engine, they're all -- they've all got their coloring books out, they've all got their prototypes. So that is not scalable yet.

[Trevor Reynolds, analyst]

Okay. So nothing there changed your view in terms of timing and investment in that business?

[Murray Mullen, executive]

No, not on timing. No, the future is in great hands, but it's not here tomorrow. It's going to take a little bit of time to get there.

[Trevor Reynolds, analyst]

Okay.

[Murray Mullen, executive]

We know that. We stay on top of this. I personally have been over to Sweden to check the latest technologies that they were talking about, hey, we can do this, yes, but it's not scalable yet. And our clearest path right now is we're big in CNG, compressed natural gas. I think, Richard, I don't know if Lee's on the line, but these are ahead of this and I think –

[Richard Maloney, executive]

Yes, I think I can add color on that. Yes.

[Murray Mullen, executive]

-- I think we have -- in Canada of CNG trucks. And they're performing quite well. They have not disappointed. Now, they're way more expensive than a traditional diesel engine. But those price points will come down with the more critical mass there are. We're hearing some big carriers down here, really starting to embrace CNG rather than diesel. It's a good transition to perfection, which is 0 emission, but 0 emission is -- let's talk about that next decade.Let's have a good transition for this decade, and then we can go to 0. That's going to be our next objective. But we've got to get better. CNG is a path toward that.

[Carson Urlacher, executive]

And Trevor, maybe just a little more color on that. Me and some of the team went down to the Cummins organization is making strides in the natural gas engine, the X15N and we were driving it and it works. And to Murray's point, you got reduced emissions. And we think that's the gap fuel, if you will. And more importantly, when you think of alternative energy, you've got to think about infrastructure and how you're fueling that.And as we know, and we've announced part of that announcement, Tourmaline is working on this, and there's more infrastructure for the compressed natural gas, and it's a real thing, and it's coming. And we believe -- and today, we're probably the biggest users of CNG. We have 20 units in Canada, and only restricted by the amount Cummins is making, but having met with them last week or a couple of weeks ago, they're ramping up to start doing this. So we're front and center on looking at that.

[Murray Mullen, executive]

My last comment on this is, it looks like, every senior exact that I talked to as an OEM and the engineering folks, everybody is focused on getting better. Everybody understands the path forward, which is let's get better. Let's do our part. And when everybody is focused on that, it will eventually happen. I saw some really intriguing stuff, and I'm very optimistic that we're just in the first inning of a long game here.

[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 Mullen, executive]

Yes. Thanks, folks, for joining us. We look forward to chatting with you as we wind up '23. I hate saying that, but we've already turned our attention towards trying to develop our business plan, along with our budget and our CapEx for 2024. Once we get it, we'll share that information on our best analysis of what we see will happen in '24. Thank you very much for joining us. Appreciate it. Take care.

[Operator]

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