Mullen Group Ltd. (MLLGF) Q1 2023 Earnings Call Transcript

Mullen Group Ltd. (OTCPK:MLLGF) Q1 2023 Earnings Conference Call April 27, 2023 10:00 PM ET

Company Participants

Murray Mullen - Chair, Senior Executive Officer and President

Richard Maloney - Senior Operating Officer

Joanna Scott - Senior Corporate Officer

Carson Urlacher - Senior Accounting Officer

Conference Call Participants

Konark Gupta - Scotiabank

David Ocampo - Cormark Securities

Walter Spracklin - RBC Capital Markets

Cameron Doerksen - National Bank Financial

Tim James - TD Securities

Matthew Weekes - iA Capital Markets

Operator

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Limited First 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

Thank you, and welcome to everyone to our quarterly conference call, and we'll provide shareholders and interested investors with an overview of the first quarter financial results. In addition, we will discuss the main drivers impacting our operating performance, our expectations for the year and close with the Q&A session. 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 risks and uncertainties. As such, actual results may differ materially. For further information identifying the risks, uncertainties and assumptions, all these documents can be found in the disclosure documents, which are all on SEDAR and at www.mullengroup.com.

So with me this morning, I have our executive team, Richard Maloney, Senior Operating Officer. We have Joanna Scott, Senior Corporate Officer; and Carson Urlacher, who is the Senior Accounting Officer. So let me start off before I turn it over to Carson.

As let's start off with a review of the financial and operating performance for Q1. It was a good quarter for our company, and that probably suggests to me that shareholders should be pleased with our performance thus far in '23. So I'm going to discuss the major reasons behind the results.

And my good friend, Carson, will provide a deeper analyst of the numbers. Let's start by looking into the macro issues and the economy, so -- because it all starts there. So from my perspective, there was no sign of that economic recession that so many experts were calling for to actually happen. It didn't happen. But there was a freight recession, and I think we need to differentiate between the two, which was more intense in the United States.

Now there are a few reasons for the current challenging transportation environment. And firstly, you'll recall that the freight surge that began in earnest in late 2021. That's at a time when consumers were loaded with cash and buying what seemed like anything and everything. At the same time, productivity levels declined due to new regulations, health and safety protocols and the lack of available workforce to meet the surge in demand.

So in other words, what we have was a supply shortage, cost skyrocketed, bottlenecks emerged, prices rose and inflation pressures became entrenched. But like always, nothing stays the same forever. By late '22, we started to see consumers shifting their spending habits towards doing things such as travel and leisure versus buying things.

And when this happened, the demand for freight service has softened from peak levels. Quite simply, consumers were still spending, just spending differently. This meant the freight industry started to show signs of fatigue, whereas the travel and leisure industry began to flourish. Now this shift in spending, however, was not the only reason the so-called freight recession emerged.

We have to take into consideration that manufacturers and shippers ordered far too much inventory during the pandemic, either because they misread overall consumer demand or they preorder too much inventory, believing the supply chain issues would last longer than they actually did. Either way, they create an inventory overhang and are trying to rectify this by curtailing new orders.

And that translates into no new freight shipments. So it's my belief that the mismanagement of inventories by manufacturers and shippers is a single most important reason for last year's freight surge in this year's freight recession. The good news is that inventories will eventually be brought into balance and volumes will normalize. And when this occurs, the freight recession will end. Now I'll speak about future pricing trends and market dynamics in the outlook section.

But for the rest of my comments here before I turn it over to Carson, and I'll say this, the reality of the events that created the freight surge in '22 were unwinding in '23 to what I would call a more normal or traditional freight environment. And I think that investors will soon have enough information to evaluate how companies will perform in today's reality.

Clearly, our first quarter was pretty good. And that was despite the fact that we were generally quite quiet on the acquisition front last year. Now you might want to take that pause for a second. You might want to just take consideration. I never believed that the freight surge was caused by end consumer demand. I believe it was caused by other supply chain issues.

That's why we didn't buy anybody last year. So what are some of the reasons for our solid performance? Well, let me give you a couple of the reasons. Number one, it really -- I think it really has to do with our business mix. We have a diversified portfolio of service offerings, which includes some exposure to business investment.

Now this is important because business spending and capital investment is also a key driver of overall economic activity. And from what I saw in the quarter, this part of the economy was still pretty good, particularly here in Western Canada, where we have a significant presence. In fact, one sector of the economy that was quite active was investment in the energy space. Now notice I said energy space because we are seeing activity in all sorts of energy, from solar to hydro to renewables to oil and natural gas.

In addition, there is renewed interest in mining because the world needs those minerals and metals to power the next generation of energy deliverability. You don't build batteries without minerals and metals. And it just so happens and perhaps not by luck that we provide service offerings to all of these energy verticals in our portfolio of diversified service offerings.

Now in fact, I'll argue that our business is built for any market and is built for this market. Let me now turn to the performance of the four operating segments. Now there's no doubt there was a few challenges associated with the slowing demand for freight as the consumer adjusts their spend. There was the oversupply capacity issue, especially in the long-haul transportation sector.

And as I said to you, that's primarily due to the inventory rebalancing trend. And yes, there's a normalization of pricing due to supply and demand dynamics. So not only did all these trends hit the headlines, they negatively impacted our logistics and warehousing segment, along with our U.S. 3PL segment.

But this is only one part of our overall voices mix. In fact, from my perspective, there's a lot of positive now consider our less than truckload segment. Now this is the largest segment in our group, and it helped pretty steadily, primarily because of the nature of the business company by end solid end consumer demand. Plus, we added a couple of tuck-in acquisitions that add scale and service coverage over the last 12 months.

Now Specialized Industrial Services had a great quarter as investment dollars continue to be allocated to the energy sector of the economy. And the last reason I'll highlight for our solid Q1 performance is that our business units did an excellent job managing the margin. They held firm on pricing where it made sense to do so and they watch costs like a hawk. So I was very pleased with how they manage the business in Q1.

So now I'll turn it over to Carson to discuss the details. Cars?

Carson Urlacher

All right. Thank you, Murray, and welcome, everyone.

I'll provide a bit more detail. However, our interim report fully explains our financial performance. As such, I'll provide you with some of the highlights. Overall, Q1 is highlighted by generating consolidated revenue of just under $500 million, an increase of approximately $41 million or 9% compared to the prior year and a record compared to any previous first quarter.

The $41 million increase in revenue resulted from a $15.4 million increase in fuel surcharge revenue, $15 million of incremental revenue from acquisitions and $10.5 million from general rate increases along with steady customer demand. OIBDA improved by 27.7% to $77 million and was largely due to growth in the S&I and LTL segments. Earnings per share doubled to $0.34 as compared to the prior year.

On a trailing four quarters basis, we've now generated over $2 billion in revenue, along with $346.6 million of OIBDA and $1.87 in earnings per share. Return on equity improved to 13.2% in the quarter. In terms of operating margin, it improved by 2.3% to 15.5% in 2023 compared to 2022 and was mainly due to rate increases, which more than offset inflationary costs. Let's take a look at how we performed by segment.

Starting with our largest segment, the LTL segment grew revenues by $17.2 million to $192.8 million, $10.4 million of this increase was due to higher fuel surcharge. $5.7 million was due to acquisitions, while general rate increases and steady consumer demand added a modest $1.1 million in segment revenue. OIBDA increased by $8.7 million to $31.8 million in the quarter, which was largely due to rate increases, while acquisitions accounted for $0.8 million of the increase.

The continued strength in consumer spending helped freight volume steady. Operating margin improved by 3.3% to 16.5%, primarily due to lower direct operating expenses as a percentage of revenue, resulting from productivity improvements and customer rate increases. Our second largest segment is our L&W segment.

This segment generated $144.1 million of revenue, which was essentially flat compared to the prior year period. Fuel surcharge revenue increased by $3.4 million. Excluding fuel surcharge, revenue declined by a modest $1.8 million and was mainly due to a $2.6 million decrease in revenue resulting from the sale of our Hydrovac assets and business in the fourth quarter of 2022. This segment generated $26.1 million of OIBDA and operating margins of 18.1%, both of which remain consistent compared to 2022.

Moving to our S&I segment. Revenues were up nicely by $29.5 million to $112.8 million as virtually all business units experienced revenue growth. Rate increases and strong demand for specialized services, including pipeline hauling and training services, construction projects in Northern Manitoba and from greater activity levels in the energy sector resulted in higher revenue.

Acquisitions added incremental revenue of $9.3 million in the segment. OIBDA increased by $7.1 million or 53.4% to $20.4 million, while operating margins increased by 2.1% to 18.1% compared to the prior year.

Operating margins improved due to lower direct operating expenses as a percentage of revenue as rate increases and greater demand for the majority of our services resulted in more efficient operations.

In our non-asset-based U.S. 3PL segment, revenues declined to $51 million as freight demand in the United States for full truckload shipments continued to soften compared to the prior year. However, OIBDA remained relatively flat at $1.2 million.

Operating margins improved slightly to 2.4% due to the timing of contract freight rates were entered into compared to spot market pricing and the availability of contractors in the open market. Essentially, we manage the spread in a down market.

Operating margin on a net basis was 25% compared to 23.4% in 2022. Net income improved by 93.3% to $31.7 million and was mainly due to the $16.7 million increase in OIBDA and the positive variance in net foreign exchange being somewhat offset by higher income taxes.

Earnings per share doubled to $0.34 per common share compared to the prior year due to the combination of higher net income and a reduction in the number of common shares outstanding as we continue to buy back our stock. In the quarter, we repurchased and canceled 2.2 million common shares at an average price of $14.45.

We continue to generate cash in excess of our operating needs as net cash from operating activities in the quarter was $34.2 million compared to $18 million in 2022. The increase of $16.2 million or 90% is mainly due to two things: one being the $16.7 million increase in OIBDA and the other due to a $20.2 million variance in changes from noncash working capital items. This strong cash flow generation was somewhat offset by a $20.8 million increase in cash tax paid, which resulted from us paying the final taxes owing related to fiscal 2022 due to the strong financial performance that we had last year.

Our balance sheet remains strong. Our debt to operating cash flow covenant under our private debt agreement is at 1.74:1. We have a total of $250 million of bank credit facilities available to us, of which we had $60.3 million drawn in the quarter, leaving us with over $180 million of room available.

So we have ample financial flexibility on both the private debt covenants and on our credit facilities, allowing us to continue our NCIB program and fund acquisition opportunities. Our private placement debt has an average annual fixed rate of 3.93%. The private debt matures in two tranches with principal repayments net of cross-currency loss of $217 million and $208 million due in October 2024 and October 2026, respectively.

So with that, Murray, I will pass the conference back to you.

Murray Mullen

Thanks, Cars.

So let me now provide a look into how we're looking at the markets, the economy and our business today, and I'll start with -- clearly, we had a pretty good start to 2023. But I think really the question for today is, will these trends continue? Because if the trends do continue as is, which they might, we don't know for sure. Then the 2023 business plan we articulated in January needs updating.

Now recall that I suggested 2023 would be challenging in January. And now it appears that my peers in our -- in our industry are catching up to my earlier prognosis because they are all lowering their expectations. I, on the other hand, I don't -- we don't need to adjust our expectations because I was cautious all along. So let's revisit where we're at.

The economy should and probably will slow throughout the balance of the year. And we all know that because primarily, there's a bit of liquidity that's coming out of being removed from the financial system, and we know that's going to slow economic activity. By how much, I'm not certain. So we will watch for any cracks and we'll adjust accordingly.

But as of today, I expect the consumer side of the economy to be okay, not growing, but I don't see significant declines. This suggests that the LTL segment should continue to generate solid results. Not just not as good as last year when demand was at a fever level. So with demand leveling off and no signs of growth in the economy, our business units in the LTL segment will focus on productivity gains, yield management and cost control initiatives and maintaining margin is our focus.

Now secondly, this freight recession that we're currently in, it's going to continue for a while yet, in my view, because there really is no demand push and supply is remaining sticky, meaning pricing will be a challenge. This will be a drag on our long-haul business. It's impacting several of our business units in our logistics and warehousing segment.

However, also included in this segment are business units that will continue to generate solid results, namely our two largest, the Clesen Group and Vanstar Group, and that's primarily due to their customer base and service offerings.

So as such, I expect the results for our logistics aware segment to be similar to Q1 for the balance of the year. I'd call that a mixture of wins and losses. The U.S. 3PL segment, now it's going to be impacted by that most from the freight recession in the U.S., revenues will continue to be down from last year.

However, because Solistic exclusively utilizes third parties, they can effectively manage the spread. SG&A expenses will probably be up from prior year, and that's because we're adding new IT talent to support the next generation of Silver Express. Now that's our proprietary ERP system. That's going to -- that's the future of holistic, making sure we got the best IT platform for our users and our customers.

As a result, revenues will be down from 2022 and overall profitability in the segment will most likely be impacted slightly. The one area of potential growth in the Canadian economy is the energy sector. And I would say, primarily in oil and gas and in mining where new facilities are being sanctioned in British Columbia and Northern Ontario. Those capital is invested in these sectors of the economy.

Several of our business units are well positioned to capitalize on transportation logistics demand. Our specialized Industrial Services segment with the beneficiary of new demand, offsetting major pipeline projects that are nearing completions. And honestly, we don't see any new pipeline projects on the horizon for our premade pipeline group. So they'll probably experience a pretty good decline after three really active years.

So once again, I'd say this is a pretty good mixture of wins and losses of Still, it's going to be at least as good as 2022, I believe. In summary, we've had an excellent start to '23, but we maintain a cautious outlook for the balance of the year. We will use the next few quarters to make some small business -- smart business decisions. We're going to grow market share and plan for the next rebound in consumer-driven demand.

Besides markets like this differentiate the week and the unprepared from the strong and prepared. So at the corporate office, we continue to evaluate numerous acquisition opportunities, and we're going to be considered making investments if we believe the new opportunity is a good fit within our organization and the valuation metrics are accretive to Mullen shareholders.

Now we only have three criteria for any acquisition here at the Mullen Group, fit, price and synergies. We need all three. So my last point relates to the managing our balance sheet. Now given the economic uncertainties, we'll exercise a degree of caution. There is no reason to try and gamble on the future in our estimation. So we'll be pragmatic.

So thank you. I'll now turn the call over to the conference operator, and let's go right to the Q&A session.

Question-and-Answer Session

Operator

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

Konark Gupta

Thanks, operator, and good morning, Murray, and the team. Great results Murray. And I wanted to kind of dig into one of your key segments, LTL. I know you kind of laid out how the business mix and some of the kind of other factors helped you in the quarter. But I'm really trying to kind of compare and contrast your LTL business, which is primarily Canadian versus what we have seen a lot of U.S. LTL peers coming out and reporting, I would probably say maybe not as good results. So what really stood out for you in the LTL market? I'm just trying to understand, is it more about the pricing catch-up that you guys kind of did later than rest of the kind of growth maybe last year. Is that what's helping you? Or is there something else in your LTL gap that maybe your competitors don't have?

Murray Mullen

Well, I think that's a good observation, Konark. And I would -- I'll start with the first part. You -- there's a clear differentiation between what's happening in the United States and what's happening in Canada. The United States is clearly more volatile. The Canadian markets remained relatively stable and flat.

We never quite saw the same highs as the U.S., and we won't see the same competitive forces that are hitting that market right now with, you know. So that's -- that explains part of it why our LTL segment did reasonably well. We held our own pretty good because the Canadian economy was pretty stable from our perspective. The second one is you highlighted that is some different comps.

Last year, we had some ugly weather in Canada that really impacted some of our LTL businesses. We had it on the West Coast, we had it on Manitoba and Ontario. And that did impact our business last year in a negative way. We didn't have those same headwinds this year. So that's the other primary reason.

And I think the third one is we've got pretty good market share in our LTL businesses Konarc and we've been able to maintain pretty good flows. We haven't seen a huge drop-off in revenues, and that's your load count. We haven't seen a huge drop off. That's been some slight decline, but not a huge one. And only if there's a huge decline, where you start to see pricing pressures in my view.

Konark Gupta

That's great summary, Murray. Thanks so much. And then to follow up, one of the comments that you made was pretty interesting about the inventory levels. I think everybody is kind of talking about how high the inventories are, relative demand perhaps at this point. But what are your key customers telling you about their plans for the inventory? Are they kind of looking to still destock at this point for the next couple of quarters and then to restock in late 2023? Or are they kind of not even kind of sure at this point of 2023 will be a restocking year?

Murray Mullen

Well, since I don't have a strong opinion on that, I'm going to turn it over to Carson because he's a lot smarter than I am with the numbers. So good luck Carson. That was a good question, but I don't have a firm answer for it. So I'm going to defer it.

Carson Urlacher

I'm going to say -- and this is my best guess, not that I'm the smartest. I would say that the inventory rebalancing is still in process and it's still ongoing. We're still seeing a lot of our warehouses at near full capacity.

But I would say that, that's going to unwind here as we get later on into 2023. You're going to have back-to-school coming back in the fall, you're going to have restocking of shelves and new inventory needing to come in for the holiday season for this coming winter. I think that's when your rebalancing starts to shake itself out is later in 2023, due to those factors. But that's my best guess. Let's put it that way.

Murray Mullen

Well, that's a good guess. Yes. But I guess is we can't make business decisions on guesses. Here's what I think has happened, Konark, there's too much inventory in the system. That's a fact. When I walk the floor of our warehouses, it's too much of the wrong inventory. I can virtually tell you that's a fact.

So we've got -- the warehouses are full, but we're full with the wrong darn inventory that consumers are a lot smarter than the retailers and the manufacturers and shippers that ordered all this inventory. So they got -- the retail, they're going to make a decision. Do you want to clear out that inventory. And I don't know whether consumers will buy it even at a discount. I don't know what they're going to do. I think they got a big problem.

But until they do that, warehouses are jammed, and that leaves some elevated costing pressures in the warehousing side. I think end consumer demand will be okay, but it really now is going to depend on whether you have a deep recession, whether you have job losses. Job losses will kill end consumer demand.

And we don't see a tsunami of job losses, but it's going to impact it on the margin, but not everybody. There's still a lot of wealth in the system and retailers and shippers are going to have to start reordering again because you've got to have the right product on the shelves, not just product on the shelves. That's my thesis. That's why I think there'll be some increase and a normalization of this cycle later in '23. I said a normalization, not a spike.

Konark Gupta

Right. That's great color, Murray. Almost we like you should have run a newsletter telling which inventory is bad or good so that I can shop smartly. Thanks. Thanks so much for the color.

Murray Mullen

Thank you.

Operator

Thank you. The next question comes from David Ocampo from Cormark Securities. Please go ahead.

David Ocampo

Thanks, good morning, everyone. All right, well. Murray, on your last conference call or even in the business update, you guys are calling out for acquisition opportunities, you're seeing the most opportunity in LTL. Has that expectation changed? And where should we be thinking about in terms of geography?

Murray Mullen

No, Dave, there's lots of -- there's not a lack of opportunity in terms of acquisitions. But recall, I don't -- I never have, and I'm not going to change as long as I'm here, that we do acquisitions for growth. We do acquisitions for fit because the price is right and because we identify that we can derive synergies. When we find those opportunities, we're going to go all in on them.

But I see no -- like there's no real panic for us to go out and do acquisitions right now because liquidity is drying up -- and there's no lack of carriers that are going to get themselves over their skis here in this market. They got -- anybody that made the wrong calls last year is on the wrong end of this cycle, and they will pay a hefty price, in my view. So we're being very, very picky. Richard, what do you call it, precision?

Richard Maloney

Precision based acquisition.

Murray Mullen

There you go, precision-based, I call it I it was -- we do a surgical view of how we look at acquisition, but Richard had a way better word than surgical. So I like precision-based -- and we'll continue to look at that. And we've always done acquisitions in our history, 30 years as a public company. I think just leave it to us. When we do them, you'll know darn well, they're going to be accretive. Not just to the top line. They will be accretive to the bottom line.

David Ocampo

And I guess, in the meantime, if you guys don't find any capital to the play I guess the idea is just to continue to execute on your NCIB?

Richard Maloney

Yes, we're -- you know what, we're looking -- and as we said at the beginning of the year, we have multiple ways of deploying capital. We're doing acquisitions. We just explained that. We obviously play a good dividend. But to the NCIB, we're moving forward with that it's in place and it's there. So if somebody doesn't want to buy -- doesn't want our stock, we'll be there and we'll scoop it up as needed. So David, we're the cheapest amongst our peers. So either we're going up or they're coming down. I'd prefer that we go up. We think we're the cheapest, and we're investing in ourselves.

David Ocampo

That's perfect. That's all the questions. I had for you guys. Thanks so much.

Murray Mullen

Thank you.

Operator

Thank you. The next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead.

Walter Spracklin

Thanks so much, good morning. Guys, just a question here on how you're -- how exactly I just want to clarify how you're framing this freight recession. I know CN kind of saw it as well and other UPS and other LTL players, your peers? And what most are kind of relaying now is that this slowdown is going to continue through the year, whereas many were expecting a pickup in the back half of the year once we got through this inventory drawdown period that you're referring to.

Are you -- are you kind of disagreeing with that view that it will kind of resume after the inventory drawdown based on consumer spending and that we should see a better perhaps than what your peers are seeing, both rail peers and trucking peers are seeing in the back half that they say they're talking to the customers, they think it's going to be lower for longer. And just want to make sure, is that different from what you're seeing or expecting or consistent just said in a different way?

Murray Mullen

I think it's consistent, Walter. So -- but we must differentiate LTL from truckload and rail, intermodal, those things. LTL is end consumer demand and end consumer demand is primarily driven by consumer spending and business activity. The inventory buildup, the inventory draw down, those are cyclical things that I think will play themselves out.

As I said to you, I think that shippers will have no choice but to bring in new product that the consumer of today and tomorrow will want, not what they bought two years ago. It's useless. So I think they'll pivot away from it. The -- that's my view. They're trying to manage their balance sheet and rising interest rates and rising costs.

So we all are. But eventually, it all will play itself out. When? I have no idea. But it won't last forever, Walter. Just like the inventory buildup didn't -- wasn't going to last forever. I don't think the inventory drawdown in the last forever. We'll watch two data points to determine whether there's a problem going on in the end consumer demand.

One is on ocean shipments, is it coming, what's happening on containers coming over, that's economic activity. And then you might as well watch another data point, which is what's happening with -- in the packaging business and the cardboard business because they are the ones that package the goods.

Walter Spracklin

Yes. On the M&A side, it sounds like your peer is also starting to pick up some tuck-in activity in Canada. When you look at where you're focusing your M&A, is it on Canadian LTL? Or could you see some activity in industrial services as well. Just curious what segments you might be deploying capital?

Murray Mullen

Both of those are interesting to us. LTL is our largest segment. So we'll continue to build around the edges on our LTL segment, Walter, for sure. That's what we're going to do. And then there's some really good specific opportunities that I think are going to happen is the build-out and the transition of our economy from traditional oil and gas to all forms of energy.

We see some good opportunity in the mining business coming up that's been underinvested in. So we'll look at those things and make sure that we're positioned so that we can drive good value for our shareholders.

Walter Spracklin

Okay. That makes sense. And then last question here is on equipment deliveries. I know COVID and chip shortages and so on kind of kept those tight. You're starting to see those come in. That should help alleviate some of the restrictions you had. But I'm wondering if it might -- that if that's coming back to your competitors or new entrants as well, is that -- is that going to have an implication on trucking capacity that might see some more capacity coming online and that affecting price right at a time right here at least when we're in a bit of a -- as you mentioned, a cyclical downturn because of the freight recession stemming from everything we just talked about. Could this capacity be coming on at the wrong time? Is there any concern there at all?

Murray Mullen

I don't think -- well, I think we'll -- I don't see as a scenario with more capacity coming online. In fact, I would argue with you that I think the opposite is going to be taking place in this market. The little carrier, the ones that are undercapitalized are going to have a real problem adding capacity because the equipment is so expensive -- and interest rates are so high and rates are down. There's no way they're adding capacity. If anything, capacity is shrinking and there's going to be a shift, something that's got to give on this front. So I think that's -- I don't see more capacity coming on. I think capacity is going to come out of the market.

Walter Spracklin

Okay, that’s encouraging. Well, thank you very much. That's all my questions. Thanks, Murray.

Operator

The next question comes from Cameron Doerksen from National Bank Financial. Please go ahead.

Cameron Doerksen

Yes, thanks very much, good morning. Murray, you mentioned, I guess, some of the interesting opportunities on the mining side. I wonder if you can maybe just expand a bit on that? Like where specifically are you seeing these opportunities? What business units, what the magnitude of it is.

Murray Mullen

Yes. Take a look at what Ontario was really advocating there, which is the ring of fire up in Northern -- you're not going to build mines in Toronto, okay? It's going to be in the North. That's where mines are going to be. And so if you look at Northern Ontario, there's some really good interesting projects that are being looked at there.

And you're going to have to have -- if you're going to build batteries, where are you going to get the copper from? Where are you going to get the nickel from? Where are you going to get all of the lithium from? You have to -- if we're going all in on batteries, you've got to go all in on mining. Canada is blessed.

I think that there's a push towards that and Quebec will benefit a bit. Ontario is a big beneficiary of that. British Columbia is now sanctioning new mines first time in 10 years that I've seen. And we've got strong market positions in both of those areas of Northern Ontario, really will -- any development in the north is really going to help our LTL, our Gardewine Group because we've got such a strong position up there.

And our Bannister Group that we acquired two years ago has a real good market presence in Northern British Columbia. So -- and they do a lot of business with the mines.

Cameron Doerksen

Okay, well, that's, that's really helpful. And -

Murray Mullen

Mining is energy. And I think that my thesis is we need more energy, all forms of energy, and there's going to be an increased focus on alternative forms, and you'll need mining, not just drilling for oil and gas.

Cameron Doerksen

No, absolutely makes a lot of sense. And just on the -- I guess, in the Specialized and Industrial Services segment, I mean you're talking about your activity levels that look good there. And I think you've also seen some strength on the pricing side. Just wondering if you can talk a little bit about kind of the pricing, how sticky you think that is and whether we're kind of at a new sort of stable environment for -- especially on some of the sort of oilfield services related businesses.

Murray Mullen

Yes, I think the pricing is pretty stable, Cameron. I don't see any -- you won't get any more pricing leverage unless there's a demand push, but I see pricing staying pretty sticky because demand levels are going to be similar to last year, costs are up, so pricing will stay up a bit.

So I see it being in the range that it's at now and would only have more upside in the pricing is if there was increased activity, which I'm not counting on increased activity. I think activity will be pretty solid, and we'll have pretty good pricing. The only area of our specialized industrial Carson, that's really not really doesn't -- we don't see a lot of good inertia there as really our premade pipeline group.

And that makes imminent sense because primate Pipeline was involved in building the infrastructure so that we could move natural gas and crude oil out of the Western Canadian basin. And they're nearing the completion of those major projects. And so the they're kind of run of good times and life is nearing the end.

And then it just translates over to other parts, which is mining and drilling and support services there. So I still think we'll be -- on balance, our specialized industrial will be better. And we're going to look at building out in that area also because we see some really good opportunities there over the next bit.

Carson Urlacher

I think that speaks to the diversity of our services actually within the S&I segment. As Murray alluded to, as you put that pipe in the ground, you're building that infrastructure out. Now you've got to fill the pipe. Now you need that natural gas to flow through. You need that oil to flow through. So we participate in all of those sectors of the economy, not just in building the infrastructure, putting the pipe in the ground. Now that demand is going to shift more to drilling and filling those lines. So we participate in it virtually all the way along.

Richard Maloney

In the most recent acquisitions we did with Cordova and Butler Ridge reinforced that. We saw that. We negotiated that before. We started reporting on this. So again, just anticipation of where the puck is going.

Murray Mullen

So on those two opportunities, we hold a minority position. So we're moving from a minority position to a wholly owned position because we see good opportunity.

Cameron Doerksen

Okay, no that's great, appreciate it. I appreciate the color. Thanks, very much.

Murray Mullen

Thank you.

Operator

Thank you. The next question comes from Tim James from TD Securities. Please go ahead.

Tim James

Thanks very much, good morning and congratulations on a good start to the year. My first question, Murray, you've talked about sort of where the strengths are. I'm wondering if you can reflect sort of more specifically on relative to your thoughts coming into the year, what maybe surprised you about the strength? Was there -- or as the quarter kind of turned out, was it very much the strengths were where you expected? Or was there anything that was kind of surprising even to you? I mean -- and again, I'm thinking about the industry backdrop and what you're seeing from some of your peers. What surprised you to the upside of anything in the first quarter?

Murray Mullen

Well, nothing really totally surprised us in the first quarter. I would say that what -- I looked at the year of 2023, maybe differently than my peers, and we all got experience, but maybe it's just my cautious nature that I've been in the -- I go nothing lasts forever. Nothing goes up forever, nothing goes down forever.

And so I just said, this makes no sense. So we didn't get sucked into it. We played along and had a great year. Everybody had a great year last year. But if everybody is having a great year, you know something is wrong.

So I just took the contrarian view and I said, look, it's going to come down. Let's plan for it. Let's be prepared that way you don't get hurt. And so the market will be the market. It's just -- but the market is shifting and the prepared will do well. The unprepared will get crushed. It's just business. And so I don't know if I really looked at anything different, but we just tell it the way we see it here. We never know if we're right or wrong, but we tell everybody the way we see it.

Tim James

Okay. My second and last question, when growth does sort of pick up again, in your -- I'm thinking about your LTL business and your logistics and warehousing business in particular, what do you have in the way of capacity pressure points, if anywhere, whether it's warehouses or trailers or any type of equipment. Where do you think you could kind of be restricted first? Or maybe I should say where do you need to add some investment first to increase your capacity to deal with that eventual pickup in growth?

Murray Mullen

Oh boy, I would say yes, yes and yes. If you're going to have growth in the economy, you're going to have to add capacity to meet that growth. Otherwise, you go back to what we had last year, which is bottleneck, bottleneck and bottleneck and that's what caused inflation, inflation. Inflation is all of that.

So in my view, the only real solution to really controlling inflation is at capacity, and we're going to have to add -- we -- the whole market will have to add capacity, which I think I'm seeing some of that happen now. I think we all have to take a pause and say we're all adding -- we're positioning in the future to make sure we're efficient. And -- but I don't know of everybody adding for a whole bunch of new growth over the next bit. I don't think we're going to see a market like we saw in '21, '22, again, for a long, long time, probably not in my career.

So I won't be planning for another one in my career. It will happen, but probably not in my career. What we're planning on is steady growth, stable, and we got to focus on being pinpoint accurate -- we've got to watch our costs. We've got to add productivity gain, productivity again, and you're going to have to work with your customers to make sure that we're adding value.

And that's -- we'll look at all those kind of things, but we're not planning on a major rebound in growth. There will be a rebalancing of the inventory. Don't get me wrong, but that's not growth in the economy. Growth in the economy is more people spending more. I'm not I'm not so sure on that. I think it will be good, but not great.

Richard Maloney

I think, Tim, to add on that, one of the things we're obviously investing significantly in the LTL side from a CapEx perspective. We do know that. We're making those investments. It takes time. We also know that there's going to be failures with smaller operators. So what we're -- our focus is going to be is about yield strategy. You hear others talk about that.

So make sure all of our trailers are going through their final destinations, absolutely full with the best freight we can get in there as others do not make it. And then we can start backfilling with newer, better equipment like our CNG trucks that we've recently announced and talked about as well.

We're going to continue to focus on that. We don't think there's necessarily growth in the overall economy, but we do know if others fail, we'll be able to pick that up. And people want to come and work for us, and we're seeing people coming to our organizations and our business units wanting to work for us.

Carson Urlacher

Yes, that's a good point -- like on LTL, we're going to open up a brand-new terminal facility in Kamloops, British Columbia here this month, next month, that's already this month. This is being made. We'll be opening -- we'll be opening that up, and that will allow for future growth and that future growth will come because the interior BC grows, but also because we're able to do some tuck-in acquisitions to add scale to that business.

So LTL is facilities, making sure we've got a good low density and being pinpoint accurate on making sure that we've got the most efficient equipment, along with a -- you've got to invest in technology. I should I got to make sure I make that point clear. technology allows you to move the data faster, obviously, but it also makes you -- allows you to make sure those trailers are going full and we're getting good utilization out of everything.

So that's our plan. We're going to continue to strive for higher margin in LTL through a combination of adding tuck-in acquisitions and being pinpoint accurate in how we apply our capital into those businesses.

Tim James

Okay. Maybe just to round that often, is it possible just to give us sort of updated thoughts on approximately your kind total CapEx spending plans for this year? And any insights you have on 2024. I'm not thinking about it...

Murray Mullen

We are not changing our CapEx plans. We set out a plan at the first of the year, and we're not deviating from that, right? $85 million was our --

Carson Urlacher

Yes. We came out with $85 million at the beginning in January here. Now you can see in our Q1 results that Yes, we had about $25 million come through here in the first quarter. And a lot of that was carryover from what we had previously ordered. So at this point in time, I don't see any change. Obviously, as the year progresses, if something changes, we can update you later on in the year, but we don't see anything at this point.

Tim James

Okay, thank you very much.

Carson Urlacher

Thank you, Tim.

Operator

[Operator Instructions] The next question comes from Matthew Weekes from iA Capital Markets. Please go ahead.

Matthew Weekes

Good morning, thanks for taking my question. Obviously, Q1 was a very strong quarter. And just as you think about how things kind of played out with the inventory destocking cycle, you talked about in kind of some strong areas of the business. I'm wondering if you have a comment on kind of how the cadence profitability or demand sort of evolves on a monthly basis? Was it sort of more back-end weighted in the quarter? How do you see it kind of evolved through March and then in April here, if you have any sort of indications of how it's progressing.

Murray Mullen

I don't think it's - we haven't seen any -- there's no demand push, Matthew, that we're seeing going through the cycle right now. From that perspective, I think we're totally aligned with all of our peers. We just don't see the demand push. So we think that the business that we have now is the business we have is what we -- is pretty stable. I don't think it's going to deteriorate a whole bunch more from what you see today. It's going to deteriorate from last year because last year was a boom.

So it's -- I'm just giving you my -- our expectation and my expectation for the balance of the year, it's going to be kind of where we're at right now is about where the market. Typically, you have a seasonal push.

And last year, we had a seasonal bump like it was not this year. And the seasonal push towards the -- as consumers get out of the winter and stuff like that, it will be muted compared to last year. And that's why we still think we're on target for our -- what we articulated in opine in January of '23, which would say to you that our Q2 and Q3 will not be the same levels as last year. If it is, then we got to change our '23 assumptions, and we'll come back to you on that. But I don't see it, Matthew. I think it's -- the market is what the market is right now. I don't see it going up, and I don't see it going down a whole much more from here.

Matthew Weekes

Okay, thanks. Appreciate the commentary. And I'm wondering if you can just talk a little bit about maybe some of the productivity gains that you made, particularly on the LTL side. And if you -- how much more kind of opportunity you see from a productivity standpoint going forward, given sort of the strength in the LTL margins, not just compared to last year, but in general, looking historically at Q1, it was quite a strong quarter for LTL on the margin side. Just wondering if you have kind of a comment on that.

Murray Mullen

Yes. Last year, labor was killing us because we didn't have enough and you were double handling everything and free, you got a freight surge, not enough workers. So you're double handling everything, lots of overtime for those dedicated workers that help meet the heart of that surge in demand. We don't have that same cost push that we got this year. There's not as much urgency and therefore, we're able to plan more.

But we're being -- all of our businesses are 100% focused on yield, and that's -- you've got to have lane density to get yield. And our job at corporate office is to backfill some of that yield, maybe the market doesn't give them and we're looking at opportunities.

Matthew Weekes

Okay, thanks. I appreciate the commentary. I will turn it back. Thanks.

Operator

Thank you. 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

Thanks, folks for joining us. I think spring is strong, although we have snow here this morning in Alberta. So I wouldn't -- I'm not opining about that. But yes, it's -- market is going to be really pleased with what our business units are doing and how they're responding to the change in market, and it's right up our alley. We're well positioned, and we look forward to chatting with you in a few months' time. Take care and then we'll talk soon.

Operator

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