Murray Mullen - Chairman, CEO and President Stephen Clark - CFO

Walter Spracklin - RBC Turan Quettawala - Scotiabank Greg Coleman - National Bank Financial David Tyerman - Cormark Securities Jon Morrison - CIBC Ian Gillies - GMP David Tyerman - Cormark Securities

Good morning everyone and welcome to Mullen Group's quarterly conference call. And we'll be discussing our financial and operating performance for the second quarter.

And this will be followed by an update on the near-term outlook as we see it. So, before I commence the review, I'll remind you that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially.

Further information identifying these risks, uncertainties and assumptions can be found in the disclosure documents, which are filed on SEDAR, and at www.mullen-group.com. With me this morning I have our Executive team, Mr.

Stephen Clark who is our CFO; Richard Maloney, Senior VP; and Joanna Scott, Corporate Secretary and VP of Corporate Services. So, this morning Stephen will review the second quarter financial and operating results of Mullen Group.

After which, I'll provide an outlook for our organization and discuss my near-term expectations for both the oil and gas industry and the overall economy following which we'll close with our Q&A session. But before I turn it over to Stephen, I'd like to open with a few comments, for some time you've heard me speak about 2017 as the year of transition.

Not from the perspective that anything transformative was happening here at the Mullen Group because this is simply just not the case. We remained a diversified company today owning 30 independently managed business units, operating in two segments in economy, the trucking/logistics industry is closely linked to the overall economy and by this I really mean the consumer.

And the oil and natural gas industry in Western Canada, we maintain a strong and well-structured balance sheet with over $250 million in cash at quarter end providing our organization the flexibility to pursue quality acquisition opportunities or reduce debt if no such opportunities come our way. We're an acquisition based company however and have always have been but we are also disappointed in terms of our acquisition strategy which simply means we do not chase growth.

We make acquisitions when they make sense and when we believe that our shareholders would derive value. We're in organization with a strong set of values focused on quality and customer service.

And we're focused on providing value to shareholders either way of growth or dividend. So really nothing has really changed in our organization.

The transition that I've been speaking about emulates from my view that the two sectors of the Canadian economy that Mullens invest in are in transition. Take for example the oil and natural gas industry.

The past few years have been nothing less than abysmal proceeds it by years of unprecedented growth and opportunity. Today the industry is in recovery mode, not a growth mode just a recovery.

Driven primarily by restructuring initiatives and generally higher commodity pricing, so from this perspective the oil and natural gas industry is a much better spot than last year at this time for example. Drilling activity has improved, drilling techniques have changed, capital once again is being deployed in the industry.

Employment levels are rebounding all which points to a nice recovery for the industry but let's not forget from where we came from, the bottom line is the industry is doing better than 2016 but let me reiterate this is not what we consider growth. Never the less the results of our business unit's leverage to oil and gas drilling activity are definitely doing better than 2016 as evidenced by our results.

Where we do not see a recovery is in the big capital projects like the oil sands development, new upgrades or pipeline to tight water. These projects were big economic drivers creating a multitude of high paying jobs and providing a tremendous amount of transportation or just coordination.

Today we do not have the big capital projects to drive our growth, which hurts a portion of our business for company such as premier equipment, the Kleysen Group while trucking and Premay Pipeline Hauling. So, what we view is the era of the big capital oil sand projects.

While perhaps not extinct yet is certainty on the endanger list. So, from this perspective, we see at significant transition which unfortunately for the Mullen Group it is what it is, just another reason that validates our diversified business model strategy and now our job is to find new opportunities to replace the old which we have been doing for several years by the way.

But it is not just the oil and gas industry that’s in transition; let's look at the overall economy. Wasn’t that long ago where Canada was running budget circles.

Alberta was the king pin at the Canadian economy, transferring multi billions of dollars to provinces that were struggling, we call this a transferred equalization system here in Canada. Back then however oil was over $100 per barrel, money was flowing, today oil is at $50 barrel, royalty payments have plummeted, tax collected have declined, not tax rates unfortunately, just total tax revenue.

A lot of high paying jobs have disappeared excreta, excreta. Budgets deficits in our federal level, I don’t know if they are scary, but certainly at elevated levels.

But the reality is these high deposits are stimulated into the economy at least in the short-term. So, the longer term of course is another issue to be invest by future governments and policy experts.

So, from the prospective of the overall Canadian economy, we think that everything is doing just fine. Job growth is healthy, consumer spending is robust, trade is doing a little bit better, so for us here at the Mullen Group the trend is obvious.

We see the economic growth engine for Canada is now on the east where the vast majority of consumers are, not the west where the oil and gas is. Today we see evidence that this transition is now at a level where the overall freight demand and available supply of trucks and the fundamentals associated with these two drivers are in better balance which is starting to alleviate the pricing pressures in our trucking/logistics business segment business units.

A situation we have had to deal with for the last year or so, on these pricing pressures, so from this perspective the trends holds, which I believe it will, our trucking/logistics segment will not just stabilize, there should be more opportunity as the year unfolds. Now of course the other major transition that we see occurring is in -- is related to ecommerce and as I'd like to refer to it as, well being Amazon, this trend is irreversible and changing everything including trucking and logistics.

At Mullen, we have already have had made significant investments that are regional [LTML] network and will continue to see the benefit of this change as we move forward but in addition we're working diligently on our online marketplace platform which we have branded as moving online. We released our updated version too last quarter to our business units and certified sub-contractors, which puts us a lot closer to getting deeper into this emerging trend.

Once we get the user experience to the point where they go wow this works, we will open it up to the broader market. I'm absolutely convinced that our deep understanding of the market accompanied by the content we have access to as a large carrier and logistics provider along with our credibility in the trucking world.

These are enablers that will help us achieve to critically map one needs to have a successful marketplace. But like all technologies it is the user experience that will determine our success.

So, in summary this is the year of transition for both segments of the economies we serve, our job is to migrate through these changes, adapt our business model to where the world is going, not where it was, and we're going to thank [indiscernible] for this one. And our results for the second quarter reflects many of these variations as spoken about this morning.

Revenue is increasing across most business lines except for business related to first, the major capital project spends, which we be is now on full decline, large diameter pipeline projects which has more really to do with timing issues relative to the regulatory and permitting process an honest topic we all know if the oil and gas industry is ever to grow again, new pipelines tight water are required. Third and to a lesser degree our business associated with production services such as the hauling of crude oil and produced water, this business has suffered a little bit as drilling has declined over the years.

In fact, the only real growth we've seen in production services has been in the Grand Prairie region where the majority of new drilling activity is centered entered. So, in terms of profitability last quarter was overall a good news story with most business units especially those leveraged to drilling activity as well as our LTL business starting to see some growth and small pricing increases, however our results are down from last year but this is simply due to the fact that the projects we were working on last year they've generated great results for us in 2016, companies like [indiscernible] Group, Premay Equipment and Premay Pipeline Hauling, those projects are just not there right now.

So, generally speaking I'm pleased with the direction I saw in terms of profitability, a trend that should continue in the last half of 2017 and I'll expand more on this topic later in my outlook commentary. So, now I'm going to turn over to Stephen who will provide you with the detail as it relates to our financial performance for the quarter as well as update on our balance sheet, after which I'll provide and update on our outlook for the second half of 2017.

So, Stephen it's yours.

Thank you, Murray and good morning fellow shareholders. With respect to our financial and operating results for the second quarter, our July 24, 2017 news release and our Q2 interim report, which consist of our MD&A and consolidated financial results, contains the details to fully explain our performance.

I'll center the bulk of my comments this morning on the elements within our results that warrant some further explanation. The second quarter saw record trucking logistics revenue and improved oil filled service results in most business lines.

Fundamentals improved with a noble exception being project work. Although revenue increased nicely margin was challenged because of a lack of capital spend in oil sands and for pipelines and also the addition of lower margin revenue streams by way of acquisition.

Lower margin yes but less capital intensive. Consolidated revenue was $273.6 million, an increase of approximately $27 million or 10.8% compared to 2016.

Specifically, there was a $13.9 million increase in revenue in the truck and logistics segment and $11.3 million increase in Oilfield services segment. Revenue was impacted by various factors including modest economic growth, the completion of a series of six acquisition that began in the fall of 2016, the year-over-year increase in drilling activity in the Western Canadian Sedimentary Basin resulting in increased demand for certain Oilfield Services and greater demand for trucking services in Western Canada.

And there was a slight increase in fuel surcharge. These positive factors were offset by the significant year-over-year decline in major capital projects spending in Western Canada including projects such as Fort Hill for the oil sands and the North-West upgrader project which resulted in reduced demand for heavy halls transload and other related services.

Also, there was a reduction in pipeline construction activity resulting in reduced demand for pipeline hauling and screening services. That said specifically from a segment perspective the truck and logistic segment contribute about two third of our pre-consolidated revenue approximately 183 million, this is a new record.

Not just for the second quarter but in any quarter on record for Mullen. This increase was primarily due to the incremental revenue related to our recent acquisitions and the increase in demand for freight services in Western Canada along with a $3.2 million increase in fuel surcharge revenue.

These increases were somewhat offset by the completion of several major capital projects which we spoke with you earlier. Collectively we estimate that the revenue that revenue fell by approximately $10 million due to the completion of these projects on a comparative basis.

So, all that high margin revenue was more than replaced by lower margin revenue, lower margin businesses but still reasonable returns on capital with further upside as we work with the business units to improve margin. Further details on the truck and logistic segment, performance and a breakdown of revenue by category can be found starting on page 20 of our Q2 MD&A.

The Oilfield services segment contributed about one third of the pre-consolidated revenue or approximately 91 million which was an increase of approximately 11 million or 14.2% year-over-year. The increase for that segment, the increase from revenue can be attributed to drilling activity which benefited those business units most directly tied to oil and natural gas drilling.

Also for greater demand for pumps and related dewatering services and to a lesser degree the incremental revenue generated by Envolve Energy Services, a company that we fully acquired in March of this year. These increases were partially offset by $4.8 million decline in demand for pipeline hauling and streaming services, further details on the oilfield services segment performance and a breakdown of revenue by category can be found on Page 24 of our Q2 MD&A.

Operating income before depreciation and amortization or what is commonly referred to as EBITDA was $39.8 million, a decrease of 6.2 million or 13.5% over the same period in 2016. This decrease was due to the $4.5 million decrease in the Trucking/Logistics segment, a $1.2 million increase in corporate costs, largely due to foreign exchange related to the strengthening of the Canadian dollar relative to the U.S.

dollar and a $0.5 million decrease in oilfield services EBITDA. So, fairly flat in the oilfield services segment, a great feat given that Premay pipelines EBITDA was reduced by $4.3 million in the second quarter.

One business unit alone accounted for quite a decline in EBITDA. On the Trucking/Logistics segment we estimate that project related EBITDA was reduced by about $5.4 million so collectively between Premay pipeline and then the impacts on the Trucking/Logistics segment that's about a $10 million decline in EBITDA, so that really tells you the story of how big projects were falling last year.

Operating income prior to foreign exchange gains or losses because we've a bit of noise on our income statement so operating income prior to foreign exchange gains or losses recognized within the corporate office or what is referred to as OIBDA adjusted was 42.3 million, a decrease of 4.3 million or 9.2% as compared to 46.6 in 2016. In terms of percentage of consolidated revenue operating margin adjusted declined 15.5% as compared to18.9% in 2016 which was primarily due to the margins -- declining margin in the Trucking/Logistics segment as a result of the change in the revenue mix due to the completion of the capital projects and acquisitions into a lesser degree competitive pricing environment.

That being said excluding the decline at Premay pipeline which had a fabulous year 2016 margin expanded in the oilfield services segment so I've given you some of the numbers here earlier on, so analysts you can do your math but you can clearly see the impact. Net income for the quarter was 19.6 million or $0.19 a share, an increase of 5.9 million or $13.7 million compared to $0.14 a share that we experienced in 2016.

This increase was mainly due to $4 million positive variance in the fair value of investment. In more detail breakdown of factors affecting net income can be found on Page 16 of our Q2 MD&A.

Now, touching briefly on our six months results, consolidated revenue was approximately 559 million an increase of approximately 40 million or 7.7% over 2016, again the details can be found in our Q2 MD&A. As for the balance sheet, it continues to be well capitalized, at the end of the quarter we've working capital of approximately a $193 million which includes $250 million of cash and cash equivalents but also a current liability of approximately $200 million related to our Series E and F notes which mature on September 27, 2017, a couple of months away.

And the Series D notes which mature on June 30, 2018. The repayment of our September tranches will reduce our annual interest cost by approximately 7.6 million.

Our $75 million credit facility continues to be undrawn. I would also note that during the quarter we improved our cash position by above $7.3 million.

Murray provided some color on the use of our cash earlier and his view on acquisitions and we'll let him speak to that. So, with that Murray, I'll pass the conference back to you.

Thanks, Stephen. And in summary I think what you heard that conditions are improving across multiple business lines at this time.

We've also heard that a few of our business units were not able to replace the higher margin business loss as the large capital-intensive projects and so one's associated within focus on the build out of reserve oil sands near completion. In fact, it was these very projects that supported our results last year a period when there was virtually no good news.

Today the overall business fundamentals are substantially better than this time last year but we just don’t have visibility as to when the capital investment component of the economy will accelerate. In more specific terms, it is difficult to see any recovery in the big capital projects as it relates to the development of the oil sands.

Perhaps LNG development will emerge as the new capital-intensive driver for the economy. However, after many years of debate and negotiating one has to wonder if Canadians will get behind this export growth opportunity.

We hope they do because it will be a tremendous creator of high paying jobs and a real growth opportunity for Mullen. In terms of other factors impacting our business, I can summarize our expectations for the balance of the year as follows.

First, we still maintain a view that the second half of 2017 will be sequentially better than the first half. Second our trucking logistic segment should continue to lead in terms of growth and profitability, the economy both nationally and in a province of Alberta has rebounded quite nicely over the last couple of quarters.

To the point where supply and demand fundamental are much more constructive, as the market for freight logistic service tightens the pricing pressures will subside, in fact we're already seeing pricing moves in the spot market. In addition, we've completed most of the heavy lifting associated with the latest acquisitions which means that they will start to configure to our margins rather than be a drag as they have been.

Third the rebounding and the oiling natural gas sectors seems to be holding in terms of drilling activity in Western Canada and the Grande Prairie region in particular which I think everyone knows is located in heart of one of the best resource place in North America. As such we expect drilling activity to be up year-over-year.

Furthermore, we're starting to see the industry loosen the capital investment purse strings, which if this continues will be support to the Alberta economy and our specialized hauling groups. It is not robust by any stretch but certainly there is a bit more optimism as compared to the start of the year.

And one of the more bullish signs relates to the trans amount and pipeline project by Kinder Morgan. Recent report suggests this project will start construction in 2017 which means pipe orders and logistics planning must commence shortly in order to meet the construction phase.

Bottom line is we're hopeful because this will certainly benefit our Premay pipeline hauling business unit and in terms of pricing across the board we're not seeing the same predatory or stupid pricing that was so evident over the last year or so in our Oilfield service businesses. The labor market is certainly tightening which means service providers cannot simply pass on price declines through the worker.

In other words, I would classify the current pricing environment for Oilfield services as much more disciplined. I do not believe however that we need to -- I do believe however that we need to be careful on thinking of the oil and gas industry as a growth industry.

In fact, quite the contrary from my perspective there's no doubt we've recovered from the lows of 2016 but future growth will be highly dependent upon takeaway capacity, LNG approvals and availability of experienced workforce. So, for example on this issue in the Grand Prairie region it is virtually impossible to find additional workers today, so I believe it is prudent to think of our oilfield services segment as in recovery mode but I do not believe we return to the glory days of 2011 and '14 anytime soon.

We'll have a good business but there remain too many unknowns and headwinds for me to be -- for me to get overly optimistic at this time. And the last factor that could possibly impact our business in the last half of the year is acquisitions.

We continue to evaluate numerous opportunities and we find -- when we find the right fits we will move aggressively and as I have said on numerous occasions in the past we don't know if or when we might find the right opportunity for Mullen but we keep looking. The fact that we have 250 million of cash on the balance sheet simply allows us to do the deals we like.

Our fallback position is that we would simply pay down our debt which as Japan [ph] as indicators are Series D, E and F notes, and paying off these debt obligations of approximately $200 million our annual interest payments would decline by an estimated 11.5 million. So, it's easy to see that the acquisitions must generate more cash than the 11.5 million otherwise why do them.

Besides if we pay off the debt obligations, we would have a debt to EBITDA ratio of less than 2.5 to 1 and we could increase the dividend by a similar amount which equates to about $0.10 per year for example. So, really, I don't see any downside, we have options.

In summary in the last couple of years I've had the enviable position of informing our shareholders and our people that the fundamentals impacting our business were quite negative and that we should expect tougher times. Earlier this year I suggested there were reasons for optimism and that I believe that the second half of '17 could be more positive.

Today I reiterate these comments and it feels good to be able to say business is looking better. So, thank you very much for joining us today and I'll look forward to opening it up to the Q&A session.

So, I'll now turn it over to the operator.

So, I guess I wanted to follow-up on your very last comment there, Murray you said kind of pointing towards business conditions looking better and I want to understand a little bit about one of the key drivers you're putting your outlook being commodity prices and cross reference the most recent commodity price moves with that optimism and I'm wondering if the results you've delivered here are reflective of a climate where there was a more constructive view on oil prices and that in recent weeks with that change could there, no if I - change in that very important commodity driver you mentioned in your outlook that maybe this was false start, maybe this was based on a better feeling about commodity prices and maybe that has changed now.

We talked about that quite a bit Walter and we listen to our customers, thus far we haven’t seen our customers reduced their CapEx plans for example or their drilling plans for the balance of 2017. That's always a risk but thus far we have not seen really any change dramatic changes in those plans.

I think the other thing which you need to be -- that we need to keep in the mind is that natural gas pricing has been relatively firm, most of the economic activity and drilling activity focused around Grand Prairie has really has a lot to do in natural gas prices. And I mean that’s there is some quantity and some oil that comes from that but really that’s a pretty good natural gas resource play.

So, I think overall, I don’t anticipate big changes, if we were see a major move down in oil prices over whatever over the next, but then I have to change my views on that, but oil prices they move all over the place, nobody knows why they move, they just move. Overall though we are still reasonably constructive that drilling activity will be higher in the second half of 2017 than it was in the second half of 2016, we're still pretty confident of that.

Right, and you talked about we are moving of the lows, but we are not in growth mode, so obviously somewhere in the middle. What does the growth environment look like, what would you view as, because I keep hearing that you were not going back to the hay day either, so what is that most likely world of growth look like under, is this I guess I am looking for what, where do we start to see some kind of normalized revenue setting if it's not at the prior peak directionally where we are we in terms of that type of environment?

Yeah so, I would characterize this, growth to me is that we are growing from our previous highs, well, that’s virtually impossible I don’t see that. We’re going to recover from the depths of the lows of 2015 and 2016, so I think we will have some steady improvement from and use 2017 as kind of your base case that we always should be steady as she goes from here and in a way where we go from there.

As you said to me we’re going to get LNG and get a lot of more takeaway capacity for natural gas for example, well they need to get to drill more wells to feed that line. But in the absence of takeaway capacity, I just don’t see a lot more drilling activity, there will be some, but not big growth I just don’t see that, oil sands is still producing oil at the oil sands but that’s not growth.

So, incremental capital has to come back to the business, I don’t see it. So, it will be an okay business from here, it will be steady and more stable maybe now under this environment, but I don’t think we go back to -- we lost Stephen since 2015 for example we have lost $600 million, $700 million of business overall, out of our Oilfield service segments and now we've replaced a good chunk of that because we diversified.

But I don’t see us going back and adding that $600 million back, I hope we do, but I don’t see it.

And turning over to the trucking then, you talked a bit about how pricing is starting to show signs of improvement. Can you talk about may be one or two of the main drivers of that pricing, is it on the supply side, capacity is coming down, is it on the demand side where the economy is improving?

I know you and I we talked about ULD and no wonder whether that would ever have an impact. Can you talk a bit about what you see as driving the trucking pricing?

Well we've talked about, we just talk about the demand side, let’s talk about the Canadian economy; we've talked about the Canadian economy as having a steady moderate kind of growth platform for the last debt. But you know 1%, 2% in one year as 1%, 2% another year and then next thing you get to that kind of threshold point where demand has actually increased significantly over a two to three-year period.

But at the same time there is been no capacity added in the industry because there is no margin. So, suppliers remain flat, that trend is growing a little bit.

Then you get to this point where the economy gets a little bit of a spurt, we saw our Bank of Canada Governor saying, look the economy is not doing too bad, I'm raising interest rates. So, we're just validating what we're seeing in the transportation or logistic sector, the economy is doing okay.

I think secondly, we need to be aware that the Alberta economy is now not a drag on the Canadian economy growth rate. We’re actually contributing now because just as our old batches its recovering a little bit.

So, from that perspective, it's not that bad and so we're seeing in the spot market the pricing pressures are not anywhere as intense and then we'll see how that plays out if it continues when you get into the contract basis. We're seeing some positive signs.

I guess maybe I will just try and get on the [indiscernible] with regard to the Oilfield services business. Based on what it feels like right now, is it possible to think about revenue for the back and around call it $500 million, $550 million over the next year or Murray, or is that too high as well.

You know what I haven’t looked at that from that perspective.

I would think that with the forward curve now suggesting that oil is going to be 48 next year rather than 55, I think you have to temper your results a little bit here. Although we heard nothing from our client base as of yet but, we got to think.

I think that’s going to come out but, my general sense is Turan is that the industry is much more stable now, we're not going backwards, pricing has stabilized in the oil and gas business and we can move I think a little bit forward from this point as we look forward. I don’t see anything robust, I don’t see any big moves, but I see it's much more stable right now and you're going to run a great business.

We will definitely be able to outlast any of our competitors because we have a diversified business model on the balance sheet but I think we've -- on the macro side I think we're going to be expecting modest growth for the oil and gas business in terms of drilling activity and overall spend off of 2017. I think '17 is a nice recovery from '16 but that's just because we came from nowhere, but from year forward our view would be just as modest recovery on a go forward basis.

Supplemented by big macro events like LNG being approved or new takeaway capacity, something changing but in the absence of that, I think just kind of more the same going in -- on a go forward basis which means we're in a stable position right now. Certainly, nowhere near where you need to be to say let's go have a bunch capital at the oil and gas business I don't see that.

We need to see some other tablets before we get excited for bringing too-too much into the oil patch. So, it's kind of its going to be -- I think it's going to be just grind a little bit higher off of '17 to be honest with you.

And I guess you can still maybe -- the margin has a little-little room still I guess given that -- call it tempered revenue environment?

I think that's what we're kind of gearing for. We've done a lot of downsizing, a lot of rightsizing, everybody has had to.

I think those are all over. And now we're selectively looking at how do we -- how come we do a better job, and where there a little -- a few opportunities but those are basically just kind of what we'll call bunch and singles, but collectively that's our business model, we'll just grind it out, I think we can grind it a little bit higher over time.

And I guess just one more from me here, you referenced some LTL markets regained, I was just wondering if you could give us a little bit more color on sort of where that came from and maybe when geographically where you gained that market share?

Well, the Alberta economy has had a nice rebound off of the lows of '16. So, our business has strengthened here, but really, I think virtually, Stephen correct me if I'm wrong but I think all of our LTL businesses saw some incremental growth year-over-year.

Yes, absolutely we're talking sort of 5% to 6%.

Yes, 5% to 6% growth in that, I think part of that is driven by just the overall economy part of it we think we run some pretty good businesses and they've gained some market share and part of its been a little pricing leverage. So, all in all not bad on the LTL side, I think we're beating the overall Canadian economy in terms of growth in our LTL.

So, a lot of that's driven out here in Western Canada, because in Alberta for example the economy is substantially better than this time last year.

And I guess the share gain, is that sort of other truck competitors or is that?

I think it's -- we haven't added a whole bunch of new capacity, I think it's just better industry fundamentals, so if you got five, and say some of its in rates, and some of it's in just a stronger economy and some of it -- do a better job than our competitors. I think our business units are doing a heck of a job.

When we think about some of the larger projects that you're looking at, you mentioned that trans mountain pipe coming on, potentially starting to see that flow through the bids in the next couple few months here. But these are kinds of things that, these pipeline projects that kind of things that come anywhere close to replacing those large projects that helps you out through 2016, or is this more of the sort of pricing and margins that were experiencing in what I will call sort of the new normal?

Yeah, I don’t think we’re going to replace 2016 because we don’t see the big [indiscernible] projects in the big upgrader [ph] projects and those kinds of things that were very capital intense of specialized equipment, lots of logistics and planning, et cetera, et cetera I don’t see those at all. I think the pipeline business is going to be, depends if you have -- pricing will depend when there was two or three or four - one straight now we don’t see that, so it will be a little more competitive, probably more normal range right now, so we will see some maybe some decent business activity, but I don’t think we’ll get the same margins as what we saw in 2016 where it was a pretty robust year, so we are not planning on that but pipelines when they go, those are big projects and Premay Pipeline group is a major beneficiary of that.

So, this year has been stopped on pipeline activity, there has been a few things going on, but it's certainly more competitive than it has been since 2015 and 2016 for example. So just think of it more as the big projects are out of our business model for the time being and then pipeline activity will be kind of hit and miss, but when it is I think there will still be good margins but not real robust margins per se.

So that’s what we kind of what we see the world shaping up.

Got it and then just a bit of more modeling or smaller picture question here. I think you have only spent around $10 million of your $50 million capital of budget year-to-date, would have been increased in April there from $25 million to $50 million.

Are you still anticipating that that would be a good level of spend or you still looking I mean I know it's going to be as needed, but are you still looking to spend that $50 million or in the context of the current environment is that something where, it's kind of looking a little bit less like is that capital redeployed?

I don’t know if we will get right to the $50 million I think some of it may filter back into 2018, but basically when you are starting to buy capital amount you are really buying it, you are getting ready for 2018. So I don’t know if we get to the full amount but directionally we are really looking at putting capital work in our business units that can show us they have got their cost in line, they got the rates where they need to be and it makes good sense for us to put that capital on the business units, so that was as much as a memo to all of our business units, you come up with good ideas and we’re open to support those good ideas and we meet as an AFD committee every month and the requests are coming in a lot more aggressively than they are in over the last year.

So, we will support good ideas.

Got it and then just one last one for me if it's alright. Stephen, your repair maintenance grows a bit in the quarter as a percentage of overall and you addressed in your commentary talking about how your say gearing up an anticipation of increased demand, can you give us a bit of color so where that increase repair maintenance that was focused on specifically what business units or generally speaking where within the Mullen Group was being spent?

We would have seen in the results sort of in both segments but primarily most of the pre-spend was done on the Oilfield services side where they, and there was a nice uptake in progressive client and demand through the quarter. The other factor that really is going to be abated now is most of our repairs and maintenance, most of those parts are U.S.

manufactured, so there has been a bit of inflation there that’s reversing a little bit, so I think you will see that trend of repair and maintenance abate a little bit over the next couple of quarters. Also, that revenue mix of having that higher margins project based business also has an effect on all the percentages right.

That makes sense.

Great I also think you need to think about last year going into, most everybody just kind cut off a lot of maintenance, because we just didn't know what the outlook was for 2016. So, I think what you're seeing now is more of a trend line of where you should think of maintenance.

We maintain the equipment and got ready because we think it's going to be busy in the second half of the year. Whereas last year, the results were preparing stuff, because when it's not going to work.

So, I think it's more in line where it needs to be and should be to be honest.

My question is around margins by segment. So, on the trucking and logistics side, I'm trying to get a gauge on where we're going in this business, I think in the last quarter you said kind heading toward 15% and I'm wondering longer term whether you can get back, you think to the '16 or '15 a better long-term kind of number.

I think you're right and we closed in on that 15% for the quarter and I think what you're seeing is, when we do acquisitions, there is two parts of acquisitions. Number one is of the acquisition typically we're doing, they don’t have the margins that we would have, so that’s a drag for a bit as we get in and restructure their business and get them focused on what they should be and those kinds of things.

So, when you do acquisition, you're going to have a drag on your trend line for little bit. Secondly, if you're moving more towards asset like business model as Stephen talked about then you should expect that those margins may stick will not be as robust as if you have a capital-intensive business.

So, we think you need to be in the 15%, 16% range in trucking logistic, if you're in the hard asset business but that declines a little bit if it's just more of a logistics side. So, it will depend on where we are focused those with its more logistics and more hard assets and may be that explains it a little bit, but I think the trend is kind of more towards the mean as to what I've talked in our trucking, logistics side over the next edge [ph], which could be in the 15 to 16-point range for, I think for years we've been in that tight range.

Certainly prior to all this big oil sand expansions.

Okay that’s helpful, sort of the same thought process in oil field services. The margins were down a fair bit in Q2 year-over-year.

Can you get to last year's each two levels or you didn’t have much pipeline in the second half of last year.

Yes, we [indiscernible] the pipeline business, Stephen, I think that our margins were up year-over-year?

Correct.

Yes. So, pipelines are -- it's a project business, David, and when you get it it kind of skewed the number for a little bit but there's a big-big pipeline project, on the other side of the coin, when you lose it, it kind of skews it the other way but I would say generally speaking we're getting back into the meaningful [ph] oil patch, and Stephen I think that’s more than the 18%, 19% margin, if I am not mistaken.

Yes, no, absolutely and I think David you touched on something you said okay how does it look for Q3? Well Q3 we have some of the projects fall off, I think that people will need to perhaps be reminded that in quarter three of last year we also benefitted from what we call emergency services for pipeline rupture and your [Prince Albert], so we're ordering heavy crude that kind of fit as last quarter three, collectively between Fort Hills and Northwest Upgrader and all in the pipeline rupture, we'd estimate that had about $2 million positive impact to EBITDA on Trucking/Logistics and about 4 million or 5 million to oilfield and that's because Premay Equipment at that point was doing all the heavy haul, Mullen Trucking was doing all the heavy haul for Northwest Upgrader, that's all completed now, and you can never know when an emergency will come but clearly they benefitted last year.

And in terms of margin we're reverting more to the mean now.

So, when I look at history, look just across my model on EBITDA for oilfield services, the lowest two years have been the last two, at around 20%, so what would mean reverting to mean, mean?

I think we're going to -- I think generally speaking because the oil patches typically are a more capital-intensive business, I think it's going to be more in that -- I think the 20% is probably the -- 20%, 22% is kind of the normalized, that's our bandwidth that we talk about. So, that's always -- I think it'll stay within that bandwidth to be honest with you.

You gave slightly more positive comments on the Trucking/Logistics side, and it really said your preamble, can you give more data on what you saw from an average volume or tonnage perspective in the quarter and where do you think that grows on a year-over-year basis in the back half of the year? I guess my real question is, Western Canadian GDP and a right way to think about what you guys are seeing on the volume trend?

Well we're seeing volume trend up on the majority of our businesses up on that -- that five some and plus range which was just now at the point where it's tight enough to take away pricing leverage, giving it more back to us then just always to the customer. So, we think that that's going to be supportive of our margin.

I don't see tremendous top line growth to be honest with you; I just see better structure on the bottom line. The facts are -- and still not a lot of capacity, we've got a number of our trucking businesses right now that are operating at peak capacity, so we really can't grow because there's no access to people and I'm still reluctant to put a whole bunch of capital into the growth side, so I think marginally we’re going to do a little bit better on the top line on same-store sales, but the pressure is going to come off on the bottom line is my thesis, because pricing we’re not going to have as much of the predatory pricing as we had in the past.

We are still not getting big increases on the contract rates Jon, but it's that pricing thing, so that will help us more our margin a little bit in trucking logistics.

Is it fair though to assume that your revenue growth will outpace volume growth if you are seeing some movement in the spot market right now for pricing?

Yes, that’s subject to, we are still got some of the bigger capital projects coming down, but for the most part of our most of our business units that’s a fair statement.

Is it fair to assume that the improvement you are seeing in spot market pricing is largely related to Alberta or you are seeing it in your Saskatchewan and Manitoba platform?

No, we are seeing it across the board, we are seeing it right across the country.

You touched on the second - of move it online in the release, can you give more color of what you are seeing from an adoption rate perspective this time around and either possibility for that to be real additive to your market share in Western Canada, [indiscernible] call it 2018 I realize it to be dilutive to margins but also positive to return?

No, it's not going to be accretive to margin because we are still billing out the technology so it's all of this is, is an enabler to our existing business units of how to be more active in the logistics business. We think that you are going to have better price discovery and that will drive our growth in logistics not in trucking just in the logistics side.

And if we do right thing maybe we can improve our margin because we are doing a better job of managing our current assets and not having as much dead end and those kind of things, but if we won’t have as a separate line item to say this is what moving on line is adding or is not adding. Eventually if we get it right internally then we can turn it into a revenue generator, because it becomes it's on marketplace and we can scale it up across all multiple across the whole industry.

But we got to first make sure that it works and if it works for a moment, then it can work for anybody and then at that point then you got a marketplace.

But it's fair to assume though that in theory it's going to reduce the amount of trucks possibly that you are going to have in your fleet as you become more of a logistics company than you are a trucking company?

That’s correct. And it is an enabler to allow us to do a better job on logistics which is a non-asset based rather than the asset base.

We are not going to invest in trucks and I have said this to my whole group, look we want to own the customer, we don’t want to necessarily own the truck. We will own the truck if we make enough money and we get appropriate churn but if the marketplace is extremely competitive, really move it online become an enabler for our logistics business to grow.

And only a few companies are going to be able to get their marketplace. We think we will be one of them.

On the Oilfield Services side can you give an update on involving whether you are permitting any new facilities at this point as you prepare to grow the platform that you just acquired?

Well we just got involved a month ago we are analyzing a major expansion opportunity that they presented to us and our senior executors have some data points that we're asking them to verify for us. But we're moving forward on, I think we will move forward probably in Q3 Richard, in terms of whether we're going to go ahead with that project right now.

So, looks constructive but it’s a permitting process, it’s a whole bunch of things that we're -- it’s the new kid on the block making sure that they do things properly from our perspective. We will provide the capital, if they got a great plan and get the permit.

So, we’re moving judiciously, we've given them the wink-wink, we'll support it but you got to make sure that you check the bosses first or it's not going to happen.

Can you give any general update on where you see [Multiple Speakers].

We invested and involved to grow involved, so we told them that that you got to make sure we don’t let them get ahead of themselves. You make sure you got right plan because we're not -- this has to be done properly, so we're pretty aggressive on managing that whole process.

Okay, can you give an update on what you are seeing just general pricing trends across the services side of the business right now and your comment about the tightness in Grande Prairie on the labor side. Are you having to increase wages and perhaps profit share at this point for some of your business units?

We had to increase wages, I don’t know if we're going to go forward, that will depend on what happens with the customers and whether can get match that those increases with pricing increases. But generally, wages are -- I say if they are not back to where they were during the peak they are very close to that, particularly field labor, I think they are virtually kept hold.

Where we're having some trouble is on the profit share side because we're not as big, we're not as profitable and the rates aren't as -- we've haven’t got rates back to where we were then profitability is not quite as good so our profit share is not going to be as robust as it once was. That’s a little troubling but that’s the way our profit share plan works.

But I think in terms of the average worker they are awfully close, they are back to whole. Our driver rates and our field labor rates those are virtually back to where they were.

Is fluid hauling still stupid competitive right now, or is it starting to normalize in last three or four months?

Fluid hauling in the Grande Prairie region is robust because there is so much drilling activity. Outside of Grande Prairie its stopped because really there is not a lot of new drilling activity, let's take for example Saskatchewan and Eastern Alberta.

We really haven’t seen big drilling programs in Saskatchewan and the oil companies there are much more disciplined; they are not drilling as much, which doesn’t increase the overall demand for fluid hauling. So, it's just kind of is what it is right at the moment.

It's pretty comparative still and we're just sitting on the side lines waiting for drilling to come back and then we got the capacity to add to that. It’s a bit of -- it is what it is right now but we got this call option that the drilling activity doesn’t pick up in Saskatchewan, and Manitoba for example we got the capacity to just add later into it.

What I'm getting a little bit concerned about is, once you let the people go, can you just make a call and say hey bud come on back. These people have gone out and found another job, so it may not be quite as easy to get capacity back as everybody thinks in the oil and gas business, that's why I'm saying there's a few headwinds for the oil and gas industry and as a growth industry going forward.

Can you share how much of the 2017 CapEx is hard to enter at this point, just to following Greg's question?

Stephen, we got that?

Hard to commit at somewhere on 25 …

Yes, we're probably at 25 up at this, but every month the requests are coming in and generally speaking we're more constructive on that, I think the margins are stabilized, there are at a point where we'll put capital back into the work, to work, it's not -- we don't see enough growth to add incremental new capital but you do have to add capital make your business better, more efficient, except not for growth but just -- we're going to have some replacing capital go back into the energy space, I think that's what I was telegraphing, in a normal market in the oil patch we would have had $75 million or maybe a $100 million of capital going into the oil patch, now we're saying 25 million, that's the new norm.

And lastly just from me Stephen, if I interpreted your comments correctly thinking about the Q3 '16 numbers that had obviously Fort Hills in July and August and then some other one-time stuff, if I'm recalibrating it to think about the appropriate starting point for year-over-year comps, that's 6 million to 7 million of EBITDA lower than was the stated number in Q3 '16, that's the right way to think about it?

That's correct, that’s what those projects contributed and obviously now we had a rebound in drilling activity and such, year-over-year.

Yes, but if you just think about the one-time tailwinds that might not be there this year, that's the right number to pull out?

Correct, you never know when the next emergency will come and you'll need to put a temporary pipeline at Prince Albert, but [indiscernible].

If the debt you have maturing in September of this year and June of next year wasn't coming due and given what you know about acquisition opportunities today, would you be worried that you're over capitalized and not able to pay down any debt and you just had too much cash on the balance sheet?

Sorry I missed that, Ian you cut out there a little bit so...

I guess what I'm wondering is given the amount of cash on the balance sheet...

250 million.

Yes, if that debt wasn't coming due over the next 12 months I mean would you be worried you were over capitalized from a debt perspective of too much cash and not enough to do with it?

Now, that's a good -- that's a -- I wouldn't worry about it. But I would say I might be a little more aggressive maybe on acquisitions, because I don't have an alternative use of proceeds, so I am -- the good news is because we got the debt, I am saying well, I'll go well I can put it for growth or I can just pay off debt either way our shareholders aren’t going to lose.

But I wouldn't -- we don't need to carry $250 million of cash all the time, we don't need to do that. I think it's a rather theoretical question in many respects and all due respect because we built that $250 million of cash by going to the markets and preserving cash because we knew about these debt maturities and we cut the dividend to preserve cash but we also telegraphed last May as you recall when we did the equity issue, raised the money that we thought was the opportunities coming with - acquisitions and Murray spoke quite a bit about opportunities coming forward.

So how do we think about it while we built up the cash we have maturity, so would be a built up that much cash without the maturities probably not.

So, our primary objectives still right now are to look and get really great acquisitions. But great acquisitions and they only come around once in a while and if we forced it too much, we are paying too much.

So, we’re pretty cautious and the deal flow we see on acquisitions is, there is a lot, through this weekend, it's only Tuesday, but most of them we don’t like, so we are still very, very selective as to which ones we think, because I know thing, its easy to get an acquisition but it's tough to get out of an acquisition. So, I am pretty cautious on that front, I just gave you a theoretical kind of what if, let’s say we don’t identify any acquisitions which we have said our objective is to find them but if we don’t, well okay we will just pay off the debt reduce our interest exposure to shareholders and then if we can’t grow the company through acquisition, I might as well just pay dividend increase the dividend because we still generate lots of free cash.

No, that’s helpful and I am just trying to figure out the appetite for what you would like the capital structure or but --

Yes, I wouldn’t carry that on unless we -- what we think the opportunity for acquisition is here, it’s the timing more that we are not just going to force it, that’s just not our style, never done it and we’re not changing that style right now.

Yes, just one follow-up. I was just wondering your view on Keystone sales the railways have been pretty clear that they think that their price is going to hit the wall late this year, so I am wondering if there is room for to and maybe that helps your pricing and what would be your exposure to something like Keystone sales.

Well it's tough to quantify Keystone, because we benefited from initial move by TransCanada both Keystone, because we moved the pipe and to stop our locations and then it never went ahead, and then we moved a lot of that pipe off of the locations to other locations. So, we did okay on that.

If Keystone goes there will definitely be have to be new orders for pipe and there would be some benefit. But it wouldn’t be like I think Trans Mountain is much bigger, I think Energy East, would be the monster of all project and I have commented on numerous occasions that maybe one of the biggest capital projects that could hit Canada for quite some time.

Politically I don’t know if that goes but in terms of the capital project, that’s the one that makes absolutely most sense to us and to me personally, but we would get some benefit from Keystone but we have been slogging this sucker for so many years it kind of -- if it comes we will adapt but and it won’t be significant.

Okay, that’s helpful.

It would be accretive for sure, but we are $1 billion a $1.2 billion company I mean it wouldn’t be significant.

Got it, so we want Trans Mountain, don’t care too much about it.

The Trans Mountain I think would be very, very help, that would be a good project. That’s a tough project we are going to cross the mountains, that would be good one but it's very good for the industry and for the country, because I mean we're just talking about just getting better price visibility for our customers and the more that our customers get price visibility, the better it is for Canadians as a whole and for our customers and if they make money typically they spend it, invest it.

Right and just may be naively being an easterner, Trans Mountain PC government seems to be making a lot of noise and I know it's not their jurisdiction but can they stop that project in your view, like could this create a huge timing issue for you?

Well I'm not the expert on it but you got a new government in the NDP and DC that says we don’t want it. But even the Prime Minister, I think the Prime Minister carries more weight that the premier.

[Multiple Speakers] let’s be clear on Trans Mountain. Trans Mountain was approved by the previous progressive conservative government and then it was just re-approved by the current liberal government.

So, if they approved it was already approved but which tells me that two governments have not said it makes sense. So maybe it's got a pretty good chance.

But I think they are going to play stinker with it, there is no doubt about it but I don’t know if they can delay it but I don’t know if they can stop it, there is going to be lawyers all over that sort of a gun on that one.

Well, thank you for joining us folks. Thank you for little more optimistic after years of being indeed up, so it's going to progressively get better from here that’s our view.

And we look forward to chatting with you after Q3. Enjoy rest of your summer.

Thank you very much.