Mullen Group Ltd. (MTL) Earnings Call Transcript

Thank you for standing by. This is the conference operator. Welcome to the Mullen Group's 2023 Business Plan and Budget Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Murray K. Mullen, Chair, Senior Executive Officer and President. Please go ahead.

Thank you, and welcome, everyone. This morning, we will be discussing our business plan and expectations for 2023. But before I commence today's update, I'll remind everyone that this presentation contains forward-looking statements that are based upon current expectations and are subject to a number of risks and uncertainties. And as such, actual results may differ materially. Further information identifying the risks, the uncertainties and assumptions can be found in the disclosure documents, which are filed on SEDAR and at www.mullen-group.com. So with me this morning, I have our senior executive team. I have Richard Maloney, Senior Operating Officer; Joanna Scott, Senior Corporate Officer; and Carson Urlacher is our Senior Accounting Officer. Now we have a full agenda this morning, and I already see that the queue is building for the Q&A session. So let's get started. It's a new year and along with it comes that annual ritual of recalibrating expectation. Everyone knows that this year is going to be different than 2022, with the most likely scenario being that there will be some interesting developments throughout the year that will alter future expectations. So this is why it's so important to remain flexible. It's also why we have a diversified business model. And that business model is one that provides logistical support and services to a wide range of sectors and verticals in the North American economy. And the reason we have this diversified business model is because you just never know how any sector of the economy could be impacted by events or by short-term capital flows. So today, I'll provide a quick summation of how '22 finished off. And the final results are not available today, as such I can only make general comments because in a few weeks, we will provide the detailed results in conjunction with our Q4 update. And this is after the auditors have completed their review. Now this update is scheduled for release on February 9. So the primary purpose of today's call is to outline our 2023 business plan. It's to provide insight into how we believe the new year will unfold, along with highlighting the priorities that we will focus on this year. This will include a discussion on the emerging trends we view as crucial to our long-term growth strategy. And as always, we'll close with that Q&A session. So let's start with an update on '22. What we do know is that MTL will close out '22 with financial results that far exceeded our initial projections. There were 4 primary reasons for this strong performance with the most obvious being robust freight demand, which we partially attribute to strong end consumer demand, along with that freight surge precipitated by shippers and retailers ordering far too much inventory in late 2021 and early 2022. This overbuying trend, by the way, occurred at exactly the same time that supply was limited. And let's blame a lot of it on COVID-related issues. And this all led to supply chain shortages and bottlenecks that very quickly morphed into shipping delays and productivity losses, a combination that ultimately contributed to the second reason that we had such good results, and that's significantly higher pricing as shippers scrambled to move their freight. In addition, diesel prices skyrocketed, costs that were passed along to customers in the form of fuel surcharges, and that became a third revenue generated in 2022. And of course, in 2021, we completed a series of acquisitions that added scale and size to our core business. Now each of these factors: strong consumer demand, higher pricing, fuel surcharges and acquisitions, contributed to our outstanding performance in 2022. So initial revenue projections for the fourth quarter are coming in at around $500 million. That's generally in line with the expectations we articulated during the Q3 conference call. In other words, I would say to you, I think there still appears to be a pretty strong correlation between end consumer demand and our overall revenues. Operating margins, however, are slipping as pricing comes under pressure from slowing freight demand in certain segments of our business, which I believe is related to that recent trend of shippers and retailers rightsizing inventory levels. They have virtually closed their order books as they try and get a handle on bloated inventories. There was also a slight decline in fuel surcharges, which is correlated to the drop in price of diesel fuel, and that's a slight negative to margins as well. And then to close out the year, operations across our network of companies were really hampered by the winter storms. Business virtually came to a standstill. And as a result, we do not expect operating profitability to be as strong as Q3 or even as we'd originally planned in our latest correspondence. And I was saying this, December is never really a strong month due to the holiday schedules. And this year, we virtually lost 2 weeks of work in the month of December. So December kind of is a difficult month to translate into future expectation. What we can say is that the quarter started out very strong. But as the quarter progressed, we started to see some clear and pronounced changes in the economy and in overall freight demand, which as I mentioned, is now translated into a freight recession territory after several quarters of a freight surge. Now this is -- a freight recession is not the same as an economic recession. The freight recession, as I'll talk about later, really is because of inventory rebalancing, in my view. So this is the one trend that I think is the primary reason why I was so reluctant to pursue acquisitions in 2022. Far too many carrier owners believe that business and profitability would remain elevated forever, that this time it's different. Well, I took a different view. After several years in this business, it's taught me that freight volumes eventually normalize. And that's why one must pay particular attention to end consumer demand, not to events. This is precisely what we did last year and what we see happening today. And besides, when I look backwards, I said the asking price was way too high -- much higher than my bid price, so we just waited. Now I firmly believe that this prudence and patience will eventually serve our shareholders well over the longer term. So enough on '22. What about 2023? I'll start with the obvious, the general economy, and I would say, in particular, the consumers starting to adjust to high interest rates. However, despite all the negative headlines circulating the newswires and the short-term challenges associated with that inventory rebalancing I spoke about, we do not see any material or structural declines in most of our business. The fact is that end consumer demand remains quite strong, even though central bankers are pushing really hard on the brakes in an attempt to slow the economy. No one really knows how hard they will push or how steadfast it will be. And just in case the central bankers get what they wish for at rooting out inflation, we stay on high alert here at the Mullen Group. What we do know is that there is a little bit higher level of uncertainty today and which can, I think, can easily manifest into an economic slowdown. Now the extent of any slowdown will ultimately be determined by future economic activity, consumer spending, which in turn is influenced by the most factors like headline inflation, interest rate policy, capital markets stability, geopolitical stresses, et cetera. So within this context, and given what we know today, it is reasonable to assume that our 2022 financial performance will not be repeated in 2023, at least in terms of our same existing store sales or same 38 business units. Now this in itself does not mean we will not have a good year. In fact, we will have another solid year despite the recent drop in freight demand, which I said is closely associated with the precipitous decline in overseas import shipments and more challenging pricing environment, particularly in the full truckload and long-haul freight business. Now as I discussed earlier, I believe this has more to do with the inventory rebalancing than a decline in end consumer demand. You'll recall that in 2021, shippers and retailers, manufacturers, they changed their traditional buying trends in response to the supply chain disruptions. And as they tried to get ahead of the shipping bottlenecks, they started booking freight 2 to 3 cycles ahead. And either that or they misread overall end consumer demand, ordering far too much inventory. Now of course, when they did this, all they really accomplished with excessive fine was to exacerbate the supply chain issues, and this led to the freight surge that we witnessed in late '21 and most of '22. However, as they say, too much of a good thing is not a good thing. Inventories became bloated, and these same retailers and shippers have curtailed new buying, and I would offer quite significantly. And this is why carriers involved in the long-haul freight business are now suffering as the freight surge has now morphed into a freight recession. So today, we see prices declining, just as yesterday we saw them surge. I expect that we will start 2023 with less freight to haul at competitive pricing. Now thankfully, a good portion of our long-haul freight businesses utilizes independent third parties, as such, our business units that will be focused on managing the spread and should do well at maintaining margins. But I would say to you, some carriers are going to pay a hefty price, I suspect. What matters most to us is not these temporary, let's call them, transitory supply chain disruptions. It really is end consumer buying that eventually drive demand. And from all the data I read, consumers are still buying. Maybe not quite as much as early '22, but they're still buying. And most likely, they will cut back if they do on big ticket items like a new car or a new home, but they will still be buying the necessities. And we also expect, by the way, the bloated inventory levels to normalize, and retailers and shippers are going to once again begin reordering for tomorrow's sales. That's going to create another cycle. I suspect we'll see a new ordering trend sometime in Q2 as they rush to meet back-to-school and the next consumer buying cycles. Truthfully, folks, this is just inevitable. There's another reality that must be factored in the supply chain story, and that's warehousing. Now warehouses remain full and near all-time capacity limits, primarily because shippers and retailers accept most order in advance of the selling cycle. However, a significant amount of today's inventories are what I refer to as debt inventory. Now I know this because when I visit our warehouses, they are full of stagnant inventory. It simply will not sell because consumers are very picky and a lot smarter than what some of the retailers and manufacturers have thought they would be buying. So from our perspective, this is not all bad news, at least for our warehousing business. This debt inventory I referred to takes a valuable and expensive warehouse space, keeping warehousing charges sticky. So as we think of 2023, there are just a few critical components that we have factored into this year's budget and business plan. And to be honest, there was nothing easy about trying to calculate what '23 would look like, which is why our senior executive has taken a practical and prudent approach to setting out our expectations for this year. Now we know there is a changing economic landscape, but exactly how everything plays out, all that's way beyond our control. This is why we budgeted 4 different scenarios for 2023. And in each scenario, MTL will generate strong free cash, enough to meet all of our obligations, including CapEx, which is to ensure our business units can continue to generate outstanding results. Our obligation and interest on the debt, which is now mostly tied to long term, just our long-term notes. And I think Carson, that's still at about sub-4%.

Correct.

Taxes, which everybody knows, they fluctuate with earnings. Lease payments, which we try and keep to a minimum, as you know. And of course, dividends, which will be held at $0.72 per share in 2023, and that's payable monthly at $0.06. So the level of excess free cash that we will generate will ultimately be determined by the level of economic activity, freight demand and pricing stability. In other words, we have stress tested our business model under various scenarios. And I can say with a high level of confidence that 2023 will be another very good year for the Mullen Group. Today, we will outline our base case scenario for '23, which by the way, only reflects the results we expect from the business units we currently own and operate. It does not factor in any acquisitions. Now this base case budget encompasses a dose of reality, along with what I refer to as the power of our diversified business model. Consolidated revenues are still going to come in around $2 billion, and operating profitability or OIBDA will be around $300 million. Now that's down from 2022, but that's still very good. And that does not mean we will do $300 million of OIBDA. What we've done is we're just planning and doing our allocation of capital as if we're going to do $300 million. So all in all, I think it's a pretty good outcome given the changing economic circumstances. And I've got Carson Urlacher, who is now going to provide some additional detail by our operating segments. So Carson, it's over to you.

All right. Well, thanks, Murray, and good morning, everyone. As Murray mentioned, I will provide some detail of how our $2 billion of revenue, our $300 million of OIBDA and our $85 million of CapEx is broken down by segment. Before I get into the details, let's look at what $300 million of OIBDA means from a high level. At $300 million of OIBDA, we generate approximately $45 million of free cash, which is calculated after paying dividends to our shareholders, funding CapEx, paying cash taxes, interest on our debt and our lease payments. The $45 million of free cash is then reinvested throughout the year. So how do we get to $300 million of OIBDA? The breakdown is as follows. We expect to generate $135 million from the LTL segment, $100 million from the L&W segment, $75 million from the S&I segment and $6.5 million from the U.S. 3PL segment, all of which is somewhat offset by corporate costs. Let's first start with our largest segment being the LTL segment. Our LTL segment is predominantly driven by consumer demand. We expect approximately $800 million of revenue to be generated within this segment, generating operating margins of 17% to 17.5%, resulting in OIBDA in the $135 million to $140 million range. This budget assumes that economic activity and consumer demand is slowing but not collapsing. Our business units have strong regional market share within our LTL network that provides final-mile delivery. Pricing is, therefore, less volatile and more sticky than other types of freight. Our LTL segment is largely an asset-based business, whereby our business units can adapt to changes in demand levels to ensure low density remains strong. The 17% to 17.5% operating margins budgeted for 2023 is a slight contraction from the operating margin generated in 2022. The margin contraction is largely due to some continued inflationary pressures as well as some pricing pressure noted within the segment. We expect capital expenditures within the LTL segment to be approximately $40 million. That will focus on newer, more efficient operating equipment that will assist us in maintaining our margins. Our second largest segment is our L&W segment, which is mainly driven by large capital projects and infrastructure programs. Unlike the LTL segment, these business units are more asset-light, so the focus becomes on managing the spread. We expect approximately $600 million of revenue to be generated from the L&W segment, generating operating margins of 17% to 17.5%, resulting in OIBDA in the $100 million to $105 million range. This budget is likely to be flat compared to 2022 from a revenue perspective, as many of the sectors of the economy with which we operate are expected to remain strong. That said, we expect some margin contraction within the segment as pricing has come under pressure due to a lack of overall freight demand compared to what we experienced in 2022. Smaller independent operators are leading prices lower. Given the higher cost of new equipment and higher interest rates, this trend may not last. We expect capital expenditures within the L&W segment to be approximately $25 million. That, again, will focus on the newest, most environmentally advanced operating equipment. Our third largest segment is our S&I segment, which is driven by a number of sectors of the economy, including the energy sector, the mining industry, civil and infrastructure projects, including pipelines. We expect approximately $375 million of revenue to be generated within the S&I segment, generating operating margins of 20% to 21.5%, resulting in OIBDA in the $75 million to $80 million range. There is some optimism in the oil and natural gas sector going into 2023, as drilling activity levels are expected to be slightly above 2022 levels. This should bode well for our business units in both the production services and drilling-related services groups. We anticipate that this increased demand will offset a decline in pipeline hauling and stringing activity. We expect demand in our specialized group to remain strong due to the continued investment in civil and infrastructure projects, supporting both Smook and Canadian Dewatering, respectively. We expect capital expenditures within the S&I segment to be approximately $20 million. That will focus on introducing new capital into those business units where we've seen increased pricing and commitments from our customers. This marks the first time in many years where we've allocated any meaningful capital to this segment. In the U.S. 3PL segment, we exclusively utilized third-party contractors to move freight. So the focus will become managing the spread to improve margin. We expect approximately $225 million of revenue to be generated within the U.S. 3PL segment, generating operating margins of approximately 2.5%, resulting in OIBDA of $6.5 million. A significant portion of our revenue in this segment is tied to LTL, which is not declining as steeply as the full-load truckload business. We expect 2023 to be another competitive year in the U.S. freight market, and we plan on continuing to develop our next generation of proprietary transportation management software, named Silver Express. And with that, Murray, I will pass the call back to you.

Thank you, Carson. I appreciate that. Now to achieve these results, we've established a set of goals and priorities that our organization will focus on in 2023. And I've asked Richard Maloney to speak to these initiatives and how they are aligned to support our '23 budget business plan and long-term growth plans. So Richard, over to you.

Thank you, Murray. So the 4 priorities we've established for the 2023 business plan and budget, first and foremost, we're going to continue to invest in our company's capital investments. We have identified $85 million of capital investments. This does not include any investments in investments or, pardon me, in acquisitions or facilities, lands or buildings. $70 million of this capital will be directed to maintenance capital. And specifically, you will see us focus on new power units. The fuel efficiency of the new power units are providing us with a 30% to 40% improvement in miles per gallon. $15 million will be focused on sustainability-focused capital, things like CNG, compressed natural gas trucks, which are focused on reduced-emission vehicles. Electric transit vans, Gardewine and partners with our Manitoba group have focused on those investments. And intermodal, we will continue to build out that aspect of our operations, knowing that intermodal transportation reduces greenhouse gases by 65%. Our second priority, prioritize margin over market share, and we're going to focus with our business units on process improvements. Within that, effective deployment of technology. Think about automation with our existing ERP and enhance our digital platforms that we have, Silver Express with holistic and their direct IT platforms. We will continue to optimize the operations of our business units. We will make sure we are working with the right customers, and we will continue to focus as we did in 2022 on monetizing noncore assets. Three, we will pursue acquisitions, opportunistic with consolidation opportunities. We believe the climate could be right. With high interest rate environment and cost of new equipment, this is making things difficult for our competitors. So with that, we will continue to look at tuck-in acquisitions that make our business units stronger, and we will continue to focus on strategic acquisitions that are presented to us. We will vet all those out. Four, we will continue to maintain balance sheet flexibility, and that will be a focus for us. Murray, those are our priorities for the 2023 year, and I'll pass it back to you.

Thanks, Rich. Now just before we go to the Q&A, let me turn to the longer term. Despite what everybody is going to say, the obvious economic slowdown that I think most of us would probably expect, there are a couple fundamental trends that are emerging within this higher interest rate environment. But first of all, the comment I'd make on the high interest rate is anybody under 40 probably hasn't seen -- doesn't know about high interest rates. As your first 20 years, you didn't know what an interest rate was and you had no money, so it didn't matter. And then over the last 2 decades, interest rates have been very, very low. And so we've been living in for 2 decades and a lot of money available and very, very cheaply. So things are changing with higher interest rates. So the first fundamental trend that I see changing is -- and that's the shrinkage of the independent operator. That's the backbone of the long-haul trucking industry, in particular, for the last several decades. And today, they're facing higher costs. They got higher borrowing rates, and at the same time, you've got this price-sensitive environment at exactly the same time that many are inching the twilight of their career. So like all of us age, can have an impact on your investment decision. And this trend favors large well-capitalized operators like MTL because we can pivot and we'll add company trucks as required. And this trend, as it changes, would also impact our financial results, because as the company fleet grows, we would expect higher margin expansion compensatory with the capital investment. You can see from our capital-intensive businesses, if you're capital intensive, the margins are higher. So the other trend that I see and probably not new, and Richard highlight a little bit of this, it's -- but it's very active these days and that's consolidation. Entrepreneurs need to monetize their investment. They too are entering the twilight of their careers, and selling to a well-funded public entity is a compelling option. For 30 years, we've been growing via acquisition. I doubt this is going to change anytime soon. I'll also point out that we do not do acquisitions to meet anybody's expectations, and investor and analyst, anybody's expectations. We invest when we find the right fit at the right price. So in summary, I believe our future remains pretty bright because MTL has the potential to grow over and above baseline overall economic growth which, by the way, we just don't see any growth in overall the economy in 2023, but we really have 2 paths to grow. Firstly is the acquisition route that we talked about. All you got to look for when you're doing acquisitions truthfully, folks, is it the right fit and is it the right price? There's only 2 things that I really focus on here and along with my senior team. And the second option that we can grow is [ via internal ] market share gain as weaker competitors struggle under the way to the slowing economy and substantially higher borrowing costs. Our balance sheet today is in excellent shape, primarily because we prudently managed last year's exceptional year to pay down debt. And as everybody knows, we crystallized over $50 million with the sale of noncore assets. So in other words, in 2022, we bulletproof the balance sheet. At the end of 2022, for example, our overall bank debt was a very modest $25 million, leaving available lines of credit at nearly $250 million to pursue strategic alternatives. You'll also recall that Carson talked about that free cash that we'll generate in 2023 as well. So we have lots of flexibility to pursue additional share buybacks, acquisitions or growth wherever we see it fits. We also know that the Canadian banks are eager to lend additional funds to MTL to pursue a large transaction. So in other words, we're well positioned to capitalize on the right strategic opportunities as they arise. So we've got a lot of calls in the Q&A. Let's turn it back to the operator and let's go right to the Q&A session.

[Operator Instructions] Our first question comes from Konark Gupta of Scotiabank.

So my first question is about the 4 different scenarios you mentioned. So if you can help us understand what those 4 scenarios were. And which of those scenarios did you pick as a base case for '23?

In -- of the 4 scenarios in '22, Konark, is that what you're talking about?

No, I thought you said 2023. I'm not sure, I'm sorry. Like if you can lay out what the scenario is you are assuming for 2023, what's your macro assumption there? And what are you [indiscernible]?

Yes. No growth. A little bit more competitive pricing. Last year, we saw a surge in pricing. I think that comes off. I think diesel prices are going to normalize, at least for the first part of the year. That will take away some growth, some revenue. And if you have brand-new equipment, you get good fuel mileage, you kind of make a margin on that. So I see some -- a little bit of erosion there. Inflationary pressures are going to take a little bit. So when we come out and we say, look here, we're going to do $300 million, I don't know what number we're going to do. Nobody knows for sure. Last year, I think I came out and I said we do $260 million to $270 million or something like that, and that was only up by about 15% or 20%. So you can't predict what the market is going to do. What we can do is outline, here's our base case plan, and this is how we're allocating the cash that we generate. So I can tell you, we'll manage the short-term market gyrations that might be down, might be up, depending on what happens. But really, we manage this business, Konark, for the longer term for -- we play the long game here as we say about, which is why we always are cognizant of the balance sheet. But I think there could be some short-term issues in the economy. So why not just come out at the start of the year and say to everybody, look, there's some headwinds. The central banks might get it right and they might slow the economy a little bit more than they think. And we don't want to get trapped on the downside, so we just took a prudent approach. I think we took a middle of the road. We're not predicting it's going to be a disaster, but I'm going, let's go slow a little bit.

Now that makes sense, Murray...

Now remember, that's just off of the existing businesses we've got. It's nothing to do with acquisitions. Acquisitions will -- you've got to add on top of that. And as Richard pointed out, when we find the right ones, we're going to do them.

Right. That's great color. And in terms of the terms for the year, are you seeing, as you pointed out, at Q4, late Q4 of 2022, these supply chains started to kind of normalize? So rates have come down and the competition is intense. Is it fair to expect then the first half could be tougher than the second half under your base case assumptions for '23? Or it's the opposite?

Yes, that's a good point. So we don't think there's as many supply chain issues today as there was 3 months ago, not as much as 6 months ago, for sure, not as much as 9 months ago. So they progressively got better. There's still a couple little bottlenecks that might have happened, but I think those are virtually in the rearview mirror. Konark, along when that happens, you get -- the surge pricing goes away and that's happening. If one takes a look at the ocean freight, movement of containers and freight that comes in through the ports into North America, those rates have collapsed back to kind of pre-pandemic levels in many cases. So I suspect that we'll have a little bit of contraction in the freight business. But that's mostly in the long haul. The LTL, it's sticky. It doesn't change much. And we just manage the spread in LTL. So it really is in the long-haul business. That's a part of our business. But as I said, we're a diversified company. So yes, that gets hit a little bit. We did mention that our pipeline business is going to come off this year, what we built the pipelines. Well, that's fantastic news. Our pipeline business did a great job for us for the last 3 years. Now we've laid the pipe. Now we got to put the pipe in the ground and drill. And that's why we're predicting that they'll balance themselves out and drilling activity is going to increase to offset the -- our pipeline stringing business. So we got all these levers that we pull back and forth. That's what a diversified business model does for you. But on balance, it will be softer but we still generated -- you saw how much cash we generated last year. We're still going to generate a lot of cash this year.

Our next question comes from David Ocampo of Cormark Securities.

Just a quick clarification for Carson to kick things off. In your prepared remarks, you gave kind of a range for all 4 of your segments, LTL, TL and S&I. In the press release, I think you guys just gave a $300 million number. But when I add everything up, the $300 million is the low end of your range. So is that what you guys are using as your base case? Or should I use the middle of the range as the base case scenario?

Well, we always come out conservative, David, as you know. And we always tend to, like Murray said, manage the business based on worst-case scenario. So for the news release, we picked the lower end of what we were expecting for margins to come in at for 2023. We allocate capital based on those. And you got to remember that it's a budget. We use the budget to manage the business. Obviously, as we go into 2023, things are going to change, and we're going to have to call audibles here and there. But I would say that for the base case, we used $300 million, and that's really for us to allocate capital when it comes to the $85 million of CapEx that Richard talked about.

Yes. I'm sorry, I just want to make sure I have the numbers right. So the top end, if I [ added the lot ], it's $320 million.

Yes. There's some corporate costs in there, David.

Yes.

You add in what the business units do. And then I think we got in the press release, we got the corporate costs in at about $16 million.

Yes, you got to back out...

So you back out corporate costs, and then you get down to roughly $300 million. So -- and as Carson said, it's not going to be exactly $300 million, and none of our -- we won't get any of the segments exactly right. But when we go to allocate capital, David, that's the number we thought was prudent. We don't want to be naive that there couldn't be some economic challenges given some of the headline news that we're not in control of the headline news. We just report the numbers, but yes. It might be the calibration of the corporate costs that come out of there.

Okay. Sounds good. And then on your revenue guidance, it's essentially flat year-over-year. Murray, you just talked about no surge pricing, lower diesel prices. So is your expectation for volumes to be slightly up if you're flat year-on-year?

Yes. The volumes are going to be pretty flat. That's why we came in at 2. We think -- we don't think it's really so much on the volume side, David. We think it's more on the cost side and things are competitive. I mean our customers are all discounting to get rid of this inventory that they got too much of inventory and they got too little of the good inventory. And so they're starting to push back. So like 6 months ago, customers said move it. Today, they're going, what's your price? So we need to be realistic until with that -- until the inventory thing rebalances itself, we don't know how -- exactly how that price is going to stabilize out. I suspect they're going to have to go backordering here pretty quick, David, because otherwise, the shelves will be bare come summer. There's not enough freight coming in from overseas. You just have to look at the shipping statistics coming in from overseas. It's not going to be enough to meet current end demand, not from my perspective.

And then last one here on M&A. You guys noted that you have quite a bit of dry powder available. Just curious what segments of the market interest you the most. Is it LTL, logistics or even further especially for the U.S.?

LTL, for sure. Yes. Our #1 priority is LTL because when you build the network out, it's really, really -- it just helps you strengthen your business and improve margins. So LTL will be, let's call that focus number one. And then focus number two is kind of on the warehousing and the long mile, which is intermodal. We've got to marry the 2 together. If all you do is chase intermodal, that's a 10% margin business. You just have to look at J.B. Hunt or Schneider or Knight, anybody. We try and marry the warehousing component with the intermodal so that we can feed our own LTL network. And we just want to be that virtuous supply chain provider, one shop, one call, one stop, and we'll look after it. Warehousing is a very, very integral component of where we're building this freight network out because once we get it, we can move it long mile, and then we can feed our LTL network.

Our next question comes from Tim James of TD Securities.

I guess my first question, just as you look at 2023, you talked about -- prudently about some uncertainty here, which shouldn't be surprising. Are there any particular business lines that you think uncertainty is actually higher than others? Or are there some business lines where maybe the certainty is a little bit stronger? If you could just talk about that by business line for a minute.

Yes. So LTL, as we've articulated, pretty sticky. We still see end consumer demand staying up. So we're not anticipating too much on that. I think we said, look, we might have a little bit of margin erosion, but we still get a little bit of pricing leverage. We have some cost [ imprint ]. So we said, let's call LTLs basically flat on our current business lines. On our Logistics & Warehousing, I think there's going to be -- revenue is going to be okay, but there has been some pricing challenges on the long haul part of the business, particularly as it relates to -- as I said, to that long-haul business, which is part of our Logistics & Warehousing. It's not the whole thing, but -- so a little bit of margin there. Specialized industrial, the only thing we're losing out there is the pipeline business, but we think we'll pick that up and balance it. And then the U.S. 3PL business, it's down, but that's -- the top line is down more in that business but the margin, it's going to be down a little bit, but it's still -- that's all free cash to us because there is -- it's really a technology play that's in the logistics business. It's really not a trucking business it's -- because there's no CapEx in that business. It's just all -- we just build out our technology platform, and we've encouraged our team, don't stop building out and investing in technology because that's our future of that business. We're building on a digital platform there that will be seamless to the shippers and to our -- to all of our suppliers. So that's what we're going to continue to do there. But outside of that, it's just a little bit here, a little bit there, a little bit on fuel. And so I think just to be practical, Tim, I think same-store sales, existing business will be down a little bit. But when that happens, we'll then become more active on the M&A front because M&A now is a lot more -- these business owners are a lot more practical today than they were 6 months ago because they're starting to see the same things that I'm just talking about. And they don't have a diversified business model. They are in a certain vertical and they can get whipsawed pretty easily. So the overall market might be a little bit softer. But to our shareholders, I'd say the win for us is we'll be aggressive on M&A. So what takes it away on one side, it gives us on the other side. So overall, I think we're in pretty good shape. All we got to do is get the right fit at the right price, and we'll be able to backfill in 2023 with M&A.

Okay. That's helpful. Maybe just to sort of round that off, maybe I can ask this way as well. Do you find one segment is tougher to budget than the others? Like is one more difficult to forecast, like maybe LTL because it's consumer and it's tough to judge what the consumer is going to do? Or sort of is it the project basis that can kind of drive specialized? Or do you find budgeting and planning for each segment, the challenge of it is pretty similar with each?

Yes, generally. Clearly, on the project side business, whether it's pipelines or a major construction business or those kind of things, you need a lot of things to go right on those things. So they can be a little bit choppy, I guess, Cars?

Yes.

But budgeting is -- it's just a plan. You just -- you take a look at it, you make your best guess, your best analysis after all your years in the business and say, okay, well, what do you see happening on the demand side? And what do you see happening on the supply side? And then you just kind of reverse engineer from there. So all we're trying to articulate to everybody is that the economy is going to be different in '23. We acknowledge that we're not going to bury our head. I'm not going to come out and tell you everything is good. There are -- it's going to be a different economy, and that's what the central bankers are telling you. No, we got to slow it down a bit. Well, I'm taking my cue from the central banks that says it's going to be a little bit slower. When you're a little bit slower, you'll have a little bit more price sensitivity, and we built that into our business model. Specialized industrials probably doesn't have the same kind of issues. It's not quite as price sensitive. The central bankers won't influence that. That's more public policy on the fiscal side and government and whether the government would support mining businesses or whether they'll support carbon capture or whether they support oil and gas, those kind of things. But budgeting is never easy. That's why I say all we do is recalibrate it, and then we manage the business every week, every month. I mean that's what we do every quarter. But it doesn't -- if you got your balance sheet scored away, you can always play the long game. If you don't have a good strong balance sheet, you can't play the game. These countercyclical opportunities just won't help you. So as I say, just count on the fact of the economy a little bit slower, but we'll be more active on the M&A front. And everything will be just fine.

My last question, Murray, you mentioned about the -- your thoughts and of course, the independent owner-operators and probably the challenges that they will face in this environment, which is beneficial to companies like a Mullen Group. Are you seeing at this point, as we sit here today, any benefits starting to come from that capacity leaving the system? Or I would think also, is it having any impact on the availability of equipment, of your ability to procure new equipment in a timely manner? Just wondering if you're seeing any changes in the market at this point. Or if that's more of something you think is still to come in '23?

Yes. Yes, I think it's -- we see it right now. There is no new entrants, independents coming into the business. So that's the first thing. The second thing is age is -- demographic is catching up to independents. They get in and they're not going to make another investment. So over this next cycle, it's catching up to it. And besides, they can't get a new truck. New trucks are being hogged by the big order books by the big carriers, and so they're kind of boxed out. Heck, they can't even get parts and service right now. So they're just -- they'll eventually just -- they're not going to make the next investment. The question is whether they stay in the business and come back to work for carriers like ourselves. I think they will, but they're going to increasingly want to work more local than regional and not long haul. That's why we're investing in intermodal because intermodal is the long haul, and regional and short-haul LTL is where we see the future for the trucking business and for the business we have.