Andlauer Healthcare Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2023

There are 9 speakers on the call.

Operator

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to N. Lauer Healthcare Group 2023 Third Quarter Results Conference Call. Please be aware that certain information discussed today may be forward looking in nature.

Operator

Such forward looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward looking information. For more information on the risks, uncertainties and assumptions relating to forward looking information. Please refer to the company's latest MD and A and Annual Information Form, which are available on SEDAR Plus. Management may also refer to certain non IFRS financial measures.

Operator

Although the company believes these measures provide useful supplemental information about financial performance, They are not recognized measures and do not have standardized meanings under IFRS. Please see the company's latest MD and A for additional information regarding non IFRS financial measures, including for reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in Canadian dollars. Following management's remarks, there will be a question and answer session. Note that this call is being recorded on November 3, 2023.

Operator

I would now like to turn the conference over to Michael Enlauer. Please go ahead, sir.

Speaker 1

Thank you, C. Debbie, and good day, everyone. Thank you for joining us today. With me on the call is Peter Brownlee, Chief Financial Officer. Following my opening remarks, Peter will follow with a more detailed discussion on our financial results.

Speaker 1

I'll then provide closing comments over the lines for the questions. Our results over the quarter continue to reflect a return of a more normalized operating environment as we no longer benefiting from the pandemic related tailwinds we experienced throughout 2022, Especially temporarily inflating U. S. Truckload premiums and significant COVID vaccine related contributions. COVID-nineteen related revenue declined to approximately 0 point 8% of consolidated revenue in Q3 this year compared to approximately 2.8% a year ago.

Speaker 1

The rate premiums we were able to capture in U. S.-based ground transportation during 2022 were primarily due to related to equipment and driver shortages, which have now diminished. Our premium pricing in the U. S. That's due to our validated temperature control, quality assurance, security audits.

Speaker 1

However, premium rates are impacted by macroeconomic factors and by We believe our U. S. Ground transportation Rates are stabilized now. However, we believe that we can still drive growth by strategically leveraging our core specialized competencies and focus more on certain customers and our high value products in our markets. We are revisiting our go to market strategies in the U.

Speaker 1

S. To drive improved performance moving forward. We have also been experiencing lower outbound order and handling activities for Acturistics in the past 2 quarters. We expect our LSU facility expansion in Montreal, which is currently completion in December to improve our logistics and distribution product line performance starting in 2024. Despite the lack of operating tailwinds this year, our consolidated revenue within the first time months is just 1% below the same period a year ago And our EBITDA margins for the quarter year to date remain within our historical range of 24.9%.

Speaker 1

I'll turn I'll turn over the call to Peter Browning to review our financial performance in more detail.

Speaker 2

Thank you, Michael, and good morning, everyone. Our consolidated revenue for the quarter totaled $156,800,000 a decline of 4.9% from Q3 last year. Revenue for our Healthcare Logistics segment was $42,100,000 down 12.3% from Q3 last year, reflecting to a 9% 9.9% year on year decrease in our logistics and distribution product line revenue and a 31 2% decline in our packaging revenue. The decrease in logistics and distribution revenue was due to lower outbound order handling activities for Acheristics and reduced transportation billings impacted by fuel surcharge programs from carriers. The decrease is also partially attributable $2,300,000 of revenue recognized in Q3 last year related to certain pass through expenses, which were reclassified to logistics and distribution Revenue for LSU in accordance with IFRS 15 during the Q4 of last year.

Speaker 2

This net revenue treatment has been consistently applied throughout current fiscal year. The decline in packaging revenue primarily reflects the loss of 1 of our packaging customers in the Q1 of And lower volume from our remaining base of packaging customers compared to Q3 a year ago. Revenue in our Specialized Transportation segment Totaled $114,700,000 a decline of 1.9% compared with Q3 last year. The The decline is attributable to a 1.4% decrease in ground transportation revenue and a 4.4% decline in air freight forwarding revenue. The decrease in ground transportation revenue in the quarter was primarily attributable to lower fuel costs passed on to customers as a component of pricing and a decline in U.

Speaker 2

S.-based truckload rates as Michael discussed earlier. Our ground transportation revenue in our Canadian network excluding fuel partially offset this decline with growth of approximately 6% in the quarter. Our decline in airfreight forwarding revenue primarily reflects A decline in fuel surcharge revenue partially offset by organic revenue growth. A slight decrease in dedicated and last mile delivery product line revenue in the Order reflects organic growth partially offset by reduced fuel surcharge revenue. Cost of transportation and services was $79,600,000 50.8 percent of revenue compared with $81,000,000 or 49.1 percent of revenue for Q3 last year.

Speaker 2

The decrease reflects lower fuel costs in line with the decreases in revenue related to fuel prices. Slight increase in our operating ratio is attributable to the lower pricing in our U. S. Truckload operations. Direct operating expenses were $25,300,000 or 16.2 percent of revenue compared with $28,300,000 or 17.1 percent of revenue for Q3 a year ago.

Speaker 2

Direct operating expenses this quarter reflect a reduction in outbound volume in our Acheristics, Logistics and Distribution operations. The decrease is also partially attributable to the recognition of certain pass through expenses in Q3 last year, which have been reclassified to logistics and distribution revenue for LSU as discussed previously. SG and A expenses were 8.2 percent of revenue for the quarter, which is in line with our expectations and compares to 8 percent of revenue for Q3 a year ago. The increase reflects our investments in supporting our business growth. Operating income totaled $21,700,000 compared to $27,900,000 for Q3 last year.

Speaker 2

The decrease is primarily attributable to reduced contributions from Boyle Transportation and Skelton USA and the decline in revenue related to COVID-nineteen vaccines and delivery products. Net income was $15,300,000 or $0.36 per share on a diluted basis compared with $19,000,000 or $0.44 per share on a diluted basis in Q3 a year ago. EBITDA totaled $39,000,000 compared 44.1% for Q3 last year. The decrease in net income and EBITDA is due to the factors already discussed. Our 24.9 percent EBITDA margin for the quarter is in line with our historical range of 24% to 26%, as Michael noted earlier and compares to our margin of 26.7 percent in Q3 last year.

Speaker 2

If I look at our balance sheet, cash from operating activities has continued to build Our discretionary cash position in 2023. During the quarter, we repaid $25,000,000 on our term facility. At quarter end, the amount outstanding under our credit facilities was $25,000,000 under the term facility and nil under our revolving

Speaker 1

credit facility.

Speaker 2

We've also been active in our normal course issuer bid announced last March. As at quarter end approximately 108,000 subordinate voting shares For a total of approximately $4,400,000 have been purchased and canceled. At quarter end, We had cash and cash equivalents of $68,300,000 and working capital of $104,500,000 This compares to cash of $56,000,000 and working capital of $85,000,000 at 2022 year end. We remain well positioned financially to pursue growth opportunities. I'll now turn the call back to Michael for closing comments.

Speaker 1

Thanks, Peter. Looking ahead, We are confident that we can build off this new baseline in 2024, supported by the positive industry growth fundamentals that characterize the healthcare and transportation logistics markets, in particular in Canada and U. S. And leverage our unique platform to outperform. This is evidenced by the actual growth we have experience.

Speaker 1

If you compare the Q3 of 2021 results to the Q3 2023, 50% growth in revenue and 39% growth in EBITDA. In addition, our strong balance sheet positions us to generate incremental growth through complementary acquisitions. We have an attractive pipeline of potential targets in both the U. S. And in Canada.

Speaker 1

As we continue to expand our platform, we We'll maintain our disciplined approach with respect to both financial and operating metrics and our constant focus on better serving our customers and supporting our unique culture for employees. I'll now open the line to questions. Philippe, you can start the Q and

Operator

A. Thank you, Your first question will be from Walter Spracklin at RBC Capital Markets. Please go ahead.

Speaker 3

Yes. Thanks very much, Sylvie. Good morning, everyone. Just perhaps starting off on your comment About building off on a new baseline in 2024. I know 2024 saw kind of a wind down of some one time or non Recurring benefits that you had seen during the pandemic period.

Speaker 3

And now that you're discussing Baseline in 2024, is it fair to view now, you're returning from this point to a Mid to high single digit growth trajectory going forward? Or is there still something that you're seeing either in the economy or Related specifically to your business that perhaps that resumption to that level of growth may take a little longer. Just curious

Speaker 1

Yes. Good morning, Walter. I think with respect to the baseline, I mean, I think I tried to compare it 2021 similar quarters. And I think you can see that H7 is that 2022 was definitely an anomaly for us. There have been some findings.

Speaker 1

I think when I look at the Canadian market, I feel that it's still very robust And continues to grow at those at the predicted growth rates. The U. S. It has been a little bit more of a learning experience for me on the truckload side since Skelton USA and Boyle. And those were unexpected.

Speaker 1

And I think that's where the macroeconomic I I think I mentioned last quarter that we were seeing we were going into a trough That was definitely evidenced in Q3 with our U. S. Truckload Companies, more so than I had anticipated, But it is the reality of the economy in the U. S. And the truckload market in the U.

Speaker 1

S. I think I hadn't realized that it's more commoditized than I had anticipated, especially

Speaker 4

with the

Speaker 1

type of margins we would experience in 2022 with these U. S. Truckload companies.

Speaker 3

So that actually relates to my second question. I mean you had I mean Peter mentioned Canadian ground transportation revenue ex fuel was up 6%, but your consolidated group was down 1%. That would imply that the U. S. Business was actually very bad, unless there's something in there that I'm missing.

Speaker 3

Is that causing you all at all, Michael, to re examine your strategy going into the U. S? I know that's been a focus. In your prepared remarks, you said that that But you mentioned that structurally it is a lot different from your Canadian business. Is there opportunities that you could refocus Into the Canadian market or you still believe the U.

Speaker 3

S. Market is a good growth area for you?

Speaker 1

Yes. I don't Yes, you're absolutely right. Refocus is exactly what we do. We're very flexible. We discussed that With our Board yesterday with respect to the U.

Speaker 1

S. Market, and I when I look at the business on its own, They're good truckload companies. I think that most truckload companies would admire the type of operating ratios that they're running But in the teens, in the mid teens, but That's not specialized. I think when we looked at that, we looked at it that Because we're in the healthcare, we would make a difference. Now on its own, it still runs well.

Speaker 1

But when we were talking at this time last year, They were in the low to mid-20s. There's a big difference. And a part of it was the education of trying to understand Why? And the one area that stood out for me, Walter, was the fact that The FDA is not as stringent, particularly on ambient business than they are than Health Canada is. And as there were more trucks on the road, more drivers and less Other afraid to be moved around.

Speaker 1

All of a sudden, the pricing became too attractive For some of these 3PL companies or in particular on the consumer goods healthcare consumer goods side To say no to, we try to keep a disciplined approach. So basically, Changing our tax or strategy in terms of type of product and not necessarily look at growth. For me, for the next couple of quarters, it's been about stabilizing. We're not going to grow the fleet Like we had anticipated, but that's all good. I mean, that's all I look at it, It's not no chance no reason to press the panic button when I look at the truckload industry in the U.

Speaker 1

S. They'll tell you They're at the trough right now and we're not going to get our numbers aren't going to get any worse going forward. The service is good. There's still a demand, but at lower tariff rates and that's just the reality. But what it says to me is that it doesn't differentiate itself more than the other product lines that we have in the AHG suite of products.

Speaker 3

I appreciate that color, Michael. Thank you very much.

Operator

Thank you. Next question will be from Kevin Chiang at CIBC. Please go ahead.

Speaker 4

Hi, good morning. Thanks for taking my question. I think if I look across, at least in your disclosure, Canadian ground transportation, air, last mile, all posted. Organic growth when you exclude the impact of fuel surcharges. Just trying to get a sense of when you look at that organic growth, if you're able to split up between What was pricing driven versus what was volume driven?

Speaker 4

Is this still primarily pricing led organic growth, just given the broader softness in the Or are you getting a lift from both sides of that equation?

Speaker 1

I would suggest it's both sides of the equation. So I think when I Off the top of my head, our shipment counts grew by mid single digits. Our weight stayed status quo. So that's that while the weight hasn't changed, Our next product, the cosmetic, the vitamin business, everybody seems to be tightening their belts Consumer spend. And so we see that trend, But and we've seen it in particular at Acuristics, the consumer goods part of the healthcare business And that's big volumes.

Speaker 1

Those are big shipments from a wage standpoint. But all in all, I mean, it's you can see that it is robust And steady business going forward. So and obviously the pricing discipline, we're making sure that our employees are Properly pay that we have the right equipment on the road that we reinvest that has to be passed on to a certain degree. Having said that, there's some pricing pressures that we did experience. And then in some in another case, in one particular case, particularly on the dedicated, Basically, concession for longer contract period It was an opportunity for us to work with one of our clients to ensure that they Their needs and ensure sustainability for AHD for long term and longer term sustainability.

Speaker 4

That makes sense. I know it's a small part of your business, the packaging business that has been trending lower and I know you lost customers here. But I guess at a high level, I would have thought this is well, I guess it is an ancillary business tied to Logistics and Distribution, presumably that customer or customers still need packaging done. So maybe just some color in terms of what's happening there. Are you are they I guess in sourcing the packaging and then just sending you the products so they don't no longer need that service or would it get packaged Somewhere else, but they're still using your warehousing facility.

Speaker 4

Just a little color in terms of what's happening there from a customer's perspective as they As I guess, they look for another packaging solution.

Speaker 1

Yes. The packaging solution is probably more co packaging solutions that we offer In that area and that's Ann dial display in the healthcare sector because With our I'm not sure what I'm looking for, validation with the GMP license to go back with the type of products. That has slowed down. And the other thing too is that we're not we hadn't put as much focus on that because I was thought it was the least yielding business Focus on areas where we get better return for our investment and it was more commoditized. So A combination of pricing once again on that side of the business.

Speaker 1

And I think retailers are not willing to spend as much and Therefore, manufacturer from a co packaging standpoint has produced it's not the actual packaging of the product that we're not in Kind of wish we were. But in this case, that's that too, we've hit a trough there. There's nothing It can only go up from that point, but our customers and that's particularly Kevin in the consumer goods Part of the business and that's where we're seeing a bit of a slowdown there.

Speaker 4

Yes. I figured it might be tied maybe a little bit more consumer good. And just last one for me only because it's it feels like you can't go by a week Without hearing about this, but GLP-one or Ozempic consumption, I'm sure it's very small today, but As you think longer term, there's some big numbers out there in terms of potential, the societal consumption of this This miracle weight loss drug, is that something that is a small part of your business that you see growing just or conversations you're having with the pharmaceutical Companies that are looking to produce this GLP-one drug. Is that a big opportunity that Or maybe a more sizable opportunity as you kind of look up the next few years.

Speaker 1

Yes. It's a big opportunity. I don't think like We don't get a percentage of the revenue in our business. It's a drug like every like, I don't know, like Viagra, like Other drugs, so if they get popular, yes, we'll get more volume. Certainly, there's a temperature control requirement on that, that it's being injectable and 28.

Speaker 1

There's more care, and there we will have more volume from that standpoint. Skeleton, who does a lot of the 2 to 8, have been a beneficiary of this and ATS, whenever it's going through the Accredo program, which the manufacturer has subscribed to. But it's not material from a numbers perspective. It's just stable business that we're that would be We'll continue to get, but it's not I wouldn't hang my hat on that.

Speaker 4

Okay. I've

Speaker 1

been around my house because I've just gained Not too much.

Speaker 4

You and me both, Michael. Thank you for taking my question and have a great weekend.

Speaker 1

Thank you, Kevin.

Operator

Thank you. Next question will be from Konark Gupta at Scotiabank. Please go ahead.

Speaker 5

Thanks, operator. Good morning, everyone.

Speaker 1

Good morning. Good morning.

Speaker 5

Good morning. My first question is On the U. S. Revenue, so from some of the disclosures, it seems the U. S.

Speaker 5

Revenue in entirety was Down about 11.5% from last year in Q3. Can you help us break down that number by pricing, volume and Feel like what drove the most decline in that number and was volume up or down?

Speaker 4

Was the volume down? The volume was

Speaker 1

down, but

Speaker 4

Yes. I don't think the

Speaker 1

volume was down. I'm just I'm looking at Peter here. Here's the reality, Konark. I said, We are both companies. So if you combine both companies, Their EBITDA difference from Q3 of 2020 3 compared to Q3 of 2022.

Speaker 1

The difference is about $4,400,000 Difference, negative. That is probably 85% of the difference in our bottom line to overall AhG. That was the big surprise. Like I said, the FDA not being as stringent on temperature validation. Obviously, The cost of equipment was greater and obviously we were growing, had to replace The equipment is a big maintenance CapEx in the truckload world that happens year over year.

Speaker 1

Driver wages didn't go down, but the rates did and they were aggressive. Manufacturers, 3PL companies, other decision makers were Basically RFP ing or being shown 20% decrease rates. So they couldn't They had to look at that because the FDA, particularly when it comes to AMB, they don't have inspectors out there. They don't have The policies are to ensure that there's validation on the equipment. Now having said that, if you got Frozen product or more injectable product.

Speaker 1

So when we talked about We're relooking at our business and pivoting. It's about looking at going forward The different quality of product in the healthcare sector, more specialized, a little bit harder to do, Because both of these companies are really good at what they do. The customers don't leave us because of service. They're leaving us Or choosing and this is a spot rate business. So to me, We're that is the biggest reason for the difference.

Speaker 1

We can grow that business tomorrow, But at basically normal truckload company rates and I just don't want to be a normal truckload company. I'm in the healthcare sector for panel first and there is sort of the healthcare sector that requires Quality service and willing to pay for it. So we'll look at those clients. And I think what's happening As we got so excited with 2022 and the margins that we got because people weren't going to make Mess around with vaccines, and there was a shortage of drivers and trucks, and we were able to provide that. So we were able to, I guess price it in a way that was similar to what the pricing is in Canada.

Speaker 1

So that's a long and short on the USA. It's Good learning. Like I said, it's not the end of the world because we're making good margins. Mid 80 OR is not bad for a truckload company, but it's not the

Speaker 5

That's good color. Thanks, Michael. Perhaps on the Acuristics side, just want to kind of dig in a little bit more what's happening there, like revenue has been down organically, I guess, last 2 quarters. Volume seems to be So is there any market share shift dynamic there you think? Or is it more like customer volumes are coming down?

Speaker 5

Like just trying to understand what's happening behind the scenes in that aspect. And is there any outsourcing opportunities that you are kind of working on?

Speaker 1

Yes. On the logistics side, I think there's no doubt on the pharma side It is good and steady. The generics Keep on tightening their belts, so that's we're seeing a bit of a trend there, but particularly the consumer goods side of the healthcare, There's been a huge tightening and relooking, especially when you get these companies that they're looking at They're consolidating, they're buying, they're consolidating and then they're looking for cost savings and efficiencies. But then even from a consumer standpoint, they're not meeting nearly the same targets that they were themselves in 2022. So we're seeing a softening of the movement of goods, particularly on the consumer goods side of things.

Speaker 1

But still being used cough and cold, But I think the vitamin side is looks like it's down. So that becomes more A little bit more of a pressure on that. I'm not worried about that. It's still It's a good business. It's long term.

Speaker 1

It's long term contracts. And from a cost standpoint, we've had the duplication of putting a new system in place, the duplication of costs And the likes, but all in all, I think we're good. We were also we talk about 2020 to being a with the vaccine and COVID related products movement of COVID related products. We also had were the beneficiary of the baby formula shortage That happened last year, so for example, and that was big volume as well, for example.

Speaker 5

That's great. Thanks. And then last one for me, just kind of housekeeping on the lease payments, Seems like they have been declining sequentially over the past 4 quarters. I'm just curious, like I think everybody's kind of talking about inflation and rate hikes and all that, and You're seeing the lease payments coming down. Just curious, are you consolidating any footprint or renegotiating any of those lease contracts?

Speaker 1

I'll let Peter answer the first part and I'll answer your second part of your question.

Speaker 2

Yes. In our facility network, there's really been no change. Mike will talk to that. The reduction in lease payments is really it's just Cycling through equipment leasing. So there's no real trend there.

Speaker 2

We've had some deferral Just because of equipment shortages

Speaker 1

much of last year that

Speaker 2

has kind of brought down Our lease payments, but those that's just temporary. So we

Speaker 1

should be back to our

Speaker 2

sort of typical run rate of leasing In the next near future, it's really not there's nothing systemic in there.

Speaker 1

Just one on the equipment side. Yes. On the equipment side. Yes. On the real estate side of things, there's no doubt that there's as every lease comes up, that those go up.

Speaker 1

And we've seen I think we'll have stability over the next Couple of years, we're pretty stable certainly for the next couple of years. So we're not going to see huge, but We do have some of the transport facilities are getting rid. I know Ottawa, for example, Next year is probably going to go up by 40%, but it's not as significant that's going to Impact, but it will impact, but not too much. I think we will absorb it. We'll be able to absorb it and certainly With pricing discipline as well.

Speaker 5

Perfect. That's great color. Thanks so much guys. Appreciated the time.

Speaker 1

Thank you, Tunak. Have a good weekend.

Operator

Thank you. Next question will be from Ty Collin at 8 Capital. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking the questions. For my first one, Michael, wondering if you could just maybe update us on the M and A pipeline, I guess particularly in light of how the U. S. Business has evolved.

Speaker 6

I know some of your comments earlier in the year seem to indicate that the U. S. Was the from an M and A perspective and that you're not averse to even doing a larger size transaction. So just wondering if that's still the case and if so what the pipeline is looking like?

Speaker 1

Yes. We spent a lot of time yesterday at the Board meeting with Graham's presentation. And a lot of the time that was discussed on that subject. There is a lot in the pipeline. It's a matter of priorities and understanding and timing.

Speaker 1

On the U. S. Side, We are trying to focus more on the logistics side of things, things like we can make a difference and bring our best practices to. Ambient transportation is definitely not, whereas it's a big component Within our AIG network in Canada, we feel we cannot we will not be able to make any difference in the U. S.

Speaker 1

At this juncture Until FDA changes their rules or become more stringent, I guess. So on the logistics side, we are looking at opportunities. I'm excited about the opportunities because of our Not only our balance sheet, but also I think prices are starting to become a little bit more attractive In the marketplace as well, expectations, I guess. So I'm looking at it. We'll be methodical about it, but we're it's not about something being automatically accretive.

Speaker 1

I want to make sure this is sustainable long term. So for me, that's my focus, but that's where we're at. We're going to continue. And then there's opportunities in Canada as well. I mean, I think being a healthcare services provider in this country, I think we will be good.

Speaker 1

Thanks.

Speaker 6

Okay, great. Yes, I appreciate that color. And then for my follow-up, just wondering if you could provide maybe a little more Color on the competitive environment in Canada on the logistics side. I think you mentioned earlier in the call that you're still seeing some pricing pressure there and that's kind of consistent I think What you said last quarter, so just what's sort of driving that? And would you say that the level of competition is sort of stable over the last few quarters?

Speaker 6

Or is it getting more intense?

Speaker 1

I think it's pretty stable. I don't see our competition being aggressive on the logistics side of things. I think one of the things one of the areas that we have going for us, I think with Konark, previous caller, Talking about leases is that we have stability on that front. And on the logistics side, the 2nd biggest cost His facility costs after employee costs and logistics, and that's Any new contracts are going to be dealt with new space, which would So we have stability there and we want to be Our focus on making sure that we have the right clients in long term. And so I think that's we're good.

Speaker 1

Right now, we're going through a Warehouse management system change, so we want to make sure that's done right as well. So everybody's Focused on doing the right thing and we're a patient company where we want to do it the right way. I always say our biggest Competitor is bad service. So for me, that's how we're going to keep on focusing on that front. That's from a Canadian perspective as you know.

Speaker 6

Great. Thanks for the comments, Michael.

Operator

Thank you. Next question would be from Justin Keywood at Stifel. Please go ahead.

Speaker 7

Good morning. Thanks for taking my call. I appreciate all the comments. Just to clarify, I understand the expectation to build off of 2023 into 2024. But just as we head into Q4, I know it's Typically seasonally strong for Ann Lauer.

Speaker 7

Are we anticipated to see some of these headwinds that have showed up So far this year, are they anticipated to ease where we have a normal cough quarter in Q4?

Speaker 1

I would suggest that's probably a good we're starting to see the signs of it At the end of Q3, we started seeing those signs. And like I said on previous Callers, I said, at this juncture on our U. S. Business, it's not The margins aren't going to get any worse from this point forward. I do admit it's been a bit of a surprise to me, We are on our management meetings with the executives there.

Speaker 1

We're just relooking at refocusing on the type of quality We're looking at it. I think there's a bit of a pipeline there that's going to allow us to be more focused on So more frozen in 2 days versus trying to get the MBA business. We're growing up We're like I said, the Q4, I would anticipate would be Starting to look a little bit more normal. That's the right word.

Speaker 7

Okay. That's helpful. And then just on M and A and the timing of, obviously, the balance sheet is ripe to deploy here. I heard there were some comments on the multiples being a bit more reasonable. Is now the time to be maybe a bit aggressive?

Speaker 7

Like we were Listening in on UPS's call last week and they were mentioning plans to grow their healthcare business pretty aggressively in the U. S, including potentially cold chain assets. So that could Still be a different area that Ann Lauer is potentially looking at, but just trying to understand the urgency for potential M and A.

Speaker 2

Urgency is

Speaker 1

timing is everything. And there's no doubt that The timing is becoming more better and better. It's because of that. And we are focused on we are also focused on coaching and that's We're excited about it because we do a lot of it here in Canada. We represent a lot of these manufacturers In Calgary, we for accuracy, we've just expanded We didn't expand our warehouse, but within the warehouse, we've expanded the footprint of cold chain storage.

Speaker 1

So We're I think we're truly well positioned. And Our growth in the U. S. Is probably going to be more on the logistics side of things and there's plenty of business to go around.

Speaker 7

Great. Look forward to the developments. Thank you very much.

Operator

And your next question will be from Tim James at TD Cowen. Please go ahead.

Speaker 8

Thanks very much. Good morning. My first question ties into the M and A theme. And I guess what I would like to try and get at is You're thinking, Michael, on when you think about investment dollars and deploying investment dollars, What are the key metrics that you are looking at in terms of hurdle rates to make you move forward on a whether it's an M and A transaction or Some other investment. I mean, one of the challenges, almost a good challenge you have is that your returns in Canada, your margins are so strong.

Speaker 8

Can you duplicate that type of profitability in those returns with future M and A? Or Would you be prepared to accept the lower returns, but returns that may still be well above your cost of If you could just kind of talk us through that mindset or that thinking as you review investment opportunities.

Speaker 1

Yes. I mean, Tim, that's exactly what we talk about is, does it fit? And I think every acquisition we've had, we've had a good return on capital even as we've had a bit of The slowdown in return on capital on the Boral and Scotland USA business, it's still It's still a good return. But to me, it's about fit. I've always maintained that we're going to go in there, which And what fits is from an employee culture standpoint, I think is Critical because what we do is we don't make anything, we don't manufacture anything.

Speaker 1

Every one of our businesses is people oriented and in fact cliched, it's a reality. So that has to be there. And then it has to be complementary to our business. And We have a great network in this country, in Canada, so there's a lot more we could do with that network. And on the healthcare side of things and We can go from co packaging to transportation to logistics to other opportunities.

Speaker 1

And we are looking at ancillary products in the healthcare that are non manufacturing or Retail or wholesale. So that to me, that has to be that fit that complements our other companies. In the U. S, we're just delving into it. And to me, it's a learning Experience, we work with the 3 major wholesale distributors are clients of ours.

Speaker 1

We're learning about what their needs, what they're looking at, what they're focused their business on and for the future. So And try to understand where we can it's a big the U. S. Is a huge market People always talk about, oh my God, it's 10 times bigger, etcetera, etcetera. The opportunities are there.

Speaker 1

Ultimately, I also know that it's a long time, so we got to do it right. So it's about fit And it means complimentary and also making sure we find something else that makes a difference. And it may not it may be At a lower margin, but if it's sustainable, then our investors are going to appreciate that.

Speaker 8

Okay. That's great. That's helpful. My second question, you've been highlighting some belt tightening going on at different Customer groups, the TL kind of pricing pain that you're feeling in the U. S.

Speaker 8

And some other challenges. And yet you still had a, I mean, a 25% EBITDA margin in the quarter, which I realized was down slightly year over year. But It's still a good result given all the sort of the challenges that you've been highlighting. How is the business able to maintain That margin in this environment, I guess, is the question. And maybe are there some offsets, some positive sort of factors that are allowing you to offset these challenges that maybe we just haven't touched on.

Speaker 1

Yes. I mean, that's why I'm so optimistic. I mean, we're able to keep this margin, but That's good discipline. That's what it's all about, Saundra. It's truly understanding what our customers' needs are I'm not trying to be everything to everybody and just staying focused.

Speaker 1

So I've operated, Tim, this way since I started with ACS in 1991 and It's proven successful and will continue to be if we just say discipline, it's not So that's how we I mean, so you could imagine, we do 24.9% And then our U. S. Margin significantly dropped. So it shows you how robust our Canadian business is. And the fact that they're working together, these businesses are working more and more together.

Speaker 1

So there's a lot of elimination of revenues that are managed, so which is also a benefit when we go to our clients And offer a suite of services as a package and speak their language versus just being a commodity. So that's we want to be solutions provider. We want to make a difference for these customers. And That's why we've been rewarded with these type of margins.

Speaker 8

Okay, great. Thank you very much, Michael.

Speaker 1

Thanks, Jack.

Operator

Thank you. And at this time, gentlemen, we have no other questions registered. Please proceed with additional comments.

Speaker 1

No. As I alluded to, I think We're back to normal again, and I think we're focusing on continuing to grow the business in the right way. Very optimistic about 2024. Thank you for your support. Thank you for for taking the time to be with us today.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.

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Earnings Conference Call
Andlauer Healthcare Group Q3 2023
00:00 / 00:00