Andlauer Healthcare Group Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 6, 2024

Key Takeaways

  • Q3 revenue in Canadian specialized transportation rose 8.5% year-over-year (ex-fuel), with Dedicated & Last Mile up 10.2% and air freight forwarding up 5.1%, while Logistics & Distribution grew 6.8% driven by pharmaceutical and biologics clients.
  • Consolidated EBITDA margin reached a 2024 high of 25.9%, within the target 24–26% range, despite a US truckload business drag that reduced Boyle Transportation’s EBITDA by about $1.5 million versus last year.
  • US trucking operations are stabilizing after a challenging period, with management focusing on revenue quality, cost control and “high-grading” the business for sustainable profitability in 2025.
  • The balance sheet remains strong with a net leverage ratio of 0.74x, $36 million in cash, and ongoing share repurchases (over $8.6 million in Q3) alongside a raised quarterly dividend of $0.11 per share.
  • Capital allocation priorities include disciplined tuck-in acquisitions in Canadian healthcare logistics, organic network expansions (new facilities and consolidated narcotics vaults), and potential US clinical-trial logistics deals.
AI Generated. May Contain Errors.
Earnings Conference Call
Andlauer Healthcare Group Q3 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ann Lower Healthcare Group 20 24 3rd Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. 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 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, 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.

Operator

Please see the company's latest MD and A for additional information regarding non IFRS financial measures, including 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. And this call is being recorded on November 6, 2024. I would now like to turn the conference over to Michael Ann Lower.

Operator

Please go ahead, sir.

Speaker 1

Thank you very much, Chloe, and good morning, everyone. You for joining us today. With me on the call today, I got Peter Bromley, our Chief Financial Officer. Following my opening remarks, Peter will follow-up with more detailed discussion of our Q3 financial results, and I'll then provide closing comments and open the lines for questions. Our Q3 financial results reflect a similar story as our last quarter.

Speaker 1

Our results for the quarter reflect a strong performance of our logistics and distribution in our Canadian specialized transportation product lines, offset somewhat by our U. S. Transportation business. Our Canadian Grand Transportation revenue, excluding fuel, increased by approximately 8.5% compared to Q3 of last year. Our Dedicated and Last Mile was up 10.2% and our air freight forwarding grew by 5.1%.

Speaker 1

Our Logistics and Distribution revenue increased by 6.8% year over year, reflecting continued growth in revenue from our pharmaceutical and in particular biologics clients, partially offset by slightly lower outbound volumes from our consumer health products. Our year to date logistics and distribution revenue is now slightly ahead of the comparable period of a year ago despite continued lower volumes from certain consumer health clients. The overall growth in our Canadian operations aside from packaging is more attributable to a stronger volumes and price increases. Our consolidated EBITDA margin was 25.9 percent for the quarter, up from 24.9% in Q3 last year, represents our strongest quarterly margin to date in 2024. This positive momentum was partially offset, as I said earlier, by the continued impact of the challenging operating conditions in our U.

Speaker 1

S.-based truckload business. In the U. S, we continue to maintain our heightened focus on revenue quality and cost controls. We recently relocated some of our U. S.

Speaker 1

Equipment to Canada to optimize capacity utilization. EBITDA attributable to Boyle Transportation in Calton USA was approximately $1,500,000 lower in the quarter compared to Q3 last year. In Q1 and Q2 this year, EBITDA attributable to Boyle and Skelton was approximately $2,500,000 $2,800,000 respectively, than the comparable quarters in 2023. So it looks like some of the challenging market conditions we're facing in the U. S.

Speaker 1

Are finally flattening out. In summary, our Canadian specialized transportation network is performing well and in line with our expectations. And we're also pleased with the performance improvement in logistics and distribution product line in the quarter. Despite the challenging market conditions, we remain focused on improving the performance of our specialized U. S.

Speaker 1

Truckload operations where we're executing for an opportunity to high grade the business. Let me turn over the call to Peter to review our financial performance in more detail. Peter?

Speaker 2

Thank you, Michael, and good morning, everybody. Revenue for the Healthcare Logistics segment totaled $44,100,000 an increase of 4.7% compared with Q3 last year. The increase reflects 6.7% increase in our logistics and distribution revenue, which was driven by continued growth from our pharmaceutical and biologics clients, as Michael has already noted, partially offset by 16.7% decline in our packaging revenue attributable to lower volumes. Revenue in our Specialized Transportation segment totaled $115,500,000 an increase of 0.8% compared with Q3 a year ago, reflecting solid organic growth in each of our Canadian Specialized Transportation product lines, partially offset by a decline in our U. S.-based truckload revenue.

Speaker 2

Ground transportation revenue for the quarter was $104,300,000 up 0.5% compared with Q3 last year, reflecting strong growth in our Canadian operations, partially offset by lower fuel surcharge revenue and continued challenging conditions in our U. S. Operations. During the quarter, average diesel prices were approximately 6% lower than Q3 a year ago. Airfreight forwarding revenue was $7,700,000 in the quarter, an increase of 5.1% compared with Q3 a year ago, primarily due to increased shipments.

Speaker 2

Our dedicated and last mile delivery revenue was up 10.2 percent to $18,800,000 reflecting continued organic growth. Cost of transportation and services was $79,700,000 or 50 percent of revenue compared with $79,600,000 or 50.1 percent of revenue in Q3 last year. Slight increase was in line with higher revenue and lower fuel costs. Direct operating expenses were $25,300,000 or 15.9 percent of revenue compared with $25,300,000 or 16.2 percent of revenue for Q3 a year ago, and generally in line with revenue for Q3. Operating income for the quarter was $23,800,000 an increase of 9.6 percent from Q3 a year ago.

Speaker 2

The increase was attributable to organic growth in our Canadian specialized transportation and logistics and distribution product lines, partially offset by lower contributions from our U. S.-based truckload businesses. Net income was $16,300,000 or $0.41 per share on a diluted basis compared with $15,300,000 or $0.36 per share on a diluted basis in Q3 last year. Higher segment net income before eliminations for our Specialized Transportation segment reflects organic growth in our Canadian Specialized Transportation business, largely offset by lower contributions from Boyle Transportation and Skelton USA and slightly higher segment net income from our Healthcare Logistics segment primarily reflects the increased revenue of our pharmaceutical and biologics clients. These are offset by slightly increased SG and A costs related to the implementation of our new warehouse management system for Acuristics.

Speaker 2

EBITDA totaled $41,300,000 in the quarter, an increase of 5.9 percent from Q3 last year. The increase was due to the factors already discussed. And with an EBITDA margin of 25.9% for the quarter, we remain within our targeted 24% to 26% EBITDA margin target range despite the current weakness in our U. S. Truckload business.

Speaker 2

Our balance sheet continues to be strong. Last quarter, we drew $40,000,000 on a revolver to partially finance our recently completed $90,000,000 substantial issuer bid. The $50,000,000 balance was financed by cash on hand. During Q3, we paid down $10,000,000 on our revolving facility. And on July 2, we commenced our 2nd NCIB.

Speaker 2

At September 30, we bought back and canceled just over 220,000 shares for a total of $8,600,000 At quarter end, we had $25,000,000 outstanding under our term facility and $30,000,000 drawn on our revolving facility with a very conservative net leverage ratio of 0.74 times. We had cash and cash equivalents of $36,000,000 and working capital of $47,000,000 at quarter end. Accordingly, we remain well positioned financially to pursue growth opportunities. I'll now turn the call back to Michael for closing comments. Michael?

Speaker 2

Thanks, Peter.

Speaker 1

Our low debt level combined with the continued strong cash generation of our business has provided us with financial flexibility to be active in buying back shares, both through our normal course issuer bid and recently completed SIB. As Peter noted, we're continuing to buy back stock. We also raised our quarterly dividend this past quarter to $0.11 a share. We're committed to these value enhancing initiatives for our shareholders, but I also want to emphasize that the expansion of our platform is capital allocation priority. We're an asset light strong cash flow business that provides us with the ability to regularly increase our dividend and buyback shares without impacting our ability to pursue complementary acquisitions.

Speaker 1

With interest easing, we're now seeing a more active acquisition market. We're currently evaluating a number of opportunities and excited for the future. As we look further to expand our platform, we'll maintain our disciplined approach with both in respect to both financial and operating metrics and our constant focus on better serving our customers and better supporting our employees, our drivers and our owner operators. I'll now open the line to the questions. Chloe, please commence the Q and A.

Operator

Thank you. Comes from the line of Walter Spracklin from RBC Capital Markets. Your line is open.

Speaker 3

Thanks very much, operator. Good morning, everyone.

Speaker 1

Good morning, Walter. Yes. So let's I want to

Speaker 3

look into with the 3rd quarter results now and 4th quarter trends kind of intact, want to look out a little bit to 2025 to the extent you can give us some color there. And looking at your Canadian business, pretty much steady as expected, right? I mean, you're in a good space there. It seems to be even when you look at your 3rd quarter results in that kind of high single mid to high single digit range. When you look out to 2025, the moving parts and just looking at your Canadian business, any reason why you're kind of up high single digit historical trend would be any different next year with the outlook you have right now?

Speaker 1

Yes. Good morning, Walter. It's Michael. I would suggest that it's our business is continuing to stay robust. And if anything, like I said in my last sentence of my speech is that we continue to stay focused.

Speaker 1

And for me, I'm not going to take anything for granted. We're going to look at what our needs are for our customers. I think because that's all we do is health care, we're more in touch and in tune with what are the changing requirements of our customers' needs in Canada, not only Canada, but within the provinces, where a lot of the decision making is done in health care in Canada. So our focus is continuing to expand our network, be more robust, increase the moat and add value to our clients. I always find there's always things to do and continue to improve.

Speaker 1

So I think we're in a good position. We're finding more areas of efficiency as we continue to grow that Canadian business. And I kind of alluded to the acquisition part. And then I think our focus is going to be more on the Canadian Health Care side of M and A. That's where we feel comfortable.

Speaker 1

That's where we understand best. And I also feel that there are opportunities to expand the platform that we have in Canada. So that was actually a follow-up.

Speaker 3

And to

Speaker 1

your question, I feel good about 2025.

Speaker 3

Okay. And I actually had a follow on on M and A, and you kind of you went into that. And so when you mentioned M and A in Healthcare in Canada, is that in transportation logistics you're referring to or could that be something kind of adjacent? I know Michael you and I have talked about things that you've done and you're doing more and more service into your pharmaceutical customer that you mentioned destruction at one point and but is it something along those lines? Or do you still see opportunities in transportation logistics within Canada with it from an M and A perspective?

Speaker 1

Yes. From a transportation logistics in Canada, I think we continue to grow organically, whether it be opening new facilities. Now that could be through the acquisition of a smaller player, but it's not significant enough. I think last I think it was last quarter I talked about our M and A approach last year was more to try to hit that home run and transformational home run, and we're going to focus more on singles and doubles this time around. So I think we're more looking at bun singles when it comes to transportation.

Speaker 1

But when it comes to ancillary products, I think there's a need. We're seeing a lot of the banks are showing us some good entrepreneurial initiatives from businesses that are looking to grow in the health care space that are somewhat complementary to our transportation and logistics sector.

Speaker 3

Okay. That's great. Last question for you, Michael, is the U. S. Business.

Speaker 3

You indicated it's flattening out, I think you said, and great that we're kind of stabilizing there. As you look into 2025, is there any green shoots at all? Are you seeing capacity kind of tighten up at all? Anything on the freight pricing standpoint that suggesting at all any rebound off the bottom here? Or are we kind of bumping along the bottom for a little while?

Speaker 1

Yes. I use the word trough about 3 quarters ago and I guess I was mistaken. But I really feel now that we are the trough. And as I see that I know as indicated here that some of the comparables are getting smaller and smaller. We've put a marked focus.

Speaker 1

And when you're looking at a change, transition change in terms of approach marketing or even operational, you incur some of the one time costs and sometimes change doesn't customers aren't willing to switch overnight. It's taking a little it takes time. But I'm happy with the progress that we're making. And I think we'll be better positioned going into 2025 with the structure that we have going forward and the focus on more higher valued and more specialty part of their business and using that equipment for that versus trying to grow at the pace that we were both foil and Scale and USA were growing during COVID. So I feel that we're we'll find our niche, we'll find our space and we will have not only stabilized, but we'll be looking at growth again in 2025.

Speaker 3

Okay. That's fantastic. Appreciate the time as always, Michael.

Speaker 2

Thank you, Walter.

Operator

Our next question comes from the line of Kevin Chiang from CIBC. Your line is open.

Speaker 4

Hi. Thanks for taking my question here. Maybe just looking into Q4, I don't generally think of your business as being seasonal, but if I just look back, you've typically had sequential improvement in revenue even before the pandemic and some of the M and A from Q3 into Q4. Just wondering if you'd expect something similar this time around or some of the moving parts around the U. S.

Speaker 4

Business and maybe the broader health of the Canadian consumer, maybe that impacts that typical seasonality we've seen?

Speaker 1

Hey, Kevin, have you or any of your family members had a cold in the last couple of weeks? I have a co worker that just got COVID. So it

Speaker 4

seems like it's making its head around again.

Speaker 1

And that's yes, and that's I figured I'd give it a try. And I figured that would be the answer. I think our consumer health business, I think, is going to be a little bit more robust going into Q4 and Q1 of 2025. And sometimes I think we saw the consumer health take a bit of a hit certainly on the cold and flu side of things. We have a couple of big large well, our largest clients that we distribute for and during COVID obviously everybody was wearing masks and it wasn't seen vaccine seemed to be the priority.

Speaker 1

And so I think we are in a position where that we're going to see a little bit more of that volume going up. Q4 typically because we are in healthcare and most of the product is obviously pharmaceuticals and OTC to narcotics and all, but we also have a line that is more HABA, health and beauty aids, aids, some cosmetic clients because we had the coincidence of delivery into the pharmacies and some of the retailers with our pharmacies. And so there is a bit of a seasonal spike because of Q4 because you want to buy your wife a perfume or something like that or cosmetics. But ultimately, we do a little bump, but it's not like other retail or other transportation or logistics where Q4 is a big quarter, but we do see a little bit of a spike.

Speaker 4

Right. That makes sense. That makes sense. Maybe if I could just my second question, if I could just unpack the margin performance. So I know you message kind of a 24% to 26% margin range and you're typically kind of right down the fairway looking past the most recent quarters and obviously at the upper end in Q3 here.

Speaker 4

But you are seeing pressure on you're still seeing some pressure on the U. S. Business. I know it's getting better. I guess are you able to highlight just maybe how much of a headwind the U.

Speaker 4

S. Business was to your consolidated margins? Or conversely, as you think of U. S. That U.

Speaker 4

S. Business normalizing, is there any reason why that range shouldn't increase over time? Just because that consolidated margin is performing well now despite the

Speaker 5

fact that the U. S. Business seems to be underperforming. And it feels like

Speaker 4

if that normalizes, that would be upside to your overall consolidated margin performance. Okay. And then And it feels like if that normalizes, that would be upside to your overall consolidated margin performance.

Speaker 1

Yes. I'll be I shouldn't say this, but me, I'm pretty transparent. But I was a little surprised when I saw our margins being as high as they were for the last quarter. And then when you do some analysis and you realize that there's a combination of elements and just as much of a surprise because I look at each segment, obviously, I measure I have monthly management meetings with each of the business units, and I see the growth. And then all of a sudden, I look at the Peter's report, and at the end of the Q and I what I said, what do you mean we didn't grow that much on revenue?

Speaker 1

And then I realized that there's a combination of factors that and one of the things is, as our industry gets more robust in Canada, there's more intercompany transactions. And also where our logistics and distribution businesses, while it may grow, it grows by doing offering freight services, which in turn gets a lot of it goes to ATS or Skelton and those are these end up becoming intercompany eliminations. So in essence, our revenue is actually artificially lower.

Speaker 4

Right.

Speaker 1

And I think hopefully, I'm clear.

Speaker 4

Yes. No, I get what you're saying, yes.

Speaker 1

Yes. So that combined with the lower fuel in the last quarter will increase will artificially decrease revenue and by but it doesn't affect EBITDA, which so by default your margins increase. So I saw and I'm sure the MD and A will reflect that. There are much more intercompany transactions between the companies. So I think that has a part.

Speaker 1

Yes, there's no doubt that the U. S. Part of the business, the margins were somewhat depressed comparatively to other years. And as we streamline, that's only going to help. So I'd say we're in the middle of the runway.

Speaker 1

Fairway, I don't know if you've seen me golf, you probably wouldn't want to use that term again with me. But I would certainly suggest that we will keep it within the runway. It's a focus item because to me for our employees security, to me it's about sustainability and making sure this company is healthy.

Speaker 4

That makes sense for me. Those are my 2. Thank you very much for taking my questions.

Speaker 6

Thank you, Kevin.

Operator

Our next question comes from the line of Konark Gupta from Scotiabank. Please go ahead.

Speaker 1

You're off here, Konark. Sorry. Can you hear me now? Yes, I got you now. Thanks, Konark.

Speaker 1

Okay. Thanks. Sorry. Yes. So I

Speaker 6

wanted to ask a follow-up actually on Kevin's questions a little bit differently on Q4. So like last year especially, we had a big bump in Q4 in terms of revenue and margins were extremely high as well, it seems like outside of your typical range. So I'm just curious like this Q4, would you consider last year's Q4 as a tough comp or that's more sort of a baseline on which you can grow this Q4?

Speaker 1

Yes. I think there's there will be some organic growth to it. I don't see anything I know that we had a big bump on Q4 20 3, but we had we ended up getting a large dedicated client in Q4 of last year that we onboarded. So obviously, they're still with us. Well, not obviously, but thank goodness they're still with us.

Speaker 1

And so I think we'll see some organic growth based on that. So I don't see I think that's what that was the big reason from Q4 'twenty three to Q4 'twenty two. So it won't be as drastic of an increase as we saw from Q3 'twenty three to Q4 'twenty three.

Speaker 6

Look at that. Yes. Okay. And in terms of for the U. S.

Speaker 6

Business, just like maybe 2 part question there perhaps. One like have you kind of like figured out any kind of implications for your business, be it regulations or something else post Trump victory in the U. S? Any thoughts on how the election changes the nature of the business in the U. S?

Speaker 1

I'd like to have something to say about the election, but really I don't see any connection for us On the U. S. Side, I don't know. I think I heard something this morning on the way in that I think Robert Kennedy Jr. Is going to be the help.

Speaker 1

So I don't know. He didn't like vaccines. So I don't know. I'm only I'm not even speculating. I'm just joking.

Speaker 1

So I don't really have any comments. To me, it's business as usual. Healthcare is one of those commodities that you need, not that you want to that's not a luxury.

Speaker 6

Yes. That makes sense. Okay. So just like in terms of understanding the business profile next year that you speak to recently, you have a base that's getting better, the comps are getting better. So maybe next year, you're lapping a very easy comp because your EBITDA is probably down about, call it, dollars 7,000,000 $8,000,000 $9,000,000 by the end of this year, full year in the U.

Speaker 6

S. So like just having that trough, you can actually get some growth next year and then maybe the market or the economy can grow itself. So how should we frame the U. S. Growth profile the next year?

Speaker 6

Is it looking like a typical historical growth range? Or is it looking incrementally better because of the easy comps?

Speaker 1

Yes. I think you're bang on, Konark, from my perspective. The one thing I did we are doing is, I'm going to say rightsizing just because we're going to focus more on not as much as growth, but stabilization and organic growth from within the client base that we want to go after. So I think I mentioned in my speech or Walter about the trough and I think we finally hit that trough. As I'm looking into Q4, I think our comparables on the U.

Speaker 1

S. Side are going to be pretty much the same as Q4 'twenty three, which will mean that that's only going to be upside for the overall AHG business. And then obviously, we're going to focus on growing it the way that our client the U. S. Clients are expecting.

Speaker 1

Having said that, the one thing I kind of kick myself from an M and A standpoint is certainly on the logistics side of things and not as much on the transportation, which is obviously more commoditized in the U. S. So I think we're focusing more on that area from expansion in the U. S, clinical trial business and the like. Those are the areas that started to really excite me.

Speaker 6

Yes. That's all for me. Thank you so much for the time. I appreciate it.

Speaker 1

Thank you, Konark.

Operator

Our next question comes from the line of Tim James from BT Cowen. Please go ahead.

Speaker 7

Thanks very much. Good morning. I was just wondering, Michael, if you could talk about any notable organic investment opportunities in the Canadian business specifically. You mentioned that's more of an organic and maybe some small tuck in acquisitions in terms of growth there. But is there anything as you look to 2025 in terms of plans for CapEx there, facility expansions, new facilities, anything notable that's worth calling out?

Speaker 1

Yes, certainly, I'll give you an example right off the top that we're obviously looking at. We're looking at streamlining

Speaker 6

our

Speaker 1

not streamlining, but consolidating our narcotics vaults. Our Vice President of Quality Assurance was successful in working with Health Canada to change some of the regulations. She spearheaded that so that third party logistics company could have the same advantages as distributors do in consolidating narcotics with the same security measures of where today 3PL companies each manufacturer we represent has to have their own narcotics vault. We are looking at consolidating that saving space with that comes a vault is $500,000 or whatever some capital cost requirements on that, but it's the paybacks are really good, the big capital cost is going to create an environment where we're going to be more efficient and more effective for our clients as well, given them the opportunity to grow that business without having then incur large capital costs and more variable costs approach and we become more efficient. On in Montreal with LSU, we're actually moving into a brand new facility.

Speaker 1

I think it's implied by Q2 or Q3 of next year. And we have the opportunity there to transform our business into the facility that we're in, an older facility that used to be Bristol Myers Squibb warehouse. We're moving to a brand new facility. We have 6 different fridge spaces in that area. Now we're going to basically expand our fridge and freezer capacity as we see biologics and vaccine business growing.

Speaker 1

So those are the areas that we're to focus on. There are some areas where we're going to expand the Maritimes. We're looking at opening a couple of new facilities to expand our network in rural Atlantic Canada, some of the areas. So really, it's the opportunity to grow organically and make it better for our clients with the network. So that's where we're looking at from a capital organic growth side of things for next year.

Speaker 2

Great. Thank you very much.

Operator

Our next question comes from the line of Julian Hung from Stifel. Please go ahead.

Speaker 5

Hi. This is Julian sitting in for Justin today. With the mention of a more active M and A market, is there consideration of letting go of the U. S. Business to refocus in Canada?

Speaker 1

I mean, no, there's definitely not a focus. I'm not going to but there is definitely no, I think we have a good business. I mean, it's still a good business despite the fact that we're not performing at the levels that we were over the last couple of years. It's still a good business. It offers a great service.

Speaker 1

It's got great people managing it and running it. So for me, it's not it's a good business. Is it a focus of mine? No, the learnings I've had with on the last mile and understanding the health care market in the U. S, how drugs are being distributed and delivered is markedly different than it is in Canada.

Speaker 1

So we have to make sure that we understand that and not just so I feel comfortable with the Canadian Health Care. I'm passionate about it, whether maybe me personally getting involved with donations to hospitals or and the likes. So for me it's become a passion of mine. And I just want to find other opportunities to make the health care in Canada better and by serving it better and working with our clients, which are the pharmaceutical manufacturers and the distributors and the pharmacies to making sure that we're complementing them.

Speaker 5

Okay. And another question. So one of your peers UPS has been expanding their healthcare capabilities through M and A across Europe. Has there been any word of them doing the same in Canada?

Speaker 1

I think you should be asking UPS that question, not me. All right. Thanks, Julie.

Speaker 5

Thanks so much

Speaker 6

for taking

Speaker 5

my question.

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