Andlauer Healthcare Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2024

There are 10 speakers on the call.

Operator

Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ann Lauer Healthcare Group 2023 4th Quarter and Year End 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 the risks, uncertainties and assumptions relating to forward looking information, please refer to the company's 2023 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 supplementation 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 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. This call is being recorded on March 6, 2024. I would now like to turn the conference over to Michael Andlauer.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Joelle. Good day, everybody. Thank you for joining us today. With me on the call is Peter Bromley, our Chief Financial Officer. Following my opening remarks, Peter will follow with a more detailed discussion of our financial results.

Speaker 1

I'll then provide some closing comments and open the line for questions. While we finished the year with a very solid operating performance, our results for the Q4 was our 2nd best ever and reflect a return to a positive return revenue growth and a strong EBITDA margin of 26.5%. Our Canadian specialized transportation network performed well, particularly well. While we continue to experience a year over year decline in our U. S.

Speaker 1

Truckload rates in the quarter, we believe the prices have now stabilized. Going forward, our strategy in the U. S. Will be more focused on leveraging our core specialized competencies in temperature, security and quality control and focusing certain customers on our high value products that are not as susceptible to fluctuations in the spot rates that we experienced last year. We are determined to drive incremental margin growth in the U.

Speaker 1

S. From where we are today, but we do not expect to return to the levels we experienced during the pandemic. While we have experienced lower outbound order handling activities for accurastics the past few quarters, we expect our LSU facility expansion in Montreal, which was completed in January this year to improve our logistics and distribution product line performance in 2024. As you know, we benefited from significant operating tailwinds in 2022, including temporarily inflated U. S.

Speaker 1

Truckload premiums and significant COVID vaccine related contributions. Despite the lack of these operating tailwinds this year and reduced fuel surcharge revenue, our consolidated revenue for 2023 ended up just $500,000 below 2022 and our EBITDA margin for the year was about 25%. Our acquisitions to date are fully integrated and we have a very strong balance sheet, which positions us favorably to further expand our platform through acquisitions. I'll turn over the call to Peter to review our financial performance in more detail.

Speaker 2

Thanks, Michael, and good morning, everyone. Our consolidated revenue for Q4 2023 increased by 2% to $169,100,000 Revenue for our Healthcare Logistics segment totaled $44,100,000 an increase of 5.5 percent or $2,300,000 from Q4 last year, reflecting 7.8 percent year on year growth in our logistics and distribution product line, partially offset by 16.7% decline in our packaging revenue. The increase in logistics and distribution revenue was primarily attributable to a reclassification of approximately $5,100,000 of certain pass through expenses to logistics and distribution revenue for LSU in accordance with IFRS during Q4 last year. This net revenue treatment was consistently applied throughout 2023. The increase was partially offset by lower outbound handling revenue and transportation activities for accuristics and a decline in revenue related to COVID-nineteen vaccines and ancillary products.

Speaker 2

The year over year decline in packaging revenue primarily reflects the loss of 1 of our packaging customers in Q1 this year and lower volume from our remaining base of packaging customers. Revenue in our Specialized Transportation segment totaled $124,900,000 an increase of 0.8 percent or $1,000,000 compared with Q4 last year. Ground transportation revenue for the quarter was $113,600,000 an increase of 0.5% compared with Q4 a year ago. The increase is primarily attributable to organic growth in our Canadian network, partially offset by a decline in U. S.

Speaker 2

Based truckload rates, reduced revenue related to COVID-nineteen vaccines and ancillary products and lower fuel costs pass on through to customers as a component of our pricing. Ground transportation revenue excluding fuel in our Canadian network increased by approximately 6.3%. We continue to experience a year over year decline in our U. S. Based truckload rates as the opportunities to obtain rate premiums like we did in fiscal 2022 due to the pandemic related equipment and driver shortages have diminished.

Speaker 2

The 6.1% increase in our air freight forwarding revenue in Q4 this year reflects a year over year increase in weight shipped partially offset by lower volume of shipments. Our $1,000,000 increase in dedicated and last mile delivery revenue in the quarter reflects continued organic growth partially offset by a reduction in fuel surcharge revenue. Cost of transportation and services was $85,800,000 or 50.7 percent of revenue compared with CAD 86,300,000 or 52.1 percent of revenue for Q4 last year. Lower fuel costs in line with decreases in revenue related to fuel prices were largely offset by increased costs of transportation and services attributable to organic growth in our Canadian ground transportation network. Direct operating expenses were $25,100,000 or 14.8 percent of revenue compared with $21,000,000 or 12.7 of revenue for Q4 a year ago.

Speaker 2

The increase is primarily attributable to the reclassification of certain pass through expenses in Q4 related to logistics and distribution revenue, sorry, as discussed previously, partially offset by a reduction in outbound order handling activities for accuristics in line with lower revenue. SG and A expenses were 7.6 percent of revenue for the quarter, which is in line with our expectations and compares to 8.3% of revenue in Q4 a year ago. Operating income totaled $28,000,000 a decrease of 0.4% from Q4 last year, reflecting reduced contributions from Boyle Transportation and Skelton USA and the decline in revenue related to COVID-nineteen vaccines and ancillary products. Net income was $18,600,000 or $0.44 per share diluted compared with $19,800,000 or 0.46 dollars per share diluted in Q4 a year ago reflecting lower segment net income before elimination from our Specialized Transportation segment due to reduced contributions from Boyle Transportation and Skelton USA and lower segment revenue from our Healthcare Logistics segment due to reduced order handling activity. EBITDA for the quarter totaled $44,800,000 up slightly from $44,700,000 in Q4 last year, reflecting organic growth in our Canadian transportation network, partially offset by lower contributions from our U.

Speaker 2

S.-based truckload operations, reduced order reduced outbound order handling activities for Acturistics and lower revenue related to COVID-nineteen vaccines and ancillary products. EBITDA margin was 26.5 percent for the quarter compared to 27% in Q4 last year. For fiscal 2023, revenue totaled $648,000,000 a 0.1% decrease from 2022. Operating income was $96,100,000 a 13% decrease from 2022. Net income totaled 66,100,000 dollars or $1.55 per share diluted compared to $76,300,000 or $1.79 per share diluted last year.

Speaker 2

EBITDA totaled $163,800,000 a decline of 6.1 percent from 20.22 and EBITDA margin was 25 As Michael noted earlier, our results for 2023 reflect a return to more normalized operating environment as we are no longer benefiting from the pandemic related tailwinds we experienced throughout 2022. Finished the year with a very strong balance sheet following the repayment of $25,000,000 on our term facility in Q3, we finished the year with $25,000,000 outstanding under our term facility and nil under our revolving facility. This provided us with enhanced flexibility to be active in our normal course issuer bid announced last March. As at year end, we had purchased and canceled approximately 475,000 subordinate voting shares for a total of approximately $18,800,000 pursuant to the NCIB. Despite our debt repayment and NCIB expenditures at year end, we had cash and cash equivalents of $59,700,000 and working capital of 105 point $6,000,000 This compares to cash of $65,900,000 and working capital of $86,300,000 at 2022 year end.

Speaker 2

This underlies the continued strong cash generation of our business. Supported by our strong free cash flow, our low debt levels, our board approved a $0.01 increase to our shareholder dividend yesterday, effective for our Q1 dividend this year, bringing our quarterly payout to $0.10 per share. We remain well positioned financially to pursue growth opportunities. I'll now turn the call back to Michael for closing comments.

Speaker 1

Thank you, Peter. I look great news. Looking ahead, we're confident that we can continue to leverage our unique platform and competencies to drive increased value for our shareholders, supported by the positive industry growth fundamentals that characterize the healthcare, transportation and logistics markets, both in Canada and in the U. S. Our strong leadership position in Canada's healthcare transportation logistics market and established presence in the U.

Speaker 1

S. Are supported by our long standing relationship with major industry customers. We remain focused on opportunities to strategically extend our platform and further enhance our customer value proposition. We have an attractive pipeline of potential acquisition targets in both Canada and the U. S, which we feel very strongly about moving forward into 2024.

Speaker 1

As we continue to expand our platform, we'll maintain our disciplined approach with respect to both financial and operating metrics and our constant focus on better serving our customers, our employees, our drivers and supporting our unique culture of caring more. We'll now open the line to questions. You can Joelle, please commence the Q and A.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Kevin Chiang with CIBC. Please go ahead.

Speaker 3

Hi, Michael and Peter. Thanks for taking my question here. Maybe I'll start with margins, strong showing at 26.5%, almost in line with some of the quarters you were seeing during the pandemic. It also sounds like U. S.

Speaker 3

Truckload is still a headwind here even if things are falling on the floor. Just wondering how you think about, I guess, the margin profile in 2024? Is this kind of the new normal versus maybe what we thought in the 1st three quarters of 2023 when you're kind of hovering around 25% is kind of north of 26% the right way to think about the profitability of this business as we look ahead?

Speaker 1

Good morning, Kevin. Yes, I mean, I think we've always maintained the margin levels between 24% to 26%. I think when we went IPO ed, we were on the lower end of that spectrum and through acquisitions, strategic acquisitions and growing the business we were able to expand that. Last year, I'm not going to say it was an anomaly. I think there's a lot of well, no, I would say that 2 years or 2022 was the anomaly.

Speaker 1

And probably accentuated with the difference in margins in our U. S. Business. One of the things I noted looking at year over year and some of the things we don't recognize is maybe different our specialized transportation in U. S.

Speaker 1

And Canadian. But you can see that. So I see that as being status quo going forward. We certainly do have pressures, economic pressures which are driving procurement and as much as we have the percentage of cost of goods for our customers is much smaller than other industries. There's still that pressure from procurement and working with our customers to making sure that but I feel very confident we'll continue to maintain those margins going forward.

Speaker 1

And when all everything in lines then we'll be a little higher and sometimes some quarters we'll be a little better. I feel very confident in maintaining in those margins. As for the U. S. Truckload part, it's it was a lot more commoditized than I had anticipated when we bought these companies and great learnings.

Speaker 1

But we have some really great employees at Boyle and Scotland USA who care. One of the things that really differentiated them was their the way they care. They care for the customers and management cares for the employees and the drivers. And you see it on the road with the type of equipment that's there and safety, the focus on safety and all. So to me, it's just pivoting our business to focus more on customers that are less looking at commodity.

Speaker 1

Some of the customers that we have here in Canada, we can leverage in the U. S. That really are where temperature really matters. And I'll give you example. We do the business for Canadian Blood Services here in Canada.

Speaker 1

There's 0 tolerance in that business. So focusing on blood products, for example, in the United States. And so those are some of the initiatives for strategic focus for this year for the U. S. Business.

Speaker 3

That's helpful. And maybe just my second question, and it's actually a good segue, it was on U. S. Truffle. Just wondering if you can give us a sense of maybe how volumes and pricing trended in Q4.

Speaker 3

I believe in the Q3 call, you had noted volumes are actually up, but pricing is where you're seeing the pressure and that was weighing on revenue. Just wondering how that might have shaped out in Q4. And then just as you think about trying to maybe decommoditize the U. S. Truckload business, it sounds like you have some organic levers.

Speaker 3

But just inorganically or through M and A, are there things you think you would need to buy or assets you would need to acquire in order to maybe accelerate maybe that de commoditization as you kind of grow that U. S. Platform?

Speaker 1

Yes, that's exactly the strategy we're looking at is decommoditizing the U. S. And doing more of the things that we do in CAM and particularly on the logistics side of things, looking at opportunities there versus transportation. People kind of sometimes confuse us as being a transportation company, but we're more focused on healthcare, the healthcare challenges and looking at the healthcare logistics challenges and creating quality driven solutions for either for government or for our customers and focusing in those areas. And so I think in the Q3, I used the word trough with respect to the rates in the U.

Speaker 1

S. And I think they kind of extended into the Q4. We're starting to see a little bit more of that, but I don't want to be I don't want to be subject to that. I'd rather have that equipment focused on more specialized areas. It's a bit of a longer sale because it's more strategic with working with these customers.

Speaker 1

But once we it's more QA driven, for example, It's a little harder work for our drivers, but it's definitely it's something that we can rely on moving forward.

Speaker 3

And just any comments on just pricing volume trends in Q4 and I'll pass it along?

Speaker 1

I'm sorry, say that again.

Speaker 3

Any comments on kind of the pricing, volume trends in U. S. Truckload in Q4?

Speaker 1

Yes. Now Q4, I mean, I think it was best for this, we're not going the other way. I think we're just trying to understand where we need to position ourselves. The worst is behind us, let's put it that way. And I think as the economy starts to strengthen, I think I did see some of your analysts reports on LTL volumes and the likes and year over year growth.

Speaker 1

And so that's more volume going, which means that there's less capacity for the healthcare truckload where the FDAs hasn't had an opportunity to focus on temperature control in the U. S. Like they have elsewhere in the world, that's why it's commoditized. But now all of a sudden, if there's less trucks with reefers available, then that kind of changes the pricing model a bit.

Speaker 3

Perfect. I'll pass on. Thank you very much.

Speaker 1

Thanks, Kevin.

Operator

Your next question comes from Konark Gupta with Scotiabank Bank. Please go ahead.

Speaker 4

Thanks, operator. Good morning, everyone. If I can follow-up on Kevin's questions on margins in a different way perhaps. If we look at the segments, the Transportation and Healthcare Logistics, we saw the Transportation margins were at the high end of the typical range you would see over the past few years, whereas the logistics margins were kind of at the bottom end. Is this something one off sort of in nature in Q4 that would explain this kind of divergence in those margin profiles, first of all?

Speaker 4

And then

Speaker 3

I can follow-up on a few more questions.

Speaker 1

Yes. Karan, I guess, a really good question and an area of focus. On the transportation side, it's particularly more on the Canadian side of things. I mean the network is getting stronger every year. We open in places like Prince George this year and Northern Ontario expanded our network as well.

Speaker 1

So as we continue to expand our network, we will become more efficient. And we have it's very robust. It's a first mover advantage in a country is the demographics of our size and we're and we really there was nothing not much growth. So we really focused on efficiency. On the logistics side, there's a little bit more competition in the marketplace in that sector.

Speaker 1

I referred to earlier on, I think as Kevin asked a question, I mentioned about procurement in the U. S. Being a little bit more aggressive. Certainly on the consumer goods side of the healthcare sector, it's become a little bit more pressing. Private equity companies buying some of these consumer goods companies or public company pressures, etcetera.

Speaker 1

So we've found ourselves kind of on the lower end of the cycle. That business typically goes with 3 to 5 year contracts. Some of our contracts might have been a little bit less disciplined with respect to inflation, not focusing only went through such a long period of low inflation. And so you do a 5 year contract with 1% escalator or fixed price over the 5 years. And one of the pressures that we are going through in the logistics sector is industrial real estate prices are going through the roof.

Speaker 1

So having to manage that, so it's more of a cycle thing. I think we will see this year as a bit a better margin on the logistics side of things, so as we catch up with some of these contracts.

Speaker 4

Great. Thanks, Michael. And just to follow-up on ATS and Acurais. Styx. I think one of the points you made in the MD and A was ATS had some new wins in the quarter perhaps that seem high margin at this point, whereas Acuristics, I think it continued to have volume decline.

Speaker 4

I'm just curious like between ATS and Acuristics, obviously, there's some interrelationship, but ATS continues to grow and Acuristics has volume declines here, perhaps some of that is coming from COVID related ancillary products, etcetera. But is this Acuristics more or less looking like it's stabilizing at the end of the volumes? Or you think it's going to take a little bit more time before maybe LSCU expansion kicks in?

Speaker 1

Yes, I think you heard I think I answered that in my last answer to your question. I think it's the ATS model is more on a year to year contract, it's a little evergreen type of contracts for the most part. But on the logistics, it's a longer cycle in terms of contract renewal. And then obviously the cost of real estate is a lot. But from a volume standpoint, there in anticipation of some of the inputs or sort of cost inputs that we have, we go in with a very disciplined approach.

Speaker 1

We're quality driven and I guess the Acura 6 did lose we did lose a consumer goods type of a client that was really price focused and basically took a chance with another player that was an impact. There's also a paradigm between the shipments of oral products or yes versus injectables. So you're seeing when you're on a prescription that's got that has when you're taking pills versus being an injectable, there's a lot more movement in terms of volume with pills than you do with an injectable. Now the injectable is a lot more expensive and it's a lot more difficult to handle. So we have a so we're seeing a bit of that paradigm right now with some

Speaker 4

of the movements of a lot of the big pharma are focusing more on specialty.

Speaker 1

And so that's a bit of that. But I wouldn't be alarmed by some of the movements that we've seen with accuracy. We're very bullish on accuristics moving forward, especially with a strong balance sheet that we have.

Speaker 4

That's great. I appreciate the time. Thank you.

Operator

Your next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.

Speaker 5

Yes, thanks very much. Good morning, everyone. So Michael, your opening remarks really addressed some of the key questions that have emerged on Ann Lauer as you went into the U. S. And things were very strong and then kind of turn and I think it's the right strategy and that is to focus on Canada, but be tactical in the U.

Speaker 5

S. And I really like to hear that like hearing that. I'm just curious for now as it stands, what do you think that implies for your organic growth profile going forward? I know before you started going to the U. S, you were looking at high single digit on a fairly consistent basis.

Speaker 5

Does the U. S. Business and perhaps the commoditization of that business detract from that going forward if you weren't to do anything right now? How do we look at your organic growth profile? Is it high single digit with more volatility?

Speaker 5

Is it high single digit no big deal because U. S. Just isn't big enough now to affect that? Or how do you think investors should perceive your organic growth profile at this point if you were to do no further acquisitions?

Speaker 1

Yes. I think the organic growth profile on the U. S. Side is more focused on I mean, will you grow in revenue or EBITDA? But I think right now we've kind of put a freeze on equipment or certainly not grow.

Speaker 1

That business grows with the amount of equipment that you put on the road. And right now we're kind of, like I say, refocusing, taking, I guess, more commoditized healthcare products, packaged consumer good type of product and replacing it with more specialty and focusing our energy on that and making doing having partnerships in the United States in the U. S. That focus on, like I said, blood plasma blood product type of business or more specialty focused and using that equipment to that. So that by the end by default will grow revenue organically at a higher rate than what we've experienced.

Speaker 1

It all depends what base you use in the U. S. Right. This year that it's a lot that it will be more high single digit. So to me, it's about focus.

Speaker 1

But from last year, Walter, just because we didn't do any acquisitions doesn't mean that there wasn't a lot of work done behind the scenes. And I think the expectations last year were probably based on expectations from the previous year in terms of what sellers wanted to sell for the multiples and the like. So we've taken a very disciplined approach and it's just like in hockey there's a trade deadline right now and people are it's how much you're going to want for this asset and are you willing to pay that much and sometimes you just don't you got to be patient.

Speaker 5

Yes. And then moving on in terms of your M and A strategy, now that organic growth question is kind of addressed, more tactical in the U. S, more focused on less commoditized business. And then in Canada, perhaps not as many opportunities given presence in temperature controlled. I want to ask the question about the Life Labs.

Speaker 5

I mean, it's obviously that you're you've been named as a bidder on that asset. Can you talk a bit about the strategy there? Because it seems that at first glance to be a bit off strategy. And perhaps you could give us a little bit more color on if you can't speak to the transaction in itself, but perhaps what would prompt you to go that direction, which seems optically to be a little bit off your core competency? Any color there would be appreciated.

Speaker 1

Yes, absolutely. First of all, I'm not going to comment on rumors or speculation. So I mean, I was that came out of left field, but at the end of the day, that's neither here nor there. But since we're on the topic, certainly our business is specialized healthcare, transportation, logistics, that's how people book put us in that in that specter. But we've been successful by meeting healthcare's most complex logistics challenges with end to end quality driven solution.

Speaker 1

I'll take to the COVID vaccine. It was new for government, for everybody and we feel very proud in terms of providing the solutions where government wasn't weren't prepared and creating flawless execution, particularly in Ontario and Alberta where we're closer with those governments and given them the solutions. Sometimes, Walter, you and the other analysts like to pigeonhole us into transportation and the likes. And I to me, I look at myself today as I've evolved as a service business that supports the healthcare and the healthcare industry in Canada. I'm very proud of what we do.

Speaker 1

We're able to leverage or complement our national network and our people who care, who understand more and more what the healthcare needs in Canada are. As a CEO of this company and larger shareholder of this company, I love the fact that we can make a positive with the healthcare needs in Canada. And for the healthcare analysts that are out there that they'll suggest that this the healthcare industry is broken in this country. And so the more I like the fact that we can make a difference. And we'll look at any opportunity in the healthcare sector that we feel that we can complement and make a difference.

Speaker 1

That's how we've been successful in the 1st place. So with that said, I'll leave it at that. And hopefully that answers your question.

Speaker 5

Yes. I don't think you need to be a healthcare analyst to know that the healthcare system is broken in Canada. But thanks very much, Mike. I'll leave

Speaker 1

it there. Thank you. Thanks, Walter.

Operator

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

Speaker 6

Yes. Thanks. Good morning. I wonder if you can comment a little bit more on what you're seeing kind of in the consumer healthcare space. I mean, you mentioned that maybe there was a customer loss there that impacted the revenue.

Speaker 6

But I think if we go back last few quarters, there had been some, I guess, broader based kind of weakness in consumer spending on things. So just wondering if you could comment on what you're seeing kind of broadly in your existing customers there? Are you seeing any kind of stabilization? Is it starting to rebound somewhat? Just any thoughts there?

Speaker 1

Yes, Cameron. I would look at that and just I want to go pick up my daughter a couple of nights ago and the airport was packed. I couldn't find a parking spot in the terminal. So I had to go away. What the heck is going on?

Speaker 1

I think people have focused more on their energy, I think it's starting to become reflective. Interesting, And I think it's starting to become reflective. Interestingly enough, I'm seeing a lot more sublet space in the GTA or industrial space than ever before or for the first time in a long time. So certainly consumer spending tightened their belt. People have tightened their belt to consumer spend.

Speaker 1

That's just those indicators that seem to prove that. And but we just came off, as I said earlier on, the 2nd best quarter in the history of Annular Healthcare Group, which to me is an indicator of things are stabilized and normalized as I think Peter mentioned in his dissertation. So I think once people stop traveling, they're going to start focusing on their own healthcare. Certainly, our LSU business, which is focused on travel vaccines and the likes of that has been the beneficiary of that

Speaker 3

in

Speaker 1

last 3 to 6 months. But yes, so I think we're back to normal state when it comes to health care spending, consumer health care standpoint.

Speaker 6

Okay. No, that's helpful. And just thinking about, I guess, sort of organic growth opportunities, I mean, the dedicated segment is an area where you've had good growth over the last number of years. I know it's something that you continue to target for growth. Can you just talk a little bit about the dedicated sentiment and what prospects there are for growth there?

Speaker 6

Any kind of new opportunities with new customers?

Speaker 1

Yes. Cameron, the opportunities aren't as great as it might have shown over the past because I think we're taking a good chunk of the market share. One of the strategies is being able to open up in rural areas and that's where our growth has happened on the dedicated side to complement the dedicated with the specialized transportation segment. Have one truck going into Prince Rupert instead of having multiple and offering that to the healthcare industry. So the large retail players are can benefit from the efficiencies.

Speaker 1

So that's where we're I don't think it's going to be as big a growth, it will be more organic and obviously price driven as well with inflationary costs, cost of trucks going up and the like. So I think it's as long as we keep our discipline in terms of margin, then we'll be fine.

Speaker 6

Okay. Makes sense. Appreciate the time.

Speaker 1

Thank you, Cameron.

Operator

Your next question comes from Tim James with TD. Please go ahead.

Speaker 3

Thank you. Good

Speaker 7

morning. First question looking at Healthcare Logistics and the margin percentage there. I'm wondering if it's possible to sort of talk about the impact of the reclassification of some of the pass through expenses. And I'm just looking at the year over year decline in those margins and part of it I'm sure is attributable, Michael, to what you were discussing earlier in the competitive environment and what have you. But I'm just trying to understand if the increased or the greater decline in the Q4, if there's anything in particular unrelated to the reclassification that maybe caused some incremental pressure there aside from just market conditions or competitive conditions?

Speaker 1

I'm going to let Peter qualify because I may not have the right answer to it. My gut says that I think maybe the pickup programs at logistics might have had an impact on that margin. The logistics transportation department of part of the logistics solution services is offering only warehouse distribution order to cash services, QA services, among other things, IT services to our healthcare customers, but also transportation services, which is where the eliminations come in. But and I think there has been a bit of a shift in some of the large customers in terms of pickup programs versus the like. So, but maybe I'm totally off, Peter.

Speaker 1

I'll let you answer this.

Speaker 5

No, I

Speaker 2

think that definitely impacts the logistics business more on the transportation revenue side, which is a bit lower growth when we're not doing the direct transportation through the Acuristics business. The good thing about that is that in some cases, ATS still is the beneficiary of that transportation regardless. But just to answer your question on the margin differentials, it's really the best way to look at it, Tim, is to go to the full year to date numbers. The segmented note, note 4 in the statements will give you basically the margins from an EBITDA perspective on the Healthcare Logistics side. It's down a bit year on year, roughly 20% versus around 21% and change on the Healthcare Logistics segment for 2022.

Speaker 2

But they're both both of those margins are in our sort of expected range. And there's nothing so that adjustments that happened in Q4, 2022 really changes the optics for the quarter, but not really for the business.

Speaker 1

Okay, that's helpful. So that

Speaker 7

and that's kind of what I'm trying to get at is that Q4 year over year decline or change, we shouldn't think about that sort of carried forward or anything, think about the year in its entirety as a bit better indicator?

Speaker 2

That's right. I wouldn't model the quarter.

Speaker 7

Okay. Okay. Thank you. My second question, just on working capital, there was a reasonable amount of usage in Q4 and for the full year relative to prior years. Part of that, I believe, has to do with income taxes.

Speaker 7

Could you maybe talk through the moving parts there and we should think about working capital in 'twenty four, whether some of that usage in 'twenty three will reverse and 'twenty four could be a more positive year than it's been historically? Or is this sort of a new level and there won't be any particular swing or reversal going forward?

Speaker 2

Well, you talked about the well, the tax item, that was one of the bigger impactors for working capital for the year and the quarter. The reality is we were essentially paying installments in our U. S. Businesses related on the basis of 2022. We didn't adjust those and ended up with actually income taxes receivable because we over installed.

Speaker 2

So there was a big swing there in the tax. I think one of the other items on the working capital, which probably is more systemic, is and Michael referenced the LSU business, which has a vaccine, private vaccine distribution business. And there was an investment in inventory there that probably is systemic. That's probably around $2,600,000 But other than that, working capital will ebb and flow as normal. I mean, our receivables are in good shape.

Speaker 2

We manage our cash flow every day, right? So we're there's nothing really systemic there other than the swing in tax potentially that should sort itself out, but a more systemic investment in inventory for the LSU business.

Speaker 7

Okay. That's helpful. Thank you very much.

Operator

Your next question comes from Justin Keywood with Stifel. Please go ahead.

Speaker 8

Hi, good morning. Thanks for taking my call. Just want to circle back on the organic growth profile for 2024. I think I heard of enough constructive elements that point to the kind of a long term growth rate of 4% to 7% organically. And just want to check if that's probable for 2024?

Speaker 8

And then also if there's any headwinds in Q1 given the lost packaging customer in Q1 of last year and if organic growth is possible?

Speaker 1

Yes. No, I don't think I think the Q4 of 2023 is indicative of normalization of our business. I had mentioned before on various calls that we haven't really put as much focus on packaging or at least taking care of the customers that we have now because of the commodity nature of that business. So more emphasis on other areas, that is not that's a longer term contract, which is stable, which is which will be fine going forward. That might be I think interestingly enough, we're retooling that part of the business to integrate it with our logistics business facilities and we're finding a bit of opportunity there.

Speaker 1

So all that being said, to answer your question long and short of it, I feel very comfortable you should feel very comfortable with your assumptions moving forward.

Speaker 8

Understood. That's clear. And then my second question is on capital allocation. We saw the NCIB quite active around the current stock levels over the last quarter and a half. And then also there's a small dividend increase announced and then the balance sheet remains pretty ripe to deploy for M and A.

Speaker 8

Just wondering if you have any thoughts on continuing the NCIB, maybe potential dividend raises or do you want to preserve your capital for potential acquisitions?

Speaker 1

Yes. I think this the NCIB, I think, was opportunistic for us. Obviously, I've had it by how much we had the cash, feel very strong about our company and the future of it. So, no, the focus is not going to be on the NCIB as much as I think I've alluded to, Justin on the we've had quite a bit of M and A activity, but we were taking a disciplined approach and where some of these potential acquisitions we're looking for a much higher price. We were all of a sudden now there seems to be a bit of a trend that's just like I look at land prices, industrial land prices seem to be going down all of a sudden there seems to be a just be patient.

Speaker 1

And so we'd rather use that capital for that for 2024.

Speaker 8

Understood. Thank you very much.

Speaker 9

Your next question comes from Ty Collin with 8 Capital. Please go ahead. Hey, Michael. Thanks for the question. I just wanted to follow-up on the M and A piece here.

Speaker 9

You mentioned, I guess, valuations maybe running ahead of themselves in the U. S. After kind of the boom in 2022. Were you referring more so to trucking assets or would that also apply to some of the more ancillary logistics and specialized businesses you were looking at? And then are you seeing that start to those expectations start to come down materially to the point where things are getting a little more actionable now?

Speaker 9

Or is still quite a bit of narrowing to do there?

Speaker 1

Yes, Ty. That goes to just my latest answer. Absolutely. And it's not no, it's definitely not related just to transportation. The industry is changing too, right?

Speaker 1

I think we're looking at how specialty pharmacy has big tailwinds and being involved in that sector. I mean, we've some of our capital allocations and growth CapEx that focus on expansion of our fridges and freezers. And I know in Calgary, we just doubled the size of our fridge. The LXU expansion into Laval is 1 third of it, I think, is fridge and freezer. So we're focusing on those.

Speaker 1

And then the distribution of that business is different than your typical specialty pharma in terms of the range of infusion clinics and just the whole model how that's changed, the price of these drugs, how that so just understanding how that paradigm is happening right now and where to position ourselves, so we can service that that growth better. So that could be some ancillary businesses to focus on that as well. So that's why my passion on the Canadian healthcare sector is growing. And we want I think we feel we can play a part. In the meantime, we'll continue to roll.

Operator

There are no further questions at this time. Please proceed.

Speaker 1

Well, thank you very much. It's we appreciate all of you joining our call and the great questions. And we'll see you around and have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Key Takeaways

  • Q4 revenue increased 2% year-over-year to C$169.1 million, delivering the company’s second-best quarterly performance ever with a strong EBITDA margin of 26.5%.
  • The Canadian specialized transportation network performed well, while U.S. truckload rates declined but have now stabilized, prompting a strategic pivot towards high-value temperature-, security- and quality-controlled services.
  • Completion of the new LSU facility in Montreal in January 2024 is expected to drive improved performance in the logistics and distribution product line throughout the year.
  • For fiscal 2023, consolidated revenue of C$648 million was just C$0.5 million below 2022, with an adjusted EBITDA margin of approximately 25%, and all recent acquisitions are now fully integrated.
  • A strong balance sheet and robust free cash flow enabled a C$0.01/share dividend increase (to C$0.10 per quarter) and opportunistic share buybacks, while the company remains focused on disciplined capital deployment and an active M&A pipeline.
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Earnings Conference Call
Andlauer Healthcare Group Q4 2023
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