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Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andlauer Healthcare Group 2024 First Quarter Results Conference Call. [Operator Instructions]. Please be aware that certain information discussed today may be forward-looking in nature. 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&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 measures under IFRS. Please see the company's latest MD&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 May 3, 2024.
I would now like to turn the conference over to Michael Andlauer. Please go ahead, sir.
Thank you, Julie, and good day, everyone. 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 up with a more detailed discussion of our Q1 financial results. I'll then provide some closing comments and open the line to questions. So aside from our lower fuel surcharge revenue or 2.2% year-over-year decline in our consolidated revenue for the quarter was primarily attributable to 2 factors: first, revenue in our U.S. truckload businesses at Scotland and Boyle reflected a year-over-year decrease of $4.3 million and as a result of a continuation of depressed rates for truckload services that we have experienced throughout most of 2023. Our lower revenue in the U.S. also reflects our decision to focus on revenue quality the trough that I described during our Q3 2023 earnings call is -- has extended through Q1 and I would anticipate through Q2. Second, we experienced lower revenue in our Accuristix business to the tune of about $3.2 million year-over-year for this quarter, primarily due to lower volumes from certain large consumer health clients. Yes, like I said, those are the ones that are distributing mostly consumer health products. These declines were partially offset by organic growth in our Canadian specialized transportation network excluding fuel surcharge revenue. As I've discussed previously, we are determined to drive incremental margin growth in the U.S. by leveraging our core specialized competencies in temperatures, security and quality control. And by focusing on certain customers and or high-value products that are not as susceptible to the fluctuations in the spot market rates that we're experiencing in the U.S. today. The lower outbound order handing activities that we've experienced for Accuristix for the past few quarters primarily reflects lower volumes of handling and transportation activities for these certain consumer health care customers and some normal course fluctuations in the rest of our client base. 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 the year progresses. I'll turn the call over to Peter now to review our financial performance in more detail. Peter?
Thank you, Michael, and good morning, everyone. Revenue for our Healthcare Logistics segment totaled $42.9 million, a decrease of 6.9% from Q1 last year. The decrease reflects a 6.4% decline in our logistics and distribution product line revenue and a 10.3% decline in packaging revenue. Michael spoke to the decline in our logistics and distribution revenue.
The decline in packaging revenue primarily reflects the loss of one of our packaging clients in Q1 of last year. Revenue in our Specialized Transportation segment totaled $118.3 million, a slight decrease of 0.4% compared with Q1 a year ago. The decrease reflects the decline in U.S.-based truckload revenue and lower fuel surcharge revenue, partially offset by organic growth in each of our Canadian specialized transportation product lines. Average fuel prices in Q1 this year were approximately 8% below levels in Q1 a year ago. Ground transportation revenue for the quarter was $106.4 million, a decrease of 1.7% compared with Q1 a year ago. The decrease reflects the decline in our U.S.-based truckload business reflecting lower rates and our focus on revenue quality as well as lower fuel cost passed on to customers as a component of pricing compared to Q1 last year. These factors were partially offset by organic growth in our Canadian ground transportation network. Ground transportation revenue, excluding fuel in our Canadian network increased by approximately 3.2% compared to Q1 last year. The 6% growth in our air freight forwarding revenue in Q1 this year reflects a 2.3% year-over-year increase in weight shipped. The 3.6% 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 $82.5 million or 51.2% of revenue compared with $84.2 million or 51.1% of revenue for Q1 last year. Lower fuel costs in line with decreases in revenue related to fuel prices were partially offset by idle equipment costs in our U.S.-based truckload businesses arising from a lower volume of loads as we focused on revenue quality. Direct operating expenses were $26.3 million or 16.3% of revenue compared with $27 million or 16.4% of revenue for Q1 a year ago. The decrease was primarily attributable to a reduction in outbound order handling activities for Accuristix in line with lower revenue. Operating income totaled $21.2 million, a decrease of 10.4% from Q1 last year. Net income was $14.9 million or $0.35 per share diluted compared with $16.5 million or $0.39 per share diluted a year ago Q1. Lower segment net income before eliminations in our specialized transportation segment was primarily attributable to reduced contributions from Boyle Transportation and Skelton USA and lower segment income from our Healthcare Logistics segment, which reflects reduced order handling and transportation activity. EBITDA for the quarter totaled $39.6 million compared with $40.5 million in Q1 last year, primarily reflecting lower contributions from U.S. based truckload operations and reduced order handling activities for Accuristix, partially offset by organic growth in our Canadian specialized transportation network. EBITDA attributable to Boyle Transportation and Skelton USA was approximately $2.5 million lower in Q1 2024 compared to Q1 2023. EBITDA margin was 24.6% for the quarter, unchanged from Q1 last year. The margins in our U.S. based truckload operations, which were in line with our consolidated margin range throughout 2022, and into Q1 a year ago were impacted during 2023 and Q1 this year by post-pandemic macroeconomic factors such as increased equipment and driver availability. However, these lower margins were effectively offset by organic growth in our Canadian specialized transportation network. The performance of our 2 operating segments continues to result in industry-leading EBITDA margins. Our balance sheet continues to be very strong. At quarter end, we had only $25 million outstanding under our term facility and mill under our revolving facility and a conservative net leverage ratio of 0.35x. Our NCIB terminated on March 28 this year. In all, we purchased and canceled a total of approximately 634,000 subordinate voting shares pursuant to the NCIB, representing approximately 3% of our float. Despite the NCIB commitments and debt repayment of $25 million late last year, we had cash and cash equivalents of $68.2 million and working capital of $87.7 million at quarter end. This underlines the continued strong cash generation of our business. We remain well positioned financially to pursue growth opportunities. I'll now turn the call back to Michael for closing comments.
Thank you, Peter. Our Canadian Specialized Transportation network is performing well and in line with our expectations. We're focused on improving the performance of our specialized U.S. truckload operations where we're executing on opportunities to upgrade this business. This will take longer than we had expected as we are somewhat reliant on the cyclical nature of the truckload market in the U.S. We're confident that our logistics and distribution product line performance will improve as the year progresses. We already see this trend changing as we enter Q2. Looking ahead, we're confident that we can continue to leverage our unique platform and core competencies to drive increased value for their shareholders, supported by positive industry growth fundamentals that characterize the healthcare, transportation and logistics markets in Canada and in the U.S. With our core strength in temperature management, quality assurance, regulatory compliance, technology enabled visibility throughout the supply chain and security, combined with our coast to coast network in Canada and established presence in the specialized transportation market in the U.S., we're uniquely positioned in a stable and growing market.
We continue to evaluate acquisition opportunities in both Canada and the U.S. We continue to look further to expand our platform. We have maintained and will continue 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. And before opening the line to questions, I'm pleased to note that this quarter, we have published our inaugural sustainability report, which you can view on our website. This was an incredible collaborative effort created by many of our employees across all our companies. The report highlights our responsible business approach, which starts and ends with our people, our professional drivers, our own operators and teams working across our network. Their commitment and passion are the engine of our success and a key to our strong industry partnerships and stakeholder relations. This report is a testimony of their hard work and will serve as a baseline against which we will measure our future progress for the communities we serve.
And I would like to open the line to the questions. Julie, please commence the Q&A.
[Operator Instructions] Your first question comes from Kevin Chiang from CIBC.
Maybe just on the margins, flat year-on-year, but down sequentially by almost a couple of hundred basis points. I don't normally think of your margins being seasonal. So you can clarify that there's some seasonality here to your margin profile. But maybe just any color on the step down in margins quarter-over-quarter? Because I would imagine some of the pressures you've highlighted in Q1 would have been present in Q4. So maybe just -- maybe some color there in terms of what you think drove the sequential decline in profit margin or EBITDA margin.
Yes. I think there is a bit of seasonality as you go from -- I mean, we've seen that with -- certainly with the consumer goods. It's not as seasonal -- it's not as seasonal as other commodity, other products, other industries, particularly in the retail sector. But there is a bit of that. Q1 was a bit of an anomaly we found interesting enough, what we did our -- each one of our companies did our budgets. This year, we -- obviously, we budgeted and expected year-over-year growth into what we had anticipated as interesting mid single-digit growth but what we didn't do the exercise that we did is we looked at it -- we seem to hit plan in most of our businesses, except for the U.S. business. And we realize that when we segregated by quarter -- we do this by month, by the way. But when we segregate it by quarter, the surprises that we the seasonality of the Q1 didn't seem to stand out. We met plan on most of our companies. So that's -- so that's why I'm not quite confident about where we're going. There were a lot less working days in Q1 of this year as more Q4 of last year or even Q1 of this year. So it's an interesting dynamic but -- and that would kind of affect a bit of the margin. But when you're talking about 2 basis points, it's not -- it will ebb and flow just by -- but it's relatively steady overall. That's my take on it, Kevin.
No, that's helpful color. And obviously, gives me some sense of how margins might work through the year here. Maybe just my second question on Accuristix. It sounds like you're seeing some pressure from consumer health products. Can you give us a sense of maybe what percentage or how you would level set your exposure to maybe more consumer discretionary spending versus servicing or providing an essential service or moving products that are an essential service. Is there a way to -- so maybe handicap what your exposure to consumer discretionary spending is just giving some more concerns there?
I'm not -- I'm not as concerned -- about -- I mean, eventually, people will need to take. It's not a luxury, even though when you look at consumer health and you look at things like vitamins and other products that are part of a portfolio of these health care companies, even Sunscreen, those are voluminous in nature and tend to need more space and more both in the warehouse and in the truck and tend to have a higher cost to the customers. To me, we saw it -- and we saw last year or 2 years ago, I can't recall exactly which quarter where we had an enormous amount of returns because the cold and flu really was staying at home and obviously, we're in catching cold. The cold and flu business wasn't vibrant or the same with the vaccine. So there was a lot of returns coming. So forecasting.
And I think a lot of these companies are still trying to figure out what the right numbers are for consumers. I don't know. I can't really -- like I said, I think in Accuristix's case, we had 3 less working days in Q1 compared to Q1 of the previous year. That has some effect. Easter came -- is on the -- came in early in Q1 and last year it was in Q2. So I'm not -- I think -- I think there is a bit of an anomaly there to be...
Well, that makes sense.
Sorry, yes, sorry, Kevin. I wish I could be more definitive. I'm not going to try to push it my way. As you know me right now, right?
But 3 fewer working days is obviously going to impact the quarter and you make that up as we get through the year. So that's all.
Your next question comes from Konark Gupta from Scotiabank.
Again, dig into the U.S. business a little bit. I know when you guys are not alone, obviously, in this -- every single truckload business is feeling the pressure right now and I think everybody is kind of surprised that it's extending into sort of the mid-2024. So it's uncontrollable, clearly. But from your perspective, what's your strategy now in the U.S.? Like I think you have a business that's obviously under pressure right now. Would you take sort of the opportunity or advantage of the market conditions today, given your balance sheet, obviously, to scale up in the U.S. with more ground transportation assets? Or would you like spend some time and capital on logistic aspects in the U.S. so that you can create some synergies that you have in Canada? Or would you kind of like to be on the sidelines in the U.S. like wait and watch led the market rebound and all that. So how do you -- how do you see the U.S.
Those are excellent -- that's an excellent question because I think we've talked about this for our executive teams. I had both executive teams in Boston last month and it's exactly what we spoke of, both the Skelton USA and Boyle. And those are exactly some of the things that we discussed. I would be lying to you if I didn't tell you that when we bought this business, 3 years ago now or the under 3 years. We were -- we felt that the FDA with temperature control and would follow suit with Canada. They'd be more stringent. It certainly fell that way in light of the margins of these companies were yielding and the demand for the business. And then they pulled it -- after COVID, the rug was kind of pulled out their seat. And Kevin's previous question about margins and fluctuations as certainly the U.S., the U.S. took the biggest hit in margins. And we look like a successful truckload company but not a great specialized transportation company that we bought. So from that perspective and can we be opportunistic? And because we are going through a trough and a good balance sheet. To me, that would be -- could be opportunistic, but I don't feel comfortable that I understand the market well enough. And my point of differentiation has been to be focused on health care, which is somewhat of a recession-proof business in an areas where our services are required and needed all the time. And I'm nervous that if I go towards that, continue to grow that business that I will be part of that cycle that we're going through right now in the truckload business in the U.S.
So I'm looking more at synergistic. I look at the health care sector where it's more complex. So right now, with the business that we have, I think I mentioned it last quarter, I can't recall off the top of my head, but we will be looking at more specialized products like some of the stuff that we do in Canada that particular Skelton does on the 2- to 8-degree side and or frozen for that [indiscernible] focusing on that -- those areas using those resources for that. The sales cycle is a lot longer because of the regulatory requirements. But that's exactly what got us successful is because of the regulatory requirements. And -- so for that step, we are working diligently from that just to change that business to be more specialized as is categorized today. And on the Canadian side, we are -- we are active, even though we haven't done a transaction, we are active on the M&A side. And in some cases, looking at things that could be very much transformational. I'm passionate about the health care industry in this country and we want to make -- we want to be able to make a difference.
That's great to know, Michael. And if I can follow up on LSU in Montreal. Obviously, you have capacity expansion there. How does that capacity expansion translate into revenue generation over the next 3, 4 quarters? Like what's your cadence for that?
I feel that it's -- it's a -- we're a bit tied in with the whole real estate market right now and a paradigm with respect to where companies are looking to pivot or not pivot, but just transform in terms of type of health care products, particularly on the pharma side and we talked about biologics and specialty pharma. I think that's an area of growth. And I think that's where we LSU specializes in Quebec. And so we're expanding -- it's only about a 35,000 square foot expansion in Laval but when it's mostly bridge products that -- or frozen that becomes -- so I feel like we'll both grow organically, the opportunities there. We have obviously proprietary, but I can talk that we have -- there is a traction to it right now for this business -- for this space, I should say.
Your next question comes from Cameron Doerksen from National Bank Financial.
Yes. Just a follow-up, I guess, on the U.S. business. I mean, clearly, it makes sense to focus more on kind of the specialty 2 day in frozen. Just wondering if you can talk about kind of the timeline to pivoting to that business. I mean you kind of indicated that Q2, you're seeing similar trends in the U.S. business. But how long does it I guess, take to kind of materially change the business to be focus on some higher margin, more stable business?
It might -- this is a good question, Cameron. But I -- we are focuses there, discussions are there. It could very well take one distributor to make that decision and transform us. I'm not going to say overnight because that -- it takes time. But there's a lot of work in progress with customers who are familiar with our services, obviously, international companies. And it's a matter of positioning and setting things up. There's a lot of regulatory aspect to it, in QA requirements. That's when you're dealing with this type of product. So I'm intrigued with it. . There's also the aspect that we're doing at Boyle non-health care product with the Department of Defense business. Is that an area that -- that looks -- looks to be segregated and expanded upon. That's why when Konark brought up the question earlier on, it's -- it's a strategy session and it's something that I'm not going to -- I'll ultimately make the final decision but I'm looking at the collaborative effort of our executive teams, both at Boyle and Skelton USA and others here at AHG to figure out what's in the best interest of our shareholders.
Okay. No, that makes sense. And maybe just secondly for me, just on the NCIB, I mean, terminated, I guess, in March are finished. I guess any thoughts on putting a new NCIB in place? Just wondering why you wouldn't have renewed that.
I'll ask Peter why we didn't renew it. But -- absolutely. I mean I think as you can see our balance sheet, we're -- even though we we're in a really -- we're in the best position in the balance sheet as we've ever been. And that's despite having bought our shares back and we will. I mean, obviously, it's -- those are all things that we need to -- and we will. We'll behave -- I think we'll behave accordingly on that. My only concern is that the flow is getting smaller and smaller because I'm not selling. So anyway.
Your next question comes from Ty Collin from Eight Capital.
My first one, I'll just ask on the Canadian ground transportation business. You called out around 3% organic growth year-over-year in the quarter. That's a bit of a slowdown from what you guys have been putting up in recent quarters. Just wondering if you could comment on that there. Any kind of one-timers any seasonality to take note of or maybe picture trend as we're thinking about the rest of the year.
Yes, I'm not concerned about it at all. I think it's days in the quarter might have affected a little bit. It seems to -- in talking to a lot of other businesses, they seem to be saying the same thing. I didn't really notice that had an impact, but 3 days on 60 working days is 5%. So I'm not -- and by the way, the fuel surcharge is a lot less. So sometimes it's the revenues might have a little bit of that impact as well that would have impacted [indiscernible] growth. So -- but all in all, it's steady. It's not -- it's not a sexy business. It's pretty mature, but it's steady. Our service levels are as good as they've ever been. We've had -- which has helped the fact that the winter was mild to temperature management as well as always [indiscernible] material but -- no, I'm not overly concerned of it.
Okay, great. Now that's helpful. And I think it sounds like the number of working days did move the needle there. And then just for my follow-up on the U.S. business, obviously, you guys have talked about kind of tactically downsizing certain areas in that to focus on more high-margin value-added work. And you mentioned that, that's maybe created a little bit of slack from a capacity utilization standpoint right now. Is the plan to kind of just grow back into the capacity you have now? Or are there any thoughts of actually maybe downsizing the fleet, getting kind of less exposed to the truckload market, as you mentioned earlier in the call. Just your thoughts around the future of your asset base in the U.S.
Yes. I think, Ty, that the capacity is fine. We could -- if we felt compelled to grow at higher margins than we would. But we're not going to go and grow just because we've got typical truckload margins. We took -- it's been quite the difference in margins quarter-over-quarter in that business. And the cash flow positive businesses but I'm not worried about that. It's not a bit superior. But it's -- yes for me, it just stabilize it, understand it more focused on other pieces of business and don't say yes to all any business that comes along, which will require you to get more trucks.
And then when the site -- when trucks at the fence, it's not working. And by the way, since in the last year that everything has gone up. So your lease cost or truck interest rates are up, truck costs are up. Wages have gone up because of inflation. And so there's but -- and the rates haven't. We're -- like I said, we're in that part of the cycle, and we're going to keep things status quo from a fee standpoint.
Your next question comes from Justin Keywood from Stifel.
I guess just first, a follow-up on the consumer health customer or customers that saw some pressure in Q1. I know there was a strike with the market share leader in the VMS space. Did that have an impact at all? And is that transitionary where we should see more normalized results in Q2?
I think we'll see a more normalized results in Q2, but I don't know if this strike had anything to do with it.
Okay. And then just more broadly, looking at 2024, is it still possible to achieve the 4% to 7% organic growth target on the year?
I personally believe so because when I segregate all our business plans for all the companies by quarter, I realize that's like I said earlier in the call, we're making plans on all the businesses. So I still feel confident.
Okay. And then just finally, just on the M&A pursuits and I think I heard correctly, possibly some adjacent industries. I assume this would be in Canada primarily given the cold chain focus in the U.S. Are you able just to detail what some of these adjacent areas could be? And would it be a near-term pursuit or more medium and long term?
It's a constant pursuit. But certainly, we have the differentiation of having an incredible national network in Canada and leveraging that in other areas in the health care sector, I think could be opportunistic. And interesting enough, I'm going to Schofield Pharma conference and all the major players are going to be there. And that's some of the initiatives. It's listening, it's a strategy. It's partnering and I think you're seeing that. I mean if you look at the specialty pharma business, for example, and the patient care and the network required and getting the product to the patient. And this is a whole logistics play of this. The fact that you have to get blood work before you go and get -- and get treated. Those are all areas that listing and understanding the fact that we have such a network, such a broad network and that we -- to help complement and is, I think, an opportunity for Andlauer Healthcare Group moving forward.
Your next question comes from Michael Simpson from NCM Investments.
Mr. Andlauer, can you give me an update on Shoppers if there's opportunities for you to increase your business with Shoppers, you've got a long-term relationship with Shoppers?
Well, we do have a relationship with Loblaw and Shoppers more specifically, you probably see our trucks go in there on a daily basis. But I don't know if I can really elaborate much more than that on that front as we do with other pharma clients or retailers, I should say, or distributors.
Okay. Fair enough. Second question is on the front of biologics and regenerative medicine. Can you talk about the opportunities in Canada and mostly the U.S.?
To what extent, Michael?
To the extent to grow revenue or if these are new growth opportunities, verticals for you?
Yes. I think I referred to that in Justin's questions earlier on about specialty pharma and biologics and working close. I mean we many -- our manufacturing clients that we warehouse and distribute for we're seeing an increase in warehouse and logistics space. I think last quarter, I might have mentioned that our Calgary facility, we've actually doubled our fridge space in Calgary. I just alluded to LSU earlier on about 35,000 square foot expansion. A lot of it is bridge space. And it's obviously back to your question about biologics. We see that space growing. We're well positioned to support our clients at Accuristix who a lot of them are pivoting from the traditional pharma pills to more biologics. So that's -- let's try to understand the customer and offer that network to a customer.
[Operator Instructions] Your next question comes from Tim James from TD Cowen.
I just have one really big picture question for you, Michael, that kind of attempts to wrap up a number of topics that you've discussed. Could you talk about the growth potential for the Canadian temperature controlled health care transportation market. Comparing it to kind of, let's call it, the 10 years pre-pandemic and looking forward at this point for the next 5 years. And I'm just trying to understand any structural changes in the industry #1 and then secondly for and lower within the industry. Just a comparison if there are any changes in the potential sort of normalized rate of growth?
Yes. I think -- I mean the data tends to be a little bit that we get -- I know you can get that data, by the way, TechNavio data or ever. It's -- we're looking at -- I think I read it was Peter, maybe correct me, 4% to 6%.
In that range for the next 5 years plus.
So it's predictable study, it's not sexy, but it's growth. I mean I would -- integration coming in as well as the country and the like. So I think we feel -- it's a nice consecutive numbers that we kind of rely on. And then you've got the aging population. You can do that. I'm not saying anything that's groundbreaking that you wouldn't already probably know, Tim, but I can't really hard time expanding more on that. I think people are living longer. So that's got to be helpful.
So from a -- from a regulatory perspective, obviously, I don't -- correct me if I'm wrong, I don't believe there's been a lot of change, if any, from a competitive perspective, the outsourcing trend, those dynamics are very similar to the way they were kind of pre-pandemic as you look forward? Is that -- am I interpreting that correctly?
Yes, absolutely. I think it's the competitive landscape. It's -- in Canada, it's become quite mature. I mean, obviously, pharma companies are consolidating sometimes, particularly consumer health aspect of things. We're seeing some changes there. Generic companies come and go. And the big ones are still here, but they're pivoting with biosimilars instead of -- and I think the pharmacy industry is strong. And personally, I think it's going to get even stronger because that's going to be the point of contact for Canadians for -- more so moving forward as lack of doctors that we have in this country. So I think it's just a matter of adjusting, but we've built a nice network, that national network that it's hard to duplicate because once you have the economies of scale that we have. So as long as we continue to take care of the customer and listen to the customer, I think that the predictability is there for business. At least the way it stays right now as warehousing and transportation, distribution packaging.
And there are no further questions at this time. I will turn the call back over to Michael for closing remarks.
Thank you, Julie, and I appreciate all of you joining today and I would ask if you please take a look at our sustainability report on our website. As per the company, we're pretty proud of it. And thank you for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining and you may now disconnect your lines. Thank you.