Mr. Michael Andlauer reports

ANDLAUER HEALTHCARE GROUP REPORTS 2023 SECOND QUARTER RESULTS

Andlauer Healthcare Group Inc. today released its financial results for the three- and six-month periods ended June 30, 2023 (Q2 2023 and YTD 2023, respectively).

Q2 2023 summary

• Revenue totalled $157.4-million, a decline of 7.1 per cent from $169.4-million for the three-month period ended June 30, 2022 (Q2 2022);
• Operating income was $22.6-million compared with $30.2-million in Q2 2022;
• Net income totalled $15.7-million, or 37 cents per share (diluted), compared with $21.0-million, or 49 cents per share (diluted), in Q2 2022;
• Total comprehensive income was $10.7-million compared with $27.6-million in Q2 2022;
• EBITDA (earnings before interest, taxes, depreciation and amortization) totalled $39.5-million compared with $46.3-million in Q2 2022;
• EBITDA margin was 25.1 per cent compared with 27.3 per cent in Q2 2022.

"We generated solid results in our second quarter this year, though not as strong as our record quarterly results a year ago when we benefited from superior U.S. truckload rate premiums, higher revenue related to COVID-19 vaccines and ancillary products, and unusually high air freight forwarding volumes. Our revenue in the second quarter last year also reflected higher fuel surcharges," said Michael Andlauer, chief executive officer of AHG. "Despite the lack of these tailwinds, our consolidated revenue for the first half of this year is higher than the same period a year ago and our EBITDA margins for the quarter and year to date remain within our prepandemic historical range. We continue to pursue acquisitions to further expand our platform and drive incremental growth."

Q2 2023 financial results

Revenue for Q2 2023 decreased by 7.1 per cent to $157.4-million, compared with $169.4-million in Q2 2022. The decrease is primarily attributable to lower fuel surcharge revenue, lower volume of air freight shipments, and reduced revenue related to COVID-19 vaccines and ancillary products. The company's COVID-19-related revenue declined to approximately 0.8 per cent of consolidated revenue in Q2 2023, compared with approximately 2.6 per cent of revenue in Q2 2022.

Revenue for the health care logistics segment totalled $43.7-million, a decrease of 9.0 per cent, or approximately $4.3-million, compared with Q2 2022. The decline in segment revenue was attributable to a 5.8 per cent year-over-year decrease in the company's logistics and distribution product line revenue and a 31.3-per-cent decline in packaging revenue. The decrease in logistics and distribution revenue was due to lower outbound order handling activities for Accuristix and reduced transportation billings impacted by fuel surcharge programs from carriers, which are passed on to customers. The decrease is also partially attributable to $2.1-million of revenue recognized in Q2 2022 related to certain passthrough expenses which were reclassified to logistics and distributions revenue for LSU in accordance with IFRS 15 (international financial reporting standards) during the fourth quarter of 2022. This net revenue treatment has been consistently applied during YTD 2023. The decline in packaging revenue primarily reflects the loss of one of the company's packaging customers in the first quarter of 2023 (Q1 2023) and lower volume from AHG's remaining base of packaging customers compared with Q2 2022.

Revenue in the specialized transportation segment totalled $113.7-million, a decrease of 6.4 per cent, or approximately $7.7-million, compared with Q2 2022. The decline in segment revenue reflects a 2.7-per-cent decrease in ground transportation revenue, a 33.4-per-cent decline in air freight forwarding revenue and a 4.5-per-cent decrease in revenue from AHG's dedicated and last-mile delivery product line.

The decrease in ground transportation revenue is primarily attributable to lower fuel costs passed onto customers as a component of pricing. AHG's ground transportation revenue, excluding fuel, in its Canadian network increased by approximately 3.0 per cent. The company has continued to experience downward pressure on its United States-based truckload rates as opportunities to obtain rate premiums in the year ended Dec. 31, 2022, related to equipment and driver shortages have now diminished. AHG believes that its U.S.-based ground transportation revenue and related margins returned to prepandemic levels in YTD 2023, and the company does not foresee a return to the premiums achieved in fiscal 2022.

The decline in air freight forwarding revenue was attributable to lower fuel surcharge revenue and lower weight shipped by customers compared with Q2 2022. AHG's air freight forwarding customers shipped an unusually high volume during Q2 2022 due to supply chain issues during the period. AHG believes that the volumes shipped during Q2 2023 were more typical of expected air freight forwarding volumes and resulted in revenue slightly higher than its Q1 2023 air freight forwarding revenue of $7.5-million. Approximately 30.0 per cent of the $3.9-million year-over-year decline in air freight forwarding revenue during Q2 2023 was attributable to lower fuel surcharge revenue. The $800,000 year-over-year decline in AHG's dedicated and last-mile delivery product line revenue reflects lower fuel surcharge revenue compared with Q2 2022, partially offset by continued organic growth.

Cost of transportation and services was $78.9-million, or 50.1 per cent of revenue, compared with $82.8-million, or 48.9 per cent of revenue, for Q2 2022. The lower cost of transportation and services for Q2 2023 was primarily attributable to lower fuel costs in line with the decreases in revenue related to fuel prices. The increased operating ratio reflects lower pricing in AHG's U.S. truckload operations.

Direct operating expenses were $26.4-million, or 16.8 per cent of revenue, compared with $28.3-million, or 16.7 per cent of revenue, for Q2 2022. Direct operating expenses in Q2 2023 reflect a reduction in outbound volume in AHG's Accuristix logistics and distribution operations.

Selling, general and administrative (SG&A) expenses were $12.7-million, or 8.1 per cent of revenue, compared with $12.1-million, or 7.2 per cent of revenue, for Q2 2022. The increase was due to AHG's investments in supporting its business growth. SG&A expenses for Q2 2023 were in line with the company's expectations on a percentage of revenue basis.

Operating income totalled $22.6-million, a decrease of $7.6-million compared with $30.2-million for Q2 2022. The decrease is primarily attributable to reduced contributions from Boyle Transportation and Skelton USA, lower air freight forwarding revenue, and the decline in revenue related to COVID-19 vaccines and ancillary products.

Net income was $15.7-million, or 37 cents per share (diluted), compared with $21.0-million, or 49 cents per share (diluted), in Q2 2022. Lower segment net income before eliminations for AHG's specialized transportation segment was primarily attributable to reduced contributions from Boyle Transportation and Skelton USA, and lower segment net income from the company's health care logistics segment reflects reduced order handling activity, as discussed herein.

Total comprehensive income was $10.7-million compared with $27.6-million in Q2 2022. Total comprehensive income differs from net income due to the acquisition of foreign operations (Boyle Transportation and Skelton USA), which resulted in a negative foreign currency translation adjustment of $5.0-million in Q2 2023 compared with a positive foreign currency translation adjustment of $6.6-million in Q2 2022.

Earnings before interest, taxes, depreciation and amortization (EBITDA) totalled $39.5-million compared with $46.3-million for Q2 2022. The decrease is due to the factors discussed herein and primarily reflects lower contributions from the company's U.S.-based truckload operations and lower revenue related to COVID-19 vaccines and ancillary products. EBITDA margin was 25.1 per cent in Q2 2023, compared with 27.3 per cent in Q2 2022, which is in line with the company's prepandemic historical EBITDA margin range.

Dividend

The company paid a dividend (encompassing the period from April 1, 2023, to June 30, 2023) in the amount of eight cents per subordinate voting share and multiple voting share on July 17, 2023.

Subject to financial results, capital requirements, available cash flow, corporate law requirements and any other factors that AHG's board of directors may consider relevant, it is the company's intention to declare a quarterly dividend of nine cents per subordinate voting share and multiple voting share on a continuing basis.

Shares Outstanding

As at June 30, 2023, there were 20,082,328 subordinate voting shares and 21.84 million multiple voting shares issued and outstanding.

Financial Statements

AHG's unaudited interim condensed consolidated financial statements and related management's discussion and analysis (MD&A) for Q2 2023 are available on the company's website and on the company's profile on SEDAR+.

Conference call and webcast

Michael Andlauer, chief executive officer, and Peter Bromley, chief financial officer, will host a conference call for analysts and investors on Wednesday, Aug. 2, 2023, at 8:30 a.m. ET.

To join the conference call without operator assistance, you may register and enter your phone number on-line to receive an instant automated callback. Alternatively, you can dial 416-764-8650 or 888-664-6383 to reach a live operator that will join you into the call.

You can access a live webcast of the call under the presentations and events section of AHG's investor website.

To access a replay of the conference call, dial 416-764-8677 or 888-390-0541, passcode: 967454 followed by the pound key. The replay will be available until Aug. 9, 2023. The webcast will be archived on the company's website following the conclusion of the call.

About Andlauer Healthcare Group Inc.

Andlauer Healthcare Group is a leading and growing supply chain management company offering a robust platform of customized third party logistics (3PL) and specialized transportation solutions for the health care sector. The company's 3PL services include customized logistics, distribution and packaging solutions for health care manufacturers across Canada. Andlauer Healthcare Group's specialized transportation services in Canada, including air freight forwarding, ground transportation, dedicated delivery and last-mile services, provide a one-stop shop for clients' health care transportation needs. Through its complementary service offerings, available across a coast-to-coast distribution network, Andlauer Healthcare Group strives to accommodate the full range of its clients' specialized supply chain needs on an integrated and efficient basis. The company also provides specialized ground transportation services, primarily to the health care sector, across the 48 contiguous U.S. states.

We seek Safe Harbor.