Mr. Michael Andlauer reports

ANDLAUER HEALTHCARE GROUP REPORTS 2023 THIRD QUARTER RESULTS

Andlauer Healthcare Group Inc. has released its financial results for the three- and nine-month periods ended Sept. 30, 2023.

Third quarter 2023 summary:

• Revenue totalled $156.8-million, a decline of 4.9 per cent from $164.9-million for the three-month period ended Sept. 30, 2022.
• Operating income was $21.7-million, compared with $27.9-million in Q3 2022.
• Net income totalled $15.3-million, or 36 cents per share (diluted), compared with $19.0-million, or 44 cents per share (diluted), in Q3 2022.
• Total comprehensive income was $20.1-million, compared with $32.9-million in Q3 2022.
• EBITDA (earnings before interest, taxes, depreciation and amortization) totalled $39.0-million, compared with $44.1-million in Q3 2022.
• EBITDA margin was 24.9 per cent, compared with 26.7 per cent in Q3 2022.

"Our results for the quarter reflect a return to a more normalized operating environment. Specifically, we are no longer benefiting from certain pandemic-related tailwinds, including temporarily inflated U.S. truckload premiums and significant COVID-vaccine-related contributions," said Michael Andlauer, chief executive officer of Andlauer. "Looking ahead, we are confident that we can build off this new baseline in 2024, supported by the positive industry growth fundamentals that characterize the health care transportation and logistics markets in Canada and the [United States] and leverage our unique platform to financially perform. In addition, our strong balance sheet positions us to generate incremental growth through complementary acquisitions."

Q3 2023 financial results

Revenue for Q3 2023 decreased by 4.9 per cent to $156.8-million, compared with $164.9-million in Q3 2022. The decrease is primarily attributable to lower fuel surcharge revenue, a decline in United States-based truckload rates 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 Q3 2023, compared with approximately 2.8 per cent of revenue in Q3 2022.

Revenue for the health care logistics segment totalled $42.1-million, a decrease of 12.3 per cent, or approximately $5.9-million, compared with Q3 2022. The decline in segment revenue was attributable to a 9.9-per-cent year-over-year decrease in the company's logistics and distribution product line revenue and a 31.2-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 onto customers. The decrease is also partially attributable to $2.3-million of revenue recognized in Q3 2022 related to certain pass-through expenses, which were reclassified to logistics and distributions revenue for LSU, in accordance with international financial reporting standard 15 during the fourth quarter of 2022. This net revenue treatment has been consistently applied during year-to-date 2023. The decline in packaging revenue primarily reflects the loss of one of the company's packaging customers in the first quarter of 2023 and lower volume from Andlauer's remaining base of packaging customers compared with Q3 2022.

Revenue in the specialized transportation segment totalled $114.7-million, a decrease of 1.9 per cent, or approximately $2.2-million, compared with Q3 2022. The decline in segment revenue reflects a 1.4-per-cent decrease in ground transportation revenue and a 4.4-per-cent decline in air freight forwarding revenue, partially offset by a 0.3-per-cent increase in revenue from Andlauer's dedicated and last-mile delivery product line.

The decrease in ground transportation revenue in the quarter was primarily attributable to lower fuel costs passed onto customers as a component of pricing and a decline in United States-based truckload rates, as opportunities to obtain rate premiums in fiscal 2022 due to pandemic-related equipment and driver shortages have diminished. The company believes that its United States-based ground transportation revenue and related margins have returned to more normalized levels in YTD 2023, and it does not foresee a return to the premium rates achieved in fiscal 2022. Andlauer's ground transportation revenue, excluding fuel, in its Canadian network, increased by approximately 6.0 per cent in the quarter, partially offsetting the factors discussed above.

The $300,000 decline in air freight forwarding revenue reflects a $700,000 decline in fuel surcharge revenue, partially offset by $400,000 in organic revenue growth. The company generated a slight revenue increase in its dedicated and last-mile delivery product line, reflecting organic growth, partially offset by a $300,000 reduction in fuel surcharge revenue.

Cost of transportation and services was $79.6-million, or 50.8 per cent of revenue, compared with $81.0-million, or 49.1 per cent of revenue, for Q3 2022. The decrease in costs was primarily attributable to lower fuel costs in line with the decreases in revenue related to fuel prices. The increased operating ratio is attributable to lower pricing in the company's United States-based truckload operations, as discussed above.

Direct operating expenses were $25.3-million, or 16.2 per cent of revenue, compared with $28.3-million, or 17.1 per cent of revenue, for Q3 2022. Direct operating expenses in Q3 2023 reflect a reduction in outbound volume in Andlauer's Accuristix logistics and distribution operations. The decrease is also partially attributable to the recognition of certain pass-through expenses in Q3 2022, which were reclassified to logistics and distribution revenue for LSU in accordance with IFRS 15 during fourth quarter 2022. This net revenue treatment has been consistently applied during YTD 2023.

Selling, general and administrative expenses were $12.8-million, or 8.2 per cent of revenue, compared with $11.3-million, or 6.8 per cent of revenue, for Q3 2022. The increase was due to Andlauer's investments in supporting its business growth. SG&A expenses for Q3 2023 were in line with the company's expectations on a percentage of revenue basis.

Operating income totalled $21.7-million, a decrease of $6.1-million compared with $27.9-million for Q3 2022. The decrease is primarily attributable to reduced contributions from Boyle Transportation and Skelton USA, and the decline in revenue related to COVID-19 vaccines and ancillary products.

Net income was $15.3-million, or 36 cents per share (diluted), compared with $19.0-million, or 44 cents per share (diluted), in Q3 2022. Lower segment net income before eliminations for Andlauer'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 above.

Total comprehensive income was $20.1-million compared with $32.9-million for Q3 2022. Total comprehensive income differs from net income due to the acquisition of foreign operations (Boyle Transportation and Skelton USA), which resulted in a positive foreign currency translation adjustment of $4.8-million in Q3 2023 compared with a positive foreign currency translation adjustment of $13.9-million in Q3 2022.

Earnings before interest, taxes, depreciation and amortization totalled $39.0-million compared with $44.1-million for Q3 2022. The decrease is due to the factors discussed above and primarily reflects lower contributions from the company's United States-based truckload operations, reduced outbound order-handling activities for Accuristix, and lower revenue related to COVID-19 vaccines and ancillary products. EBITDA margin was 24.9 per cent in Q3 2023, which is in line with the company's prepandemic historical EBITDA margin range. The company's EBITDA margin was 26.7 per cent in Q3 2022.

Dividend

The company paid a dividend (encompassing the period from July 1, 2023, to Sept. 30, 2023) in the amount of nine cents per subordinate voting share and multiple voting share on Oct. 16, 2023.

Subject to financial results, capital requirements, available cash flow, corporate law requirements and any other factors that Andlauer'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

On March 24, 2023, the company announced that the Toronto Stock Exchange had approved its notice of intention to make a normal course issuer bid for up to a maximum of 1,856,857 of its subordinate voting shares, or approximately 10 per cent of its public float as of March 23, 2023, over the 12-month period commencing on March 29, 2023. As at Sept. 30, 2023, 107,740 subordinated voting shares had been purchased and cancelled pursuant to the NCIB.

As at Sept. 30, 2023, there were 19,974,588 subordinate voting shares and 21,84 million multiple voting shares issued and outstanding.

Financial statements

Andlauer's unaudited interim condensed consolidated financial statements and related management's discussion and analysis for Q3 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 Friday, Nov. 3, 2023, at 8:30 a.m. ET.

To join the conference call without operator assistance, you may register and enter your phone number 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 view a live webcast of the call under the presentations and events section of Andlauer's investor website.

To listen to a replay of the conference call, dial 416-764-8677 or 888-390-0541, passcode: 155065 followed by the number sign. The replay will be available until Nov. 10, 2023. The webcast will be archived on the company's website following the conclusion of the call.

About Andlauer Healthcare Group Inc.

Andlauer is a leading and growing supply chain management company, offering a robust platform of customized third party logistics 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'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 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.

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