Andlauer Healthcare Group Reports 2020 Third Quarter Financial Results

TORONTO, Nov. 10, 2020 /CNW/ - Andlauer Healthcare Group Inc. (TSX: AND) ("AHG" or the "Company") today reported its financial results for the three and nine-month periods ended September 30, 2020 ("Q3 2020" and "YTD 2020", respectively).

Q3 2020 Summary

• Revenue was $75.8 million in Q3 2020, an increase of 7.0% compared to $70.8 million for the three months ended September 30, 2020 ("Q3 2019");
• Operating income was $13.2 million, an increase of 16.3% compared to $11.3 million in Q3 2019;
• Net income and comprehensive income was $8.6 million, an increase of 10.7% from $7.8 million in Q3 2019;
• EBITDA⁽¹⁾ increased 13.0% to $20.2 million, compared to $17.9 million in Q3 2019, despite the absorption of approximately $1.2 million of incremental costs related to share-based compensation arrangements and the transition to a public company;
• EBITDA Margin⁽¹⁾ was 26.6% in Q3 2020, compared to 25.2% in Q3 2019;
• AHG successfully implemented its new 220,000 square-foot state-of-the-art logistics and distribution facility in Brampton, Ontario, commencing operations at the new facility in July 2020;
• AHG continued to maintain service levels across it operations, while monitoring the safety measures implemented in response to COVID-19 to prioritize the health and safety of its personnel, clients, and suppliers; and,
• Subsequent to Q3 2020, on October 5, 2020, AHG announced the completion of two tuck-in acquisitions (TDS Logistics Ltd. and McAllister Courier Inc.) for a combined purchase price of $15.9 million.

"We returned to a more normalized operating environment in the quarter as government restrictions related to the COVID-19 pandemic were lifted or eased starting last quarter. We generated revenue growth in four of our five product lines primarily due to increased volumes. Our operating capacity in our packaging division continues to be temporarily constrained by the COVID-19 related safety measures we put in place to protect our personnel, clients and suppliers. Growth in our EBITDA, EBITDA margins and operating income for the quarter reflects our increased overall revenue combined with effective productivity and cost management," said Michael Andlauer, Chief Executive Officer of AHG. "Looking ahead, we expect to generate continued growth supported by steady and growing client volumes, the opening of our new facility in Brampton, Ontario this past quarter and our recent acquisitions of McAllister Courier and TDS Logistics, which will increase the reach of our services and further expand our market presence in Ontario. We continue to evaluate other complementary acquisition opportunities."    

Selected Consolidated Financial Summary

($CAD 000s)	Three months ended September 30,								Nine months ended September 30,
	2020			2019			Variance						2020		2019		Variance
Revenue
Logistics & Distribution	25,682			21,707			18.3	%					70,909		65,647		8.0	%
Packaging	4,261			4,701			(9.4)	%					15,456		16,415		(5.3)	%
Healthcare Logistics Segment	29,943			26,408			13.4	%					86,365		82,062		5.2	%
Ground Transportation	42,946			41,609			3.2	%					128,779		123,355		4.4	%
Air Freight Forwarding	5,736			4,848			18.3	%					16,391		14,420		13.7	%
Dedicated and Last Mile Delivery	6,357			4,015			58.3	%					18,816		11,861		58.6	%
Intersegment Eliminations	(9,177)			(6,036)			52.0	%					(22,643)		(18,311)		23.7	%
Specialized Transportation Segment	45,862			44,436			3.2	%					141,343		131,325		7.6	%
Total Revenue	75,805			70,844			7.0	%					227,708		213,387		6.7	%
Operating expenses	62,240			59,525			4.6	%					191,050		179,742		6.3	%
Operating income	13,165			11,319			16.3	%					36,658		33,645		9.0	%
Net income and comprehensive income	8,596			7,763			10.7	%					23,845		23,270		2.5	%
Select financial metrics
EBITDA^(1)	20,190			17,872			13.0	%					56,948		52,825		7.8	%
EBITDA Margin^(1)	26.6%			25.2%			140 bps						25.0%		24.8%		20 bps

Q3 2020 Financial Results

Revenue for Q3 2020 totaled $75.8 million, an increase of 7.0% compared with Q3 2019. Revenue in Q3 2020 reflects the return of certain healthcare activities such as elective surgical procedures and the re-opening of clinics which use certain products of AHG's clients, including dental clinics, optometric clinics, animal health clinics and veterinary hospitals, as restrictions placed on such activities during the second quarter of 2020 in response to the COVID-19 pandemic were lifted by provincial public health authorities. This resulted in strong volumes in Q3 2020 for the Company's logistics and distribution, and ground transportation product lines. Growth in logistics and distribution revenue in Q3 2020 also reflects the implementation of a significant new client contract and the opening of AHG's new 220,000 square-foot facility in Brampton, Ontario in July 2020. AHG's air freight forwarding and dedicated and last mile delivery product lines generated year-over-year growth of 18.3% and 58.3%, respectively. Growth in air freight forwarding revenue was partially attributable to contractual price increases, with the remaining increase reflecting year-over-year volume growth of approximately 15% as customers expedited shipments in order to adjust to more normal levels of national demand as provincial governments eased COVID-19 related restrictions. Revenue growth in dedicated and last mile delivery reflects expanded client routes which commenced in the second half of 2019. The 9.4% decline in packaging revenue for Q3 2020 was primarily attributable to measures that AHG implemented in March 2020 to provide for the safety of its employees in connection with the COVID-19 pandemic, including limiting the number of associates in its operations to allow for physical distancing in accordance with public health guidelines, which has temporarily reduced operating capacity.

Cost of transportation and services for Q3 2020 was $30.8 million, or 40.6% of revenue, compared with $29.6 million, or 41.7% of revenue, for Q3 2019. The lower cost of transportation and services operating ratios for Q3 2020 reflect lower fuel costs in line with the decrease in revenue related to fuel, and savings achieved by the Company's effective management of its variable costs as volume increased in the quarter.

Direct operating expenses for Q3 2020 were $18.0 million, or 23.7% of revenue, compared with $18.3 million, or 25.8% of revenue, for Q3 2019. AHG incurred certain incremental costs in connection with its COVID-19 response measures, including additional cleaning activities for its facilities and equipment, expenses for personal protective equipment, and other measures impacting productivity; however, these incremental costs were mitigated through effective productivity management and other cost controls. During Q3 2020, AHG continued to qualify for the Canada Emergency Wage Subsidy ("CEWS") program in connection with its packaging operations. A total of $0.9 million was recognized as a reduction of direct operating expense for Q3 2020 as a result of support received from the CEWS program.

Selling, General and Administrative ("SG&A") expenses for Q3 2020 were $6.8 million, or 9.0% of revenue, compared with $5.1 million, or 7.2% of revenue, for Q3 2019. SG&A expenses for Q3 2020 include share-based compensation arrangements of approximately $0.7 million, which are incremental to the historical SG&A expenses reflected in the Company's operating income. These share-based compensation arrangements relate to the initial stock option grants to AHG's senior management team and deferred share unit grants made to its board of directors, which are intended to provide further alignment with shareholders. A further $0.5 million of cost is included in Q3 2020 SG&A expenses for incremental costs associated with being a public company.

Operating income for Q3 2020 was $13.2 million, an increase of 16.3% compared with $11.3 million for Q3 2019. Net income and comprehensive income for Q3 2020 increased by 10.7% to $8.6 million, from $7.8 million for Q3 2019. Higher segment net income before eliminations for both our healthcare logistics operating segment and our specialized transportation operating segment contributed to the increased profitability on a consolidated basis.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")⁽¹⁾ for Q3 2020 increased by 13.0%, to $20.2 million, from $17.9 million for Q3 2019. The increase in EBITDA⁽¹⁾ was due to the factors discussed above and include approximately $1.2 million of incremental costs related to share-based compensation arrangements and other public company costs not incurred in Q3 2019. EBITDA Margin⁽¹⁾ for Q3 2020 was 26.6% compared with 25.2% for Q3 2019, as operating ratios for the Company's two most significant operating costs (cost of transportation and services and direct operating expenses) were lower in Q3 2020 compared to Q3 2019.

Q3 2020 Dividend

The Company paid a dividend (encompassing the period from July 1, 2020 to September 30, 2020) in the amount of $0.05 per subordinate voting share and multiple voting share on September 11, 2020 to shareholders of record as at September 30, 2020

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 $0.05 per subordinate voting share and multiple voting share on an ongoing basis.

Shares Outstanding

As at September 30, 2020, there were 12,500,000 subordinate voting shares and 25,100,000 multiple voting shares outstanding. 

Financial Statements

AHG's unaudited interim condensed consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Q3 2020 are available on the Company's website at www.andlauerhealthcare.com and on the Company's profile on SEDAR at www.sedar.com.

Conference call

Michael Andlauer, Chief Executive Officer, and Peter Bromley, Chief Financial Officer, will host a conference call for analysts and investors on Wednesday, November 11, 2020 at 8:30 a.m. (ET). The dial-in numbers for participants are [phone] or [phone]. The call will be webcast live at: www.andlauerhealthcare.com/presentations-events.

To access a replay of the conference call, dial [phone] or [phone], passcode: 713280 #. The replay will be available until November 18, 2020. The webcast will be archived on the Company's website following conclusion of the call.

About AHG

AHG 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 healthcare sector. The Company's 3PL services include customized logistics, distribution and packaging solutions for healthcare manufacturers across Canada. AHG's specialized transportation services, including air freight forwarding, ground transportation, dedicated delivery and last mile services, provide a one-stop shop for clients' healthcare transportation needs. Through its complementary service offerings, available across a coast-to-coast distribution network, the Company strives to accommodate the full range of its clients' specialized supply chain needs on an integrated and efficient basis. For more information on AHG, please visit: www.andlauerhealthcare.com.  

Forward-looking Information

This news release contains forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information may relate to the Company's future financial outlook and anticipated events or results and may include information regarding the Company's financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans, objectives and responses to the outbreak of COVID-19. Particularly, information regarding the Company's expectations of future results, performance, achievements, facility expansions, leases, platform expansions, acquisitions, public company costs, payment of dividends, prospects, financial targets or outlook, intentions, opportunities or the potential impact of, and response measures to be taken with respect to, COVID-19 is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "believes", "commencing" or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. Such forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in circumstances surrounding future expectations which are difficult to predict and many of which are beyond the control of the Company.

Forward-looking information is necessarily based on a number of opinions, estimates and assumptions, including but not limited to those assumptions described under the heading "Cautionary Note Regarding Forward-Looking Information" in the MD&A for Q3 2020. Forward-looking information is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to factors discussed under the heading "Risk Factors" in the Company's annual information form dated March 12, 2020, which is available, together with the Q3 2020 MD&A, on the Company's profile on SEDAR at www.sedar.com. If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. Accordingly, investors should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this news release represents the Company's expectations as of the date of this news release, and are subject to change after such date and the Company disclaims any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

(1) Non-IFRS Financial Measures

This news release contains certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. AHG uses non-IFRS measures including "EBITDA", and "EBITDA Margin". These non-IFRS measures are used to provide investors with supplemental measures of the Company's operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. AHG also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. AHG management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation.

EBITDA

AHG defines EBITDA as net income (loss) and comprehensive income (loss) for the period before: (i) income tax (recovery) expense; (ii) interest income; (iii) interest expense; and (iv) depreciation and amortization.

AHG believes EBITDA is a useful measure to assess the Company's financial performance because it provides a more relevant picture of operating results by excluding the effects of expenses that are not reflective of the Company's underlying business performance.

EBITDA Margin

AHG defines EBITDA Margin as EBITDA divided by revenue. EBITDA Margin represents a measure of the Company's profitability expressed as a percentage of revenue.

AHG believes EBITDA Margin is a useful measure to assess the Company's financial performance because it helps quantify the Company's ability to convert revenues generated from clients into EBITDA.

For quantitative reconciliations of net income and comprehensive income to EBITDA for Q3 2020 and Q3 2019, please see "Reconciliation of Non-IFRS Measures" in the Company's MD&A for Q3 2020, available on the Company's profile on SEDAR (www.sedar.com), or the Company's website (www.andlauerhealthcare.com).  

SOURCE Andlauer Healthcare Group Inc.

Peter Bromley, Chief Financial Officer, Tel: [phone]; Bruce Wigle, Investor Relations, Tel: [phone]