Andlauer Healthcare Group Reports 2021 Fourth Quarter and Full Year Results

TORONTO, March 2, 2022 /CNW/ - Andlauer Healthcare Group Inc. (TSX: AND) ("AHG" or the "Company") today reported its financial results for the three-month period ("Q4 2021") and year ended December 31, 2021 ("Fiscal 2021").

Q4 2021 Summary

• Revenue increased 53.6% to $133.0 million, compared to $86.6 million in the three months ended December 31, 2020 ("Q4 2020");
• Operating income increased 50.2% to $21.5 million, compared to $14.3 million in Q4 2020;
• Net income, including a gain of $37.9 million on the step acquisition of 51% of Skelton USA Inc. (the "step acquisition", discussed below) increased to $53.1 million, compared to $13.9 million in Q4 2020;
• Total comprehensive income increased to $56.0 million, or $1.26 per share (diluted) compared to $13.9 million, or $0.36 per share (diluted) in Q4 2020;
• EBITDA1 increased to $73.7 million, or $35.8 million excluding the gain on the step acquisition, compared to $22.0 million in Q4 2020;
• EBITDA Margin1 was 55.4%, or 26.9% excluding the gain on the step acquisition, compared to 25.4% in Q4 2020;
• AHG continued to provide logistics and distribution, specialized transportation, and packaging solutions to certain of its manufacturer, 3PL provider, wholesaler and government clients that are involved in the Canadian supply of COVID-19 vaccines and ancillary products. In Q4 2021, the Company's COVID-19 pandemic-related revenue comprised approximately 5.0% of total revenue, compared with effectively nil in Q4 2020 and 2.5% in the three months ended September 30, 2021;
• On October 26, 2021, together with Andlauer Management Group Inc. (the "Selling Shareholder"), AHG completed a bought deal offering of 3.5 million subordinate voting shares at a price of $48.20 per subordinate voting share for aggregate gross proceeds of $168.7 million (the "Offering"). The Offering was comprised of 2.0 million subordinate voting shares issued from treasury and offered by AHG for gross proceeds of $96.4 million, and 1.5 million subordinate voting shares offered by the Selling Shareholder, for gross proceeds to the Selling Shareholder of $72.3 million;
• On November 1, 2021, AHG acquired 100% of T.F. Boyle Transportation, Inc. ("Boyle Transportation") and 51% of Skelton USA, increasing its aggregate ownership of Skelton USA to 100%. Boyle Transportation and Skelton USA accounted for approximately $19.0 million of consolidated revenue during Q4 2021; and
• AHG continued to maintain service levels across its operations, while monitoring the safety measures implemented in response to COVID-19 to prioritize the health and safety of its personnel, clients, and suppliers.

Fiscal 2021 Summary

• Revenue increased 40.0% to $440.1 million, compared to $314.3 million in the year ended December 31, 2020 ("Fiscal 2020");
• Operating income increased 44.7% to $73.7 million, compared to $50.9 million in Fiscal 2020;
• Net income increased to $90.0 million, including the gain on the step acquisition, compared to $37.7 million in Fiscal 2020. Net income excluding the gain on step acquisition was $52.0 million for Fiscal 2021;
• Total comprehensive income increased to $92.8 million, or $2.25 per share (diluted), compared to $37.7 million, or $0.98 per share (diluted), in Fiscal 2020;
• EBITDA1 increased to $157.2 million, or $119.3 million excluding the gain on the step acquisition, compared to $78.9 million in Fiscal 2020;
• EBITDA Margin1 was 35.7%, or 27.1% excluding the gain on the step acquisition, compared to 25.1% in Fiscal 2020; and
• On March 1, 2021, AHG acquired 100% of Skelton Canada Inc. ("Skelton") and 49% of Skelton USA for total aggregate consideration of approximately $114.7 million, before customary working capital adjustments. Skelton added approximately $33.6 million of revenue during Fiscal 2021.

Subsequent Event

• On March 1, 2022, AHG acquired 100% of the issued and outstanding shares of Logistics Support Unit (LSU) Inc. ("LSU") for consideration of approximately $30.0 million before customary working capital adjustments. LSU is a third-party logistics provider offering specialty pharmacy, warehousing, distribution and order management services throughout Canada to national and international companies as well as government clients in the pharmaceutical, medical and biotechnology sectors. The purchase price was financed through the issuance of 154,639 subordinate voting shares and cash of approximately $22.5 million provided by a combination of cash on hand and by drawing on the Company's credit facilities.

"We generated strong year-over-year growth in revenue and profitability in both the fourth quarter and full year, reflecting the positive contributions of our acquisitions and continued organic growth," said Michael Andlauer, Chief Executive Officer of AHG. "The acquisitions we completed during 2021 have significantly enhanced our client service offering and established a strong platform for growth in the U.S. Our recent acquisition of LSU further complements our expanding platform. Looking ahead, we are well positioned to drive continued growth and enhanced shareholder value in 2022 and beyond."

Selected Consolidated Financial Summary

Q4 2021 Financial Results

Revenue for Q4 2021 increased by 53.6% to $133.0 million, compared with $86.6 million in Q4 2020. The Skelton, Skelton USA and Boyle Transportation acquisitions accounted for approximately $30.9 million of the $46.4 million increase, with the remaining increase attributable to organic growth as described below.

Revenue for the healthcare logistics segment totaled $33.9 million, an increase of 12.9% compared with Q4 2020. The increase was primarily attributable to the 13.3% year-over-year growth in the Company's logistics and distribution product line in Q4 2021, reflecting greater outbound order handling activities. AHG's packaging solutions also contributed to growth in the healthcare logistics segment, with revenue totaling $4.4 million in the quarter, an increase of 10.9% compared to Q4 2020.

Revenue in the specialized transportation segment totaled $99.2 million, an increase of 75.1% compared with Q4 2020. The increase was attributable to: 76.2% growth in the Company's ground transportation product line driven by incremental revenue from the Skelton, Skelton USA and Boyle Transportation acquisitions of approximately $30.8 million, higher volume from the Company's existing client base, and higher fuel costs passed on to customers as a component of pricing, as well as year-over-year growth in AHG's air freight forwarding and dedicated and last mile delivery product lines of 64.6% and 30.1%, respectively. Growth in air freight forwarding was attributable to increased volume and growth in dedicated and last mile delivery was attributable to incremental revenue from route expansion in Western Canada and increases in fuel costs passed on to customers.

Cost of transportation and services was $65.7 million, or 49.4% of revenue, compared with $38.5 million, or 44.5% of revenue, for Q4 2020. The higher cost of transportation and services for Q4 2021 reflects an approximate 4.1% increase in volume in the ATS Healthcare business compared to Q4 2020, the acquisitions of Skelton, Skelton USA and Boyle Transportation, and higher fuel costs in line with the increases in revenue related to fuel prices. The increase in the operating ratio for Q4 2021 reflects the Skelton, Skelton USA and Boyle Transportation acquisitions, which have increased the relative proportion of the specialized transportation segment as a percentage of AHG's total consolidated revenue and cost profiles.

Direct operating expenses were $21.3 million, or 16.0% of revenue, compared with $18.8 million, or 21.7% of revenue, for Q4 2020. The increase was primarily attributable to growth in the Accuristix logistics and distribution operations, and investments made to expand the ATS Healthcare network in Canada. AHG's acquisitions (Skelton, Skelton USA and Boyle Transportation) – which are included in AHG's specialized transportation segment – have lower facility-related costs compared to the healthcare logistics segment, which results in a lower direct operating expense operating ratio in Q4 2021 as compared to Q4 2020.

Selling, general and administrative ("SG&A") expenses were $10.9 million, or 8.2% of revenue, compared with $7.3 million, or 8.4% of revenue, for Q4 2020. Increased SG&A expenses for Q4 2021 are attributable to the acquisitions of Skelton, Skelton USA and Boyle Transportation, and approximately $0.8 million of professional fees related to the Boyle Transportation acquisition, partially offset by a $0.3 million reduction in the costs attributable to share-based compensation expenses related to AHG's initial public offering. The decrease in SG&A expenses as a percentage of revenue reflects operating leverage generated within SG&A functions compared to revenue growth.

Operating income for Q4 2021 was $21.5 million, an increase of 50.2% compared to $14.3 million for Q4 2020. Approximately $3.5 million of the increase is attributable to the acquisitions of Skelton, Skelton USA and Boyle Transportation, with the remainder attributable to organic growth.

Net income for Q4 2021 of $53.1 million was significantly impacted by the gain on the step acquisition of $37.9 million, while net income for Q4 2020 of $13.9 million was impacted by a deferred income tax recovery of approximately $4.3 million. However, higher segment net income before eliminations for both the healthcare logistics and specialized transportation operating segments also contributed to the increased profitability in Q4 2021 on a consolidated basis.

Total comprehensive income for Q4 2021 was $56.0 million or $1.26 per share (diluted), compared to $13.9 million, or $0.36 per share (diluted) in Q4 2020. Q4 2021 is the first quarter in which total comprehensive income differs from net income due to the acquisition of foreign operations (Skelton USA and Boyle Transportation), which resulted in a positive foreign currency translation adjustment of $2.9 million in the quarter.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")¹ totaled $73.7 million in Q4 2021, or $35.8 million excluding the gain on the step acquisition, compared to $22.0 million in Q4 2020. The increase compared to Q4 2020 was due to the factors discussed above and reflects the incremental contributions from acquisitions and organic growth in both of AHG's operating segments. EBITDA margin¹ was 55.4%, or 26.9% excluding the gain on the step acquisition, compared with 25.4% in Q4 2020. The performance of AHG's two operating segments continued to result in strong and stable EBITDA margins at the higher end of the Company's historical range. Further, Skelton's higher margin profile has positively impacted AHG's overall margin.

2021 Financial Results

Revenue for Fiscal 2021 increased by 40.0% to $440.1 million, compared with $314.3 million in Fiscal 2020. From October 1, 2020 through November 1, 2021, AHG made five acquisitions: TDS Logistics Inc. ("TDS"), McAllister Courier Inc. ("MCI"), Skelton, Skelton USA and Boyle Transportation. Revenue increases attributable to the acquisitions, in aggregate, accounted for $77.1 million of the $125.8 million increase from Fiscal 2020, with the remaining increase attributable to organic growth as described below.

Revenue for the healthcare logistics segment totaled $135.3 million, an increase of 16.3% compared with Fiscal 2020. The increase was primarily attributable to the 18.8% year-over-year organic growth in the Company's logistics and distribution product line in Fiscal 2021. A large new logistics and distribution client implementation (commenced in July 2020) and COVID-19 vaccine distribution, together with growth by existing clients comprised Fiscal 2021 revenue growth – aligned with the Company's mid-to-high single digit percentage growth expectations. AHG's packaging solutions also contributed to growth in the healthcare logistics segment, with revenue totaling $20.1 million in Fiscal 2021, an increase of 3.6% compared to Fiscal 2020.

Revenue in the specialized transportation segment totaled $304.8 million, an increase of 53.9% compared with Fiscal 2020. The increase was attributable to: 47.8% growth in the Company's ground transportation product line driven by the acquisitions of Skelton, Skelton USA and Boyle Transportation, as well as increased volume in the ATS Healthcare business, rate increases and fuel-related revenue, and year-over-year growth in AHG's air freight forwarding and dedicated and last mile delivery product lines of 29.9% and 75.4%, respectively.

Operating expenses for Fiscal 2021 totaled $366.4 million compared to $263.4 million in Fiscal 2020. The increase in operating expenses was attributable to increases in SG&A expenses, cost of transportation and services, direct operating expenses and depreciation and amortization expenses, reflecting the Company's acquisitions in Fiscal 2020 and Fiscal 2021 (TDS, MCI, Skelton, Skelton USA and Boyle Transportation) and continued organic growth. The Company's cost of transportation and services represented 45.8% of revenue in Fiscal 2021 compared to 41.8% of revenue in Fiscal 2020, reflecting the higher relative proportion of AHG's specialized transportation segment and related costs as a percentage of the Company's total consolidated revenue and cost profiles compared to Fiscal 2020. Direct operating expenses were 19.3% of revenue in Fiscal 2021, compared with 24.0% of revenue for Fiscal 2020. The lower direct operating expense ratio reflects AHG's acquisitions, which are included in the Company's specialized transportation segment and have lower facility-related costs compared to the healthcare logistics segment. SG&A expenses were 8.4% of revenue in Fiscal 2021, compared with 9.1% of revenue for Fiscal 2020, reflecting cost efficiencies from scale.

Operating income for Fiscal 2021 was $73.7 million, an increase of 44.7% compared to $50.9 million for Fiscal 2020.

Net income for Fiscal 2021 increased to $90.0 million, from $37.7 million in Fiscal 2020. Net income for Fiscal 2021 includes the gain on the step acquisition of $37.9 million. Segment net income before eliminations for both the specialized transportation and healthcare logistics operating segments increased in relation to segment revenue as margins increased in both segments compared to the prior year. Fiscal 2021 net income includes $2.5 million comprising the share of profit for AHG's equity-accounted investee (Skelton USA), net of tax, prior to the acquisition of control on November 1, 2021.

Total comprehensive income for Fiscal 2021 was $92.8 million, or $2.25 per share (diluted), compared to $37.7 million, or $0.98 per share (diluted) for Fiscal 2020. Fiscal 2021 is the first year in which total comprehensive income differs from net income due to the acquisition of foreign operations (Skelton USA and Boyle Transportation), which resulted in a positive foreign currency translation adjustment of $2.9 million for the year.

EBITDA¹ totaled $157.2 million in Fiscal 2021, or $119.3 million excluding the gain on the step acquisition, compared to $78.9 million in Fiscal 2020. The increase was due to the factors discussed above and reflects the incremental contributions from acquisitions and organic growth in both of AHG's operating segments. EBITDA margin¹ was 35.7%, or 27.1% excluding the gain on the step acquisition, compared with 25.1% in Fiscal 2020.

Dividend

The Company paid a dividend (encompassing the period from October 1, 2021 to December 31, 2021) in the amount of $0.05 per subordinate voting share and multiple voting share on January 17, 2022.

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 $0.06 per subordinate voting share and multiple voting share on an ongoing basis.

Shares Outstanding

As at December 31, 2021, there were 18,068,790 subordinate voting shares and 23,600,000 multiple voting shares outstanding.

As at March 2, 2022, following the acquisition of LSU, there were 18,223,429 subordinate voting shares and 23,600,000 multiple voting shares outstanding.

Financial Statements

AHG's audited consolidated financial statements and related Management's Discussion & Analysis ("MD&A") for Fiscal 2021 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 and webcast

Michael Andlauer, Chief Executive Officer, and Peter Bromley, Chief Financial Officer, will host a conference call for analysts and investors on Thursday, March 3, 2022 at 8:30 a.m. (ET). The dial-in numbers for participants are (416) 764-8650 or (888) 664-6383.

The call will be webcast live at: www.andlauerhealthcare.com/presentations-events.

To access a replay of the conference call dial (416) 764-8677 or (888) 390-0541, passcode: 771676 #. The replay will be available until March 10, 2022. 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. The Company also provides specialized ground transportation services, primarily to the healthcare sector, across the 48 contiguous U.S. states. 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 growth expectations, performance, achievements, 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 Company's MD&A for the three month period and year ended December 31, 2021. 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 2, 2022, which is available 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" and then further adjusts these items for the step acquisition. 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.

Step Acquisition

In this news release, AHG has adjusted EBITDA and EBITDA Margin for the step acquisition. As set out in note 5 to AHG's audited consolidated financial statements for Fiscal 2021, AHG completed its acquisition of Skelton USA in two steps (49% on March 1, 2021 and the remaining 51% on November 1, 2021). Accordingly, AHG remeasured its previously held equity interest in Skelton USA at its estimated fair value on November 1, 2021 resulting in a gain of $37,921 being recognized from the step acquisition. AHG has presented EBITDA and EBITDA Margin excluding the step acquisition given the one-time, non-recurring nature of the step acquisition.

Reconciliation of EBITDA

SOURCE Andlauer Healthcare Group Inc.

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