Andlauer Healthcare Group Inc

TSX:AND

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Andlauer Healthcare Group 2022 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 the 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. 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 meanings 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 5, 2022.

I would now like to turn the conference over to Michael Andlauer. Please go ahead.

[Michael Andlauer, executive]

Thank you, Chris, and good day, everybody. Thank you for joining us today. And with me on the call, as in previous quarters, I got Peter Bromley, Chief Financial Officer. Following my opening remarks, Peter will follow with a more detailed discussion of our Q1 results. I'll then provide closing remarks and open the line to any questions. .

Our strong financial performance in the quarter reflects the significant impact of our acquisitions of 2021 and continued organic growth. Our revenue for the quarter increased by 54.9% to $148.4 million compared with $95.8 million in Q1 a year ago. Our Skelton Canada, Skelton USA, Boyle Transportation acquisitions accounted for approximately $38.3 million of that increase. And our acquisition of Logistics Supports Unit or LSU, as we call it, which closed on March 1, contributed approximately $2.2 million of revenue in the quarter. The remaining increase was primarily attributable to organic growth across our product lines and that represented about 12.6% growth over last year.

Approximately 5.1% or $7.6 million of our consolidated revenue for the quarter was generated by working with manufacturers, 3PL distributors and government involved with the supply of COVID vaccines and related products. This compares to approximately 3.9% or $3.7 million of our consolidated revenue being generated by vaccine-related business in Q1 a year ago.

The ongoing successful collaboration of our management team in monitoring our operations and people and adhering to COVID safety measures ensure the timely delivery and essential products to hospitals, pharmacies and clinics throughout the quarter, as we manage through the difficult challenges presented by Omicron particularly in January.

In step with our strong top line performance, thanks in part of our great customer loyalty, we continue to generate strong EBITDA and margins. EBITDA increased 54.5% to $39.4 million in the quarter from $25.5 million in Q1 last year, and our EBITDA margin was 26.5%, similar compared to the 26.6% in Q1 a year ago. EBITDA margins from our U.S. operations, Skelton USA and Boyle Transportation are in line with our consolidated margin range, and LSU achieved a margin consistent with our logistics and distribution product line.

Total comprehensive income for the quarter increased to $13.5 million or $0.39 per share compared to $11.6 million or $0.30 per share in Q1 last year, with growth partially attributable to the accretive impact of our acquisitions. The increase of our dividend this past quarter highlights our strong cash flow generation and positive business outlook. We've entered 2022 with strong momentum.

And now I'd like to turn the call over to Peter to review our financial performance in more detail. Peter?

[Peter Bromley, executive]

Thank you, Michael, and good morning, everyone. Revenue for our Healthcare Logistics segment totaled $39 million, an increase of 17.2% compared with Q1 last year. The increase was primarily attributable to 20.3% increase year-over-year growth in our logistics and distribution product line, reflecting greater outbound order handling volume activities, and the acquisition of LSU.

Our packaging solutions contributed 1.9% revenue growth for the quarter. Revenue in our Specialized Transportation segment totaled $109.3 million, an increase of 75% from Q1 last year. The increase was attributable to 81.9% growth in our ground transportation product line, driven by incremental revenue from our Skelton, Skelton USA and Boyle Transportation acquisitions, higher volume from our existing client base and higher fuel costs passed on to customers as a component of pricing.

Our airfreight forwarding and dedicated and last-mile delivery product lines generated year-on-year growth of 15.1% -- oh, $15.1 million and 37.7% -- sorry, that's 15.1% and 37.7%, respectively. Growth in air freight forwarding was attributable to increased fuel costs passed on to customers and an increase in weight shift of approximately 1.7%. 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.

If I look at the cost of transportation and services component of our P&L, it was $72.7 million or 49% of revenue compared with $41.3 million or 43.1% of revenue for Q1 last year. The higher cost of transportation and services was primarily attributable to our acquisitions of Skelton, Skelton USA and Boyle transportation and higher fuel costs in line with the increases in revenue related to fuel prices. The increased operating ratio this quarter reflects the Skelton, Skelton USA and Boyle Transportation acquisitions, which have increased the relative proportion of the specialized transportation segment as a percentage of our total consolidated revenue and cost profiles.

Under direct operating expenses, for the quarter, they were $24.8 million or 16.7% of revenue compared with $20.6 million or 21.6% of revenue for Q1 last year. The increase is primarily attributable to outbound volume growth in our Accuristix logistics and distribution operations and our acquisition of LSU. Our Skelton and Boyle acquisitions have lower facility-related costs compared to our Healthcare Logistics segment, which results in our lower direct operating expense -- operating ratio for the quarter.

SG&A expenses were $11.2 million or 7.6% of revenue compared with $8.7 million or 9.1% of revenue in Q1 last year. The $2.5 million increase is primarily attributable to our LSU, Skelton and Boyle acquisitions. The decrease as a percentage of revenue reflects operating leverage generated within our SG&A functions compared with -- to revenue growth.

Operating income for the quarter totaled $24.2 million, an increase of 45% compared to Q1, a year ago. Approximately $5.4 million of the $7.5 million increase is attributable to our LSU, Skelton and Boyle acquisitions with the remainder attributable to organic growth.

Net income for the quarter totaled $16.5 million, up from $11.6 million in Q1 a year ago. Higher segment net income before eliminations for both our health care logistics and specialized transportation segments contributed to our increased profitability on a consolidated basis. Total comprehensive income for the quarter was $13.5 million, reflecting foreign currency translation adjustments of $3 million related to our acquisition of foreign operations, Skeleton USA and Boyle Transportation.

Turning to our balance sheet. As at March 31, 2022, we had cash and cash equivalents of $25.1 million and working capital of $26.5 million. This compares to cash and cash equivalents of $25 million and working capital of $31.6 million at our 2021 year-end. As at March 31, 2022, the aggregate amount of outstanding debt under our credit facilities was $50 million under our term facility and $18 million under our revolving credit facility.

During the quarter, we repaid $5 million of the $12 million initially drawn on our revolving credit facility in connection with our LSU acquisition. We expect to continue to reduce amounts drawn on our revolving credit facility during the year with excess free cash flow generated from operations. We remain well positioned financially to pursue growth opportunities.

I'd now like to turn it back over to Michael for closing comments. Michael?

[Michael Andlauer, executive]

Thanks, Peter. As you can see, we start off 2022 with very good momentum and a good foundation to continue our success for the rest of the year. Having said that, I do want to point out that this was not an easy quarter to execute for our employees and our drivers. Many of our operations were short-staffed due to the outbreak of Omicron particularly in January. .

I'm very proud and super grateful of their efforts to ensure that our customers' needs were taking care of. Looking ahead, we'll continue to focus on our growth strategy that has contributed to our success in building value for our stakeholders, including strengthening our clients' connection to our platform by broadening our service offerings, ensuring that our service stays best-in-class by listening to our employees and our clients and equipping our employees and drivers with the best equipment and the best environment to thrive, increasing our capacity to attract both new clients and new business and pursuing strategic acquisition, both in Canada and in the United States to further strengthen our service offering.

What we're doing is working, and I believe that there remains a lot of opportunities for us to build on our momentum. We will continue to maintain our disciplined approach with respect to both financial and operating metrics, while ensuring that we continue to build on our unique culture. That concludes my formal remarks. We'd now like to turn the line over to questions.

Chris, please commence the Q&A. Thank you.

[Operator]

[Operator Instructions]

Your first question comes from Walter Spracklin, RBC Capital.

[James McGarragle, analyst]

Everyone. This is James on for Walter this morning. Congrats on another strong quarter. So on your recent acquisitions of Boyle and Skelton, both companies are performing very strongly. Are you able to speak to what sort of organic opportunities both these companies have opened up for you in both Canada and the U.S.?

And are you able to discuss what sort of growth opportunities you see from Boyle and Skelton going forward? And any potential investment you are considering to capitalize on this growth whether it be as an example, the purchase of additional warehouses or through additional M&A?

[Michael Andlauer, executive]

Wow, that's a loaded question. It's like 5 questions in one, James. I'll try to answer the best and fully as possible. Yes, certainly, Boyle and Skeleton acquisitions, and I'm assuming you're referring to Skeleton USA have been -- I'm not going to say a pleasant surprise because obviously, we did a lot of due diligence and all. But have exceeded our expectations.

Certainly, the U.S. market, the demand have certainly been outweighing the supply. So we benefited from that. Our specialized transportation are focused to health care, our QA -- our differentiators are other than other transport companies has allowed us to really be opportunistic, I guess, for the lack of better words.

And I know that people talk about the economy slowing down in the U.S.A. and truckload pricing. But the reality is, is that we're somewhat specialized and we're not like everybody else. So we're benefiting from that. The focus on the customer has allowed us to grow organically. And they -- they've actually collaborated nicely in terms of finding best practices and more efficiencies, while 1 is more focused on the eastern seaboard and the other 1 being based in Columbus.

There's been some good learnings and some good growth opportunities because of that by expanding that network. So organically, we'll continue to show, and I think the last quarter was indicative of that. Other services that we can benefit from is the fact that we have -- that they have a Canadian partners with ATS and Skeleton Canada north of the border is creating -- looking at opportunities to do more transborder business, particularly with -- when you look at Accuristix and LSU, who are custodians of many of the big pharmaceutical companies in Canada with their distribution -- with the product and distribution.

So we see this as an opportunity for more organic growth or new service offerings going forward. It's not a quick sale. It's 1 account at a time and growing and creating that network. Certainly, the vaccines, I don't want to comment on the Ottawa truck rallies and all, but the reality is that a lot of transborder shipping was constrained because of drivers not being vaccinated, the policies and all.

So we see that as an opportunity -- we saw that as an opportunity going forward. But we -- and we continue to focus on that. With respect to warehouses, yes, there's no doubt that Accuristix and LSU with the reputation they have in Canada. I anticipate that there will be opportunities going forward in the United States to support logistics HG for -- especially, now that we have wheels on the road in the United States.

[James McGarragle, analyst]

Appreciate the color. And a quick follow-up on Canada. On the last call, you had highlighted some warehouse capacity in Calgary that was utilized during the flooding in Vancouver. So how is that facility ramping up? And are you able to comment on any planned investments in warehouses specifically in Canada during the remainder of the year? .

I guess what I'm trying to understand is how much capacity you have to grow into in Canada? What does the demand outlook is looking like? And whether or not you're anticipating any near-term expansion of the data warehouse capacity in 2022? And I'll turn it over after that.

[Michael Andlauer, executive]

Thanks, James. Another good question. I -- it's one of those things for strategically this year with the Accuristix and LSU Group that we've looked at, when you look at industrial real estate prices. I just heard 2 weeks ago from Colliers, they did a deal in Brampton at $20 a square foot with 5% escalators on a class A ability, but it wasn't a new one. It wasn't even a new building.

But the dynamics of that business has changed drastically when your rental costs have more or less doubled in the last 3 years. So capacity becomes as a premium, and we got to look at it from the standpoint of how much capacity do you want to undertake and how do you create value for our clients? Because ultimately, regardless of the fact that you're pharmaceutical with high-value products, everybody is cost conscious.

So one of the things we have to look at is finding a better way, not just necessarily going status quo. And that's why, to me, it's such an important thing to overcommunicate with our employees and our drivers and our customers to try to find a better way. One of the opportunities, as I see it, is the fact that we're nationwide, and we have facilities in Calgary that with capacity, and we're starting to do that with some of our clients is opening capacity in the GTA, for example, liberating capacity at GTA and filling it in Calgary by having Pfizer, for example, saying, okay, you know what, we'll put some of our inventory in Calgary, a, it's quicker to market, it's for our Western customers and save on some transportation costs as well instead of flying product.

So basically, trying to find better ways and not necessarily trying to get more facilities but liberating some -- and then looking at pricing as well, making sure that our cost -- with our cost the way the market is, make sure their pricing is right. So there's -- it's a better part of part of this year is really to assess satellite and find -- but we do have capacity we have options. And right now, we're comfortable where we're sitting. And we're also sitting on some favorable leases now that we have -- that the market has changed so drastically.

[Operator]

Your next question comes from Konark Gupta, Scotiabank.

[Konark Gupta, analyst]

So maybe I wanted to kind of get away with the housekeeping one. I think with respect to your LSU acquisitions, Mike, and the Skeleton Canada. Any updates on where your market share is in transportation and logistics?

[Michael Andlauer, executive]

Yes. I mean, quantifying, I can't -- I mean certainly, Skeleton Canada, when we looked at Skeleton to us, it was very strategic. There's a way to protecting our house in the sense of from a competitive landscape. And they had -- they were best in class. They still are best in class, particularly on the 2 to 8 or frozen part of the business, whether it be Canadian Blood Services or biologics distribution and the like.

So -- but it's a relatively mature market with not much more room to grow. The opportunity, once again, like I alluded to with Boyle and Skelton USA, was collaborativeness, in terms of network and efficiencies and trying to find ways to make each other's services better for the sake of the customers. And that's -- so that's on the Canadian landscape with Skelton Canada.

With LSU, they're best in class in Quebec. They are -- they have relationship with government as well as top pharmaceutical clients and base. It gives us another -- and same thing, another network. I talked about Calgary, but now all of a sudden, we have an opportunity to talk -- speak with our clients and let them know that we have opportunity in Quebec. And sometimes, somebody wants to be -- needs to be in the Quebec market to -- in order to serve the Quebec market. So this lends to opportunity.

In terms of market share. On the logistics side, we're not -- I mean, I believe we're the largest 3PL provider, but we're not the dominant 3PLs, so there's a lot of wind left in that sale. There are some clients, particularly in the generic side of things that are still in-sourcing. We see that as an opportunity going forward. Obviously, new entrants with our ability to have importer of goods to get new product lines into Canada. But ultimately, we see growth opportunities going forward on the logistics side for sure. I mean, for example, Moderna last week spoke to having manufacturing done in Quebec. This would be Moderna was not -- is not Canada. This is an opportunity, too.

[Konark Gupta, analyst]

That's good color. And then talking about generics. This obviously a few things going on in Canada with respect to the pharma care and the recent budget as well that came out. Just wondering if you have any thoughts as to if we are as a country moving towards generics from branded fares to branded not fares, sorry, branded truck prices to reduce the health care cost. What kind of implications does it have on the way you do your business and you maintain your margins?

[Michael Andlauer, executive]

Yes. So I mean, that's another topic with respect to pharma care and all that the -- from our business perspective, a company like Apotex is one of the largest clients today. But it's not -- and they don't have reduced pricing like they have -- because at the end of the day, a box of their product or a box of Pfizer's product looks and feels the same and the requirements are still the same, and they pay basically for space on a truck or on a plane to provide that service or pick and pack.

So the input cost of doing that to a generic company or a pharmaceutical company, they call ethical pharmaceutical companies, they would be such that it's the same. So our margins would be the same, and hence, our prices would be the same. So that doesn't change. It just means that 1 client might get bigger than the other going forward. But those are government decisions, not ours.

[Operator]

Your next question comes from Maggie MacDougall, Stifel.

[Maggie MacDougall, analyst]

Can you guys touch on your view of how much ground can be made up as the Canadian economy reopens and we get more normal consumption of over-the-counter products in the next little while? I'm just trying to understand how much that piece of the business may have been impacted by COVID and how we should think about the recovery?

[Michael Andlauer, executive]

I don't. I mean, I don't think -- I think it has recovered, Maggie, a bit ago, actually, I look at some of our consumer goods clients, and they've been busy over the last years, things opened up. And so I don't see maybe travel vaccine business is 1 of a few that wasn't. And so I don't see much. I do see our COVID vaccine-related business slowing down, thank goodness, say, that's the Canadian.

And -- but ultimately, the -- I don't -- I'm having a hard time quantifying it, but I do know that a lot of our consumer goods, our clients, our OTC actually had higher -- I mean, you look at -- I think I alluded to over 10% organic growth in my remarks, that's higher than I would have anticipated year-over-year. So that's probably an example of things are back to normal when it comes to OTC, in my opinion.

[Maggie MacDougall, analyst]

Okay. And then on the co-packing segment, I know you've been having the social distance on those lines. Did that go away during March when things reopened here? And will we have a recovery on the basis of normal staffing levels?

[Michael Andlauer, executive]

Yes, we're starting to see that, but part of it is also listening to our clients. I mean January was really tough, and I'm sure we all experienced it in, I think, at 1 point, in January, we had to isolate for 10 days and not 5 days. And it really took a burden off on our manpower. But part of it is also listening to our employees and making sure that they feel that from a health and safety standpoint, sometimes they drive that, that buzz for us, making sure they're comfortable. We see -- yes, we're back to normal efficiencies from a co-packing standpoint. .

I'll be honest with you, Maggie, it's not an area that I focus most of my energy on because I really believe that it's not out of all the business units that we have, it's probably the one that is most commoditized, if you know what I mean. But it's a complementary business and for the clients that want to use ours, we're there to support it.

And there are some value add that we have in terms of not having to transport goods out of a warehouse and to co-packing and back into our warehouse. So there's some efficiencies that are led by that, but it's not an area that I focused that much on. I think there's a lot more important, not important, but better priority for our stakeholders.

[Maggie MacDougall, analyst]

Okay. And then just one final question. I'm not sure if there's a readthrough to your business, I haven't actually been able to connect the dots, but that doesn't mean there isn't one. So worth asking all of the disruption in Shanghai at the port is expected to sort of land in the West Coast of the U.S. sometime in June, July. And so that significant congestion is obviously gumming up the system after already, we've had a lot of logistics and transportation issues for the last 2 years.

Are you anticipating any positive or negative readthrough to your business? And then longer term, has this consistent sort of situation of supply chain disruption spurred any different kinds of conversations amongst your customer base who may be looking at sharing up domestic supply chains that more in order to avoid any disruptions?

[Michael Andlauer, executive]

Wow, another good question, but I think it's probably more -- supply chain disruption has been there for especially in the West Coast and the ports of -- and this is not something that's going to happen. It's already there. It's been there for a good -- at least a good 1.5 years and that creates a huge imbalance in terms of trucks and the likes. And certainly, the Avalanche and BC in the winter made it even more difficult with the imbalance. And supply became -- is it a lot more scarce then you got labor disruptions with the rail.

So supply chain disruption, particularly with the West Coast volumes, the congestion there has made it very difficult to get product to the West when you're not -- when you get trucks stuck in the West. So we continue to handle it, battle it. Certainly, having a Skeleton in our backyard has been helpful. We're focused. Like my background is operations. So I'm really focused on that part of the business. But yes, is it more difficult? Absolutely, without a doubt.

[Operator]

Your next question comes from Kevin Chiang, CIBC.

[Unknown Analyst]

This is Krista on for Kevin. Can you just provide us with an update in terms of what you're seeing in the M&A market in Canada and the U.S. and if you're prioritizing 1 market over the other?

[Michael Andlauer, executive]

Yes. So M&A has been consistent with us over the last, I guess, 2 years. We focus on quality strategic opportunities. When I say quality, I'm talking about, we're a people-first business. And that to me, is part of that diligence. That's important to understand. How -- so we -- and being a public company, we get -- we see more opportunities. We also -- the one thing that I certainly want to allude to Q1 is our focus on our customers, our focus on our employees.

As you know, where the whole industry is getting hit with employee shortages or employee turnover. So those are areas to me that we focus this first quarter really on and making sure that our employee retention and customer satisfaction is there. And that, to me, it's paramount. And when you have what we saw what we saw in January with -- not granted it was Omicron induced worker shortage. It became something to -- more focused on M&A.

We have a pipeline. We know what we want to do to grow. And we will not grow rapidly from an M&A standpoint. Our strategy is to do it right and 1 at a time and make them feel as a proud member of the HG family, integrate them and spend the time. And it's proven with all the companies that we've done so far has proven really fruitful and beneficial. And I think the numbers show that. U.S.A. is exciting. [ Mark and Andrew Boral ] in Boston are probably itching to have me down there and look at files. But like I said, this first quarter was one of certainly the distraction of employee and driver shortage.

And that's the other thing, too, is that there's -- from -- on the specialized transportation side of things, there is a driver shortage, there is an equipment shortage. So we're limited to that capacity. So we want to make sure that that's taken care of -- take care of our house. And so that's -- I know I'm a little elusive with my answer, Krista, but I'm telling you the truth.

[Unknown Analyst]

I appreciate it. And just one more question. Any update on the FDA proposing a national standard in the U.S. I think we've talked about this on the last call. And just what sort of implications that would have for your position in your U.S. business?

[Michael Andlauer, executive]

Yes. Those -- we're happy to see that. To me, it's to see the U.S.A catching up to the rest of the world from a quality standard, I think, is -- and the reality is, is that we've already started to see that the manufacturers, most of the manufacturers are global in nature, Krista. And so they've been kind of pushing it internally.

And that's where when I alluded to earlier on with the differentiating factors that Boyle and Skelton USA have from a QA standpoint and validation of their equipment. And like we've seen that demand. These FDA regulations will only push it further to our advantage. The reality is, is that we have to -- we need to create more capacity in order to accommodate that demand. So that's a good problem to have. But I see this as only positive for us going forward.

[Operator]

Your next question comes from Endri Leno, National Bank.

[Endri Leno, analyst]

Congrats on the good quarter. I have a few questions, but I'll start with the last 1 with the national standard that the FDA is looking to apply. I mean I think the commentary period is open until early June. Do you guide or at least Boyle have any kind of changes you'd like to do to those proposals that have already been made? Or you're happy where they are in your opinion?

[Michael Andlauer, executive]

I mean, I'm always happy where they are because they're asking for more stringent regulations. The ones that are going to be speaking out. And I've seen that in Canada, by the way. The guideline 069, for example, those things started in 2002. They weren't really implemented till much later. So part of -- when I alluded to, Endri, about capacity and network, those are the things that a lot of the people coming back and saying, well, we cannot provide such guidelines because it's not there.

That was the opportunity for particularly ATS Healthcare to be able to create that service in the early 2000s to differentiate itself. And hence, do what it did, so over time. So I think it's a time line. This is not something that's going to happen overnight. But certainly, it will over time. But from our perspective, bring it on, it just means that we're -- it differentiates us that much more than everybody else.

[Endri Leno, analyst]

That's good to hear. Michael, couple of questions on the quarter. Actually, I was worrying if you are able to provide any numbers or color in terms of what the fuel pass-through Q1? Could you give us -- I'm just trying to get to like what is, call it, the core organic growth that you had in Q1?

[Michael Andlauer, executive]

I could -- not off the top of my head and I'd have to look at those numbers. I'm wondering if the MD&A would have some color on that. I'm looking at Peter Bromley as I'm saying that. But there's no doubt that fuel this quarter and probably next quarter, we'll have probably 1 of the bigger impacts from a revenue standpoint that we've ever seen, and obviously, you can see the gas pump prices. Maybe, Peter, do you have any color on that?

[Peter Bromley, executive]

Yes. We didn't call out specifically a percentage of volume growth versus, say, revenue growth related to fuel or pricing. But we do have, if you look at shipments and weight there is growth in our core business. It's not massive. The bigger chunk of our revenue growth on the ground transportation side, for example, would be more related to the fuel impact. But that's the bigger piece of it. There's still volume and shipment growth in the core business.

[Michael Andlauer, executive]

So the answer is no. Right now, we can't give it to you off the top.

[Endri Leno, analyst]

No, that's good, at least directionally tell through the modeling. The other one, as it relates to Q1, we go into Q2, you did mention, Michael, that COVID activities will probably slow down, as we expected. Like any color you can give in Q2, how is it shaping up? I mean, I still see those tests in every grocery store, those rapid tests.

[Michael Andlauer, executive]

Yes, I took a test 3 weeks ago and ended up being positive. So, yes, that's all -- it's all good. And obviously, it's rapid right now. It's funny, I had said, I think I had said last quarter that I was hoping or anticipated that these tests would be picking up dust in the growth in the pharmacies that we ship so much of it or maybe I said it internally to our Board.

The reality is, is that it's there. Q2 of last year was a big quarter. That's when we launched all the vaccines, if you -- most of the vaccines. So we anticipate that slowdown. Things have slowed right down, like I said, thank goodness. There's some ancillary -- and certainly, the test kits was a big piece of the business in -- and by the way, that number is not just -- this is not organic growth.

A lot of it is acquisition growth, the number that I gave because Boyle or Skelton, we did a lot of work for Moderna south of the border and as you now knew -- know Boyle was the first truck to go into the Pfizer facility whatever, 2 years ago to pick up the first shipment of vaccines in Michigan, in Kalamazoo. So there's a lot of COVID-related numbers based on the Boyle and Skelton USA numbers. But the trend is that it's much less here in Q2. And I think those numbers will be reversed in Q2 when it comes to COVID vaccine-related business.

[Endri Leno, analyst]

Okay. And one more on the op, then I have like a more of a general question. But on the op EBITDA margin was a bit down sequentially in Q1 versus Q4. Is there any color there or just normal business variation?

[Michael Andlauer, executive]

Yes. There is a bit of a cycle in our business, not as much as retail or -- but certainly, and that's why we try to compare Q1 to Q1. And we don't -- we didn't see much of a drop off. Certainly, we see that. Now the one aspect I might add is because fuel is more or less of a pass-through, obviously, that you get a higher -- artificially higher revenue and a bit of margin erosion because of that pass-through. So like you alluded to earlier on with your modeling, there's a little bit of issues with respect to numbers when it comes, when your fuel is a bit higher than what it usually is. So maybe that's the reason why. Actually, I suspect that's the reason why.

[Endri Leno, analyst]

One last, and I'll jump in the queue. Looking outside your prescription pharmaceutical products, I mean, we've heard manufacturers and marketers' vet and consumer health products are saying that they're generally kind of doing well even though with price increases, but do they -- beauty products are not necessarily doing as well as increased prices. I was wondering is there something that you're seeing similar in your operations? And any kind of implications where it do happen in your volumes as well?

[Michael Andlauer, executive]

Boy, off the top of my head, and I forget who mentioned it, if it was Krista or Maggie earlier on. I do find -- I think it was Maggie, consumer goods products have gone up -- OTC products have gone up. Interestingly enough, I'm wondering if people are treating their COVID or -- Omicron and COVID symptoms with over-the-counter cold and flu medication. So with the congestion of that. But I'm speculating here right now.

I'm off the top of my head, Endri. But we have seen that some of our consumer goods manufacturing clients have had some pretty big numbers in Q1 of this year. Like I said, we tried -- typically, I always talked about mid- to high single digits, and we eclipsed double digit this quarter organically. I know we focus on acquisitions, and that's why the big thrust. But organically, we did quite well. better than expected.

[Operator]

[Operator Instructions]

Your next question comes from Tim James of TD Securities.

[Tim James, analyst]

First question, I guess, Michael, is sort of an open-ended question actually. I'm just wondering if you can talk bigger picture health care transportation and logistics. And maybe any trends that you're seeing, if any, as we come out of the pandemic relative to the business pre-pandemic?

Has there been any changes in, again, maybe just the way transportation is conducted, anything your bigger industry trends that are changing the way you're approaching the business at this point? Or are things kind of reverting back to pre-pandemic? Or maybe it's a bit too early still to make a call on any changes in industry trends?

[Michael Andlauer, executive]

Tim, that's -- the thing that comes to mind for me, and I think what I love about our business is -- I mean you've seen it with our numbers right through COVID, obviously, we went public before COVID, but obviously, you had access to previous historical numbers or private numbers during the IPO. But the one thing I keep on using, the 1 word that comes to mind when I think of HG is resilience. And this -- we've shown through COVID that this business is resilient, and I guess when it comes to health care, consumer choices are such that we were not going to be exploding or contracting at any given time when it comes to people's health care and so it's shown resilience.

So I don't really see much change. Certainly, you've got certain products that weren't being used like you've heard me use it would travel vaccines and certainly suntan lotion and stuff like that, people aren't traveling and the likes. Even cold and flu medication people at a home slowed down during COVID, but then that was complemented by the whole COVID vaccine distribution products. So we've shown when you look at our numbers, we've grown organically as we had predicted as the industry had -- was pre-COVID. I don't see that changing. I don't see our business changing post-COVID in any way.

The only comment I can think of is as I'm listening and people were talking about, I mean, the example of last week with Moderna coming into Canada and having their own manufacturing here. I see in-sourcing now a little bit more. And I think that's -- that can only be positive for our business. So from a holistic standpoint, I see refocus on health care, taking care of our house, taking care of our own. And I think that's a good thing. But resilient, we've been resilient through this. I don't think our business has changed like other industries have. And I don't think it will post-COVID.

[Tim James, analyst]

Okay. That's helpful. And then just I wanted to ask a quick question, I think, about the West Coast congestion, which you discussed and provided some good information on. Is it [indiscernible] interest, is it having any impact on the Canadian business? Or is that primarily just kind of a U.S. phenomenon when it comes to HG?

[Michael Andlauer, executive]

No, absolutely. I alluded to certainly the avalanches in BC that created a huge disruption for us in terms of imbalance trucks being stuck and all, but at the same time, the same thing. What's happening is from supply and demand, there's such a demand coming out of the west, going back east, the prices have shot up. So now all of a sudden, trucks are scarce, and that's driving prices up.

So that's not just fuel. So you're starting to see -- we've seen that front and center. We've had to adapt to ensure that our -- one of the things we've noticed, certainly, people talk about inflation, it's here. It's there. It's in everything that we do in touch and whether it be our labor, industrial spaces equipment racking, everything is double-digit price increases. And that has to be passed on.

And in our case, we're fortunate with the type of commodity that we're carrying that we're able to communicate that show and pass it on. Ultimately, the consumer is going to have to pay for it. We all have to. But certainly, the imbalance of the West has increased the pricing in transportation from the West to the East, in Canada as well.

[Operator]

Thank you. There are no further questions at this time. Please proceed.

[Michael Andlauer, executive]

All right. Well, thank you very much. We appreciate all of you participating this morning. Have a wonderful rest of the day, and we'll see you next quarter.

[Operator]

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.