Andlauer Healthcare Group Inc
TSX:AND
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Good morning. My name is Annas, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andlauer Healthcare Group 2023 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 4, 2023.I would now like to turn the conference over to Mr. Michael Andlauer. Please go ahead, sir.
Good morning. Thank you, Annas, and good morning, everybody. Thank you for joining us today. As in previous calls, I've got Peter Bromley, Chief Financial Officer with me today. Following my opening remarks, Peter will follow up with a more detailed discussion of our results for Q1. I'll then provide some closing comments and open the line to questions.Well, despite the virtual elimination of COVID-related revenues in our first quarter, we still generated an 11% consolidated revenue growth in our first quarter. As I noted in the previous disclosure, the decline in COVID-related revenue was expected and will continue to be reflected in our consolidated revenue going forward. EBITDA increased 2.7% to $40.5 million in the quarter compared to $39.4 million in Q1 last year. Our EBITDA margin declined to 24.6% from 26.5% in Q1 a year ago.Net earnings were essentially unchanged on a year-over-year basis at $16.5 million or $0.39 per share diluted. Our margins and net earnings for the quarter reflect a year-over-year decline in contribution from our U.S. truckload operations as the inflated rate premiums we were able to capture in fiscal 2022 related to COVID revenues, equipment and driver shortage have virtually diminished. It's clear to us now that our U.S.-based ground transportation revenue and related margins have returned to pre-pandemic levels, and we don't foresee a return to the premiums we achieved in fiscal 2022. We still consider our margins in our U.S. truckload operations to be attractive and in line with our initial projections at the time of our acquisitions of both Boyle and Skelton USA. And now that we have access to more equipment, combined with a robust business pipeline, this will allow us to grow our revenues and make up for the margin shortfalls going forward.Our Canadian business, both on transportation and logistics side remained robust and resilient despite the COVID-related revenue losses. The business metrics from a service level and employee engagement continue to be very strong, and we expect our business to continue to perform well despite the lack of the COVID-19 tailwinds.I'll now turn the call over to Peter Bromley, to review our financial performance in more detail.
Great. Thank you, Michael, and good morning, everyone. Our consolidated revenue for Q1 totaled $164.8 million, up from $148.4 million in Q1 2022. Our acquisition of LSU accounted for approximately $3.2 million of the $16.4 million increase with organic growth and fuel surcharge revenue accounting for the rest of the increase.Revenue for our Healthcare Logistics segment was $46 million, an increase of 18% compared with Q1 last year, reflecting a 21.9% increase in our logistics and distribution revenue attributable to greater outbound order handling activities for Accuristix, increases in transportation billings impacted by fuel surcharge programs from carriers and incremental revenue from LSU. The overall increase in Healthcare Logistics segment revenue in the quarter was partially offset by a 4.3% year-over-year decline in our Packaging Solutions revenue, reflecting the loss of one of our packaging customers, which was in turn offset by organic growth from our remaining base of customers.Revenue in our Specialized Transportation segment totaled $118.7 million, an increase of 8.6% compared with Q1 last year. The increase was attributable to 11% growth in our ground transportation product line driven partially by higher fuel costs passed on to customers as a component of pricing.Ground transportation revenue in our Canadian network increased by approximately 2.6%, excluding fuel surcharge revenue. Ground transportation revenue in the U.S. reflects a decline in rate premiums in our Boyle Transportation and Skelton USA operations this quarter, as Michael discussed previously.Our dedicated and last-mile delivery product line also contributed to growth in the Specialized Transportation segment with a 10.9% year-over-year increase in revenue, reflecting ongoing route expansion and increases in fuel costs passed on to customers. Our $7.5 million in air freight forwarding revenue in the quarter was down slightly from $7.6 million in Q1 2022, reflecting approximately 5.5% lower shipment volume, partially offset by higher rates and fuel costs passed on to customers.Cost of transportation and services was $84.2 million or 51.1% of revenue compared with $72.7 million or 49% of revenue in Q1 last year. The increase in cost was primarily attributable to higher fuel costs in line with increases in revenue related to fuel prices. The higher operating ratio affects lower pricing in our U.S. truckload operations.Direct operating expenses for the quarter were $27 million or 16.4% of revenue compared with $24.8 million or 16.7% of revenue in Q1 last year. The increase reflects outbound volume growth in our Accuristix logistics and distribution operations and our acquisition of LSU on March 1 last year.SG&A expenses were 8% of revenue for the quarter compared with 7.6% in Q1 a year ago. The increase reflects growth in our operations and is in line with our expectations.Operating income totaled $23.7 million, a decline of 2% compared with Q1 last year, reflecting the decline in COVID-19-related revenue and reduced contributions from oil transportation and Skelton USA due to the downward pressure on rates. Total comprehensive income was $16.3 million, up from $13.5 million in Q1 last year, reflecting a negative currency translation adjustment of $200,000 in Q1 this year compared to a negative adjustment of $3 million in Q1 last year.Turning to our balance sheet. At the quarter end, we had cash and cash equivalents of $74.4 million and working capital of $102.5 million. This compares to cash and cash equivalents of $65.9 million and working capital of $85 million at the year-end 2022.At quarter end, the amount outstanding on our credit facilities was $50 million under the term facility and 0 under our revolving credit facility. We remain well positioned financially to pursue growth opportunities.I'll now turn it back over to Michael for closing comments. Michael?
Thank you, Peter. As I said, we expect our business to continue to grow and perform well despite the lack of COVID-19 tailwinds. We'll have a continued focus on pursuing acquisition opportunities in Canada and the U.S. to further expand our platform and drive incremental growth. As evidence of this focus, this morning, we're announcing the appointment of Graham Cromb as our new Chief Strategy Officer to lead our acquisition program. Graham has extensive international experience in supply chain and logistics management through a career spending 23 years with UPS, including his role as Vice President of European operations for UPS Healthcare, where he led the integration of several acquisitions and supported the expansion of UPS' distribution facilities network and temperature-controlled fleet in Europe.As we continue to expand on our platform, we'll maintain our disciplined approach with respect to both financial and operating metrics. And we will continue to have a constant focus on better serving our customers and taking care of our employees, drivers and owner operators.That concludes my formal remarks, and I'd like to open the line to questions. Annas, please commence the Q&A.
[Operator Instructions] Your first question comes from Kevin Chiang with CIBC.
Maybe just on what you're seeing in terms of rates. You mentioned a normalization in the U.S. Does it feel like that normalization has done in the sense that the rates that you're coming in at now are a good flow? Or do you think there's more downward pressure? And then maybe what you're seeing in Canada in terms of rates, which seems to be holding in better, at least based on some of the data that we track?
Yes. I think your data is giving you some good insight. And obviously, I think when we bought Boyle and Skelton USA, I told the market that we were there to learn the U.S. market and understand it. And certainly, when we talked about last quarter about the -- not really necessarily the headwinds that we're facing, but the tailwinds of COVID, it was truly evidence in the U.S. where we're moving the 2 big molecules around vaccines to all across the country. Cost was really no object at that time. Certainly, having most of our driver fleet vaccinated allowed us to cross the border and really charge premiums that were otherwise wasn't the case. So regardless of the driver shortage, even more of a demand or less of a supply crossing the border. So that was a huge advantage.So a lot of artificial spot quote premiums because of the lack of capacity and the fact that we had a -- unfortunately, I mean, the FDA is not nearly as stringent as Health Canada. And as things have settled down, and I suggest that you're probably not wearing a mask right now. But we were this time last year, right? And we -- things have settled down. And the U.S. economy is -- seems to be having been hit a little bit more, which has allowed spot quotes and particularly in the U.S. to drastically get lower. And some -- I refer to the FDA not having stringent. So if somebody has a reefer trailer, it can be good enough to move some of the products out of some of these distribution facilities, wholesalers, et cetera. So we felt that. But when you look at the numbers -- and by the way, I mean, when I look at the numbers with -- they're in line with when we purchased those companies, which was before COVID. So we feel very comfortable and they're higher. They're still premium rates, but we don't feel that there's any more pressure in our monthly meetings with the management. We feel that this has now settled down. The good news about it, Kevin, is that we have the opportunity now to get more equipment, more drivers. And there's -- out of all the companies, they seem to have the largest pipeline of opportunity. And the 2 companies are working collaboratively in some -- in offering total solutions for some of the pharma clients in the U.S.
Okay. That's exceptionally helpful. Maybe just sticking with the U.S., just given this normalization, and I know you're not competing in like the van truckload market, but we've heard from some of the players south of the border that just given what has happened with the rates that has opened up the M&A pipeline, I know that something you've been looking at a little bit more in 2022. And I guess with the Chief Strategy Officer appointment suggests that you also see deep pipeline. I'm just wondering how you're seeing that pipeline evolve here as rates have settled and I expect some companies are finding themselves in more financial difficulty or and maybe there's more sellers out there?
Yes. And I think that's the reason why a bit more focused on M&A. And I think when you grow twice the size as you were -- when you were IPO-ed and your executive team is relatively lean to target and focus sometimes you get the distraction of the day-to-day operation, you don't want to -- you want to focus on the golden goose and making sure that everybody is taken care of and the business keeps on operating to the levels of our customers' expectations. And so this gives us an opportunity to really focus on M&A. We feel that the opportunity is there. And as you can see from our liquidity position, we are in a really strong position to take advantage of this. And so that's where we are. We're focused. We're excited about the future, even the near future.
Your next question comes from Walter Spracklin with RBC.
So Michael, when you're talking about kind of those higher margins that you've earned a little bit due to some of the opportunities that were presented last year that aren't going to be there this year. Is this kind of going back to -- are we talking 100, 200, 300 basis points of normalization? Is there any kind of frame of reference that you can provide there or...?
I think the basis points you're talking about, is that margin basis points? Or is that bottom line or...?
EBITDA margin, yes.
Yes. So the EBITDA margin are still ahead of what we represented when we IPO-ed sort of 3 years ago. And there's no doubt that we had some great tailwinds of last year, recognizing not only on the U.S. side, but even on the Canadian side, we were flying -- this time of the year, we were flying test kits into pharmacies across the country or by the truckload because they need a temperature control. And so a little bit of art, not a bit, but quite a bit. I like where our margins are. I always thought that we were -- I was kind of surprising myself all the time. I mean I think everybody seemed to be a little bit kind of an eye-opener when we see -- we kept on seeing our margins increase over the last year. We're efficient. No doubt that to start off the year -- we love to take care of our employees and our frontline employees got 6% increase this year to start off the year. No doubt that we've had some above-average lease increases in light of the industrial climate in Canada. Some of our facilities came up for lease. And I think it actually wasn't on the logistics side, but more on the transportation side, where it's not as big as a cost of our goods sold.We've had some areas where we've beefed up not only on the capital side, but even on the cost. I mean, our IT integration for Texas is taking longer than we had expected when you're running 2 systems, those costs are [ little great ]. So there's a bunch of internal things that we can streamline and some catch-up as the year goes along. But all in all, I would probably guess that we're in that range. We are in that range of 24%. We actually -- in our business plan, we actually exceeded our business plan for this first quarter. So we are, as an organization, are very happy with where our positioning is. We recognize that Q1 and Q2 have EBITDA tailwinds of last year that will be hard to replicate. But we like our margin levels where we are right now and will improve. It depends which businesses -- the margin levels in the U.S., for example, Walter are less than what our overall margins are. So we see a lot in the pipeline on there. And as we bring on more equipment and more drivers, obviously, that's going to increase our EBITDA, but not necessarily our margin. So there's a combination of things. We'll do what's right. But I like -- I've always liked that anywhere between 23% and 26%, depending on the mix of business in it.
Yes, that's great. And you mentioned growing your resources, equipment and labor. Is there any -- are you having any issues there at all? Is there any constraints or access to equipment, labor availability and any extra costs that we should be mindful of, particularly on the labor side due to just the inflation that's out there and in particular, in trucking where there is that labor shortage?
Yes. Our turnover has been minimal. So we're very fortunate on that. And our business, it doesn't spike, and it's not as seasonal as other businesses are as well. So I think people like the resilience of our business. And as we and the executive team go meet with the employees on a quarterly basis and talk about where are we going to be in 5 years. So where are we to be -- that were very sustainable to a sense of comfort and support, I guess, and that's boded well for us in the labor market with all the companies. So I don't see any of that. Certainly, Walter, a year ago or 2 years ago, it was more pressing for sure. I mean I know that I remember going to Boston to meet with the Boyle Brothers, and they were -- it was very frustrating times and big increases were put forth last year to keep drivers because I mean the business was such that there wasn't just 2%, 3%, 4%, 5%, 10%, it was greater than that. So -- but at this juncture, I don't see any issues with labor. And as for equipment, we're starting to see it flowing pretty freely right now. And maybe as the year goes on, it becomes easier and easier to get equipment.
Okay. That's great. My last question here, and Michael, when you -- when you were going around on at IPO, you had a track record of a very solid kind of 10% top line growth, and you've guided for something less than that going forward conservatively, excluding M&A, let's say, in the high single-digit range, the mid- to high single-digit range. Now that we are lapping, as you mentioned, a couple of compares, tougher compares, do we reset that in 2023 to perhaps a lower level and then back up to that high -- mid- to high single digit? Or do you think you can deliver on -- even though 2022 was a high watermark, you could deliver that kind of growth in 2023?
I mean I think we've shown that we -- I mean, not that I got myself or what consensus or what the analysts put I got myself based on what our business units and our business leaders suggest and understand. And -- but it's usually pretty close. And even if I look at this quarter, we were off by consensus by $1.3 million. If I look at the U.S. business alone, we were $2.3 million year-over-year less than last year. Had we even met our EBITDA targets last year, we would have exceeded all the consensus marks, except for maybe a bit of margin.We look at our revenue growth at 10-plus percent. That shows to me -- and I know part of it is artificially with higher fuel rates than they were in Q1 last year. But we feel good about the organic growth of our industry and our positioning in the marketplace. I guess, Walter, it's a matter of how much M&A can we put in the pipeline this year? Obviously, Graham Cromb is not going to be sitting still doing nothing for -- that's an investment into M&A. And so we're excited. So that -- I think by default, we're going to -- we will be able to exceed. But I feel comfortable with growth to the extent of being mid- to high single. Our budgets are such that we were going for 5% area because of the COVID tailwinds, which is consistent to previous. The M&A activity will increase that.
Your next question comes from Tim James with TD Securities.
My first question, Michael, I'm just wanting to return to your comments talking about the U.S., and you mentioned the pipeline being there, the largest really in the business. I assume that's relative to the Canadian business. Maybe you could talk about what your revenue opportunities are in the U.S., sort of the nature of those, what's driving those? Just an update there would be great.
Well, we meet every month and look at the pipeline, see what we've met, anticipated -- the pipeline is pretty healthy. And now granted, it's a much smaller pipe than the Canadian pipe, but it's -- as a percentage, it's a much bigger pipeline. We are limited by the amount of capacity that we are able to provide, i.e., truck equipment. So I think we're going to go about it in a cautious way. But I would expect double-digit growth in the U.S. market for this year, for sure. Something in the back --
Okay. That's helpful. My next question, just general sort of industry question. What are you seeing, if anything, in terms of notable moves by competition? I think I'm thinking more specifically in Canada in kind of the 2 sides of your business, anything that's impacting you either positively or negatively at this point? Or is it all pretty kind of steady as she goes?
Yes. Good question. I think from a transportation side, it's -- we're very fortunate to be having that first-mover advantage on the national scope. So that's about protecting that. Our competition is bad service. I think you've probably heard me say that before. So for us, it's all us to making sure that we understand the needs of the customer and adapt. I mean I think there's a bit of a paradigm. I look at it on our logistics business, and I look at capacity issues. And our biggest issues are actually in the 2 to 8 space. Our fridges are full. And so there's definitely a paradigm in moving towards more biologics and then injectables versus pills, for example. So we're looking at making sure that we have the capacity to manage that. But on the logistics side, certainly, the big players are there with the Kuehne + Nagel and the UPSs and Lynden's and [ Inamayers ]. And so there's -- they're healthy competitors because they understand the business, but they're there. Hopefully, that gives you a bit of color on the Canada side.
Yes. That's great, Michael. Just one final question, if I could here. The higher rates that you cited in air freight forwarding, I think your volume was down just over 5%, but your freight rates up. And then in addition, you've got some fuel pass-through benefits. I'm just wondering what you could point to in terms of driving those higher air freight rates. It just seems like a pretty positive outcome in this environment, especially for kind of what we're seeing in sort of broader sort of air cargo related rates. Is it because of contracts that you've already got in place? Or just, again, sort of competitive advantages that allow you to price appropriately. What is driving that?
Yes. Pretty much it's a pass-through in our world. Obviously, our supplier of choice is Cargojet and in the air. So typically, it's open communication with our clients, and there's annual reviews. So those are -- we look at it from that perspective. So it's really nothing -- nothing really extraordinary. It's pretty typical. That's pretty consistent year-over-year.
Your next question comes from Ty Collin with Eight Capital.
Michael, you spoke to the ability to kind of build growth in the U.S. business this year by adding labor and equipment. I'm wondering if there's anything meaningful you can do to help build margins in that business now that you kind of lost that COVID pricing tailwind? Is there anything to do on customer mix on the cost side of things. Just curious to get your thoughts on that.
Yes, Ty, that's a good question because we look at that and try to understand the mix. And for us, the mix is -- both Boyle and Skelton USA are truckload carriers in the health care Specialized Transportation and also in the defense, and in Boyle's case, defense is chief. So it's more of exclusive use type of carriage. But from a mix standpoint, you have a choice. You can go with a third-party broker like Kuehne + Nagel, who manages on behalf of other pharma companies on a buy and sales standpoint, and they're usually a little bit more aggressive in how they -- because they want to make money off that. And I knew you can go directly with the manufacturer or the wholesale or distributors have a very strong networking in the U.S. kind of a different makeup than Canada in terms of how pharmaceuticals are distributed. And then you guys -- you have third-party players like UPS healthcares in the U.S., so those clients. So typically, the margin mix is if you're dealing directly with the manufacturer, you tend to get a better yield because of the quality requirements from their perspective. Even though it might be the same product that who's paying the bill at that time. So that's about the only thing I could think of mix.We still offer a premium service. So that hence why we're able to still get the type of margins that we're getting. And as much as the margin mix has gone down, it's still very attractive for our business. I feel very comfortable with even the margin that we have today compared to what we paid for these entities and where it looks like forward. So I don't -- truckload tends to be a somewhat commoditized business. I was always fearful and that's why we only bought 50% the first to go around, just so I can understand it better. And so I don't think I can mix that. I think where the opportunity comes tie is maybe through maybe looking at the empty miles, where the mix of lanes to ensure that we're selective in where we want to go to making sure that our drivers are -- once they've unloaded, they don't have to go too far to pick up another load. We're looking at a facility outside of our Olive branch, for example, where a lot of health care clients are -- just outside of Memphis. And just to look at a facility there that increased our business mix and lower empty miles, for example. So we -- the management teams both at Skelton and Boyle really experience, understand very passionate, hands-on. And that by default that we might get some margin increase, but it won't be significant, but we are in a position to increase our business.
Okay. That's great color. And then looking at the 2.6% growth rate you reported in Canadian ground transportation ex the fuel surcharges, certainly a little bit lower than the historical growth rate on that business. Can you just help us unpack that number, in particular, a little bit what some of the moving parts were? And is that kind of a good growth rate for us to think about for the balance of this year in that business?
Yes, Ty, that's -- and I think I alluded to earlier on about flying test kits, and these are anomalies that we were going through this time last year and into Q2, I might add. April was a very big month particularly on the ATS health care side of the business. But yes, so I would anticipate that being consistent in the next quarter. But as COVID-related revenues go down as it trended towards the end of the year, we will then, by default, to be seeing higher growth rates in the later quarters of the year. So I know that it's slight misses and margin growth, but I think it's -- to me, it's truly a onetime issues that we've -- our business really hasn't changed comparatively to when we IPO-ed and keeps on growing.
Your next question comes from Endri Leno with National Bank.
The first one, I tried to go back a little bit to the premium rate that you're talking about. And I was wondering if you're able to give us any color in that, were the premiums on the COVID revenues realized last year higher than what you realized on the rest of the U.S. business? Or were they similar?
Yes, Endri, they were higher. There's no doubt that they were higher. And in -- I'm not funny, but when we went into the vaccine distribution with government, it was so vague and was on a per dose basis. And we -- everything was new to everybody. So part of it was to ensure that to me, our executives were being bonus and ensuring that, that execution was 100%. So for me, it was -- I took this on as being a responsible Canadian and ensuring that we did the right thing for Canadians. And frankly, I went into it not expecting to make money on that part of the business. But the urgency, expediency, the last minute requirements and the fact that we were charging on a per dose basis, not knowing if we were sending 20 doses to a pharmacy or 2,000 doses to a hospital or 20,000 doses to a distributor, wholesaler, you kind of threw it up in the air and does it turned out, those margins were much higher than normal. And that's -- that goes through all the -- even at LSU as well, which they were made to do the Quebec vaccine. So that was -- I can say it was an anomaly the -- I refer to the test kits or other related product, there was a sense of urgency then as well as Omicron was, I guess, more contagious than the previous one. So those are the things that last minute when somebody wants something last second, you tend to get a premium on that, which is higher than normal.
That's great color, Michael. And I just wanted to clarify one thing. The U.S. truckload, is that like around 15% to 20% of your top line or at a good range to think about it?
One more time, Endri, is our truckload business about 15% of our top line?
The U.S.
The U.S. business is about 20% of our top line. Yes, which is our U.S. business. Yes, all of our U.S. business, Endri. And by the way, speaking of truckload, we talked about margins. The cross-border business that we did during last year was those were exceptional premiums because we were on a few carriers that had vaccinated drivers that could cross the border.
Great. The other question I had, it was on the customer loss in packaging. Any color you can give us there? What led to their departure? Are you looking to replace them? Would appreciate any context.
Yes. That's probably the most commoditized part of our business. And interestingly enough, when we got into this business, we felt that it was super complementary because we're holding the product in the facilities, and we're able to offer an ancillary service. Interesting enough, in the health care industry, the co-packaging decision-making is not necessarily aligned with people responsible for inventory and orders, et cetera. So more -- so those were areas where all of a sudden it became a little bit more commoditized part of our business and, hence, price sensitive. We lost a piece of our business last year when Bayer -- Bayer loved the concept, but some other companies didn't. Bayer divest themselves of some of the businesses. We kept the inventory, but then the co-packaging, they felt it was -- they can get it somewhere else cheaper than so be it. As it turns out in the space that we had, actually, we're retrofitting a lot of that space to more premium. So we actually -- our revenue per square foot is actually going to increase as we wrestled that space. But -- so it's a byproduct. I'll be honest with you, Endri, we don't pay as much attention as it maybe we should. And I say that because we're -- our attention is probably focusing on higher premium business.
Good color. And then last one for me. I just wanted to ask a bit on the regulatory front. There were a couple of moves by the FDA to increase regulations. I think they're trying to push something later this year. And then the White House are looking to nearshore some of the supply chains. Have there been any developments there that you can share? Or is it status quo?
No. Unfortunately, Endri, I wish it was hurry up. But no, it's been more status quo and obviously, with the economy kind of slowing. It seems -- it feels like the economy is slowing down a little quicker in the U.S. than it is in Canada. And so there's more pressures I think internally with corporations to be cost conscious, even going up the chain to pharmaceuticals. But that's where the FDA can help companies like us. But we haven't seen much of a movement to be honest, to answer your question.
Your next question comes from Justin Keywood with Stifel.
I had some questions on the M&A opportunity. What multiples do you think you could transact at? And also the pipeline described, is that mostly proprietary source deals?
Justin, so I'll answer the first question first. It really depends on the type of business the multiples are and also the fit. So if we're going to go out there and go and buy a business that is complementary to the health care, but not as synergistic then we will pay a lesser multiple. If we feel that we truly have a tuck-in operation, we'll pay a premium to it. So every case is different. But to us, it's making sure that we have the right fit, both culturally and it complements or improves our ability to take care of the customer. So we're very focused on that. I think there's a lot of opportunities. And frankly, we want to make sure that we're focused on where we want to grow our business. And hence, why we've hired Graham to really start focusing and looking at these projects and sit down with our executive team and making sure that we're all aligned going forward. So the multiples will be that. It depends, right? I mean I see how you and analysts do multiples and you have different multiples between logistics and transportation. We have both businesses in our portfolio. So it all depends.And remind me what the next question was? Sorry.
No problem. On the deal pipeline, is it mostly proprietary sourced? Or are there some competitive processes within that?
Yes. That would be proprietary, yes, absolutely.
Great. And then on the balance sheet, obviously, in great shape, but we've also seen 10 consecutive interest rate hikes. What's the comfort level maybe in a net debt-to-EBITDA range as far as taking on leverage within the business to do M&A?
Yes, we have a lot of opportunity, but I'll let Peter answer that question for us.
Yes, sure. Justin, yes, Michael, we've got lots of dry power with our credit facilities and we've got cash sitting there ready for M&A. We're certainly comfortable. Our leverage right now is less than 0.5x, right? It's -- I think it's 0.48x in our financials for the quarter. We can take that up to 3x or even higher, but we would want to keep it kind of sub-2x on an ongoing basis. So we can flex it up, but we're conservative. Our balance sheet has been conservative throughout our public life and we would expect to keep it that way in large measure. But obviously, if there's a significant M&A opportunity, we can flex it up.
Your next question comes from Konark Gupta with Scotiabank.
This is Joey filling in for Konark. The first question is regarding the packaging division. So it seems that packaging revenue rebounded from Q4 and looks similar to or slightly above the pre-pandemic run rate. How do you see the segment trend over the remainder of the year?
So yes, I think the reason is trending is because of the seasonality of the business. Our largest client was -- a lot of those move forward into Q1. So I think that's where we're seeing that. Where is it trending? I think I alluded to -- I think it was a question by Ty Collin that -- or Endri, that suggested that -- it's Endri actually, yes, that suggested that we're not -- maybe we're not putting as much focus on the business, but we are -- the customers that we have, we do -- they've been customers for years, and we keep on taking care of them and continue to. But we're not really putting as much focus on the packaging side of things. Who knows maybe Graham will come up with the suggestion that we should be focusing on that. But at this juncture, our executive team is really focusing more on the logistics and transportation side of things.Yes. Having said that, part of our packaging initiative is Credo, and Credo continues to grow business. It's not a high-margin business at all, but it's very complementary and essential, especially now that a lot of our business is becoming more injectables and biopharma. So that becomes a good piece of business in the AHG network.
Okay. Great. And then just on the field side of things, can you remind us about your fuel lag considering the recent drop in diesel prices? And then which of the 5 product segments are most sensitive to fuel price fluctuations in terms of revenues or margins?
So you talking about fuel lag?
Yes.
Yes. I mean, the fuel lag depends on our business. So typically, on the logistics side, it changes. If you need to be a month -- up to a month or a week typically. And it's really -- it's different indexes. And typically, for example, in the Cargojet case, they -- we will try to mimic whatever they do. So that way, it's consistent within our customer base. So it's a pass-through, right? So we're trying to be sensitive to that. On the U.S. side of things, it's less sensitive on the -- to be passed through Bayer. So we don't see much -- not a great lag. So there's...
Endri has a follow-on question.
The question I have is that, Michael, you mentioned that Credo continues to grow with biologics. And I think earlier in the call, you mentioned that the fridges are full with injectable and biologics. Are you able to share, I mean, what the margin of handling these products? How does it compare to the rest of the business versus say -- well, the rest of the business overall, but even like just kind of pills in general, any color there?
It's pretty hard to deal with them to identify the margin because when we're sending products on Credo, it can either go by air, it can go by ground -- but it's truly in line with the rest of our business. Certainly, from a customer standpoint, it's an opportunity to -- that's where quality becomes a big factor. So the Credo product is qualified and best-in-class to move that product because obviously, the product inside there is -- but we -- it's not that big of a premium compared to the rest of our business. But it is an extra piece of business that otherwise instead of putting in the corrugator you're putting in the Credo box, and we're charging extra for that Credo use so that Credo box, whether they're leasing the equipment from us or they purchased it from us. So -- but certainly, from an ESG standpoint, it's the most sustainable product out there. I remember times where some of the big pharmas were sending everything in Styrofoam and gel packs and in the pharma industry, Health Canada that doesn't allow it to have multiple use when it was in a gel pack and Styrofoam and guess where those were ending up in making DFLs less, even better. But these -- because we have a closed-loop network and while these Credo boxes might be worth USD 500-plus per box, it's the fact that we're able to use them for long periods and qualified by Health Canada, we're able to give better -- just as good value, if not better value to our clients, not only from a quality standpoint or even from a cost standpoint and from an ESG standpoint, it's the best thing we can do.
Thank you. There are no further questions at this time. Mr. Andlauer, back over to you.
Well, thank you very much, everyone. I'm glad that even though we've had the tailwinds of the beneficiary last year, and we don't have the tailwinds of COVID. I'm glad I'm able to speak to you without a mask today and that we're all in good health and as is Andlauer Healthcare Group. Have yourself a great day. Look forward to seeing you next quarter.
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