Andlauer Healthcare Group Inc
TSX:AND
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Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andlauer Healthcare Group 2021 Second 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 August 12, 2021.I would now like to turn the conference over to Michael Andlauer. Please go ahead.
Thank you, Michelle, and good morning, everyone. Thank you for joining us today. With me on the call today, I've got Peter Bromley, our Chief Financial Officer. Following my opening remarks, Peter will follow with a more detailed discussion of our financial performance. And I'll conclude with my comments on our outlook and growth strategy, and then we'll open up the lines to any questions.So, without sounding self-promoting, we truly had an exceptional performance in both our Healthcare Logistics and Specialized Transportation segments during the quarter. This was due to good strong organic growth in all our product lines and a full quarter contribution from our latest acquisition of Skelton. Skelton Canada contributed approximately $10.5 million of revenue during the quarter, and our minority interest in Skelton USA contributed to a strong bottom line performance. We're very pleased with the strategic fit of Skelton. It's really proven to be a highly complementary addition to our business.We continue to support the distribution of COVID-19 vaccines this last quarter and all its ancillary products to Canadians. With the activity ramping up significantly as Canadian Government secured more supply in April, May and June. Our vaccine-related revenue coming from government contracts, manufacturers and other distributors, comprise approximately 5% of our total revenue in this quarter. While taking on this added mandate and responsibility, we have maintained service levels across all our operations. Our low turnover rates and our ongoing collaboration of our team in monitoring and adhering to COVID vacc -- safety measures has ensured the timely and safe delivery of essential products to public health units, hospitals, pharmacies and clinics across Canada. We're very proud to be a trusted service provider in supporting the critical mandate of COVID vaccine distribution in Canada and our team's success in providing specialized solutions to our clients involved in supply of vaccines, further demonstrate the commitment to excellence throughout our AHG companies.I'd now like to turn the call over to Peter to review our financial results in more detail. Peter?
Thank you, Michael, and good morning, everyone. Revenue for the quarter increased by 52.5% to $107.1 million from $70.3 million in Q2 last year. The TDS Logistics, McAllister Courier and Skelton acquisitions accounted for approximately $17.7 million of the $36.9 million total increase.Revenue for our Healthcare Logistics segment totaled $34.7 million, an increase of 36.1% compared to -- with Q2 a year ago. Increase was attributable to 34.6% year-over-year growth in our Logistics and Distribution product line, primarily due to greater inbound product volume, storage and handling activities related to existing client contracts, and the implementation of a significant new client contract in July 2020.Our Packaging Solutions also contributed to growth in our Healthcare Logistics segment with revenue for this product line totaling $5.6 million, an increase of 44.5% compared to Q2 last year, reflecting the near-complete restoration of our operating capacity to pre-pandemic levels as we were able to gradually and safely ease limitations on the number of associates in our Packaging operations in accordance with the health guidelines. The increase also reflects retailers restoring their previously deferred orders for certain consumer health care products in connection with travel restrictions to vacation destinations.Revenue in our Specialized Transportation segment totaled $72.4 million in the quarter, an increase of 61.8% from Q2 last year. The increase was attributable to a 57.6% growth in our ground transportation product line, driven by incremental revenue from the McAllister and Skelton acquisitions of approximately $11.9 million, higher volume from our existing client base, and higher fuel costs passed on to customers as a component of pricing.And year-over-year growth in our Air Freight Forwarding and Dedicated and Last Mile Delivery product lines of 19.4% and 116.6%, respectively. Growth in Air Freight Forwarding was attributable to volume increases and increased fuel revenue related to higher fuel costs. Growth in Dedicated and Last Mile Delivery was primarily attributable to incremental revenue of approximately $5.8 million from TDS Logistics and the expansion of certain western -- certain routes in Western Canada and increases in fuel costs passed on to customers.Cost of transportation and services for the quarter were $47.3 million or 44.1% of revenue compared with $28.5 million or 40.6% of revenue for Q2 last year. The higher cost of transportation and services for Q2 this year reflects approximately a 20% increase in volume in our ATS Healthcare business, the acquisitions of TDS, McAllister and Skelton and higher fuel costs in line with increases in revenue related to fuel prices. The increase in the operating ratio for the quarter reflects the addition of TDS and McAllister cost profiles, partially offset by savings achieved through the effective management of our variable costs with increased volume.Direct operating costs were $21.6 million or 20.1% of revenue compared with $17 million or 24.2% of revenue for Q2 last year. The increase was primarily attributable to our acquisitions. However, these acquisitions, which are included in our specialized transportation segment, have lower facility-related costs in relation to health care -- in relation to our Healthcare Logistics segment, which results in a lower direct operating expense -- operating ratio in Q2 this year versus Q2 a year ago.SG&A expenses were $9.2 million or 8.6% of revenue compared with $6.8 million or 9.6% of revenue Q2 a year ago. Higher SG&A expenses reflect our year-on-year growth.Operating income totaled $18.8 million, an increase of 69.5% compared to Q2 last year, primarily reflecting our growth in total revenue, which exceeded the 49.3% increase in total operating expenses for the quarter. Net income and comprehensive income increased by 84.7% to $13.1 million or 33% -- $0.33 per share on a diluted basis from $7.1 million or $0.18 per share on a diluted basis in Q2 or a year ago. The increase reflects higher segment net income before eliminations from our 2 operating segments and a $0.8 million contribution from our 49% interest in Skelton USA.EBITDA for the quarter increased by 66.9% to $30 million from $18 million in Q2 last year due to the factors previously discussed. Our EBITDA margin improved to 28%, up 240 basis points from Q2 last year, reflecting the strong performance of our 2 operating segments. Further, Skelton's margin profile has positively impacted our overall margin.If I look at our balance sheet, as at June 30, 2021, we had cash and cash equivalents of $14.6 million and working capital of $6.5 million. This compares to cash and cash equivalents of $30.1 million and working capital of $44.4 million at 2020 year end. Our decrease in cash and working capital at the quarter end is primarily attributable to the acquisitions of Skelton and Skelton USA. We partially financed these acquisitions through a combination of cash on hand and by drawing $50 million on our revolving credit facility and $25 million on our term facility. We expect to continue to reduce amounts drawn on our revolving credit facility during fiscal 2021 with excess free cash flow generated from operations.I'd now like to turn the call back to Michael for closing comments. Michael?
Thank you, Peter. So our strong performance in the quarter is a direct result of the stable and reliable growth that our core national platform generates and when you add the additional strategic enhancement we've implemented over the past year, which included the opening of our state-of-the-art facility in Brampton last July, a continued growth in the reach of our Dedicated and Last Mile Delivery product line, our acquisitions of TDS and McAllister in Q4 of 2020, the Skelton acquisition in Q1 of this year, and our success in support in the COVID vaccine distribution in certain regions of Canada, which is creating the opportunity to open up future growth opportunities, then you do get the exceptional performance witnessed so far this year.We expect continued solid performance over the next quarters, supported by the ongoing organic growth, a full year of contributions from our acquisitions. We're working closely with the Ministry of Health and other clients in getting vaccines warehouse and delivered to new vaccination points safely and securely and doing all this while ensuring the safety and well-being of all our drivers and our employees. I want to thank all our management, our employees and drivers who truly have made a difference.That concludes our formal remarks, and we'd now like to turn the line to questions. Michelle, please commence the Q&A.
[Operator Instructions] Your first question comes from Kevin Chiang, CIBC.
Congrats on a good quarter there. Maybe if I could drill in on the margins, obviously, an exceptional performance. And I guess I'm trying to get a sense of, given the acquisitions you've made and I guess the mix of revenue you have today. Just how do you think about the, I guess, the go-forward margin range we should be expecting from Andlauer here? Is this kind of the new normal, something in the higher 20% range in terms of EBITDA margin?
Kevin, it's Michael. Yes, obviously, we're a little bit surprised because I've always tried to operate through a variable cost operation. But I guess, with these acquisitions, what has transpired is that there was -- before the acquisitions, they were either customers or suppliers of each other. And I guess when you do the consolidation, you eliminate revenues and you eliminate cost, now that they're intercompany transactions. In case in point, if Skelton, if -- as an example, if Skelton was a client of -- I'm sorry, if Accuristix was a client a Skelton and spend $1 million. Now all of a sudden, that $1 million is eliminated because Skelton, as you can probably attest. So those eliminations, in essence, is artificially lowering the revenue that we post. And -- but the EBITDA doesn't change. Earnings don't change. So we've seen that in light of the fact that the acquisitions that we've made over the last year have all been complementary and so that kind of picks it up. And the other aspect is our growth, we continue to grow. Certainly when we dedicate -- we do a dedicated service to a certain region. Now all of a sudden, we don't have the -- in an area like Castlegar, for example, where we used to outsource to an agent. Now all of a sudden the ATS business that goes in there, it can go within our own network. And so there's some consolidation, some efficiencies drawn from there. So just focusing on what we do best, and we've been able to increase those margins.
That makes a ton of sense there. And then if I just look at the various revenue trends, if I take out the M&A and you called out about 5% of revenue was from the movement of COVID-19 vaccines and ancillary products associated with that? I guess for revenue that looks pretty close to what you're doing pre-pandemic. Is that kind of the right way to think about your business at a high-level, that kind of, I'll call it your legacy operations, are kind of back to what it looked like in very early 2020 before the pandemic hit? And then as you look out into Q3 here, any color on what the trends in terms of the movement of, again, COVID-19 vaccines and ancillary products are? Is it still kind of holding at the levels you saw in the second quarter? Or are we seeing that kind of dip down a little bit just given the higher vaccination proximation rates?
Yes. Well, we're hoping to get back to normal. And I think obviously, the vaccines have been an artificial increase to our business to some degree. I think when we compare Q2 of last year to Q2 this year, if you recall, we came out of Q1 of last year with all the hoarding in March and all of us in the lockdown. So our growth was not nearly as significant from the previous year in Q2. Everything was locked down. People were consuming what was hoarded in Q1. So there was sense of -- a bit more sense of normalcy despite the fact that we did have some shutdowns over Q2. But in essence, part of the big spike that you see. We see a normalcy in our business, more so, particularly in the areas where health and beauty aids tend to have picked up again. People are about more travel vaccines are starting to increase. So we're starting to see a bit more of that. We're still not there yet, but certainly consumers are using most of the products that we warehouse and distribute and transport today. So we -- and obviously, this -- as Kevin it has been shown, this has been a pretty resilient business regardless of what's been throwing at us, and we've been able to sustain the growth of the health care sector.
No, no. That's definitely a clear observation. Maybe just last one for me. There's been, I guess, headlines recently on Moderna looking to build a facility here in Canada. I think a key focus of the federal government today is to maybe to increase our pharmaceutical -- our domestic pharmaceutical manufacturing capabilities. Just anything you're seeing on your front? I guess, I presume it's too early for them to be contemplating the logistics implications of that kind of buildup. But as you look out over the longer term, do you see this potentially increasing your organic growth rate? Are there things you think you need to acquire or services you need to add in order to potentially take advantage of these potential opportunities?
No. I mean I think as a proud Canadian, I welcome the idea of being able to have manufacturing in our country. We see -- we came out of the gate pretty late as Canadians in terms of the vaccines. Now we more than made up for it. We're in a position now where we're -- we have excess vaccines, and we've got to convince the last, whatever, 20% to get vaccinated to ensure that we get a safe fourth wave that's out there. But I would -- we have the network to support it. The in-sourcing in Canada will just mean that there's -- that step from the USA or from Belgium going into Canada is now done domestically from manufacturing to distribution facility. So we see that as we're well positioned to support any of that from that standpoint. We welcome the opportunity to have Moderna have their footprint in Canada and their bricks-and-mortar, too.
Your next question comes from Maggie MacDougall of Stifel.
If we could touch a bit just on the general cost side of the business, and there's a few areas I'm curious on. The first would be leases in a lot of your facilities, if you expect there to be rent rollovers in the next year or 2 and what you guys are expecting there in terms of cost inflation? And then just generally on the fuel and labor side, what you're seeing in terms of both availability of labor and the cost inflation, if there is any, in those 2 categories in particular?
Yes. Maggie, and yes, those are great questions. Certainly, it's -- the leases in most of our facilities are leased, actually, if not all. The -- we -- the biggest impact would be on the logistics side. We are well in excess of 1 million square feet under roof. And amongst, I think, 8 or 9 facilities across the country. The -- and yes, the landlords have -- don't regard the fact that we -- in some places, we've been there for 10 years or we made their facilities better than they were before. They're looking at return. And their cost base hasn't changed, but rates are going from $6.50, $7 a square foot to $12 in the GTA. So that -- and that's the second largest cost in that business after labor. So part of it was anticipating this, and we saw that coming a year ago plus. And we feel comfortable we have long-term leases in -- particularly in our facilities in Vaughan. So we probably have a 3-year window to get adjusted. But part of it is also educating our clients and positioning ourselves as such. The good news is that our clients are looking for service, first and foremost. The complications of building narcotics faults or freezers and getting validated by Health Canada makes it very cumbersome. The capital cost required. So part of it is just to make sure that we're aligned, and we communicate that. And inevitably, even big pharma has to go through procurement and the likes, and we get pushed back at times. But we also understand the competitive landscape and we're aligned that way as well. So I think we're in a good position because we're servicing our customers very well. There's no reason for them to leave -- certainly from a service standpoint. And from a cost standpoint, we're as competitive. And in some cases, we're actually more competitive because we're -- we've got these leases for at least 3, 4, 5 years at competitive rates, actually, in some cases, lower than competitive rates. So that takes care of that part of the question. You talked about fuel and labor. Fuel typically, Maggie, is a passthrough. The whole industry has been disciplined about it. And whether it be diesel or regular fuel or air fuel -- airplane fuel, it's -- there's an index. And there's been a good discipline amongst our industry to ensure that as those costs were through their pass-through as a fuel surcharge, so that's pretty much -- takes care of that. On the labor front, I am somewhat concerned about that. You just -- especially in some areas where you just see all kinds of signs looking for the for hire. And to us, it's -- I think -- I believe we onboard somebody and train somebody and the culture that we have at our facilities, at all our facilities, and the profit sharing initiatives that we have through our KPI program where our executive teams go out there and meet with all the employees every quarter. I personally I'm going to be out West next week. I'm looking forward to seeing all the employees out West. And we talk about the state of the -- of our business, and they get rewarded for their performance as well on top of their salaries. Getting them onboard is not -- I'm sorry, getting them on and low turnover is testimonial to the fact that not -- that hasn't been an issue. And onboarding them, getting them recruited is a little more difficult. So interestingly enough, we had our Board meeting and I mentioned to our Board that, that was an area of concern for me going forward. I'd like to get in front of it. It's not a concern right now, but we will -- certainly not in Canada. In the U.S., it's a different story. In the U.S. it's -- onboarding is not an issue with Skelton USA. It's actually equipment. Just cannot get equipment, and I'm sure you've all heard the whole chip story. So we were looking at growth curve at a rate of 2 trucks a month. And we're about 7 trucks behind as Skelton USA right now, as it stands. So that's become an issue, to try to get equipment to supply. And in Canada as well, a couple of our Dedicated contracts there, we were looking at helping one of the distributors, and we just can't -- we didn't feel comfortable enough in executing because we didn't feel that we could get the equipment in time for that contract. So that's the cost side.
It's the lay of the land these days.
What's that, Maggie?
I said it's the lay of the land these days.
It sure is. Yes, I think not only for our industry.
Yes, you're right. Okay. Well, congrats on a really good quarter and the margin growth.
Our next question comes from Tim James, TD Securities.
Congratulations on a good quarter. I'm just wondering if we could dive into or get a bit of an update on your capital expenditure plans. I know they're relatively light and limited. But I'm just wondering if you could kind of look out at the balance of this year and maybe through 2022 and just talk about where new capital is going to be invested?
I'll let Pete -- I'm going to take a sip of my coffee. I'll let Peter answer this one.
Tim, so CapEx for us in sort of the pre-acquisition days has remained low relative to our size of our business, given that it is primarily a lease based model in terms of not only the facilities, but also the equipment. So those -- and we really balance our CapEx spend roughly 50-50 between growth and maintenance. Those ranges for the -- if I exclude the acquisitions, they would be in the range of kind of $1 million to $4 million per year for each of growth and maintenance CapEx. And that's really stable and hasn't really changed, and we don't expect it to. But when I turn my mind to the acquisitions, we -- primarily Skelton, let's say, because TDS and McAllister would fit into the previous model. The Skelton business model is more of a owned equipment. So tractors and trailers are purchased. And that -- those as well as in the U.S. So those CapEx numbers will run kind of $3 million to $4 million of CapEx per year. And that, again, is split between growth and CapEx. So the Skelton business model would add CapEx spend to our overall spend. And again, we've -- when we buy these, or make these acquisitions, one of the things that's been very successful for us in the past is to let the company do what it does and maintain its management team and operating strategy. And so we don't see any in the near-term changing the CapEx model for Skelton either. So hope that gives you a sense for some of the numbers as we go out into the next couple of quarters.
Okay. And maybe just a follow-up on that, and I'm thinking about sort of future vehicle growth and warehousing capability. And I realize some of that may be finding us through operating leases, of course. Is there any challenges for you? Or do you feel -- and maybe you could comment on kind of where you see adding those types of assets or that type of capacity? And if -- I guess I'm just wondering, the organic growth just looks great here. There's so many opportunities. I'm just wondering if you're being restrained or foresee a situation where you may be a little bit capacity limited in order to take advantage of all the opportunities that you have?
I'll take this one, Tim. It's Michael. Yes, I mean, restrained, we talked about the tractors in the U.S.A., particularly being a strain, and we wish you could spend more capital on that because it is a good margin business, and there is a big demand right now in the USA for that. With respect to facilities, when we built the Brampton facility last summer and opened it last July a year ago, we had anticipated that we would take -- have 50% in and grow it over the next couple of years. We're quickly finding out that we're going to be soon at capacity. Now some of it is -- we're trying to anticipate if it's transient, in light of the fact that we're doing some of the accessorial product that support vaccines for the Ministry of Health, both in Alberta and Ontario. And we were -- just like this COVID vaccine has been pretty fluid. So we're not sure of the longevity of it. We've got booster vaccines in the horizon. So all the supporting material that goes with it will probably stay. So that's a bit of that area. But we keep on growing that. We're almost full in that facility. So we are going to be in the same position as everybody else. I think about it all the time, and I'm thinking of the ways of differentiating ourselves from the rest, and I'll leave it at that until I find that solution. But as I said before, I don't think our competitors will have any advantage over us in light of the fact. But we will come to that threshold. I thought we would -- it will be a little later, but we're dealing with it now because I anticipate that it's going to be coming in the near future.
Okay. And then just my last question, and I'm thinking about organic growth, organic revenue growth, I guess. If we exclude acquisitions and the COVID vaccine distribution impact that you've identified here. And we kind of look at a 2-year revenue CAGR in Q2. I think it implies about 8.5% to 9% annual growth. And you've talked in the past about kind of long-term organic growth, I think, in the mid to high single-digit range. Is that still a good reference point? Is there anything that you see in the market that's changed? And maybe if you could just comment on sort of what the base market growth rate is and your ability to extract a premium by gaining market share in any particular segments of the business?
Yes. I mean those are all things that we keep us up at night. But I think we've been -- I look at the history of our business, and I look at -- there's always moving parts. Consolidation of big pharma is going to affect growth in light of consolidating their orders and the likes, and other type of pressures of that sort. But there's always something that kind of seems to creep up. So the history has always shown that we've been able to grow comfortably at the mid to single-digit -- mid to high single-digit growth rate. We don't anticipate that changing. If anything, with the acquisitions that we've made and the network that we continue to expand on, particularly in Canada, we see that as an opportunity for us to maintain that. And maybe even grow it. I keep getting surprised, to be honest with you. On the U.S. side, I had mentioned that this was a learning process for me, and I wanted to dip my toe into the U.S. market. With the Skelton USA, it's been an incredible learning for me. The one thing I have recognized is that there is a high demand for our product. And Skelton has an -- has done an incredible job of differentiating themselves from the rest in the marketplace because of their QA commitment to quality and also the commitment to how they treat their drivers. It was very eye opening. And seeing that. But we see that as very opportunistic going forward. We just need the equipment.
Yes. Okay. That's great. You actually -- you answered my final question regarding Skelton USA.
Our next question comes from Konark Gupta, Scotiabank.
So, maybe a question for you, Mike. You talked about lease rate inflation. And obviously, you've got some natural hedging there in the sense that you got some long-term leases and some of pricing growth as well. But does this lease rate inflation change your view to maybe own some assets rather than lease in the long-term?
Oh my God, Konark. By the way, I was waiting for your call. Usually you're the first guy out of the gate on these calls. But I -- yes, I mean, hindsight's 2020. And I think if I had a crystal ball 3 years ago with respect to real estate, we would have jumped on it then. I think we're probably behind now. I think we're at the perfect storm and you look at these industrial REITs, they're probably -- they're enjoying life right now. Like I said, cost base or their cost bases last year. In order to build today, I think, in the GTA, I was talking to a builder and the price of land is going through the roof. But the -- you're talking about yields of under 5% that they're looking for. It's not quite -- I'd rather be spending that money in acquisitions or even giving dividends out to our investors versus taking that capital and investing it. So I think we're -- like I said, we're competitive out there in the marketplace. We do have a natural hedge because of our commitment -- long-term commitments with some of these landlords. And -- but I think we're past that stage at this juncture. I think one of the opportunities is because our business is national in nature that we don't necessarily have to be in the GTA to support some of our pharma customers. And that's just one of the areas that I'm looking at in order to bring our cost base down. But that's to be continued.
That's great color, Mike. And then perhaps on the margin front. So clearly, organically, margins seem to be doing pretty well, and you said you were surprised in a few places here. But talking specifically about these recent acquisitions. So Skelton seems like it's -- the margin is at the top end of the range. So I think very satisfactory. Anything incremental on Skelton you can do? What can you tweak to further improve margin there? And then TDS and MCI, they've seen a little bit margin dilutive overall. What is the potential there for those guys to improve margin?
Yes. I did seem a little surprised with it. But I guess when you do the accounting, like I said, the intercompany transactions get eliminated. So it doesn't change your EBITDA, but it does diminish your revenue. If these were all standalone companies at arm's length, then the total of those revenues would be greater. So hence, why the margin -- we're seeing that margin going up. Having said that, the folks at Skelton continue to operate as a standalone. The wonderful thing about the 3 companies, in particular, Accuristix, ATS and Skelton is that there's been incredible collaboration. It's not even at the upper management standpoint, it's been at the management, at the ground level. The fact that we have a national network at ATS and Skelton typically does more pedaling of their product, has given them a network. They have a reach of a network, a national network of 22 facilities instead of one facility and the support of the local management at ATS to support them. Likewise, if they're stranded in Vancouver while doing their delivery run into the west, we're able to give them a load of vitamins coming back from BC back to Toronto. So there's been a lot of efficiencies gained, and I believe that there's even -- there will be even more so as we get more integrated. One of the opportunities that Skelton has is to get on the platform of ATS with respect to IT. And better visibility from a tracking of not their equipment because they're best-in-class on that front. And from a security standpoint, they're best-in-class, but certainly, EDI transactions with the customers and better visibility within their customer base. So there's a lot of efficiencies there. We're taking care of the low-hanging fruit right now. They're doing collectively on their own. But they'll probably be more as the year -- as we get more comfortable, even more comfortable. Like I said, this transaction happened in February. So it's been a quarter and a bit. So it's been great.
Okay. And last one for me before I turn it over. On the vaccine front, so you mentioned 5% of overall revenue this quarter, which seems like slightly up from the previous quarter. When the vaccine impact paid out at some point, I guess, booster shot is going to be here for some point. But let's say the vaccine contribution ends substantially. Is there any government-related work that continues to be the Ministry of Health or any other provincial stuff that you are doing right now?
Yes. I believe that we're executing on all fronts. And I think one of the areas is vaccine distribution has allowed us to get front and center in front of government, which we never ever had. Our client base was either manufacturers, wholesalers, distributors or third-party logistics companies in the health care sector. Now if I were in front, they've seen our capabilities. We've sat down collaboratively and try to be as efficient as possible. Turnaround vaccines within 24 hours, did recalls of Astra back into our facilities, recognize that if you handle product only once it becomes more efficient method, both from a execution, but also from a cost standpoint. Our mandate is to try to be as more efficient as possible to cut costs for the government. I certainly didn't want to get into this pandemic with the eyes of it being a profitable venture. I -- but the outcome of this is -- has allowed us to -- for them to look at us as a vehicle for other things. And one of the provincial jurisdictions award -- have awarded us the vaccine -- the flu vaccine distribution in light of our performance and how we -- and so I think the Ministry of Health and some of the industry are really looking at the way they do things. And our network and our flexibility has allowed us to do a front and center. So I see this as very opportunistic going forward. With respect to the COVID vaccine, between mRNA technology and who knows how things will go. But I understand that there was $90 million vaccines ordered for boosters over the next 3 years. And we'll be doing the distribution of that in some form or way. And obviously, the material that goes with it will be going hand-in-hand. So we will see a slowdown, I kind of hope. As a Canadian, I hope so. But I don't think it's going away anytime soon, and I don't think it's going to go away forever either. I think that it'll be -- the goodwill that we've created is going to create new opportunities. And certainly, the vaccine distribution part of it between the Credo solutions, which has been probably the underlying star of this -- the show, I guess. And then the network has allowed us to open up the door of opportunity for AHG.
That's great. I appreciate the time and congrats on a good quarter.
Your next question comes from Walter Spracklin, RBC Capital Markets.
This is actually James McGarragle. I'm on for Walt this morning, but I appreciate you taking my questions. I wanted to ask a question on potential M&A. I know last quarter, you mentioned that activity would pause while you focus on the vaccine distribution. But do you have any updates on the M&A pipeline and looking a little longer-term into 2022, do you expect focus to remain in Canada? Or is there anything in the U.S. that we could see, given so far what you're seeing with your early indications in the U.S. from the Skelton purchase?
James, in order for me to answer that question, you're going to have to sign an NDA. All joking aside. I would suggest that -- I mean, our management team and our employees have been so focused on execution here. And you've seen the growth that we've had. We want to stay focused. I mean I think ensuring that the service levels and our employees are well taken care of, to me, is paramount. Likes a long time, and we will -- we will have those opportunities. The reality is that, in light of our success and in light of our presence or just a little foothold in the United States, we've been exposed to some opportunities. I'm not going to elaborate more. But I feel very comfortable in the opportunities that are in front of us, both domestically and south of the border. Yes, I'm excited about it. Obviously, we've been successful in some of these transactions. That bodes well. We have a bit of a template now that we can work with. And we'll -- the good news is that we will do what's right for business long-term. We are not pressured to have to make a decision because we have to do acquisitions or we have to grow. I think we'll do what's in the best interest of our business for the long-term sustainability. I would for the investors, but I also would more so for our employees and stakeholders, who are our biggest stakeholders.
Okay. And I had another one on the Last Mile segment, just housekeeping questions. So this is a segment seeing huge, huge growth rates since 2020, is that Q2 a good run rate for what to expect going forward? Was there anything in the quarter to highlight that helped out the results?
I'm sorry, just say that one more time. I'm just trying to understand the question.
In the Last Mile segment, I was just wondering if Q2 was a good run rate for what to expect going forward? Or if there was anything in the quarter to highlight that helped results?
I think one of the things about the Last Mile in this quarter comparatively to the previous second quarter is the fact that we did not have TDS at the time. So that's huge growth rate in itself. TDS. It was Last Mile, Dedicated Delivery to pharmacies in Ontario. So that's the big jump that you see. We continue to grow the Last Mile in particularly out west right now. And see as opportunities will come. So I don't see the big jump going forward until we get a full year of TDS underneath us. We'll see the big jump. Peter, when was the TDS transaction?
October 1. So we've got one more quarter of -- before it wraps.
So, we've got one more quarter of big increase. But after that, it will be pretty much mid to single-digit growth from that standpoint.
Sorry. Let me -- just looking from quarter-over-quarter compared to Q1, I see a pretty big increase. So was there anything -- because I believe TDS would have been in Q1 as well. Was there anything that helped the quarter-over-quarter increase in the top line for that business?
Yes. You know what, I'll -- I mean, I'll look at it offline. But I guess, what was our growth from Q1 and Q2? I don't know. I know we -- actually I referred to Castlegar earlier on. We did increase in that area. One of our wholesale customers did land a large retail client, which has increased more runs into the fold. I'm just thinking off the top of my head here, those are the 2 things -- 2 areas that I've seen the growth on there. And we continue -- Bob Brogan and his team continue to look at pipeline -- in the pipeline. There's opportunities. Interestingly enough, there was one big opportunity going up. And one of the areas of concern is the fact that we couldn't fulfill those needs because we couldn't get the equipment ordered. We're not going to -- we don't -- we always under promise and over deliver. That's been our approach, and we had to kind of walk away on this one. This opportunity. Thank you, James. Say Hi to Walter.
I will.
Your next question comes from Stephen Kwai, National Bank.
Actually, most have been answered already, and I'm just calling in for Endri, by the way. So just on the COVID contribution, I think you touched upon it, and I just may have missed it. How do you see it trending in Q3? Is it more similar to Q1 or more similar to what we just saw in Q2 or kind of in between?
Sorry, I lost part of the first question. When it concerns to which, sorry?
Just the COVID contribution that you guys saw in this quarter? And just wondering how you're seeing it in Q3, if you think it will be more like what we just saw or kind of more like Q1?
Yes. So -- and it's -- my anticipation is it's not going to -- it will be more so like Q1, it may even be a little less. I mean most of the vaccines have been funneled through our system. And it's not just vaccines. It's the ancillary products that go with it. But it's also the test kits. We were very busy in Q1 with test kits. So in the distribution of those. And those are not quite as -- not quite as busy. The manufacturers that are producing the test kits and distributing the test kits. So the combination of all, we see a slowdown in Q3. Like I said, I hope it was over 0, but the reality is it's not going to be the case. So to answer your question, I would anticipate that it would be closer to Q1 results going forward.
Okay. Perfect. Great quarter.
[Operator Instructions] There are no further questions. So I will turn the conference back to Michael Andlauer. Please go ahead.
Thank you, Michelle, and thank you very much for joining us this morning. I'd like to once again thank everybody at AHG companies, employees, management, drivers, owners, operators. You guys are awesome. And I would also encourage all on the call to get vaccinated. We don't want to go through what we've gone through so far in the last 18 months, and all the best of health to all of you. 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.