Andlauer Healthcare Group Inc
TSX:AND
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Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Andlauer Healthcare Group 2022 Third 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 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 November 9, 2022.
I would now like to turn the conference over to Michael Andlauer. Please go ahead, sir.
Thank you very much, David, and good morning, everyone. Thank you for joining us today. On the call today is Peter Bromley, our Chief Financial Officer. Following my opening remarks, Peter will follow up with a more detailed discussion of our Q3 results. And then I'll provide some closing comments and open the line to any questions.
Our strong growth in revenue and profitability in the quarter and year-to-date reflects a significant impact of our recent acquisitions and continued organic growth and our resilience through these times. Compared to Q3 a year ago, our revenue increased 58.3%. Our EBITDA was up 57.3% with our margin remaining above 26%. Our net income, we increased 55.9% and our diluted earnings per share increased $0.44 from $0.31, highlighting the accretive impact of our acquisitions.
Our acquisitions of Boyle Transportation, Skelton, USA contributed $34.5 million over the $44.6 million year-over-year increase in our ground transportation product line in the quarter with a combined margin profile in line with AG's consolidated EBITDA range. Our acquisition of LSU Logistics Support unit generated $8.9 million of the overall $13.6 million year-over-year increase in our logistics and distribution product line in the quarter, with margins consistent with our existing L&D operations.
Boyle Skelton USA and LSU have each been an excellent cultural fit with AHG, while also contributing strongly to our growth and further strengthening our platform.
Approximately 2.8% or $4.6 million of our consolidated revenue for the quarter was generated through our continued work with manufacturers, 3PL distributors and government clients involved in the supply of COVID vaccines and related products. This compares to approximately 2.5% or $2.6 million of our consolidated revenue in Q3 a year ago.
A significant component of our year-over-year revenue growth is, of course, attributable to the flow-through fuel charges, reflecting the significant increase in fuel costs from last year. Aside from fuel-related revenue and the contributions of our acquisitions, we continue to generate organic growth within our historical range across our product lines in the quarter, except for airfreight forwarding, where fuel surcharges made up most of the year over growth in revenue. We did not have the outsized organic growth that we enjoyed in this product line last quarter and that was a bit of an anomaly primarily attributable to the customers paying for this expedited service in the face of lingering pandemic-related supply chain issues last year.
Our Q3 packaging revenue exceeded what we generated for the same period during 2019 prior to the onset of the pandemic for the second consecutive quarter. These 2 factors forwarding returning to a more expected quarterly level in packaging revenue now exceeding pre-pandemic levels are perhaps a sign of return to a more normalized operating environment outside of the inflated fuel cost and the ongoing role in supporting COVID vaccine distribution.
I'm very pleased with our continued strong performance and the many contributions from our team members across our platform in Canada and the U.S.
I'd now like to turn this over to Peter to discuss our results in further detail. Peter?
Thank you, Michael, and good morning, everyone. Revenue for our Healthcare Logistics segment totaled $48 million, an increase of 43.5% compared with Q3 last year, comprising a 47% increase in our logistics and distribution revenue, reflecting greater outbound order handling activities for accuristics and increases in transportation billings impacted by fuel surcharge programs from carriers together with our acquisition of LSU and a 20.8% increase in packaging revenue.
Revenue in our Specialized Transportation segment totaled $116.9 million, an increase of 65.2% compared with Q3 last year. The increase was attributable to a 73.4% growth in our ground transportation product line, driven by incremental revenue from our Skelton USA and Boyle Transportation acquisitions, organic growth and higher fuel costs passed on to customers as a component of pricing.
And our airfreight forwarding and dedicated last mile delivery product lines generated year-on-year revenue increase of 25.2% and 27.2% respectively. Michael already discussed the impact of higher fuel costs during -- driving year-over-year growth in our airfreight forwarding revenue. Growth in dedicated in last mile delivery reflects route expansion and increases in fuel costs passed on to customers.
Our cost of transportation services was $81 million or 49.1% of revenue compared with $47.5 million or 45.6% of revenue for Q3 last year. The higher cost of transportation and services was primarily attributable to our acquisitions of Skelton USA and Boyle Transportation. And higher fuel costs in line with the increases in revenue related to fuel prices.
The year-over-year increase in operating ratio reflects the Skeleton USA and Boyle acquisitions, which have increased the relative proportion of the specialized transportation segment as a percentage of our total consolidated revenue and cost profiles. Direct operating expenses for the quarter were $28.3 million or 17.1% of revenue compared with $21.4 million or 20.5% of revenue for Q3 last year. The increase was primarily attributable to outbound volume growth for accuristics and the acquisition of LSU. Our specialized transportation acquisitions, Boyle and Skelton USA have lower facility-related costs compared to our Healthcare Logistics segment, which resulted in the lower direct operating expense operating ratio for the quarter.
SG&A expenses were $11.3 million or 6.8% of revenue compared with $8.3 million or 7.9% of revenue in Q3 last year. The increase is primarily attributable to our LSU, Skelton USA, and Boyle acquisitions. The decrease as a percentage of revenue reflects operating leverage generated within our SG&A functions compared with revenue growth.
Operating income for the quarter totaled $27.9 million, an increase of $11.1 million or 65.9% compared to Q3 a year ago. Approximately $4.8 million of the increase is attributable to our LSU, Skelton USA and Boyle acquisitions, with the remainder attributable to organic growth. Net income for the quarter totaled $19 million, up from $12.2 million in Q3 last year.
Higher segment net income before eliminations for both our healthcare logistics and specialized transportation segments contributed to our increased profitability on a consolidated basis.
Total comprehensive income for the quarter was $32.9 million, reflecting foreign currency translation adjustment gain of $13.9 million related to our acquisitions of Boyle and Skelton USA in Q4 2021.
EBITDA increased to $44.1 million from $28 million in Q3 a year ago, reflecting the factors already discussed. EBITDA margin was 26.7%, down 20 basis points from Q3 a year ago though approximately 1% of EBITDA margin in Q3 last year was attributable to the impact of the share of profit of Skelton USA, which we owned 49% of at that time, and therefore, accounted for it as an equity investee during that period.
Look at our balance sheet. At quarter end, we had cash and cash equivalents of $50.7 million and working capital of $68.8 million. This compares to cash and cash equivalents of $25 million and working capital of $31.6 million at 2021 year-end. The significant increase in working capital is primarily attributable to the increased scale of our business since the acquisitions of LSU, Skeleton USA and Boyle Transportation and the repayment of amounts drawn on our revolving credit facility.
At quarter end, the aggregate amount outstanding under our credit facilities was $50 million under the term facility and nil under the revolving credit facility. We remain well-positioned financially to pursue growth opportunities.
I'd now like to turn the call back over to Michael for closing comments. Michael?
Thanks, Peter. So supported by our strong growing free cash flow, we've implemented 2 increases to our quarterly dividend this year, increasing the payout from $0.05 to $0.07, while also reducing debt and strengthening our balance sheet. I'm so very proud about how our teams have executed what we laid out for 2022. Specifically, this year, it was all about staying focused.
We focused on ensuring the integration of our 3 new acquisitions over the past 12 months to the AG family. It was putting extra focus on the well-being of our employees and drivers who in my eyes are our biggest stakeholders as they deal with the pressures of inflation and the ability to recover from the stress of the COVID environment over the past 2 years. And just as importantly, continue to focus on providing the best service possible to our clients when access to labor and equipment have been very difficult.
We're finishing the year with solid earnings momentum and we look forward to seizing further opportunities to expand our North American platform and further increasing shareholder value. We expect to build on our platform while maintaining our disciplined approach with respect to both financial and operating metrics, while preserving our unique culture. We're truly excited about the opportunities that lie ahead.
That concludes our formal remarks. And I'd like to open the lines to questions. David, please commence the Q&A.
[Operator Instructions] And we'll take our first question from Walter Spracklin with RBC Capital Markets.
This is James McGarragle, I'm on for Walter this morning. Congrats on the quarter and hope everyone is keeping well.
Thank you, James.
Yes. So my first question was, I know some of the other truckers have been constrained by equipment. And I know Skelton and Boyle that traditionally purchased their fleets, whereas you have a different business model with ATS Healthcare and Scouting USA. So have you had any issues in this regard? And does this in any way constrain your ability to grow into 2023? And if so have you seen any indication of improvement in the ability to source equipment?
James, that's a good question. And I think I alluded to that about the -- from a client standpoint, constraints staying focused with our employees and the lack of equipment. There's no doubt that everybody has had that the issues and whether you're asset-light, even asset-light like an ATS Healthcare is, it's not only equipment, but it's parts and all.
I think we've seen the worst of it. If anything, we've been more constrained in 2022 than I believe we'll be in 2023. A lot of the orders have come in or are coming in and streamlining in. Certainly, Skelton has been -- has done a incredible job and not only to support themselves, but also with Boyle and ATS needs. So I think it's -- it was more of an issue in 2022, James, than it will be in 2023 for our business.
Okay. I appreciate that color. And kind of sticking with the impact of the supply chain. I guess the first part of this question, I wanted to know the extent to which supply chain issues have potentially impacted your business this year and on your ability to deliver services to your clients. And kind of as a follow-up, has this changed any of the conversations you have with your customers with regards to further outsourcing for them to mitigate the impact of the supply chain or even potentially further in-sourcing? And what type of opportunity this might be for your team longer term? And after that, I can turn the line over.
Thanks, James. And that's a long question. We take a long time to discuss this. So yes, supply chain issues have definitely affected ourselves over the year when -- if a piece of equipment breaks down, you've got to rent it, rental costs are much higher. The time to get things fixed takes longer. I'm sure you've heard that from the other transportation companies. Same thing goes with the logistics part of our business.
The interesting part is the supply chain has affected our customers, so access to inventory, we've seen a lot of different -- particularly on our logistics side, we've seen a lot of different more short orders because they don't have the inventory to fill the orders for their clients. We're seeing a lot more disruption in their world, which created more orders, so a different approach.
So as working with those clients to ensure that we can streamline, and obviously, our flexibility of being an outsourced supplier has boded well, in particular, with some clients, when I think of a company like me, Johnson, for example, where they've had to export with their shortage of infant formula and the ebbs and flows of their business because of supply chain issues, I think, has allowed them to succeed by outsourcing versus having fixed labor or fixed facilities. So that's a perfect example of that.
And I think we -- and that's why to me, when I talk about the 3 areas of focus this year, that was -- we knew that we had to step it up on behalf of our clients.
We'll go to our next question, Konark Gupta with Scotiabank.
So Michael, I think you kind of touched on this topic on your last question here with respect to shortage of drugs. Obviously, there is not just the infant formula now, I think it's up [indiscernible] with the increase in viruses with kids and et cetera. I'm just wondering, with these shortages of these drugs, does it kind of create a backlog for your customers as well as for you ultimately? Or you are able to kind of provide alternative drugs to your customers? So I mean, like this is kind of running as usual, meaning you don't have anything to catch up on in the coming quarters?
Yes. I think, Konark, that's more of a question that you'd have to ask a wholesaler like a McKesson or the like of because obviously, they're the ones that are fulfilling on behalf of their clients where taking the orders. We're -- we -- but we do notice from our manufacturing clients that their orders are -- have to be short ordered. So we've noticed that we've got less lines per order than traditional -- and having done their business for years. So we see that, but that's more of a question you'd ask the manufacturer or the wholesaler. We don't substitute. The McKessons of the world will do that on behalf of the clients that they serve. So that's -- hopefully, I answered your question. I wasn't sure – you're kind of breaking up, but that's what I think I got out of the question.
Yes, no, absolutely. I was just trying to get the sense does it -- does this whole issue create a backlog for you as well, you being a logistics provider to the industry?
Yes. No, I think it doesn't really -- the ebb and flow of receipt of product and outgoing, so -- we did -- we have had swings of inventory. The cough and cold business that wasn't -- everybody was wearing masks last year and all that cough and cold business was coming back in droves from the retailers. That created some challenges within our facility capacities. But those are things that we've got to deal with on a day-to-day basis. It may have happened more so in 2022 than it would have previous years, but that's the nature of our business.
Makes sense. And then with respect to, I mean you touched on the capacity here and this is something that I think the whole industry has been struggling with for the last many months with warehouse capacity. How are your warehouses doing? Like do you have capacity at this point? Or are you planning to build more capacity? How do you see the capacity evolving here for your warehouses?
Yes. That's a million-dollar question, Konark. It just amazes me. It's a big cost of particularly in our logistics distribution part of our business. But equally on the transportation side, I mean, I think industrial real estate is just crazy. And it's not just -- it's just not bank Richmond or Toronto GTA. It's spreading everywhere.
Montreal, actually, I was on the phone this morning with the Broccolini builders in -- well, they're not only go back, but looking at what opportunities are in space. And we are expanding our Montreal facility, or ATS Montreal facility with warehouse capacity to support LSU in Quebec. But there's 0 space available right now and that's just driving costs and the cost of building is extraordinary right now. So lease rates are through the roof.
We've had -- we have a buffer with what we have. Right now we have leases that are extending for 3 to 6 years. So we're in a safe spot for now from an expansion standpoint. We're finding a lot of the expansion space is particularly on the temperature, like the 2 to 8. So we're finding that the ambient space is not as much as a fridge and frozen, we're seeing that capacity rise and that takes less square footage. So that's a good news story for us from that standpoint.
But it's tight, Konark, I'm not going to deny it. It's one of those pressures where you have to make a tough decision. And when companies were outsourcing, I think they're realizing holy mackerel, this is -- your storage costs have literally doubled within the matter of last 3, 4 years.
Great color, Michael. And last one for me. Just on the SG&A side, I don't know if Peter has an answer for this one. But the SG&A as a percentage of revenue has continued to be down recently. I think you kind of alluded to the operating leverage, I think, in the MD&A, but I was just wondering, has revenue gone up because of fuel surcharge and that fuel surcharge probably does not drive SG&A? So does that mathematically make SG&A lower as percentage of revenue? And so when we see fuel surcharge of fuel prices normalize, would the SG&A as a percentage of revenue also normalize slightly higher from where it is today?
Konark, technically, yes, that is true. If fuel goes up and our SG&A is not going to go up because of that, so there's a mathematical impact as you suggest there. But if you look back before the fuel prices went crazy, we still had the same kind of trend in our SG&A percentage being kind of lower with operating leverage as we've made these acquisitions. So I would say that there's a de minimis impact of any kind of fuel revenue on our SG&A percentage. So I would continue to see that our -- well, that operating leverage will remain.
Plus the Board doesn't pay me enough.
Yes. Yes, we might have to increase SG&A to pay Michael more.
Then we definitely can see more SG&A here, Michael.
Worth every penny, I might add.
Next, we'll go to Kevin Chiang with CIBC.
You mentioned some of the components of that 10.5% organic growth. It sounds like everything is trending higher here. Just wondering if you could provide a little bit more granularity on how to think about that split between maybe core price, the surcharge and volume? And really what I'm trying to figure out is maybe on the volume side specifically, do you see any change in consumer behavior in some of your more consumer-oriented products there, just given all that's happening in the macro?
Yes. That's a great question, Kevin. And the answer is yes. And I think I alluded to that in Konark's question with respect to leases. We're finding that capacity on the fridge space and frozen is growing. And I think a lot of our manufacturing clients are focused more on biologics. I think we're seeing more of that. It's obviously more expensive, but that means nothing to us. But kind of replacing the oral remedies and because they're more effective and so we're seeing that type of consumer behavior.
Now it's probably going to be more expensive for us taxpayers when it's all said and done. But at the end of the day, from our business perspective, it's more specialized, which is good, but it's not as frequent. So we don't see that as much volume as we would with oral distribution. But more specialized for sure, the beneficiaries are certainly Skelton and Credo parts of our business. And obviously, the specialty in terms of -- from [ accuracy ] to an LSU, their business is growing by default from that perspective. So that's about the only thing I see.
I mean, I think I've heard the word you analysts talk about our business being very resilient over the years and it's shown that. I think our consumer behaviors haven't really changed that much. Even our consumer approach when people spoke about home delivery and everything and through this COVID period, I think we've recognized that as doctors do more telehealth, they're prescribing more. And I think the face-to-face that consumers have with pharmacists has grown. So when once upon a time where people thought that pharmacies would consolidate and reduce, it's actually done the opposite. So -- or at least maintained its status. So that's my knee-jerk answer to your question.
No, that's helpful. And just maybe and be alluding to a question earlier that you answered -- you mentioned and you noted in your MD&A, so that CapEx has moved up here partly because Boyle and Skelton are more asset-heavy, they acquire their trucks versus your legacy business, which is more asset-light. Can you remind me, is your plan to continue with that, so everyone kind of runs their business and the way they think about allocating capital as they would have when they were independently run? Or the plan over time to convert some of these acquired businesses also to an asset-light model so much to what you have with your legacy business?
It's an interesting question. And I think we allow our companies to make their own decision and hold them accountable. And interestingly enough, the geographies change has -- even the behavior of employees change from province to province. And once I used to -- I had all owner-operators when I first started my business and it worked and it was -- and it serves -- was a great model and over time the cost of capital and just -- maybe just a different behavior, different approach to how people live.
Today, vacation is more important than it was to people than it was 10, 15 years ago. So you've got to take those things into account. And I think there's an element of work to live versus live to work approach. And when you're an owner-operator, you're -- you live to work and make more money.
And so with that being said, from a leasing to own standpoint, obviously, the variable cost of having an owner-operator is truly variable and asset-light. When you have a driver, you make decisions on owning versus leasing. We found through this period that leasing through these -- the [indiscernible] have not been more dependable -- they've had their issues, their supply chain issues and their service is honestly not very good for a bunch of reasons.
They might think it's justifiable. But anyway, but that's -- and so sometimes it's best to in-source that ourselves. And certainly, the folks at Skelton as you see their trucks on the road and they get it. And so it's all about timing and it's about geography. But ultimately -- and it will obviously and financial reasons. But right now there's no real answer, and if I...
Yes, it sounds like it's dependent. Maybe just last one for me, just with the U.S. election or midterm election I guess wrapping up here. Does that change -- I know earlier this year, we were talking about the FDA proposing some changes to the pharmaceutical distribution rules south of the border. Just wondering if there's a change in maybe some of the political leadings in the House and the Senate, does that change how you think that might roll through the FDA? And then I think Health Canada was going to release, I guess, it's the final decision on the generic access regulation or any changes to that? Just any update you're hearing from that perspective as well?
Honestly, I try to keep politics out of my world.
That's a smart decision. That's a smart decision.
Yes. And frankly, it really wouldn't affect our business either way, as I see it. Certainly, trends in quality and FDA's push to have more efficacy in the distribution of their products for -- that's trending in the same light that Health Canada did 10 years ago. It's slow, but surely.
But other than that, I really can't comment. Whatever I say is probably -- it's not -- I haven't done enough research or whatever. I'm not in a position to answer that for all you listeners.
No, that's fair enough. And again, solid results there. Congratulations.
Thank you, Kevin.
Next, we'll go to at Tim James with TD Securities.
Congratulations on a great quarter here. Just my first question, Mike, I'm wondering if you could talk about, so for the border here and any differences that you're seeing in the Boyle versus the Skelton USA businesses, both from a revenue and a margin perspective? Are any particular customer market segments driving notably stronger or weaker growth in other markets? Just trying to get a bit of an overview on kind of the market intelligence that you're seeing from those 2 businesses.
Yes. That's a good question, Tim. So as I alluded to, when we bought the companies less in the -- well, actually a year ago now, literally a year ago, it was an education. It was to understand. Obviously, ass going through a pandemic, both companies where leaders are moving the top 2 vaccines in the U.S.A. in dedicated quantity loads, the Pfizer on behalf of UPS Boyle was doing. And the Skelton was to the Moderna business. So that was -- that's a bit of an anomaly.
The fact that drivers -- most of our drivers were vaccinated and a lot of the other transport companies' drivers were not vaccinated allowed us to go across the -- across the border more freely which meant that that gave us an advantage. So things have settled down right now. But the reality is, as Kevin spoke to, with respect to U.S., the FDA rules are starting to strengthen and quality is more demanding, particularly even now in the Ambient business. Ambient, they didn't care about as much, the 15 to 25 degree product. It's starting to have more legs now in the U.S., particularly with the manufacturers requiring it. So we're seeing that trend.
I think we're -- the margins have been exceptional. I think both companies have similar clients and are collaborating in terms of best practices. So they're becoming more efficient even in trading geographies. So that's worked out really well. They had the same culture. They care greatly about their drivers. They're looking at building a new facility just outside of Memphis where they both recognize a lot of the business comes out of. A lot of the wholesalers are established there as well as UPS healthcare.
And so we -- between collaboration, working together, we're becoming more efficient, but it's continuing to grow. It's actually exceeding our expectations as obviously you've seen in the results. I mean U.S. business now represents 20% of our overall revenue, which is -- that's nice.
Okay. That's helpful. My second question and you've kind of touched on this a little bit in the past. I'm just trying to think very big picture about the normalization and I guess something of Canada specifically of conditions and demand since the pandemic. And I'm wondering, there's a couple of moving parts that I'm thinking of with travel is incredibly strong and the implications for travel vaccines. I'm also wondering about the return of elective surgeries and potentially any of the kind of capacity issues in the hospital system and maybe this cough and cold season which you sort of drew attention to. Is it possible to sort of generalize, are we back in terms of that normal business to kind of pre-pandemic levels? Or are there any particular sort of areas of strength or weakness still in -- for any reasons that may be driven by sort of the bigger environment?
Tim, I would suggest that your lifestyle, if it has changed since a year ago, it's probably the trend that's going on within our business as well. I don't think -- I think people are out and about, I know I, in talking to some folks in Montreal, they were telling me that they've hit record highs in tourism in Montreal. So I think the normality is there. And I think it's -- we're back to pre-pandemic ways. The only thing is I do have -- I have noticed that traffic is extremely light downtown Toronto on a Friday. I guess people are still working from home. But other than that, I mean, I don't really -- yes, I think we're getting back to a normalcy. And that's a good thing.
Next, we have Endri Leno with National Bank.
I have a few, I'll start with the first one. It's a bit of a continuation of a question that was asked prior in terms of space and adding to capacity. And more so on the cost around it. I mean we're seeing unemployment continues to be pretty low in Canada, in paper is generally tight. How are you seeing labor in your operations? And any kind of color you can give for impact on margins, if at all, for looking forward?
Yes, Endri, that's a -- I mean, we're in the people business. And so for me, it's very close, near and close there. And I think when we talk to other companies, I was talking to one of our Board members who is involved in the retail world and she was telling me, we were comparing turnover rates at our board dinner a couple of nights ago and it was -- she was either, a), astounded that our turnover was lower or b), I was astonished by how high her turnover was.
So there's no doubt that it's about retention, it's about focus. And there's no doubt, I mean, in January of this year, earlier this year, you've got to remember, we had the Omicron, it was less than a year ago the Omicron outbreak was, and we couldn't -- we had droves of drivers that couldn't go out and deliver and warehouse employees that couldn't come into work. And so we did have a shortage.
Then you've got the pressures of the marketplace where it's an employee's market. Then we're asking people to come back to work to be in an environment, more social environment and not have to work from home. But then you've got the pressures of saying, well, this employer wants me -- is allowing me to work from home and I'd like to work from home. And so now all of us said in order to lure, you start raising wages.
I mean I'm not saying anything you don't already know, but those are all the pressures. And then most importantly, the pressures of inflation. And I think to me, from a frontline standpoint, that to me was the one area that we're -- it was bothered me last -- this time last year as we were getting ready for a business plan.
And I remember talking to one of the economic folks of one of the banks and I was arguing with them that that was -- that I felt that the inflation was going to be higher than what they had suggested. Just for my input and sure enough is how do you deal to make sure that your employees are -- don't have to moonlight and get a second job in order to pay for those groceries or higher rents, or all the inflationary pressures that we're going through.
So for me, that's -- when I mentioned about the 3 focus items, it was really important. And for me, if I don't have -- our business, our clients are happy if we service them and we can only service them with great employees who are well-trained and that -- we've focused on that, and we'll continue to focus that. And I think there's going to be even, that much more pressure even next year. So -- but we have an opportunity because we have a good foundation to capitalize over that, if there is a slowdown in the economy to capitalize on that labor resource to be able to continue to grow properly.
The other question, I mean, we, I have -- we've touched a little bit on it on the Q2 update, but it regards the GST that the flu vaccine distribution in Canada, is that you're interested on in at the time. Is there any updates you can share with us? And then I also have a follow-up on the flu. But the first, any updates that you can share on that if you can?
Yes. We've -- update-wise, I mean we, the flu vaccine distribution has grown. And particularly we've had some upside on that on the different levels on the dedicated on -- and within our LSU business unit, the Quebec government brought it forward in the last quarter or Q3 where typically would have been Q4, we're seeing more of that.
But it's very -- it's a good business, but it's not a huge business, but it's an area where we feel we can be strong at and continue to perform on that front, so. Governments move slowly. But certainly the model works. The pharmacy model is excellent. And we work closely with McKesson to complement and support them as well as shoppers and the likes to ensure that they -- we can execute on the flu vaccine.
And that's -- yes, good color. The other question I had, I mean, this is more a bit kind of forward-looking, but the Canadian Blood Services, they announced a drive to increase self-sufficiently blood plasma products to 50% by 2026. And Skelton has been handling products for them not for a long time. Can you talk a little bit on to what the opportunity could be there? I mean I'm assuming Skelton would likely be involved, but if you can share any color whether they would or not, and yes, the opportunity on that on this?
I guess, indirectly more business is good business on that front. And obviously, we have that -- I guess that's another political question. I think I can't really answer that. Let Canadian Blood Services just deal with that when it deals with plasma and all. But ultimately, that truly is one of the big differentiators is Skelton's ability to manage Canadian Blood Services business. It's the most sensitive business that we handle of all our product lines out there, more so than even the COVID vaccines.
And it's an everyday event between Skelton and Canadian Blood Services. It's, I guess not that's before date, but it's extremely time-sensitive and obviously extremely temperature-sensitive. And obviously, with the history of the tainted blood scandals and all, I think it's even more emphasis on that. So Skelton have been the experts at that and work closely with them. They have equipment that is -- we have equipment that has 2 refrigerated units. If one goes down, the other one goes on. They've catered to their Canadian Blood Services needs and we'll continue to adapt to their changing landscape.
Okay. That's great. And then one last one for me. I guess, away from the political comments. But -- and this is specifically for you, Michael, but we've seen media reports on entire kicking around the senators. Any color you can share?
Oh my God, what are you, a senator fan?
No, I mean [indiscernible].
Yes, I saw the article this morning. I was shocked, to be honest with you. Having said all of that, I just want to remind everybody that I've been involved in hockey for the last 20 years. And I'm a partner of the Montreal Canadians. So my passion, it's truly been a passion of mine and it continues to be a passion of mine. And frankly, it hasn't changed or nothing will change, right? But if there's different colors, then it doesn't change the landscape in any way for me in terms of focus and all, so.
But I was quite surprised by this, particularly the fact that I haven't talked to anybody from the media since [indiscernible]. But anyway, I'll leave it at that. I'll let you be. But from my standpoint, like I said, I've been involved in hockey for the last 20 years and it's one of my passions.
And that does -- that concludes today's question-and-answer session. I'll now turn the call back over to Michael Andlauer for any additional or closing remarks.
I really don't have any. But I appreciate all of you participating this morning. And have yourself a wonderful day. Be well.
Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.