Andlauer Healthcare Group Inc
TSX:AND
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Earnings Call Analysis
Q3-2023 Analysis
Andlauer Healthcare Group Inc
The company encountered a notable revenue decline of 4.9% year-over-year, amassing $156.8 million for the quarter. The Healthcare Logistics segment fell by 12.3% to $42.1 million, while the Specialized Transportation segment saw a more modest dip of 1.9%, resulting in $114.7 million. Noteworthy within this segment is the combined 1.4% and 4.4% contractions in ground transportation and air freight forwarding, respectively.
Operational efficiency took a hit with operating income descending 22.2% to $21.7 million. With net income at $15.3 million, a decrease of 19.4%, and EBITDA down to $39 million from earlier $44.1 million, the financial health reflects stress from diminished contributions from subsidiaries like Boyle Transportation and Skelton USA, and reduced revenue linked to COVID-19 vaccines. Despite these pressures, an EBITDA margin of 24.9% holds steady within the expected historical range. Debt repayment activities also continued, with $25 million paid off the term facility, leading to a strong liquidity position with cash reserves at $68.3 million and $104.5 million in working capital.
The company's executives project confidence in recuperating growth rates into 2024, citing resilient healthcare and transportation logistics markets, especially within Canada and the U.S. They envision leveraging their unique platform for performance gains, evidenced by a remarkable comparison of Q3 2021 to Q3 2023, showcasing an extraordinary 50% revenue growth and a 39% increase in EBITDA.
Contrary to a 6% uptick in Canadian ground transportation revenue (ex-fuel), consolidated revenue fell. This signals deeper issues within the U.S. segment, prompting a strategic reassessment. Management discussed refocusing efforts with the board, specifically addressing non-specialized operations like truckload companies running at mid-teen operating ratios. An anticipated pivot away from expansion towards stabilization will likely prevail in the coming quarters due to the truckload sector's commoditization and less stringent regulatory environment compared to Canada.
Organic growth exhibited strength as shipment counts rose by mid-single digits, yet wage remained unchanged. Besides stable Rx products, discretionary items like cosmetics suffered from consumer spending restraint impacting Accuristix, the consumer division. This underscores a dual influence on organic growth from both pricing discipline and volume increases, although the business grappled with pricing pressures to some extent.
The ancillary co-packaging solutions, particularly for end-aisle displays in healthcare, has been deprioritized due to lower yields and commoditization. Pricing pressures and less retailer spend on manufacturing co-packaging impelled a strategic shift from less profitable segments to those with higher returns on investment, indicating a fine-tuning of the service offering to align with changing market conditions and company strengths.
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Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Andlauer Healthcare Group 2023 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 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. Note that this call is being recorded on November 3, 2023.I would now like to turn the conference over to Michael Andlauer. Please go ahead, sir.
Thank you, Sylvie, and good day, everyone. Thank you for joining us today. With me on the call is Peter Bromley, Chief Financial Officer. Following my opening remarks, Peter will follow with a more detailed discussion on our financial results. I'll then provide closing comments, open the lines for the questions.Our results over the quarter continued to reflect the return of a more normalized operating environment as we're no longer benefiting from the pandemic-related tailwinds we experienced throughout 2022, especially temporarily inflating U.S. truckload premiums and significant COVID vaccine-related contributions. COVID-19 related revenue declined to approximately 0.8% of consolidated revenue in Q3 this year compared to approximately 2.8% a year ago. The rate premiums we were able to capture in the U.S.-based ground transportation during 2022 were primarily due to -- related to equipment and driver shortages, which have now diminished. Our premium pricing in the U.S. is due to our validated temperature control, quality assurance, security audits. However, premium rates are impacted by macroeconomic factors and by movement in standard spot rates, which have been under downward pressure this year.We believe our U.S. ground transportation rates are stabilized now. However, we believe that we can still drive growth by strategically leveraging our core specialized competencies and focus more on certain customers and/or high-value products in our markets. We are revisiting our go-to-market strategies in the U.S. to drive improved performance moving forward.We have also been experiencing lower outbound order handling activities for Accuristix the past 2 quarters. We expect our LSU facility expansion in Montreal, which is scheduled for completion in December, which should improve our logistics and distribution product line performance starting in 2024. Despite the lack of operating tailwinds this year, our consolidated revenue within the first 9 months is just 1% below the same period a year ago, and our EBITDA margins for the quarter and year-to-date remain within our historical range of 24.9%.I'll turn over the call to Peter Bromley to review our financial performance in more detail.
Thank you, Michael, and good morning, everyone. Our consolidated revenue for the quarter totaled $156.8 million, a decline of 4.9% from Q3 last year. Revenue for our Healthcare Logistics segment was $42.1 million, down 12.3% from Q3 last year, reflecting to a 9.9% year-on-year decrease in our logistics and distribution product line revenue and a 31.2% decline in our packaging revenue. The decrease in logistics and distribution revenue was due to lower outbound order handling activities for Accuristix and reduced transportation billings impacted by fuel surcharge programs from carries.The decrease is also partially attributable to a $2.3 million of revenue recognized in Q3 last year related to certain pass-through expenses, which were reclassified to logistics and distribution revenue for LSU in accordance with IFRS 15 during the fourth quarter of last year. This net revenue treatment has been consistently applied throughout the current fiscal year. The decline in packaging revenue primarily reflects the loss of one of our packaging customers in the first quarter of this year and lower volume from our remaining base of packaging customers compared to Q3 a year ago.Revenue in our Specialized Transportation segment totaled $114.7 million, a decline of 1.9% compared with Q3 last year. The decline is attributable to a 1.4% decrease in ground transportation revenue and a 4.4% decline in air freight forwarding revenue. The decrease in ground transportation revenue in the quarter was primarily attributable to lower fuel costs passed on to customers as a component of pricing and a decline in U.S.-based truckload rates, as Michael discussed earlier.Our ground transportation revenue in our Canadian network, excluding fuel, partially offset this decline with growth of approximately 6% in the quarter. Our decline in air freight forwarding revenue primarily reflects a decline in fuel surcharge revenue, partially offset by organic revenue growth. Our slight decrease in dedicated and last mile delivery product line revenue in the quarter reflects organic growth, partially offset by reduced fuel surcharge revenue.Cost of transportation and services was $79.6 million or 50.8% of revenue compared with $81 million or 49.1% of revenue for Q3 last year. The decrease reflects lower fuel costs, in line with the decreases in revenue related to fuel prices. Slight increase in our operating ratio is attributable to the lower pricing in our U.S. truckload operations.Direct operating expenses were $25.3 million or 16.2% of revenue compared with $28.3 million or 17.1% of revenue for Q3 a year ago. Direct operating expenses this quarter reflect a reduction in outbound volume in our Accuristix logistics and distribution operations. The decrease is also partially attributable to the recognition of certain pass-through expenses in Q3 last year, which have been reclassified to logistics and distribution revenue for LSU as discussed previously.SG&A expenses were 8.2% of revenue for the quarter, which is in line with our expectations and compares to 6.8% of revenue for Q3 a year ago. The increase reflects our investments in supporting our business growth.Operating income totaled $21.7 million compared to $27.9 million for Q3 last year. The decrease is primarily attributable to reduced contributions from Boyle Transportation and Skelton USA and the decline in revenue related to COVID-19 vaccines and ancillary products.Net income was $15.3 million or $0.36 per share on a diluted basis compared with $19 million or $0.44 per share on a diluted basis in Q3 a year ago. EBITDA totaled $39 million compared with $44.1 million for Q3 last year. The decrease in net income and EBITDA is due to the factors already discussed. Our 24.9% EBITDA margin for the quarter is in line with our historical range of 24% to 26%, as Michael noted earlier, and compares to our margin of 26.7% in Q3 last year.If I look at our balance sheet, cash from operating activities has continued to build our discretionary cash position in 2023. During the quarter, we repaid $25 million on our term facility. At quarter end, the amount outstanding under our credit facilities was $25 million under the term facility and nil under our revolving credit facility.We've also been active in our normal course issuer bid announced last March. As at quarter end, approximately 108,000 subordinate voting shares for a total of approximately $4.4 million have been purchased and canceled. At quarter end, we had cash and cash equivalents of $68.3 million and working capital of $104.5 million. This compares to cash of $66 million and working capital of $85 million at 2022 year-end. We remain well positioned financially to pursue growth opportunities.I'll now turn the call back to Michael for closing comments.
Thanks, Peter. Looking ahead, we are confident that we can build off this new baseline in 2024, supported by the positive industry growth fundamentals that characterize the health care and transportation logistics markets, in particular in Canada and in the U.S., and leverage our unique platform to outperform. This is evidenced by the actual growth we have experienced, if you compare the Q3 of 2021 results to the Q3 of 2023 of 50% growth in revenue and 39% growth in EBITDA.In addition, our strong balance sheet positions us to generate incremental growth through complementary acquisitions. We have an attractive pipeline of potential targets in both the U.S. and in Canada. As we continue to expand our platform, we'll maintain our disciplined approach with respect to both financial and operating metrics and our constant focus on better serving our customers and supporting our unique culture for our employees.We'll now open the line to questions. Sylvie, you can start the Q&A.
Thank you, sir. [Operator Instructions] Your first question will be from Walter Spracklin at RBC Capital Markets.
Just perhaps starting off on your comment about building off on a new baseline in 2024. I know '24 saw kind of a wind down of some onetime or nonrecurring benefits that you had seen during the pandemic period. And now that you're discussing a baseline in '24, is it fair to view now you're returning from this point to a mid- to high single-digit growth trajectory going forward? Or is there still something that you're seeing either in the economy or related specifically to your business that perhaps that resumption to that level of growth may take a little longer? Just curious your view there.
Yes. I think with respect to the baseline, I mean, I think I try to compare it to 2021 similar quarters. And I think you can see that 2022 was definitely an anomaly for us. There have been some findings. I think when I look at the Canadian market, I feel that it's still very robust and continues to grow at those -- at the predicted growth rates. The U.S. has been a little bit more of a learning experience for me on the truckload side since the Skelton USA and Boyle, and those were unexpected. And I think that's where the macroeconomic -- I think I mentioned last quarter that we were seeing -- we were going into a trough that was definitely evidenced in Q3 with our U.S. truckload companies more so than I had anticipated. But it is the reality of the economy in the U.S. and the truckload market in the U.S. I think I hadn't realized that it's more commoditized than I had anticipated, especially with the type of margins we would experience in 2022 with these U.S. truckload companies.
So that actually relates to my second question. I mean, you had -- I mean, Peter mentioned Canadian ground transportation revenue, ex fuel, is up 6%, but your consolidated group was down 1%. That would imply that the U.S. business was actually very bad unless there's something in there that I'm missing. Is that causing you at all, Michael, to reexamine your strategy going in into the U.S? I know that's been a focus in your prepared remarks. You said that, that continues to be a focus, but you mentioned that structurally, it is a lot different from your Canadian business. Is there opportunities that you could refocus into the Canadian market? Or you still believe the U.S. market is a good growth area for you?
Yes. I don't -- yes, you're absolutely right. Refocus is exactly what we'll do. We're very flexible. We discussed that with our Board yesterday with respect to the U.S. market. And I -- when I look at the business on its own, they're good truckload companies. I think that most truckload companies would admire the type of operating ratios that they're running at, but in the teens -- in the mid-teens. But that's not specialized. I think when we looked at that, we looked at it that because we were in the health care, we were making a difference. Now, on its own, it still runs well. But when we were talking at this time last year, they were in the low- to mid-20s. There's a big difference. And part of it was [indiscernible] trying to understand why? And the one area that stood out for me, Walter, was the fact that the FDA is not as stringent, particularly on ambient business than they are -- than Health Canada is. And as there were more trucks on the road, more drivers and less other freight to be moved around, all of a sudden, the pricing became too attractive for some of these 3PL companies or -- particularly in the consumer goods -- health care consumer goods side to say no to.We try to keep a disciplined approach, so basically, changing our tact or strategy in terms of type of product and not necessary look at growth. So for me, for the next couple of quarters, it's been about stabilizing. We're not going to grow the fleet like we had anticipated. But that's all good. I mean I saw -- look, it's not -- no reason to press the panic button, when I look at the truckload industry in the U.S. They'll tell you that they're at a trough right now and we're not going to get -- our numbers aren't going to get any worse going forward. The service is good. There's still a demand but at lower tariff rates. And that's just the reality. But what it says to me is that it doesn't differentiate itself more than the other product lines that we have in the AHG suite of products.
Next question will be from Kevin Chiang at CIBC.
I think if I look across at least in your disclosure, Canadian ground transportation, air, last mile, all posted organic growth when you exclude the impact of fuel surcharges. Just want to get a sense of, when you look at that organic growth, if you able to split out between what was pricing-driven versus what was volume-driven. Is this still primarily pricing-led organic growth, just given the broader softness in the economy? Or are you getting a lift from both sides of that equation?
I would suggest that it's both sides of the equation. So I think when I saw, off the top of my head, our shipment count grew by mid single digits, our wage stayed status quo. So that's -- while the wage, it hasn't changed, Rx products, the cosmetic, the vitamin business, everybody seems to be tightening their belts from a consumer spend. And so we've seen that trend. But -- and we've seen it particularly in Accuristix, the consumer goods part of the health care business, and that's a big -- those are big shipments from a wage standpoint. But all in all, I mean, it's -- you can see that it is robust and steady business going forward. So -- and obviously, the pricing discipline, we're making sure that our employees are properly paid, that we have the right equipment on the road that we reinvest, that has to be passed on to a certain degree.Having said that, there's some pricing pressures that we did experience. And then in some -- in another case -- in one particular case, particularly on the dedicated, basically a concession for longer contract period, it was an opportunity for us to work with one of our clients to ensure that they met their needs and ensure the sustainability for AHG for long-term.
That makes sense. I know it's a small part of your business, the packaging business, that has been trending lower. And I know you lost a customer here. But just at a high level, I would have thought this is -- well, I guess it is an ancillary business tied to logistics and distribution. Presumably, that customer or customers still need packaging done. So maybe just some color in terms of what's happening there. Like are you -- are they, I guess, in-sourcing the packaging and they're just sending you the products or they no longer need that service or would it get packaged somewhere else, but they're still using your warehousing facility? Just a little color in terms of what's happening there from a customer's perspective as they -- as I guess they look for another packaging solution.
Yes. The packaging solution is probably more co-packaging solutions that we offer in that area, and that's end-aisle display in the health care sector because -- with our, what's the word I'm looking for, validation with the GMP license to co-package those type of products, that has slowed down. And the other thing, too, is that we're not -- we haven't put as much focus on that as I always thought it was the least yielding business and focused on areas where we get better return for our investment, and it was more commoditized. So a combination of pricing once again on that side of the business and I think retailers are not willing to spend as much and therefore, manufacture from a co-packaging standpoint has reduced. So it's not the actual packaging of the product [Technical Difficulty] but kind of which we were. But in this case, that's -- that too, we've had a trough there. We can only go up from that point. But our customers -- and that's particularly, Kevin, in the consumer goods part of the business, and that's where we're seeing a bit of a slowdown there.
Yes, I figured it might be tied maybe a little bit more to consumer goods. And just last one for me only because it's -- it feels like you can't go by a week without hearing about this, but GLP-1 or Ozempic consumption. I'm sure it's very small today. But as you think of longer term, there's some big numbers out there in terms of potential, I guess, societal consumption of this miracle weight-loss drug. Is that something that is a small part of your business that you see growing, just -- or conversations you're having with the pharmaceutical companies that are looking to produce this GLP-1 drug? Is that a big opportunity that -- or maybe a more sizable opportunity as you kind of look out the next few years?
Yes. It's a big opportunity. I don't think -- we don't get a percentage of the revenue in our business. It's a drug like every -- like, I don't know, like Viagra, like with other drugs. So if they get popular, yes, we'll get more volume. Certainly, there's a temperature control requirement on that, that it's -- being injectable and 2 to 8, there's more care. And there, we will have more volume from that standpoint. So Skelton who does a lot of the 2 to 8s have been a beneficiary of this and ATS, whenever it's gone through their CREDO program, which the manufacturer has subscribed to. But it's not material from a numbers perspective. It's just stable business that we're -- that we'll continue to get. But it's not -- I wouldn't have my [ hat on that around ] my house because I've just [ gained too much ].
Next question will be from Konark Gupta at Scotiabank.
My first question is on the U.S. revenue. So from the disclosures, it seems the U.S. revenue, in entirety, was down about 11.5% from last year in Q3. Can you help us break down that number by pricing, volume and fuel? Like what drove the most decline in that number and was volume up or down?
Volume was down, but -- yes, I don't think the volume was down. I'm just -- I'm looking at Peter here. Here's the reality, Konark, we are -- both companies, so if you combine both companies, their EBITDA difference from Q3 of 2023 compared to Q3 of 2022, the difference is about $4.4 million difference negative. That is probably 85% of the difference in our bottom line to overall AHG. That was the big surprise. Like I said, the FDA not being as stringent on temperature validation. Obviously, the cost of equipment was greater. And obviously, we were growing, had to replace the equipment, there's a big maintenance CapEx in the truckload world that happens over year over year. Driver wages didn't go down, but the rates did, and they were aggressive. Manufacturers, 3PL companies, other decision makers were basically [ RFP-ing ] or being shown 20% decrease rates. So they couldn't -- they had to look at it. And because the FDA, particularly when it comes to ambient, they don't have inspectors out there. They don't have the policies to ensure that there's validation on the equipment.Now having said that, if you got frozen products or more injectable product -- so when we talked about relooking at our business and pivoting, it's about looking at, going forward, adding a different quality of product in the health care sector, more specialized, a little bit harder to do because both of these companies are really good at what they do. The customers don't leave us because of service. They're leaving us or choosing -- and this is a spot rate business. So to me, we're -- that is the biggest reason for the difference. We can grow that business tomorrow but at, basically, normal truckload company rates, and I just don't want to be a normal truckload company. I'm in the health care sector first, and they serve the health care sector that requires quality service and willing to pay for it.So we'll look at those clients. And I think what was happening is we got so excited with 2022 and the margins that we got because people weren't going to make -- mess around with vaccines, and there was a shortage of drivers and trucks. And we were able to provide that. So we were able to, I guess, price it in a way that was similar to what the pricing is in Canada. So that's a long and short on the U.S.A. It's a good learning. Like I said, it's not the end of the world because we're making good margins. Maybe OR is not bad for a truckload company, but it's not the AHG way, I guess.
That's good color. Perhaps on the Accuristix side, I just want to kind of dig in a little bit more what's happening there, like revenues being down organically, I guess, last 2 quarters. Volume seems to be soft. Is there any market shift dynamic there you think? Or is it more like customer volumes are coming down? Just trying to understand what's happening behind the scenes in that aspect? And is there any outsourcing opportunities that you're kind of working on?
Yes. On the logistics side, I think there's no doubt the pharma side is good and steady. The generics keep on tightening their belts. So that's -- we're seeing a bit of a trend there. But particularly, the consumer goods side of the health care, there's been a huge tightening and relooking, especially when these companies that they're looking at -- they're consolidating, they're buying, they're consolidating and then they're looking for cost savings and efficiencies. But from a consumer standpoint, they're not meeting nearly the same targets that they were themselves in 2022.So we're seeing a softening of the movement of goods, particularly on the consumer goods side of things. But still being used, [indiscernible], but I think the vitamin side is down. So that becomes more -- a little bit more pressure on that. I'm not worried about that. It's still -- it's a good business. It's long-term. It's long-term contracts. And from a cost standpoint, we've had the duplication of putting a new system in place, the duplication of costs and the likes. But all in all, I think we're good.We were also -- we talked about 2022 being a -- with the vaccine and COVID-related products, movement of COVID-related products. We also had -- we're a beneficiary of the baby formula shortage that happened last year, so --for example, and that was a big volume as well, for example.
Perfect. That's great. And last one for me, just kind of housekeeping. On the lease payments, it seems like they have been declining sequentially over the past 4 quarters. I'm just curious, I think everybody is kind of talking about inflation and rate hikes, all that and you're seeing the lease payments coming down. Just curious, are you consolidating any footprint or renegotiating any of those lease contracts?
I'll let Peter answer the first part, and I'll answer your second part of your question.
Yes. In our facility network, there's really been no change. Michael will talk to that. The reduction in lease payments is really -- it's just cycling through equipment leasing. So there's no real trend there. We've had some deferral just because of equipment shortages much of last year that has kind of brought down our lease payments, but those will -- those -- that's just temporary. So we should be back to our sort of typical run rate of leasing in the next near future. It's really not -- there's nothing systemic in there.
That's more on the equipment side.
Yes, it's more on the equipment side.
On the real estate side of things, there's no doubt that there's -- as every lease comes up, those go up. And we see -- I think, we'll have stability over the next couple of years. We're pretty stable, sort of, for the next couple of years. So we're not going to see huge, but we do have some of the transport facilities are getting rate, and I know Ottawa, for example, next year, is probably going to go up by 40%, but it's not as significant that's going to impact, but it will impact but not too much. I think we will absorb it. We'll be able to absorb it and certainly with pricing discipline as well.
Next question will be from Ty Collin at Eight Capital.
For my first one, Michael, wondering if you could just maybe update us on the M&A pipeline, I guess, particularly in light of how the U.S. business has evolved. I know some of your comments earlier in the year seem to indicate that the U.S. was the focus from an M&A perspective and that you're not averse to even doing a larger-sized transaction. So was just wondering if that's still the case, and if so, what the pipeline is looking like.
Yes. We spent a lot of time yesterday at the Board meeting with [indiscernible] presentation. And a lot of the time was discussed on that subject. There is a lot in the pipeline. It's a matter of priorities and understanding and on timing. On the U.S. side, we are trying to focus more on the logistics side of things; things that we can make a difference and bring our best practices to. Ambient transportation is definitely not -- where it's a big component within our AHG network in Canada, we feel we cannot -- we will not be able to make any difference in the U.S. at this juncture until FDA changes their rules or become more stringent, I guess.So on the logistics side, we are looking at opportunities. I'm excited about the opportunities because of our -- not only our balance sheet, but also I think prices are starting to become a little bit more attractive in the marketplace as well, expectations, I guess. So I'm looking at it, we'll be methodical about it. But we're -- it's not about something being automatically accretive. So I want to make sure it's sustainable long term. So for me, that's my focus, but that's where we're at. We're going to continue. And then there's opportunities in Canada as well. I mean I think being a health care services provider in the country, I think will be good.
Okay. Great. Yes. I appreciate that color. And for my follow-up, just wondering if you could provide maybe a little more color on the competitive environment in Canada on the logistics side. I think you mentioned earlier in the call that you're still seeing some pricing pressure there and that's kind of consistent, I think, with what you said last quarter. So just, what's sort of driving that? And would you say that the level of competition is sort of stable over the last few quarters? Or is it getting more intense?
I think it's pretty stable, and I don't see our competition being aggressive on the logistics side of things. I think one of the things -- one of the areas that we have going for us, I think it was with Konark, previous caller, talking about leases is that we have stability on that front. And on the logistics side, the second biggest cost is facility costs after employee costs and logistics, and that's any new contracts are going to be dealt with new space, which would typically be more expensive space. So we have stability there, and we want to be -- our focus is on making sure that we have the right clients long-term. And so I think that's what we've got. Right now, we're going through a system -- a warehouse management system change. So we want to make sure that's done right as well. So everybody is focused on doing the right thing and we're a patient company. We want to do it the right way. And I always say our biggest competitor is bad service. So for me, that's how we're going to keep on focusing on that front. That's from a Canadian perspective [indiscernible], Ty.
Next question would be from Justin Keywood at Stifel.
I appreciate all the comments. Just to clarify, I understand the expectation to build off of 2023 into 2024. But just as we head into Q4, I know it's typically seasonally strong for Andlauer. Are we anticipated to see some of these headwinds that have showed up so far this year? Are they anticipated to ease where we have a normal comp quarter in Q4?
I would suggest that's probably a good -- we're starting to see the signs of -- at the end of Q3, we started seeing those signs. And like I said on a previous call, as I said, at this juncture on our U.S. business, it's not -- the margins are not going to get any worse from this point forward. I do admit, it's been a bit of a surprise to me. But we [Audio Gap] our management meetings with the executives there, we're just relooking at -- refocusing on the type of quality of product that we're looking at. And I think there's a bit of a pipeline there that's going to allow us to be more focused on more frozen 2 to 8 versus trying to get the ambient business or growing that business. Like I said, the Q4, I would anticipate would be starting to look a little bit more [indiscernible], if that's the right word.
Okay. That's helpful. And then just on M&A and the timing of -- obviously, the balance sheet is ripe to deploy here. I heard there were some comments on the multiples being a bit more reasonable. Is now the time to be maybe a bit aggressive? Like, we were listening in on UPS' call last week, and they were mentioning plans to grow their health care business pretty aggressively in the U.S., including potentially cold chain assets. So that could still be a different area that Andlauer is potentially looking at, but just trying to understand the urgency for potential M&A.
Urgency is -- timing is everything. And there's no doubt that the timing is becoming more better and better. It's because of that. And we are focused on -- we are also focused on cold chain. And that's -- we're excited about it because we do a lot of it here in Canada. We represent a lot of these manufacturers in Calgary, for Accuristix where we've just expanded. We didn't expand our warehouse, but within the warehouse, we've expanded the footprint of cold chain storage. So we're -- I think we're extremely well positioned. And our growth in the U.S. is probably going to be more on the logistics side of things. And there's plenty of business to go around.
[Operator Instructions] And your next question will be from Tim James at TD Cowen.
My first question ties into the M&A theme. And I guess what I would like to try and get at is your thinking, Michael, on -- when you think about investment dollars and deploying investment dollars, what are the key metrics that you are looking at in terms of hurdle rates to make you move forward on, whether it's an M&A transaction or some other investment? I mean one of the challenges, almost a good challenge you have. is that your returns in Canada, your margins are so strong. Can you duplicate that type of profitability and those returns with future M&A? Or would you be prepared to accept the lower returns, but returns that may still be well above your cost of capital? If you could just kind of talk us through that -- mindset of that thinking as you review investment opportunities.
Yes. I mean, Tim, that's exactly what we talk about is does it fit. And I think every acquisition we've had, we've had a return on capital, even U.S. As we've had a bit of a slowdown in the return on capital on the Boyle and Skelton USA business, it's still a good return. But to me, it's about fit. I've always maintained that we're going to go in there with -- and fit -- what fits is from an employee culture standpoint, I think, is critical because what we do is we don't make anything or manufacture anything, every one of our business is people-oriented and it's not cliche, it's a reality. So that has to be there. And then it has to be complementary to our business, and we have a great network in this country in Canada. So there's a lot more we could do with that network and on the health care side of things. And we can go from cold packaging to transportation to logistics to other opportunities. And we are looking at ancillary products that help in the health care that are nonmanufacturing or retail or wholesale.So that, to me, that has to be that fit that complements our other companies. In the U.S., we're just delving into it. And to me, it's a learning experience. We work with -- the 3 major wholesale distributors are clients of ours. We're learning about what their needs, what they're looking at, what they're focused their business on for the future. So -- and try to understand where we can add some big -- the U.S. is a huge market. And people always talk about, oh my god, it's 10x bigger, et cetera, et cetera, the opportunities are there. Ultimately, I also know that [ it lasts ] a long time. So we've got to do it right. So it's about fit and being complementary and also making sure we find something that also makes a difference. And it may not -- it may be at a lower margin, but if it's sustainable, then our investors are going to appreciate that.
Okay. That's great. That's helpful. My second question, you've been highlighting some belt tightening going on at different customer groups, the TL kind of pricing pain that you're feeling in the U.S. and some other challenges. And yet you still had, I mean, a 25% EBITDA margin in the quarter, which I realize it was down slightly year-over-year. But it's still a good result, given all the sort of the challenges that you've been highlighting. How is the business able to maintain that margin in this environment, I guess, is the question? And maybe are there some offsets, some positive sort of factors that are allowing you to offset these challenges that maybe we just haven't touched on?
Yes. I mean that's why I'm so optimistic. I mean, we're able to keep those margins. But that's good discipline. That's what it's all about. It's truly understanding what our customers' needs are and not trying to be everything to everybody and just staying focused. So I've operated, Tim, this way since I started ATS in 1991, and it's proven successful and will continue to be if we just stay disciplined. It's not -- so that's how we -- I mean you can imagine, we do a 24.9% and then our U.S. margin significantly dropped. So it shows you how robust our Canadian business is. And the fact that they're working together, these businesses are working more and more together, so there's a lot of elimination of revenues that are met, which is also a benefit when we go to our clients and offer a suite of services as a package and speak their language versus just being a commodity. So that's -- we want to be a solutions provider. We want to make a difference for these customers, and that's where we've been rewarded with these type of margins.
And at this time, gentlemen, we have no other questions registered. Please proceed with additional comments.
As I alluded to, I think we're back to normal again. And I think we're focusing on continuing to grow the business in the right way, very optimistic about 2024. Thank you for your support. Thank you for taking the time to be with us today.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.