Andlauer Healthcare Group Inc

TSX:AND

Earnings Call Transcript 2020-Q4

[Operator]

Good morning. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Andlauer Healthcare Group 2020 Fourth Quarter and Year-End Results Conference Call. [Operator Instructions]Please be aware that certain information discussed today may be forward-looking in nature as 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 measures are in Canadian dollars. [Operator Instructions] This call is being recorded on February 25, 2021. I would now like to turn the conference over to Michael Andlauer. Please go ahead.

[Michael N. Andlauer, President, CEO & Director]

Thank you, Colin, and good morning, everyone. Thank you for joining us today. And with me on the call today, I've got Peter Bromley, Chief Financial Officer. Following my remarks, Peter will follow with a more detailed discussion of our financial performance, and then I'll conclude with comments on our outlook and growth strategy, and then we'll open up the lines to any questions. We're extremely pleased with our performance in Q4 and for all of 2020, our first full year as a public company. We continue to demonstrate strong organic growth from our core businesses and attractive EBITDA margins which reflects our focus on steadily growing health care sector in Canada and our strong competitive position in providing specialized transportation and logistics services within it. During the year, we further enhanced our platform with significant facility and route expansions, including our new and moved in 220,000 square foot state-of-the-art facility in Brampton and continued growth and expansion of our dedicated and last mile delivery product line. We completed our first acquisitions as a public company at the beginning of Q4 with the purchase of TDS Logistics and McAllister Courier, 2 regionally focused temperature-controlled transportation businesses. These complementary tuck-ins have increased the reach of our temperature-controlled services and further expanded our market presence in rural Ontario. A couple of days ago, we announced our first major acquisition as we entered into definitive agreements to acquire 100% of Skelton Canada and 49% of Skelton USA for a total aggregate consideration of approximately $114.7 million, subject to customary working capital adjustments. We expect the acquisitions to be immediately accretive to cash flow and earnings per share.Skelton Canada was founded in 1962 and has grown to be a leading transportation partner in the Canadian Pharmaceutical, blood services and biologics industry with nationwide reach and a fleet of approximately 100 vehicles and 120 trailers, offering validated temperature control, state-of-the-art security systems and real-time shipment monitoring. The company also provides cross-border services into 32 U.S. states from its terminal in Toronto and Montreal. Skelton Canada is a Canadian leader in the 2 to 8-degree Celsius shipments. So we're significantly expanding our capacity in that particular area. Skelton Canada generated approximately $11 million of EBITDA in calendar 2020, with margins comparable to those of Andlauer Healthcare Group. Skelton USA was launched in 2017 as a result of their pharmaceutical customers pulling them into the domestic U.S. market. It has been growing rapidly through successfully leveraging the Skelton company quality assurance reputation and brand for cold chain expertise. Skelton USA's fleet currently serves customers in California, Illinois, Indiana, Georgia, North Carolina and Pennsylvania. Our acquisition of a minority interest in Skelton USA allows us to gently enter into the U.S. market by partnering with an existing well-established operator. Skelton USA generated approximately $2.5 million of EBITDA in 2020, with significant year-over-year growth, but a lower margin relative to AHG and Skelton Canada. The Skelton companies will join AHG's comprehensive platform of dedicated health care supply chain solutions and continue to operate independently, led by President, North America, Ron Skelton; and Vice President, Mike Skelton. We will finance the acquisitions through a combination of cash on hand and by drawing $75 million on our credit facilities and issuing $25 million of subordinate voting shares to the shareholders of Skelton companies. The acquisitions are expected to close on or around March 1, this year. I'm really proud of the continued success of our team has achieved since our IPO, while dealing with a challenging operating environment due to the pandemic. As you know, COVID-19 has been a huge disruption for most companies, including many of our clients. Throughout this difficult period, our business has shown incredible resilience in meeting and exceeding our operating budgets, while continuing to successfully advance the 3 components of our growth strategy, including strengthening our clients' connection to our platform by constantly improving and broadening our service offerings, increasing our capacity to attract both new clients and new business and pursuing a strategic acquisitions to further expand our platform. I'd now like to turn the call over to Peter to review our financial performance in more detail. Peter?

[Peter Bromley, CFO & Corporate Secretary]

Thank you, Michael, and good morning, everyone. Revenue for Q4 2020 increased 13.1% to $86.6 million compared with $76.6 million in Q4 last year. Our acquisitions of TDS Logistics and McAllister Courier accounted for approximately $5.5 million of the $10 million increase. Revenue for our Health Care Logistics segment totaled $30 million an increase of 8.8% compared with Q4 a year ago. The increase was attributable to greater inbound product volume, storage and handling activities in our logistics and distribution product line related to existing contracts and the implementation of a significant new client contract in July. This growth was partially offset by a 19.8% decline in our packaging product line, due to the temporary reduction in operating capacity that was necessitated by safety measures we implemented in March 2020 in connection with the COVID-19 pandemic, including limiting the number of associates in our operations to allow for physical distancing in accordance with Public Health guidelines. Revenue in our Specialized Transportation segment totaled $56.6 million in the quarter an increase of 15.5% from Q4 last year. The increase was attributable to 5.9% growth in our ground transportation product line, driven by higher client volumes, $1 million of incremental volume from our McAllister Courier acquisition and year-over-year growth in our air freight forwarding and dedicated and last mile delivery product lines of 16.3% and 127.4%, respectively. Growth in airfreight forwarding was attributable to contractual price increases, including new surcharges implemented by our air carriers in connection with revised transport Canada hours of service-based pilot safety rules and approximately a 15% increase in volume. Growth in our dedicated and last mile delivery reflects $4.5 million of incremental revenue from our TDS Logistics acquisition with the remaining $1.7 million increase attributable to expanded client routes. Looking now to our expenses. Our cost of transportation and services for Q4 2020 was $38.5 million or 44.5% of revenue compared with $32.6 million or 42.6% of revenue in Q4 a year ago. The higher cost of transportation and services operating ratio for Q4 reflects the addition of TDS Logistics and McAllister Courier cost profiles, partially offset by lower fuel costs in line with the decrease in revenue related to fuel and savings achieved through effective management of our variable costs as volume increased approximately 3.5% from Q4 last year. Direct operating expenses were $18.8 million for the quarter or 21.7% of revenue compared with $18.6 million or 24.3% of revenue in Q4 last year. We incurred certain incremental costs in connection with our COVID-19 response measures, including additional cleaning activities for facilities and equipment, expenses for PPE and other measures impacting productivity. However, these incremental costs were mitigated through effective productivity management and other cost controls. We continue to qualify for the Canada Emergency Wage Subsidy program in connection with our packaging operations in the quarter, with a total of $600,000 recognized as an increase -- or as a reduction of the direct operating expenses as a result of the support received from CEWS. SG&A expenses for the quarter were $7.3 million or 8.4% of revenue compared with $7.5 million or 9.8% of revenue in Q4 last year. SG&A expenses for Q4 2020 include share-based compensation arrangements of approximately $800,000 compared with $1.4 million in Q4 of 2019. These share-based compensation arrangements relate to the initial stock option grants to our directors and senior management team as well as deferred share unit grants made to our Board of Directors. A further $300,000 is included in Q4 2020 SG&A expenses for incremental costs associated with being a public company compared to $900,000 in Q4 last year. Operating income was $14.3 million in the quarter, an increase of 25.8% from Q4 last year, primarily reflecting the strong growth in total revenue, which exceeded the 10.9% increase in total operating expenses. Net income and comprehensive income for the quarter increased by 96% to $13.9 million from $7.1 million in Q4 2019. The increase reflects deferred income tax recovery of $4.3 million in Q4 2020 and higher segment net income before eliminations from both our Healthcare Logistics and Specialized Transportation operating segments. EBITDA for Q4 2020 increased by 23.9% to $22 million from $17.7 million in Q4 last year. Certain SG&A expenses and other costs related to our IPO contributed to lower EBITDA margins in Q4 last year, but the performance of our 2 operating segments continued to result in strong and stable EBITDA margins at the higher end of our historical range. EBITDA margin for Q4 2020 was 25.4%, up 23.1% from last year -- or up from 23.1% last year, excuse me. Operating -- approximately 0.7% of the higher Q4 2020 EBITDA margin is attributable to support received from the CEWS program. For the full year of fiscal 2020, total revenue increased 8.4% to $314.3 million. Operating income increased 13.2% to $50.9 million, net income and comprehensive income increased 24.3% to $37.7 million. EBITDA increased 11.8% to $78.9 million and EBITDA margin was 25.1%, up from 24.3% in 2019. Turning now to our balance sheet. As at December 31, 2020, we had cash and cash equivalents of $30.1 million and our working capital position was $44.4 million. This compares to cash and cash equivalents of $18.7 million and working capital of $30.6 million at 2019 year-end reflecting the strong cash flows generated by our business. In connection with the Skelton acquisitions, we've entered into an agreement with our lenders to increase the size of our credit facilities, the amended facilities will now consist of a revolving credit facility in the aggregate principal amount of up to $100 million and a term facility in the aggregate principal amount of up to $50 million. I'd now like to turn the call back over to Michael for closing comments. Michael?

[Michael N. Andlauer, President, CEO & Director]

Thanks, Peter. So in wrapping up, we're very excited about the Skelton acquisition and the potential opportunities for growth that exists going forward. We look forward to the opportunity to continue the Skelton Canada brand and legacy under the AHG umbrella. Skelton shares the same values, the same deep commitment to the customer and the same commitment to one another as we do here at Andlauer Healthcare Group. Our minority stake in Skelton USA provides us with a strategic entry into large U.S. market, and we look forward to learning and working with Skelton to drive future growth south of the border. In terms of the ongoing pandemic, our management team continues to meet regularly to assess our business continuity plans, and we are in constant communication with our warehouse personnel, our frontline drivers, owner operators delivering to the ones in need and everyone in the supply chain, all of whom who have adapted and fully conformed to the changes communicated through our platform from coast to coast. We'll continue to monitor COVID-19 and are continuing to adapt quickly as risk levels rise due to the variant nature of the virus. Speaking of the pandemic, we're also being looked upon in different ways with respect to the logistics of the COVID vaccine in Canada, whether it be through our Credo packaging where we've had orders from 8 provinces, one territory, PHAC, Corrections Canada as well as pharmacy distributors and even Pfizer or by being awarded the contract by the Ontario government to warehouse and transport the COVID vaccine as well as the value-added services products that go with it. We're working locally with provincial health units in Ontario and Alberta to deliver to hospitals or redistribute to other points, including long-term care facilities. We expect continued growth in 2021, supported by the ongoing organic growth, a full year of contributions from our acquisitions of TDS and McAllister and, of course, contributions from both Skelton Canada and the interest in Skelton USA. We also expect to continue to support the COVID vaccine distribution, particularly during the Q2 and Q3 where the vaccines will finally start to grace our country by the millions.Looking ahead, we will remain focused on the growth strategies, which have made 2020 our first year as a public company so successful. That concludes our formal remarks. And now I'd like to open up the lines for questions. Colin, please commence the Q&A.

[Operator]

[Operator Instructions] Your first question comes from Kevin Chiang from CIBC.

[Kevin Chiang]

Michael and Peter, thanks for all the details there. And congratulations on the Skelton acquisition that closes next week. Maybe we could focus on the acquisition and specifically on the U.S. opportunity. You have a 49% interest. It looks like you have an option to purchase the remaining 51%. Just wanted to get some details on how that option is structured. Is it a put call option, is there a time frame we should be thinking about when that should be exercised? And is there a set price as to when that -- when you decide to exercise if you decide to exercise that option, what that strike price would look like?

[Michael N. Andlauer, President, CEO & Director]

Yes. So the option is definitely to our favor within a certain time frame to call. The -- it's pretty simple. It's on the similar terms of the first 49%. And that's basically it, really from the option. It's very flexible from our standpoint. And like I alluded to in my opening remarks, there are some learnings. And -- but we're excited to get into the U.S. market. I know investment community is always asked, are you looking in the U.S.? I've always said that if something falls, is right, then we will look at it. And interestingly enough, Skelton USA, Kevin, got into the U.S. market because they were pulled by their Canadian clientele who are also in the United States with the expertise in Specialized Transportation that they provide today for those similar clients in Canada.

[Kevin Chiang]

Actually, just on that, there's a follow-up question. In terms of what Skelton has been able to do in the U.S., is it still primarily, I guess, providing the service that, as you mentioned, you always pulled from their Canadian customers as they look for a supply chain solution in the U.S. operations or Skelton been able to expand on that and build a customer book of customers, where they just have -- where they're just offering a U.S. service?

[Michael N. Andlauer, President, CEO & Director]

So they started in 2017 to provide domestic service in the United States. So for them, it was a learning curve, obviously, continues to be, for that matter. And as they were -- the requirements were more on a truckload basis from manufacturer to distributor not as complex as what they are able to offer here in Canada, where they have consolidation facilities, warehousing, some warehousing, and other government initiatives, including Canadian Blood Services contract. The -- so that's to the extent of it. I think the opportunity lies going forward is to grow -- it's growing very quickly. That portion alone is going quite rapidly. It's a matter of getting equipment on the road. People validated equipment and trained and the likes. So I think it's a high-growing piece of the business. But it's one of those that had in shoulders commercial, you got one chance to make a first good impression. It's -- you want to do it right and there -- their commitment to quality is the same as AHG and they're operators first minded, and that's -- so I see a huge opportunity, especially with some of our clients on the -- particularly on the 3PL side, there will be -- but it's one of those take it one day at a time.

[Kevin Chiang]

No, that's helpful. And just last one for me before I turn it over. I mean, your packaging business has been the most impacted by that pandemic because of the social distancing rules. When I think about that, do you just see that revenue coming back to pre-pandemic levels as some of these restrictions ease? Or do you need to rebuild that book of business just given what's happened over the past year?

[Michael N. Andlauer, President, CEO & Director]

Yes. Interestingly enough, we've -- our clients have been very tolerant and respectful. I mean, case in point, we just had a situation in one of our facilities where we had -- and we've been really good with the cases, contact tracing and all. And we had an incident where we had 3 people test positive with the variant. We immediately shut that, we didn't have to. There was a contact tracing, but we just thought we wanted to shut it down. It was actually a distribution. We were -- it was consumer products that we were -- for the summer that we were co-packing and frankly, we look at priorities, and that was a priority, and everybody came back with negative tests and back on business, but we have to basically shutter down for a week. We take that seriously, and I believe the customers -- our customers are respectful of that. i.e., will that business will come back, absolutely. I've got no doubt in my mind.

[Operator]

Your next question comes from Konark Gupta from Scotiabank.

[Konark Gupta, Analyst]

Congrats on the Skelton acquisition. So maybe just digging into that acquisition for a second here. If you can help us understand like how did this acquisition come about, like who approached whom?

[Michael N. Andlauer, President, CEO & Director]

There was a ready -- no, I'm just kidding. I just -- it was -- it's been long standing relationship, either as competitors. But they were actually in the pharmaceutical industry well before Andlauer Healthcare Group decided to take -- to focus strictly on health care, which was probably 11, 12 years ago, they were the standard and particularly on the 2 to 8 and still are the standard on the 2 to 8 degree. They are also our second largest supplier for transport for Accuristix. So they're a big supplier of ours. We and Accuristix is a big customer of theirs. So there's a knowledge base. Both companies attend healthcare conferences. So we understand it and there's a mutual respect and probably because of the similar values that we hold with respect to how we treat customers, the importance of quality and the fact that they're a family business and my love for drivers, frontline and there's definitely an alignment there. So it was Larry Skelton, who is the founder, who is basically, he's 80 years old today and looked at maybe what his options were and after having met at actually his son's house, we recognized that we had -- it was the right fit or they recognized it was the right fit. There's no doubt they were attractive for other larger international freight forwarder players. But like I said, to me, I guess, to them as well, it's about the fit and the succession. There are 6 Skelton's in the family, 2 sons, and 4 grandchildren that are -- that play a big part of that business. And so I think that was a key part of the decision.

[Konark Gupta, Analyst]

That makes sense. So that sounds like a perfect marriage there. So if you can also help understand about the customer contracts at Skelton? And how does -- how do they compare or contrast versus your contracts in terms of what kind of terms they have that are different than yours? And do you plan to bring them on board with your own kind of terms and structure? So how should we think about the customer relationship going forward and what it is currently?

[Michael N. Andlauer, President, CEO & Director]

Interestingly enough, Konark, we have a lot of similar customer relationships because of their specialty in the 2 to 8. And it's a very sticky business. Once you -- procurement is one thing, but quality is most important in the pharmaceutical company's eyes. And once you provide the service and you're qualified by the QA you have to have a reason to change. Their network and their knowledge and their equipment on the 2 to 8 has allowed them to keep that differentiation. And typically the 2 to 8 product would go with Skelton and the Ambient product, which is more of the luminous. It would go with ATS and the business has -- with the Credo business kind of cannibalized a little bit of their business because the Credo, you can put a courier shipment inside a Credo box. But when you're distributing to -- when you're shipping to a distributor, they typically go in on a skid. They also -- they have a long-standing relationship with Canada Blood Services and Héma-Québec. They understand how to manage blood products, it's a slightly different approach. You're talking about product that has 0 tolerance for spoilage, and they have great experience with that. They also have government contracts, which I'm only getting my feet wet in government contracts right now because of the COVID vaccines, but they have that experience with having doing the vaccine, the flu vaccines in various provinces from that in the past and presently, for that matter. So that -- so from a customer standpoint, hopefully, I answered your question, I'm rambling on here, Konark, a lot of similar clients and it's on the transportation side of things. They are similar contract in terms of term and the likes.

[Konark Gupta, Analyst]

Yes, that's really helpful, Michael. And maybe just on U.S. operations they have versus the Canadian operations. It looks like their EBITDA per truck in the U.S. is quite low when you compare that to Canada. Now curious as to in your due diligence, if you figured out if there's something unique to that, be it the scale being smaller in the U.S. compared to the market size there? Are this pricing is much different or the cost structure? Is there anything else that you can offer?

[Michael N. Andlauer, President, CEO & Director]

Yes. Like U.S.A. is their fastest-growing part of their business. They have a bit of a warehousing operation. Obviously, the Canadian business on the transport side. This is their facet, mostly on the truckload side, though. This -- the U.S. business is very fragmented and I don't know -- I don't have the stats, but it is extremely fragmented. Probably because Konark, the regulations are not as strict in the U.S. as they are in Canada. Having said that, so when you're moving 2 to 8 product, there's -- like I said, there's a high-value product in the -- there's 0 tolerance for failure. And that's where they basically grab the attention. And I guess it was a need maybe because it was a driver shortage in the U.S. for a period of time. And also the fact that their QA standards are such that I think over time, we will see U.S. government go creep up to the standards of what Canada has, what Europe has. And that will be more attractive for a company like Skelton or AHG companies to be able to grow from there. But it's a big part of this. The margins aren't as great, and part of it is the learnings of it. So like I said, we're going to learn the business, and we will adapt and grow it like we have successfully done at AHG over the years.

[Operator]

Your next question comes from Walter Spracklin from RBC.

[Walter Noel Spracklin, MD & Analyst]

That's me. Good morning, everyone.

[Michael N. Andlauer, President, CEO & Director]

Morning, Mr. Spracklin just kidding. Walter.

[Walter Noel Spracklin, MD & Analyst]

A couple of questions just on Skelton and then one on your organic growth. So you mentioned they were pulled, but you weren't pulled. So can you -- I just want to understand what factors were pulling them? Did you just -- was it out of caution? Was it out of the -- I know a lot of your peers talk about the shark tank that's down there in the U.S. and how they kind of want to avoid it, but then some of your peers are having good success growing into that market now. So really just curious as to or was it just a service offering that was different that Skelton offered that you didn't that led to it to be more attractive in U.S. markets? Just curious as to why they went down U.S. and you haven't up until now. And I know it sounds like you will really look at that now, but just curious as to that background.

[Michael N. Andlauer, President, CEO & Director]

Yes. Thanks, Walter. A couple of reasons -- and actually, you said at the last part of your question. They have a service offering that we don't have, and that's truckload at 2 to 8 degrees. They offer it, they do it for Canadian blood services. Actually, in some cases, they have to send a whole truck with only half a load because of the value of the product. But that's -- we don't have that service offering. That need is there in the United States and the customers that they have here we're asking if they could fill that need. So that's exactly the service offerings on the 2 to 8 business, which is -- which they dominate here in Canada as well, I might add. And from my perspective, we've grown Canada very successfully. It's a very focused, and there was always a lot of runway to continue to grow in Canada. So to me, I was comfortable in going where I am comfortable and can provide the service so that was another -- maybe the reason why I wasn't looking at the U.S.

[Walter Noel Spracklin, MD & Analyst]

And you didn't mention any synergies. They were running a good margin business anyway. Should we just build in the same margin and leave it at that?

[Michael N. Andlauer, President, CEO & Director]

I'll let you guys do whatever you want to do. We have budgeted on that basis. Having said that, if I -- if there wasn't travel restrictions and lockdowns and all, we would all be together I don't know, maybe having a couple of beers and a big napkin to look at the opportunities between the executive team at AHG and Skelton, and we would probably fill that napkin on both sides. And certainly, because they have that truckload, when they have -- when they're in Vancouver and need to come back home quicker, we will be able to fill that void and help them out. We have 20-plus facilities across the country, they're running out of one facility -- with 2 facilities in Montreal and Toronto. There's an opportunity for them to use our facilities, and consolidate and have better payloads as well leaving out of Toronto. There's a variety of opportunities that are there that Skelton can take advantage of the AHG services that they have now. IT is an area where I feel that they've lagged behind. So certainly, the IT support is there. The interesting part is that we have -- we obviously, we sent out the press release and both Skelton sales and ATS sales got on the phones and after all the employees were addressed. And it's been overwhelmingly positive and I think the reasons I just mentioned are one of those -- are one of the reasons why it's -- because, obviously, we will try to make the Skelton product even better than it is today because of the network that we have. So those are the synergies. It's not about -- there's no synergy, in my opinion, there's no -- this is only going to drive growth. So there's absolutely 0 synergies with respect to people. Like I said, it's going to be a separate brand. And their service offering is different than ATS is or ATS dedicated. So that's where we're looking forward. So however you want to do -- maybe at the end of the year, we'll know better. And hopefully, I can under promise and over-deliver for you.

[Walter Noel Spracklin, MD & Analyst]

Yes. In terms of your acquisition pipeline, Skelton was one of the bigger ones, barring a couple of regionals now. You've got some pretty attractive paper to put to work and a nice balance sheet to support it. Does that mean now, either you go into kind of adjacent businesses in Canada? Or do you now redirect all opportunities now into U.S. acquisitions if you were to -- in terms of your acquisition strategy?

[Michael N. Andlauer, President, CEO & Director]

Yes. I mean we've been focusing here on the transportation side, the specialized transportation side. Certainly, on the 3PL side and the co-packaging side, we see opportunities we just launched later this year organically. Quality consulting services, led by Julie Carrier. That's already getting some traction. We've got our importer record license? Yes. And we -- that's allowing new molecules coming to Canada to be able to get them simulated to the Canadian government healthcare requirements, logistics, et cetera. So that's -- those are type of initiatives that are probably low-hanging fruit from an acquisition standpoint in Canada. I'm cautious. I mean I love where we are from a balance sheet standpoint. We were -- Peter was presenting to the Board, and we recognize that if we do things right by the end of the year, which we intend to do, we will be in the same cash position in December 2021 that we were in December 2019 when we IPOed with a much larger book of business, and twice the EBITDA. So we're excited about where we stand, and we're -- we know we'll have powder to look at these opportunities, both north and south of the border.

[Walter Noel Spracklin, MD & Analyst]

Okay. Great. Just last one for me here. You had given guidance of low double-digit organic in your logistics and distribution division for 2021, if my notes are right and mid- to high in 2021 for your ground transportation. Any reason why on an organic basis, now that we're 1 quarter later, those 2 numbers would have changed or might even be a little bit higher?

[Michael N. Andlauer, President, CEO & Director]

No reason. No. I mean, unless you're consuming more Advil these days or twice as much Advil or prescriptions or the likes, we're at the realm of consumption, really. I mean, we're hoping that with COVID, hopefully, relaxing, we still have customers that are having a hard time through this pandemic particularly on the logistics side of things. When we look at our numbers, their numbers year-over-year. And I think an even nature that people are staying at home, they're well, it might be a toll on a mental health standpoint. They're not going out there and getting injured and going to the hospital and having to get drugs to fix them and the like. So that's just an observation.

[Operator]

Your next question comes from Maggie MacDougall from Stifel.

[Margaret Anne MacDougall, Head of Research]

So a quick question. Post this acquisition of Skelton, are you able to provide us with an updated idea of what your market share is in Canada? Example, you've referenced in the past that about 30% of the pharmaceutical product in Canada touched by Andlauer. So I'm wondering if there's a meaningful change in that metric resulting from the acquisition?

[Michael N. Andlauer, President, CEO & Director]

I think you're talking about the logistics number being 30% that we warehouse and distribute behalf of Canada. That's not going to change much. The warehousing that Skelton does is more value-add services like packaging and the likes for the Sanofi's of the world and the likes. So it's not the actual drugs. The -- on the transport side, I think we'll probably encompass pretty much touch every pharmaceutical because the ones that we didn't Skelton did have. Doesn't mean it's 100% of their product. There are other means locally and the likes that they can so choose. It's very difficult, Maggie, to know what the market share is. It just depends what denomination you're looking at. But it's definitely as I see it, it actually widens our moat at where we're sitting.

[Margaret Anne MacDougall, Head of Research]

Okay. Second question here is on Skelton USA margin. You mentioned that it's lower than the AHG consolidated margin. And I'm just wondering if that's a market-driven dynamic in terms of where the pricing and the cost sits at in that U.S. market? Or if it's because this is a new business relative to the existing Canadian operations, and it's growing really quickly. So it just hasn't achieved scale yet?

[Michael N. Andlauer, President, CEO & Director]

Yes. Maggie, it's a good observation. It's both. You're absolutely right. It's certainly, the truckload business is more commodity based. Having said that, from a quality standpoint and you're talking about Skelton moving trailers that are worth over $200,000 have reefers that 2 reefers on a trailer. So if one goes down, the other one kicks in, very specialized equipment. Obviously, when you're dealing with a company Canadian blood Services, you don't -- like there's 0 tolerance for failure. So -- but it is still commodity base is truckload product, these pharmaceutical companies or distributors or you decided are now decided that they want a higher standard because it's available. And that's how they're growing. The truckload business throws things like empty miles into the mix. Alain Bedard and his group could probably tell us more about that, but we know that's a key performance indicator in driving margin if your trucks are always full. And so that's -- and then the learnings. Obviously, that's -- you say yes, and then you realize, okay, well, that's maybe not a good idea to be going that distance. I know that we had -- I was talking to Ron Skelton a couple of days ago, and he was mentioning to me that I think they had a handful of trucks stuck in Houston, obviously, with the disaster, that's topping, so to answer your question, a bit of both. So that's why there's going to be some learnings on it. It's still accretive, still profitable, and they're only getting better in this market.

[Margaret Anne MacDougall, Head of Research]

Okay. And then just one final question on Skelton. It's interesting to me that the states that they're operating in California, Illinois, Georgia, North Carolina. There's not really necessarily a straight-line between those regions. And so I'm curious I guess sort of the genesis of how that occurred. And then if there is a bit of an opportunity to think about boots dropping into neighboring areas.

[Michael N. Andlauer, President, CEO & Director]

Yes. And that's probably a question I'd have to ask Andy Skelton, who runs the USA. But from what we gathered, it's that's where the distributors are. That's where the pharmaceutical customers are. So if you're picking up and going to point or you're going to UPS Healthcare, in essence, you'd be going to Georgia or other points, I don't -- so those are basically looking at the business -- the book of business that they have today and the states that they're hitting. But that's customer demand that's driving that.

[Margaret Anne MacDougall, Head of Research]

Okay. Okay. One final question. You mentioned in your comments a few different things that you're working on with regards to the Canadian COVID vaccine. First of all, when am I going to get a vaccine? No. What I'm actually wondering is in the past, we've kind of talked about this opportunity as being something that you view as almost sort of Andlauer's responsibility, is a good corporate citizen to provide this service. And that -- it could be tens of millions of revenue lost. Are you able to give us some indication as to what type of impact we should expect from the warehousing Credo helping with the distribution through public health in a couple of provinces? I think that would just be really helpful to sort of have that directional indication?

[Michael N. Andlauer, President, CEO & Director]

Yes, Maggie, I wish I could tell you -- give you the answer, but just like this fact, it's very fluid. The decision-making process is also fluid. And it ranges from province to province. And you see it in the media, sometimes in media, in my opinion, over exaggerates. I think there's a lot more organization than people think. But there's a lot of -- this vaccine is switching a lot -- going to a lot of hands. And I remember when we put our bid in with McKesson to -- for the federal bid. It was basically on the premise that you'd only touch it once, and we had the capability of doing that. Obviously, people didn't recognize that maybe because we didn't have a foot on the ground. In Belgium, where other international players do with their own planes, but and we thought perhaps Cargo Jet and Air Canada would be a good complement. But with that being said, and it's easy to be the Monday morning quarter back on this. But the reality is that this vaccine is coming in from the Federal Government to the provincial governments.So provincial governments are going to turn around and allocate it to their provincial health units, who know their demographics very well. And then there's a priority selection in terms of who gets it and sounds by your voice, Maggie, that you're not going to get it for a long time. You'll be on the last ones. But that being said, it's very fluid. We don't know. We're here to support it. We were contracted just recently to warehouse and transport the product, the vaccines, and we're very proud, we're excited. We have all hands on deck, we're probably the only people who can provide that type of visibility, quality assurance. We have the capacity. We have -- just in our Vaughan facility alone, we have a minus 20 freezer that can handle over 5 million vaccines. We have the same one in Calgary. We have the ULT. We handle Pfizer's distribution today. We have AstraZeneca's distribution today. There's a lot of compelling reasons why we're able to support it. We've been tasked by local regions where you aren't repeal or like to help them out when the vaccines come in to distribute. The Credo packaging has been probably the big star of the show because of the validation, the fact that this product can be stored at minus 20 and open and closed in small quantities, even though you can put 4,000 vaccines in a Credo box. So we're working. We're here to support government, certainly in Ontario, there's been a lot of discussion, Alberta as well. And it's -- and our executive team is involved on a daily basis on it. Not that it's distracting away from our core business. But to me, it's -- we got to -- we have to be able to support this, and that's ready for it. So what the numbers fall out? I have no clue. And but it won't be that material.

[Operator]

Your next question comes from Stephen Kwai from National Bank.

[Stephen Kwai, Associate]

I'm just calling in for Endri. And congrats on the quarter here. Just moving back to Skelton. I just wanted to confirm, did you say that there was a pretty significant overlap between you guys and their clients? And as well, like would you be able to give kind of a quantifying number on the possible volumes that you're getting here then?

[Michael N. Andlauer, President, CEO & Director]

The overlap question, the answer is yes. And what was the second? Quantifying what?

[Stephen Kwai, Associate]

Just volumes, incremental volumes, I guess?

[Michael N. Andlauer, President, CEO & Director]

Well, I think we can talk about revenues. I don't know what volumes you're talking about. Sorry, I don't want to mean to -- we posted the financial incremental volume from a dollar stack point. I don't know what you're referring to, what I -- what metric.

[Stephen Kwai, Associate]

Yes, that's fine. Yes, the revenues are good. And just another question on the acquisition. You guys are already like pretty big in Canada. So does this raise any concerns with the competition bureau at all after this acquisition or no?

[Michael N. Andlauer, President, CEO & Director]

No. In the whole scheme of things, we are a small player in the courier and transportation industry in Canada.

[Stephen Kwai, Associate]

Okay. Great. And I saw you guys mentioned about implementing the Texas system. Just wondering, does that complement your current Phoenix system? And what's the implementation time line on that?

[Michael N. Andlauer, President, CEO & Director]

Yes, that's a good question, Stephen. It's probably our biggest investment into the logistics for this year. We came with an agreement to switch from RedPrairie to Texas this summer. Implementation is going to plan, and we look forward to bringing on our first client in May of this year. So far, everything is going to plan as we see from an investment in upgrading our warehouse management system. Phoenix is complementary to it and that's with respect to Texas.

[Stephen Kwai, Associate]

Okay. Perfect. And on the flu vaccine, this flu season was pretty weak, but there's also higher flu vaccinations. Did these have any impact on the quarter? Or did these just like offset each other?

[Michael N. Andlauer, President, CEO & Director]

Pretty hard to say. I think one of our customers in Montreal, which has a contract for flu vaccines in Québec has that for many years. She was telling me that it's way down, just travel vaccines. But I really can't really quantify that. I mean, I don't know. But it's not affecting us.

[Stephen Kwai, Associate]

Okay. Perfect. And just the last one for me. So I know you mentioned the Ontario contract for COVID. And I just want to confirm, you also said there might be potential opportunities for Alberta as well. And are there any other provinces that you might be able to deal with it all?

[Michael N. Andlauer, President, CEO & Director]

If we do it would be indirectly, I think the McKesson's of the world with the distribution capabilities and the retail network that they have are best positioned particularly for the smaller demographic provinces. But they -- so -- and we're doing a lot of dedicated delivery on their behalf. We've had a lot of orders of Credo from the retail sector, I'm going to say retail, I should say, our client sector, including NMR, I don't think so. We've -- so we would touch it indirectly, but we wouldn't be tasked to warehouse and transport directly like we have been in Ontario and in some cases, Alberta still, but we're doing work for Alberta health right now, but that's still a decision-making time.

[Operator]

We have another question from Konark Gupta from Scotiabank.

[Konark Gupta, Analyst]

Just one finally on Skelton, do they own or lease their fleet and facilities anywhere on the network? And if they do, what do you -- what do you plan for the CapEx this year for them?

[Michael N. Andlauer, President, CEO & Director]

I'm going to take a breath. I'm going to let Peter answer.

[Peter Bromley, CFO & Corporate Secretary]

So Konark, the business model in the U.S. is lease models. And -- but here in Canada, the equipment is owned. And so when we talk about our own CapEx, we talk about kind of $1 million to $3 million of growth CapEx, of $1 million to $3 million of maintenance CapEx a year. And the Skelton Canada model probably runs between $3 million and $5 million of CapEx on an annual basis. So it's kind of a similar spend, but that's -- but the fleet and trailers are owned up here in Canada.

[Operator]

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

[Michael N. Andlauer, President, CEO & Director]

Well, thank you, everybody. Like I said before, it's been a real successful year, great learning. We've been able to execute all our strategies in our first full year. And I'm extremely proud of all the employees, drivers and owner operators who have allowed us to continue to move along safely and taking care of our customers. Looking forward to equally good 2021. We're off to a good start. And thank you for your support.

[Operator]

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