Andlauer Healthcare Group Inc
TSX:AND
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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 the Andlauer Healthcare Group 2022 Fourth Quarter and Year-End 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 March 3, 2023.
I now would like to turn the conference over to Michael Andlauer. Please go ahead, sir.
Thank you, Sylvie, and good morning, everyone. Thank you for joining us today. And with me on the call is Peter Bromley, our Chief Financial Officer. Following my remarks, Peter will follow with a more detailed discussion of our results for the quarter and year, and I'll then provide closing comments and open the lines for questions.
Since our first full year as a public company in 2020, our revenue and net earnings have more than doubled in the short 3 years, reflecting our success in delivering value to customers and capitalizing on growth opportunities. Our strong year-over-year growth in revenue in the quarter and for the year reflects a significant impact of our acquisitions and our continued organic growth.
Yes, if you recall, back in Q4 2021, we included a onetime noncash gain of $37.9 million during the fourth quarter, reflecting the impact of the consolidation of the 100% of Skelton USA into our platform. So if you exclude the gain of the step acquisition in Q4 2021, our EBITDA and net income for Q4 2022 increased by 24.9% and 30.8%, respectively, demonstrating our growth and profitability in step with our revenue.
Our margins remained strong. Our EBITDA margin in Q4 this year was 27% compared to 26.9%, excluding the gain of that step acquisition I referred to. Our acquisitions of the Skelton companies and Boyle Transportation have been a strong growth driver for our ground transportation product line, which is our largest product line in terms of revenue. The combined margin profile [ fell ] in line with AHG's consolidated EBITDA margin. They have further strengthened our customer service offering and network in Canada through Boyle and Skelton USA. We now have an established gateway to the U.S. market and with experienced high-performance operators and well-regarded market brands.
Our acquisition of the Logistics Support Unit, or LSU, in March of last year has made a strong contribution to our logistics and distribution product line, which is our second largest line by revenue, and further strengthening our service offering and market presence in Quebec. LSU's margins are consistent with our existing logistics and distribution operations at Accuristix. This is important as the financial contributions and customer benefits bring Boyle, the Skelton companies and LSU have been an excellent cultural fit with AHG and have seamlessly become a complementary part of our expanding platform.
Our healthcare logistics segment generated 30.7% revenue growth for 2022, and our specialized transportation segment delivered 54.7% revenue growth, and each of our product lines contributed to the growth on the year. It's important to note that close to $4 million of our consolidated revenue for Q4 2022 was generated through our continued work in supply of COVID vaccines and related products. This compares to about $6.9 million of our consolidated revenue in Q4 2021. Going forward, we expect that the revenues related to the COVID vaccines and ancillary products to drastically decrease in 2023. And we do not foresee, and hope, a return to similar levels of activity in this space as we have experienced over the past 2 years.
Interestingly, the pandemic commenced roughly 4 months after IPO. Our strong performance throughout this time demonstrates the resilient and essential nature of our business and the commitment of our people to ensuring the timely delivery of essential products to hospitals, pharmacies, clinics, including the added responsibility to the safe and secure distribution of these COVID vaccines and ancillary products. I'm really proud of our team for the many contributions in the advancement of our growth strategy, while also successfully managing our day-to-day operations and looking after each other and our customers during this challenging time.
And I return the call to Peter Bromley to review our financial performance in more detail.
Thank you, Michael, and good morning, everybody. Our consolidated Q4 revenue totaled $165 million -- or $165.8 million, an increase of 24.6% from Q4 2021. Revenue for our healthcare logistics segment was $41.8 million, an increase of 23.5% compared with Q4 2021, reflecting a 28.4% increase in our logistics and distribution revenue attributable to greater outbound order-handling activities for Accuristix and increases in transportation billings impacted by fuel surcharge programs from carriers; and $2.4 million in incremental revenue from LSU, net of year-to-date pass-through expenses classified as billings to LSU customers. The overall increase in healthcare logistics segment revenue for the quarter was partially offset by a 9.8% year-over-year decline in our packaging solutions revenue, reflecting lower volume from one of our larger packaging customers due to component supply chain constraints by their suppliers.
Revenue in our specialized transportation segment totaled $123.9 million, an increase of 25% or approximately $24.8 million compared with Q4 2021. The increase was attributable to 32.6% growth in our ground transportation product line, driven by $15.2 million in incremental revenue from Skelton USA and Boyle Transportation, plus organic growth and higher fuel costs passed on to customers as a component of our pricing.
Our dedicated and last-mile delivery product line also contributed to segment revenue growth with a 21.5% increase in revenue, reflecting our ongoing route expansion and increases in fuel costs passed on to customers. The overall increase in segment revenue was partially offset by a 24.7% or a $2.5 million year-on-year decline in our airfreight forwarding revenue. This decline resulted from unusually high revenue in the air freight forwarding product in Q4 2021, as our clients attempted to minimize service disruptions in British Columbia arising from the weather events in November that year. Our freight-forwarding volumes returned to normal levels in Q1 2022.
Cost of transportation and services was $86.3 million or 52.1% of revenue compared with $65.7 million or 49.4% of revenue for Q4 2021. The higher cost of transportation and services was primarily attributable to the impact of our acquisitions of Skelton USA and Boyle Transportation over a full quarter compared to 2 months in Q4 2021 and higher fuel costs in line with increases in revenue related to fuel prices.
Direct operating expenses for the quarter were $21.0 million or 12.7% of revenue compared with $21.3 million or 16% of revenue for Q4 2021. Direct operating expenses in Q4 2022 reflect outbound volume growth in our Accuristix logistics and distribution operations, the acquisition of LSU and a year-to-date reclassification of certain pass-through expenses to logistics and distribution billings for LSU in accordance with IFRS.
SG&A expenses were $13.8 million or 8.3% of revenue compared with $10.9 million or 8.2% of revenue in Q4 2021. The increase is primarily attributable to the impact of our acquisitions of Skelton USA and Boyle Transportation over a full quarter and the acquisition of LSU.
Operating income for the quarter totaled $28.2 million, an increase of $6.7 million from Q4 2021. Approximately $1.3 million of the increase is attributable to our LSU, Skelton USA and Boyle acquisitions, with the remainder attributable to organic growth.
Net income for Q4 2022 totaled $19.9 million or $0.46 per share on a diluted basis compared with $15.2 million or $0.36 per share on a diluted basis, excluding the gain on step acquisition that Michael talked about. That was Q4 2021. Higher segment net income before eliminations for both of our healthcare, logistics and specialized transportation operating segments contributed to the increased profit on a consolidated basis, excluding the gain on step acquisition in Q4 2021.
Total comprehensive income for Q4 2022 was $17.1 million compared with $18.1 million, excluding the gain on the step acquisition in Q4 2021. Total comprehensive income differs from net income due to our acquisition of foreign operations, Skelton USA and Boyle Transportation, which resulted in a negative foreign currency translation adjustment of $2.8 million in Q4 2022 compared to a positive foreign currency translation adjustment of $2.9 million in Q4 2021.
EBITDA totaled $44.7 million compared with $35.8 million, excluding the gain on step acquisition. This increase is due to the factors already discussed and reflects the incremental contributions from our acquisitions and organic growth in both of our operating segments.
If we look at full year fiscal 2022, revenue totaled $648.4 million, an increase of 47.3% compared to 2021. Operating income was $110.3 million, an increase of 49.7% compared to 2021. Net income was $76.3 million compared to $52 million, excluding the gain on step acquisition in 2021. And total comprehensive income was $91.0 million compared with $54.9 million, excluding the gain on step acquisition.
EBITDA increased to $174.5 million from $119.3 million, excluding the gain on step acquisition. And finally, EBITDA margin was 26.9%, in line with 27.1% for fiscal 2021.
Turning to our balance sheet. At the year-end, we had cash and cash equivalents of $65.9 million and working capital of $85 million. This compares to cash and cash equivalents of $25 million and working capital of $31.6 million at the end of 2021. The $53.5 million increase in working capital is primarily attributable to the increased scale of our business since the acquisitions of LSU, Skelton USA and Boyle and the repayment of amounts drawn on our revolving credit facility.
At the year-end, the amounts outstanding under our credit facilities were $50 million under the term facility and 0 or nil under the revolving credit facility. Supported by our strong and growing free cash flow, we implemented 2 increases to our quarterly dividend this year, increasing the amount of quarterly payout from $0.05 to $0.07 per share, while reducing debt and strengthening our balance sheet. Yesterday, our Board approved a further $0.01 increase to our quarterly dividend. Effective for Q1 this year, our quarterly dividend will be $0.08 per share. Looking ahead, 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. As you can see, we finished the year with solid momentum. As I look ahead, while this year, we will not witness the same type of growth due to the minimal amount of acquisitions we did last year, we have multiple opportunities to strengthen our platform. Through the addition of complementary services, a renewed focus on strategic acquisition and combined with an incredibly strong balance sheet that Peter alluded to, we expect to continue to better serve our customers and generate strong returns for our shareholders. We expect to continue to build on our platform, maintaining our disciplined approach with respect to both financial and operating metrics, while also preserving our unique culture of caring more. With less distractions moving into 2023, we look forward to capitalizing on these opportunities ahead.
That concludes our formal remarks. I'd like to open the line to questions. Sylvie, you may commence the Q&A.
[Operator Instructions] And your first question will be from Walter Spracklin at RBC Capital Markets.
So let's start on the macro. Obviously, that's a big, big focus. Your business, Michael, is a lot more insulated from the fluctuations that you might see in the general macroeconomic environment. Is that -- that said, are you seeing any indications this year of weakness from a macro perspective, perhaps outside of your pharmaceutical business that might be a little bit of a deterrent? And within the pharmaceutical business, would there be any reason why in a recessionary environment, your pharmaceutical business would be negatively impacted?
Yes, that's a good question. And you hear -- I've heard more often about headwinds in light of the recessionary times, higher interest rates, et cetera. Interesting, when we looked at our company's business plans going into 2023, and one of the observations, and I think I've tried to highlight it in today's call, was the amount of volume that we had with -- in respect to COVID and related products, from the vaccines and ancillary products. So I don't necessarily call it -- those were actually tailwinds that we ended up having, which won't be there going forward, and thank goodness for that.
But while we got into it, in terms of making a difference and executing, making sure that Canadians got vaccinated and getting the product there safe and securely, we were definitely beneficiaries of that from a financial standpoint. So that tailwind won't be with us going forward.
But I think health care, I think, has proven to be extremely resilient. It's not one of those products that you choose because things are -- so I don't see that certainly starting this year. It's not on the same token when things are booming. You don't see health care booming with it either. So I think it's a resilient business. I think we've proven that even through this COVID period.
That's fantastic and exactly the answer we're looking for. So on -- moving to M&A now, Michael, you mentioned that you're not going to see the step up. And I know when you look back over your history, you were not very, very acquisition-oriented. And I know you related to me that your experience with the acquisitions you've done in the last couple of years have been a resounding success. It's been a big positive for you. Juxtaposing that against your commentary about a none -- a year of less acquisition activity, is that just simply because you haven't done any yet? Or do you think that this will be a digestion year, integration year, and perhaps next year is when we would see more acquisition activity? Just curious to how you profile that against the opportunity set that might be out there as well.
Yes, another good question, Walter. I believe that 2022 was the digestion year. And I think if you recall, in light of -- this time last year, Omicron was amongst our -- all of us. And it wasn't that long ago that we were still isolating and had a driver shortage not because the workforce out there, but the fact that they had to isolate for 10 days or 5 to 10 days. Actually, maybe it was in January that they reduced that to 5 days so we could get the vaccines out.
It was -- so this last year was -- as much as we executed financially, and we took care of each other and we executed, it was taxing on everybody, including our executive team. And then we had the issues, the logistics issues, with not being able to get spending capital on more equipment. So the combination of everything really made last year. Let's just focus. Catch our breath. Let's make sure that we execute and evidenced by what you've seen financially. But even internally, we started having celebration parties that we never had before.
So from a -- get the morale back up, get the -- I talked about a culture about caring more. And that's -- that was what we needed to do last year, and we felt really comfortable going into this year that now I can put that hat on and go and execute what we were able to do with Skelton, Boyle and LSU. And now we have a bit of a map kind of a plan to how we can execute properly. And so that's -- I really believed, to answer your question, long-windedly, I think 2022 is a digestion year. This year is a year where we're going to be a little bit more active on the M&A side.
That's fantastic. Just a couple of housekeeping. Depreciation and amortization, that ramped up, obviously, with the acquisitions you did. And Peter, is the 16 -- call it, $16.5 million that you did in the fourth quarter, is that a good kind of run rate now to run on a quarterly basis for 2023, you think? Or are we going to see another further step up from that?
No, we shouldn't see a further step up. That's a fairly good run rate for us.
Perfect. And CapEx, Peter, for this year, are you pointing to -- again, that was a step-up in your PP&E for this year. Does that normalize back down? Or do we -- how do we look at CapEx for this year?
Yes. CapEx won't be higher than it was in 2022, let's say. It's likely going to drop down. And that's -- we had a sort of a large CapEx outlay in Q4 as equipment started to kind of catch up from a supply chain perspective. Tractors and trailers were more available. And so we did, from Skelton, Canada and Boyle Transportation perspective, have some significant outflows in Q4. But we're going to pull those down through 2023, I would suggest.
Okay, that makes sense.
Not to be -- but I just wanted to say, Walter, just not to disagree with my CFO, but it certainly won't go back down to the levels that we were before. The nature of the businesses of Boyle and Skelton are such that it's more -- it was more capital-intensive.
Yes.
Makes sense. Yes. Okay. Got it. And last one here is on the direct operating expenses. Peter, they took a big step down. You mentioned that's with the LSU transport pricing. Just curious, how do we model that going forward? Was this kind of a catch-up that happened in the fourth quarter? And that, that as a percent of your revenue, will revert back to where it was kind of in the first 3 quarters? Because it went from closer to 17% on a go forward -- on a run rate basis, right down to less than 13% on that accounting item. Do we run it at the lower level and just bring revenue down? Or do we ramp it back up looking at this as kind of a quarterly reclass? Just curious there.
Yes, it's exactly that. It's a quarterly reclass. Use the full year to model your run rate, you'll be fine.
Next question will be from Kevin Chiang at CIBC.
Congrats on obviously a strong 2022 here. Maybe I'll start with the housekeeping question. You called out some of the -- I guess, some of the headwinds in packaging. It sounded transient in that there are some supply chain issues that impacted that. Is that isolated into Q4 2022? And we kind of get back to an almost $6 million revenue -- quarterly revenue run rate? Or is there a catch-up, maybe Q1 exceeds that? Or are these supply chain issues still lingering here in the first part of 2023?
No, I think there's a bit of a catch-up from Q4 to Q1. But it's not a business that we've been focusing much on, to be -- we've been looking at other initiatives. So I mean it will be steady. It is steady, and it's -- but to the specific point, yes, you're right. There's a catch-up in Q1 from that because of -- actually, ironically, not packaging material backlog -- raw packaging material backlog, yes.
I guess, just when I think of the puts and takes into 2023, and maybe I'll focus my comment on or my question on the margins. In 2022, margins are essentially flat year-over-year. EBITDA margin, essentially flat year-over-year. But if I look at the puts and takes, and you called out, hopefully, some of the tailwinds from the COVID. COVID revenue continues to dissipate. That sounds like a headwind. Obviously, your pricing model is robust. Not sure how to think about fuel surcharges, whether that was a tailwind or headwind for margins for you. But when you kind of put that all into a bucket here, like how do you think margins look in 2022? Do you kind of stick around here? Or are there pressures or headwinds -- or pressures or tailwinds we should be contemplating over the next 12 months?
Yes, I keep on getting surprised by our margin, and that's great discipline by our business units in terms of anticipating, communicating with respect to price increases. Especially when you deal with inflation, there's no doubt the complementary nature of our customers and the elimination of revenues because each other's customers will artificially increase margin or maybe artificially decreased revenue. If those companies weren't -- there are arm's-length company that arm-length transactions, even though they're non-arm's-length companies, they -- so I see that as a bit of an impact.
But if you recall, when we IPO-ed, we were closer to 25 and 27. And the pressure that I see is probably South of the border. Because FDA rules aren't quite as stringent as Health Canada, there seems to be a bit more pressure with the commodity of -- even though it is pharmaceuticals or health care and some of the lower health care like OTC product and the likes. All of it, while it need is temperature control, you don't need to be validated necessarily. So now all of a sudden, you got these carriers with these reefers that might be grocery truckload carriers who are now bidding on product that these decision-makers are suggesting that, "Well, you got to lower your price by 10% in order to keep the business."
The other aspect with -- we were the beneficiary, you talked about COVID, like I said, it was -- we were the big beneficiary of the cross-border health care component. Because, as you recall, this time last year, you had to be vaccinated driver in order to cross the border. Our drivers -- most of our drivers were vaccinated. We actually encourage and incentivize them by getting vaccinated by paying them a premium. And the premium that we got from the customers was huge because that product had to get across the border and there was a minimal amount of supply. So those margins are going to be affected. So we -- as we -- like I said, when we look at our business plan or budgeting for next year, we've seen -- we'll see a bit of a margin pressure. But I continue to be amazed by our teams and how they execute and how they're focused. So we've always maintained that margin with variable cost operation, and we seem to be on top of it.
The results of the margins have been obviously a huge positive here. Maybe just last one for me and just maybe circling back to Walter's question around M&A. If I look at your free cash flow generation today after dividend, and 2022 is about almost $80 million or high 70s, the cash balances exceptionally high here at $66 million, leverage ratio comfortably below 1x. Just based on the comments you made, does that suggest you're creating this capacity for maybe larger M&A versus what we've seen recently from you or maybe just more tuck-in M&A? Like how do you think about putting, call it, excess liquidity towards here? Is it bigger fish in the pond? Or just a lot of smaller fish you think you can go after?
That's -- I cannot answer that question, Kevin. That really depends on how complementary the acquisitions are. And that's one of the things that we'll continue to focus on. Because we're in the people business, and that's something I always reiterate. So it has to be complementary. And if it's complementary, it's -- the beauty is that we have such a great balance sheet, that we have the flexibility of going for the big fish. I'm not afraid of that, but it has to be complementary. And that's -- that will be the number one. It's when you -- it's funny, as you know, I'm in the hockey business. And one of the first things we look at when scouting is not necessarily the ability, but the character of the player. And that's probably resembles what we look at -- we will look for here from a company.
Next question will be from Tim James at TD Securities.
The comments, Michael, were very helpful in the U.S. environment. I'm wondering if you could share any thoughts on any changes you're seeing, again, if any, in the competitive environment in Canada, more specifically as you look at 2023? Any players getting more aggressive? Just any kind of notable dynamics that you may be watching.
Not necessarily. You have certainly, on the transportation side, I think we have we certainly have a first-mover advantage. When I look at the infrastructure cost required and the training and the quality requirements and the geography of our country and the demographics in some of these smaller places where we're established and you're offering that service, the pharma customer typically is looking at a national solution, not a local solution. They're not -- Canada is not big enough. It's not like the U.S. where they might focus on regional more. So -- and we're such a small part of their cost of goods. So they want convenience.
So I feel that we have -- and I'll never take that for granted, by the way. That's not something that I -- where folks are hard on each other. It's about flawless customer service. So I don't see that as how much has changed there, Tim.
On the logistics side, there's definitely an attraction out there. And a lot of the international players have stepped up their game, and so we see a bit of pressure on that side. But typically, when you lock in a client, hopefully, it's for life. There's a lot more at stake when you have custody of somebody's products, both physically and from communication and IT standpoint. And also to make a change is a big thing.
We do see the pressures of procurement creeping up in that sector, typically in the U.S. And so if they don't understand the Canadian landscape, sometimes mistakes can be done by customers. And I say mistakes because sometimes, they're looking at a price point. But that's -- as part of the whole communication package and making sure you're transparent with the customers. And so I think on that side of things, we're seeing a little bit more pressure. But hopefully, that answered your question.
Yes, that's great. That's very helpful. And then I just want to talk about inflation quickly. And I realize you've demonstrated very well, especially last year, that inflation is not really a big risk in your business due to your pricing power, competitive position, et cetera, et cetera. But is there anywhere that you feel inflation is creating a challenge today or as you look at '23? Or do we assume if inflation is moderating in 2023, and if the worst of it is behind you and in fact, maybe you're sort of still recovering some of the inflationary costs that you've experienced through your revenue and your pricing going forward, is it something we really should not worry about at all? Or do you feel it's an impact?
I think the last 2 years has been -- I look at it, it is pressure. It's also pressure internally. When I look at our frontline employees, and I try to understand when the grocery bills are going up by 10% plus. So when I look at -- now you're getting a new car. Your lease is -- because a lot of our facilities aren't at a bus stop or whether you're in Chatham or some of these other places, you're going by car. And you got -- your cost of the car now goes up because your lease rates have gone up. So I look at it more internally. And we want our employees to be healthy, and we don't want our employees to have to moonlight in order to make ends meet.
So to me, that's -- it's near and dear for me. And I'm cognizant of that. We have -- we're very fortunate. It's a tight labor market, but we have very -- we have minimal turnover. And I'm very grateful and thankful for that. But it's important to recognize that, what inflation does toward particular frontline workers. So we try to stay on top of it. And I'm not going to -- I'm prepared to say no to a customer if they're not going to pay their way from that standpoint just to make sure that they're -- at the sake of our employee.
Okay. That's very helpful. And then maybe just, Peter, you were commenting that the CapEx should be lower in '23 relative to '22. Do you think there's any risk at all in getting the equipment that you're planning on for 2023 at this point? Or do you feel fairly confident relative to some of the challenges that occurred in 2022?
I think we're more confident than we would have been in 2022. So I think things are kind of getting much closer to the run rate, the normal run rate, let's say. So I don't see any big challenges for either leasing equipment or purchasing it.
Next question will be from Ty Collin at Eight Capital.
I'm wondering if you could talk a little bit about what your plans are from an organic perspective in the U.S. this year, how you're planning to grow or develop the Skelton and Boyle businesses specifically? And will you be making any meaningful growth investments down south in 2023?
Hi. Good morning, Ty. I think it's the first time we speak. Yes, with respect to the U.S., our organic growth is there. From the perspective of being able to have access to new equipment, to more equipment, I guess, we were a little bit handcuffed last year. So we'll see that as a normal organic growth for both of those businesses. We're looking -- I don't know if I've mentioned it on a previous call or not, but we're expanding the network. They're very complementary businesses, both Boyle and Skelton, and they have the ability to collaborate in some -- in many areas and including using each other's terminals for their drivers and maintenance. So we feel that strategically opening up a new facility, particularly where our customers are, some of our customers in the Memphis area is as an area of focus. So that, by default, will organically grow both of those businesses. So that's in the plans for 2023.
Got it. And just as my follow-up, maybe to stick on the U.S. theme and follow-up on some earlier comments on M&A. I guess from a U.S. perspective, specifically, what sort of the next logical piece you might be looking to add there from an M&A perspective now that you've kind of got your 2-truckload carriers with a pretty thorough geographic coverage?
Yes, another good -- I'd say another good question because that's what keeps me up thinking in terms of growth in the U.S. It continues to be a learning experience and getting closer to the wholesaler distributors and understanding what their needs -- truly trying to understand what the needs are for that industry is -- it is different than Canada. So just to be kind of successful in Canada doesn't mean we can replicate it in the U.S. So it continues to be a learning.
And I had mentioned earlier on when Walter asked the question, we're going to focus more on M&A than we have. So part of it is probably more on the logistics side of things because it's a bit more complex and using that because the -- while the FDA is kind of dragging along the pharmaceutical giants who are -- have international presence tend to have more requirements. So I think there's an opportunity there, but we need to have a focus and champion for that. And we're in a better position to focus this year than we were last year on that side.
Okay. Great. I appreciate the color. And then maybe just one last small housekeeping one for me. It looks like the contribution from the LSU business this quarter was kind of significantly lower than the last couple of quarters. I think it was $2.7 million. Maybe I'm misinterpreting the commentary in the MD&A, but I'm just wondering if there's any explanation for that.
The contribution isn't lower. What we did was we made a catch-up adjustment kind of for the first 7 months, where we took some of the billings -- the costs that are passed through to clients and moving them up into billing. So it just distorted some of the relationships in -- mostly in the direct cost or the direct operating cost line. So revenue would have been significantly higher than what it looks like in that -- in the Q4. So nothing to worry about from an LSU perspective.
Next question will be from Konark Gupta at Scotiabank.
So my first question is on the organic growth. I just wanted to understand, I don't know, Peter or Mike, whoever wants to take it. If you could split out or strip out M&A vaccine and the fuel surcharge that you kind of get naturally, how -- where did the organic growth come in, in fourth quarter? Like toward the high end or the mid-end or lower end of your range?
I'll take the question, if Peter wants to add some color to it. Yes, there's no doubt when we were doing our business plans that the impact of the COVID was significant enough. Like I said, it was that, that tailwind that we got was something that we're not going to have this year. And while typically, we feel that we've been -- we've historically shown organic growth to be between mid- to high single digits, that is going to be raised next year. So we're comfortable in looking at probably the 4% to 5% growth, mid-single digits because you're taking away the vaccine and related business. I mean we were flying test kits across the country this time of year. And that actually today, the vaccines are -- we get paid for moving the vaccines, not necessarily storing it. And right now, we're storing it. And in some cases, we have extending the expiry dates by another 6 months because it's not moving, which is a good thing, right? But yes, so those are the areas that we recognize.
And companies, certainly like LSU, who's vaccine-centric business, will be somewhat affected. And in the U.S. as well, Boyle was -- it was a Boyle trailer that went back in Kalamazoo to pick up the first Pfizer vaccine load and continued to do so. So those are pieces of the business that won't be there going forward.
Appreciate the color, Mike. With respect to like some of the challenges that you and your industry have seen in the last couple of years, like with respect to employee absenteeism, let's say, not specifically to you guys, but generally in the industry, as well as equipment delays and supply chain and whatnot, right? I mean, going forward, as we are kind of nearing hopefully the end of inflationary cycle or rate inflation and supply chain is easing, I think that's what we're hearing from a lot of people, employees are going more sort of to work. What are the pending sort of challenges as you see from your standpoint this year?
Not many, but I'll tell you one thing. Traffic is going up, which makes our drivers -- it takes longer for them to do their deliveries. So that was about the only benefit of people working from home, as I saw it, but we're using more 407 bills these days to keep our trucks moving in Toronto. But anyway, I don't foresee -- Peter, can you think of anything?
No. I think we're just -- we've sort of resumed the pre-pandemic flow, and I don't think there's any real constraints or issues there.
Yes. I mean I'd like to use the word resilient.
Yes.
This business has shown to me that it's very resilient and it's so.
Yes.
That makes sense. That looks good to hear. And then last one for me. With respect to the volume and pricing, so I'm just thinking, when you kind of look at the organic growth this year, whether it's Canada or U.S., you made a comment earlier, Mike, that the pricing is a little bit under pressure in the U.S., relatively, maybe still as positive but a little bit softer than before. When you look at this year as a whole across your franchise, would you say the growth opportunities more on the volume side than pricing? Or it's more pricing than volume?
I want to say a combination of both really. I mean I don't -- when I look at our business plans from our companies, that's what it seems to look at. Some companies have less volume because of the vaccines growth, but -- and others are just -- is just slow and steady. And then obviously, the pricing, yes, we see that we have pricing on the biologics, which are more -- which can be more aggressive. And then another product on a pharmacy -- if you go to a pharmacy, the further the product is away from the prescription area, the more price-sensitive it becomes.
Next question is from Endri Leno at National Bank.
I have -- I'll start with one, and I just thought in relation to an answer to Michael -- so just a question Michael just answered. But it was more, you mentioned biosimilar, Michael. I just wanted to ask a little bit if you have any insight, so there's been this continued provincial biosimilar switch. So I think Ontario and Nova Scotia and Saskatchewan will do this year and a few other provinces have done before. Can you talk a little bit about Andlauer's current or expecting mix of biosimilar and patented biologic medicines, how this shift affects you at all? Or anything -- any color around there?
No, I don't see any impact. I think I've mentioned that before, the impact of generics versus ethical drug companies, even though it seems like a lot of these brands now are moving into generics or have the generics businesses. So whether we move from one customer, it means one customer might be doing more revenue than the next. So it's kind of switching revenues around.
One thing I will say, Endri, is that it's a business that's on the rise. When I look at our capacity at Accuristix and at LSU, fridge and freezer capacity is growing. It's growing faster than the rest. So we see that as being a good sign. But whether -- I mean at the end of the day, government's got to do what they got to do for taxpayers, and at the end -- but it doesn't affect the movement of those goods. And hence, for us, it's neutral.
Okay. Okay. Now that's good to hear. The other question is in regard to some previous answers as well that you gave in terms of OTC products potentially seeing a bit more margin pressure in the U.S. So I was wondering if you can talk a bit to what the mix of business is in the U.S. for you, OTC versus pharmaceuticals -- or prescribed pharmaceuticals? And also in relation to that expansion you're planning in Memphis, would it be more weighted towards OTC? Or would it be more towards prescription medicine?
Yes, the expansion in the U.S. is more from a transportation perspective to complement Boyle and Skelton, which are truckload carriers. So it doesn't really affect that. The carriage of goods, I'll be honest with you, off the top of my head, I don't know. So maybe next quarter, I'll be able to answer that question for you. But it's not -- I really don't know that question, to be honest with you.
Okay. Okay, that's fine. The other question I had is that -- I mean -- and you mentioned the Memphis expansion, are there any kind of other notable growth opportunities, at least in Canada? And I'll tie that a little bit. You mentioned on the last call that you're expanding the LSU facility in Quebec. And is there something specifically tied to that facility or to that business? Or any kind of notable growth opportunities that you're looking at in Canada?
It's not tied to anything in particular. It just -- it was an opportunity that the ATS facility had excess land and felt that it was important to have that. Industrial space is tight right now in the major centers in this country. And typically, it gave an option for certainly the Quebec-based pharmaceutical companies to have an option. It seems a lot of them are actually migrating to Ontario because there wasn't enough space in Quebec or -- we see that as an opportunity to grow that in Quebec.
Great. Last one for me. It's -- and if I recall correctly, there could potentially -- at least interior or big picture, be a bit risk to some contracts if there was a merger between some of your larger clients, especially on the pharmaceutical side. On that side, there's been more kind of spin-offs. I'll say recently, the trend and I think Sandoz more specifically, that is also in Canada, they're going to be spin off -- spun off from Novartis, I believe, next year. So I was just kind of wondering if you can talk a bit in terms of does that present any opportunities for you? Or how do you see that kind of spinoff more specifically?
Yes. I mean we've seen a lot of that. I mean we went from consumer goods with these consolidations, like Helion, for example, which is a client of ours; with GSK and Pfizer consumer products consolidating. And then you see the other pharma companies where they're trying to be more specific, maybe focus on oncology, whichever, and then they spin off their other products. There's a combination of both. And I -- on the consolidation side, it becomes a nervous time because sometimes, a provider is with another -- or the product of the -- one of the 2 companies is with another provider. And so in the case of Helion, we were the lucky ones or the fortunate ones, I should say.
But on the spin-off, I think it's probably more opportunistic for our logistics providers because now, all of a sudden, you have potentially 2 shipments instead of 1 order. So it ebbs and flows, Endri, but that's an interesting one. And we've noticed that. We've observed that as well lately. I mean Pfizer is a perfect example of that.
Next question will be from Justin Keywood at Stifel.
I appreciate the commentary around M&A. I'm just wondering now that Boyle and Skelton has been under the Andlauer umbrella for just over a year, how do we assess the success of those acquisitions? Is there a particular metric or metrics that you would point to? Obviously, the overall EBITDA margins are increasing, but a few moving parts there with the vaccine. So any additional color on how we could access those acquisitions would be helpful.
Well, I guess you probably gave the best metric right there. So -- and that's a result of good collaboration, good communication, good execution. And that goes -- that's interesting enough. Those are -- those were growing companies that the founders or the sellers, who are still engaged with the business, who are still shareholders of AHG, who are so passionate about the business and the opportunity to use the AHG assets to their advantage, are some of the areas that are key success factors. We're there to complement their continued growth, and I think we've been able to do that. So hopefully that answers your question, Justin.
That is helpful. Was there anything unexpected just because we've seen other Canadian companies go to move into the U.S., and there's some unexpected headwinds? Or it is -- it's pretty much going as to plan.
Yes. I think at previous calls, Justin, I talked about learning and education. And certainly, I was always a little bit leery of the fact that it was truckload, and truckload tends to be commodity type of business. And we're seeing a bit of that headwind today because -- and as I said early on, the FDA is not quite as stringent as other jurisdictions when it comes to quality. But nonetheless, it's still a great space and still good margin than other commodity transport providers, so -- and there's still a growing demand. So I'm continuing to learn, but it's an opportunity over the next year or so to expand the platform in the U.S. to be more complementary going forward. From those businesses, no, I don't -- they're great operators there, people that care about each other and the customers.
[Operator Instructions] And your next question will be from Tim James at TD Securities.
I just have one follow-up question here. And I'm not even sure it's a fair question, but as you look at the packaging solutions business, is there any reason as you look through to 2024, assuming you don't have any kind of challenges like you had in the fourth quarter with the one particular customer. But when that business normalizes, again, is there any reason it wouldn't be back to the levels of revenue that you saw from that business in 2019?
That's not fair. Just kidding. Yes, and to be -- and I think I would refer to it. It's not a business that we have had too much focus on, probably the most commoditized of all the businesses that we have. So we're going to focus on where we can add greater -- greatest values, have better handcuffs on that business. And I think it's an area that we really haven't put as much focus on.
Having said that, the bones of that business is -- I believe, can be used for other areas of the business that could open up complementary services for the pharma industry. And one of those areas that I've tasked and talked and researched and looking at is returns management. I think we touched the products so many times through the travels of -- by the time the consumer gets it, either through ATS or ATS Dedicated or Accuristix. And then even around the return side of things, I think there's some efficiencies that we can have with using our network. And certainly, the package and the co-packaging area is probably an opportunity there. There's a function of that.
So I'm just speaking a lot, it's a fair question. I'm just kidding, Tim, but from the actual -- that business, we're not soliciting as much business development on that side of the business because it hasn't been as big of a focus for Andlauer Healthcare Group.
And at this time, Mr. Andlauer, we have no further questions. Please proceed with any additional comments.
Okay. Well, I don't think I have. I think we've kept everybody online for a while right now. I want to wish everybody a good -- I hope everybody had a good -- first good start of 2023, best of health, and looking forward to our next call. Have a great day.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.