Andlauer Healthcare Group
Annual Report 2023

Plain-text annual report

ANNUAL REPORT 2023 A VITAL LINK IN HEALTHCARE PROFILE Andlauer Healthcare Group Inc. (TSX: AND) is a leading and growing supply chain management company offering a robust platform of customized third-party logistics (“3PL”) and specialized transportation solutions for the healthcare sector. Our 3PL services include customized logistics, distribution and packaging solutions for healthcare manufacturers across Canada. Our specialized transportation services in Canada, including air freight forwarding, ground transportation, dedicated delivery and last mile services, provide a one-stop shop for clients’ healthcare transportation needs. Through our complementary service offerings, available across a coast-to-coast distribution network, we strive to accommodate the full range of our clients’ specialized supply chain needs on an integrated and efficient basis. We also provide specialized ground transportation services, primarily to the healthcare sector, across the 48 contiguous U.S. states. OPERATIONAL HIGHLIGHTS / We returned to a more normalized operating environment following the COVID-19 pandemic. During this time, we focused on integrating businesses we have acquired since our initial public offering, realizing synergies across our operations; / We generated revenue of $648.0 million, consistent with Fiscal 2022, and an EBITDA margin of 25.3%, which is within our historical range of 24% to 26%; / We initiated a 35,000 square-foot expansion at our Logistics Support Unit facility in Laval, Québec (completed in January 2024); / We increased our quarterly dividend twice in Fiscal 2023 and again subsequent to year end, bringing it from $0.07 per share at the end of 2022 to the current level of $0.10 per share; / During 2023, we purchased and cancelled approximately 475,000 subordinate voting shares, for a total of approximately $18.8 million, in support of future accretive earnings growth for shareholders; and / We repaid $25.0 million of debt and finished the year with a strong balance sheet, thereby enhancing our financial flexibility to pursue further opportunities to expand our platform. FINANCIAL PERFORMANCE / Revenue ($ millions) / Operating Income ($ millions) / EBITDA ($ millions)(1, 2) and Margin (%)(2) / Net Income(2) ($ millions) 648.4 648.0 110.3 174.5 163.8 440.1 73.7 96.1 119.3 27.1% 26.9% 25.3% 52.0 76.3 66.1 2021 2022 2023 2021 2022 2023 2021 2022 2023 2021 2022 2023 (1) (2) EBITDA is defined as net income for the period before: (i) income tax expense; (ii) interest income; (iii) interest expense; and (iv) depreciation and amortization. The EBITDA, EBITDA Margin and net income figures provided above exclude the gain of $37.9 million on the step acquisition of 51% of Skelton USA Inc. in Fiscal 2021. Including the gain, EBITDA for Fiscal 2021 was $157.2 million, EBITDA Margin was 35.7%, and net income was $90.0 million. F E L LOW S H A R E H O L D E RS, On behalf of our Board of Directors, senior management, and our team of more than 2,300 personnel and owner/operators across Canada and the United States, I am pleased to present the Andlauer Healthcare Group 2023 Annual Report. Michael Andlauer Chief Executive Officer In Fiscal 2023, we experienced a return to a more normalized operating environment following the COVID-19 pandemic. We benefitted from significant operating tailwinds in 2022, including temporarily inflated U.S. truckload premiums, increased air freight forwarding volumes and significant COVID vaccine related contributions. Despite the absence of these pandemic-related tailwinds in 2023, as well as reduced fuel surcharge revenue, our consolidated revenue of $648 million for the year was consistent with 2022. Our revenue total for 2023 also represents an increase of 47.2% from $440.1 million in 2021, demonstrating the positive impact of our acquisitions. Our EBITDA margin for 2023 was 25.3%, comfortably within our historical range of 24% to 26%, but down from 26.9% in 2022. Net income for 2023 totaled $66.1 million, or $1.55 per share (diluted), compared to $76.3 million, or $1.79 per share (diluted), in 2022. Lower segment net income before eliminations for our specialized transportation segment, primarily attributable to reduced U.S.-based truckload rates and related margins, and lower air freight forwarding revenue, as well as lower outbound volume in Accuristix, contributed to the year-over-year decline on a consolidated basis. We believe that pricing in the U.S. ground transportation market has now stabilized. Going forward, our strategy in the U.S. will be more focused on leveraging our core, specialized competencies in temperature, security, and quality control with certain customers and / or high-value products that are not as susceptible to fluctuations in U.S. spot rates. We are determined to drive incremental margin growth in the U.S. from where we are today, but we do not expect to return to the premium levels we experienced during the pandemic. We continue to generate solid organic growth in our Canadian ground transportation network, and we expect this to continue. While we experienced lower outbound order handling activities for Accuristix the past few quarters, we expect the 35,000 square-foot expansion at our Logistics Support Unit facility in Laval, Québec, just north of Montréal, which was completed in January this year, to improve our logistics and distribution product line performance in 2024. Throughout 2023, we focused on further integrating the businesses we acquired since our IPO and realizing synergies across our operations. We also continued to selectively evaluate strategically compelling acquisition opportunities that leverage or expand our differentiated capabilities. While we elected not to close on any of these acquisition targets in 2023, we will continue with these efforts throughout 2024, focusing on opportunities that strengthen our existing service offering or broaden our Letter to Shareholders (continued) service offering to further enhance our clients’ connection to our platform, while maintaining our disciplined approach with respect to both financial valuation and operating metrics. We finished the year with a strong balance sheet. Following the repayment of $25 million on our Term Facility during the third quarter, we finished the year with only $25 million outstanding under our Term Facility, and nil under our Revolving Facility. low debt Our levels, combined with the continued strong cash generation of our business, provided us with enhanced flexibility to be active with our normal course issuer bid (“NCIB”). At year end, we had purchased and cancelled approximately 475,000 subordinate voting shares, for a total of approximately $18.8 million, pursuant to the NCIB. We believe our activity in executing the NCIB represented an attractive, accretive path for capital allocation and supports the best interests of our shareholders over the long term. We also implemented two increases to our quarterly dividend during 2023, increasing our payout from $0.07 per share in the fourth quarter of 2022 to $0.08 per share in the first quarter of 2023, and to $0.09 per share in the third quarter. Effective for the first quarter of 2024, our Board approved a further increase to our quarterly dividend to $0.10 per share. Despite our debt repayment, NCIB expenditures, and dividend increases, we had cash and cash equivalents of $59.7 million and working capital of $105.6 million at 2023 year-end, further underlining the enduring strong cash generation and profitability of our business. Spending on healthcare logistics and transportation has been outpacing GDP growth in both Canada and the United States, and this trend is expected to continue, supported by favourable demographics, an increasing number of healthcare and adjacent products with unique logistical needs, and continually evolving industry regulation. Further, demand for third-party distribution and ancillary services is increasing as healthcare companies focus more on their core competencies. We are well positioned to capitalize on growth opportunities in this large, stable, and growing market to further enhance our customer value proposition, strengthen our unique culture, and build shareholder value. Andlauer Healthcare Group is a vital link in Canadian healthcare, and we will continue to pursue opportunities to expand our unique position in supporting the Canadian healthcare system. In closing, I want to thank our dedicated team of people that fortify our exceptional platform of companies, and our Board of Directors for their strategic contributions and governance oversight. And to our shareholders, we appreciate your confidence and continued support. Yours in health, Michael Andlauer Chief Executive Officer ANDLAUER HEALTHCARE GROUP INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2023 March 5, 2024 1 Andlauer Healthcare Group Inc. – 2023 Annual Report TABLE OF CONTENTS Cautionary Note Regarding Forward-Looking Information .................................................................................. 3(cid:3) Basis of Presentation ................................................................................................................................................ 5(cid:3) Non-IFRS Measures ................................................................................................................................................. 5(cid:3) Overview................................................................................................................................................................... 6(cid:3) Summary of Factors Affecting Performance ........................................................................................................... 7(cid:3) How We Assess the Performance of Our Business ................................................................................................ 11(cid:3) Selected Consolidated Financial Information ........................................................................................................ 14(cid:3) Reconciliation of Non-IFRS Measures ................................................................................................................... 16(cid:3) Results of Operations ............................................................................................................................................. 16(cid:3) Summary of Quarterly Results .............................................................................................................................. 23(cid:3) Liquidity & Capital Resources............................................................................................................................... 24(cid:3) Cash Flows ............................................................................................................................................................. 27(cid:3) Contractual Obligations ......................................................................................................................................... 28(cid:3) Off-Balance Sheet Arrangements .......................................................................................................................... 29(cid:3) Seasonality .............................................................................................................................................................. 29(cid:3) Financial Instruments ............................................................................................................................................ 29(cid:3) Related Party Transactions .................................................................................................................................... 30(cid:3) Critical Accounting Judgements and Estimates .................................................................................................... 33(cid:3) Significant New Accounting Standards ................................................................................................................. 34(cid:3) Accounting Classifications and Fair Values .......................................................................................................... 34(cid:3) Risk Factors............................................................................................................................................................ 34(cid:3) Outstanding Share Data ......................................................................................................................................... 35(cid:3) Disclosure Controls and Procedures and Internal Controls Over Financial Reporting ....................................... 36(cid:3) Additional Information .......................................................................................................................................... 37(cid:3) (cid:3) 2 Andlauer Healthcare Group Inc. – 2023 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This management’s discussion and analysis of financial condition and results of operations (“MD&A”) for the three months and year ended December 31, 2023 should be read in conjunction with Andlauer Healthcare Group Inc.’s audited annual consolidated financial statements for the fiscal year ended December 31, 2023, along with the related notes thereto. This MD&A is presented as of March 5, 2024 and is current to that date unless otherwise stated. All references in this MD&A to the “Company”, “AHG”, “us”, “our” or “we” refer to Andlauer Healthcare Group Inc., together with our direct and indirect subsidiaries, on a consolidated basis, which is referred to as “the Company” in our financial statements. Additionally, all references to “Q4 2023” are to the three months ended December 31, 2023, “Q4 2022” are to the three months ended December 31, 2022; “Q4 2021” are to the three months ended December 31, 2021, “Q3 2023” are to the three months ended September 30, 2023; “Q3 2022” are to the three months ended September 30, 2022; “Q2 2023” are to the three months ended June 30, 2023; “Q2 2022” are to the three months ended June 30, 2022; “Q1 2023” are to the three months ended March 31, 2023; “Q1 2022” are to the three months ended March 31, 2022; “Fiscal 2024” are to the year ending December 31, 2024; “Fiscal 2023” are to the year ended December 31, 2023; “Fiscal 2022” are to the year ended December 31, 2022; and “Fiscal 2021” are to the year ended December 31, 2021. Cautionary Note Regarding Forward-Looking Information This MD&A contains forward-looking information and forward-looking statements (collectively, “forward- looking information”) within the meaning of applicable securities laws. Forward-looking information may relate to our future financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans, objectives, and expectations with respect to the coronavirus disease (“COVID-19”). Particularly, information regarding our expectations of future results, performance, achievements, facility expansions, leases, platform expansions, acquisitions, public company costs, payment of dividends, prospects, financial targets or outlook, intentions, opportunities, activity under the NCIB and ASPP (each as defined below) and the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, “commencing” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. Such forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in circumstances surrounding future expectations which are difficult to predict and many of which are beyond the control of the Company. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:3) 3 Andlauer Healthcare Group Inc. – 2023 Annual Report This forward-looking information and other forward-looking information is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that, while considered by the Company to be appropriate and reasonable as of the date of this MD&A, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to: the impact of inflation and rising interest rates together with the threats of stagflation or recession; the uncertainties in the global economy created by the war in Ukraine and the Israel-Hamas war; the impact of variation in the value of the Canadian dollar in relation to the U.S. dollar; the impact of changing conditions in the healthcare logistics and transportation services market; risks and liabilities associated with the transportation of dangerous goods; • • • • • • our ability to comply with U.S. foreign ownership, control or influence mitigation measures; • our ability to execute our growth strategies; • increasing competition in the healthcare logistics and transportation services market in which we operate; changes in the attitudes, financial condition and demand of our target markets; • volatility in financial markets; • • developments and changes in applicable laws and regulations; • our ability to source and complete acquisitions; • our ability to successfully integrate businesses and assets that we acquire and realize synergies; • our ability to retain and grow revenue with existing clients and develop new clientele; • our ability to retain members of our management team and key personnel; • • • • our ability to expand into additional markets; and • increases in driver compensation and the ability to attract and retain employees; the availability of equipment and drivers in the markets in which we operate; the possibility of a cyber attack impacting our information systems; such other factors discussed in greater detail under “Risk Factors” in this MD&A and in our Annual Information Form dated March 5, 2024 for Fiscal 2023 (the “AIF”) which is available on our profile on the System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca. If any of these risks or uncertainties materialize, or if the opinions, estimates, or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to above and described in greater detail in “Risk Factors” should be considered carefully by prospective investors. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. Forward-looking information is provided for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other purposes. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1008)(cid:3) 4 Andlauer Healthcare Group Inc. – 2023 Annual Report Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, investors should not place undue reliance on forward- looking information, which speaks only as of the date made. The forward-looking information contained in this MD&A represents our expectations as of the date of this MD&A (or as of the date they are otherwise stated to be made) and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws. All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements. Basis of Presentation Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in thousands of Canadian dollars unless otherwise indicated. Non-IFRS Measures This MD&A refers to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including “EBITDA” and “EBITDA Margin”. These non-IFRS measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors, and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation. For a description of how we define these non-IFRS Measures and an explanation of why the non-IFRS measures provide useful information to investors, please see “How We Assess the Performance of Our Business – Non-IFRS Measures” below. For quantitative reconciliations of net income to EBITDA for Q4 2023, Fiscal 2023, Q4 2022, Fiscal 2022 and Fiscal 2021, please see “Reconciliation of Non-IFRS Measures” below. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1009)(cid:3) 5 Andlauer Healthcare Group Inc. – 2023 Annual Report Overview AHG was incorporated under the Business Corporations Act (Ontario) on November 12, 2019, with its head office located at 100 Vaughan Valley Blvd, Woodbridge, ON, L4H 3C5. The Company’s subordinate voting shares (“Subordinate Voting Shares”) are listed on the Toronto Stock Exchange (the “TSX”) under the stock symbol “AND”. We are a leading and growing supply chain management company with a platform of customized third-party logistics (“3PL”) and specialized transportation solutions for the healthcare sector. We offer services to healthcare manufacturers, wholesalers, distributors and 3PL providers, among others, through a comprehensive platform of high quality, technology-enabled supply chain solutions for a range of products, including: pharmaceuticals, vaccines, biologics, blood products, narcotics, precursors, active pharmaceutical ingredients, over-the-counter, natural health, animal health, consumer health, cosmetics, health and beauty aids, and medical devices. We integrate our uniquely designed Canada-wide network of facilities, vehicles, personnel, and technology systems into our clients’ businesses to offer holistic solutions that span all of our clients’ shipping needs and satisfy the requirements of the highly regulated Canadian healthcare sector. During Fiscal 2021, we expanded our specialized transportation capabilities, through acquisitions, into truckload services for the healthcare sector in the United States. We differentiate our service offerings and deliver value to our clients through our competitive strengths in temperature management, quality assurance and regulatory compliance, technology-enabled visibility throughout the supply chain and security. We are committed to developing and expanding long-term strategic relationships with our clients to provide improved operational efficiencies and access to value- added services. We generate revenue across five principal product lines: logistics and distribution, packaging solutions, air freight forwarding, ground transportation, and dedicated and last mile delivery. We believe that we are Canada’s only national third-party service provider focused exclusively on delivering customized, end-to-end logistics and specialized transportation solutions to the healthcare sector. Our 3PL services are provided under our Accuristix and LSU brands, through which we provide customized logistics, distribution and packaging solutions to various healthcare manufacturers. Our specialized transportation solutions are offered under our ATS Healthcare, ATS Dedicated and Skelton brands in Canada, where we provide a one-stop shop for our clients’ healthcare transportation needs through our specialized air freight forwarding, ground transportation, dedicated delivery and last mile services. We believe we are a national leader in the Canadian healthcare logistics and specialized transportation markets we serve. We also provide specialized transportation services domestically in the United States under our Boyle Transportation and Skelton USA brands (each as defined below). Boyle Transportation provides specialized transportation services to clients in the life sciences (approximately 70-75% of revenue) and government/defense sectors (approximately 25-30% of revenue). Boyle Transportation adheres to stringent quality and security standards, employs highly trained and dedicated professionals, continually invests in advanced technology and equipment, and has an expansive reach across the United States. Skelton USA was launched in 2017 and has grown by successfully leveraging its Canadian reputation and brand for expertise in cold chain services. Skelton USA currently serves customers across the United States. In our healthcare logistics segment, we serve as an extension of our manufacturing clients, leveraging our infrastructure and expertise to manage their supply chain activities, allowing them to focus on other strategic priorities such as sales, marketing, research and development. We focus on serving our logistics clients as comprehensively as possible and incorporate multiple services from all of our related product lines into our customized logistics solutions. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1010)(cid:3) 6 Andlauer Healthcare Group Inc. – 2023 Annual Report In our specialized transportation segment, we leverage our national infrastructure in Canada to offer coast- to-coast delivery, including specialized facilities, multiple modes of transportation and flexible capacity to accommodate the full range of our clients’ logistics and/or transportation needs on an integrated and efficient basis. By combining multiple service offerings, we can effectively provide managed and monitored movement of our clients’ temperature sensitive and valuable products through a closed-loop nation-wide system. Our competitive strengths in temperature management, quality assurance and regulatory compliance, visibility throughout the supply chain and security are deployed across our Canada-wide network of 31 secure, temperature-controlled facilities, the six third-party owned cross-docks that we operate from and by our team of highly trained employees. Our security, information and monitoring systems, as well as our temperature management expertise, allow us to meet and exceed Health Canada guidelines and regulations, ensuring the integrity and quality of our clients’ temperature sensitive healthcare goods and data. We also have four facilities in the United States. Additional information about AHG, including our AIF, can be found on our profile on SEDAR+ at www.sedarplus.ca or on our website at www.andlauerheathcare.com. Summary of Factors Affecting Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below and in the “Risk Factors” section of this MD&A and in our AIF. Service Offering We believe that offering a platform of services designed specifically for the healthcare sector puts us in a unique position as a provider of supply chain solutions. Our competitive strengths in temperature management, quality assurance and regulatory compliance, visibility throughout the supply chain and security allow us to provide healthcare clients with specialized, integrated, end-to-end supply chain solutions. Through our five principal, complementary service offerings: logistics and distribution, packaging solutions, air freight forwarding, ground transportation, and dedicated and last mile delivery, we accommodate our clients’ specialized supply chain needs on an integrated and efficient basis. Relationships with Manufacturers and Distributors We believe that our market position is strengthened by the desire of our clients to increasingly outsource their supply-chain management to specialized service providers with the healthcare quality systems, operational expertise, and experience to efficiently optimize their product distribution. We are committed to developing and expanding long-term strategic relationships with our clients to provide improved operational efficiencies and access to value-added services. From manufacturers to distributors to retail locations to front doors across Canada and the United States, we store, transport, and monitor and manage the temperature conditions of a range of healthcare products. Our trained personnel comply with healthcare industry regulations and best practices. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1011)(cid:3) 7 Andlauer Healthcare Group Inc. – 2023 Annual Report New Development Projects We secure client contract wins as a foundation for growth and then add incremental warehousing and distribution square footage through capital efficient leases. Given the required lead-time to build and license facilities, as we secure new major client contracts, we typically strategically invest in excess capacity in anticipation of growing client needs, as well as new client opportunities, which enables capital efficient growth. Demographics and Healthcare Spending We believe that we are strategically positioned to directly benefit from the strong growth expected in the North American healthcare sector, which is driven by a number of favourable trends including an aging population, increased life expectancy, increasing healthcare spending, and an increasing number of healthcare products requiring unique logistics needs. Vaccines and biologics, for example, are generally temperature sensitive and require varying degrees of temperature conditions for transportation and storage. Regulatory Environment In order to maintain the safety, quality and efficacy of healthcare products, government regulations set out rules relating to, among other things, the packaging, warehousing, distribution, transportation and temperature monitoring of such products. The pace of introduction and complexity of such regulations has increased in recent years, including through the introduction of, and revisions to, many Health Canada guidelines, such as Health Canada’s GUI-0069 - Guidelines for Environmental Control of Drugs During Storage and Transportation (“GUI-0069”), among others. Recognizing the ever-changing regulatory demands on the healthcare sector, we take a proactive approach to stay aligned with regulatory protocols, provide environments that are compliant with Good Manufacturing Practices and offer our clients’ real-time monitoring and reporting. By outsourcing their logistics and transportation needs to AHG and our specialized services platform, our clients can focus on their core business. While we believe the United States does not have as rigorous standards as Canada or Europe regarding the transportation of healthcare products, healthcare manufacturers are demanding high quality temperature control and monitoring as well as security and visibility for their truckload shipments in the United States, which aligns with our specialized transportation solutions. Both Boyle Transportation and Skelton USA comply with United States Pharmacopeia (USP) chapter <1079> Good Storage & Distribution Practices for Drug Products, to the extent applicable for transportation. Boyle Transportation complies with U.S. Federal Motor Carrier Safety Administration regulations regarding the transportation of hazardous materials. Additionally, the National Industrial Security Program Operating Manual requires that Boyle Transportation be effectively insulated from any Foreign Ownership, Control, or Influence to perform on certain U.S. Department of Defense contracts and operates, under AHG’s ownership, pursuant to a pending Special Security Agreement with the U.S. Defense Counterintelligence and Surveillance Agency. Competition We believe that we offer a unique set of services in the marketplace and stand apart from other outsourced healthcare service providers and traditional logistics and transportation companies. In particular, we believe our differentiated capabilities, including our temperature management expertise, together with our coast-to- coast distribution network in Canada and multiple service offerings, uniquely positions us within our industry and sets us apart from companies specializing in global integration and supply chain management, national non-temperature managed solutions, regional temperature managed solutions as well as niche service providers and insourced transportation services. Notwithstanding the foregoing, we do compete with (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1012)(cid:3) 8 Andlauer Healthcare Group Inc. – 2023 Annual Report UPS Supply Chain Solutions, Kuehne + Nagel and Lynden Logistics in our delivery of 3PL services, and with UPS, FedEx, Purolator, and several regional players in the specialized transportation space in Canada. In the United States, Boyle Transportation and Skelton USA compete with a large number of regional carriers as well as national transportation providers, such as FedEx and CRST. Acquisitions We selectively evaluate strategically compelling acquisition opportunities that leverage or expand our differentiated capabilities. In pursuing potential acquisition opportunities, we assess several criteria to expand our domestic platform, including: (i) complementary tuck-ins; and (ii) entry or expansion into growth verticals, new verticals and new service offerings. We will continue to assess opportunities for expansion in the U.S. or into international markets through existing platforms that align with our core capabilities and existing service offerings. On October 5, 2020, we completed two tuck-in acquisitions: TDS Logistics Ltd. (“TDS”), now branded as “ATS Dedicated”, and McAllister Courier Inc. (“MCI”), our first acquisitions as a public company. These two regionally focused temperature-controlled transportation businesses increased the reach of our services and expanded our market presence in Ontario. On March 1, 2021, we acquired 100% of Skelton Canada Inc. (“Skelton”) and 49% of Skelton USA Inc. (“Skelton USA” and together with Skelton, the “Skelton Companies”) which enhanced our platform with expanded national 2-8°C specialized temperature-controlled capabilities and provided us with a strategic entry into the U.S. market. On November 1, 2021, we acquired 100% of T.F. Boyle Transportation, Inc. (“Boyle Transportation”), which provides specialized transportation services to clients in the life sciences and government/defense sectors, and the remaining 51% of Skelton USA, increasing our aggregate ownership of Skelton USA to 100%. On March 1, 2022, we acquired 100% of Logistics Support Unit (LSU) Inc. (“LSU”). LSU is a third-party logistics provider offering specialty pharmacy, warehousing, distribution, and order management services throughout Canada to national and international companies as well as government clients in the pharmaceutical, medical, and biotechnology sectors. Management & Employees Our employee culture is one of our fundamental strengths and a strategic priority. Our employees are passionate about our business and are dedicated to creating and improving solutions for our clients. We empower our employees through training and professional development programs and maintain open lines of communication that encourage our employees to suggest ways in which we can improve our operations. We recognize and celebrate employees who act as leaders within our team and promote movement within our organization in an effort to retain and encourage our top talent. As a result of this collaborative employee culture, we have fostered strong relationships with our employees across our operating segments, none of which are subject to collective bargaining agreements. During Fiscal 2023 we implemented a new long-term incentive plan under our Omnibus Equity Incentive Plan dated December 11, 2019, for certain management members in order to further promote share ownership among our employees, ensure that employees can participate in the Company’s growth through its share price, and retain employees over the long-term. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1013)(cid:3) 9 Andlauer Healthcare Group Inc. – 2023 Annual Report Cost Management In order to provide the services that we offer, we incur various operating costs. These costs include amongst others, labour, rent, fuel, equipment, and insurance. We are susceptible to increases in the price of these items, many of which can fluctuate, often due to factors beyond our control, such as regional and global supply and demand dynamics, political events, global pandemics, terrorist activities, the strength of the Canadian dollar relative to other currencies, and natural disasters. To mitigate the risk of cost escalation, we focus on operational excellence, synergies between our product lines and cost controls. We rely on, among other things, long-term planning, budgeting processes, and internal benchmarking to achieve our profitability targets. Additionally, we mitigate the risk of inflation by utilizing leases to finance our network of facilities, many of our vehicles and our logistics equipment, as well as by using third-party service providers. We also mitigate our exposure to rising fuel costs through the implementation of fuel surcharge programs, which pass the majority of cost increases to our clients. In addition, we have implemented a number of policies that focus on asset efficiency, including fuel economy, asset utilization, proper repairs and maintenance of equipment, and measured equipment lease renewals. Many of our contracts include cost escalation indexes that provide for annual price adjustments which further protect us from escalating costs. Financial and Operational Highlights We refer the reader to the section entitled “How We Assess the Performance of Our Business” of this MD&A for the definition of the items discussed below and, when applicable, to the section entitled “Reconciliation of Non-IFRS Measures” for quantitative reconciliations of net income to EBITDA. Q4 2023 Compared to Q4 2022 Select highlights include the following: • Revenue was $169.1 million in Q4 2023, compared to $165.8 million in Q4 2022; • Operating income was $28.0 million in Q4 2023, compared to $28.2 million in Q4 2022; • Net income was $18.6 million in Q4 2023, compared to $19.8 million in Q4 2022; • Total comprehensive income for Q4 2023 was $13.5 million, compared to $17.1 million in Q4 2022; • EBITDA was $44.8 million in Q4 2023, compared to $44.7 million in Q4 2022; and • EBITDA Margin was 26.5% in Q4 2023, compared to 27.0% in Q4 2022. Fiscal 2023 Compared to Fiscal 2022 Select highlights include the following: • Revenue was $648.0 million in Fiscal 2023, compared to $648.4 million in Fiscal 2022; • Operating income was $96.1 million in Fiscal 2023, compared to $110.3 million in Fiscal 2022; • Net income was $66.1 million in Fiscal 2023, compared to $76.3 million in Fiscal 2022; • Total comprehensive income was $60.7 million in Fiscal 2023, compared with $91.0 million in Fiscal 2022; • EBITDA was $163.8 million in Fiscal 2023, compared to $174.5 million in Fiscal 2022; • EBITDA Margin was 25.3% in Fiscal 2023, compared to 26.9% in Fiscal 2022; and • During Fiscal 2023, less than 1.0% of total revenue was derived from our clients that are involved in the Canadian supply of COVID-19 vaccines, compared with approximately 3.0% in Fiscal 2022 and approximately 4.0% in Fiscal 2021; and • On March 1, 2022, we acquired 100% of the issued and outstanding shares of LSU for consideration of approximately $26.7 million. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1004)(cid:3) 10 Andlauer Healthcare Group Inc. – 2023 Annual Report How We Assess the Performance of Our Business We have historically operated and managed our healthcare logistics and specialized transportation segments as separate businesses with separate management teams. Our healthcare logistics segment operates under the brand names Accuristix and LSU; and our specialized transportation segment operates under the brand names ATS Healthcare, ATS Dedicated, Boyle Transportation and Skelton Truck Lines. Following our initial public offering (“IPO”) completed December 11, 2019, both Accuristix and ATS Healthcare have continued to operate autonomously, each having its own management. Skelton, which we acquired on March 1, 2021, and Boyle Transportation and Skelton USA, which we acquired on November 1, 2021, which are reported in the specialized transportation segment, also operate autonomously, as they did prior to their respective acquisitions. Similarly, LSU, which we acquired on March 1, 2022, operates autonomously and is included in our healthcare logistics segment. Over time, as we grow, our operating segments may change. If this occurs, we will reflect the change in our reporting practices. Except for tractors (with respect to periods prior to Q3 2023) and trailers purchased by Skelton and Boyle Transportation, our operating segments conduct their businesses in a manner that limits capital investments. We prefer to lease facilities and certain equipment rather than allocating significant cash flows to capital expenditures. We believe our business model provides us with greater flexibility, cost savings and lower risks, as compared to more capital expenditure intensive models. Accordingly, lease costs comprise a significant component of our expenses. Under IFRS 16 – Leases (“IFRS 16”), leases have been capitalized, resulting in the costs associated with our leases being recorded as depreciation and interest expense. We believe that the cash flows associated with our lease payments are a relevant metric in evaluating the performance of our business. Revenue We generate revenue from the provision of supply chain solutions to the Canadian and United States healthcare sectors. Across our healthcare logistics and specialized transportation operating segments, we generate revenue across five principal product lines: logistics and distribution, packaging solutions, air freight forwarding, ground transportation, and dedicated and last mile delivery. Our healthcare logistics segment, which offers services under our Accuristix and LSU brands, generates revenue from the provision of logistics and distribution services and packaging solutions to our clients. Services are typically provided under master service agreements with terms that range from three to five years in length. Our logistics contracts typically include a single performance obligation that is satisfied over time as clients simultaneously receive and consume the benefits of our services. For this performance obligation, we recognize revenue at the invoiced amount since this amount corresponds directly to our performance and the value to the client. In some cases, our agreements include other performance obligations related to managing transportation and other client services which are included in our logistics and distribution product line. These services are typically priced at their stand-alone selling prices and are recognized over time as the client simultaneously receives and consumes the benefits of our services. Intersegment revenue generated by Credo Systems Canada Inc. from the sale of thermal packaging containers to ATS Healthcare, as well as intra-segment revenue between Accuristix and Nova Pack Ltd. (“Nova Pack”) is eliminated on consolidation. Our specialized transportation segment, which offers services under our ATS Healthcare, ATS Dedicated, Boyle Transportation and Skelton Truck Lines brands, generates revenue from the provision of specialized temperature-controlled, as well as non-temperature controlled, ground transportation, air freight forwarding and dedicated and last mile transportation services to our clients. Certain additional services are provided to clients as requested as part of their transportation contracts, such as chain of custody and other incidental services. Transportation revenue is recognized proportionally as a shipment moves from origin to destination (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1005)(cid:3) 11 Andlauer Healthcare Group Inc. – 2023 Annual Report and the related costs are recognized as incurred. Performance obligations are short-term, with transit typically taking less than one week. Generally, clients are billed upon shipment of the freight, and remit payment according to approved payment terms. Intersegment revenue generated by ATS Healthcare and Skelton from the provision of transportation services to Accuristix and LSU, on behalf of their logistics clients, is eliminated on consolidation. Our Boyle Transportation and Skelton USA subsidiaries provide specialized temperature-controlled services to healthcare companies in the United States, and, in the case of Boyle Transportation, to certain defense contractors and the U.S. Department of Defense. These companies, acquired in Fiscal 2021, align with our specialized transportation segment in all material respects except that they focus on full truckload ground transportation services, which traditionally realize lower margins than our ground transportation businesses in Canada. As is customary in our industry, most of our client contracts and transportation pricing terms include fuel- surcharge revenue programs or cost recovery mechanisms to mitigate the effect of fuel price increases over base amounts established in the contract. However, these fuel surcharge mechanisms may not capture the entire amount of changes in fuel prices, and there is also a lag between the payment for fuel and collection of surcharge revenue. Increases or decreases in fuel prices increase or reduce the cost of transportation and services, and will accordingly increase or reduce our revenues and may reduce or increase margins for certain product lines. During Fiscal 2022 and Fiscal 2023, fluctuations in diesel fuel prices have impacted both revenue and cost of transportation and services more significantly than in prior periods. Cost of Transportation and Services Our cost of transportation and services expense includes the cost of providing or procuring freight transportation to our clients. The cost of transportation and services for our specialized transportation segment includes: linehaul costs to connect our national network; pick-up and delivery costs paid to brokers, agents, and our drivers; fuel, toll fees and maintenance costs; and inbound and outbound handling costs which are largely comprised of hourly paid dock labour. The cost of transportation and services for our healthcare logistics segment includes purchased transportation services, including fuel surcharges, sourced from carriers. ATS Healthcare is the largest provider of transportation services to Accuristix and LSU, followed by Skelton. Intersegment purchased transportation expense is eliminated on consolidation. Direct Operating Expenses Direct operating expenses are both fixed and variable and consist of operating costs related to our facilities (including our distribution centres, branches and the cross-docks that we operate from). Direct operating expenses consist mainly of personnel costs and facility and equipment expenses such as property taxes, utilities, equipment maintenance and repair, costs of materials and supplies, security and insurance expenses. We note that under IFRS 16 the costs associated with our leases are not recognized in our direct operating expenses. Selling, General and Administrative Expenses Selling, General and Administrative (“SG&A”) expenses primarily consist of the cost of salaries and benefits for executive and certain administration functions, including information technology, sales and client service, finance and accounting, professional fees, facility costs, legal costs and other expenses related to the corporate infrastructure required to support our business. Depreciation & Amortization Depreciation and amortization charges comprise non-cash charges expensed on the statement of income and (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1006)(cid:3) 12 Andlauer Healthcare Group Inc. – 2023 Annual Report comprehensive income to spread the purchase price of assets over their useful lives. Within both of our operating segments, we lease facilities and certain equipment rather than allocating significant cash flows to capital expenditures. We believe this approach provides us with greater flexibility and lower risks and results in cost savings as compared to capital expenditure intensive models. Accordingly, lease costs comprise a significant component of our expenses. Under IFRS 16, leases have been capitalized, resulting in depreciation and interest expense rather than direct operating expense. Operating Income Operating Income measures the amount of profit derived from our operations after deducting operating expenses such as cost of transportation and services, direct operating expense, SG&A, and depreciation and amortization. We do not typically measure “cost of sales or gross profit” as we are a service business. Gain on Step Acquisition of Equity-Accounted Investee We completed our acquisition of Skelton USA in two separate transactions (49% on March 1, 2021 and the remaining 51% on November 1, 2021). In accordance with IFRS 3 – Business Combinations (“IFRS 3”), we re-measured our previously held equity interest in Skelton USA at its estimated fair value on November 1, 2021 resulting in a gain being recognized from the step acquisition in Fiscal 2021. Share of Profit of Equity-Accounted Investee, Net of Tax Following the acquisition of a 49% interest in Skelton USA on March 1, 2021, we determined that AHG did not control Skelton USA until the remaining 51% of Skelton USA was acquired on November 1, 2021. Accordingly, between March 1, 2021 and October 31, 2021, we accounted for our investment in Skelton USA using the equity method of accounting. Under the equity method of accounting, an equity investment is initially recorded at cost and is subsequently adjusted to reflect the investor’s share of the net profit or loss of the investee. From November 1, 2021 forward, Skelton USA is consolidated with AHG in accordance with IFRS 10 – Consolidated Financial Statements. Interest Expense Interest expense comprises interest charged to the statement of income and comprehensive income primarily in connection with leased facilities and equipment under IFRS 16, and for borrowings under our Credit Facilities. Interest Income Interest income comprises interest earned on cash and cash equivalents. In Fiscal 2021, we sub-leased a facility to a third party that had previously been classified as a right-of-use asset. We derecognized the net book value from right-of-use assets and established a net investment sub-lease in connection with this facility. Interest income includes interest generated by this sub-lease. Other Income/Expense Other income (expense) comprises income or expenses that do not arise from our main business, such as exchange gains (losses) and gains (losses) resulting from the sale of property, plant and equipment and certain other insignificant sources. Income Tax Expense/Recovery Income tax expense (recovery) comprises the amount that we have recognized in the accounting period related to our taxable income. Our effective tax rate is generally close to the statutory rate, but certain differences between income for tax and accounting income are recognized in the deferred income tax (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1007)(cid:3) 13 Andlauer Healthcare Group Inc. – 2023 Annual Report provision. Foreign Currency Translation Adjustment In preparing our consolidated financial statements, the financial statements of each entity are translated into Canadian dollars. The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates as at the balance sheet date. Revenues and expenses of foreign operations are translated to Canadian dollars at exchange rates that approximate those on the date of the underlying transaction. Foreign exchange differences are recognized in other comprehensive income and accumulated in equity in accumulated other comprehensive income. Non-IFRS Measures EBITDA We define EBITDA as net income for the period before: (i) income tax expense (recovery); (ii) interest income; (iii) interest expense; and (iv) depreciation and amortization. Net income is the most directly comparable IFRS financial measure disclosed in our financial statements to which EBITDA relates, and a reconciliation with this measure is presented under “Reconciliation of Non-IFRS Measures”. We believe EBITDA is a useful measure to assess our financial performance because it provides a more relevant picture of operating results by excluding the effects of expenses that are not reflective of our underlying business performance. In accordance with IFRS 3, when we obtained control of Skelton USA, we re-measured our previously held equity interest in our equity-accounted investee at its estimated fair value on November 1, 2021 resulting in a gain of $37.9 million being recognized from the step acquisition in Fiscal 2021. For comparative purposes with other periods, we have presented EBITDA and EBITDA Margin excluding the gain on step acquisition in this MD&A for Fiscal 2021. EBITDA Margin We define EBITDA Margin as EBITDA divided by revenue. EBITDA Margin represents a measure of our profitability expressed as a percentage of revenue. We believe EBITDA Margin is a useful measure to assess our financial performance because it helps quantify our ability to convert revenues generated from clients into EBITDA. Selected Consolidated Financial Information The following table summarizes our results of operations for the periods indicated. The selected consolidated financial information for Q4 2023, Q4 2022, Fiscal 2023, Fiscal 2022 and Fiscal 2021 has been derived from our consolidated financial statements and the related notes thereto. See “Reconciliation of Non-IFRS Measures” for quantitative reconciliations of net income to EBITDA. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1008)(cid:3) 14 Andlauer Healthcare Group Inc. – 2023 Annual Report Consolidated Statements of Income and Comprehensive Income ($CAD 000s) Revenue Logistics & distribution Packaging solutions Healthcare Logistics segment Ground transportation Air freight forwarding Dedicated and last mile delivery Three Months Ended December 31, 2023 2022 40,851 3,269 44,120 37,911 3,925 41,836 113,607 113,057 8,013 18,324 7,549 17,354 Year Ended December 31, 2022 2021 155,575 115,255 21,290 176,865 422,236 34,383 66,896 20,072 135,327 261,870 29,214 52,260 2023 159,168 16,761 175,929 429,174 30,595 68,821 Intersegment revenue (14,997) (14,024) (56,567) (51,957) (38,556) 124,947 169,067 123,936 165,772 472,023 647,952 471,558 648,423 304,788 440,115 Specialized Transportation segment Total revenue Operating expenses Cost of transportation and services Direct operating expense Selling, general and administrative expenses Depreciation & amortization Operating income Gain on step acquisition of equity- accounted investee Share of profit of equity-accounted investee, net of tax Interest expense Interest income Other (expense) income Income tax expense Net income Other comprehensive income Net income Foreign currency translation adjustment Total comprehensive income Earnings per share Earnings per share – basic Earnings per share – diluted Select financial metrics1 EBITDA1 EBITDA Margin1 EBITDA1 excluding gain on step acquisition EBITDA Margin1 excluding gain on step acquisition 85,790 25,083 12,829 17,321 141,023 28,044 - - 86,336 20,989 13,826 16,455 137,606 28,166 - - (2,476) (1,867) 396 63 (6,934) 19,824 19,824 (2,772) 17,052 770 (592) (7,185) 18,561 18,561 (5,021) 13,540 $ 0.45 $ 0.44 44,773 26.5% 328,493 103,829 51,428 68,149 551,899 96,053 - - (8,207) 3,170 (409) 322,844 102,280 48,502 64,452 538,078 110,345 - - (6,858) 599 (328) 201,784 84,861 37,051 42,716 366,412 73,703 37,921 2,469 (6,219) 198 368 (24,467) (27,483) (18,486) 66,140 76,275 89,954 66,140 (5,448) 60,692 76,275 14,743 91,018 89,954 2,889 92,843 $ 0.47 $ 0.46 $ 1.58 $ 1.55 $ 1.82 $ 1.79 $2.30 $2.25 44,684 27.0% 163,793 25.3% 174,469 26.9% 157,177 35.7% 44,773 44,684 163,793 174,469 119,256 26.5% 27.0% 25.3% 26.9% 27.1% 1 These are non-IFRS financial measures. See “How We Assess the Performance of Our Business – Non-IFRS Measures” for further information on these measures. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1009)(cid:3) 15 Andlauer Healthcare Group Inc. – 2023 Annual Report Consolidated Balance Sheets ($CAD 000s) Select financial position data Total assets Total non-current liabilities As At December 31, 2023 2022 2021 682,426 143,364 712,460 185,690 644,169 201,521 Consolidated Statements of Changes in Equity ($CAD 000s) Select financial data Dividends Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 2021 3,732 2,934 14,202 10,883 7,854 Reconciliation of Non-IFRS Measures The following table provides a reconciliation of net income to EBITDA for the periods indicated: ($CAD 000s) Net income Income tax expense Interest expense Interest income Depreciation and amortization EBITDA1 Gain on step acquisition of equity- accounted investee Three Months Ended December 31, 2023 18,561 7,185 2,476 (770) 17,321 44,773 2022 19,824 6,934 1,867 (396) 16,455 44,684 Year Ended December 31, 2022 76,275 27,483 6,858 2021 89,954 18,486 6,219 (599) (198) 64,452 174,469 42,716 157,177 2023 66,140 24,467 8,207 (3,170) 68,149 163,793 - - - - (37,921) EBITDA1 excluding gain on step acquisition 44,773 44,684 163,793 174,469 119,256 1 This is a non-IFRS financial measure. See “How We Assess the Performance of Our Business – Non-IFRS Measures” for further information on this measure. Results of Operations Three months ended December 31, 2023 compared with 2022 The following section provides an overview of our financial performance for Q4 2023 compared to Q4 2022. Revenue Revenue for Q4 2023 increased by 2.0% to $169.1 million, compared with $165.8 million in Q4 2022. The increase is primarily attributable to organic growth in our Canadian transportation network, partially offset by lower fuel surcharge revenue, a decline in our US-based truckload rates and reduced revenue related to COVID-19 vaccines and ancillary products. Our COVID-19 related revenue declined to approximately 1.0% of consolidated revenue in Q4 2023, compared to approximately 2.3% in Q4 2022. The increase in revenue was also impacted by the Q4 2022 reclassification of pass-through expenses in our logistics and distribution product line as discussed below. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1010)(cid:3) 16 Andlauer Healthcare Group Inc. – 2023 Annual Report Healthcare Logistics Segment Revenue in our healthcare logistics segment for Q4 2023 was $44.1 million, an increase of 5.5%, or approximately $2.3 million, compared with Q4 2022. The increase in revenue for this segment was primarily driven by the factors set out below. Logistics & Distribution Logistics and distribution revenue for Q4 2023 was $40.9 million, an increase of 7.8%, or approximately $2.9 million, compared with Q4 2022. The increase is primarily attributable to a reclassification of approximately $5.1 million of certain pass-through expenses to logistics and distribution revenue for LSU in accordance with IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”) during Q4 2022. This net revenue treatment has been consistently applied during Fiscal 2023.The increase was partially offset by lower outbound order handling and transportation activities for Accuristix and a decline in revenue related to COVID-19 vaccines and ancillary products. Packaging Solutions Packaging revenue for Q4 2023 was $3.3 million, a decrease of 16.7%, or approximately $0.7 million, compared with Q4 2022. The decline in packaging revenue primarily reflects the loss of one of our customers in Q1 2023, and lower volume from our remaining base of customers compared to Q4 2022. Specialized Transportation Segment Revenue in our specialized transportation segment for Q4 2023 was $124.9 million, an increase of 0.8%, or approximately $1.0 million, compared with Q4 2022. Revenue in this segment was primarily driven by the factors set out below. Ground Transportation Ground transportation revenue for Q4 2023 was $113.6 million, an increase of 0.5%, or approximately $0.6 million, compared with Q4 2022. The increase is primarily attributable to organic growth in our Canadian transportation network, partially offset by a decline in our US-based truckload rates, reduced revenue related to COVID-19 vaccines and ancillary products, and lower fuel costs passed through to customers as a component of our pricing compared to Q4 2022. Ground transportation revenue, excluding fuel, in our Canadian network increased by approximately 6.3%. We continued to experience a year-over-year decline in our US-based truckload rates as opportunities to obtain rate premiums in Fiscal 2022 due to pandemic- related equipment and driver shortages have diminished. We believe that our US-based revenue and related margins have returned to more normalized levels in Fiscal 2023 and we do not foresee a return to the premiums we generated in Fiscal 2022, which may impact our comparative growth and margins in future periods. Air Freight Forwarding Air freight forwarding revenue for Q4 2023 was $8.0 million, an increase of 6.1%, or approximately $0.5 million, compared to Q4 2022, as our clients shipped approximately 1.3% more weight in Q4 2023 compared with Q4 2022. This increase was partially offset by a lower volume of shipments. Dedicated and Last Mile Delivery Dedicated and last mile delivery revenue for Q4 2023 was $18.3 million, an increase of 5.6%, or approximately $1.0 million, compared with $17.4 million for Q4 2022. The increase reflects organic growth, partially offset by a reduction in fuel surcharge revenue. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1011)(cid:3) 17 Andlauer Healthcare Group Inc. – 2023 Annual Report Cost of Transportation and Services Cost of transportation and services for Q4 2023 was $85.8 million, or 50.7% of revenue, compared with $86.3 million, or 52.1% of revenue, for Q4 2022. Lower fuel costs in line with decreases in revenue related to fuel prices were largely offset by increased costs of transportation and services attributable to organic growth in our Canadian ground transportation network. Direct Operating Expenses Direct operating expenses were $25.1 million, or 14.8% of revenue, compared with $21.0 million, or 12.7% of revenue, for Q4 2022. The increase is primarily attributable to the impact of the reclassification of certain pass-through expenses in Q4 2022 to logistics and distribution revenue for LSU in accordance with IFRS 15, resulting in comparatively lower direct operating expenses for Q4 2022. This net revenue treatment has been consistently applied during Fiscal 2023. The increase in direct operating expenses in Q4 2023 was partially offset by a reduction in outbound order handling activities for Accuristix in line with lower revenue. Selling, General and Administrative Expenses SG&A expenses for Q4 2023 were $12.8 million, or 7.6% of revenue, compared with $13.8 million, or 8.3% of revenue, for Q4 2022. Our SG&A expenses are in line with our expected operating ratio as a percentage of revenue. Depreciation and Amortization Depreciation and amortization for Q4 2023 was $17.3 million, an increase of 5.3% compared with $16.5 million for Q4 2022. The increase was primarily attributable to investments in facilities and equipment to support our growth and the total amount is consistent as a percentage of our revenue at approximately 10% to 11%. Interest Expense Interest expense for Q4 2023 was $2.5 million compared with $1.9 million for Q4 2022. Interest expense related to leased facilities and equipment comprises the majority of interest expense; however, $0.6 million of interest expense for Q4 2023 was incurred in connection with our Credit Facilities, compared with $0.7 million in Q4 2022. The decrease was attributable to lower amounts drawn on our Credit Facilities, offset by increased interest rates. At this time, we expect to continue to hold debt under the Term Facility (as defined below), which does not have any repayment schedule except as a single repayment at the end of the four-year term and will incur interest expense until either early repayment or maturity on March 1, 2025. Interest Income Interest income for Q4 2023 was $0.8 million compared with approximately $0.4 million in Q4 2022. Interest income is generated on our cash and cash equivalents balances and has increased with higher interest rates. Other Income/Expense Other expense was $0.6 million for Q4 2023, compared with other income of approximately $0.1 million in Q4 2022. These amounts vary from quarter to quarter are not material to our overall performance for Q4 2023 and Q4 2022. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1012)(cid:3) 18 Andlauer Healthcare Group Inc. – 2023 Annual Report Income Tax Expense Income tax expense for Q4 2023 was $7.2 million compared with $6.9 million in Q4 2022. Our effective tax rate was close to the statutory rate of 26.5% for Q4 2023 and Q4 2022 after adjusting for non-deductible items such as share-based compensation expenses, taxes relating to previous years, and other negligible adjustments. Operating Income and Net Income Operating income for Q4 2023 was $28.0 million, a decrease of $0.2 million, or 0.4%, compared with $28.2 million for Q4 2022. The net decrease in operating income was primarily attributable to lower contributions from our Boyle Transportation and Skelton USA operations. Income before tax for the specialized transportation segment was $20.0 million for Q4 2023 compared with $20.3 million for Q4 2022. The decrease was primarily attributable to lower contributions from Boyle Transportation and Skelton USA, mostly offset by organic growth in our Canadian specialized transportation businesses. Income before tax for the healthcare logistics segment was $4.7 million for Q4 2023 compared with $6.0 million for Q4 2022. The decrease reflects reduced outbound order handling and transportation activities in line with the decrease in revenue for the period. Net income for Q4 2023 was $18.6 million compared with $19.8 million in Q4 2022. Lower segment net income before eliminations for our specialized transportation segment was primarily attributable to lower contributions from Boyle Transportation and Skelton USA; and lower segment net income from our healthcare logistics operating segment reflects reduced outbound order handling and transportation activities as discussed above. Foreign Currency Translation Adjustment Foreign exchange differences of $(5.0) million and $(2.8) million have been recognized in other comprehensive income for Q4 2023 and Q4 2022, respectively. These differences reflect assets and liabilities of Boyle Transportation and Skelton USA which have been translated to Canadian dollars at the exchange rates as at December 31, 2023 and 2022, respectively, and revenues and expenses which have been translated to Canadian dollars at exchange rates that approximate those on the date of the underlying transactions. Foreign exchange rates averaged approximately $1.3619 during Q4 2023 and approximately $1.3580 during Q4 2022. Total Comprehensive Income Total comprehensive income was $13.5 million for Q4 2023 compared to $17.1 million for Q4 2022. Total comprehensive income differs from net income due to our foreign operations (Boyle Transportation and Skelton USA) resulting in foreign currency translation adjustments as described above. EBITDA EBITDA for Q4 2023 was $44.8 million compared with $44.7 million for Q4 2022. The increase was due to the factors discussed above and primarily reflects organic growth in our Canadian specialized transportation network, partially offset by lower contributions from our US-based truckload businesses, reduced outbound order handling and transportation activities for Accuristix and lower revenue related to COVID-19 vaccines and ancillary products. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1005)(cid:1013)(cid:3) 19 Andlauer Healthcare Group Inc. – 2023 Annual Report EBITDA Margin EBITDA Margin for Q4 2023 was 26.5% compared with 27.0% for Q4 2022. The decrease was primarily attributable to lower margins in our US-based truckload businesses, partially offset by new business growth in our Canadian specialized transportation network. The performance of our two operating segments continues to result in strong and industry-leading EBITDA Margins. The margin profiles of Boyle Transportation and Skelton USA, which were in line with our consolidated EBITDA range throughout Fiscal 2022, have been impacted in Fiscal 2023 by post-pandemic macroeconomic factors, such as increased equipment and driver availability, resulting in fewer opportunities to obtain rate premiums. We believe that our US-based truckload rates and related margins have returned to more normalized levels in Fiscal 2023, and we do not foresee a return to the premium levels we generated in Fiscal 2022, which may impact our comparative growth and margins in future periods. Year ended December 31, 2023 compared with 2022 The following section provides an overview of our financial performance for Fiscal 2023 and Fiscal 2022. Revenue Revenue for Fiscal 2023 decreased by 0.1% to $648.0 million, compared with $648.4 million in Fiscal 2022. Revenue attributable to organic growth in our Canadian specialized transportation business accounted for an increase of approximately $14.0 million from Fiscal 2022 to Fiscal 2023, which was offset by lower fuel surcharge revenue, downward pressure on our US-based truckload rates, reduced revenue related to COVID-19 vaccines and ancillary products, and a revenue decline in our packaging business. Healthcare Logistics Segment Revenue in our healthcare logistics segment for Fiscal 2023 was $175.9 million, a decrease of 0.5%, or approximately $0.9 million, compared with Fiscal 2022. The decline in revenue in this segment was primarily driven by the factors set out below. Logistics & Distribution Logistics and distribution revenue for Fiscal 2023 was $159.2 million, an increase of 2.3%, or approximately $3.6 million, compared with $155.6 million in Fiscal 2022. Approximately $5.5 million of the increase was attributable to a full year contribution from LSU (acquired on March 1, 2022), and approximately $2.8 million was attributable to organic growth. These increases were partially offset by approximately $4.7 million of reduced revenue related to COVID-19 vaccines and ancillary products. Packaging Solutions Packaging revenue for Fiscal 2023 was $16.8 million, a decrease of 21.3%, or approximately $4.5 million, compared with Fiscal 2022. The decline in packaging revenue reflects the loss of a customer in Q1 2023 and reduced volume from our remaining base of customers during Fiscal 2023. Specialized Transportation Segment Revenue in our specialized transportation segment for Fiscal 2023 was $472.0 million, an increase of 0.1%, or approximately $0.5 million, compared with $471.6 million in Fiscal 2022. The increase in revenue in this segment was primarily driven by the factors set out below. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1004)(cid:3) 20 Andlauer Healthcare Group Inc. – 2023 Annual Report Ground Transportation Ground transportation revenue for Fiscal 2023 was $429.2 million, an increase of 1.6%, or approximately $6.9 million, compared with Fiscal 2022. The increase was attributable to organic growth for ATS Healthcare and Skelton Canada, partially offset by lower truckload revenue from our US subsidiaries, Boyle Transportation and Skelton USA, and reduced revenue related to COVID-19 vaccines and ancillary products. Increases in fuel-related revenue driven by increased fuel surcharges in Q1 2023 were offset by decreases in fuel related surcharges in the remainder of Fiscal 2023. Air Freight Forwarding Air freight forwarding revenue for Fiscal 2023 was $30.6 million, a decrease of 11.0%, or approximately $3.8 million, compared with Fiscal 2022. The decrease was attributable to an approximate 16.5% volume decline in Fiscal 2023 compared to Fiscal 2022, primarily reflecting unusually high air freight forwarding shipment volume in Q2 2022. Air freight forwarding volume and revenue are in line with our expectations for Fiscal 2023. Dedicated and Last Mile Delivery Dedicated and last mile delivery revenue for Fiscal 2023 was $68.8 million, an increase of 2.9%, or approximately $1.9 million, compared with Fiscal 2022. The increase was attributable to expanded routes for existing clients, partially offset by reduced fuel-related revenue passed on to clients reflecting decreased fuel costs during Q2 2023 through Q4 2023 compared with the same periods in Fiscal 2022. Cost of Transportation and Services Cost of transportation and services for Fiscal 2023 was $328.5 million, or 50.7% of revenue, compared with $322.8 million, or 49.8% of revenue, for Fiscal 2022. The increase reflects greater ground shipment volume related to ATS Healthcare and Skelton, partially offset by lower fuel costs compared with Fiscal 2022. The increase in operating ratio was primarily attributable to lower pricing in our US-based truckload businesses (Boyle Transportation and Skelton USA) as opportunities to obtain rate premiums in Fiscal 2023 related to COVID-19 tailwinds and equipment and driver shortages have diminished. Direct Operating Expenses Direct operating expenses for Fiscal 2023 were $103.8 million, or 16.0% of revenue, compared with $102.3 million, or 15.8% of revenue, for Fiscal 2022. The increase was primarily attributable to the full-year impact of our acquisition of LSU on March 1, 2022. Selling, General and Administrative Expenses SG&A expenses for Fiscal 2023 were $51.4 million, or 7.9% of revenue, compared with $48.5 million, or 7.5% of revenue, for Fiscal 2022. The increase reflects investments in our business growth and the total amount is in line with our expected SG&A expenses as a percentage of revenue. Depreciation and Amortization Depreciation and amortization for Fiscal 2023 was $68.1 million, an increase of 5.7%, or $3.7 million, compared with $64.5 million for Fiscal 2022. The increase was primarily attributable to organic growth and the total amount is consistent as a percentage of our revenue at approximately 10% to 11%. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1005)(cid:3) 21 Andlauer Healthcare Group Inc. – 2023 Annual Report Other Income/Expense Other expense for Fiscal 2023 was $0.4 million compared with $0.3 million for Fiscal 2022. These amounts are immaterial to our overall performance for these periods. Interest Income Interest income for Fiscal 2023 was $3.2 million compared with $0.6 million for Fiscal 2022. Interest income is generated on our cash and cash equivalents balances and reflects higher cash balances and interest rates in Fiscal 2023. Interest Expense Interest expense for Fiscal 2023 was $8.2 million compared with $6.9 million for Fiscal 2022. Interest expense related to leased facilities and equipment comprises the majority of interest expense; however, $3.0 million of interest expense was incurred in Fiscal 2023 in connection with the Credit Facilities, compared to $2.0 million in Fiscal 2022. At this time, we expect to continue to hold debt under the Term Facility, which does not have any repayment schedule except as a single repayment at the end of the term and will incur interest expense on the Term Facility until either early repayment or maturity on March 1, 2025. Income Tax Expense Income tax expense for Fiscal 2023 was $24.5 million compared with $27.5 million for Fiscal 2022. Our effective tax rate was close to the statutory rate of 26.5% for both Fiscal 2023 and Fiscal 2022 after removing the effect of non-deductible share-based compensation expenses. Operating Income and Net Income Operating income for Fiscal 2023 was $96.1 million, a decrease of $14.3 million, or 13.0%, compared with $110.3 million for Fiscal 2022. Approximately $10.9 million of the decrease was attributable to lower margins in our US-based truckload businesses as described above. The remaining decrease in operating income was attributable to lower revenue generated from COVID-19 related business, lower outbound volume in Accuristix in Q3 2023 and Q4 2023, and lower air freight forwarding revenue in Q2 2023 compared to Q2 2022, partially offset by organic growth in our Canadian ground transportation network. Net income for Fiscal 2023 decreased by 13.3%, or $10.1 million, to $66.1 million, from $76.3 million for Fiscal 2022. Lower segment net income before eliminations for our specialized transportation operating segment, primarily attributable to reduced US-based truckload rates and related margins and lower air freight forwarding revenue in Q2 2023, contributed to our decreased profitability on a consolidated basis. Foreign Currency Translation Adjustment Foreign exchange adjustments of $(5.4) million and $14.7 million have been recognized in other comprehensive income for Fiscal 2023 and Fiscal 2022, respectively. This reflects assets and liabilities of Skelton USA and Boyle Transportation which have been translated to Canadian dollars at the exchange rates as at December 31, 2023 and 2022, respectively, and revenues and expenses which have been translated to Canadian dollars at exchange rates that approximate those on the date of the underlying transaction. Total Comprehensive Income Total comprehensive income attributable to the owners of the Company was $60.7 million for Fiscal 2023 compared to $91.0 million for Fiscal 2022. Total comprehensive income differs from net income due to our foreign operations (Skelton USA and Boyle Transportation) resulting in foreign currency translation (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1006)(cid:3) 22 Andlauer Healthcare Group Inc. – 2023 Annual Report adjustments as described above. EBITDA EBITDA for Fiscal 2023 decreased by 6.1% to $163.8 million, from $174.5 million for Fiscal 2022. The decrease in EBITDA was due to the factors discussed above. EBITDA Margin EBITDA Margin for Fiscal 2023 was 25.3% compared with 26.9% for Fiscal 2022 and is in line with our pre-pandemic historical range of EBITDA Margins. Summary of Quarterly Results While there is no significant seasonality to our business, our results are impacted by our clients’ storage and shipping activities throughout the year as well as the timing of new client implementations or exits. The table below sets out our results for each of the eight most recently completed quarters (unaudited): ($CAD 000s) except per share data Q4-23 Q3-23 Q2-23 Q1-23 Q4-22 Q3-22 Q2-22 Q1-22 Total revenue Operating income Net income 169,067 156,754 157,357 164,774 165,772 164,898 169,402 148,351 28,044 21,724 22,595 23,690 28,166 27,860 30,157 24,162 18,561 15,335 15,716 16,528 19,824 18,995 20,985 16,471 Total comprehensive income 13,540 20,147 10,677 16,328 17,052 32,902 27,560 13,504 EBITDA1 Earnings per share – basic Earnings per share - diluted 44,773 39,011 39,540 40,469 44,684 44,072 46,327 39,386 $0.45 $0.44 $0.37 $0.36 $0.37 $0.39 $0.47 $0.45 $ 0.50 $ 0.39 $0.37 $0.39 $0.46 $0.44 $ 0.49 $ 0.39 1 This is a non-IFRS financial measure. See “How We Assess the Performance of Our Business – Non-IFRS Measures” for further information on this measure. Generally, changes in revenue generated through the past eight quarters reflect changes in shipping volumes from our clients, variable fuel surcharge rates, premium U.S. ground transportation rates in Fiscal 2022, and the impact of price increases which are contractually implemented in both of our operating segments annually or as contracts are renegotiated. Our acquisitions of Boyle Transportation and the remaining 51% of Skelton USA in Q4 2021, and LSU in Q1 2022 have driven step change increases in revenue as well. Several factors, described above, impacted lower revenue in Q2 2023 and Q3 2023 compared to the previous four quarters, including a decline in fuel surcharge revenues driven by lower diesel fuel prices, which are passed on to customers as a component of our pricing. Average fuel prices increased by approximately 6% in Q4 2023 from Q3 2023 but remained approximately 14% below levels experienced in Q4 2022. Average fuel prices increased by approximately 10% in Q3 2023 from Q2 2023 but remained approximately 13% below levels experienced in Q3 2022. Average diesel fuel prices declined from Q2 2022 to Q3 2022, then increased from Q3 2022 to Q4 2022, remained relatively stable in Q4 2022 and then increased again in Q1 2023 before declining in Q2 2023. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1007)(cid:3) 23 Andlauer Healthcare Group Inc. – 2023 Annual Report Since Fiscal 2021, we have supported the distribution of COVID-19 vaccines and related products, such as test kits and personal protective equipment. Revenue related to COVID-19 declined as a percentage of our total revenue throughout Fiscal 2022 from approximately 5.5% in Q2 2022 to approximately 2.3% in Q4 2022 and declined to less than 1% in Fiscal 2023. We do not expect any appreciable revenue related to COVID-19 beyond Fiscal 2023. Operating income, net income, comprehensive income, and EBITDA have continued to perform in line with revenue over the past eight quarters. Fiscal 2023 EBITDA margins in our US-based truckload businesses returned to more normalized, pre-pandemic levels and negatively impacted our consolidated margins in Fiscal 2023 relative to Fiscal 2022 by approximately 2.0%. Our EBITDA margin improved in Q4 2023 due to new business growth in our ATS Healthcare business. We completed our acquisition of Skelton USA in two separate transactions (49% on March 1, 2021 and the remaining 51% on November 1, 2021). Accordingly, in accordance with IFRS 3, we re-measured our previously held equity interest in Skelton USA at its estimated fair value on November 1, 2021 resulting in a gain of $37.9 million being recognized in income from the step acquisition. Net income, total comprehensive income, EBITDA and earnings per share figures for Q4 2021 reflect this gain. Liquidity & Capital Resources Overview Our principal uses of funds are for operating expenses, taxes, interest, capital expenditures, lease payments and dividends. We believe that cash generated from our operations, together with amounts available under our Credit Facilities will be sufficient to meet our future operating expenses, taxes, interest, capital expenditures, lease payments and any dividends that may be declared by our board of directors. However, our ability to fund operating expenses, taxes, interest, capital expenditures and future lease payments will depend on, among other things, our future operating performance, which will be affected by general economic, financial and other factors, including factors beyond our control. See “Accounting Classifications and Fair Values”, “Summary of Factors Affecting Performance” and “Risk Factors” in this MD&A. We review potential acquisitions and investment opportunities in the normal course of our business and may make select acquisitions and investments to implement our growth strategy when suitable opportunities arise. Our tuck-in acquisitions of TDS and MCI in October 2020 for a purchase price of approximately $15.9 million in cash were funded from existing cash flow from operations. We financed the acquisitions of Skelton and the initial 49% of Skelton USA in March 2021 through a combination of cash on hand and by drawing $50.0 million on our Revolving Credit Facility and $25.0 million on our Term Facility, and by issuing $25.0 million of Subordinate Voting Shares to the shareholders of Skelton and Skelton USA. During Fiscal 2021, we repaid $39.0 million of the $50.0 million initially drawn on our Revolving Credit Facility in connection with the Skelton and Skelton USA acquisitions. On November 1, 2021, we completed the acquisitions of 100% of Boyle Transportation and the remaining 51% of Skelton USA, increasing our aggregate ownership of Skelton USA to 100%. The aggregate purchase price for the acquisition of Boyle Transportation was approximately US$83.0 million ($104.7 million), of which approximately US$63.0 million was paid in cash and US$20.0 million was satisfied by issuing 522,116 Subordinate Voting Shares to the shareholders of Boyle Transportation. The aggregate purchase price for the acquisition of the remaining 51% interest in Skelton USA was approximately $44.8 million, of which $19.8 million was paid in cash and $25 million was satisfied by issuing 518,672 Subordinate Voting Shares to the shareholders of Skelton USA. The cash portion of the purchase price for each acquisition was funded through the completion of a bought deal equity offering on October 26, 2021, pursuant to which AHG issued 2.0 (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1008)(cid:3) 24 Andlauer Healthcare Group Inc. – 2023 Annual Report million Subordinate Voting Shares from treasury for gross proceeds of $96.4 million to the Company, with the remaining amounts funded from existing cash flow from operations. On March 1, 2022, we acquired LSU for approximately $26.7 million. We satisfied the purchase price through the issuance of 154,639 Subordinate Voting Shares to the shareholders of LSU and cash of approximately $19.2 million comprising the cash portion of the purchase price net of provisional customary working capital adjustments. We financed the cash portion of the purchase price through a combination of cash on hand and by drawing on our Revolving Credit Facility. During Fiscal 2022, we repaid $23.0 million of the amounts drawn on our Revolving Credit Facility in connection with the LSU and Skelton acquisitions. As at December 31, 2023, there was $nil drawn on our Revolving Credit Facility. During Fiscal 2023, cash from operating activities continued to build our cash and cash equivalents balance. On March 24, 2023, the Company announced a NCIB as described below. As of December 31, 2023, a total of 474,740 Subordinate Voting Shares, for a total of approximately $18.8 million, have been purchased and cancelled pursuant to the NCIB. Working Capital The following table presents our working capital position as at December 31, 2023 and 2022: ($CAD 000s) Cash and cash equivalents Trade and other receivables Income taxes receivable Inventories Prepaid expenses and other Due from related parties Accounts payable and accrued liabilities Current portion of lease liabilities Income taxes payable Working Capital As at December 31, 2023 59,740 102,206 1,230 5,329 6,605 1 (41,795) (27,697) - 105,619 2022 65,855 98,423 - 3,326 4,416 56 (42,918) (26,547) (16,313) 86,298 As at December 31, 2023, we had working capital of $105.6 million compared with working capital of $86.3 million as at December 31, 2022. The $19.3 million increase in working capital is primarily attributable to the consistent profitability of our business, net of a $25.0 million repayment on our Term Facility as described below. Credit Facilities We entered into credit facilities upon closing of our IPO, comprised of a revolving credit facility (the “Revolving Credit Facility”) in the aggregate principal amount of up to $75.0 million and a term facility (the “Term Facility”, and together with the Revolving Credit Facility, the “Credit Facilities”) in the aggregate principal amount of up to $25.0 million. On February 19, 2021, in connection with our acquisitions of Skelton and 49% of Skelton USA, we amended our Credit Facilities to increase the amounts available to be drawn under the Revolving Credit Facility and the Term Facility each by $25.0 million. The amended Credit Facilities comprise a Revolving Credit Facility in the aggregate principal amount of up to $100.0 million and a Term Facility in the aggregate principal amount of up to $50.0 million. The remaining terms and conditions of the Credit Facilities remain unchanged, except that they will mature and be due and payable on March 1, 2025. On August 31, 2023, the Company repaid $25.0 million on its Term Facility. As at December 31, 2023, (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1009)(cid:3) 25 Andlauer Healthcare Group Inc. – 2023 Annual Report the aggregate amount outstanding before financing costs under the Credit Facilities was $25.0 million under the Term Facility and $nil under the Revolving Credit Facility. The Revolving Credit Facility is available to be drawn in Canadian dollars by way of prime rate loans, bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans and letters of credit, in each case, plus the applicable margin in effect from time to time. The Term Facility was drawn in a single Canadian dollar advance of $25.0 million on closing of the IPO by way of prime rate loans and was subsequently converted to bankers’ acceptances and increased by a single Canadian dollar advance of $25.0 million by way of bankers’ acceptances in connection with the Skelton acquisitions on March 1, 2021. The Credit Facilities are subject to customary negative covenants and include financial covenants requiring us to maintain at all times a maximum net leverage ratio and a minimum interest coverage ratio, tested on a quarterly basis. As at December 31, 2023, we were in compliance with all of the covenants under the Credit Facilities. In order to support future potential growth through acquisitions, the Credit Facilities also include an accordion feature to allow us to increase the commitment under one or both of the Credit Facilities in an aggregate principal amount of up to $100.0 million, such that any amounts drawn under the accordion feature would be in addition to the amounts ordinarily available, subject to the agreement of participating lenders and provided that we are not, or would not, be in default under the Credit Facilities, or in non-compliance with any financial covenants and an event of default does not or would not exist, after giving effect thereto and provided that all representations and warranties are true and correct immediately prior to, and after giving effect to, such increase. As of the date of this MD&A, this accordion feature remains uncommitted. Capital Expenditures Capital expenditures for Q4 2023 and Fiscal 2023 were $7.6 million and $23.5 million, respectively, compared with $11.0 million and $25.7 million, for Q4 2022 and Fiscal 2022, respectively. Capital expenditures have historically been funded through cash flows from operations. We have traditionally divided our capital expenditures into two subcategories, capital expenditures (maintenance) and capital expenditures (growth), which are discussed further below. Skelton and Boyle Transportation have traditionally purchased their fleets, whereas ATS Healthcare and Skelton USA have historically leased their equipment. As our operating segments run autonomously, we expected these entities to continue their past practices, however the Company has evaluated different lease versus purchase scenarios for its fleets in order to optimize its free cash flow and maintain operational efficiency moving forward. Starting from Q3 2023, the Company will generally seek to lease trucks and tractors and purchase trailers for the foreseeable future to ensure that its tractor fleet continues to run the most fuel efficient and latest diesel engines; and will generally seek to purchase trailers to ensure that their underlying useful lives are maximized. Beyond this evaluation, there are no known trends or expected fluctuations in our capital resources, including expected changes in the mix and relative cost of these resources. Capital Expenditures (Maintenance) Maintenance capital expenditures refers to capital expenditures necessary for us to sustain our assets in order to continue operating in our current form. We generally seek to maintain our facilities and equipment at a level consistent with the needs of the sector we operate within and ensure that preventative maintenance programs are in place to achieve the performance expected from our facilities and equipment. Outlays for maintenance capital expenditures for Q4 2023 and Fiscal 2023 were $7.2 million and $12.2 million, respectively, compared with $7.0 million and $13.3 million for Q4 2022 and Fiscal 2022, respectively. These capital expenditures were funded through cash flows from operations. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1010)(cid:3) 26 Andlauer Healthcare Group Inc. – 2023 Annual Report Capital Expenditures (Growth) Growth capital expenditures comprise expenditures on new assets that are intended to grow our productive capacity. These capital expenditures are made to acquire or expand leasehold improvements, transportation and logistics equipment (including pick-up and delivery equipment, warehouse racking, material handling equipment, warehouse automation equipment and specialized logistics equipment such as coolers or vaults, among others), furniture and fixtures, and computer equipment to support new contracts or additional volume from new business. Outlays for growth capital expenditures for Q4 2023 and Fiscal 2023 were $0.4 million and $11.3 million, respectively, compared with $4.0 million and $12.5 million in Q4 2022 and Fiscal 2022, respectively. Growth capital expenditures can range from $5.0 million to over $15.0 million in any given fiscal year, depending on the underlying expansion need. Growth capital expenditures have also historically been funded through cash flows from operations. Growth capital expenditures for Fiscal 2023 and Fiscal 2022 relate primarily to the purchase of new tractors and trailers and include approximately $1.4 million in Fiscal 2023 related to warehouse equipment for a new LSU facility in Laval, Québec. Growth capital expenditures for Q4 2022 were primarily attributable to the purchase of trailers for Skelton and Boyle and warehouse equipment for LSU. We are implementing the Tecsys Itopia® platform, a healthcare logistics ‘software as a service’ platform, to replace our prior warehouse management system (“WMS”). Tecsys Inc. is a supply chain management software company, and its technology stack will provide us with updated warehouse management and transportation management capabilities as well as end-to-end analytics and business intelligence. Our first client went live on our new WMS in Q4 2022. Implementations continued throughout Fiscal 2023 and will continue into Fiscal 2024. In Fiscal 2023, we capitalized $1.4 million to intangible assets in connection with our new WMS. Cash Flows The following table presents cash flows for the three months and year ended December 31, 2023 and 2022: ($CAD 000s) Cash flows Cash from Operating Activities Cash (used in) Financing Activities Cash (used in) Investing Activities Effect of foreign currency translation1 Net change in cash Select cash flow data Capital expenditures Lease payments Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 25,164 (25,263) (7,941) (505) (8,545) 36,745 104,419 137,128 (10,110) (10,928) (535) 15,172 (86,182) (23,848) (504) (6,115) (51,587) (45,557) 881 40,865 (7,630) (8,182) (11,023) (8,506) (23,523) (32,358) (25,748) (33,822) 1 Comprises the effect of differences in exchange rates for U.S. dollar opening balance sheet cash balances on January 1, 2023 and 2022 versus December 31, 2023 and 2022 for Boyle Transportation and Skelton USA. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1011)(cid:3) 27 Andlauer Healthcare Group Inc. – 2023 Annual Report Cash Flow Generated From Operating Activities Cash flow generated from operating activities for Q4 2023 and Fiscal 2023 totaled $25.2 million and $104.4 million, respectively, compared with $36.7 million and $137.1 million for Q4 2022 and Fiscal 2022, respectively. The decrease in cash flows generated from operating activities relates principally to lower EBITDA margins in Fiscal 2023 compared with Fiscal 2022 and normal fluctuations in trade accounts receivable, trade accounts payable and other working capital balances. During Fiscal 2023 we made income tax installments based on Fiscal 2022 income taxes, resulting in an over installment of income taxes for Fiscal 2023 due to reduced operating income from our US-based truckload businesses. Accordingly, the Company has $1.2 million of income taxes receivable as at December 31, 2023. Cash Flow Used In Financing Activities Cash flow used in financing activities for Q4 2023 and Fiscal 2023 totaled $25.3 million and $86.2 million, compared with $10.1 million and $51.6 million for Q4 2022 and Fiscal 2022, respectively. On March 1, 2022, we made a $12.0 million draw on our Revolving Credit Facility in connection with the acquisition of LSU of which we repaid $5.0 million by the end of Q3 2022. On August 31, 2023, we made a $25.0 million repayment on our Term Facility. In Q3 2023 and Q4 2023 we purchased 107,740 and 367,000 Subordinate Voting Shares, respectively, for $4.4 million and $14.4 million, respectively, pursuant to our NCIB as described below. The remaining cash flows used in financing activities in Q4 2023 and Q4 2022 and Fiscal 2023 and Fiscal 2022, respectively, relate principally to ordinary course repayments of lease liabilities and related party balances. In Q3 2023 and Q1 2023, we increased our quarterly dividend to $0.09 (from $0.08) and to $0.08 (from $0.07) per Subordinate Voting Share and Multiple Voting Share, respectively. Cash Flow Used In Investing Activities Cash flow used in investing activities for Q4 2023 and Fiscal 2023 totaled $7.9 million and $23.8 million, respectively, compared with $10.9 million and $45.6 million for Q4 2022 and Fiscal 2022, respectively. The decrease in Fiscal 2023 compared to Fiscal 2022 was primarily attributable to our acquisition of LSU in Q1 2022 which comprised $21.8 million net of cash acquired. The remaining amounts, comprised normal course expenditures on property, plant and equipment, and intangible assets. Contractual Obligations As at December 31, 2023, we had the following contractual commitments: • Outstanding letters of guarantee in the amount of $0.4 million (December 31, 2022 – $0.4 million); • Commitments relating to the leasing of fleet equipment, ranging from 72 to 84 months, beginning upon delivery to us of the equipment in Fiscal 2024, for total lease commitments of $12.9 million (December 31, 2022 – $11.4 million); and • Commitments to purchase fleet equipment expected to be delivered during Fiscal 2024 totaling $4.8 million (December 31, 2022 – $10.1 million). Credit facilities As at December 31, 2023, the aggregate amounts outstanding under the Credit Facilities were $25.0 million under the Term Facility (December 31, 2022 – $50.0 million) and $nil under the Revolving Credit Facility (December 31, 2022 – $nil) before capitalized financing costs. The Credit Facilities will mature and be due and payable on March 1, 2025. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1012)(cid:3) 28 Andlauer Healthcare Group Inc. – 2023 Annual Report Leases We lease buildings and equipment in the operation of our healthcare logistics and specialized transportation operating segments. Building lease terms range from five to 10 years, with many leases including optional extension periods. For Fiscal 2023, facility lease liabilities are calculated using our average incremental borrowing rate of 5.76% (Fiscal 2022 – 5.20%). Equipment lease terms range from one to seven years. For Fiscal 2023, equipment lease liabilities are calculated using our average incremental borrowing rate of 5.94% (Fiscal 2022 – 4.87%) for our specialized transportation segment and 5.74% (Fiscal 2022 – 5.49%) for our healthcare logistics segment. The following table summarizes our contractual obligations as at December 31, 2023 based on undiscounted cash flows: ($CAD 000s) Credit facilities Lease liabilities Equipment purchases and lease commitments Other obligations Total contractual obligations Off-Balance Sheet Arrangements Total 25,000 114,298 17,774 84,956 242,028 Less than 1 Year 1-5 Years More than 5 years - 32,285 6,836 41,795 80,916 25,000 76,377 10,938 43,161 155,476 - 5,636 - - 5,636 We have no off-balance sheet arrangements that have, or are reasonably expected to have, a current or future material impact on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Seasonality There is no significant seasonality to our business. Financial Instruments Financial assets Accounts receivable are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when we become a party to the contractual provisions of the instrument. A financial asset (unless it is an account receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss, transaction costs that are directly attributable to its acquisition or issue. An account receivable without a significant financing component is initially measured at the transaction price. Our financial assets are comprised of cash and cash equivalents, accounts receivable, and long-term deposits. On initial recognition, we classify these financial assets as measured at amortized cost, when both of the following conditions are met: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These financial assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1006)(cid:1013)(cid:3) 29 Andlauer Healthcare Group Inc. – 2023 Annual Report impairment are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss. Impairment of financial assets Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been decreased. For accounts receivable, we apply a simplified approach in calculating expected credit losses (“ECLs”). Therefore, we do not track changes in credit risk but instead recognize a loss allowance based on lifetime ECLs at each reporting date. We have established a provision matrix that is based on our historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. When an account receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. Financial liabilities Our financial liabilities are comprised of accounts payable and accrued liabilities, lease liabilities, income taxes payable and amounts due from related parties. Our financial liabilities are measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on de-recognition is also recognized in profit or loss. Foreign exchange contracts The Company, from time to time, uses foreign exchange contracts to manage certain exposures to fluctuations in foreign exchange rates as part of its overall risk management program. Earnings impacts from derivatives used to manage a particular risk are reported as part of other comprehensive income. There were no foreign exchange contracts in place during Fiscal 2023 or as at December 31, 2023 or throughout Fiscal 2022. Related Party Transactions Intercompany balances and transactions have been eliminated in our consolidated financial statements for the periods ended December 31, 2023 and 2022. During Fiscal 2023 and Fiscal 2022, we entered into transactions with related parties that were incurred in the normal course of business. Our policy is to conduct all transactions and settle all balances with related parties at market terms and conditions. All outstanding balances with these related parties are measured at amortized cost and are to be settled in cash within two months of the reporting date. None of the balances are secured. No expense has been recognized in the current year or prior year for bad or doubtful debts in respect of amounts owed by related parties. Certain of our operating units provide services to other operating units outside of their reportable segment. Billings for such services are based on negotiated rates, which approximate fair value, and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results. Michael Andlauer, our Chief Executive Officer (“CEO”), is also our Chief Operating Decision Maker (“CODM”). The CODM regularly reviews financial information at the operating segment level in order to make decisions about resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODM (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1004)(cid:3) 30 Andlauer Healthcare Group Inc. – 2023 Annual Report include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. We evaluate performance based on the various financial measures of our two operating segments. The amounts below are expressed in thousands of Canadian dollars, unless otherwise specified. Andlauer Management Group Inc. As of the date hereof, Andlauer Management Group Inc. (“AMG”) holds all of the Multiple Voting Shares of the Company (the “Multiple Voting Shares” and, together with the Subordinate Voting Shares, the “Shares”) and 10,200 Subordinate Voting Shares, representing approximately 52.9% of the issued and outstanding Shares and 81.8% of the voting power attached to all of the Shares. AMG is owned and controlled by Michael Andlauer, our CEO and a director of the Company. We undertake a limited amount of administrative shared services for AMG. We expect to continue to incur and recover such costs in connection with AMG. For Fiscal 2023, we charged AMG $14 (Fiscal 2022 – $13) for recovery of shared services costs. Andlauer Properties and Leasing Inc. Andlauer Properties and Leasing Inc. (“APLI”) is a subsidiary of AMG and leases certain facilities and logistics and transportation equipment to us. We also lease facilities and logistics and transportation equipment from arm’s length providers. During Fiscal 2023, we paid $2,237 (Fiscal 2022 - $2,301) for leases of logistics and transportation equipment; and $2,239 (Fiscal 2022 - $2,163) for leases of facilities from APLI. The specific facilities that we lease from APLI are located at: 881 Bell Blvd. W, Belleville, Ontario; 18 Sandbourne Dr., Pontypool, Ontario; 80 – 14th Avenue, Hanover, Ontario; 465 Ofield Road South, Dundas, Ontario; 605 Max Brose Drive, London, Ontario; and 5480 61 Avenue SE, Calgary, Alberta. We expect to continue leasing properties and equipment from APLI. For Fiscal 2023, we charged APLI $19 (Fiscal 2022 - $20) for recovery of shared services costs. 9143-5271 Québec Inc. 9143-5271 Québec Inc. is a subsidiary of AMG and leases a facility located at 655 Desserte E. Hwy 13, Laval, Québec to AHG. We also lease facilities from arm’s length providers. During Fiscal 2023, we paid $1,544 (Fiscal 2022 - $1,532) for this building. We expect to continue leasing this property. For Fiscal 2023, we charged 9143-5271 Québec Inc. $32 (Fiscal 2022 - $32) for recovery of shared services costs. Ready Staffing Solutions Inc. Ready Staffing Solutions Inc. (“RSS”), a company owned by Mr. Andlauer’s spouse, provides us with temporary agency employee services – providing hourly dock labour for our handling operations, principally in the Greater Toronto Area. We also purchase temporary agency employee services from arm’s length providers. During Fiscal 2023, we expensed $6,503 (Fiscal 2022 - $6,517) for purchases of temporary agency employee services from RSS. We expect to continue purchasing temporary agency services from RSS. 1708998 Ontario Limited (Medical Courier Services) Medical Courier Services (“MCS”) is a subsidiary owned 80% by AMG and provides transportation services to us, providing extended reach for shipments where we do not have our own facilities or equipment. During Fiscal 2023, we expensed $151 (Fiscal 2022 - $147) for deliveries subcontracted to MCS. We expect to continue subcontracting deliveries to MCS. Similarly, in Fiscal 2023 we invoiced MCS for $215 (Fiscal 2022 - $173) for transportation services provided to MCS. For Fiscal 2023, we charged MCS $24 (Fiscal 2022 - $13) for recovery of shared services costs. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1005)(cid:3) 31 Andlauer Healthcare Group Inc. – 2023 Annual Report Med Express Ltd. Med Express Ltd. (“MEL”) is a subsidiary owned 100% by AMG. MEL provides transportation services to AHG, providing extended reach for shipments where we do not have our own facilities or equipment. We purchased $20 in services during Fiscal 2023 (Fiscal 2022 - $40). We expect to continue to subcontract deliveries to MEL from time to time. D.C. Racking & Maintenance Inc. and Logiserv Inc. D.C. Racking & Maintenance Inc. (“DCR”) and Logiserv Inc. (“Logiserv”) are partially owned by Cameron Joyce, an AHG director. DCR provides warehouse racking installation, maintenance and repairs for our healthcare logistics segment. Logiserv provides us with warehouse racking and racking components as well as warehouse racking installation, maintenance and repairs. We also purchase warehouse racking installation, maintenance and repairs, and warehouse racking and racking components from arm’s length providers. During Fiscal 2023, we expensed $nil (Fiscal 2023 - $54) for warehouse racking installation, maintenance and repair services provided by DCR and Logiserv. We expect to continue to purchase warehouse racking installation, maintenance and repair services from DCR and Logiserv. During Fiscal 2023, we purchased $nil (Fiscal 2022 - $47) of warehouse racking and racking components from DCR and Logiserv. C-GHBS Inc. C-GHBS Inc. (“C-GHBS”) is a subsidiary of AMG and provides air travel services to us. We also purchase air travel services from arm’s length providers. During Fiscal 2023, we purchased $58 (Fiscal 2022 - $104) from C-GHBS. We expect to continue to purchase air travel services from C-GHBS. Key Management Personnel Our key management personnel, and persons connected with them, are also considered to be related parties for disclosure purposes. Key management personnel are defined as those individuals having authority and responsibility for planning, directing and controlling the activities of the Company and include our CEO, the other four named executive officers comprising key management and the board of directors. During Fiscal 2023, we recorded $4,849 (Fiscal 2022 – $4,556) related to key management personnel salaries and benefits, share-based compensation, and director fees. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1006)(cid:3) 32 Andlauer Healthcare Group Inc. – 2023 Annual Report Due from/to related parties The charts below summarize amounts due to or from related parties. ($CAD 000s) Accounts receivable Andlauer Properties and Leasing Inc. 1708998 Ontario Limited (Medical Courier Services) Trade receivables due from related parties Due from related parties Andlauer Management Group Inc. Due from related parties Total due from related parties Accounts payable and accrued liabilities Ready Staffing Solutions Inc. 1708998 Ontario Limited (Medical Courier Services) Andlauer Properties and Leasing Inc. Andlauer Management Group Inc. Logiserv Inc. C-GHBS Inc. As at December 31, 2023 2022 13 41 54 1 1 55 150 13 287 - - - 15 32 47 56 56 103 463 18 73 9 12 12 Trade payables due to related parties 450 587 Due to related parties Andlauer Properties and Leasing Inc. Due to related parties Total due to related parties 206 206 656 342 342 929 Critical Accounting Judgements and Estimates The preparation of our consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses and apply equally to both our healthcare logistics segment and our specialized transportation segment. Such estimates include the expected credit losses on accounts receivable, the useful life of long-lived assets, our incremental borrowing rate, valuation of property, plant and equipment, valuation of goodwill and intangible assets, the measurement of identified assets and liabilities acquired in business combinations, share-based compensation arrangements, the provision for income taxes and other provisions and contingencies. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from these estimates. Changes in those estimates and assumptions resulting from changes in the economic environment will be reflected in the consolidated financial statements of future periods. Information about critical judgments, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1007)(cid:3) 33 Andlauer Healthcare Group Inc. – 2023 Annual Report within the next financial year have been described in our consolidated financial statements for the years ended December 31, 2023 and 2022. Key estimates and assumptions remain consistent with those disclosed in our consolidated financial statements. Significant New Accounting Standards Adopted During the Period The IASB has issued 'Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)' with amendments that are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. We performed a review of our significant accounting policies with reference to materiality as contemplated by IAS 1 and have listed our material accounting policies in Note 3 to our consolidated financial statements. To be Adopted in Future Periods There are no new or anticipated standards which will become effective in future periods that are expected to have a material impact on our consolidated financial statements. Accounting Classifications and Fair Values Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities. We believe that the carrying amount of each of these items is a reasonable approximation of fair value. Risk Factors For a detailed description of risk factors associated with the Company, refer to the “Risk Factors” section of our AIF, which is available on the Company’s profile on SEDAR+ at www.sedarplus.ca. Credit Risk We are exposed to credit risk in the event of non-performance by counterparties in connection with our financial assets, namely cash and cash equivalents, accounts receivable and long-term deposits. We do not typically obtain collateral or other security to support the accounts receivable subject to credit risk but mitigate this risk by performing credit check procedures for new clients and monitoring credit limits for existing clients. Thereby, we deal only with what management believes to be financially sound counterparties and, accordingly, do not anticipate significant loss for non-performance. The maximum exposure to credit risk for cash and cash equivalents, accounts receivable and long-term deposits approximate the amount recorded on the consolidated balance sheets. Liquidity Risk Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or another financial asset. Our approach to managing liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. Our exposure to liquidity risk is dependent on the collection of accounts receivable, or raising of funds to meet commitments and sustain operations. We control liquidity risk by management of working capital, cash (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1008)(cid:3) 34 Andlauer Healthcare Group Inc. – 2023 Annual Report flows and the availability of borrowing facilities. We have entered into Credit Facilities with affiliates of RBC, CIBC, and The Bank of Nova Scotia, comprised of a Revolving Credit Facility in the aggregate principal amount of up to $100.0 million and a Term Facility in the aggregate principal amount of up to $50.0 million. The Credit Facilities are available to be drawn in Canadian dollars by way of prime rate loans, bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans and letters of credit, in each case, plus the applicable margin in effect from time to time. In order to support future potential growth through acquisitions, the Credit Facilities also include an accordion feature to allow us to increase the commitment under one or both of the Credit Facilities in an aggregate principal amount of up to $100.0 million, such that any amounts drawn under the accordion feature would be in addition to the amounts ordinarily available, subject to the agreement of participating lenders and provided that we are not, or would not, be in default under the Credit Facilities or in non-compliance with any financial covenants and an event of default does not or would not exist, after giving effect thereto and provided that all representations and warranties are true and correct immediately prior to, and after giving effect to, such increase. As at December 31, 2023, the aggregate amounts outstanding under the Credit Facilities were $25.0 million under the Term Facility and $nil under the Revolving Credit Facility before capitalized financing costs. As of the date of this MD&A, this accordion feature remains uncommitted. Our accounts payable and accrued liabilities are due and payable in the short term. Interest Rate Risk We have a Revolving Credit Facility and Term Facility that each bear interest at a floating rate subject to fluctuations in interest rates. Changes in interest rates can cause fluctuations in interest payments and cash flows. We do not use derivative financial instruments to mitigate the effect of this risk. The Credit Facilities are available to be drawn in Canadian dollars by way of prime rate loans, bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans and letters of credit, in each case, plus the applicable margin in effect from time to time. At December 31, 2023, the Credit Facilities comprise bankers’ acceptances drawn at an interest rate of 6.9%. Although interest rates have increased during Fiscal 2023 there has been no significant impact on our financial condition or results of operations. There may be further increases in interest rates in the near term as the Governing Council of the Bank of Canada continues to target 2-3% inflation, however we expect that any such increases will not significantly impact our financial condition. Currency Risk We enter into foreign currency purchase and sale transactions and have assets and liabilities that are denominated in foreign currencies and thus are exposed to the financial risk of earnings fluctuations arising from changes in foreign exchange rates and the degree of volatility of these rates. We use derivative instruments to reduce our exposure to foreign currency risk only where appropriate. During Fiscal 2023 and as at December 31, 2023 there were no derivative instruments in place. Outstanding Share Data Our authorized share capital consists of an unlimited number of Subordinate Voting Shares, an unlimited number of Multiple Voting Shares and an unlimited number of preferred shares, issuable in series. As at March 5, 2024, there were 19,482,993 Subordinate Voting Shares issued and outstanding, 21,840,000 Multiple Voting Shares issued and outstanding (each of which is convertible into Subordinate Voting Shares on a one-for-one basis), and no preferred shares issued and outstanding. In addition, as at such date we had 1,106,093 options, each of which can be exercised or settled for one Subordinate Voting Share and 56,536 Deferred Share Units issued and outstanding under our omnibus incentive plan. As of the date hereof, AMG holds all of the Multiple Voting Shares and 10,200 of the Subordinate Voting Shares, representing approximately 52.9% of the issued and outstanding Shares and 81.8% of the voting power attached to all of the Shares. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1009)(cid:3) 35 Andlauer Healthcare Group Inc. – 2023 Annual Report On March 24, 2023, the Company announced that the TSX had approved its notice of intention to make a normal course issuer bid (“NCIB”) for up to a maximum of 1,856,857 of its Subordinate Voting Shares, or approximately 10% of its public float as of March 23, 2023, over the 12-month period commencing on March 29, 2023. The bid will terminate on March 28, 2024, or such earlier time as the Company completes its purchases pursuant to the bid or provides notice of termination. In connection with the NCIB, the Company established an automatic securities purchase plan (“ASPP”) with its designated broker that contains specified parameters regarding how its Subordinate Voting Shares may be purchased under the NCIB during times when the Company would ordinarily not be permitted to make such purchases due to regulatory restrictions or self-imposed blackout periods. The Company has and may in the future, temporarily suspend the ASPP and vary the specified purchase parameters included therein, in accordance with the terms and conditions set forth in the ASPP. Any Subordinate Voting Shares purchased under the NCIB will be cancelled upon their purchase. AHG intends to fund purchases out of its available cash. As of the date hereof, 618,785 Subordinate Voting Shares have been purchased and cancelled pursuant to the NCIB. Subject to financial results, capital requirements, available cash flow, corporate law requirements and any other factors that our board of directors may consider relevant, we expect to declare a quarterly dividend on the Subordinate Voting Shares and Multiple Voting Shares equal to approximately $0.10 per share on an ongoing basis. Our Q4 2023 dividend, in the amount of $0.09 per Share, was paid on January 15, 2024 to shareholders of record as at December 29, 2023. Dividends are declared and paid in arrears. The amount and timing of the payment of any dividends are not guaranteed and are subject to the discretion of our board of directors. Disclosure Controls and Procedures and Internal Controls Over Financial Reporting In compliance with the provisions of National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, we have filed certificates signed by our CEO and by our Chief Financial Officer (“CFO”) that, among other things, report on: • • their responsibility for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”) for the Company; and the design and effectiveness of DC&P and the design and effectiveness of ICFR. Management, including our CEO and CFO, does not expect that the disclosure controls or internal controls over financial reporting of the Company will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1010)(cid:3) 36 Andlauer Healthcare Group Inc. – 2023 Annual Report Further, the design of a control system must reflect that there are resource constraints, and the benefits of controls must be considered relative to their costs. Inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The design of any control system is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Disclosure Controls and Procedures The CEO and the CFO, have designed DC&P, or have caused them to be designed under their supervision, in order to provide reasonable assurance that: • material information relating to AHG is made known to the CEO and CFO by others, particularly during the period in which the interim and annual filings are being prepared; and • information required to be disclosed by AHG in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. Internal Controls Over Financial Reporting The CEO and CFO have also designed ICFR, or have caused them to be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The control framework used to design our ICFR is based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (2013 framework). Changes in Internal Controls Over Financial Reporting No changes were made to our ICFR during Fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our ICFR. Additional Information Additional information about AHG, including our AIF, can be found on our profile on SEDAR+ at www.sedarplus.ca or on our website at www.andlauerhealthcare.com. (cid:4)(cid:374)(cid:282)(cid:367)(cid:258)(cid:437)(cid:286)(cid:396)(cid:3)(cid:44)(cid:286)(cid:258)(cid:367)(cid:410)(cid:346)(cid:272)(cid:258)(cid:396)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)–(cid:3)(cid:38)(cid:349)(cid:400)(cid:272)(cid:258)(cid:367)(cid:3)2023 Management’s Discussion and Analysis(cid:3) (cid:876)(cid:876)(cid:3)(cid:87)(cid:258)(cid:336)(cid:286)(cid:3)(cid:1007)(cid:1011)(cid:3) 37 Andlauer Healthcare Group Inc. – 2023 Annual Report Consolidated Financial Statements of ANDLAUER HEALTHCARE  GROUP INC. For the years ended December 31, 2023 and 2022  38 Andlauer Healthcare Group Inc. – 2023 Annual Report            KPMG LLP Commerce Place KPMG LLP 21 King Street West, Suite 700 Commerce Place Hamilton, ON L8P 4W7 21 King Street West, Suite 700 Canada Hamilton, ON L8P 4W7 Telephone 905 523 8200 Canada Fax 905 523 2222 Telephone 905 523 8200 Fax 905 523 2222 To the Shareholders of Andlauer Healthcare Group Inc. INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT To the Shareholders of Andlauer Healthcare Group Inc. Opinion Opinion We have audited the consolidated financial statements of Andlauer Healthcare Group Inc. (the “Entity”), which comprise: We have audited the consolidated financial statements of Andlauer Healthcare Group Inc. (the “Entity”), which comprise: • the consolidated balance sheets as at December 31, 2023 and December 31, 2022 • • • • • • the consolidated balance sheets as at December 31, 2023 and December 31, 2022 the consolidated statements of income and comprehensive income for the years ended December 31, 2023 and December 31, 2022 the consolidated statements of income and comprehensive income for the years ended December 31, 2023 and December 31, 2022 the consolidated statements of changes in equity for the years ended December 31, 2023 and December 31, 2022 the consolidated statements of changes in equity for the years ended December 31, 2023 and December 31, 2022 the consolidated statements of cash flow for the years ended December 31, 2023 and December 31, 2022 • the consolidated statements of cash flow for the years ended December 31, 2023 and December 31, 2022 • and notes to the consolidated financial statements, including a summary of material accounting policies • and notes to the consolidated financial statements, including a summary of material accounting (hereinafter referred to as the “financial statements”). policies (hereinafter referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2023 and December 31, 2022, and its financial In our opinion, the accompanying financial statements present fairly, in all material respects, the performance and its cash flows for the years then ended in accordance with International Financial financial position of the Entity as at December 31, 2023 and December 31, 2022, and its financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (IASB). performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (IASB). Basis for Opinion Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for We conducted our audit in accordance with Canadian generally accepted auditing standards. Our the Audit of the Financial Statements” section of our auditors’ report. responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our ethical responsibilities in We are independent of the Entity in accordance with the ethical requirements that are relevant to our accordance with these requirements. audit of the financial statements in Canada and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. 39 Andlauer Healthcare Group Inc. – 2023 Annual Report Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report. Evaluation of revenue recognition in the Healthcare Logistics Segment Description of the matter We draw attention to Notes 3(b) and 4 to the financial statements. The total revenues for the Healthcare Logistics segment is $176 million. In some cases, the Entity’s contracts with customers have multiple performance obligations that require the Entity to allocate the contractual transaction price to the identified distinct performance obligations. The allocation of the transaction price requires management to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. Why the matter is a key audit matter We identified the evaluation of revenue recognition for contracts that contain multiple performance obligations in the Healthcare Logistics segment as a key audit matter. This matter represented an area of higher risk of material misstatement due to the complexities of the various terms included in each contract. Significant auditor judgment was required to identify the stand-alone selling price for each distinct performance obligation and the timing of revenue recognition. How the matter was addressed in the audit The primary procedures we performed to address this key audit matter included the following: • Examined a selection of revenue transactions and compared the amount of revenue recognized to the source documentation, including invoice, proof of delivery (when applicable) and subsequent cash receipt. • For samples selected related to contracts that include more than one performance obligation, we obtained the Entity’s master contract summary and tested the SSP used to invoice the customer to evaluate the revenue recognized. We also performed testing over the master contract summary by examining the customer contracts to assess the appropriateness of the SSP used to bill customers for specific performance obligations. Other Information Management is responsible for the other information. Other information comprises: • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. 40 Andlauer Healthcare Group Inc. – 2023 Annual Report • the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Annual Report”. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work that we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. 41 Andlauer Healthcare Group Inc. – 2023 Annual Report Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting intentional omissions, misrepresentations, or the override of internal control. involve collusion, from error, as fraud may forgery, • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the financial 42 Andlauer Healthcare Group Inc. – 2023 Annual Report statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. • Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this auditors’ report is John J. Pryke Chartered Professional Accountants, Licensed Public Accountants Hamilton, Canada March 5, 2024 43 Andlauer Healthcare Group Inc. – 2023 Annual Report Andlauer Healthcare Group Inc.  Consolidated Balance Sheets  As at December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  Assets  Current assets  Cash and cash equivalents  Trade and other receivables  Income taxes receivable  Inventories  Prepaid expenses and other  Due from related parties  Non‐current assets  Long‐term deposits and other  Property, plant and equipment  Goodwill and intangible assets  Deferred income taxes  Total Assets  Liabilities and Equity  Current liabilities  Accounts payable and accrued liabilities  Current portion of lease liabilities  Income taxes payable  Long‐term liabilities  Lease liabilities  Deferred income taxes  Due to related parties  Term facility  Total Liabilities  Equity  Common share capital  Contributed surplus  Accumulated other comprehensive income  Merger reserve  Retained earnings   Commitments and contingencies  Total Liabilities and Equity  Note  December 31,  2023  December 31,  2022   $ 6  7  21  8  9  17   $ 10  18  18  17  21  11  13  15  2  20  59,740    102,206  1,230  5,329  6,605  1    175,111  911    166,200    334,919  5,285  $   65,855  98,423  ‐   3,326  4,416  56    172,076  997    175,880    357,698  5,809     682,426  $   712,460  $   41,795  27,697  ‐   69,492  $   42,918  26,547  16,313  85,778  75,384  42,955  206  24,819    212,856  87,182  48,609  342  49,557    271,468    718,790  6,308  14,194    (488,916)    219,194    469,570    727,835  5,806  19,642    (488,916)    176,625    440,992  $   682,426  $   712,460  See accompanying notes to consolidated financial statements.  On behalf of the Board:  “Peter Jelley”  Director  “Thomas G. Wellner”  Director  44 // Page 1   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                                                                            Andlauer Healthcare Group Inc.  Consolidated Statements of Income and Comprehensive Income  For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  Revenue   Operating expenses     Cost of transportation and services     Direct operating expenses     Selling, general and administrative expenses     Depreciation and amortization   Operating income   Interest expense  Interest income    Other expenses  Income before income taxes     Current income tax expense    Deferred income tax recovery  Net income   Net earnings per share     Basic earnings per share    Diluted earnings per share  Other comprehensive income    Net income     Foreign currency translation adjustment     Other comprehensive income (loss) for the year  Total comprehensive income for the year   See accompanying notes to consolidated financial statements.  Note  16  December 31,  2023  December 31,  2022  $   647,952  $   648,423    328,493    103,829  51,428  68,149    551,899    322,844    102,280  48,502  64,452    538,078  96,053    110,345  (8,207)  3,170  (409)  (6,858)  599  (328)  90,607    103,758  28,896  (4,429)  24,467  29,528  (2,045)  27,483  $   66,140  $   76,275  $   $   $   $   1.58  1.55  66,140  (5,448)  (5,448)  60,692  $   $   $   $   1.82  1.79  76,275  14,743  14,743  91,018  19  17  17  14  14  // Page 2   45 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                  Andlauer Healthcare Group Inc.   Consolidated Statements of Changes in Equity   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  Number of  shares  (thousands)  (note 13)  Share  capital  (note 13)  Accumulated  other  compre‐ hensive  income   Merger  reserve  (note 2)  Contributed  surplus  (note 15)  Retained  earnings  Total equity  Balance at December 31, 2022  41,914  $  727,835  $  19,642  $  (488,916)  $  5,806  $  176,625  $  440,992  Net income and comprehensive  loss for the year  Share‐based compensation  (note 15)  Shares repurchased for  cancellation (note 13)  ‐   (5,448)  ‐   28  426  (475)  (9,471)  ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   66,140  60,692  502  ‐   928  ‐   ‐   (9,369)  (18,840)  (14,202)  (14,202)  Dividends (note 13)  ‐   ‐   Balance at December 31, 2023  41,467  $  718,790  $  14,194  $  (488,916)  $  6,308  $  219,194  $  469,570  Balance at December 31, 2021  41,669  $  719,936  $  4,899  $  (488,916)  $  4,967  $  111,233  $  352,119  Net income and comprehensive  income for the year  ‐   ‐   14,743  Shares issued in connection with  business combinations (note 5)     155  7,500  Transaction costs, net of tax   (note 5)  Share‐based compensation  (note 15)  Dividends (note 13)  ‐   90  ‐   (63)  462  ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   ‐   839  76,275  91,018  ‐   ‐   ‐   7,500  (63)  1,301  ‐   (10,883)  (10,883)  Balance at December 31, 2022  41,914  $  727,835  $  19,642  $  (488,916)  $  5,806  $  176,625  $  440,992  See accompanying notes to consolidated financial statements.  46 // Page 3   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                     Andlauer Healthcare Group Inc.  Consolidated Statements of Cash Flow  For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  Operating activities  Net income for the year  Changes not involving cash:  Depreciation and amortization   Amortization of capitalized financing costs  Share‐based compensation  Deferred income tax recovery  Loss (gain) on disposal of property, plant and equipment  Changes in non‐cash operating working capital:  Trade and other receivables   Inventories  Accounts payable and accrued liabilities  Income taxes   Net change in other operating working capital balances  Cash flows from operating activities  Financing activities   Dividends  Principal repayments on lease liabilities  Net change in related party balances  Proceeds from revolving credit facility  Repayment of revolving credit facility  Repayment of term facility  Shares repurchased for cancellation  Transaction costs recorded in share capital  Cash flows used in financing activities  Investing activities   Purchase of property, plant and equipment  Proceeds on disposal of property, plant and equipment  Purchase of intangible assets  Business combinations, net of cash acquired   Cash flows used in investing activities  Net (decrease) increase in cash and cash equivalents  Effect of foreign currency translation on cash and cash equivalents  Note  December 31,  2023  December 31,  2022  $   66,140  $   76,275  11  15  17  13  18  11  13  13  9  5  68,149  262  928  (4,429)  308    131,358  (4,109)  (2,011)  (1,011)  (17,662)  (2,146)    104,419  64,452  269  1,301  (2,045)  (48)    140,204  (2,855)  (317)  1,485  (1,716)  327    137,128  (14,202)  (27,952)  (188)  ‐   ‐   (25,000)  (18,840)  ‐   (86,182)  (23,523)  1,744  (2,069)  ‐   (23,848)  (5,611)  (504)  (10,883)  (29,034)  (607)  12,000  (23,000)  ‐   ‐   (63)  (51,587)  (25,748)  1,721  (2,212)  (19,318)  (45,557)  39,984  881  Cash and cash equivalents, beginning of year  65,855  24,990  Cash and cash equivalents, end of year  $   59,740  $   65,855  See accompanying notes to consolidated financial statements. // Page 4   47 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                                                                      Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  1. Reporting entity  Andlauer  Healthcare  Group  Inc.  (“AHG”,  or  the  “Company”)  was  incorporated  under  the  Ontario  Business  Corporations  Act  with  its  head  office  located  at  100  Vaughan  Valley  Blvd.  in  Woodbridge,  Ontario.  AHG’s  subordinate  voting  shares  are  listed  on  the  Toronto  Stock  Exchange  under  the  stock  symbol  “AND”.  AHG  specializes  in  third  party  logistics  and  transportation  solutions  for  the  healthcare  sector  in  Canada  and  the  United States.  In addition to the shares issued to the public, Andlauer Management Group Inc. (“AMG”) holds 21.84 million  multiple voting shares and 10,200 subordinate voting shares of AHG, representing approximately 52.7% of the  issued and outstanding shares and 81.7% of the voting power attached to all of the shares. AMG is owned and  controlled  by  Michael  Andlauer,  Chief  Executive  Officer,  Chief  Operating  Decision  Maker  (“CODM”),  and  a  director of AHG.  2. Basis of presentation  a) Statement of compliance  These consolidated financial statements have been prepared in accordance with International Financial  Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and using  the accounting policies described herein.  b) Basis of measurement  These consolidated financial statements were prepared on a going concern basis under the historical cost  method except for share based compensation and business combinations, which were recorded at fair  value. Material accounting policies are presented in note 3 to these consolidated financial statements and  have been consistently applied in each of the periods presented. These consolidated financial statements  were authorized for issue by the Board of Directors effective March 5, 2024.  Common control transaction  These consolidated financial statements comprise the results of AHG and Associated Logistics Solutions  Inc., Credo Canada Systems Inc., Andlauer Specialized Transportation Inc. (formerly 2186940 Ontario Inc.),  Skelton Canada Inc., and their respective subsidiaries. Prior to the Company’s initial public offering (“IPO”)  on December 11, 2019, certain of AHG’s subsidiaries (Associated Logistics Solutions Inc., Credo Canada  Systems Inc., Andlauer Specialized Transportation Inc. (formerly 2186940 Ontario Inc.) and their respective  subsidiaries at that time – collectively, the “AHG Entities”) were owned 100% by AMG. Pursuant to a share  purchase  agreement  between  AHG  and  AMG,  and  in  connection  with  a  corporate  reorganization  immediately prior to the IPO, AHG acquired a 100% ownership interest in the AHG Entities based on the  value of consideration of $577,625. Total net parent investment immediately prior to the IPO was $88,709.  A  merger  reserve  of  $488,916  is  recorded  to  reflect  the  difference  in  carrying  value  of  the  net  assets  acquired  and  the  consideration  paid  since  AHG  and  the  AHG  Entities  were  all  related  parties  under  common control of AMG at the time of the acquisition. Business combinations involving entities under  common control are outside the scope of IFRS 3 Business Combinations. AHG accounted for this common  control  transaction  using  book  value  accounting,  based  on  the  book  values  recognized  in  the  financial  statements of the underlying entities.   48 // Page 5   Andlauer Healthcare Group Inc. – 2023 Annual Report                  Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  2. Basis of presentation (continued)  c) Basis of consolidation  (i) Business combinations  The  Company  accounts  for  acquired  businesses  using  the  acquisition  method  of  accounting  by  recording  assets  acquired  and  liabilities  assumed  at  their  respective  fair  values.    The  Company  measures  goodwill  as  the  fair  value  of  the  consideration  transferred,  including  the  fair  value  of  liabilities resulting from contingent consideration arrangements, less the net recognized amount of  the identifiable assets acquired and liabilities assumed, all measured at fair value as of the acquisition  date.   Transaction costs, other than those associated with the issue of debt or equity securities, that the  Company incurs in connection with a business combination are expensed as incurred.  (ii) Subsidiaries  The  consolidated  financial  statements  comprise  the  financial  statements  of  the  Company  and  its  subsidiaries. The Company controls an entity when it is exposed to, or has the right to, variable returns  from its involvement with the entity and has the ability to affect those through its power over the  entity. The financial statements of subsidiaries are included in the consolidated financial statements  from the date that control commences until the date that control ceases. The accounting policies of  subsidiaries are aligned with the policies adopted by the Company.   The Company’s wholly‐owned subsidiaries include:  Entity  2040637 Ontario Inc.   Accuristix Inc.  Accuristix  Andlauer Healthcare Group (USA), Inc.  Andlauer Healthcare Logistics Inc.  Andlauer Specialized Transportation Inc. (formerly 2186940 Ontario Inc.)   Associated Logistics Solutions Inc.  ATS Andlauer Transportation Services GP Inc.  ATS Andlauer Transportation Services LP  ATS Healthcare Inc. (formerly 2721275 Ontario Inc.)  Concord Supply Chain Solutions Inc.1  Credo Systems Canada Inc.  Logistics Support Unit (LSU) Inc.2  McAllister Courier Inc.  MEDDS Canada – A Medical Delivery Service Corporation1  MEDDS Winnipeg – A Medical Delivery Service Corporation  Nova Pack Ltd.  Skelton Canada Inc.  Skelton Truck Lines, Inc.  Skelton U.S.A. Inc.  T.F. Boyle Transportation, Inc.  TDS Logistics Ltd.  1 2  Entity has been dormant throughout the entire reporting period.  Acquired on March 1, 2022. Refer to note 5.  Incorporation Jurisdiction  Ontario  Canada  Ontario  Delaware  Ontario  Ontario  Ontario  Canada  Manitoba  Ontario  Delaware  Ontario  Canada  Ontario  Canada  Manitoba  Ontario  Ontario  Delaware  Ontario  Massachusetts  Ontario  // Page 6   49 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                      Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  2.  Basis of presentation (continued)  c) Basis of consolidation (continued)  (iii) Transactions eliminated on consolidation   Intercompany  balances  and  transactions,  and  any  unrealized  income  and  expenses  arising  from  intercompany transactions, are eliminated in preparing the consolidated financial statements.  d) Functional and presentation currency  These  consolidated  financial  statements  are  presented  in  Canadian  dollars,  which  is  the  Company’s  functional  currency.  All  financial  information  presented  in  Canadian  dollars  has  been  rounded  to  the  nearest  thousand.  The  functional  currency  of  Canadian  operations  is  the  Canadian  dollar  and  the  functional currency of U.S. operations is the U.S. dollar.  e) Judgments and estimates  Preparing the consolidated financial statements requires management to make judgments, estimates and  assumptions that affect the application of accounting policies and the reported amounts of assets and  liabilities,  income  and  expense.  Actual  results  may  differ  from  these  estimates.  In  preparing  these  consolidated financial statements, significant judgments made by management in applying the accounting  policies and the key sources of estimation uncertainty were the same as those applied to the consolidated  financial  statements  for  the  year  ended  December  31,  2022.  Information  about  significant  judgments,  assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment  within the next financial year are included in the following notes:   Note 5 –   Establishing the fair value of assets and liabilities, intangible assets and goodwill related to business combinations;   Note 6 –   Determining the expected credit losses (“ECLs”) related to trade accounts receivable;   Note 8 –   Estimating  the  useful  life  of  the  Company’s  property,  plant  and  equipment  and  determining estimates and assumptions related to impairment tests for long‐lived assets;   Note 9 –   Estimating the useful life of the Company’s intangible assets and determining estimates  and assumptions related to impairment tests for intangibles and goodwill;   Note 15 –  Determining the valuation of share‐based compensation arrangements;   Note 17 –  Determining estimates and assumptions in measuring deferred tax assets and liabilities;   Note 18 –  Estimating the Company’s incremental borrowing rate in connection with measuring lease  liabilities; and   Note 20 –  Recognition and measurement of provisions and contingencies.  3.  Material accounting policies  Foreign currency translation  Transactions  in  foreign  currencies  are  translated  to  the  respective  functional  currencies  of  each  entity  at  exchange  rates  at  the  dates  of  the  transactions.  Monetary  assets  and  liabilities  denominated  in  foreign  currencies are translated to the functional currency at the exchange rate in effect at the reporting date. The  foreign currency gain or loss on monetary items is the difference between amortized cost in the functional  currency at the beginning of the period, adjusted for effective interest and payments during the period, and  the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non‐ monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated  at the rate in effect on the transaction date. Income and expense items denominated in foreign currency are  translated at the date of the transactions. Gains and losses are included in income or loss.  50 // Page 7   Andlauer Healthcare Group Inc. – 2023 Annual Report                            Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Foreign currency translation (continued)  In preparing the Company’s consolidated financial statements, the financial statements of each foreign entity  are translated into Canadian dollars. The assets and liabilities of foreign operations, including goodwill and fair  value adjustments arising on business combinations, are translated to Canadian dollars at exchange rates as at  the balance sheet date. Revenues and expenses of foreign operations are translated to Canadian dollars at  exchange rates that approximate those on the date of the underlying transaction. Foreign exchange differences  are  recognized  in  other  comprehensive  income  or  loss  and  accumulated  in  equity  in  accumulated  other  comprehensive income or loss.  If the Company or any of its subsidiaries disposes of its entire interest in a foreign operation, or loses control,  joint control, or significant influence over a foreign operation, the accumulated foreign currency translation  gains or losses related to the foreign operation are recognized in net income or loss.  Revenue  Revenue is recognized upon transfer of control of promised products or services to customers in an amount  that reflects the consideration the Company expects to be entitled to receive in exchange for those products  or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the  customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as  revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s  performance obligations for the transportation and logistics reportable segments.  a) Specialized Transportation  The  Company’s  transportation  segment  generates  revenue  from  providing  specialized  ground  transportation, air freight forwarding and dedicated and last mile transportation services for its customers.  Certain additional services may be provided to customers as part of their transportation contracts, such  as temperature control and other incidental services. The transaction price is based on the consideration  specified in the customer’s contract. A contract exists when a customer under a transportation contract  submits  a  shipment  document  for  the  transport  of  goods  from  origin  to  destination.  The  performance  obligations  within  each  contract  are  satisfied  as  the  shipments  move  from  origin  to  destination.  Transportation revenue is recognized proportionally as a shipment moves from origin to destination and  the related costs are recognized as incurred. Performance obligations are short‐term, with transit days less  than one week. Generally, customers are billed upon shipment of the freight, and remit payment according  to approved payment terms.   b) Healthcare Logistics  The Company’s healthcare logistics segment generates revenue from providing supply chain services for  its  customers,  including  logistics  and  distribution  services  and  packaging  solutions.   The   Company’s  contracts  typically  include  a  single  performance  obligation  that  is  satisfied  over  time  as  customers  simultaneously  receive  and  consume  the  benefits  of  the  Company’s  services.  For  this  performance  obligation, the Company recognizes revenue at the invoiced amount, which is billed on a fixed price per  unit of logistics activities provided in the month, since this amount corresponds directly to the Company’s  performance  and  the  value  to  the  customer.  In  some  cases,  the  Company’s  contracts  include  other  performance  obligations  related  to  managing  transportation  and  other  customer  services  which  are  included in the logistics and distribution of products. These services are typically priced at their stand‐ alone selling prices and are recognized over time as the customer simultaneously receives and consumes  the benefits of the Company’s services. The Company acts as an agent on behalf of its customers for a  limited number of contracts in which certain products are purchased and sold on a pass‐through basis. In  such cases, net billings are included in revenue.   // Page 8   51 Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Revenue (continued)  b) Healthcare Logistics (continued)  Contracts with customers that contain multiple performance obligations require the Company to allocate  the contractual transaction price to the identified distinct performance obligations.  The allocation of the  transaction  price  requires  management  to  determine  the  standalone  selling  price  for  each  distinct  performance  obligation.  These  services  are  recognized  as  revenue  when  they  are  provided  to  the  customer.    Customers are typically billed on a weekly basis for transactional transportation services, and on a monthly  basis  for  logistics  and  distribution  services,  and  remit  payment  according  to  approved  payment  terms.  Payment  terms  may  range  under  certain  contracts  but  are  typically  30  days.  The  Company  recognizes  unbilled revenue for transportation service revenue that has been recognized but is not yet billed. The  Company will also recognize deferred revenue when customers are billed in advance for transportation  and logistics and distribution services.   Property, plant and equipment  Property,  plant  and  equipment  is  accounted  for  at  cost  less  accumulated  depreciation  and  accumulated  impairment losses.   Cost includes expenditures that are directly attributable to the acquisition of the asset, the costs of dismantling  and removing the assets and restoring the site on which they are located and borrowing costs on qualifying  assets.  When parts of an item of property, plant and equipment have different useful lives, they are accounted for as  separate items (major components) of property, plant and equipment.   Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the  proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in net  income or loss.  Depreciation is based on the cost of an asset less its residual value and is recognized in income or loss over the  estimated  useful  life  of  each  component  of  an  item  of  property,  plant  and  equipment.  Leased  assets  are  depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the  Company will obtain ownership by the end of the lease term.   Depreciation is computed on either a declining balance basis or a straight‐line basis over the estimated useful  lives of the assets as follows:  Asset  Facilities   Furniture and fixtures   Leasehold improvements   Logistics and transportation equipment   Depreciation Method  Straight‐line over the term of the lease  20‐30% declining balance    5‐15 year straight‐line subject to the shorter of remaining   lease term or useful life  Primarily 20‐30% declining balance, except for storage  vaults which are amortized straight line over  40 years, and certain transportation equipment  which is amortized straight line over periods  of 3‐7 years  Property, plant and equipment acquired or constructed during the year but not placed into use during the year  are not depreciated until put into use.  52 // Page 9   Andlauer Healthcare Group Inc. – 2023 Annual Report                                      Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Goodwill and intangible assets  Recognition and measurement  Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.  Intangible assets consist of customer relationships, brands, and internally generated software.  Customer relationships and brands that are acquired by the Company and have finite useful lives are measured  at cost less accumulated amortization and any accumulated impairment losses.  For  internally  generated  software,  expenditure  on  research  activities  is  recognized  in  income  or  loss  as  incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product  or process is technically and commercially feasible, future economic benefits are probable, and the Company  intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is  recognized  in  income  or  loss  as  incurred.  Subsequent  to  initial  recognition,  development  expenditure  is  measured at cost less accumulated amortization and any accumulated impairment losses.  Amortization  Goodwill is not amortized.  Customer relationships and brands are amortized on a straight‐line basis over their estimated useful lives of  between 5 and 10 years.   Internally generated software is amortized on a straight‐line basis over 10 years. Internally generated software  developed during the year but not placed into use during the year is not amortized until placed into use.  Impairment  The carrying amounts of the Company’s non‐financial assets other than inventoried supplies and deferred tax  assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any  such indication exists, then the asset’s recoverable amount is estimated.   For  goodwill,  the  recoverable  amount  is  estimated  on  December  31  of  each  year  as  part  of  the  annual  impairment test. For the purpose of impairment testing, assets that cannot be tested individually are grouped  together into the smallest group of assets that generates cash inflows from continuing use that are largely  independent of the cash inflows of other assets or groups of assets (the “cash‐generating unit”, or “CGU”).   For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to  the  group  of  CGUs  (usually  an  operating  segment  of  the  Company),  that  is  expected  to  benefit  from  the  synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the  lowest level at which that goodwill is monitored for internal reporting purposes. The recoverable amount of  an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use,  the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects  current market assessments of the time value of money and the risks specific to the asset or group of assets.  An  impairment  loss  is  recognized  if  the  carrying  amount  of  an  asset  or  its  CGU  exceeds  its  estimated  recoverable amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying  amount of any goodwill allocated to the units, if any, and then to reduce the carrying amounts of the other  assets in the unit (group of units) on a prorated basis.  // Page 10   53 Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Impairment (continued)  An  impairment  loss  in  respect  of  goodwill  is  not  reversed.  In  respect  of  other  assets,  impairment  losses  recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased  or  no  longer  exists.  An  impairment  loss  is  reversed  if  there  has  been  a  change  in  the  estimates  used  to  determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying  amount  does  not  exceed  the  carrying  amount  that  would  have  been  determined,  net  of  depreciation  or  amortization,  if  no  impairment  loss  had  been  recognized.  Impairment  losses  and  impairment  reversals  are  recognized in income or loss.  Leases  At inception of a contract, the Company assesses whether a contract is, or contains a lease. A contract is, or  contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time  in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified  asset, the Company assesses whether:     The contract involves the use of an identified asset – this may be specified explicitly or implicitly, and  should be physically distinct or represents substantially all the capacity of a physically distinct asset. If  the supplier has a substantive substitution right, then the asset is not identified;  The Company has the right to obtain substantially all of the economic benefits from use of the asset  throughout the period of use; and  The Company has the right to direct the use of the asset. The Company has the right when it has the  decision‐making rights that are most relevant to changing how and for what purpose the asset is used.  In rare cases where the decision about how and for what purpose the asset is used is predetermined,  the Company has the right to direct the use of the asset if either:  ‐ ‐ the Company has the right to operate the asset; or  the Company designed the asset in a way that predetermines how and for what purpose it will  be used.  At inception or on reassessment of a contract that contains a lease component, the Company allocates the  consideration in the contract to each lease component on the basis of their relative stand‐alone prices. For the  leases of land and buildings in which it is a lessee, the Company has elected to account for the lease and non‐ lease components separately.  a) For arrangements in which the Company is a lessee  The Company recognizes a right‐of‐use (“ROU”) asset and a lease liability at the lease commencement  date. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability  adjusted for any lease payments made at or before the commencement date, plus any initial direct costs  incurred  and  an  estimate  of  costs  to  dismantle  and  remove  the  underlying  asset  or  to  restore  the  underlying asset or the site on which it is located, less any lease incentives received.  The ROU asset is subsequently depreciated using the straight‐line method from the commencement date  to the earlier of the end of the useful life of the ROU asset or the end of the lease term.  The estimated  useful  lives  of  ROU  assets  are  determined  by  the  estimated  lease  term.  In  addition,  the  ROU  asset  is  periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease  liability.  The lease liability is initially measured at the present value of the lease payments that are not paid at the  commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be  readily  determined,  the  Company’s  incremental  borrowing  rate.  Generally,  the  Company  uses  its  incremental borrowing rate as the discount rate.  54 // Page 11   Andlauer Healthcare Group Inc. – 2023 Annual Report            Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Leases (continued)  a) For arrangements in which the Company is a lessee (continued)  Lease payments included in the measurement of the lease liability comprise the following:      fixed payments, including in‐substance fixed payments;  variable lease payments that depend on an index or a rate, initially measured using the index or  rate as at the commencement date;  amounts expected to be payable under a residual value guarantee; and  the exercise price under a purchase option that the Company is reasonably certain to exercise,  lease payments in an optional renewal period if the Company is reasonably certain to exercise an  extension option, and penalties for early termination of a lease unless the Company is reasonably  certain not to terminate early.  The lease liability is measured at amortized cost using the effective interest method. It is re‐measured  when there is a change in future lease payments arising from a change in an index or rate, if there is a  change in the Company’s estimate of the amount expected to be payable under a residual value guarantee,  or if the Company changes its assessment of whether it will exercise a purchase, extension or termination  option.  When the lease liability is re‐measured in this way, a corresponding adjustment is made to the carrying  amount of the right‐of‐use asset, or is recorded in income or loss if the carrying amount of the right‐of‐ use asset has been reduced to zero.  b) Short‐term leases and leases of low‐value assets  The Company has elected not to recognize right‐of‐use assets and lease liabilities for short‐term leases of  machinery  that  have  a  lease  term  of  12  months  or  less  and  leases  of  low‐value  assets,  including  IT  equipment. The Company recognizes the lease payments associated with these leases as an expense on a  straight‐line basis over the lease term.  c) For arrangements in which the Company is a lessor  When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease  or an operating lease.  To  classify  each  lease,  the  Company  makes  an  overall  assessment  of  whether  the  lease  transfers  substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case,  then  the  lease  is  a  finance  lease;  if  not,  then  it  is  an  operating  lease.  As  part  of  this  assessment,  the  Company considers certain indicators such as whether the lease is for the major part of the economic life  of the asset.  If an arrangement contains lease and non‐lease components, the Company applies IFRS 15 to allocate the  consideration in the contract.  The  Company  recognizes  lease  payments  received  under  operating  leases  as  income  on  a  straight‐line  basis  over  the  lease  term  as  part  of  ‘other  income’,  which  is  combined  with,  and  nets  against,  other  expenses on the Company’s consolidated statements of income and comprehensive income.  // Page 12   55 Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Income taxes  Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in income  or loss except to the extent that it relates to a business combination, or items recognized directly in equity or  in other comprehensive income or loss.  Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates  enacted  or  substantively  enacted  at  the  reporting  date,  and  any  adjustment  to  tax  payable  in  respect  of  previous years.  Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and  liabilities  for  financial  reporting  purposes  and  the  amounts  used  for  taxation  purposes.  Deferred  tax  is  not  recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction  that  is  not  a  business  combination  and  that  affects  neither  accounting  nor  taxable  income  or  loss,  and  differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable  that  they  will  not  reverse  in  the  foreseeable  future.  In  addition,  deferred  tax  is  not  recognized  for  taxable  temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates  that are expected to be applied to temporary differences when they reverse, based on the laws that have been  enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is  a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by  the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current  tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.  A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to  the extent that it is probable that future taxable income will be available against which they can be utilized.  Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer  probable that the related tax benefit will be realized.  Financial instruments  Financial assets  Trade and other receivables are initially recognized when they are originated. All other financial assets and  financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of  the instrument.  A  financial  asset  (unless  it  is  an  account  receivable  without  a  significant  financing  component)  or  financial  liability is initially measured at fair value plus, for an item not at fair value through profit and loss (“FVTPL”),  transaction  costs  that  are  directly  attributable  to  its  acquisition  or  issue.  An  account  receivable  without  a  significant financing component is initially measured at the transaction price.  The Company’s financial assets are comprised of cash and cash equivalents, trade and other receivables, due  from  related  parties,  and  long‐term  deposits.  On  initial  recognition,  the  Company  classifies  these  financial  assets as measured at amortized cost, when both of the following conditions are met:    it is held within a business model whose objective is to hold assets to collect contractual cash flows;  and  its contractual terms give rise on specified dates to cash flows that are solely payments of principal  and interest on the principal amount outstanding.  56 // Page 13   Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Financial instruments (continued)  Financial assets (continued)  These financial assets are subsequently measured at amortized cost using the effective interest method. The  amortized  cost  is  reduced  by  impairment  losses.  Interest  income,  foreign  exchange  gains  and  losses  and  impairment are recognized in income or loss. Any gain or loss on derecognition is recognized in income or loss.   Impairment of financial assets  Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets  are considered to be impaired when there is objective evidence that, as a result of one or more events that  occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment  have been decreased.  For trade receivables, the Company applies a simplified approach in calculating ECLs. Accordingly, the Company  does not track changes in credit risk but instead recognizes a loss allowance based on lifetime ECLs at each  reporting  date.   The   Company  has  established  a  provision  matrix  that  is  based  on  its  historical  credit  loss  experience, adjusted for forward‐looking factors specific to the debtors and the economic environment.  When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent  recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying  amount of the allowance account are recognized in income or loss.  Financial liabilities are classified at amortized cost   The Company’s financial liabilities are measured at amortized cost using the effective interest method. Interest  expense  and  foreign  exchange  gains  and  losses  are  recognized  in  income  or  loss.  Any  gain  or  loss  on  derecognition is also recognized in income or loss.  Transaction costs  Transaction costs that are incremental and directly attributable to the acquisition or issue of a financial asset  or financial liability are recorded as follows:     Financial assets or financial liabilities at fair value through profit and loss – expensed to net income or  loss as incurred;  Financial assets or liabilities recorded at amortized cost – included in the carrying value of the financial  asset or financial liability and amortized over the expected life of the financial instrument using the  effective interest method; and  Equity  instruments  recorded  at  fair  value  through  other  comprehensive  income  –  included  in  the  initial cost of the underlying asset.  // Page 14   57 Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Inventories  Inventories,  which  consist  of  repair  parts,  materials  and  supplies,  are  carried  at  the  lower  of  cost  and  net  realizable value. Cost is determined on a first‐in, first‐out basis and includes all costs of purchase and any other  costs incurred in bringing the inventories to their present location and condition. Net realizable value is the  estimated selling price in the ordinary course of business, less applicable variable selling expenses.   Vaccine inventory temporarily held for principals  The Company offers a consolidation service and acts as an agent on behalf of certain vaccine manufacturer  clients (“principals”) where end customers (primarily travel and vaccine clinics) place a single order for vaccines  sold  by  multiple  manufacturers.  The  Company  temporarily  holds,  but  does  not  obtain  control  of,  a  limited  amount of vaccine inventory for resale at prices and other terms of sale specified by principals participating in  the consolidated vaccine distribution program. Gross billings in connection with the sale of vaccines are entirely  offset by the cost of purchases of vaccines resulting in nil net revenue for the Company related to the sale of  such vaccines.  Provisions  A  provision  is  recognized  if,  as  a  result  of  a  past  event,  the  Company  has  a  present  legal  or  constructive  obligation  that  can  be  estimated  reliably,  and  it  is  probable  that  an  outflow  of  economic  benefits  will  be  required to settle the obligation. If the effect of the time value of money is material, provisions are determined  by discounting the expected future cash flows at a pre‐tax rate that reflects current market assessments of the  time value of money and the risks specific to the liability. Where discounting is used, the unwinding of the  discount is recognized as finance cost.  Segmented reporting  The Company is organized into two reportable segments: Specialized Transportation and Healthcare Logistics.  In the Specialized Transportation segment, the Company provides specialized temperature‐controlled services  to healthcare customers. The Company’s transportation products include ground transportation (comprising  less‐than‐truckload and courier services), air freight forwarding, and dedicated and last mile delivery.   In the Healthcare Logistics segment, the Company provides contract logistics services for customers, including  logistics  and  distribution  (comprising  warehousing  and  inventory  management,  order  fulfillment,  reverse  logistics, and transportation management), and packaging (comprising reusable thermal packaging solutions  and trade customization services).   Certain of the Company’s operating units provide services to other Company operating units outside of their  reportable segment. Billings for such services are based on negotiated rates, which approximates fair value,  and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on  market conditions. Such intersegment revenues and expenses are eliminated in the Company’s consolidated  results.  The  Company’s  chief  executive  officer  is  the  Chief  Operating  Decision  Maker  (“CODM”)  for  the  Company. The CODM regularly reviews financial information at the reporting segment level in order to make  decisions about resources to be allocated to the segments and to assess their performance. Segment results  that are reported to the CODM include items directly attributable to a segment, as well as those that can be  allocated on a reasonable basis. The Company evaluates performance based on the various financial measures  of its two reporting segments.  58 // Page 15   Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  3.  Material accounting policies (continued)  Share‐based compensation  The Company has an omnibus equity incentive plan and records all share‐based compensation, including grants  of restricted share units and employee stock options, at their respective fair values. The fair value of stock  options granted to employees and directors is estimated at the date of grant using the Black Scholes option  pricing model. The Company recognizes share‐based compensation expense over the vesting period, over the  life of the tranche of shares being considered. The Company also estimates forfeitures at the time of grant and  revises its estimate, if necessary, in subsequent periods if actual forfeitures differ from these estimates. Any  consideration paid by employees on exercising stock options and the corresponding portion previously credited  to  contributed  surplus  are  credited  to  share  capital.  If  a  cashless  exercise  is  undertaken,  the  employee  or  director  will  surrender  a  number  of  options  in  order  to  fund  the  cashless  exercise  and  a  further  amount,  representing the difference between the market price and the exercise price of the shares may be adjusted to  share  capital  unless  the  Company  chooses  to  sell  the  shares  in  the  amount  required  to  fund  the  cashless  exercise. The Company’s stock option plan is equity‐settled.  The  Black‐Scholes  option  pricing  model  used  by  the  Company  to  calculate  option  values  was  developed  to  estimate the fair value. This model also requires assumptions, including expected option life, volatility, risk‐ free interest rate and dividend yield, which greatly affect the calculated values.  Expected  option  life  is  determined  using  the  time‐to‐vest‐plus‐historical‐calculation‐from‐vest‐date  method  that derives the expected life based on a combination of each tranche’s time to vest plus the actual or expected  life  of  an  award  based  on  the  past  activity  or  remaining  time  to  expiry  on  outstanding  awards.  Expected  forfeiture is derived from historical patterns. Expected volatility is determined using comparable companies  for which the information is publicly available, adjusted for factors such as industry, stage of life cycle, size and  financial  leverage.  The  risk‐free  interest  rate  is  determined  based  on  the  rate  at  the  time  of  grant  and  cancellation for zero‐coupon Canadian government securities with a remaining term equal to the expected life  of the option. Dividend yield is based on the stock option’s exercise price and expected annual dividend rate  at the time of grant.  // Page 16   59 Andlauer Healthcare Group Inc. – 2023 Annual Report              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  4.  Segment reporting  The Company is organized into operating segments, which aggregate into two reportable segments: Specialized  Transportation and Healthcare Logistics. The operating segments are managed independently as they require  different technology and capital resources. For each of the operating segments, the Company’s CODM reviews  internal management reports, evaluating the metrics as summarized in the tables that follow.  The  Company  evaluates  performance  based  on  the  various  financial  measures  of  its  operating  segments.  Performance is measured based on segment income or loss before tax. This measure is included in the internal  management reports that are reviewed by the Company’s CEO and refers to “Income before income taxes” in  the consolidated statements of income and comprehensive income. Segment income or loss before tax is used  to measure performance as management believes that such information is the most relevant in evaluating the  results of certain segments relative to other entities that operate within the same industries.   The following table identifies selected financial data as at December 31, 2023 and 2022 and for the years then  ended:  As at December 31, 2023 and  for the year then ended  Revenue  Segment income before tax  Interest income  Interest expense  Depreciation and amortization  Segment net income  Segment total assets  Additions of ROU assets  Capital expenditures  Segment total liabilities  As at December 31, 2022 and  for the year then ended  Revenue  Segment income before tax  Interest income  Interest expense  Depreciation and amortization  Segment net income  Segment total assets  Additions of ROU assets  Additions of property, plant and  equipment through business  combinations1  Capital expenditures  Segment total liabilities  Specialized  Transportation  Healthcare  Logistics  Corporate  Eliminations  Total   $   528,590  67,061  1,343  (10,831)  (52,867)  48,993    526,282  17,224  19,012    164,617   $   175,929  19,308  796  (1,915)  (15,282)  14,114    174,107  263  4,511  73,343   $   7,136  4,238  6,643  (1,071)  ‐   3,033    680,970  ‐   ‐   6,320   $   (63,703)  ‐   (5,612)  5,610  ‐   ‐   (698,933)  ‐   ‐   (31,424)   $   647,952  90,607  3,170  (8,207)  (68,149)  66,140    682,426  17,487  23,523    212,856  $    523,515   81,352   (2,887)   (3,759)   (50,148)   60,102   554,903   11,810   ‐    23,179   236,796  $   $   176,865    22,247   (39)   (2,085)   (14,304)   16,265   175,528   228   5,159   2,569   88,868  5,225   159   3,525   (1,014)   ‐    (92)   734,498   ‐    ‐    ‐    30,766  $    (57,182)   ‐    ‐    ‐    ‐    ‐    (752,469)   ‐   $   648,423    103,758   599   (6,858)   (64,452)   76,275   712,460   12,038   ‐    ‐   (84,962)   5,159   25,748   271,468  1 Includes $3,798 of ROU assets acquired through a business combination.  60 // Page 17   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                                                                                                                                                           Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  4.  Segment Reporting (continued)  The  Company’s  Healthcare  Logistics  segment  purchases  transportation  services  from  its  Specialized  Transportation segment. Fees for these services are based on negotiated rates, which approximate fair value,  and are reflected as revenues of the Specialized Transportation segment. Rates are adjusted from time to time  based on market conditions. The Company also charges fees for services and costs incurred from its corporate  office to subsidiaries. Intersegment revenues and expenses and related intersegment payables and receivables  are eliminated in the Company’s consolidated results.  The Company does not have any customers that individually represent more than 10% of revenue for the years  ended December 31, 2023 and 2022.  5.  Business combinations  On March 1, 2022, the Company acquired all of the issued and outstanding shares of Logistics Support Unit  (LSU)  Inc.  (“LSU”),  a  leading  third‐party  logistics  provider  offering  specialty  pharmacy,  warehousing,  distribution and order management services throughout Canada to national and international companies, as  well  as  government  clients  in  the  pharmaceutical,  medical  and  biotechnology  sectors,  for  $26,747,  the  estimated fair value of the business acquired. The acquisition was financed through a combination of cash on  hand, drawing $12,000 on the credit facilities and by issuing 154,639 subordinate voting shares totaling $7,500  to the shareholder of LSU.    For the period from acquisition on March 1, 2022 to December 31, 2022, LSU contributed revenue of $21,275  and  net  income  before  amortization  of  intangible  assets  acquired  of  $3,390  ($2,065  net  of  intangible  amortization)  to  the  Company’s  financial  results.  If  the  Company  had  acquired  LSU  on  January  1,  2022,  management  estimates  that  consolidated  revenue  would  have  been  approximately  $651,800,  and  consolidated  net  income  would  have  been  approximately  $78,600.  In  determining  these  amounts,  management has assumed that the fair value adjustments that arose on the dates of acquisition would have  been the same had the acquisition occurred on January 1, 2022.  During the year ended December 31, 2022, transaction costs of $345 were expensed in selling, general and  administrative expenses in the consolidated statements of income and comprehensive income and $63, net of  deferred taxes, was charged to share capital in relation to the acquisition.    The  following  table  summarizes  the  final  acquisition  date  fair  value  of  identifiable  net  assets  and  goodwill  acquired:  Identifiable assets acquired and liabilities assumed  Cash and cash equivalents  Trade and other receivables  Inventories  Prepaid expenses and other  Property, plant and equipment, including ROU assets  Intangible assets  Accounts payable and accrued liabilities  Income taxes payable  Lease liabilities  Deferred tax liabilities  Total identifiable net assets  Goodwill  Final purchase consideration   LSU  (March 1, 2022)  (71)  $   4,636  663  140  5,159  15,900  (1,778)  (4,160)  (3,398)  (2,496)  14,595  12,152  $   26,747  // Page 18   61 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  5.  Business combinations (continued)  Trade and other receivables comprise gross amounts due of $4,636, all of which were expected to be collectible  at the acquisition date.  When measuring the fair value of property, plant and equipment, the Company considers market prices for  similar  items  when  they  are  available,  and  depreciated  replacement  cost  when  appropriate.  Depreciated  replacement  cost  reflects  adjustments  for  physical  deterioration  as  well  as  functional  and  economic  obsolescence.  The Company attributes value to the customer relationships maintained by LSU, and to its brand. For the year  ended December 31, 2022, the Company recorded intangible assets of $12,700 in connection with customer  relationships and $3,200 in connection with the brand of LSU. The determination of the acquisition‐date fair  value  of  the  customer  relationships  required  the  Company  to  make  significant  estimates  and  assumptions  regarding  future  revenue  growth  from  existing  customers,  future  cost  of  sales  and  operating  expenses,  forecasted attrition rate, contributory asset charges and discount rate. The determination of the acquisition‐ date fair value of brands required the Company to make significant estimates and assumptions regarding future  revenue growth applicable to brands, royalty rate, long‐term growth rate used to determine terminal value  and discount rate. The customer relationships and brand are definite life intangible assets each of which will  be amortized over 10 years.  The  goodwill  is  principally  attributable  to  the  premium  of  established  business  operations  with  a  strong  reputation in healthcare logistics, and the synergies expected to be achieved from integrating LSU into the  Company’s  existing  business.  Goodwill  arising  from  the  acquisition  of  LSU  is  allocated  to  the  Healthcare  Logistics segment.  Of the goodwill acquired through the business combination, $4,850 is deductible for tax purposes.  6.  Trade and other receivables  Trade receivables  Trade receivables due from related parties (note 21)  Impairment loss  Trade and other receivables  $    December 31,  2023  102,799  54  (647)  December 31,  2022  $    99,232  47  (856)  $    102,206  $    98,423  Estimates are used in determining the impairment loss related to trade receivables. These estimates are based  on  management’s  best  assessment  of  the  ECL  of  the  related  receivable  balance,  which  involves  estimates  around the cash flows that are expected to be received. There is no impairment loss recorded against trade  receivables due from related parties.  7.  Inventories  Inventories consist of:  Packaging inventory  Thermal packaging products and parts  Transportation equipment parts and supplies  Vaccines temporarily held for principals  Inventories  62 December 31,  2023  December 31,  2022  $    $    389  1,241  1,023  2,676  624  909  859  934  $    5,329  $    3,326  // Page 19   Andlauer Healthcare Group Inc. – 2023 Annual Report                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  7.  Inventories (continued)  During the year ended December 31, 2023, the Company purchased a total of $33,830 in inventory (2022 ‐  $22,660) and $31,821 was recognized as an expense (2022 ‐ $22,182) during the year and included in direct  operating expenses.  8.  Property, plant and equipment  Reconciliation of the net carrying amounts for each class of property, plant and equipment is summarized below:  Facilities1  Furniture and  fixtures  Leasehold  improvements  Logistics and  transportation  equipment1  Total  Cost  Balance at December 31, 2021  $   155,855  $   8,664  $   21,433  $   154,314  $   340,266  Additions  Additions through business  combinations (note 5)  Dispositions  Foreign currency adjustments  2,744  2,756  ‐   391  Balance at December 31, 2022    161,746  Additions  Dispositions  Foreign currency adjustments  2,477  ‐   (144)  511  1,518  33,013  37,786  ‐   (7)  18  9,186  344  ‐   (8)  672  (29)   101  23,695  3,408  ‐   (59)  1,731  (2,631)  1,695  5,159  (2,667)  2,205    188,122    382,749  34,781  (4,284)  (796)  41,010  (4,284)  (1,007)  Balance at December 31, 2023  $   164,079  $   9,522  $   27,044  $   217,823  $   418,468  Accumulated depreciation  Balance at December 31, 2021  $   66,512  $   6,769  $   11,357  $   77,516  $   162,154  Depreciation for the year   17,492  Dispositions  Foreign currency adjustments  Balance at December 31, 2022  Depreciation for the year   Dispositions  Foreign currency adjustments  ‐   42  84,046  17,934  ‐   (40)  411  (3)  1  2,437  25,013  45,353  ‐   6  (991)  307  (994)  356  7,178  $   13,800    101,845    206,869  416  ‐   (1)  2,625  ‐   (8)  27,009  (2,232)  (304)  47,984  (2,232)  (353)  Balance at December 31, 2023  $   101,940  $   7,593  $   16,417  $   126,318  $   252,268  Net carrying amounts  At December 31, 2022  At December 31, 2023  $   $   77,700  62,139  $   $   2,008  1,929  $   $   9,895  10,627  $   $   86,277  $   175,880  91,505  $   166,200  1   Facilities and certain logistics and transportation equipment assets are ROU assets, capitalized in accordance with IFRS  16. Refer to note 18.  // Page 20   63 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                                                                                    Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  8.  Property, plant and equipment (continued)  The Company has applied judgement in estimating the useful life of property, plant and equipment and to determine  the lease terms for ROU lease contracts that include renewal options. The assessment of whether the Company is  reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease  liabilities and ROU assets recognized. In applying such judgement, management relies on historical experience and  other factors, including the current economic environment, which management believes is reasonable under the  circumstances.  9.  Goodwill and intangible assets   Goodwill  Customer  relationships  Brand  Software  Total  Cost  Balance at December 31, 2021  $   176,737  $   147,254  $   37,950  $   ‐   ‐   Additions  Additions through business  combinations (note 5)  Foreign currency adjustments  ‐   9,836  6,335  12,700  6,115  Balance at December 31, 2022    192,908    166,069  Additions  ‐   ‐   Foreign currency adjustments  (2,348)  (2,245)  3,200  1,827  42,977  ‐   (671)  7,668  2,212  ‐   ‐   9,880  2,069  (8)  $    369,609  2,212  25,736  14,277    411,834  2,069   (5,272)  Balance at December 31, 2023  $   190,560  $   163,824  $   42,306  $   11,941  $    408,631  Accumulated amortization  Balance at December 31, 2021  $   Amortization for the year  Foreign currency adjustments  Balance at December 31, 2022  Amortization for the year  Foreign currency adjustments  Balance at December 31, 2023  $   Net carrying amounts  ‐   ‐   ‐   ‐   ‐   ‐   ‐   $   28,193  $   14,495  484  43,172  15,056  (453)  1,376  4,127  144  5,647  4,284  (136)  $   4,840  $    34,409  477  ‐   5,317  825  ‐   19,099  628  54,136  20,165  (589)  $   57,775  $   9,795  $   6,142  $    73,712  At December 31, 2022  $    192,908  $    122,897  At December 31, 2023  $    190,560  $    106,049  $    $    37,330  32,511  $    $    4,563  5,799  $    357,698  $    334,919  The Company performs annual goodwill impairment testing. The Company assesses goodwill at the operating  segment  level,  which  is  the  lowest  level  within  the  Company  at  which  goodwill  is  monitored  for  internal  management purposes. The table below sets out goodwill allocated to operating segments:  Operating segment/reportable segment  Healthcare Logistics   Specialized Transportation  Total goodwill  64 December 31,  2023  December 31,  2022  $    31,872  158,688  $    31,872  161,036  $    190,560  $    192,908  // Page 21   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                                        Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  9.  Goodwill and intangible assets (continued)  The  results  of  the  annual  impairment  testing  determined  that  the  recoverable  amounts  of  each  of  the  Healthcare Logistics operating segment and the Specialized Transportation segment exceeded their respective  carrying amounts. The recoverable amount of the Company’s operating segments was determined using the  value in use methodology, which involves discounting estimated future cash flows. Management believes that  discounting estimated future cash flows results in a reasonable valuation for each segment. In assessing value  in use, the estimated future cash flows have been discounted to their present values using pre‐tax discount  rates of 9.3% (2022 – 8.6%) for the Healthcare Logistics segment and 10.5% (2022 – 10.3%) for the Specialized  Transportation  segment,  which  approximate  the  Company’s  weighted  average  cost  of  capital  for  each  segment; and expected growth rates for the healthcare sector of between 3.0% and 5.0%. Management has  determined that no impairment has arisen in connection with the CGUs that gave rise to goodwill through the  business  combinations.  Accordingly,  no  impairment  loss  has  been  recognized  in  each  of  the  years  ended  December 31, 2023 and 2022.  During the year ended December 31, 2022, the Company acquired LSU in which its customer relationships and  its  brand  comprised  significant  value  to  AHG.  In  aggregate,  $12,700  was  attributed  to  the  customer  relationships  and  $3,200  was  attributed  to  the  brand  of  LSU.  Management  considers  these  identifiable  intangible assets to have finite useful lives which are amortized on a straight‐line basis over ten years (note 5).   The Company performs an assessment for indicators of impairment for customer relationships, brands and  software  at  each  reporting  period.  If  an  indicator  of  impairment  exists,  the  Company  would  perform  an  impairment test to determine the recoverable amount. No such indicators of impairment were identified at  any of the reporting periods covered by these financial statements.  10. Accounts payable and accrued liabilities  Trade payables and accrued liabilities  Trade payables due to related parties (note 21)  Deferred revenue (note 16)  Accounts payable and accrued liabilities  11. Credit facilities  Term facility  Less: capitalized financing costs  Credit facilities  December 31,  2023  December 31,  2022  $    $    40,379  450  966  41,194  587  1,137  $    41,795  $    42,918  December 31,  2023  December 31,  2022  25,000  25,000  (181)  50,000  50,000  (443)  $  24,819  $  49,557  // Page 22   65 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  11. Credit facilities (continued)  Recorded in the consolidated balance sheets as follows:  Revolving credit facility  Term facility  Credit facilities  The movement in credit facilities from December 31, 2023 is as follows:  Balance at December 31, 2022  Changes from financing cash flows  Repayment of term facility  Non‐cash movements  Amortization of capitalized financing costs  Balance at December 31, 2023  December 31,  2023  December 31,  2022  $  $  ‐   24,819  24,819  $  $  ‐   49,557  49,557  Credit  Facilities  49,557  $    (25,000)  24,557  262  $    24,819  The Company is party to credit facilities with a syndicate of lenders. The credit facilities comprise a revolving  credit facility in the aggregate principal amount of up to $100,000 and a term facility in the aggregate principal  amount of up to $50,000. The credit facilities will mature and be due and payable on March 1, 2025. There is  no repayment schedule for either the revolving credit facility or the term facility, except at maturity; however,  the Company classifies the revolving credit facility in current liabilities because of its intention to reduce drawn  amounts with cash flow from operations within twelve months. Financing costs of $621, which apply to the  credit facilities in aggregate, were capitalized in the term facility.  The  credit  facilities  are  available  to  be  drawn  in  Canadian  dollars  by  way  of  prime  rate  loans,  bankers’  acceptances and letters of credit, and in U.S. dollars by way of base rate loans, and letters of credit, in each  case, plus the applicable margin in effect from time to time. At December 31, 2023, the credit facilities comprise  bankers’ acceptances drawn at an interest rate of 6.9% (December 31, 2022 – 5.9%).   The credit facilities are guaranteed by each of the Company’s material subsidiaries and are secured by (i) a first  priority lien over all personal property of the Company, subject to certain exclusions and permitted liens, (ii)  charges  over  certain  material  leased  real  property  interests,  and  (iii)  a  first  ranking  pledge  of  100%  of  the  securities of any subsidiary owned by the Company.  The credit facilities are subject to customary negative covenants and include financial covenants requiring the  Company to maintain at all times a maximum net leverage ratio and a minimum interest coverage ratio, tested  on a quarterly basis. At December 31, 2023 and December 31, 2022, the Company was in compliance with all  of its covenants under the credit facilities.  Amounts recognized in the consolidated statements of income and comprehensive income in connection with  interest expense on the credit facilities for the year ended December 31, 2023 was $2,977 (2022 – $2,001).  66 // Page 23   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                  Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  12. Financial instruments and financial risk management  Accounting classifications and fair values  The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, long‐ term deposits and other, accounts payable and accrued liabilities and its credit facilities (refer to note 11). The  Company believes that the carrying amount of each of these items is a reasonable approximation of fair value  given the short‐term nature of the financial instruments.  As the credit facilities bear interest at a floating rate subject to fluctuations in the bank prime rate the carrying  value of the debt approximates fair value.  Financial risk factors  The Company, through its financial assets and liabilities, has exposure to the following risks from its use of  financial  instruments:  credit  risk,  liquidity  risk,  interest  rate  risk,  and  currency  risk.  Senior  management  monitors risk levels and reviews risk management activities as they determine to be necessary.  Credit risk  The Company is exposed to credit risk in the event of non‐performance by counterparties in connection with  its financial assets, namely cash and cash equivalents, trade and other receivables and long‐term deposits.  The Company does not typically obtain collateral or other security to support the trade and other receivables  subject to credit risk but mitigates this risk by performing credit check procedures for new customers and  monitoring credit limits for existing customers. Thereby, the Company deals only with what management  believes to be financially sound counterparties and, accordingly, does not anticipate significant loss for non‐ performance.   The maximum exposure to credit risk for cash and cash equivalents, trade and other receivables and long‐ term deposits approximate the amount recorded on the consolidated balance sheets.  Trade and other receivables aging is set out below:  Current (not past due)   0‐30 days past due   31‐60 days past due   More than 61 days past due   Gross   Unbilled revenue   Impairment loss (note 6)  December 31,  2023  $    64,975  23,394  5,663  3,466  97,498  5,355  (647)  $    December 31,  2022  70,547  20,218   3,039  1,008  94,812  4,467  (856)  Trade and other receivables, net   $    102,206  $    98,423  Liquidity risk  Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with  its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach  to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities  when they are due, under both normal and stressed conditions, without incurring unacceptable losses or  risking damage to the Company’s reputation.   The Company’s exposure to liquidity risk is dependent on the collection of trade and other receivables or  raising  of  funds  to  meet  commitments  and  sustain  operations.  The  Company  controls  liquidity  risk  by  management of working capital, cash flows and the availability of borrowing facilities.  // Page 24   67 Andlauer Healthcare Group Inc. – 2023 Annual Report                Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  12. Financial instruments and financial risk management (continued)  Liquidity risk (continued)  As  of  December  31,  2023,  $nil  (2022  ‐  $nil)  has  been  drawn  on  the  $100,000  revolving  credit  facility,  and  $25,000 (2022 ‐ $50,000) has been drawn on the $50,000 term facility. There is no repayment schedule for the  term facility except at maturity. The credit facilities are repayable in full on March 1, 2025.  The Company’s accounts payable and accrued liabilities are due and payable in the short‐term.   Interest rate risk  The  Company  has  a  revolving  and  term  credit  facilities  that  bear  interest  at  a  floating  rate  subject  to  fluctuations in the bank prime rate. Changes in the bank prime lending rate can cause fluctuations in interest  payments and cash flows. The Company does not use derivative financial instruments to mitigate the effect  of this risk. The facilities under this agreement are available to be drawn in Canadian dollars by way of prime  rate loans, bankers’ acceptances and letters of credit, and in U.S. dollars by way of base rate loans and letters  of credit, in each case, plus the applicable margin in effect from time to time. At December 31, 2023, the  credit facilities comprises bankers’ acceptances drawn at an interest rate of 6.9% (2022 – 5.9%).   During the year, interest rates have increased as the Governing Council of the Bank of Canada continues to  target 2‐3% inflation. However, there has been no significant impact on the Company’s financial condition or  results of operations as a result of such increases in interest rates. Increased interest rates have also increased  the Company’s interest income earned on cash balances during the year.  Currency risk  The Company enters into foreign currency purchase and sale transactions and has assets and liabilities that  are  denominated  in  foreign  currencies  and  thus  are  exposed  to  the  financial  risk  of  earnings  fluctuations  arising from changes in foreign exchange rates and the degree of volatility of these rates. The Company uses  derivative instruments to reduce its exposure to foreign currency risk on an exceptional basis. During the  years ended December 31, 2023 and 2022, no derivative instruments were used by the Company.  Excluding  its  foreign  subsidiaries,  the  Company  has  the  following  US  dollar  foreign  currency  denominated  balances at December 31, 2023 and 2022:  Currency risk   Cash  Trade and other receivables  Accounts payable and accrued liabilities    December 31,    2023  $    12,595  14,625  4,679   December 31,    2022  16,409  15,489  $    4,542  68 // Page 25   Andlauer Healthcare Group Inc. – 2023 Annual Report                    Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  13. Share capital  The Company is authorized to issue an unlimited number of subordinate voting common shares, an unlimited  number of multiple voting common shares, and an unlimited number of preferred shares, issuable in series.  The subordinate voting shares and multiple voting shares rank pari passu with respect to the payment of  dividends,  return  of  capital  and  distribution  of  assets  in  the  event  of  liquidation,  dissolution,  or  wind‐up.  Holders  of  multiple  voting  shares  are  entitled  to  four  votes  per  multiple  voting  share,  and  holders  of  subordinate voting shares are entitled to one vote per subordinate voting share on all matters upon which  holders of shares are entitled to vote.   On December 12, 2022 the Company’s parent, AMG, sold 1.76 million multiple voting shares (which converted  to subordinate voting shares at the time of the sale by AMG), representing approximately 9.64% of the issued  and outstanding subordinate voting shares, pursuant to a number of private agreements at a price of $49.25  per  subordinate  voting  share  for  an  aggregate  purchase  price  of  $86,680.  There  were  no  transaction  costs  incurred in connection with these private agreements.  Transaction  costs  of  $63,  net  of  deferred  taxes,  have  been  offset  against  subordinate  voting  shares  in  connection with the acquisition made during the year ended December 31, 2022 (note 5).  As of December 31, 2023, all of the multiple voting shares and 10,200 subordinate voting shares are owned  by AMG. The following table summarizes the number of common shares issued:  Number of common shares (in thousands)  Share capital (in thousands of dollars)  Multiple  voting  common  shares     21,840  Subordinate  voting  common  shares     20,074  Multiple  voting  common  shares  $  327,600  Subordinate  voting  common  shares  $  400,235  Total common  shares     41,914  Total share  capital  $  727,835  ‐   ‐   8  20  8  20  ‐   ‐   314  314  112  112  ‐      21,840  (475)     19,627  (475)     41,467  ‐   $  327,600  (9,471)  $  391,190  (9,471)  $  718,790     23,600     18,069     41,669  $  354,000  $  365,936  $  719,936  ‐   ‐   ‐   155  ‐   90  (1,760)  1,760  155  ‐   90  ‐   ‐   ‐   ‐   7,500  (63)  462  (26,400)     26,400  7,500  (63)  462  ‐   Balance at December 31, 2022  Shares issued in connection with  the settlement of DSUs (note  15)  Shares issued in connection with  the exercise of options (note  15)  Shares repurchased for  cancellation in connection with  the Company’s normal course  issuer bid  Balance at December 31, 2023  Balance at December 31, 2021  Shares issued in connection with  business combination (note 5)  Transaction costs, net of tax  Shares issued in connection with  the exercise of options   Shares converted in connection  with secondary sale by AMG  Balance at December 31, 2022     21,840     20,074     41,914  $  327,600  $  400,235  $  727,835  // Page 26   69 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                             Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  13. Share capital (continued)  Normal course issuer bid and automatic securities purchase plan  From time to time, the Company will announce a normal course issuer bid (“NCIB”) approved by the Board and  the TSX to repurchase and cancel a specified number of subordinate voting shares. All repurchases are made  through the facilities of the Toronto Stock Exchange at market prices. Amounts paid above the average book  value  of  the  subordinate  voting  shares  are  charged  to  retained  earnings.  In  connection  with  a  NCIB,  the  Company  may  enter  into  an  automatic  securities  purchase  plan  (“ASPP”)  with  a  designated  broker  for  the  purpose of permitting the Company to purchase its subordinate voting shares under the NCIB during times  when the Company would ordinarily not be permitted to make such purchases due to regulatory restrictions  or self‐imposed blackout periods. The volume of purchases is determined by the broker in its sole discretion  based on purchase price and maximum volume parameters established by the Company in accordance with  the rules of the TSX, applicable securities laws and the terms of the ASPP. Any purchases made under an ASPP  will be included in computing the number of subordinate voting shares purchased under a NCIB.  On March 24, 2023, the Company announced that the TSX had approved its notice of intention to make a  NCIB for up to a maximum of 1,856,857 of its subordinate voting shares, or approximately 10% of its public  float as of March 23, 2023, over the 12‐month period commencing on March 29, 2023. The bid will terminate  on  March  28,  2024,  or  such  earlier  time  as  the  Company  completes  its  purchases  pursuant  to  the  bid  or  provides  notice  of  termination.  In  connection  with  the  NCIB,  the  Company  established  an  ASPP  with  its  designated broker that contains specified parameters regarding how its subordinate voting shares may be  purchased under the NCIB during self‐imposed blackout periods. The Company paused its ASPP and issued  manual instructions to its designated broker for the period from August 9, 2023 to September 30, 2023 at  which time the ASPP was reinstated under amended terms and conditions. As of December 31, 2023, a total  of 474,740 subordinate voting shares, comprising approximately 2.4% of the number of subordinate voting  shares outstanding, have been purchased and cancelled pursuant to the NCIB at an average price of $39.67  per share, for a total purchase price of approximately $18,840. The excess of the purchase price paid over the  average carrying value of the subordinate voting shares purchased and cancelled, in the amount of $9,369,  was recognized as a share repurchase premium and a reduction to retained earnings.  Dividends to subordinate voting and multiple voting shareholders  During the year ended December 31, 2023, the Company declared total dividends of $14,202, or $0.34 per  common  share  (December  31,  2022  –  $10,883,  or  $0.26  per  common  share),  on  subordinate  voting  and  multiple voting shares. Included in accounts payable and accrued liabilities as at December 31, 2023 is $3,732  (December  31,  2022  –  $2,934)  for  dividends  paid  on  January  15,  2024  and  January  16,  2023,  to  common  shareholders of record on December 31, 2023 and 2022 respectively.  14. Earnings per share  Basic earnings per share  The basic earnings per share and the weighted average number of common shares outstanding have been  calculated as follows:  (in thousands of dollars and number of shares)  Net income   December 31,  2023  December 31,  2022  $  66,140  $  76,275  Weighted average number of common shares  41,833  41,813  Earnings per share – basic   $  1.58  $  1.82  70 // Page 27   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                              Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  14. Earnings per share (continued)  Diluted earnings per share  The  basic  earnings  per  share  and  the  weighted  average  number  of  common  shares  outstanding  after  adjustment for the effects of all dilutive common shares have been calculated as follows:  (in thousands of dollars and number of shares)  Net income   Weighted average number of common shares  Dilutive effects:    Stock options    Restricted share units    Deferred share units  Weighted average number of diluted common  shares  December 31,  2023  December 31,  2022  $  66,140  $  76,275  41,833  41,813  656  2  52  812  ‐   46  42,543  42,671  Earnings per share – diluted   $  1.55  $  1.79  15. Share‐based payment arrangements  Stock option plan (equity settled)  The Company offers a stock option plan for the benefit of certain of its employees. Each stock option entitles  its holder to receive one subordinate voting common share upon exercise. The exercise price payable for each  option is determined by the Board of Directors at the date of grant. The options vest in equal installments over  four  years  and  the  expense  is  recognized  following  the  treasury  method  as  each  installment  is  fair  valued  separately and recorded over the respective vesting periods.   On December 11, 2019, the Board of Directors approved a grant of 1.65 million options which were granted to  non‐executive  directors,  executive  officers  and  management  personnel  in  connection  with  its  initial  public  offering. Of these options, 1,043 remain outstanding and are exercisable.  On December 11, 2023, the Board of Directors approved a grant of 63 thousand options which were granted  to executive officers and management personnel in connection with its long‐term incentive plan. The fair value  of the stock options granted was estimated using the Black‐Scholes option pricing model using the following  weighted average assumptions:  Exercise price  Average expected option life  Risk‐free interest rate  Expected stock price volatility  Average dividend yield  Weighted average fair value per option of options granted  December 11,  2023  December 11,  2019  $  $  39.73  6.3 years  3.48%  33.66%  0.93%  $  14.37  $  15.00  7.0 years  1.59%  24.77%  1.33%  3.60  Of the options outstanding at December 31, 2023, a total of 635 thousand (December 31, 2022 – 635 thousand)  are held by non‐executive directors; 223 thousand (December 31, 2022 – 200 thousand) are held by executive  officers;  with  the  remaining  248  thousand  (December  31,  2022  –  239  thousand)  held  by  management  personnel.  // Page 28   71 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                        Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  15. Share‐based payment arrangements (continued)  Stock option plan (equity‐settled) (continued)  The table below summarizes the changes in the outstanding stock options:  (in thousands of options and in dollars)  Opening balance   Granted  Exercised  Ending balance   December 31, 2023  December 31, 2022  Number of  options  1,074  63  (31)  1,106  Weighted  average  exercise price  15.00  $   39.73  $   15.00  16.41  $   Number of  options  1,202  ‐   (128)  1,074  Weighted  average  exercise price  15.00  $   ‐  15.00  15.00  $   Options exercisable   1,043  $   15.00  780  $   15.00  The table below summarizes stock options outstanding and exercisable at December 31, 2023:  (in thousands of options and in dollars)  Options Outstanding  Exercise price  15.00  $  39.73  Number of  options  1,043  63  1,106  Weighted  average  remaining  contractual  life (in years)  5.95  9.95  Options  Exercisable  Number of  options  1,043  ‐   6.18  1,043  The Company recognized compensation expense of $301 for the year ended December 31, 2023 (2022 – $669),  with corresponding increases to contributed surplus in connection with the vesting of options.  During the year ended December 31, 2023, 31 thousand options were exercised on a cashless basis resulting  in  20  thousand  subordinate  voting  common  shares  being  issued  from  treasury  and  in  the  surrender  of  11  thousand  options  used  to  fund  the  cashless  option  exercise.  The  volume  weighted  average  price  used  to  calculate the cashless exercises in accordance with the Company’s Omnibus Equity Incentive Plan was $39.73  per share at the time of exercise resulting in a $112 net increase in share capital. When options are exercised,  the option value that was originally recognized is transferred from contributed surplus to share capital. The  transfer of the option value of the options exercised resulted in a $112 reduction to contributed surplus at  $3.60 per share.  Restricted share units (“RSUs”) program (equity settled)  On December 11, 2023, the Board of Directors approved a grant of 30 thousand RSUs which were granted to  executive officers and management personnel in connection with its long‐term incentive plan. The fair value  of the RSUs is determined to be the share price fair value at the date of the grant. The RSUs vest in equal  installments over four years and the expense is recognized as a share‐based compensation expense, through  contributed surplus over the vesting period. The fair value of the RSUs granted was $39.95 per unit. For the  year ended December 31, 2023 the Company recognized a compensation expense of $34, with a corresponding  increase to contributed surplus ($2022 – $nil).  72 // Page 29   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                 Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  15. Share‐based payment arrangements (continued)  Restricted share units (“RSUs”) program (equity settled) (continued)  The table below summarizes the changes in the outstanding RSUs:  December 31, 2023  (in thousands of RSUs and in dollars)  Opening balance   Granted  Ending balance   RSUs exercisable   Number of  RSUs  ‐   30  30  ‐   Weighted  average grant  date fair value  $   ‐   39.95  39.95  39.95  $   $   Director deferred share units (“DSUs”) program (equity settled)  Each non‐executive director receives at least 50% of their annual director retainer in DSUs. DSUs vest when  granted but are not redeemable for settlement until the director ceases to be a member of the Board. The  number of DSUs issued is calculated for each director as the director’s quarterly retainer divided by the volume  weighted average trading price on the TSX for the five trading days prior to such issuance. For the year ended  December 31, 2023, the Company recognized a compensation expense of $593, with corresponding increases  to contributed surplus (2022 – $632).  On June 5 and 12, 2023, an aggregate of 8 thousand DSUs were settled by the issuance of subordinate voting  shares of the Company from treasury in connection with the retirement of a director resulting in a reduction  of $314 to contributed surplus and a corresponding increase in share capital.  The table below summarizes the changes in the outstanding DSUs:  (thousands of DSUs)  Opening balance  Granted  Settled  Ending balance  December 31,  2023  December 31,  2022  51  14  (8)  57  37  14  ‐   51  // Page 30   73 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  16. Revenue  a) Revenue streams   The Company generates revenue primarily from the provision of supply chain transportation and logistics  services  to  its  customers.  The  Company’s  contracts  are  typically  satisfied  over  a  short  period  of  time.   Consequently, the Company applies the practical expedient and does not disclose information related to  its remaining performance obligations.   b) Disaggregation of revenue from contracts with customers  In the following table, revenue from contracts with customers is disaggregated by major products and  service lines. The table also includes a reconciliation of the disaggregated revenue with the Company’s  reportable  segments  (note  4),  and  revenue  disaggregated  by  primary  geographical  markets.  All  of  the  revenue generated in the United States comprises ground transportation revenue.  Major products/service lines   Logistics and distribution   Packaging solutions  Healthcare Logistics segment   Ground transportation   Air freight forwarding   Dedicated and last mile delivery   Intersegment revenue   Specialized Transportation segment   Total revenue  Primary geographical markets  Canada  United States  Total revenue  c) Deferred revenue  December 31,  2023  December 31,  2022  $    159,168  $    155,575  16,761  21,290    175,929    176,865    429,174    422,236  30,595  68,821  34,383  66,896  (56,567)  (51,957)    472,023    471,558  647,952  $    648,423  December 31,  2023  December 31,  2022  520,983  $    516,845    126,969    131,578  647,952  $    648,423   $     $     $    One of the Company’s specialized transportation operating segments bills customers for transportation  services based on the pick‐up date. When shipments remain in transit at the end of a period, the Company  defers  revenue  until  the  shipments  are  delivered.  The  Company  does  not  regularly  bill  customers  in  advance for logistics and distribution services. Consequently, fluctuations in deferred revenue will occur  year over year and will depend on specifically negotiated payment terms resulting from customer billing  requests or concerns related to credit risk. To date, the changes in deferred revenue have been largely  insignificant. As at December 31, 2023 there was $966 (2022 – $1,137) recorded in accounts payable and  accrued liabilities (note 10). Revenue recognized in 2023 of $1,137 (2022 – $1,817) was included in the  opening deferred revenue balance at the beginning of the period.  74 // Page 31   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                  Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  17. Income taxes  a) Amounts recognized in income or loss  Current income tax expense:  Current taxes on income for the reporting year   Current taxes relating to previous years and other adjustments  Deferred income tax recovery:  Utilization (recognition) of tax benefits related to income (loss) for the year  Origination and reversal of temporary differences   Deferred taxes relating to previous years and other adjustments  Deductible temporary differences not recognized  December 31,  2023  December 31,  2022  $   29,022  (126)  28,896  252  (4,841)  160  ‐   (4,429)  $   29,855  (327)   29,528  (629)  (1,797)  358  23  (2,045)  Income tax expense reported to the statements of income and  comprehensive income  $   24,467  $   27,483  Total  cash outflow  for actual  taxes  paid  for  the year  ended December 31, 2023  was $46,124 (2022 –  $30,989).  b) Amounts recognized directly in equity  Transaction costs, before tax  Tax  Transaction costs, net of tax  c) Reconciliation of effective tax rate  December 31,  2023  December 31,  2022  $    ‐   ‐   $    $    86  (23)  63   $    ‐  Income before income taxes  Consolidated Canadian federal and provincial income tax rate   Income tax expense based on statutory rate  Increase in income taxes resulting from non‐deductible items or other  adjustments  Impact of varying statutory tax rates of subsidiaries  Deductible temporary differences not recognized  Taxes relating to previous years and other adjustments  Total income tax expense  $    December 31,  2023  90,607  26.5%  24,011  December 31,  2022  $    103,758  26.5%    27,496  609  (187)  ‐   34  256  (322)  23  30  $    24,467  $    27,483  // Page 32   75 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                            Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  17. Income taxes (continued)  d) Deferred taxes  Deferred tax assets  Deferred tax liabilities   Net deferred tax liability  e) Movement in deferred tax balances  Plant and equipment  Accounts payable and accrued liabilities  Intangibles  Benefit of losses carried forward  Leases  Transaction costs  Net deferred tax liability  December 31,  2023  December 31,  2022  $  5,285  $  5,809  (42,955)  (48,609)  $  (37,670)  $  (42,800)  December  31, 2023  Recognized  in income or  loss  Foreign  currency  adjustments  December  31, 2022  $   (12,787)  $   872  $   144  $   (13,803)  868  50  (1)    819    (33,580)    4,879  588    (39,047)  2,531  4,079  1,219  (252)    (85)    (1,035)    ‐   (30)    ‐   2,783  4,194  2,254  $   (37,670)  $   4,429  $   701  $   (42,800)  December  31, 2022  Recognized  in equity  Recognized  in income or  loss  Acquired in  business  combina‐ tions  Foreign  currency  adjustments  December  31, 2021  Plant and equipment  $   (13,803)  $   ‐   $   (797)  $   (116)  $   (498)  $   (12,392)  Accounts payable and accrued liabilities  Intangibles  Benefit of losses carried forward  Leases  Transaction costs  819    (39,047)    2,783  4,194  2,254  ‐   ‐   ‐   ‐   207  3,742  629  (696)    23  (1,040)    ‐   5  607  (125)    (1,678)      (40,986)  ‐   61  ‐   ‐   81  ‐   2,154  4,748  3,271  Net deferred tax liability  $   (42,800)  $   23  $   2,045  $   (180)  $   (2,090)  $   (42,598)  76 // Page 33   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  17. Income taxes (continued)  f) Unrecognized deferred tax liabilities  As  at  December  31,  2023,  temporary  differences  of  $40,390  (December  31,  2022  –  $40,390)  exist  in  connection with wholly‐owned investments in subsidiaries; and the related potential deferred tax liability  of $5,352 (December 31, 2022 – $5,352) has not been recognized. The Company controls the dividend  policies of its subsidiaries and controls the timing of payment of such dividends. Accordingly, the Company  controls the timing of reversal of the related taxable temporary differences; and management is satisfied  that they will not reverse in the foreseeable future.  g) Non‐capital loss carryforwards  The Company recognized deferred tax assets in connection with certain losses for the current year on the  basis that it will have sufficient future taxable profit.   The Company has total non‐capital tax loss carry forwards of $9,507 that begin to expire in 2040.  h) Uncertainty over income tax treatments   The calculation of current and deferred income taxes requires management to make certain judgements  regarding the tax rules in jurisdictions where the Company performs activities. The Company believes that  its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors,  including interpretations of tax law and prior experience.  18. Leases  The Company leases buildings and equipment in the operation of its Transportation and Logistics businesses.  The Company is required to estimate the incremental borrowing rates used to discount lease liabilities if the  interest rate implicit in the lease is not readily determined. The Company estimates its incremental borrowing  rates for portfolios of leases with similar characteristics, such as similar risk profiles, same or similar types of  security, and similar lease terms. Building lease terms range from 5 to 10 years. Facilities lease liabilities are  calculated using the Company’s incremental borrowing rate based on the specific lease commitments and term  for each facility. The average incremental borrowing rate for facilities for the year ended December 31, 2023  is  5.76%  (2022  –  5.20%).  Equipment  lease  terms  range  from  1  to  7  years.  Equipment  lease  liabilities  are  calculated using the operating segment’s average incremental borrowing rate on an equipment lease portfolio  basis for that period. The average incremental borrowing rate for equipment for year ended December 31,  2023 is 5.94% for Specialized Transportation and 5.74% for Healthcare Logistics (2022 – 4.87% for Specialized  Transportation; 5.49% for Healthcare Logistics).  Right‐of‐use assets – Facilities   Opening balance   Add: additions  Add: additions through business combinations  Less: depreciation   Foreign currency adjustments  Ending balance  $  As at and for  the year ended  December 31,  2023  77,701  2,477  ‐   (17,934)  (103)  $  As at and for  the year ended  December 31,  2022  89,343  2,744  2,756  (17,487)  345  $  62,141  $  77,701  // Page 34   77 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                    Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  18. Leases (continued)  Right‐of‐use assets – Logistics and transportation equipment  Opening balance  Add: additions  Add: additions through business combinations  Less: depreciation   Foreign currency adjustments  Ending balance  Net carrying amounts of right‐of‐use assets included in property, plant and  equipment  Facilities  Logistics and transportation equipment  Balance  Lease liabilities – Facilities   Opening balance   Add: additions  Add:  additions through business combinations  Add: interest expense  Less: principal repayments   Less: interest payments  Foreign currency adjustments  Ending balance  Lease liabilities – Logistics and transportation equipment  Opening balance  Add: additions  Add: additions through business combinations  Add: interest expense  Less: principal repayments   Less: interest payments  Foreign currency adjustments  Ending balance  Cash lease principal payments  Repayments of lease principal  Total lease payments  78 $  As at and for  the year ended  December 31,  2023  32,333  15,010  ‐   (11,691)  (23)  $  As at and for  the year ended  December 31,  2022  33,443  9,294  1,042  (11,519)  73  $  35,629  $  32,333  December 31,  2023  62,141  35,629  $  December 31,  2022  77,701  32,333  $  $  97,770  $  110,034  $  As at and for  the year ended  December 31,  2023  86,925  2,477  ‐   3,085  (17,794)  (3,085)  (107)  $  As at and for  the year ended  December 31,  2022  98,681  2,744  2,006  3,623  (16,857)  (3,623)  351  $  71,501  $  86,925  $  As at and for  the year ended  December 31,  2023  26,804  15,010  ‐   1,321  (10,158)  (1,321)  (76)  $  As at and for  the year ended  December 31,  2022  28,282  9,294  1,392  1,165  (12,177)  (1,165)  13  $  31,580  $  26,804  Year ended  December 31,  2023  (27,952)  $  Year ended  December 31,  2022  (29,034)  $  $  (27,952)  $  (29,034)  // Page 35   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  18. Leases (continued)  Lease liabilities  Facilities  Logistics and transportation equipment  Balance  Lease liabilities included in consolidated balance sheets   Current  Non‐current   Balance  Maturity analysis for lease liabilities –   contractual undiscounted cash flows  Less than one year  One to 5 years  More than 5 years  Total undiscounted lease liabilities  December 31,  2023  (71,501)  (31,580)  $  December 31,  2022  (86,925)  (26,804)  $  $  (103,081)  $  (113,729)  December 31,  2023  (27,697)  (75,384)  $  December 31,  2022  (26,547)  (87,182)  $  $  (103,081)  $  (113,729)  $  December 31,  2023  32,285  76,377  5,636  $  December 31,  2022  30,523  81,317  12,886  $  114,298  $  124,726  Amounts recognized in the consolidated statements of income and comprehensive income in connection with  interest expense for lease liabilities for year ended December 31, 2023 was $4,406 (2022 – $4,788). Total cash  outflow for leases for the year ended December 31, 2023 was $32,358 (2022 – $33,822).  Net investment lease   Opening balance   Add: interest received  Less: payments received   Less: interest income  Ending balance  As at and for  the year ended  December 31,  2023  As at and for  year ended   December 31,  2022  $  $  $  61  ‐   (61)  ‐   ‐   $  784  11  (723)  (11)  61  In January 2021, the Company sub‐leased a facility to a third party that had previously been classified as a right‐ of‐use asset. The Company derecognized the net book value of the right‐of‐use asset and established a net  investment lease at that time. As at December 31, 2023 the lease has been fully paid and terminated. The  Company recognized less than $1 of interest income for the year ended December 31, 2023 (2022 – $11).  // Page 36   79 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  19. Interest expense  Interest expense recognized in income and  comprehensive income  Leases  Credit facilities  Other  Total interest expense   $    $   December 31,  2023  December 31,  2022  4,406  2,977   824  8,207  $   $   4,788  2,001  69  6,858  Interest expense recognized in the consolidated statements of income and comprehensive income equates to  total interest paid for the years ended December 31, 2023 and 2022.  20. Commitments and contingencies  a) The Company is, from time to time, involved in claims, legal proceedings and complaints arising in the  normal  course  of  business  and  provisions  for  such  claims  have  been  recorded  where  appropriate.  The  Company does not believe the final determination of these claims will have an adverse material effect on  its consolidated financial statements.  b) As  at  December  31,  2023,  the  Company  had  outstanding  letters  of  guarantee  in  the  amount  of  $365  (December 31, 2022 – $365).  c) The Company has made commitments to lease fleet equipment, with the terms to begin upon delivery of  the  equipment.  Commitments  range  from  72  to  84  months  and  total  $12,926  (December  31,  2022  –  $11,371).  d) The  Company  has  made  commitments  to  purchase  fleet  equipment  totalling  approximately  $4,848  (December 31, 2022 – $10,126).  21. Related parties  During the year, the Company entered into transactions with related parties that were incurred in the normal  course of business. The Company’s policy is to conduct  all transactions and settle all balances with related  parties on market terms and conditions. All outstanding balances with these related parties are to be settled  in  cash  within  two  months  of  the  reporting  date.  None  of  the  balances  are  secured.  No  expense  has  been  recognized in the current year or prior year for bad or doubtful debts in respect of amounts owed by related  parties.  The Company is indirectly controlled by Michael Andlauer, the Chief Executive Officer and CODM. Included in  these consolidated financial statements are the following transactions and balances with companies related  either directly or indirectly to Mr. Andlauer.  The  Company  recovers  certain  facilities  lease  costs  from  Andlauer  Management  Group  Inc.  (“AMG”).  The  Company also provides certain shared services (primarily accounting services) to AMG.  Andlauer Properties and Leasing Inc. (“APLI”) is a subsidiary of AMG and leases certain facilities and logistics  and  transportation  equipment  to  the  Company.  The  Company  also  leases  facilities  and  logistics  and  transportation  equipment  from  arm’s  length  providers.  The  Company  provides  certain  shared  services  (primarily accounting services) to APLI.  9143‐5271 (“9143”) Quebec Inc. is a subsidiary of AMG and leases a facility in Quebec to the Company. The  Company provides certain shared services (primarily accounting services) to 9143.  80 // Page 37   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                    Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  21. Related parties (continued)  Ready  Staffing  Solutions  Inc.,  a  company  owned  by  Mr.  Andlauer’s  spouse,  provides  the  Company  with  temporary agency employee services – providing hourly dock labour for handling operations, principally in the  GTA. The Company also purchases temporary agency employee services from arm’s length providers.   1708998 Ontario Limited (Medical Courier Services) (“MCS”) is a subsidiary owned 80% by AMG and provides  transportation services to the Company, providing extended reach for shipments where the Company does not  have facilities or equipment. The Company also provides certain shared services (primarily accounting services)  to MCS.  Med  Express  is  a  subsidiary  owned  50%  by  AMG  and  provides  transportation  services  to  the  Company,  providing extended reach for shipments where the Company does not have facilities or equipment.  D.C. Racking & Maintenance Inc. (“DCR”) and Logiserv Inc. (“Logiserv”) are partially owned by Cameron Joyce,  a  member  of  AHG’s  board  of  directors.  DCR  provides  warehouse  racking  installation  and  maintenance  and  repair  services  to  the  Company.  Logiserv  provides  warehouse  racking  and  racking  components  as  well  as  warehouse  racking  installation,  maintenance  and  repair  services.  The  Company  also  purchases  warehouse  racking  installation,  maintenance  and  repairs,  and  warehouse  racking  and  racking  components  from  arm’s  length providers.  C‐GHBS Inc. is a subsidiary of AMG and provides air travel services to the Company.  Revenue  Transportation services  1708998 Ontario Limited (Medical Courier Services)   $   215  $   173  December 31,  2023  December 31,  2022  Shared service recovery  Andlauer Properties and Leasing Inc.  Andlauer Management Group Inc.  9143‐5271 Quebec Inc.  1708998 Ontario Limited (Medical Courier Services)   Expenses  Transportation services  1708998 Ontario Limited (Medical Courier Services)   Med Express Ltd.  Contract labour services  Ready Staffing Solutions Inc.  Equipment rent  Andlauer Properties and Leasing Inc.   Facility rent  Andlauer Properties and Leasing Inc.   9143‐5271 Quebec Inc.   Maintenance services  D.C. Racking and Maintenance Inc. and Logiserv Inc.   Travel services  C‐GHBS Inc.  Capital Expenditures  Purchases of logistics and transportation equipment  Logiserv Inc.  19  14  32  24  151  20  6,503  2,237  2,239  1,544  ‐   58  ‐   20  13  32  13  147  40  6,517  2,301  2,163  1,532  54  104  47  // Page 38   81 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                                                                                                                                            Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  21. Related parties (continued)  Trade receivables due from related parties  Andlauer Properties and Leasing Inc.  1708998 Ontario Limited (Medical Courier Services)  Due from related parties  Andlauer Management Group Inc.  Total due from related parties  Trade payables due to related parties  Ready Staffing Solutions Inc.   1708998 Ontario Limited (Medical Courier Services)  Andlauer Properties and Leasing Inc.   Andlauer Management Group Inc.  C‐GHBS Inc.  Logiserv Inc.   Due to related parties  Andlauer Properties and Leasing Inc.   Total due to related parties  Key management personnel  December 31,  2023  December 31,  2022  $   $   $   $   13  41  54  1  1  55  150  13  287  ‐   ‐   ‐   450  206  656  $   $   $   $   15  32  47  56  56  103  463  18  73  9  12  12  587  342  929  The  Company’s  key  management  personnel,  and  persons  connected  with  them,  are  also  considered  to  be  related parties for disclosure purposes. Key management personnel are defined as those individuals having  authority and responsibility for planning, directing and controlling the activities of the Company and include  the Company’s CEO, four named executive officers comprising key management and the Board of Directors.  Key management personnel compensation comprised the following:  Key management compensation  Salaries and benefits  Share‐based payment arrangements  Director deferred share units  Total key management compensation   $    December 31,  2023  December 31,  2022  4,061  196  592  4,849  $    $    3,498  426  632  4,556  $    82 // Page 39   Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                                                                                          Andlauer Healthcare Group Inc.  Notes to Consolidated Financial Statements   For the years ended December 31, 2023 and 2022  (In thousands of Canadian dollars, except shares, share price and earnings per share)  22. Capital management  The  Company’s  policy  is  to  maintain  a  strong  capital  base  so  as  to  maintain  investor,  creditor  and  market  confidence and to sustain future development of the business. Management monitors the return on capital,  as well as the level of dividends and distributions to ordinary shareholders.  The Board of Directors seeks to maintain a balance between the higher returns that might be possible with  higher levels of borrowing and the advantages and security afforded by a sound capital position. The Company  monitors capital using a net leverage ratio, calculated as net debt divided by the last twelve months’ earnings  before interest, taxes, depreciation and amortization (“EBITDA”). The Company seeks to keep its net leverage  ratio below 3.0 in the ordinary course of business.  Total lease liabilities  Term facility  Less: cash and cash equivalents  Net debt  Last twelve months’ net income  Last twelve months’ interest income  Last twelve months’ interest expense  Last twelve months’ income tax expense  Last twelve months’ depreciation and amortization  EBITDA  Net leverage ratio  December 31,  2023  December 31,  2022  $    $    103,081  24,819  (59,740)  68,160  66,140  (3,170)  8,207  24,467  68,149  163,793  113,729  49,557  (65,855)  97,431  76,275  (599)  6,858  27,483  64,452  174,469  0.42  0.56  // Page 40   83 Andlauer Healthcare Group Inc. – 2023 Annual Report                                                                                                          NOTES 84 Andlauer Healthcare Group Inc. – 2023 Annual ReportNOTES 85 Andlauer Healthcare Group Inc. – 2023 Annual ReportSHAREHOLDER INFORMATION Shares Outstanding (As at March 5, 2024) Total Subordinate Voting Shares (“SVS”): 19,482,993 Registrar and Transfer Agent TSX Trust Company Total Multiple Voting Shares: 21,840,000 Auditor KPMG LLP Legal Counsel Goodmans LLP Virtual Annual General Meeting Friday, May 3, 2024, at 10 a.m. (ET) www.andlauerhealthcare.com Stock Exchange Listing Andlauer Healthcare Group’s SVS are listed on the Toronto Stock Exchange under the symbol “AND” Investor Contacts Peter Bromley Chief Financial Officer T: 416-744-4916 E: Investor.relations@andlauer.ca Bruce Wigle Investor Relations T: 647-496-7856 E: Investor.relations@andlauer.ca 86 Andlauer Healthcare Group Inc. – 2023 Annual ReportEXECUTIVE TEAM Michael Andlauer Chief Executive Officer Peter Bromley, CPA, CA Chief Financial Officer Sandro Caccaro President, Transportation Bob Brogan President, Specialty Solutions Dean Berg President, Logistics BOARD OF DIRECTORS Peter Jelley Chair Rona Ambrose 1, 2, 3 Lead Director Michael Andlauer Director and Chief Executive Officer Cameron Joyce 1 Director Joseph Schlett, CPA, CA 1, 2, 3 Director Evelyn Sutherland, FCPA, FCA 1, 2*, 3 Director Thomas Wellner 1, 3* Director Independent director 1 2 Member of Compensation, Nominating & Governance Committee 3 Member of the Audit Committee * Denotes Committee Chair PLATFORM OF COMPANIES 100 Vaughan Valley Blvd. • Vaughan, Ontario • L4H 3C5 www.andlauerhealthcare.com 

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