ATS Andlauer Income Fund
TSX : ATS.UN

ATS Andlauer Income Fund

November 02, 2007 15:06 ET

ATS Andlauer Income Fund Announces Third Quarter Results for 2007

- Continued revenue growth 8.0% - One-time costs and an under billing of revenues related to start-up of new Toronto facility contributed to EBITDA decline of 9.7% - Prospects remain strong with year to date cash distribution pay-out ratio at a 83%

TORONTO, ONTARIO--(Marketwire - Nov. 2, 2007) - ATS Andlauer Income Fund (the "Fund")(TSX:ATS.UN) today reported third quarter results with continued revenue growth of 8.0 percent and an EBITDA decline of 9.7.

"I am obviously disappointed with our performance in the third quarter where we fell short of our EBITDA from the prior year. Performance was impeded by the culmination of three main contributing factors. Firstly, pricing pressures, particularly in the entertainment vertical, reduced margins which will be a continuing trend as the sluggish economy continues. Secondly, cost control in Alberta continues to be a struggle which will be the case for at least the next several quarters. Lastly, our major move into a state of the art facility in Toronto resulted in operational process and conveyor system design issues which not only increased our costs but resulted in under billing of certain shipments which impacted our top line as well as EBITDA levels," said Michael Andlauer, President and Chief Executive Officer.

"I am confident that the Toronto facility process flaws have been rectified and am now very much looking forward to growing our business through this best in its class facility," further commented Michael Andlauer, President and Chief Executive Officer. "While pricing pressures relating to commodity products have begun to also impact margins, our value added services and growth in other verticals such as Pharmaceutical and Healthcare will be contributing factors which will enable us to weather this slowdown which has impacted the transportation industry as a whole."



SELECTED FINANCIAL AND OPERATING INFORMATION

Three months ended Nine months ended
Sept 30, Sept 30,
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2007 2006 2007 2006
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(unaudited) (unaudited) (unaudited) (unaudited)
($ thousands, except per Unit ($ thousands, except per Unit
amounts) amounts)

Earnings
Statement
Highlights
Revenue 46,383 42,540 134,835 124,889
Gross margin(1) 15,713 15,828 47,544 46,752
Gross margin
percentage(1) 33.88% 37.21% 35.26% 37.43%
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Income
(loss) before
non-controlling
interest 2,313 3,974 3,667 8,806
EBITDA(2) 4,020 5,622 12,452 13,786
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Income
(loss) per Unit
Basic 0.200 0.342 0.315 0.759
Diluted 0.199 0.342 0.315 0.758

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Balance
Sheet
Highlights
Total assets 120,796 124,628 120,796 124,628
Total
liabilities 41,975 39,227 41,975 39,227
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Distribution
Highlights
Distributions
declared per
Unit 0.2922 0.2823 0.8766 0.8049
Cash
distribution
payout ratio 86% 60% 83% 68%
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(1) See Non-GAAP Measures


RESULTS OF OPERATIONS

For the three months ended September 30, 2007 compared to the three months ended September 30, 2006

Revenue for the three months ended September 30, 2007 was $46.4 million compared to $42.5 million for the same period in 2006, an increase of $3.9 million or 9.0%. The increase was the result of growth in both the Consumer Products and Pharmaceutical and Healthcare verticals in the period ended September 30, 2007 compared to the same period in 2006. The Consumer Products vertical posted growth of $2.3 million and the Pharmaceutical and HealthCare vertical posted growth of $2.0 million, both net of attrition, while the Entertainment vertical declined by $0.4 million.

Ground and air revenues, excluding fuel surcharge, increased by $2.9 million and $1.1 million, respectively, in the three month period ended September 30, 2007 compared to the same period in 2006. Total fuel surcharge revenue decreased by $0.1 million from $4.4 million in 2006 to $4.3 million in 2007.

Management believes that an unforeseen design flaw in the conveyor system and operational processes at the new Disco Road facility in Toronto resulted in revenue that was lower by an estimated $1.0 million to $1.5 million for the three month period ended September 30, 2007 due to freight not being properly re-weighed and cubed. The under billing of certain shipments was not discovered until near the end of the quarter. Management believes that the additional controls which were developed and implemented upon discovery of the problem are sufficient to prevent such incidents from materially impacting financial results in the future.

Cost of sales increased from $26.7 million for the three months ended September 30, 2006 to $30.7 million for the three months ended September 30, 2007; cost of sales as a percentage of revenue increased from 62.8% for the three months ended September 30, 2006 to 66.1% for the three months ended September 30, 2007. Linehaul costs as a percentage of revenue remained fairly consistent quarter over quarter (down to 24.8% from 25.1% in 2006). Pickup and delivery costs as a percentage of revenue increased due to the continuation of higher delivery rates in Alberta, increased delivery costs associated with new healthcare initiatives in Ontario and an increase in driver costs relating to the operational restructuring and move to the new Disco Road Facility in Toronto. Handling costs increased due to increased labor costs in Alberta as well as increased costs associated with maintaining an additional facility in Toronto.

Gross margin declined from 37.21% for the three months ended September 30, 2006 to 33.88% for the same period in 2007. This decline was mainly due to the impact of revenue that was under billed in the quarter combined with cost pressures in Alberta and pricing pressure in general.

Income before non-controlling interest for the three month period ended September 30, 2007, was $2.3 million compared to an income of $4.0 million for the same period in 2006. The Fund will not be liable for current taxes until January 1, 2011, however is required by GAAP to recognize in its current quarterly financial statements, the effect of future income taxes arising from temporary tax differences expected to reverse after January 1, 2011, at expected tax rates applicable to the Fund.

EBITDA was $4.0 million for the three months ended September 30, 2007, down from $5.6 million in the same period in 2006, representing a decrease of 28.57%. As a percentage of revenue, EBITDA was 8.67% for the three months ended September 30, 2007, compared to 13.21% in the same period in 2006. EBITDA was impacted by the under billing of certain shipments due to the unforeseen design flaw in its Disco Road Facility conveyor system and operational processes during the third quarter and one-time moving costs associated with the new Disco Road Facility. Increased costs in Alberta and pricing pressures from a top line perspective further depressed EBITDA margins contributing to the overall decline.

RESULTS OF OPERATIONS

For the nine months ended September 30, 2007 compared to the results for the nine months ended September 30, 2006

Revenue for the nine months ended September 30, 2007 was $134.8 million, an increase of $9.9 million or 7.96% over $124.9 million for the same period in 2006. The increase was largely due to organic growth in all three major customer categories - Pharmaceutical and Healthcare, Consumer Products, and Entertainment verticals. Pharmaceutical and Healthcare contributed approximately $5.5 million of the growth for the nine month period ended September 30, 2007 compared to the same period in 2006 with Consumer Products and Entertainment posting growth of $3.7 million and $0.7 million respectively during the nine month period ended September 30, 2007 compared to the same period in 2006. An unforeseen design flaw in the conveyor system and operational processes at the new Disco Road facility in Toronto resulted in revenue that was lower by an estimated $1.0 million to $1.5 million for the nine month period ended September 30, 2007 resulting in unrecoverable under billing of certain shipments due to freight not being properly re-weighed and cubed.

Cost of sales increased from $78.1 million for the nine months ending September 30, 2006 to $87.3 million for the nine months ending September 30, 2007; the cost of sales as a percentage of revenue increased from 62.57% for the nine months ending September 30, 2006 to 64.74% for the nine months ending September 30, 2007. The increase was due mainly to higher pickup and delivery costs and handling costs in Alberta and additional costs associated with start up and recruitment for new dedicated delivery Healthcare initiatives in Ontario.

Gross margin declined from 37.43% for the nine months ended September 30, 2006 to 35.26% for the same period in 2007. This decline was mainly due to continued cost pressures in Alberta, pricing pressure and the under billing of certain shipments that occurred during the third quarter 2007.

Income before non-controlling interest for the nine month period ending September 30, 2007 was $3.7 million after accounting for the provision for future income taxes of $ 3.7 million compared to $8.8 million for the same period in 2006. Income before non-controlling interest was significantly reduced due to the requirement under GAAP to recognize the cumulative effect of future income taxes arising from temporary tax differences expected to reverse after January 1, 2011, at expected tax rates applicable to the Fund.

EBITDA was $12.5 million for the nine months ended September 30, 2007, down from $13.8 million of EBITDA in the same period in 2006, representing a decline of 9.68%. Year to date EBITDA included several transactions that Management believes are not expected to re-occur in future operating results including one-time moving costs associated with the Disco Road Facility in Toronto, a credit relating to a refund of property tax refund from the government of Quebec and the under billing of certain shipments due to the unforeseen design flaw in its Disco Road Facility conveyor system and operational processes during the third quarter. As well, increased costs in Alberta and pricing pressures continue to contribute to the decline in EBITDA. As a percentage of revenue, EBITDA was 9.24% for the nine months ended September 30, 2007, compared to EBITDA of 11.04% in the same period in 2006.



SUMMARY OF MOST RECENTLY COMPLETED CONSOLIDATED QUARTERLY RESULTS

($ thousands, except per Unit amounts) Sept 30, June 30, Mar 31, Dec 31,
2007 2007 2007 2006
(Q3 07) (Q2 07) (Q1 07) (Q4 06)
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Revenue 46,383 44,037 44,414 50,789
Gross margin 15,713 15,327 16,504 19,462
EBITDA (1) 4,020 3,627 4,807 7,964
Income (loss) before non-controlling
interest 2,313 (1,788) 3,143 6,196
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Income (loss) per Unit
Basic 0.200 (0.154) 0.271 0.534
Diluted 0.199 (0.154) 0.271 0.533
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Cash and cash equivalents 1,477 833 753 265
Total assets 120,796 122,143 124,293 129,650
Total current liabilities 16,407 13,882 13,408 18,048
Long-term debt - 1,928 3,183 3,349
Future income taxes 3,715 3,730 - -
Unitholders' equity 78,821 80,531 84,599 85,097
Non-controlling interest 21,853 22,072 23,103 23,156
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($ thousands, except per Unit amounts) Sep 30, Jun 30, Mar 31, Dec 31,
2006 2006 2006 2005
(Q3 06) (Q2 06) (Q1 06) (Q4 05)
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Revenue 42,540 40,775 41,574 51,053
Gross margin 15,828 15,289 15,635 20,913
EBITDA (1) 5,622 4,096 4,068 9,369
Income (loss) before non-controlling
interest 3,974 2,436 2,396 7,750
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Income (loss) per Unit
Basic 0.342 0.210 0.206 0.666
Diluted 0.342 0.210 0.206 0.666
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Cash and cash equivalents 32 1,024 441 264
Total assets 124,628 123,058 128,238 132,409
Total current liabilities 12,229 12,165 11,893 19,047
Long-term debt 3,749 3,000 7,364 3,948
Future income taxes - - - -
Unitholders' equity 85,401 84,780 85,705 86,054
Non-controlling interest 23,249 23,113 23,276 23,360
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(1)See Non-GAAP Measures


Total cash distributions for the three and nine month periods ended September 30, 2007 were $3.4 million or $0.292 per trust unit and $10.2 million or $0.877 per trust unit respectively. Cash distribution payout ratios for the same periods were 86% and 83% respectively. On an annualized basis, distributions have increased from the prospectus estimate of $0.975 to $1.1688 per trust unit.

The Fund is an open-ended trust that holds, indirectly, securities of ATS Andlauer Transportation Services Limited Partnership ("ATS Andlauer LP"). ATS Andlauer LP is a leading single source transportation solutions provider in Canada, providing integrated trucking, courier, air freight and value added transportation and distribution services to consumer product companies. It operates facilities in 23 centres across Canada and serves approximately 1,400 diversified customers.

The Fund's units trade on the Toronto Stock Exchange under the symbol ATS.UN.

The Financial Statements and Management's Discussion and Analysis for the period ended September 30, 2007, along with additional information relating to the Fund, including all public filings, are available on www.sedar.com and on the Fund's website at www.atsincomefund.ca.

FORWARD LOOKING STATEMENTS

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Fund. These statements are based on suppositions and uncertainties as well as on management's evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Fund's services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Fund's operations or financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Fund's website (www.atsincomefund.ca). Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release, and the Fund undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities law.

NON-GAAP MEASURES

Gross margin is a non-GAAP measure that represents the contribution of operating activities to earnings. It is considered a key measure by management as it reflects the ability of the Fund to generate earnings necessary to fund overhead costs, capital investment and distributions.

EBITDA is a non-GAAP measure that management considers a key measure as an indicator of the ability of the Fund to meet its capital and financing commitments. EBITDA is not a recognized measure under GAAP and does not have a standardized meaning under GAAP and therefore EBITDA may not be comparable to similar measures presented by other issuers.

Cash distribution payout ratio is a non-GAAP measure that compares distributions paid to available distributable cash which management considers an indicator of the Fund's conservatism and its ability to make distributions to unitholders at current rates in the future.

Contact Information

  • ATS Andlauer Transportation Services GP Inc.
    Michael Andlauer
    President & Chief Executive Officer
    (416) 798-1379 ext 200
    or
    ATS Andlauer Transportation Services GP Inc.
    Brian Mascarenhas
    Vice President & Chief Financial Officer
    (416) 798-1379 ext 200
    Website: www.atsincomefund.ca