Savaria Corporation

Q1 2023 Earnings Conference Call

5/11/2023

spk01: Good morning, good afternoon, good evening. My name is Razia. I will be your conference operator today. At this time, I would like to welcome everyone to the various corporations Q1 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star one and one on your telephone keypad. If you would like to withdraw your question, please press star one and one again. This call may contain forward-looking statements which are subject to the disclosure statement contained in Savaria's most recent press release issued on May 10th, 2023 with respect to its Q1 2023 results. Thank you. Mr. Sebastien Bourassa, you may begin your conference.
spk07: So basically this morning, I have the honor to lead the call because Mr. Marcel is absent for a personal reason, but he wants to know that he's always available by call or email if you have any questions, and he's doing very good. And he was proud of his Q1, so that's why he thought to let his team lead the call. So it was a very good first quarter, historically, which is our slowest quarter for Savaria. So we would like to thank Solar Inc. for the hard work, and we think it was a solid execution. because we have a very good organic growth in the accessibility and the patient care. Positively, our backlog remains at a hysteric level, which is very good news because it shows again that we are in a fantastic industry and that will be good for the remaining of the year. So very happy about that. As Marcel said in his press release, we continue to build on our plan for the $1 billion. The $1 billion is a target that we want to achieve by 2025. So we continue to elaborate on this plan to make sure we'll be able to execute. Some key highlights in the accessibility. Mexico ramp-up continues to happen. Right now we have 45 employees. We have four different assembly lines and we are doing some shipment of some units straight to the USA. So this is very important. Supply chain, I hope we don't have too many questions on that today because for us we consider it is relatively stable. Is it perfect once in a while? There's going to be a little issue, but overall, it is good. And give us your portion key to achieve your plan. Vinny Karas should have keyed this segment for me this morning, but you want to highlight a bit the patient care?
spk05: Yeah, thanks, Evan. For sure, our patient care segment delivered record results in Q1, including an EBITDA margin that topped 20% for the quarter. And again, that was a first for the segment. As you might imagine, the team is very proud of their performance, as they should be. While we don't want to get ahead of ourselves, and is just one quarter, it goes to show what's possible. And what we're seeing, and this is really a continuation of what we saw last year, is evidence of the tremendous synergies being unlocked through the integration of SPAN and Handicare. And in particular, as it relates to Q1, sales were especially strong, up 13% organically versus last year. This was driven by a number of factors, including continued strength in new build activities, cross-selling initiatives, and good spending by certain strategic partners. In turn, the higher sales volume allowed for a better fixed cost absorption, which contributed to the record margins experienced in Q1. In addition, we benefited from a good product mix and the realization of some higher margin projects. And finally, the pricing initiatives that were put in place last year are having a meaningful impact on profitability. So to conclude, it's always nice to start the year with a solid Q1, and we feel good about the backlog exiting the quarter, so there's a certain level of optimism for the remainder of the year as well. With that, I'll pass it over to Steve for the financial review.
spk09: Thanks, Nick, and good morning, everyone. I'm going to begin with some remarks regarding our Q1 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $211.6 million, up $28.1 million, or 15.3%, compared to Q1 2022. The increase was driven by strong organic growth of 13.5%, originating from all segments. In addition, the corporation experienced foreign exchange tailwinds of 1.8% in the quarter, combining for 15.3% growth overall. Ghost profit and ghost margins stood at 72 million and 34%, respectively, compared to 58.5 million and 31.9% in Q1 2022. The increase in ghost profit of 13.5 million was mainly driven by higher revenues and increased ghost margins, and to a lesser extent, favorable foreign exchange rates used in the conversion of the result of subsidiaries. The increase in gross margin versus last year was mainly attributable to greater profitability coming from the patient care segment due to better cost absorption and a favorable product mix partially offset by continued inflationary pressures resulting in material and labor cost increases, especially in Europe. Adjusted EBITDA and adjusted EBITDA margin finished at 31.2 million and 14.7% respectively, compared to 24.4 million and 13.3% in Q1 2022. The improvement in profitability is mainly explained by the gross margin increase as well as decrease in selling and admin expenses as a percentage of revenue. And now I'm going to move on to our segment results. Revenue from our accessibility segment was 151.4 million in Q1 2023, an increase of 21 million or 16.1% compared to the same period in 2022. The increase in revenue is mainly attributable to organic growth of 14.4%. Foreign currency had a further positive impact of 1.7% for the quarter as the US dollar and Euro both strengthened versus the Canadian dollar. Our revenue growth was fueled by both the residential and commercial sectors as well as well, and price and volume increases. And we continue to build our backlog. At March 31st, 2023, our accessibility backlog was approximately 8% higher than Q4 2022, last quarter. Adjusted EBITDA and adjusted EBITDA margins stood at 23.4 million and 15.5% respectively compared to 20.5 million and 15.7% for Q1 2022. The increase in adjusted EBITDA was mainly driven by higher sales volumes, while the slight decrease in adjusted EBITDA margin was mainly due to continued inflationary pressures causing higher material and labor costs, especially in Europe, partially offset by better cost absorption from the increased revenues. Revenue from our patient care segment was $48.8 million for the quarter, an increase of $7.2 million or 17.2% when compared to Q1 2022. Revenue growth includes organic growth of 13.2%, which was driven in large part by new contracts signed with healthcare facilities, cross-selling synergies with Medicare, and pricing optimization, as Nick alluded to earlier. For the quarter, foreign currency provided a 4% tailwind. Adjusted EBITDA and adjusted EBITDA margin stood at 9.8 million and 20.1%, respectively, compared to 5.3 million and 12.8% for the same period in 2022. The increase in both metrics was primarily due to the increase in revenues and improvements in gross margins, mainly explained by better cost absorption, product mix, pricing initiatives, and synergies with handicap. Revenue generated from the adapted vehicle segment was $11.4 million, a decrease of $0.1 million or 0.8% when compared to Q1 2022. The flight decrease in revenue is mainly related to a negative foreign exchange impact of 4.5%, which was partially offset by positive organic growth of 3.7%. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, finished at 0.6 million and 5.4%, respectively, compared to 0.6 million and 4.9% for Q1 2022. For the quarter, Net finance costs were $7 million compared to $1.4 million in Q1 2022. Interest on long-term debt increased by $3 million when compared to Q1 2022 due to higher market interest rates. Net finance costs were also impacted by a net foreign currency loss of $1.3 million compared to a net gain of $0.7 million in 2022, most of which is unrealized in nature. Also, the corporation incurred a gain on the ineffective portion of changes in fair value of net investment hedges of $0.8 million in 2022, which was not repeated in Q1 2023. Net earnings were $6 million or $0.09 per diluted share for the quarter compared to $5.3 million or $0.08 per diluted share in Q1 2022. Adjusted net earnings was $8.4 million or $0.13 per diluted share compared to $6.8 million or $0.10 per diluted share in Q1 2022. This reflects an increase of 24% or $0.03 on a diluted share basis. Turning now to capital resources and liquidity. So, various generated cash flows from operating activities of $16 million for the quarter compared to $13 million in Q1 2022. The increase is mainly due to the higher profit generated by the corporation in the quarter, partially offset by higher income taxes paid versus Q1 last year. In the quarter, the company made a net investment of $2.1 million in working capital versus $2.7 million in Q1 2022. Cash generated from investing activities was $7.7 million for Q1 2023, compared to cash used of $4.8 million in Q1 2022. In 2023, net cash received from the Norway divestment totaled $12.4 million, while the corporation dispersed $1.4 million for the acquisition of Ultron in 2022. Conversely, disbursements of $4.5 million for fixed and intangible assets were made in Q1 2023 compared to $3.6 million in Q1 2022. Cash used in financing activities was $6.3 million for the quarter compared to $27.2 million in 2022. In Q1 2023, the revolver balance increased by $8.5 million which we can largely see reflected in the quarter-ending cash balance. As of March 31, 2023, Saveria had a net debt position of $358.9 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Saveria's net debt to adjusted EBITDA ratio was approximately 2.8 times. This represents approximately a 0.24 decrease versus Q4 2022. And this reduction helps us to achieve our 2023 reduction leverage target of 0.5 turns. Severia has funds available of approximately 135 million to support working capital investments and growth opportunities. Looking forward for 2023, Severia expects to generate revenue which will be approximately eight to ten percent higher than 2022 when normalizing for the impact of the Norwegian auto division divestment with adjusted EBITDA margins of approximately 16 percent in addition as previously noted for 2023 we are targeting a reduction in our leverage ratio of 0.5 times and this this outlook is based primarily on Continued strong organic growth coming from the accessibility and patient care segments, supported by high backlog levels, cross-selling synergies, and strong demand. As well as continued successful integration of Medicare and progress towards achieving the next strategic phase of synergies in line with management's plans. And with that, this completes my prepared remarks, and I'll turn the call over to you, Razia, to open it up for questions, please.
spk01: Thank you, sir. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, it's star 1 and 1 if you have any question at this time. Thank you. We're now going to proceed with our first question. And the questions come from the line of Derek Lessard from TD Securities. Please ask your question.
spk04: Yeah, good morning, everybody, and congratulations on a really good quarter. Maybe I just wanted to, Nick, start with you and really dig down into that 20% patient care margin performance and some of the drivers behind that and how you guys are thinking about the sustainability of that margin, and I guess how does that all tie into your 16% consolidated margin guidance for the year?
spk05: Hi, Derek. Again, as I mentioned in the opening remarks, we're very happy with the results. I think 20% was a new level for that segment. At the same time, we do realize that it was just one quarter, right? So we want to kind of be cautious about moving forward. But it does show what's possible, right? You know, bringing the teams together, and they've been doing a fantastic job. In terms of the margins in particular, what we're seeing is, you know, anytime you get above $40 million in the quarter in terms of sales, and then especially when you get above $45 million in sales, then that fixed cost absorption really kicks in. So there's a lot of leverage in that business as a sales increase. So that's probably one of the biggest contributing factors there to the margin that you saw there in the first quarter. The second, I would say, big impact is the pricing issues, right? Something that we talked about a lot last year. You know, there is a little bit of a delay sometimes in terms of when those kick in. And so what you're seeing here in Q1 is really kind of the full impact, the meaningful impact of pricing. of those price initiatives that we have been talking about for the past several quarters. So I would say that's kind of the big drivers of the margin improvement. One, just the strong sales performance and the pricing initiatives.
spk04: Okay. And that's so very, very helpful. And just maybe on the handicap synergies, can you help us understand where they're coming from, both on the revenue margin side and where you think maybe that there's even more opportunity to extract more?
spk05: Well, there's some big scenarios that we're seeing, and this is where I think there's more to come, is going to be on the cross-selling, right? So really from the commercial perspective, the team's really coming together. The Salesforce integration is something that is a key project for us, I guess, as we ended last year and then going into this year. So it's something that we're looking at in Canada and also in the U.S. So realigning the sales forces so they're working efficiently, working together, and we're also bidding on the whole room. So that's something that's a little bit different than what we saw before is that now he's going to some of these bids and we're bidding on the entirety of it, right? So whether it's the bed frame, the mattress, the ceiling lift, the sling part portion of it, the case goods. So that's actually what we're quite excited about is we're looking forward to various tenders that are coming up it's going to kind of propel sales over the next several quarters, if not years, is that we're really one of the few one-stop shop players, similar to what we say in accessibility, being the one-stop shop for our dealers. It's a similar concept playing out there within patient care in that we're one of the few players that can provide the entire room. So that's, I would say, one of the biggest synergies that you're seeing within, I guess, between Span and Handicare, and it's something that we're just starting to develop tap into that. So it's something to look forward to over the next several years. So that's what I would say is one of the biggest synergies that we're seeing is on the commercial side.
spk04: Thanks for that, Nick, and maybe a few for some housekeeping for me, for Steve. On the working capital, just wondering how you're thinking about it for the rest of 2023, I guess, given the inflationary pressure in Europe, and are you expecting those inventories to grow as you You cycle through the higher costs and make some other, I guess, inventory plans as you expand the Mexican plan?
spk09: Derek, good to talk to you. We're actually not expecting to see inventory climb for the rest of the year. In the quarter, we had a net investment of working capital, in working capital, about $2.7 million. To be frank, I'm a little bit disappointed in that. I was hoping to see a reduction versus Q4. We were planning on seeing a reduction. So for the rest of the year, regardless of Mexico and everything happening in Europe, we are expecting to see working capital levels remain tight.
spk04: We're not expecting any investment to answer your question, no. Okay, thanks. And then maybe one final one for me before I recuse is on depreciation. There was an increase of about $1 million on the amortization of intangibles. How should we be thinking about that?
spk09: Sure. And it can be a little bit lumpy. I mean, obviously, we did see a large jump up in the intangible amortization after the handicap deal. But also a big part of intangible amortization is a lot of the R&D spending that we have, which can be lumpy. So we saw... the increase in Q1 of about, as you said, a million dollars from Q4. But if we look at Q3 last year or Q2 last year, the increase is much less. So I think if you want to think about that going forward, I would say there's going to be some up and downs just with regards to timing of R&D project amortization, but nothing to imply a higher run rate there.
spk06: Okay. Thanks, everybody. I'll read through them. Congrats.
spk00: We are now going to proceed with our next question.
spk01: And the questions come from the line of Michael Glenn from Raymond James. Please ask your question.
spk10: Okay, so just circling into the accessibility segment and you're talking about within patient care, you're talking about the benefits that you're starting to see from those pricing initiatives and I know that there's some pricing initiatives you've taken in accessibility, too. When do you think we'll start to see those start to roll through in the margin, and how should we think about the margin benefit as those pricing initiatives start to work through the backlog?
spk06: Thank you.
spk07: So, basically, for sure, the high backlog goes a bit above the price reset, the price increase that we do. So, we would expect from the second quarter to see a bit of better margins in terms of accessibility. But, yeah, we're very lucky. The high backlog has given us the opportunity to have a good first quarter. And I think we have been able also to fill some of the up position that we had at the top of labor, in factory or installation, that has helped us to generate some more output. So, that's a bit the answer for this question.
spk10: Okay. Now, so for accessibility, do you think that 1Q would represent then the low point for the year and will work better from this point forward?
spk06: Good question.
spk09: Thanks for that, Michael. I mean, we do have price increases coming into effect. The 2023 price increases that came into effect this year haven't quite worked their way through the backlog yet as far as Q1 is concerned. So we will see the impact coming through the remainder of the year. What we're seeing right now in some of that organic growth is the price increase versus last year. So similar timing, last year's price increase came into effect at the beginning of the year, takes a quarter to work its way through. So we started to see that in Q2, but we're still seeing that now versus Q1 2022. With regards to the remainder of the year, When we look at our price increases and how much we put into effect, we obviously are trying to improve margins, but we also need to keep in mind cost increases that we're seeing across our business. So it's one to improve margins, but also to make sure that we level off or negate any negative impacts from vendor cost increases or other cost increases across the business. So yes, our plan is that the margins will keep increasing from here, but we have to keep in mind that There are cost increases happening ongoing throughout the business, throughout the remaining quarters of the year as well.
spk10: Okay. And then just in terms of, I know you guys have spoken in the past about targeting becoming a top three player in North America in that stairlift business. Are you able to provide an indication or translate that into what that would mean from a revenue perspective? for your top line?
spk07: I think right now we have delivered some guidance of 8% to 10% of organic growth. If we look at the size of business that we are right now, I will consider that we are in the top three typically worldwide in terms of manufacture of all the different products. We are the only company in the world that can offer a stair lift, a porch lift, an incline lift, an arm elevator. and then also some patient care products. So I think we're part of the best company in terms of product offering and in terms of size also.
spk05: Maybe, Michael, there, if you think about, you know, sterilists in North America in particular, I think there is more room to grow. So when you think about that 18%, you might think that maybe there will be outsized growth within sterilists in North America because there's a lot more of a runway there for us. So that's maybe how to frame that.
spk10: Okay. And one additional one, any guidance on the interest expense for the year where that would come in?
spk06: A lot of our debt is variable rate right now.
spk09: So, I mean, it would be nice to know exactly where the interest rate is going to be in the next couple of quarters. But for forecasting purposes, I would expect that for Q2, Q3, and Q4, that we're going to see similar interest expense in line with Q1.
spk10: Got it. Okay. Thanks for taking the questions.
spk01: We are now going to proceed with our next question. And the questions come from the line of Nick Agostino from Laurentian Bank Securities. Please ask your question. Yes.
spk08: Good morning, everybody. So I guess my first question is just a comment that I saw in your press release where you guys talked about
spk07: seen growth beyond 2025 can you just maybe uh give some colors to why that comment was added i think nick good morning first uh i think we just want to reiterate that the one billion plan is that's our mission control this way i think in the way in the company know that we're making steps or investments towards that so i think myself just want to reiterate that again We're always focusing on that, trying to improve. If something is not working per the plan, we fine-tune it. And, yeah, 2025 is coming soon, but we did some investment. Unfortunately, we're thinking that we'll be good for the next five to ten years. I think it's just a general comment to reiterate that we're in a nice industry, and we're thinking about the future, not just on the short term.
spk08: Okay, so we shouldn't read too much into that comment, then. Yeah, it's more general comments. Okay. And then my other question for Nick first, just given the fact that you put 20% up on the patient care margin in the quarter, I recognize it's not necessarily going to be a sticky number, but can you just remind us what you're looking for for patient care margins for the full year? And does this particular number in Q1 maybe push your thoughts a little bit higher for the full year?
spk05: I think we're a little bit early to push our thoughts for the full year. So I don't want to stray too much from, you know, what we've talked about in terms of guidance. You know, we talk about 16% margins across the business. I don't think we give guidance by segment. So we'll kind of stick to that. I mean, I think patient care delivered a very good Q1. So very happy, right? I mean, it's better to be above than below, right? So we're not digging ourselves out of the hole as we go into the year. But I wouldn't want to read too much into it and think that – You know, it sets that bar for the rest of the quarters. I think we want to be cautious about that. And maybe after another quarter or two of good performance, maybe that will be more indicative of the trend. Right now, we're just very happy with the performance. But again, we're sticking to our guidance, if you will, for the remainder of the year. We're not looking to change that just yet.
spk08: Okay. And just on that same question, maybe, Steve, you can weigh in on this, but Obviously, Q1 off to a strong start, so congrats on that. We know that it's seasonally the weakest quarter. Just given where Q1 has landed, given what you're seeing as of May, when you look at the full year guidance of 8% to 10%, are you guys more comfortable towards the higher end of that range, just given the quarter and where we are as of May?
spk09: Yeah, good morning. Thanks for the question. With regards to full-year guidance, I mean, we're still staying at 8% to 10% in growth and need-to-deal margins. I mean, yes, Q1 was a great quarter, but we're just trying not to get too much ourselves for the full year. We still have three quarters to go. It was a strong start, which we're happy about and really proud of the teams for delivering. But again, we're taking one quarter at a time. So for now, we're we're staying put.
spk08: Okay, that's it for me. Thank you.
spk01: We're now going to take our next question. And the questions come from the line of Zachary Eveshed from National Bank Financial. Please ask a question.
spk11: Thank you. Good morning, everyone. Morning, Zach.
spk05: You've stated previously
spk11: I'm going to try not to beat a dead horse here, but it is what it is. You stated previously that a big component of patient care at Handicare is project-based. So with the material profitability improvement keying off fixed cost absorption, should we really be worrying about that falling off sharply in the coming quarters?
spk06: Hey, Zach.
spk05: No, I don't think we're not worried about falling off a cliff in terms of margins. You know, we feel very good about the performance. And as I mentioned, you know, when you get above that 40, 45 million, you really see that there's a leverage in that business. You know, there's still a lot that we're working on, you know, in terms of tenders that we're looking at, you know, other projects that we'll look to deliver throughout the remainder of the year. So, no, I don't think there's an expectation that it's going to fall off a cliff in terms of margins. So, no, I wouldn't model that in. I think we're very confident about, you know, when we started the year, you know, as we exited 2022, we did mention that we felt that we got to a new level within patient care. And so we're seeing that new level. And it might fluctuate a little bit, but no, I wouldn't anticipate dropping back to that 10% margin that you saw historically. I think that business has changed dramatically over the past couple of years. And no, we're very confident going forward. So no, we're not anticipating any sort of huge drop-off in margin there.
spk07: And just to add on that, maybe, Nick, there was actually a Things are always happening by miracle, because maybe we have work on something or so. Just to say that there are two factories also in St. Louis and Greenville. They have a cool layout. They have a boost or production of sling. So all this has given the right support also for the sales to be able to sell and to do some good cross-selling. So I think there's a lot of effort that has been done in the background by the team, and that should be good, positive for the next few years.
spk11: That's helpful. Thanks. And then touching on the timing of accessibility price hikes again, with annual price increases, do you expect Q2 margins to represent a high watermark this year if cost inflation continues?
spk06: Good question, Zach.
spk09: Yeah, it's likely going to be similar timing to what we saw last year with regards to price increases coming into effect. We're obviously managing vendor cost increases at the same time. So, I mean, in theory, your point, yes, makes sense that Q2 could be higher margins than what we're seeing in Q1.
spk11: And given what you're seeing so far in terms of vendor cost increases versus what you've announced to your dealers, how do you feel about the comparison with the 19.1% last year in Q2?
spk09: So we are still seeing vendor cost increases across the business. We're not seeing it to the impact that we saw last year, but it's still something that we are seeing across the business, both in Europe and in North America. Just not, again, as I said, not as strong as what we saw last year. So we'll see how Q2 pans out. But that's about the level of guidance that we'll provide.
spk11: Fair enough. Thanks.
spk09: just one last one broader uh with the 2023 budget including a multi-generation home renovation tax credit are you targeting any incremental demand there yeah i'm assuming you're talking about canada specifically i mean so tax credits do do come and go um with accessibility some of our with accessibility projects specifically on on our legacy products these are projects that take quite a bit of time from initial spec-ing of the job to actual sale. So we may see some uplift from tax credits such as this or tax policy changes that we might see in the future as well. But overall, we don't see that having a massive impact on our business, no.
spk11: That's clear. Thanks. I'll turn it over.
spk00: We are now going to proceed with our next question.
spk01: And the questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question.
spk02: Thank you. Good morning. Nick, on the patient care tenders, which you mentioned a few times, I'm just wondering if you could provide some background on how your, I guess, current pipeline of opportunities compares in size versus what you've seen historically. And assuming that the pipeline is now larger than previously, Would you attribute that to patient care's stronger focus on being a one-stop shop, or is it market growth-driven or both? So just any thoughts on that would be helpful.
spk05: Hey, Fred. It seems like I'm popular today. So on the patient care side, the tender activity that we're seeing, a lot of it's new build activity. That's been a big driver of that business. We're seeing, especially if you think about here in Canada, there's a lack of beds. I think we talked about it on past calls or conferences that we've been a part of. So, no, there's definitely a lot of new build activity that's out there. And that's driving a lot of that business. We've been successful bidding on that business. And the fact that now that we have, I guess, the Span team, the Handicare team together, we're able to bid on the entirety of projects. And so people are looking for the one supplier where possible. as long as it can meet the various requirements of the bids. So we are seeing, you know, a combination of strong, you know, just tendering out there, and at the same time, you know, our success rate has been very good. You know, so you combine that together, and that's why we feel quite optimistic about that business. And in the U.S. as well, we are seeing some legal activity. I think the VA is probably, you know, a good segment there for us. At the same time, we've had some As I mentioned on the opening comments, you know, some strategic partners of ours have, you know, increased their spend. So that also is a boon for that business. So, no, I would say overall, you know, we're confident about where we are. The backlog is still quite healthy. So, no, overall, things are quite positive there with inpatient care.
spk02: Great. Thanks for that. Moving to accessibility and sterilists more specifically, Zorin, if you had any comments on... the progression of your business in stairlift in North America, and maybe an update on intentions to add production of a new stairlift model from Endicare in Brampton.
spk07: Good morning, Frederic. So basically, we are a sales team in North America between the legacy Endicare and Salario. They have merged together, and all our reps, they can sell a stairlift to a vertical to a home elevator. I think our dealers are very happy that we're able to offer the Endicare product manufacturer in North America to have better lead time. So right now, the single tube free curve is already over a year in production. Right now, lead time is better than ever. It's like eight days, so that's very positive to generate some sales. And the second model of Endicare that I devote to you, this is something that we have started to install a machine in Toronto. And by the end of the second quarter, we should start to see some output, so that means that By the end of the second quarter, both curves of Endicare will be manufactured in Toronto. So that would be a good benefit to help us to generate some additional sales. So quite happy with the direction we're going in that.
spk02: Okay, great. And last one for me, maybe for Steve on head office costs, just for modeling purposes. I noticed that the $2.6 million in the quarter there included some one-off professional fees. What would be your... sort of normalize an office cost if we do exclude one-off fees moving forward.
spk09: Yeah, so to answer the question, it's about half a million dollars that went through in the quarter that was one-off professional fees that we won't be seeing on an ongoing basis.
spk06: Okay, thank you.
spk00: We are now going to move to our next question.
spk01: And the questions come from the line of Julian Hung from Stifel. Please ask your question.
spk03: Hi, good morning. This is Julian subbing in for Justin this morning. My first question is regarding the backlog. So with backlog increasing, how does your backlog compare to peers and are you still remaining ahead of the curve in terms of delivery times?
spk07: I think pay-per-view and accessibility, we're the only company public, so it's a bit hard to measure with the other guys. But again, we're very lucky to have this backlog, and we're working hard. It's not just by miracle. I think the sales team is working hard. The business is very good in North America for home elevator and their vertical platform. So I think that's looking in the right direction for the year.
spk03: Okay. Another question. Does that answer the question, Justin? Yes, it answered it. Very helpful. My second question is, with global tensions on the rise, have you seen any impact on operations in China, and does it shift the business overall strategy moving forward?
spk07: That's a good question, Justin. I was in China three weeks ago, okay? And I had the chance to go visit our team in New Zealand. I did not have the chance to go visit the second factory in Xiamen. But I would say we're very lucky. We have a very good team in China. It's the same people for the last five years. And even, not very nice, but I advised them to come work on a Sunday. And all the people came, all the 120 people. So we have a very good team dedicated. But yes, we have opened a new factory last year in Mexico to be able to balance over time our supply chain, make sure we can develop some
spk03: additional capacity for north america so right now i think we're quite i think we have 17 factories across the world we're quite diversified so i think uh it's been uh there's no issue for us okay and just one last question for me uh so i see the net that the ebit has been going down um uh can uh over the last couple of quarters uh do you have um maybe a medium target for where you want the number to go, and what's your comfort level for a potential acquisition?
spk06: To answer this question, we're comfortable.
spk09: Yes, we have been seeing a decrease. We're happy with the Q1 decrease. We need to keep in mind that part of that came from the Norway cash infuse, from the Norway divestment, but still happy with the decrease, and we will deliver at least half a turn this year as well. That will allow us to finish the year at about 2.5 times. I mean, we're comfortable in that range, 2 to 2.5 for sure. With regards to your question around at what level will we start looking at other acquisitions, I think that, well, definitely tuck-in acquisitions can be still on the go right now. If something comes up that's if it's of the right size and it makes sense for us to execute, we will look at it now, and we're not necessarily waiting for a certain net debt level. But at the same time, to echo previous comments that we've made on previous calls, it sounded a bit like a broken record here, but we are confident in the opportunity that the Handicare synergies and the continued integration with Handicare and the legacy Saveria business will provide to us. We're not eager to bite off any large new acquisitions at this time. We think there's plenty of runway still in front of us.
spk03: Okay. Thank you so much for taking my question.
spk01: We have no further questions at this time. I would like now to hand back the call for closing remarks.
spk07: Thank you very much. And again, we thank all our analysts at Fullop. You are very important for the company. I'm very happy with the first quarter, so I guess we will go back to work. Thank you very much, and we'll see you in August for the results of the Q2. Thank you.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.
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