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spk07: Good morning, my name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q3 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. To ask a question during the session, you will need to press star 1 and 1 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 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 the 1st of November with respect to its Q3 2023 results. Thank you. Mr. Barasa, you may begin your conference.
spk05: Thank you very much, Sarah. So, as you mentioned, my name is Marcel Bourassa, and it's a pleasure to begin the call, okay? After that, okay, I will transfer that to my colleague. If I was taking every year, okay, I think we are going in the right direction. Now, we have Q2 a little bit weak, okay? But Q3, I think you can see that progress. Europe, okay, will be better in the coming quarter, and so that will be an impact, okay, on our sales and EBITDA. So I am very positive, okay? And one thing very important, okay, is we are based, our company is based on the aging of the population. And you can see, okay, that we have the war, okay? It's sad, okay, but it's happened, okay? and we have some country okay that man okay it's always okay question okay uh like not very respectful for the people but it is what it is us okay we we are our projects is basically of the aging of the population and it will be there okay for uh i think for me okay at least forever, okay? And thank you, okay? I read some comments yesterday, okay, about you making a Q3. And thank you very much, okay? And you can see that we have a good quarter, okay? And we all have a great quarter. The backlog is there. And 24 look tremendous for us. But let's talk about Q3. So I will transfer it to Steve.
spk01: Thanks, Marcel, and good morning, everyone. Thanks for joining us on the call. I'm going to begin with some remarks regarding our Q3 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $210.1 million, an increase of $8.7 million, or 4.3% when compared to Q3 2022. The increase was driven by organic growth of 4.1%, originating primarily from the accessibility segment. In addition, the corporation experienced foreign exchange tailwinds of 4.7%, as well as a decrease in revenue of 4.5% due to the divestiture of the vehicle division in Norway, combining for 4.3% growth overall for the quarter. Gross profit and gross margin stood at 72.6 million and 34.5% respectively, compared to 64 million and 31.8% in Q3 2022. The increase in gross profit of 8.5 million was mainly attributable to higher revenues and, to a lesser extent, favorable foreign exchange rates used in the conversion of the results of subsidiaries. The increase in gross margin versus last year was mainly attributable to greater profitability coming from the North American divisions in the accessibility and patient care segments due to better cost absorption, favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at 33.6 million and 16% respectively compared to 31 million and 15.4% in Q3 2022. The increased profitability is mainly explained by the aforementioned increase in gross margin, somewhat offset by higher selling and administration expenses in the quarter, excuse me, driven partially by 0.9 million of costs related to Severia I. On September 15th, 2023, the corporation issued 4,363,100 common shares by a public offering and 1,983,750 common shares via a concurrent private placement with Caisse de Depot de Québec, both at a price of $14.50. For aggregate gross proceeds of $92 million, which included the full exercise of the over-allotment option granted to the underwriters of the offering and the additional subscription option granted to CDPQ. Net proceeds after transaction costs of $4.6 million was $87.4 million, which was used to reimburse credit facilities. And now I'm going to move on to our segmented results. Revenue from our accessibility segment was $166.3 million in Q3 2023, an increase of $7.7 million or 4.8% compared to the same period in 2022. The increase in revenue was related to organic growth of 5.1%, driven by continued strong demand in both the residential and commercial sectors in North America, which saw 9% organic growth, as well as price increases. The growth was also driven by a positive foreign exchange impact of 5.4%, mainly coming from the US, Euro, excuse me, and British pound currencies. This was partially offset by the divestiture of Norway previously noted, which caused a year over year decrease of 5.7% when compared to Q3 2022. Adjusted EBITDA and adjusted EBITDA margin for the accessibility segments to that 29.9 million and 18% respectively compared to 26.9 million and 17% for the same period in 2022. The increase in adjusted EBITDA and adjusted EBITDA margin was mainly due to better cost absorption from increased revenues in North America, as well as improved pricing. Revenue from our patient care segment was $43.8 million for the quarter, an increase of $1 million or 2.4% when compared to Q3 2022. Revenue growth includes organic growth of 0.3%. As a reminder to our investors, our patient care business is driven in large part by project-based sales, which can be lumpy from time to time. For the quarter, foreign currency provided a 2.1% tailwind. Adjusted EBITDA and adjusted EBITDA margin stood at $6.1 million for the patient care segment and 14%, respectively, compared to $5.9 million and 13.8% for the same period in 2022. The slight increase in both metrics was mainly due to the increase in revenues as well as improved gross margins. For the quarter, net finance costs were $5.5 million compared to $2.5 million in Q3 2022. Interest on long-term debt increased by $2 million when compared to last year due to higher market interest rates. Net finance costs were also impacted by a lower net foreign currency gain of 0.3 million compared to a gain of 2.2 million last year, most of which were unrealized in nature. Net earnings were 12.1 million or 18 cents per diluted share for the quarter compared to 10.6 million or 16 cents per diluted share in Q3 2022. Adjusted net earnings was again $12.1 million or $0.18 per diluted share compared to $11.2 million or $0.18 per diluted share last year. The year-over-year increase in net earnings is driven from increased operating income, which was mainly driven by increased gross profit across the business. So turning now to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached $26.9 million versus $28.9 million for the same period in 2022. The slight decrease mainly reflects the impact of higher income tax paid. Net changes in non-cash operating items reduced liquidity by $1.6 million compared to $9.7 million in the same quarter last year. The improvement is mainly due to the stabilization of inventory levels across the business. As a result, cash generated from operating activities in Q3 2022 stood at $25.3 million compared to $19.2 million for the same period in 2022. Cash used in investing activities was $4.5 million for Q3 2023 compared to $4.2 million in the same quarter last year. And the corporation dispersed $4.6 million for fixed and intangible assets this year compared to $4.4 million last year. Cash used in financing activities was $20.7 million for Q3 2023 compared to $10.9 million in 2022. The variation is mainly explained by a reimbursement of $91 million on our credit facilities following net proceeds from the issuance of common shares previously noted of $88.3 million, as well as higher interest paid of $2.2 million in Q3 2023. As of September 30th, 2023, Severi had a net debt position of $290.2 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Severia's net debt to adjusted EBITDA ratio was approximately 2.28 times. The large reduction versus prior quarter was the result of the share issuance net proceeds being used to pay down debt. At the end of the quarter, Severia had net funds available of approximately $203.4 million to support working capital investments and growth opportunities. And now looking forward for 2023, Severia continues to expect to generate revenue, which will be approximately 8% to 10% higher than 2022 when normalizing for the divestiture of the Norwegian auto division, as well as adjusted EBITDA margins of approximately 16%. And as a reminder, Norway represented approximately 60% of the overall vehicle segment revenues in 2022. This outlook continues to be based primarily on the continued strong organic growth coming from both accessibility and patient care segments supported by high backlog levels, cross-selling initiatives and strong demand, and continued successful integration of Handicare and progress towards achieving the next strategic phase of synergies in line with management's plan. And with that, this completes my prepared remarks, and I'm going to turn the call to Sebastian for an operational update.
spk04: Thank you, Steve. First, I need to say I'm quite happy with the results on accessibility for the third quarter. In North America, we have the growth of 9%, which came mostly from the output of Vancouver and Toronto factories, so good job, guys. And we continue to have a very healthy backlog, so that's positive for the future quarter. In Europe, it was mostly flat, but it did a very nice rebound from the second quarter, and the situation is back to normal with good lead time, and we have improved a lot our visibility in the UK factory with the ERP that was going to change, but now we have some very good information, live data, so quite happy with the change we have made. In Mexico, we continue to ramp up, and we have approximately 50 employees. We do some weekly trucks to Toronto, the US with some porch lifts, and also we started some shipment to Vancouver. We are now a vertical integrated for metal works, so that's nice. Also in Toronto, we started to manufacture a second model of NDKR Sterlip, the 4000, which was the model made in UK. So this will help us to increase our sales in the future in North America because we'll have better lead time. Finally, on the SAVEIRA one, quite happy with the start. So we did, our consultant did a due diligence on SAVEIRA to identify opportunities. now did a bottom-up plan with these several employees in different areas such as commercial procurement production and now we are now starting the implementation step-by-step over the next two years the program also includes some training for people in order to bring several to operate the business as a 1 billion company with better processes it's a very general update but the intention is to have a investor day in the first quarter next year so that we can talk more about the server one project mr. Nicola patient care
spk03: Yes, thank you, Sebastian, and good morning. Following a very strong first half of the year, the performance within our patient care segment was more moderate in Q3. We had a slow start to the quarter with a relatively weak month of July. In particular, we experienced lower volumes within our bed frame business and some lumpiness with project work over the summer months. Consequently, organic growth was flat in the quarter and lower than the record levels seen in Q1 and Q2. our backlog is still in good shape and was higher exiting the quarter than where we began. We also saw a positive uptick in bed frame orders during October and feel confident about year-end budgetary spending, which bodes well for Q4 revenue and should enable us to have a strong finish to the year. From a profitability perspective, the lower sales in Q3 didn't allow us to absorb as much overhead as compared to prior quarters, which undoubtedly had a negative effect on our EBITDA margin. While overall EBITDA margins stood at 14% in Q3, When looking over the longer period year to date, the patient care margin of 18% is still a significant improvement over 2022. Despite this pullback in Q3, we firmly believe that the performance this year is a testament to the strong leadership within patient care and proof of the lasting synergies unlocked through the integration of Handicare and SPAN. To that end, our operations teams are interacting more than ever to share best practices and improve quality, and we've reorganized our sales force to allow them to focus on their respective strengths within acute and long-term care. So to conclude, we expect to bounce back in Q4 and have confidence in our sales leadership to deliver a good result to close out the year. And with that, I'll turn the call back over to Marcel.
spk05: Thank you. Thank you very much, Nicolas, and thank you to Steve and Sebastian. I just want to reiterate one thing that Steve mentioned, okay? Our debt EBITDA is around 2.2 right now after the offering. When I decide to make an offering, okay, it's because, okay, I want, okay, to have reduced the debt by the time that we are right now, okay. Our balance sheet, okay, with a ratio around 2, 2.2, okay, will go maybe, okay, short, okay, less than two, okay, and then we are in position, okay, a strong position, okay, to continue our growth, okay, but I just want to mention, okay, that we have a balance sheet right now that is very strong, okay, and we are there, okay, to make maybe some little acquisition, okay, but right now, okay, we are just to continue our good job of integration of MDCARE, and I know that you see the penalty is over. And me, I get stuck. I was a five-minute penalty because we make an offering. But my penalty is about to finish. And then you will see, I think, that the people recognize the value of this offering that we make in this difficult time. So I will begin the question. So we are four on the line and the person will answer the question, okay, if it is okay on finance, okay, on production or on patient life, okay, with Nicola. So we're ready for the questions, Sarah.
spk07: Thank you. As a reminder, if you would like to ask a question, you can press star one and one on your telephone and wait for your name to be announced. And to withdraw your question, you can press star one and one again. Thank you. We'll now take our first question. First question is from the line of Gabriel Moreau from Scotiabank. Please go ahead.
spk09: Hi. Good morning. On the salary one project cost, is there something you expect to incur in the next couple of quarters? and can you provide us with the preview at a high level and what to expect from server one in terms of how to think it might help on the margin versus the cross selling side also finally any way to think about the cadence of that improvement through the next two years on the hi gabriel i'll take this question steve here just on the first part of the question there
spk01: on Severia 1 related costs. So we did have, just to highlight actually, the $0.9 million that we saw in the quarter and the $1.6 million that we saw to date. I mean, some of that is obviously consulting fees, some of that is internal training, and it's a bit of a mixed bag in there. But going forward, I mean, we can continue to expect costs related to Severia 1. There is The largest part is consulting costs, and the consulting arrangement that we do have in place, it's a mix between fixed fees and performance fees. There's a fixed portion that we're going to continue to see until the end of the project, which is expected to run at this point until approximately May 2025, and there's also a performance-based fee in there as well. That fee is obviously more variable, so it's hard to give you an exact amount that we can expect to see in future quarters, but I would expect the number that we saw in Q3 to at least continue until the end of the project. I'm sorry, can you repeat the second part of your question, Gabriel?
spk09: Yes, just if you can give us a higher level of what to expect in terms of cross-selling side or margins.
spk04: I think, Gabrielle, we need to go back to the vision of the $1 billion that we want to be, and this is why we'll have a call in the first quarter next year to be able to describe a bit more about the severe one. How do we see the next two years? Right now, we're still at the beginning of the implementation. Right now, we have reiterated guidance for 2023, so as you can see, there's no change for this year, but there will be some small costs for the for the SAVR1 project, but we see some benefit in the next two years, and this is something that we'll be able to address in the first quarter next year. So I think it's very good news.
spk09: Good. And maybe just my second one. I know you said the ERP was fully behind you, but can you confirm it had no impact on the result for this quarter? And then more broadly, are the challenge and ERUP related to the macro, or is there something operationally that you think could be improved?
spk04: So I can take this one. So I think, yeah, the ERP, again, we discussed a bit earlier that, again, we had a good rebound. It was flat versus last year. But, again, it's a big change from the second quarter. So I consider that the ERP thing is over in England. And we are back to good lead time to be a good company. And one thing we need to understand is in Europe and North America, yes, it has been a bit more challenging than last year. But we are not the same company yet. We don't have the same product offering. And we want to have more cross-selling in Europe with some vertical platform on the elevator. So I think over time we'll be more diversified and that will put less pressure on some of the margins. So I think, again, consider that the second quarter is over and ERP is finished.
spk09: Perfect. That's it for me. Thank you very much.
spk07: Thank you. We'll now take our next question. And this is from the line of Cheryl Zhang from TD Securities. Please go ahead.
spk06: Good morning. This is Cheryl standing in for Derek. And thanks so much for taking our questions. So my first question is on patient care. So like you mentioned in remarks, it looks like a more lumpy business given the timing of order. But just wondering if you could speak more to the rebound in demand that you're seeing there sounds like in the early stage of Q4. Thank you.
spk03: I can take this. The rebound, I guess, in terms of Q4 that we had mentioned is essentially as you described. There was some lumpiness that we saw over the summer months. We started the year with very high sales volumes. I'm very happy with how the first half of the year went. I think as we had mentioned on the previous call, it was fantastic quarters in Q1 and Q2. And I would love to be able to say that we're going to have four fantastic quarters every year. Sometimes you have an okay quarter, and that's what we saw here in Q3. We did see an uptick as we exited the quarter in order intake and then also into October. And that's what gives us the confidence that we are seeing sales come back and orders coming back following kind of that summer slowdown. And that's what gives us the confidence for Q4. And then at the same time, Q4, there's some budgetary spending that happens. And so we do anticipate to be able to take advantage of that. So that's, I guess, where we have the confidence there, as I mentioned earlier.
spk06: Okay, that's very helpful. And I guess my second question is, so the, can you speak to the backlog level in accessibility and patient care and if there's any changes in residential demand given the MACWA backdrop?
spk01: Hi, Cheryl. I'll take this one. Good to hear from you on the call. The backlog remains strong. So overall, the backlog across the company is about the same level that we saw exiting last quarter, exiting Q2. So I think that we have seen certain pockets based on some of our divisions being able to increase output significantly, especially Garaventa and Garaganta, Surrey and British Columbia and here in Brampton, been able to produce more on a daily basis. So we have been able to improve our lead times and eat a little bit into our backlog. But the backlog remains very healthy. There's no concerns across either residential or commercial sectors at this point. Both remain very strong and for us bode well for future quarters.
spk06: Awesome. That's very helpful.
spk07: I'll jump back in the queue. Thank you. We'll now move to our next question. This is from the line of Michael Glenn from Raymond James. Please go ahead.
spk02: Hey, good morning. Just coming back, Marcel, thank you for the commentary surrounding the equity issuance. So I just want to see if you're able to give a bit more indication. If we're thinking about Severia in terms of the M&A outlook, Um, like what are, what are some of the areas of the business that you would like to add to, or, or what would represent, uh, opportunistic areas for Severia to, um, gain access, get some additional, uh, business lines in.
spk05: Uh, I would begin after maybe you make some follow up. Okay. I just see, okay. That, uh, first of all, okay. I am very happy to have make this offering. Okay. And thank you for the people, okay, who buy this offering, that even if the market right now is a little bit lower than the offering, but I think in some quick times, okay, little reason that we will pass this point, okay, when they will see, okay, what we have, what we are doing. Just an example, okay, about URAP, okay. We manufacture for North America telecom, okay. Right now on our design, okay, uh meeting the code okay in europe okay we'll put that in 24 okay a telecab okay a two-floor telecab and i think okay that's a diversification okay from just some sterling curve and straight okay but okay that's a major market for europe so we can see that we work more together we see the need okay that the europe need okay and we are there okay with our team of design, okay, to just give them, okay, some new products, okay, than just the sales. So I see very good thing, okay, on the year 24 and 25 to reach, okay, our 1 billion sales. And I mentioned, okay, that on Pascal, okay, that we want an objective, an objective. We have to have objective, okay, of 20% of the business. And You know something? I was redoing the mathematics this morning, and the mathematics is there, okay? For sure, nothing is easy. But I think, okay, just push, okay, with the consultant. We are very confident, okay, to achieve both, okay, about EBITDA and about the sales. Okay, maybe the sales is more easy than EBITDA, but at least, okay, we'll work on that. Maybe Sebastien, okay, you would complete my answer.
spk04: Yeah, thank you, Marcel. So, yeah, R&D is always a key element of our business, putting new products to the market. That's important for us. We want to be the leader in that to complete us. In terms of M&A, we always say that, again, a complementary product is always nice because we have 1,000 dealers. can bring it to and some from time to time you know we have 30 direct office right now from time to time we buy back some of our dealer when they have no maybe succession plan and it is a good business so that's maybe two element that we could bring a going forward and would you say overall there you are seeing like with the timing of the equity issuance is it fair to say that you have seen a step change or uptick in uh in the m a opportunity set in front of you then i think now we are focused on the server one project and the integration i think again it was just have some consciousness on the balance sheet because marcel like to be ready a bit in advance uh so again but right now that there's no acquisition in the coming months we're all focused on server one but going forward in the coming years we could see some opportunities okay and then just on cash flow uh stephen are you are you able to give
spk02: some indication for CapEx next fiscal year and working capital over the next 12 months?
spk01: I guess to start on the CapEx front, Michael, CapEx is an area we've always spent historically 2% to 2.5% of revenues. That's always been our guide. This year we tried to ratchet it down a bit closer to 2%. A big part of our capex, though, is R&D spend. We just talked a bit about how important it is to be bringing new products to the market and be innovative. That's not an area that we're looking to make cuts at all. We'll probably continue at least in line with where we're spending this year on R&D, internal R&D projects. For next year, we haven't yet nailed down our budget. I would say it's going to be in the 2% to 2.5%, maybe closer to 2.5% next year as we look at Severia 1 and other projects, but it's not going to be a large upswing because of Severia 1 if that's what you're hinting at. With regards to working cap, similar comment around we're still working through our budgets for next year. I can say that we don't think working capital is an area that needs to be invested more heavily in. We're looking at different inventory reduction plans at a few of our key locations, so we hope to see some results come out of that, and also working with our vendors to improve terms. Our AR position is strong. plan on continuing that to be in a healthy position next year. So overall, not expecting a big investment in working capital. But again, Michael, we are forecasting decent revenue growth, right? The $1 billion target implies good revenue growth over the next couple of years. And there always is going to need to be working capital investment to support that top line growth.
spk02: Okay. And then just one more with the debt repayment. Do you have an indication of what your run rate interest expense will look like?
spk01: The run rate interest expense? So we are more tilted to variable than fixed. We have a small portion of our debt that's fixed, so a lot of it is market-based rates. Our interest expense this quarter... I mean, without giving you a number, I mean, obviously it's going to come down by a good chunk. But, yeah, I mean, I think what you're going to see in Q4 would be a good run rate for next year. But I don't have a number to give you for what it's going to come down in Q4. Okay.
spk05: Thanks for taking the question.
spk07: Thank you. We'll now take our next question. This is from the line of Frederic Tremblay from Desjardins Capital Markets. Please go ahead.
spk10: Thank you. Good morning. Maybe starting with Europe. In past quarters, you highlighted some inflation pressures in Europe. Can you maybe provide an update on that, what you're seeing generally on that front, as well as maybe an update on Europe?
spk04: your uh your plan for price adjustments i know in the past and sort of early 2024 was uh was considered maybe for for some price adjustments and up so maybe just an update on that and take this one thank you fred so i would say the inflation has probably stabilized it's a better a bit better it was one and a half years ago and in terms of price increase you know that again we have different brands from savaria together to our direct store to endicare So I think there's a different history of annual increase, and now we see that we have a healthy backlog, so sometimes it plays a bit against the price increase, but many grants will do a price increase in early January, and so we typically see an uptick in margins in the second quarter of the following year, of the next year.
spk10: Perfect. And so we saw organic growth of 9% in North America accessibility, which I think, as you said, implies that Europe was roughly flat, which is a good outcome versus Q2. I'm just thinking of maybe 2024 and beyond and sort of what Europe could potentially do on an organic growth front with potentially pricing and some of the product introductions that you're planning there without, I guess, providing formal guidance on European organic growth. How... How do you think about the potential of Europe in terms of top-line growth in the coming years?
spk04: I can take this one. So I think, Fred, again, if we do the math, the $1 billion, which is, again, our target, and it's all the family together, I think it implies 8% to 10% of organic growth. So, again, this year was a bit lower in Europe, but with some new products we are bringing back, so I'd expect that over time Europe and North America should have a similar organic growth. So I think that's what we should think, Fred.
spk10: Okay, great. Maybe last one for me on patient care. Just wondering if you can comment on the current bidding environment as well as the competitive environment in that segment.
spk03: Yeah, thanks, Fred. It is competitive. I'll start by saying that. But I think we're well positioned with the full offering that we have now, you know, with both Handicare and Span teams together. Bidding has been good. I would say... You know, there's a lot of new build activity that's out there, a lot of, you know, planned government spend. So we're looking to win as much as possible against some of our competitors in certain markets. We do feel that we're stealing market share. We're gaining market share. So it is a healthy environment overall, very competitive, and we're holding our own. So I feel very strong about our position.
spk10: Maybe just a quick follow-up on that. On the government, business, is the margin profile there different than non-government patient care businesses or like how does that compare?
spk03: Not so much. I think here in Canada, you know, there's certain provinces where you do see that. I would say Quebec, for example, is a province where maybe it's a lower margin. Ontario tends to be a bit higher margin. So there are some differences, you know, provinces, province to province. But overall, no. I mean, When we're bidding on a business, whether it's government or private, we do have our own margin expectations to maintain. So we're not out there just lowballing it just to win business. So we are, I guess, smart from our approach there. And it's not always about pricing, even with the government, right? There's certain governments that do recognize the quality of better products in terms of patient care and clinical outcomes. So, no, it's not always on price when you're going with government. But it is something to be conscious of, for sure.
spk00: Great, thank you.
spk07: Thank you. We'll now take our next question. This is from the line of Julian Hung from Stiefel. Please go ahead.
spk08: Hi, Justin Kiewit on here. Thanks for taking my call. Just on the gross margin strength, I think it was the highest it's been in two years. Is there anything that drove that? And then also... The EBITDA margin expansion didn't see the benefits of the gross margin, just wondering the delta there. Thank you.
spk01: Hi, I'll take this one. I mean, first on the gross margin improvement, most of that came from, well, we did see some in patient care, but most of it really came from North American accessibility. It was coming from the Brampton and the Surrey British Columbia sites, the Garmenta site in British Columbia sites. It mostly has to do with operating leverage. We had a very large sales growth out of those two locations specifically in the quarter that a lot of that contribution margin just flowed right to the bottom line. So that's our gross profit which flowed to the bottom line. So that's really what helped it and drove the overall company. SG&A did take up this quarter. Some of it was related to Severia 1, as mentioned, but we had some other costs in other pockets of the business that made it a little higher. There are a couple one-off costs in there as well, but we are expecting SG&A to go a little bit down next quarter, but keeping in mind that Severia 1 costs are going to continue, and that's buried in our actual results. So that's going to continue for the next, up until sort of May 2025, as mentioned.
spk08: Okay, understood. And then if we just took a step back and, you know, considering the margin expansion goal from 16% now to 20% in 2025, what would be the main drivers as far as expanding that margin?
spk05: I would take this one, okay? So it's quite, it's big, okay, coming from 16, okay, to 20, okay? But don't forget, okay, we have this consultant who works with us, okay, and we review our pricing, we review our costs, okay, and don't forget one thing, okay, in the next two years, 24 and 25, okay, the net, okay, from the consultant and what Savaria gets, okay, it will be very positive for Savaria, okay. It's why I'm very optimistic, okay, to see that we will have this, okay, this uh 20 okay it's that easy i repeat that repeat that okay but we work on the on the pricing with them okay and that's very different the way right now that we think okay about the pricing uh with some knowledge that they can give us okay the participation okay they are like a teacher for us a teacher from university okay and it's great okay but we go after that i could take the balance sheet so we will have more sales okay we i have more sales with the bigger okay uh a bit okay and i think when you compromise that all together okay what you can save on cost better sales better sales pricing it is important you have better sales but maybe the pricing is not there and the pricing okay in europe okay was always too conservative, okay, compared to what we have in North America. So we fixed that, okay, with our friend, okay, from Europe, okay. But if you put always that together, and I see, okay, me, okay, I was putting on the number of my napkin, okay, this morning, and I say, man, okay, we will achieve that, okay, and maybe we will exceed that, because, okay, we work from the top, from the sales, okay, and the cost of materials, okay, and they have a consultant help us, okay, to find maybe new supplier, okay, with a better cost. So we work on that. So we work on many fields at the same time. It's why I strongly believe that we will find the 20% in two years.
spk08: Thank you, Marcel. I know there's been a track record at Savaria of exceeding long-term goals, so we look forward to that. Maybe just one more question of clarification. On the management or the consultant fees, if I heard correctly, there's a variable component to it If you're able just to describe, is that variable component attached to the margin expansion goal?
spk01: Yeah, so I'll take this one. I mean, we'll definitely be providing more guidance on this at the investor day. But yeah, there is a variable component and some of that, the variable piece is tied to our performance. So the better we're the better results we see in our business, we can expect some fees associated with that. So it's a win-win on both sides of the arrangement. Great. Thank you for taking my call. And Sarah, if I could just go back to a previous question that Michael Glenn had on the interest savings. I just had to pull up a file. It's about $1.5 million of interest savings, Michael, per quarter with with the reduction of debt, but also the fact that we've achieved now a lower tier on our pricing based on the lower leverage ratio that we have. So it's about 1.5 million savings a quarter, and about some of that is going to be obviously eaten up by higher dividends. But going back to your question, Michael, it's about 1.5 million. And sorry, thanks, Sarah. You can open it back up for questions.
spk07: Thank you. Just as a reminder, if you do have questions, you can press star 1 and 1 on your keypad. We'll now take our next question. This is from the line of Zachary Evershed from National Bank Financial. Please go ahead.
spk11: Good morning, everyone. Thanks for taking my questions. I think most of them will have to wait for the investor day on Severia 1, but maybe just one on patient care. If the backlog's higher exiting the quarter, Was it really just order timing preventing you from delivering another high 40s revenue quarter?
spk03: Order timing, yes. I think that is part of it. We see the uptick, I guess, as you exit the summer. September and October in particular, we did see some good uptick there in terms of order intake. So it is a combination of just increased order activity exiting the summer, but also just a question of lumpiness within the quarter itself as it relates to projects.
spk11: So nothing's stopping you from executing on the backlog within the quarter?
spk03: No, no. I mean, it's very much, you know, the orders coming in now, for the most part, it's trying to beat this, I guess, the year-end spent, right? So you have certain, I guess, certain kind of budgets that have a December year-end. You have to eat up those budget dollars. Otherwise, you know, in many cases, they go away. So we are trying to take advantage of that. So some orders that you're seeing coming in now, this inflow now, it is very much to help us in Q4. There is some of the backlog. I will say that the backlog, it isn't just a Q4 backlog, right? I mean, within patient care, given the project nature of some of the work, it has gone beyond a quarter, but that's normal. But some of the spending that you're seeing now or some of the uptick that we've seen exiting the quarter, it is very much to help us with Q4.
spk11: That's good, Collier. Thanks. And then maybe just one on management focus on M&A versus Severia 1. We've talked about the balance sheet opening up your options over the coming years, as Sebastian said. Are you still entertaining discussions, like how laser-focused is management on Severia 1 versus keeping those conversations going in the M&A pipeline?
spk04: I can take this one, Zach. So I think, again, we're 99% focused on the Severia 1, so I think we need to say that there's nothing coming in the next few months. Right now, we have enough on our plates, and we'll We'll finish this year. We'll do a separate one, and I'm sure opportunity will come at the right time. Great answer. Thanks. I'll turn it over.
spk07: Thank you. We'll now take our next question. This is from Cheryl Zhang from TD Securities. Please go ahead.
spk06: Hi, thank you. Just a quick follow-up, and apologies if I missed this earlier as I got disconnected. So, with the public equity offering now closed and your leverage down to 2.28 times, just curious how you think about the priorities in your capital allocation?
spk01: Yeah. Hi, Cheryl. Thanks for the follow-up. Capital allocation for us, I mean, again, going back to Sebastian's last point, it's not that we're looking at any near-term M&A. We are very focused on Severia 1, but that project, as I noted earlier, there's not going to be a large take-up in CapEx, so we're expecting CapEx for 2024. I mean, it's too early to comment on 2025, but there's no large CapEx spend associated with Severia 1. So we're going to come in at a historical range on CapEx for 2024. And working capital, you know, we believe that we have to have the working capital to support the business growth, absolutely. But we believe we can ratchet down working capital levels a little bit more versus what we have right now. So I'm expecting some improvement there as well.
spk06: Okay, that's very helpful. Thank you so much.
spk07: Thank you and there are no further questions at this time so I will hand back to the speakers.
spk05: Okay, first, thank you very much for being on the call this morning. And this is very important, the institution, the way they see things for the future. You are the people who can take the good news of several years and put that through the investors. So you are very, very important for us. And I am very happy to have the cast. around 10% of our equity. So thanks to the partner of Black Health. And I am very happy that many people participate. And we don't see a lot of offering right now in the market. So I was very happy to succeed to make that. And that pushes us at another level. and of a level, okay, of comfort. And while you are comfort, okay, you are better, okay? So, and we have some cash, okay, to entertain, okay, a lot of possibility. So, again, I thank my people, okay, and thanks the institution, okay, to participate, okay, in our vision, okay, of several years, at least until the end of 25. So, thank you very much, everybody, okay, to... be on the call and thanks for your question and thanks for my people to answer the call. Thank you, Sarah.
spk07: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.
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