Savaria Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 10 speakers on the call.

Operator

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 Savarius Corporation's Q1 2023 Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. 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 10, 2023 with respect to its Q1 2023 results. Thank you. Mr. Sebastian Broasser, you may begin your conference.

Speaker 1

Thank you, Wes. So basically this morning, I have the honor to leave the call because Mr. Marcel is absent for personal reason, 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 this Q1, so that's why he starts to let his team lead the call. So it was a very good Q1 historically, which is our slowest quarter for Savaria.

Speaker 1

So we would like to Thanks, Oliver, and Fried 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 remain at a historic level, which is a very good news because it's so 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 Marcella said in his press release, we continue to build on our plan for the EUR 1,000,000,000. €1,000,000,000 is a target that we want to achieve by 2025.

Speaker 1

And 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 continue to happen. Right now, we have 45 employees. We have 4 different assembly lines and we are doing some shipment of some units straight to the U.

Speaker 1

S. State. 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?

Speaker 1

Once in

Speaker 2

a while, there's going to

Speaker 1

be a total issue, but overall it is good and give us the opportunity to achieve our plan. Puneet Karaj should have keep this segment for me this morning, but Thank you, everyone, to our license to Patient Care.

Speaker 3

Yes. Thanks, Evan. For sure, our Patient Care segment delivered record results in Q1, Including a 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

Speaker 1

should be. We don't want

Speaker 3

to get ahead of ourselves and it's just 1 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 As evidence of the tremendous synergies being unlocked through the integration of Span and HandyCare. 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 newbuild activities, cross selling initiatives and good spending by certain strategic partners.

Speaker 3

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 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.

Speaker 2

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 $600,000 up $28,100,000 or 15.3 percent compared to Q1 2022. The increase was driven by strong organic growth of 13.5 percent originating from all segments. In addition, the corporation experienced foreign exchange tailwinds of 1.8% in the quarter, combining for 15.3% growth overall.

Speaker 2

Gross profit and gross margin stood at 72,000,000 34%, respectively, compared to $58,500,000 31.9% in Q1 2022. The increase in gross profit of $13,500,000 was mainly driven by higher revenues and increased gross 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 and labor cost increases, especially in Europe. Adjusted EBITDA and adjusted EBITDA margin finished at $31,200,000 14.7 percent respectively compared to $24,400,000 13.3 percent in Q1 2022. The improvement in profitability is mainly explained by the gross margin increase as well as a decrease in selling and admin expenses as a percentage of revenue.

Speaker 2

And now I'm going to move on to our segment results. Revenue from our Accessibility segment was $151,400,000 in Q1 2023, an increase of $21,000,000 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 U. S.

Speaker 2

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 in price and volume increases, and we continue to build our backlog. At March 31, Adjusted EBITDA and adjusted EBITDA margins stood at $23,400,000 15.5 percent respectively compared to $20,500,000 15.7 percent for Q1 2022. The increase And 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 $48,800,000 for the quarter, an increase of $7,200,000 or 17.2 sales when compared to Q1 2022.

Speaker 2

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 Handicare 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 $9,800,000 20.1 percent respectively compared to $5,300,000 12.8 percent 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 Revenue generated from the Adapted Vehicles segment was $11,400,000 a decrease of $100,000 or 0.8 percent when compared to Q1 2022. The slight 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%.

Speaker 2

Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, finished at $600,000 5.4 percent respectively compared to $600,000 and 4.9 percent for Q1 2022. For the quarter, net finance costs were $7,000,000 compared to $1,400,000 in Q1 2022. Interest on long term debt increased by $3,000,000 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 percent excuse me, dollars 1,300,000 Compared to a net gain of $700,000 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 $800,000 in 2022, which was not repeated in Q1 2023.

Speaker 2

Net earnings or $6,000,000 or $0.09 per diluted share for the quarter compared to $5,300,000 or $0.08 per diluted share, excuse me, in Q1 2022. Adjusted net earnings was $8,400,000 or $0.13 This reflects an increase of 24% or $0.03 on a diluted share basis. Turning now to capital resources and liquidity. Savarius generated cash flows from operating activities of $16,000,000 for the quarter compared to $13,000,000 in Q1 2022. The increase is mainly due to the higher profit generated by Corporation in the quarter, partially offset by higher income taxes paid versus Q1 last year.

Speaker 2

In the quarter, the company made a net investment of $2,100,000 in working capital versus $2,700,000 in Q1 2022. Cash generated from investing activities was $7,700,000 for Q1 2023 compared to cash used of $4,800,000 in Q1 2022. In 2023, net cash received from the Norway divestment totaled $12,400,000 while the corporation disbursed $1,400,000 for the acquisition of Voltron in 2022. Conversely, disbursements of $4,500,000 for fixed and intangible assets were made in Q1 2023 compared to $3,600,000 in Q1 2022. Cash used in financing activities was $6,300,000 for the quarter compared to $27,200,000 in 2022.

Speaker 2

In Q1 2023, the revolver balance Increased by $8,500,000 which we can largely see reflected in the quarter ending cash balance. As of March 31, 2023, Savaria had a net debt position of $358,900,000 and was in compliance with all of its covenants. On a trailing 12 month adjusted EBITDA basis, Savaria'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. Savaria has funds available of approximately $135,000,000 to support working capital investments and growth opportunities.

Speaker 2

Looking forward, for 2023, Savaria expects to generate revenue, which will be approximately 8% to 10% Higher than 2022 when normalizing for the impact of the Norwegian Auto Division divestments 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 HandyCare 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'll turn the call over to you, Raja, to open it up for questions, please.

Operator

Thank you, And the questions come from the line of Derek Lessard from TD Securities. Please ask your question.

Speaker 4

Yes. 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.

Speaker 3

Hi, Derek. Again, as I mentioned in the opening remarks, we're very happy with the results, right? I think 20% was a new level for that segment. At the same time, we do realize that it was just 1 quarter, right? So we want to kind of be cautious about moving forward.

Speaker 3

But it does show what's possible, right, bringing the teams together and they've been doing a fantastic job. In terms of the margins in particular, What we're seeing is, anytime you get above, call it, dollars 40,000,000 in the quarter in terms of sales, and then especially when you get above $45,000,000 in sales, 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 Q1. The second, I would say, big impact is the pricing issues, right, something that we talked about a lot last year.

Speaker 3

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 there's a full impact a meaningful impact 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 pressing initiatives.

Speaker 4

Okay. And that's so very helpful. And just maybe On the Handicare synergies, can you just 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?

Speaker 3

Well, there's some big synergies that we're seeing and this is where I think there's more to come. It's going to be on the cross selling, right. So really from the commercial perspective, the team is really coming together. Sales force 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

Speaker 1

in the U. S. So realigning

Speaker 3

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 we're 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 portion of it, the case goods. So that's actually what we're quite excited about is, as we're looking forward to various tenders that are coming up and 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 and that we're one of the few players that can provide the entire room.

Speaker 3

So that's, I would say, one of the biggest synergies that you're seeing within, I guess, between Span and HandyCare. And it's something that we're just starting to step into that. So it's something to look forward to over the next several quarters of the years. So that's what I would say is one of the biggest synergies that we're seeing is on the commercial side.

Speaker 1

Thanks for that, Nick. And maybe

Speaker 4

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 Just cycle through the higher cost mix and some other, I guess, inventory plans as you expand the Mexican plant?

Speaker 2

Derek, good to talk to you. It's 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 of about $2,700,000 To be frank, I'm a little bit disappointed I was hoping to see a reduction versus Q4. We are 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 what And everything happening in Europe, we are expecting to see working capital levels remain tight.

Speaker 2

We're not expecting any investment to answer your question, no.

Speaker 4

Okay. Thanks. And then maybe one final one for me before I re queue, just on depreciation. There was an increase of about $1,000,000 on the amortization of intangibles. How should we be thinking about that?

Speaker 2

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 HandyCare deal. But also a big part of intangible amortization is a lot of the R and D spending that we have, which can be lumpy. So we saw The increase in Q1 of about, as you said, dollars 1,000,000 from Q4, but if we look at Q3 last year or Q2 last year, It's the increase is much less.

Speaker 2

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 and D project amortization, but nothing to imply a higher run rate there.

Speaker 4

Okay. Thanks everybody. I'll wait to you and congrats.

Operator

We are now going to proceed with our next question. And the questions come from the line of Michael Glen from Raymond James. Please ask your question.

Speaker 5

Hey. 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. Like when do you think we'll start to see Those start to roll through in the margin and what type of should we think how should we think about the margin benefit as those pricing initiatives start to work through the backlog.

Speaker 1

Thank you. So basically for sure the high backlog goes a bit about the price reset, the price increase that we do. So we expect from the Q2 to see a bit of better margins in terms of But yes, we're very lucky. The high backlog has given us the opportunity to have a good Q1. And I think we have been able also Some of the acquisition that we added about labor, the factory or installation that has helped us to generate some more output.

Speaker 1

So that's the answer for this question.

Speaker 5

Okay. Now for so for accessibility, would you do you think that 1Q would represent then the low point for the year and

Speaker 2

Good question. 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.

Speaker 2

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, 1, 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.

Speaker 2

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.

Speaker 5

Okay. And then just in terms of I know you guys have spoken in the past about targeting becoming a top 3 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?

Speaker 1

I think right now we have delivered some guidance of 8% to 10% of organic growth. And if we look at the size of business that we are right now, I will consider that we are in the top 3 differently worldwide in terms of manufacture of other different products. We are the only company in the world that can offer a stairlift, a porchlift, an incline lift, a home elevator and then also some patient care products. So I think We are quite a nice company in terms of product offering and in terms of size also.

Speaker 3

Maybe Michael there, if you think about Stairless in North America in particular, I think there is more room to grow. So we think about the 18%, you might think that maybe there will be outsized growth within Stairless in North America because there's a lot More of a runway there for us. So that's maybe how to frame that.

Speaker 5

Okay. And one additional one, any guidance on the interest expense for the year where that would come in?

Speaker 2

A lot of our debt is variable rate right now. So I mean it It'd 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 Similar interest expense in line with Q1.

Speaker 5

Got it. Okay. Thanks for taking the questions.

Operator

And the questions come from the line of Nick Agostino from Laurentian Zendberg Securities. Please ask your question.

Speaker 6

Yes. 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 seeing growth beyond 2025. Can you just maybe give some color as to why that comment was added?

Speaker 1

I think Nick, good morning first. I think we just want to reiterate that the EUR 1,000,000,000 plan is That's our mission. I think everybody in the company know that we're making steps or investments towards that. I think Marcel just want to reiterate it again. We're always focusing on that, try to improve.

Speaker 1

If something is not working per the plan, we Thanks, Suneet. And yes, 2025 is coming soon, but we did some investment. Unfortunately, we're thinking that will be good for The next 5 to 10 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 and not just on the short term.

Speaker 6

Okay. So we shouldn't read too much into that comment then.

Speaker 1

Yes. It's more general comments.

Speaker 6

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 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

Speaker 3

year. 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 We've talked about in terms of guidance. We talked about 16% margins across the business. I don't think we give guidance by segment.

Speaker 3

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.

Speaker 3

But I wouldn't want to read too much into it and think that 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 2 of good performance, maybe that will be more indicative of the trend. Right now, we're just very happy with the performance. And But again, we're sticking to our guidance, if you will, for the remainder of the year.

Speaker 3

We're not looking to change that just yet.

Speaker 6

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. And we know that it's seasonally the weakest quarter. Just given where Q1 has landed, given what you're seeing as of May, Can you maybe should we maybe 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.

Speaker 2

Yes. 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 EBITDA margins. I mean, yes, Q1 was a great quarter, But we're just trying not to get ourselves for the full year.

Speaker 2

We still have 3 quarters to go. It was a strong start, which we're happy about and really proud of the teams delivering, but again, we're taking 1 quarter at a time. So for now, we're staying put.

Speaker 7

Okay. That's it for me. Thank you.

Operator

We're now going to take our next question. And the questions come from the line of Zachary Evishet from National Bank Financial. Please ask your question.

Speaker 8

Thank you. Good morning, everyone.

Speaker 2

Good morning, Zach.

Speaker 8

You've stated I'm going to try not to beat a dead horse here, but it is what it is. You've stated previously that a big component of patient care at HandyCare 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?

Speaker 3

Hey, Zach. No, I don't think we're not worried about falling off a cliff in terms of margins. We feel very good about the performance. And as I mentioned, when you get above that $40,000,000 $45,000,000 you really see that The leverage in that business, there's still a lot that we're working on in terms of tenders that we're looking at, 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's going to fall off a cliff in terms of margins.

Speaker 3

So no, I wouldn't model that in. I think we're very confident about when we started the year as we exited 2022, we did mention that we felt that we've got to a new level within patient care. 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 It's changed dramatically over the past couple of years.

Speaker 3

And no, we're very confident going forward. So no, we're not anticipating any sort of huge drop off in margin there. Just to add on

Speaker 1

that maybe Nick, no Zach, things are always that come by miracle, okay, because maybe we have worked on Something also, just to say that there are 2 factories also in Saint Louis and Willville, they have a very good layout, they have a booster production of Sling. So This has given the right support also for the sales to be able to sales and to do some good cross selling. So I think This is not an effort that has been done in the background by the team and that should be positive for the next few years, right?

Speaker 8

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?

Speaker 2

Good question, Zach. Yes, it's going to be 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 the Q2 could be higher margins than what we're seeing in Q1.

Speaker 8

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?

Speaker 2

So we are still seeing vendor cost increases across the business. We are not seeing into 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, That's about the level of guidance that we'll provide.

Speaker 8

Fair enough. Thanks. And just one last one broader. With the 2023 budget including a multi generation home renovation tax credit, are you targeting any incremental demand there?

Speaker 2

Yes, I'm assuming you're talking about Canada specifically. I mean, so tax credits do come and go. With accessibility, some of our with accessibility projects specifically on our legacy products, these are projects that take Quite a bit of time to from initial specking of the job to actual sales. 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.

Speaker 8

That's clear. Thanks. I'll turn it over.

Operator

We are now going to proceed with our next question. And the questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question.

Speaker 7

Thank you. Good morning. Nick, on the patient care tenders, which you mentioned a few times, 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 1 stop shop or is it market growth driven or both? So just any thoughts on that would be helpful.

Speaker 3

Hey, Fred. It seems like popular today. So on the patient care side, the Tinder activity that we're seeing, a lot of its 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.

Speaker 3

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 newbuild 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 the I guess the Span team, the Handicare team together, we're able to bid on the entirety of project.

Speaker 3

And so people are looking for No one supplier where possible as long as the guidance can meet the various requirements of the bids. So we are seeing a combination of strong just hindering out there and at the same time our success rate has been very good. So you combine that together and that's why we feel quite optimistic about that business. And in the U.

Speaker 2

S. As well, we

Speaker 3

are seeing some legal activity. I think the VA is probably a good segment there Forrest, at the same time, we've had some as I mentioned on the opening comments, some strategic partners of ours have increased their spend. So that also is a boon for that business. So no, I would say overall, we're very confident about where we are. The backlog is still quite healthy.

Speaker 3

So, no, it's overall things are quite positive there with the patient care.

Speaker 7

Great. Thanks for that. Moving to Sustainability and Stirlifts more specifically, Zohring, if you had any comments on the progression of your business in Stairlifts in North America and maybe an update on intentions to add production of a new Stairlift model from Emicare in Brampton.

Speaker 1

Good morning, Verdelnik. Yes. So basically, we have a sales team, okay, in North America between the legacy Endicare and Savaria, they have merged together and all our rep, okay, You can tell us earlier to the call to our moderator. I think our dealer are very happy that we're able to offer the EndyCare product Sure. In North America, we have better lead time.

Speaker 1

So right now, the single 2, the free curve is already over a year. It is in production. Right now, early time is better than ever. It's like 8 days. So that's very positive to generate some sales.

Speaker 1

And the second model of Envirota and the Voci, 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 At the end of the Q2, bone kerbs turnip of Endicare will be manufactured in Toronto. So that will be a good benefit to help us to generate some additional sales. So With that be the direction we're going in that.

Speaker 7

Okay, great. And last one for me, maybe for Steve on head office costs. Just for modeling I noticed that the $2,600,000 in the quarter there included some one off professional fees. What would be your Sort of normalizing office costs if we do exclude one off roughly moving forward.

Speaker 2

Yes. So to answer the question, it's about $500,000 that went through in the quarter that was one off professional fees that we won't be seeing on an ongoing basis. Perfect. Thank you.

Operator

We are now going to move to our next question. And the questions come from the line of Julian Hung from Stifel. Please ask your question.

Speaker 9

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.

Speaker 1

I think Pierre, it's okay. We are in the excessively, we are the only company public. So it's hard to measure with the other guys, but again, we're very lucky to have this backlog and then we're working hard. No, it's been just by miracle. I think the sales team is Working hard, the business is very good in North America for all integrator and vertical platform.

Speaker 1

So I think That's looking in the right direction for the year. Okay. And another question? Yes. Does this answer the question,

Speaker 9

Justin? Yes. You answered it. Very helpful. My second question is with global tensions on the rise.

Speaker 9

Have you seen any impact on operations in China? And does it shift the business overall strategy moving forward.

Speaker 1

Very good question, Justin. So basically, I was in China 3 weeks ago, okay, And I had the chance to move with the 3rd team in New Zealand, I did not have the chance to move with the 2nd factory in China. But I would say we're very lucky. We have a very good team in China. It's the same people for the last 5 years and even not very nice, but I have asked them to come work on a Sunday and other people came, other than 20 people.

Speaker 1

So We have a very good team dedicated. But yes, we

Speaker 3

have opened a new factory last

Speaker 1

year in Mexico to be able to balance over time our supply chain, make sure we can develop some additional capacity for North America. So right now, I think we're quite happy. We have 17 factories across the world. We're quite diversified. So I think it's been a it's an issue for us.

Speaker 9

Okay. And just one last question for me. So I see the Net debt to EBITDA has been going down over the last couple of quarters. Do you have maybe a medium target for where you want the number to go and what's your comfort level for a potential acquisition?

Speaker 2

So to answer this question, I mean, we're comfortable. Yes, we have been seeing a decrease. I mean, we're happy with the Q1 decrease. Need to keep in mind that part of that came from the Norway cash and fees from the Norway divestment, but still happy with the decrease, and we will Deliver at least half a turn this year as well. So that will allow us to finish the year at about 2.5 times.

Speaker 2

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, Platinum acquisitions are still can be still on the go right now. If something comes up, that's 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, Sounds a bit like a broken record here, but we are confident in the opportunity that the HandyCare synergies and the continued integration with HandyCare and The legacy Savaria business will provide to us. So we're not eager to bite off Any large new acquisitions at this time, we think there is plenty of runway still in front of us.

Speaker 9

Okay. Thank you so much for taking my question.

Operator

We have no further questions at this time. I would like now to hand back the call for closing remarks.

Speaker 1

Thank you very much. And again, thanks all our analysts that pull up Savaria, you are very important for the company very early in the Q1. So I guess we will go back to work. So thank you very much and we'll see you

Speaker 2

in August for the results

Speaker 1

of the Q2. Thank you.

Operator

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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Earnings Conference Call
Savaria Q1 2023
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