Savaria Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 9 speakers on the call.

Operator

Good morning, afternoon and evening. My name is Norma. I'll be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q1 2024 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. The 3 speakers for today's conference will be Sebastian Baraza, President and Chief Executive Officer Steve Reitnik, Chief Financial Officer and Jean Philippe de Montigny, Chief Transformation Officer. After the speakers' presentation, there will be a question and answer session. Which are subject to the disclosure statement contained in Savaria's most recent press release issued on May 8, 2024 with respect to its Q1 2024 results. Thank you.

Operator

Mr. Bourassa, you may begin your conference.

Speaker 1

Thanks, Namor, and good morning, everyone. So today, I will start with a small recap of our Q1 results. Steve will update us with our financial section, and JP will update you on the progress of the Sabara 1 and we're going to have a smaller Q and A session at the end. So fortunately, overall revenue growth in Q1 was below expectations. 1st, we lost some sales with the divestiture of our bank conversion in Canada.

Speaker 1

Europe has a small decline of 3.4%, but we've seen it together positive EBITDA improvements, so good job on that. And we are going against a weak Q2 of 2023. So we're expecting to have some growth in the Q2 to bring us back to the normal point. Patient Care had a flat first quarter, but we are again a strong first half of the year in 2023 with a weaker second half. So we're expecting strong growth for this year.

Speaker 1

It's part of Savara 1. And remember, in the last 2 years, we have increased our sales by 30% in that segment. Positively, in North America, we have saw growth of 11% in the Q1. We have deployed our dealer partner program, Name Access Plus. In North America, the reception was very good and we had their best quarter ever in terms of booking for Garaventa and Savaria in North America, so quite positive.

Speaker 1

So ups and downs in the Q1, but in the long term, we are still very confident in our ability to grow the business, the $1,000,000,000 by 2025 with the aging population, a unique value proposition for the one stop shop and the wide range of product that we have, with the expansion in R and D with new products and bringing some new existing products in Europe, I think we have all the tools in our end to succeed. Overall, Savarez has remained a very attractive business for dealer with in all different market, the one stop shop, wide range of product we have, a global footprint and a vertical integrated supply chain. We continue to expand our build out in Mexico. Now we have 75 employees, which will be there to support the next generation of manufacturing, improve our costs, bring some resilience to our supply chain that put us in good position. Our operation continue to improve in our factory in terms of safety, quality and throughput, so quite positive.

Speaker 1

And that brings us a bit to the next section, which is the EBITDA improvement by 2% in the Q1. The 16.6% in the Easterly our weakest quarter of the year and that shows some very positive sign of operation excellence that we are developing through a CABR1 program. Improvement of 2% in Europe going from 10% to 12% with lower sales, so that shows some sign of improvement with the Savara 1 and the team is working very hard on this and GP is going to explain it in his section later. North America improvement of 2% going from 17.5% to 19.8% due to higher output in Brenton, Surreys and good performance in our direct store. So very happy with that.

Speaker 1

Patient Care went down to 18.5%. I think it's mainly due to the product mix and lower sales, but not very far from our target of 20%. As discussed in our last Investor Day, our target by 2025 is to be a company of approximately $1,000,000,000 in sales at 20 percent of EBITDA and it will be possible with our Savara 1 program. Our results in Q1 show that we are moving in the right direction. Savara is also very well positioned with its balance sheet.

Speaker 1

We continue to do some small tuck in acquisition to reinforce our product portfolio to continue to improve the margins. In the Q1, yes, we divested our bank conversion calendar, but we have replaced some portion of the sales with Mehta, Dam Wheeler. That's a good start from April and that's a very good example, small tuck in to bring some new products to continue to be the 1st choice for a dealer and be able to integrate that in our supply chain to bring some synergy. Very important, we had a good quarter in term of cash generation, which Steve would talk about it into details, but I want to highlight that we have generating cash from operation while we are growing the business and this is where we want to be. Finally, I would like to thank all our employees, our dealers, our suppliers and our customer for the success in the Q1.

Speaker 1

And as I travel all the work to visit different sites, I'm very always impressed just a good idea from employees that are and I thank them for all their participation in this successful company. I think our employee appreciate the effort that we're getting and that some direction on where to go if their participation is good and we saw that in our last engagement survey in the company. So in closing, keep in mind that Q1 is tend to be the slowest quarter of the year. While we have a revenue growth challenge, we are quite pleased with the profitability and improvement in our margins. Steve?

Speaker 2

Thank you, Sebastian, and good morning to everyone on the call. I'm excited to share some remarks regarding our Q1 2024 results. So starting off, some key highlights for the quarter include strong EBITDA margin improvement driven from gross margin improvement, North American accessibility revenue growth of 11% and strong cash generation from operations including from working capital in our seasonally weakest quarter. So for the quarter, we generated revenue of $209,400,000 a decrease of $2,200,000 or 1% versus last year. The decrease mainly came from the divestitures of Van Action, Freedom Motors and the Norway operations, partially offset by organic growth of 2.6%.

Speaker 2

We also experienced positive foreign exchange fluctuations. I'm pleased to report that the corporation delivered improved gross margins not only over Q1 of 2023, but also higher than any quarter in all of 2023. We delivered record gross profit and gross margin of 75 $400,000 36 percent compared to $72,000,000 34% in Q1 2023. The increase in gross profit of $3,400,000 is explained by better gross margins in both of our segments due to favorable product mix, improved pricing, and favorable cost of material as well. As Savaria 1 continues to be the major driving force toward our targets, We incurred $5,300,000 for strategic initiative expenses in the quarter, in line with previously stated expectations.

Speaker 2

Adjusted EBITDA and adjusted EBITDA margins finished at $34,700,000 16.6 percent compared to $31,200,000 14.7 percent last year. The increased profitability is mainly explained by the increased gross margins as a result from the effective realization of our ongoing Savaria 1 initiatives. And JP is going to speak to this shortly in more detail. Now looking at our segmented results. Revenue from the Accessibility segment was $160,400,000 a decrease of $2,400,000 or 1.5 percent compared to last year.

Speaker 2

The decrease was mainly related to the divestitures. In addition to the execution of of some of our pricing initiatives and pricing optimization, we saw strong demand in both residential and commercial sectors, partially reflected in the organic growth of 3.3%. Adjusted EBITDA and adjusted EBITDA margin for accessibility stood at $27,600,000 17.2 percent compared to $24,000,000 14.8 percent last year. The increased profitability was mainly due to improved gross margins coming from favorable product mix, improved pricing and favorable cost of materials for both regions in line with our cost efficiency focus. The accessibility backlog remains strong and grew slightly versus where we ended the year.

Speaker 2

We consider our backlog level to be healthy as we have a good mix between short lead time products such as stair lifts, which will ship out quickly and longer term home and commercial lifts, which we'll be shipping out within a few months or longer. To provide some further color on our regions, revenue from our North America accessibility region increased 11% over last year. Adjusted EBITDA margin rose to 19.7%, an improvement of approximately 200 basis points versus a year ago. Revenue from our Europe accessibility region declined 3.4%. The backlog remains stable.

Speaker 2

Adjusted EBITDA margin improved here to 12.7%, also an increase of approximately 200 basis points over last year. Switching gears to discuss our Patient Care segment. We saw revenues for this segment reach $49,000,000 for the quarter, an increase of $200,000 or 0.4% compared to last year. We experienced healthy traction inside the United States, which led to increased revenues, while we saw a decrease in Canada explained by certain large construction projects delivered in Q1 2023, not repeating this year, as well as reduced government spending. As a reminder to everyone on the call, our patient care business is driven in large part by project based sales, which can be lumpy from time to time.

Speaker 2

And throughout the quarter, the patient care backlog remained stable. Adjusted EBITDA and adjusted EBITDA margin for Patient Care stood at $9,100,000 18.5 percent compared to $9,800,000 20.1 percent last year. The decrease in both metrics was mainly due to an unfavorable product mix on certain projects versus last year and higher selling expenses, partially offset by pricing initiatives and pricing optimization. We have communicated on previous calls that Q1 and Q2 of 2023 were exceptionally strong and likely not to repeat in the short term. Our EBITDA margin of 18.5% this quarter higher than what we saw in the previous two quarters in Q3 and Q4 of 2023 and is a very good start in our progress towards our target of 20% EBITDA margins.

Speaker 2

On a consolidated basis, net finance costs were $3,100,000 compared to $7,000,000 year. Interest on long term debt decreased by $1,000,000 primarily due to the reduced balance of debt, and we also experienced unrealized movements on financial instruments. Net earnings was $11,000,000 or 0 point 16 dollars $6 per diluted share for the quarter compared to $6,000,000 or $0.09 per diluted share last year. The increase in net earnings and net earnings per share was mainly due to the higher adjusted EBITDA and lower net finance costs, partially offset by higher net income tax expense and strategic initiative expenses. The higher net income tax expense resulted from the bottom line increase and increased profitability, but does represent a slight decrease in our effective tax rate from 24.8 percent for all of 2023 to 24.3 percent for the current quarter.

Speaker 2

Turning now to capital resources and liquidity in more detail. For the quarter, cash flows related to operating activities before net changes in non cash operating items reached $23,800,000 compared to $18,100,000 last year, explained by higher EBITDA generated by the business. The net changes in non cash operating items increased liquidity by $2,700,000 compared to a decrease last year of $2,100,000 The increase was mainly due to decreased accounts receivable and increased payables offset by slightly higher inventories. As a result, cash generated from operating activities in Q1 stood at $26,500,000 compared to $16,000,000 last year, a very large increase of over $10,500,000 Our GPO and DIO measures improved versus last year end, while DSO remained stable. In line with our efforts to optimize our supply chain and working capital levels across the business, we continue to focus on improving working capital as we grow the company.

Speaker 2

Cash flows used in investing activities was $2,400,000 for the quarter compared to $7,700,000 last year. We disbursed $3,800,000 for fixed and intangible assets compared to $4,500,000 in Q1 2023. Since some investments were delayed to future quarters, we are expecting capital expenditures to stay in our historical range of 2% to 2.5 of revenues for the entire year. We also did receive $6,400,000 from the divestments this quarter versus $12,400,000 last year. Cash used in financing activities was $29,600,000 for Q1 compared to $6,300,000 last year.

Speaker 2

The variation is primarily explained by a reimbursement of the revolving credit facility of $13,500,000 following the inflows coming from operations and the divestments compared to a draw of $8,500,000 last year. Looking at net debt as of March 31, our net debt position was $271,100,000 and the ratio of net debt to adjusted Looking forward with regards to the guidance for the future, as previously stated, Savaria is not providing guidance for fiscal 2024 as we focus on the achievement of our targets of approximately $1,000,000,000 in revenue and approximately 20% adjusted EBITDA margin by 2025. The global team is focusing on delivering these 2025 objectives and it remains difficult to pinpoint exactly where we're going to finish 2024 and the quarters therein. Daria's future prospects are promising, driven by strong market demand, the progress of Savaria 1 potential tuck in acquisition opportunities that will enhance our market position. And with that, this completes my prepared remarks.

Speaker 2

I'm going to turn the call over to JP to provide further details on how we're progressing with Savaria 1.

Speaker 3

Thank you, Steve. Q1 2024 was the Q1 where we saw the impacts of Savaria 1. As one can see in our financial results, our adjusted EBITDA increased by approximately $3,500,000 versus same quarter last year on $2,200,000 less revenues. This is quite a success, especially given Q1 tends to be our slowest quarter in the year. Outside of divestitures, those results can largely be explained by initiatives implemented during Savaria 1.

Speaker 3

Even our Investor Day was just a month ago and the examples shared that they are still recent, let me point to a few examples and link those to our financial results. Our accessibility sales in North America were up 11% versus last year, which is in great parts due to our efforts to increase the throughput of our factories in Surrey and Brampton for our best selling products like the Eclipse, for which we closed 8.3 units per day in average last year in this quarter and 10.5 units per day in this quarter in 2024, which is an increase of about 25% year over year. Also in North America, in parallel to growing our top line, we made number of changes to our commercial terms, which increased our contribution margins. Those included the launch of the new dealer partner program, also adjustments to pricing and various commercial tactics that improved our mix and average margins. Note that given the depth of our backlog, we only got partial benefits from the price related adjustments in Q1 and expect those to really materialize in Q2.

Speaker 3

In Europe, our EBITDA margin increased from 10.8% to 12.7%, while revenues declined by 3.4%. So we generated a higher EBITDA in absolute dollars on a smaller top line. Improving profitability has been our priority within Savaria 1 in Europe given the lower EBITDA margin of that region. We have plans to stimulate growth and cross selling, but chose to prioritize actions that will improve our profitability even at the expense of revenues in some cases. This improvement in profitability is the result of a mix of commercial and operational changes.

Speaker 3

I shared during our Investor Day an example of how changing our commercial terms in one business segment in the UK improved our margin. This is just an example as we have been reviewing all the lower margin segments of the business and developing plans to improve their profitability. We also made efforts to reduce costs in our factories and within SG and A. For example, I shared how we reduced the labor costs in Kingsmanford through moving to 1 shift and how we increased the recovery and reconditioning of units in Herr Gohard to our reconditioning initiative there. We also reduced reliance on temporary labor, agency workers and reduced the administrative personnel in Europe over the last quarter.

Speaker 3

Those initiatives as well as many others of that nature enabled an almost 2% margin expansion on lower revenues in Europe. In Patient Care, our results show flat sales year over year in Q1 and lower margins. While we would prefer stronger results, we knew Q1 and Q2 of 2023 were exceptional in the Patient Care division. We did expect the impact of our Savaria 1 efforts to take longer to materialize in that business as well. In fact, at this stage, our plan consisted mostly of investments in strengthening sales and marketing activities, which we expect will accelerate our growth through the back end of 2024 2025.

Speaker 3

So we did not expect Saverio I to impact sales at this point, but knew it would increase our costs in Q1, which is something we see in our results. Finally, as shown during the Investor Day, we are very active in addressing our cost of goods sold through procurement and supply chain optimization initiatives. Whilst we have secured 1,000,000 of dollars of savings already through RFPs and contract renegotiations, we saw almost no impact from those savings in our Q1 results given the time needed for us to work

Speaker 2

through our stock of parts.

Speaker 3

Yet we believe that the fact that we were actively sourcing and negotiating prices for many of our goods and services categories enabled us to keep prices constant and even get some concessions. So as a result, while our accessibility business within our accessibility business, for example, we saw material costs as a percentage of sales decline by 2%. At the end of Q1, as per our calculations, we were on track with our plan both in terms of quantity of initiatives implemented and their financial impact. While this is not the forum to expand too much on it, I would also like to mention that through Savaria 1, we are continuing to improve our systems, our processes, we're strengthening our organization and building a path to continue to grow past the $1,000,000,000 in sales. In that regard, this organization is mobilized more than ever.

Speaker 3

And as Sebastien mentioned earlier, we do measure the engagement of our employees and just completed an engagement survey now that shows a material improvement versus when we started Savaria 1. I would like to thank my colleagues as well as all the managers and employees of Savaria for their leadership, their contribution to our success and for driving the hundreds of initiatives that are making us progress towards our goal with Savaria 1. Finally, I just wanted to remind us that the gains we are accruing by implementing Savaria 1 initiatives are recurring in nature that we continue to implement improvements every month as well as add new ideas to our initiatives pipeline every week. With that, we remain confident in our ability to reach our goal of $1,000,000,000 in sales as well as approximately 20% EBITDA in 2025. Thank you for your attention.

Speaker 3

Let me turn it back to Sebastien.

Speaker 1

Thank you, JP and thank you, Steve for the color on Solar One and on financials. So I guess now more we are ready for some questions.

Operator

Thank Our first question comes from the line of Kyle McPhee with Cormark Securities. Your line is now open.

Speaker 4

Hi, everyone. On the Accessibility segment, organic revenue growth in North America was very strong, but Europe was down. Can you provide some more detail on the source of the decline in Europe and whether or not this dynamic will repeat a few more quarters before it's left?

Speaker 1

Hey, good morning, Kyle. So for sure, from 1 quarter to the other, Keith, we are judged on every with this small, okay, on the financials, which always a bit difficult. But if we start with North America, yes, we have said in the last year or 2, the booking has been very strong. And maybe in the past, we had some issue in our factories with some of the output, but it has been a core focus on the Savara 1 to improve the flow in the factory, improve the efficiencies. So I think we are starting to see some color out of it.

Speaker 1

So quite happy with that. And in Novak, again, it's just 1 quarter. Right now, we are making a lot of effort on our Savara 1, on our product mix, pricing, initiative, delivering initiative. The good news is we're going against a weak Q2 in Europe. I'm expecting things to be back to normal after 6 months in terms of growth.

Speaker 1

And the teams, they know that we need to go to $1,000,000,000 of sales, which imply 8% to 10% organic growth. So going forward, we're going to see some growth as well in Europe, right, Cal. And as we bring some new products as well of Savaria, because right now we are mostly a 30th and inclined platform company in Europe, as we'll bring some more vertical platform on the Liberator in the future that should help us also to have some organic growth. So I'm confident for the future.

Speaker 4

When you say you're changing the mix in Europe accessibility, are you implying that maybe you're giving up some sales that's lower margin stuff and that's part of the reason you're seeing margins shoot way up? Like are you passing on certain sales and that's manifesting as that revenue decline in Q1?

Speaker 1

For sure. Again, since it's not just about growth, growing the top line, it's also taking care of the bottom line. Yes, we're reviewing which channel, which profitability and that can imply some decision, some choice that we have to make.

Speaker 4

Got it. Okay. And then again on accessibility, the big 11% organic growth for North America, was there any new price gains feeding that organic growth? Or is it still just the price that I think started to kick in Q2 last year that hasn't been left

Speaker 1

For sure. For Karl, no, our formulas are always a bit complex, right? We have different brands with price increase at different time. So yes, on North America, we did a price increase in the Q1, but it goes a bit against your good size backlog. So we are expecting to see some improvement on the margins more in the Q2 towards the price increase of last year.

Speaker 1

But price increase, now don't forget, goes at maybe against some additional costs that we have in the business. At one point, we cannot just increase the price of our customer and we have to work also on our productivity and efficiency to to improve the margins.

Speaker 4

Okay. Is it fair to say though that that 11% North American accessibility organic growth was still included a good chunk from volume or was that heavily weighted to price?

Speaker 1

It was mostly volume for the Q1, yes.

Speaker 4

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

Speaker 5

Thank you, guys.

Operator

Thank you. One moment for our next question, please. Our next question comes from the line of Gabriel Moreau with Scotiabank. Your line is now open.

Speaker 5

Hi. So like you said, Q1 is usually your weakest quarter and EBITDA margin increased close to 2%. So how should we think about the cadence of margin expansion for the rest of the year? I assume 2nd quarter comps is easier given the ERP, but what about the second half?

Speaker 1

It's a tough question, Gabriel. Okay, because again, we don't give guidance per quarter in terms of EBITDA margins. If we go in 2025, we want to be a 20% EBITDA company that's we have been crystal clear and our investor did as the mandate. I think as we go with the Sara one, we know there's EBITDA marquee sticks, we are going to get better as we go okay with the procurement, it takes a bit more time, the cross selling. So I think it's a new stage for us, 16.6%.

Speaker 1

We'll expect that this year to the next quarter, hopefully, we'll have the chance to beat that. But again, we got to be careful. We are working on the mid- to long term target, not just on the short term. Maybe Stifel want to add color on the margins expansion?

Speaker 2

I think you answered it very well, Sebastian. And just to echo that point, I mean, we're focused on improving margins sequentially quarter after quarter to reach that 20% target in 2025. So we are expecting incremental growth over the coming quarters.

Speaker 5

Thank you. And on the pricing, you said you did a price increase early this year. How does that compare to last year? And with the Salaria 1, should we think about the pricing opportunity as more progressive to the year and maybe more dynamic?

Speaker 1

Again, we're going to be careful on pricing, okay, because again, we have different brands, different products. So yes, we did some pricing initiative this year, approximately a 4% to 5% increase in different brands. But when you go after that pricing, it's sometimes you have some product that you sell at low margins or you have to focus on product that has maybe a better margins. So it's a mix of all this and pricing initiative that we're working on, finding some new customer, some new segment where there will be better opportunity. And again, the different brands and that is complex.

Speaker 1

We have our direct store, which has a longer backlog than factory. So it's hard to pinpoint sometimes just in 1 quarter. And we cannot be just about pricing. It had to be a mix of everything.

Speaker 5

Thank you. That's very helpful. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Michael Glen with Raymond James. Your line is now open.

Speaker 6

Hey, good morning. I'm just hoping like the strategic initiative expenses of $5,300,000 in the quarter, are you able to maybe just unpack that expense a little more? Is it cash, non cash? Does it include some restructuring? Just some additional details as to what's included in that specific line item.

Speaker 2

Yes, sure. Good morning, Michael. I'll take this one. So the $5,300,000 in the quarter, this is in line with what we had previously stated at the Investor Day on April 9. So the $5,300,000 is mainly made up of consulting and other training costs.

Speaker 2

There's really no restructuring costs. This is consulting and training fees that we've incurred and they're all cash costs, Michael.

Speaker 6

Okay. And so those as like if we think about the Saverio I program coming to an end at some point in the future? Like those expenses just completely go away from the company?

Speaker 2

Yes, exactly. So we are expecting what we saw in Q1 to continue for the remaining quarters of 2024, so expenses of roughly $5,300,000 for the remaining quarters. These are one time costs. These are not ongoing costs that are reflected in the underlying business. So just to reiterate, one time costs for the benefits from the Savaria 1 program that we're starting to see that JP has been talking to, that we've been talking to the improved margins, gross margin and EBITDA margins, sales as well.

Speaker 2

Those are all recurring in nature. So the fees for this project are all one time and the benefits are recurring. We're going to see those year after year building on each other.

Speaker 6

And as you progress through the undertaking, do you see is there a potential that we could see some like a larger restructuring charge roll through at some point in time as you analyze all of the businesses and all the plants and what's happening there?

Speaker 1

So for Michael, okay, the 1 is about growth. It's about finding some initiatives within the business. It's not a restructuring plant or this kind of project. CapEx, Steve mentioned before, we are running at the same historical rate. So as of right now, we're not expecting any significant change from the guidance we have provided before.

Speaker 6

Okay. And then just on inventory specifically, Stephen, like what do you when you look at where inventory was at the end of 1Q, like how should we think about the inventory opportunity within working capital for the business?

Speaker 2

There is so there is an opportunity there, Michael. We finished Q4 with very a large reduction in inventories, right? If we look at Q2, Q3 and then Q4, Q4 inventory really ratcheted down. Q1, it came up a little bit from where we finished Q4, but still lower than where we finished Q2 and Q3 of last year. So we are very focused on inventory as part of our working capital and then we are expecting to decrease that over the coming quarters.

Speaker 2

And I mean, not only are we expecting a decrease, we're obviously expecting an increase in sales as well. So it's going to be very favorable when we're thinking about

Operator

remaining quarter. So there's definitely opportunity there.

Speaker 2

Okay. And then just as well as inventory over the remaining quarter. So there's definitely opportunity there, Michael.

Speaker 6

Okay. Thank you for taking the questions.

Operator

Thank you. And our next question comes from the line of Michael Glen with Raymond James. Your line is now open.

Speaker 1

Just Norma, he just asked a question.

Operator

I'm sorry, Zachary Evershed with National Bank Financial. Your line is now open.

Speaker 7

Thank you very much. Congrats on the quarter.

Speaker 2

Thanks, Eric. Thanks, Eric.

Speaker 7

I was hoping you could give us a little bit more color on the recent acquisition of Matad. What are the cross sell opportunities there as you add dumb waiters to your product portfolio?

Speaker 1

Hey, very good question, Michael, and thanks for reading the news on Savaria. But yes, I mean, that's a very nice small acquisition, a very long history, I think close to 100 years of making dumb weather and material lift very well, good reputation. The other fortunately had a small dealer network. Now we come into Sabah, we have a bigger dealer network. So there's opportunity to bring that to some of our existing dealer.

Speaker 1

And some of our existing dealer, example maybe we're buying some dumb order from the competition. So over time, we're going to try to convert that to buy from Savaria. And after that, we have a great supply chain. We're global. So I think we'll be able to bring it into a supply chain.

Speaker 1

That's our target by the end of the year. We'd like to manufacture that in Toronto. So I think we'll be able to begin the one stop shop that we order it to one location, one sales rep to service, one technical department, one shipping, maximize the shipping fees, okay, by shipping some other product at the same time. So we have a great expectation for the future and hopefully, the Weir products will continue to improve our margins. Maybe Steve or GP won't complete something on MA thought.

Speaker 1

I agree with that.

Speaker 6

Good color, thanks.

Speaker 7

Yes, just one more actually. On the topic of easing material costs, you mentioned in the commentary. Could you give us some more detail on the trends you're seeing there and in which raw materials?

Speaker 1

Procurement, JV, you want to go because it touched a bit with the several one procurement that we're working on? Yes.

Speaker 3

I don't think we go I can go into details of which category, Zach, to be honest. What we see is 2 things, right? So through Savaria 1, we are going through each category of spend essentially, right? So we group our spend in different categories and we organize to go to market and source at the best price possible those categories. So we're going through them 1 by 1 at the moment.

Speaker 3

But what we also saw and we see this every day, right? So sometimes in this period, suppliers would normally come in and ask for a price increase. But then as they see that they're putting competition through an RFP, they tend to back up from the price increase, right? And then do the opposite and help us reduce some prices. So we've seen this across many categories.

Speaker 3

So but I cannot tell you specifically by material what the trends are, unfortunately.

Speaker 7

So fair to say that this is an internally generated reduction in costs rather than anything market related?

Speaker 3

Yes, yes. To that point, so we don't we're not particularly exposed to market prices, right, because many of the even the parts we buy, even the raw materials are transformed. So typically, I think the share of like raw material exposure is relatively limited.

Speaker 7

That's it for me.

Speaker 6

Thank you. I'll turn it over.

Speaker 1

Thanks, Zach.

Operator

Thank you. Our next question will come from the line of Justin Keywood with Stifel. Your line is now open.

Speaker 8

Hi, good morning. Maybe just to follow-up on the M and A commentary. There was mention of pursuing possible tuck in acquisitions in the press release replace some of the revenue from the divestitures. I'm just wondering, would these tuck in acquisitions be margin accretive? I assume there wouldn't be a pursuit for fixer uppers, just given the goal of the 20% EBITDA margins in the near term.

Speaker 1

Sure, Justin. Again, we like to have tuck in, okay, that would make sense for Savaria, okay, a good product to bring, okay, to offer more to a dealer, something that we can maybe use our global supply chain dealer network where we are with this, there'll be no succession. We have no we have not been good in one area. So all this makes sense for Savara. And yes, when it is vertical integrated, that's usually a us to improve margins.

Speaker 1

Are we going to buy something one of those days that there's 0 margins, but we see a benefit to bring into our supply chain and our product? Everything is possible, but we try to focus on something that could bring some value immediately to our shareholder

Speaker 8

and the company. Understood. And any indication of the amount of targets that you're looking at, potential multiples and size of transaction?

Speaker 1

Right now, we're very focused on the Savara 1, okay. I think we have enough on our plate for the next 2 years with the Savara 1, the $1,000,000,000 Again, some small tuck in. In the past, we did sometimes 2 or 3 small tuck in. So could we digest that without the disruption of the business? The answer is yes.

Speaker 1

But a more midsized loan, big acquisition, I think, is under focus for the next 2 years. In terms of pricing, but I guess you do more than me, what kind of multiple we usually pay, you can look a bit at the history of our transaction.

Speaker 8

Understood. Thank you.

Operator

Thank you. I'm currently showing no further questions at this time. I'd like to turn the call back to Sebastien Barossa for closing remarks.

Speaker 1

Okay. Thank you, Norma. So it was a shorter question. So I guess it was with some good delivering on the message GP and ST. So again, thank you very much for your comments, for following Savaria.

Speaker 1

I think it was a great Q1. And you will see the next few quarters we'll have some good things that we're going to deliver as well. Thank you, Narmer.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

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Earnings Conference Call
Savaria Q1 2024
00:00 / 00:00