Savaria Corporation (SISXF) Q3 2023 Earnings Call Transcript

Savaria Corporation (OTCPK:SISXF) Q3 2023 Earnings Conference Call November 2, 2023 8:30 AM ET

Company Participants

Marcel Bourassa – Chief Executive Officer

Steve Reitknecht – Chief Financial Officer

Sébastien Bourassa – Vice President, Operations and Integration

Nicolas Rimbert – Vice President, Corporate Development

Conference Call Participants

Cheryl Zhang – TD Securities

Michael Glen – Raymond James

Frederic Tremblay – Desjardins Capital Markets

Justin Keywood – Stifel

Zachary Evershed – National Bank Financial

Operator

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 speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

This call may contain forward-looking statements, which are subject to the disclosure statement contained in Savaria’s most recent press release issued on 1st of November with respect to its Q3 2023 results.

Thank you. Mr. Bourassa, you may begin your conference.

Marcel Bourassa

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 and every year, okay, I think, we are going in the right direction.

Now, we have Q2 a little bit too weak, okay, but Q3, I think, you can see that 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. It’s — 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, it’s always, okay, question, okay, like, not very respectful for the people, but it is what it is.

Us, okay, we are — our projects is based, okay, on the aging of the population and it will be there, okay, for – I think, for me, okay, at least forever, okay. And thank you, okay. I read some comments yesterday, okay, about you make on Savaria Q3 and thank you very much, okay. And you can see that we have a good quarter, okay, and we have — all have a great quarter. The backlog is there and 2024 look tremendous for us. But let’s talk about Q3.

So, I will transfer, okay, to Steve.

Steve Reitknecht

Thanks, Marcel, and good morning, everyone. Thanks for joining us on the call. I am 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 margins 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 and15.4% 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 Savaria One.

On September 15, 2023, the corporation issued 4,363,100 common shares via a public offering and 1,983,750 common shares via a concurrent private placement with Caisse de dépôt du Québec, both at a price of $14.50, for aggregate gross proceeds of $92 million, which included the full exercise of the overallotment 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 am 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 U.S., 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 segment stood at $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% tail wind.

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 was unrealized in nature.

Net earnings were $12.1 million or $0.18 per diluted share for the quarter, compared to $10.6 million or $0.16 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 a 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 disbursed $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 at September 30, 2023, Savaria 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, Savaria’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, Savaria had net funds available of approximately $203.4 million to support working capital investments and growth opportunities.

And now, looking forward for 2023, Savaria 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 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 am going to turn the call to Sébastien for an operational update.

Sébastien Bourassa

Thank you, Steve. First, I need to say I am quite happy with the results on the 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’s 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 of visibility in the U.K. factory with the ERP that was then little change, but now we have some very good information, live data. So quite happy with the change we have made.

In Mexico, we continue a ramp-up and we have approximately 50 employees. We do some weekly trucks to Toronto, to U.S. with some porch lift 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 Handicare stairlift, the 4000, which was the model made in U.K. So this will help us to increase our sales in the future in North America, because we will have better lead time.

Finally, on the Savaria One, quite happy with the start. So we did a consultant did a due diligence on Savaria to identify opportunities. We now did a bottom-up plan with the Savaria 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 Savaria to operate the business as a $1 billion company with better processes. It’s a very general update, but the intention is to have an Investor Day in the first quarter next year so that we can talk more about the Savaria One project.

And so, Nicolas, Patient Care.

Nicolas Rimbert

Yes. Thank you, Sébastien, 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. That said, 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 margin 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 have 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 will turn the call back over to Marcel.

Marcel Bourassa

Yeah. Thank you very much, Nicolas, and thank you to Steve and Sébastien. I just want to reiterate one thing that Steve mentioned, okay? Our debt to EBITDA, okay, is around $2.2 million right now after the offering.

And when I decide to make an offering, okay, is because, okay, I want, okay, to have reduced the debt. By the time that we are right now, okay, my — our balance sheet, okay, with a ratio around $2 million, $2.2 million, okay will go maybe, okay, shortly less than $2 million, 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 Handicare and I knew that we see the penalty fee is over.

And me, okay, there stuck, okay. I was 5 minutes penalty, okay, because we make an offering. But my penalty is about to finish, okay. And there, you will see, I think, okay, that the people will recognize, okay, the value of this offering that we make, okay, 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 Care, okay, with Nicolas.

So, we are ready for the questions, Sarah.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Thank you. We will now take our first question. First question is from the line of Gabriel Maho [ph] from Scotiabank. Please go ahead.

Unidentified Analyst

Hi. Good morning.

Marcel Bourassa

Michael [ph], good morning.

Unidentified Analyst

Yeah. On the Savaria One project costs, is there something you expect to incur in the next couple of quarters? And can you provide us with a preview at a high level on what to expect from Savaria One in term of how to think 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?

Steve Reitknecht

On the — hi, Gabriel. I will take this question. It’s Steve here. Just on the first part of the question there, on Savaria One 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 Savaria One. 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.

So there’s a fixed portion that we are 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.

So 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 am sorry.

Sébastien Bourassa

Can you repeat your — the second part of your question, Gabriel?

Unidentified Analyst

Yeah. Just if you can give us a higher level of what to expect in term of cross-selling side on margin?

Sébastien Bourassa

I think, Gabriel, we need to go back to the vision of the $1 billion, okay, that we want to be. And this is why we will have a call in the first quarter next year, to be able to describe a bit more about the Savaria One, how do we see the next two years? Right now, we are still at the beginning of the implementation.

Right now, we have reiterated guidance for 2023. So, as you can see, there is no change for this year, but there will be some small costs for the Savaria One project. But we see some benefit in the next two years. And this is something that we will be able to address in the first quarter next year. So I think it’s a very good news.

Unidentified Analyst

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 in Europe relate to the macro or is there something operationally that you think could be improved?

Sébastien Bourassa

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 in the 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 home elevator. So I think, over time, we will be more diversified and that would put less pressure on some of the margins. So I think we consider that the second quarter is over and ERP is finished.

Unidentified Analyst

Perfect. That’s it for me. Thank you very much.

Operator

Thank you. We will now take our next question. And this is from the line of Cheryl Zhang from TD Securities. Please go ahead.

Cheryl Zhang

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 timing of order. But just wondering if you could speak to or speak more to the rebound in demand that you are seeing there, sounds like — so, like, in the early stage of Q4? Thank you.

Nicolas Rimbert

Hi. I can take this. The rebound, I guess, in terms of Q4 that we had mentioned is essentially as you described, right? There was some lumpiness that we saw over the summer months. We started the year with very high sales volumes, 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 are 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 in that 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.

Cheryl Zhang

Okay. That’s very helpful. And I guess, my second question is, so, can you speak to the backlog level in Accessibility and Patient Care, and if there’s any changes in residential demand, given the macro backdrop?

Steve Reitknecht

Hi, Cheryl. I will 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 — in Garaventa Surrey in 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.

Cheryl Zhang

Awesome. That’s very helpful. I will jump back in the queue.

Operator

Thank you. We will now move to our next question. This is from the line of Michael Glen from Raymond James. Please go ahead.

Michael Glen

Hey. Good morning. Just coming back, Marcel, thank you for the commentary surrounding the equity issuance. So I just want to see if you are able to give a bit more indication. If we are thinking about Savaria in terms of the M&A outlook. Like, what are some of the areas of the business that you would like to add to or what would represent opportunistic areas for Savaria to gain access — get some additional business lines in?

Marcel Bourassa

I will begin. After maybe, Sébastien, you make some follow-up, okay? I just see, okay, that, first of all, okay, I am very happy to have made 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 good times, okay, it was the 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 Europe, okay? We manufacture for North America a telecab, okay? Right now, on our design, okay, making the code, okay, in Europe, okay, we will put in 2024, okay, a telecab, okay — a two-floor telecab, and I think, okay, that’s a diversification, okay, from just some stairlift 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 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 stairlift.

So I see very good thing, okay, on the year 2024 and 2025 to reach, okay, our $1 billion of sales. And I mentioned, okay, that on past call, okay, that to — we want an objective, we have to have objective, okay, of 20% of EBITDA. And something — I was doing the mathematics this morning and the mathematics is there, okay.

For sure, nothing is easy, but I think, okay, this 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 will work on that. Maybe, Sébastien, okay, you will complete my answer?

Sébastien Bourassa

Yeah. Thank you, Marcel. So, yeah, R&D is always a key element of our business so that we can bring new products to the market. That’s important for us. We want to be leader in that to have a complete house.

In term of M&A, we always say that, again, complementary products is always nice, because we have thousand dealer that we can bring it to and some — from time to time 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 elements that we could bring going forward.

Michael Glen

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 the M&A opportunity set in front of you then?

Sébastien Bourassa

I think now we are focused on the Savaria One project and the integration. I think, again, it was just to have some cautiousness on the balance sheet, because Marcel like to be ready a bit in advance. So again, but right now, there is no acquisition in the coming months, we are focused on Savaria One. But going forward in the coming years, we could see some opportunities.

Michael Glen

Okay. And then just on cash flow, Stephen, are you able to give some indication for CapEx next fiscal year and working capital over the next 12 months?

Steve Reitknecht

I guess, to start on the CapEx front, Michael, CapEx is an area we have 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, right? And we just talked about how — a bit about how important it is to be bringing new products to the market and be innovative. So it’s — that’s not an area that we are looking to make cuts at all. We will probably continue at least in line with where we are spending this year on R&D — internal R&D projects.

For next year, we haven’t yet nailed down our budget, but I would say, it’s going to be in the 2% to 2.5%, maybe close to 2.5% next year as we look at, Savaria One and other projects. But it’s not going to be a large upswing because of Savaria One, if that’s sort of what you are hinting at.

With regards to working cap, similar comment around. We are still working through our budgets for next year, but we are — I can’t say that we don’t think working capital is an area that needs to be invested more heavily in, where we are 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 across — working with our vendors to improve terms, our AR position is strong and we 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 topline growth.

Michael Glen

Okay. And then just one more, with the debt repayment, do you have an indication of like your — what your run rate interest expense will look like?

Steve Reitknecht

The run rate interest expense, so we are — we have — 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 are 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.

Michael Glen

Okay. Thanks for taking the question.

Operator

Thank you. We will now take our next question. This is from the line of Frederic Tremblay from Desjardins Capital Markets. Please go ahead.

Frederic Tremblay

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 are seeing generally on that front, as well as maybe an update on your plan for price adjustments? I know in the past, early 2024 was considered maybe for some price adjustments in Europe. So maybe just an update on that?

Sébastien Bourassa

I will take this one. Thank you, Fred. So, I would say, the inflation has probably stabilized. It’s better — a bit better it was one and a half years ago. And in term of price increase, that, again, we have different brands from Savaria to Garaventa to our direct store to Handicare.

So I think there’s different history of annual increase and now we see that we have a healthy backlog. So sometimes it play a bit against the price increase, but many brands will do a price increase in early January. So we typically see an uptick in margin in the second quarter of the following year — of the next year.

Frederic Tremblay

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 am 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 are planning there, without, I guess, providing formal guidance on European organic growth, how do you think about the potential of Europe in terms of topline growth in the coming years?

Sébastien Bourassa

I can take this one. So, I think, Fred, again, if we do the math, the $1 billion, okay, which is again our target and it’s all the family together, I think, it imply 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.

Frederic Tremblay

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.

Nicolas Rimbert

Yeah. Thanks, Fred. It is competitive, I will start by saying that. But I think we are well positioned with the full offering that we have now with the both, Handicare and Span teams together. Bidding has been good, I would say. There’s a lot of new build activity that’s out there, a lot of, you know, planned government spend. So we are looking to win as much as possible against some of our competitors in certain markets. We do feel that we are stealing market share. We are gaining market share. So it is a healthy environment overall, very competitive and we are holding our own. So I feel very strong about our position.

Frederic Tremblay

And 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?

Nicolas Rimbert

Not so much. I think here in Canada, there’s certain provinces where you do see that. I would say, Québec, 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 provinces — province-to-province.

But overall, no, I mean, when we are bidding on business, whether it’s government or private, we do have our own margin expectations to maintain. So we are 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 are going with Government. But it is something to be conscious of, for sure.

Frederic Tremblay

Great. Thank you.

Operator

Thank you. We will now take our next question. This is from the line of Julian Hung from Stifel. Please go ahead.

Justin Keywood

Hi. Justin Keywood 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.

Steve Reitknecht

Yeah. Hi. I will take this one. I mean, first on the gross margin improvement, most of that came from — 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 Garaventa site in British Columbia.

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 bottomline. So that’s our — the gross profit, which flowed through the bottomline. So that, that’s really what helped it and drove the overall company.

SG&A did tick up this quarter. Some of it was related to Savaria One, as mentioned, but we had some other costs in other pockets of the business that made it a little higher. There are a couple of 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 Savaria One 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 20 — May 2025 as mentioned.

Justin Keywood

Okay. Understood. And then if we just took a step back and considering the margin expansion goal from 16% now to 20% in 2025, what would be the main drivers as far as expanding that margin?

Marcel Bourassa

I will — I want to 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 work with us, okay, and we review our pricing, we review our cost, okay.

And don’t forget one thing, okay? In the next two years, 2024 and 2025, okay, the net, okay, from the consultant and what Savaria get, okay. It will be very positive for Savaria, okay? That’s why I am very optimistic, okay, to see that we will have this 20%, okay. It’s that easy. I repeat that, repeat that, okay. But we work on the pricing with them, okay, and that’s very different.

The way right now that we think, okay, about the pricing 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, okay, take the balance sheet.

So we will have more sales, okay. We — I will have more sales with a bigger, okay, EBITDA, okay. And I think when you compare that all together, okay, what you can save on cost, better sales, better sales pricing.

It’s very 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 that 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 on my napkin, okay, and sweating, 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, okay, that I believe, okay — strong belief that we will find the 20%, okay, in two years.

Justin Keywood

Well, thank you, Marcel. Yeah. And I know there has been a track record of 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 is a variable component to it. If you are able just to describe, is that variable component attached to the margin expansion goal?

Steve Reitknecht

Yeah. So I will take this one. I mean, we are — we will definitely be providing more guidance on this at the Investor Day. But, yeah, there is a variable component and some of that — the variable pieces tied to our performance. So 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.

Justin Keywood

Great. Thank you for taking my call.

Steve Reitknecht

And Sarah, if I could just go back to a previous question that Michael — that Michael Glen 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 the reduction of debt. But also the fact that we have 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.

Operator

Thank you. [Operator Instructions] We will now take our next question. This is from the line of Zachary Evershed from National Bank Financial. Please go ahead.

Zachary Evershed

Good morning, everyone. Thanks for taking my questions. I think most of them will have to wait for the Investor Day on Savaria One, 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?

Nicolas Rimbert

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 relates to projects.

Zachary Evershed

So nothing stopping you from executing on the backlog within the quarter?

Nicolas Rimbert

No. No. I mean, it’s very much — the orders coming in now — for the most part, it’s trying to beat this, I guess, the year-end spend, right? So you have certain — I guess, there’s certain kind of budgets that have a December year-end.

You have to eat up in those budget dollars. Otherwise, in many cases, they go away. So we are trying to take advantage of that. So some orders that you are 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 does go on beyond a quarter, but that’s normal. Some — but some of the spending that you are seeing now or some of the uptick that we have seen exiting the quarter, it is very much to help us with Q4.

Zachary Evershed

That’s good color. Thanks. And then maybe just one on management focus on M&A versus Savaria One. We have talked about the balance sheet opening up your options over the coming years, as Sébastien said. And are you still entertaining discussions, like, how laser focused is management on Savaria One versus keeping those conversations going in the M&A pipeline?

Sébastien Bourassa

I can take this one, Zach. So, I think, again, we are 99% focused on Savaria One. 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 will finish this year. We will do Savaria One and I am sure opportunity will come at the right time.

Zachary Evershed

Great answer. Thanks. I will turn it over.

Operator

Thank you. We will now take our next question. This is from Cheryl Zhang from TD securities. Please go ahead.

Cheryl Zhang

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 your capital allocation?

Steve Reitknecht

Yeah. Hi, Cheryl. Thanks for the follow-up. Capital allocation for us, I mean, again, going back to Sébastien’s last point, it’s not that we are looking at any near-term M&A. We are very focused on Savaria One. But that project, as I noted earlier, there is not going to be a large tick-up in CapEx.

So we are expecting CapEx for 2024, I mean, it’s too early to comment on 2025, but there’s no large CapEx spend associated with Savaria One. So we are going to come in at a historical range on CapEx for 2024.

And working capital, we believe that we have to have the working capital 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 am expecting some improvement there as well.

Cheryl Zhang

Okay. That’s very helpful. Thank you so much.

Operator

Thank you. And there are no further questions at this time. So I will hand back to the speakers.

Marcel Bourassa

Okay. First, okay, thank you very much, okay, for — to be on the call this morning. And this is very important, the institution, okay, the way, okay, they see things for the future, okay. You are the people, okay, who can take the good news of Savaria, okay, and put that, okay, through, okay, the investor. So, you are very, very important for us.

And I am very happy to have the cash, okay, around 10%, okay, of our equity, okay. So, thanks, okay, to the partner, okay, of, okay. And I am very happy that many people participate, okay, with — about our — and we don’t see a lot of offering right now in the market, okay.

So I am — was very happy to succeed, okay, to make that and that puts us at another 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 Savaria at least until the end of 2025. So thank you very much everybody, okay, to be on the call and thanks for question and thanks for my people to really answer the call. Thank you, Sarah.

Operator

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.