Dexterra Group Inc

TSX:DXT

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Horizon North Logistics 2020 Third Quarter Results Conference Call. [Operator Instructions] I will now turn the call over to your speaker today, Drew Knight, Chief Financial Officer. Please go ahead.

[R. Drew Knight, Chief Financial Officer]

Thank you, and good morning. My name is Drew Knight, and I am the Chief Financial Officer of Horizon North Logistics Inc. With me today on the call are John Mac Cuish, CEO and President of Facilities Management; and our Board Chair, Bill McFarland, who will provide some brief introductory comments. The format of this conference call will be the same as in the past. After a brief presentation, we will take questions with the call ending by 9:40 Eastern Time. We will be commenting on our Q3 2020 results with the assumption that you have read the Q3 earnings release, the MD&A and financial statements that were made public last night, all of which are available on our website and on SEDAR. The slide presentation, which supports today's comments, was also posted on our website last night, and we encourage participants to access the slides and follow along with our presentation, after which we will have a Q&A period. [Operator Instructions] We will circle back if we have time for additional questions at the end of the call. Before we begin, I would like to make some comments about forward-looking information. In yesterday's news release and on Slide 2 of the presentation that we have posted to our website, you will find cautionary notes in that regard. While I won't read the content of the cautionary notes in their entirety, we do claim their protection for any forward-looking information that we might disclose on this conference call today. I will now turn it over to Bill McFarland for his introductory comments.

[William McFarland]

Thank you, Drew, and thanks to everyone on the call for spending time with us today. Today is an important day to remember. And I hope each of us pauses at 11:00 a.m., wherever we are, for a moment of silence to honor those who served and gave their lives for our country. Let me start by saying the management team and board are pleased to deliver solid Q3 results in this current uncertain business environment. COVID-19 has significantly impacted our business and will continue to impact it in the short term, especially in Facilities Management and workforce accommodations. We've experienced lower business volumes, and many growth and pipeline opportunities have been delayed, as our clients and potential customers deal with their COVID-19-related other business priorities. Through this uncertainty, our numbers and our people have demonstrated resilience and adaptability, and we built a stronger foundation and financial footing. Lower costs and a strengthened management team, with some key additions throughout the business, including Mark Becker, assuming the COO role, and John Mac Cuish, becoming our sole CEO after Rod Graham's decision to step back from the day-to-day operations. We're also in the final stages of hiring a new modular president. Our discipline, improved profitability and reduced debt levels provide us with a springboard for future growth with the hope of a vaccine and a return to a more normal business environment in the first half of 2021. And when that business confidence returns, we will be ready to execute on our growth plan. The management team has made good progress in a number of areas over the past 5 months, including delivering on the 90-day integration plan, exceeding our goal for cost synergies while also staying focused and investing on our future by nurturing relationships and building a strong pipeline of opportunities for growth in 2021 and beyond in each one of our businesses. Our modular business has also turned the profitability corner. Yes, there is more work to do, but there are also significant short-term growth opportunities in the west, where we were pleased with the reelection of Premier Horgan in BC, who is a strong advocate of social affordable housing and in Ontario through the announced CMHC program. Yesterday, the Board approved a new modular plant expansion in Southern Ontario to take full advantage of the number of significant modular opportunities and help us maintain our leadership position in social affordable housing. The Board also approved a Q4 dividend of $0.075 as we balance the repayment of debt, making smart investments for the future and providing returns to our shareholders. And if there is one message I would like you to remember today, it is that we remain committed to our original plan, $1 billion in revenue and $100 million in EBITDA. Our glide path to that goal has shifted slightly due to COVID-19. But today, we're in a better position to execute on that plan and the goal posts are firmly in our sights. So John, over to you to share some more details.

[John Mac Cuish]

Thank you, Bill. Good morning, everyone. I wanted to start by thanking the more than 6,000 employees across Canada who supported our customers over the past several months. Their continued focus on keeping a safe environment for our clients and delivering best-in-class service has been exceptional. I'll start by giving a brief overview of the quarter, and our progress on Slide 6 before speaking to the specifics of our business segments. So on Slide 6. Overall, I'm pleased with the progress we continue to make as an organization. A solid first full quarter of results posttransaction, with revenue of $176.9 million and adjusted EBITDA, excluding the Canada Emergency Wage Subsidy, of $17.6 million. Despite a persistent COVID-impacted business environment, we are making incremental progress from where we were in June. Without COVID, our growth would be higher, and I'll talk to that in each of my segment reviews. The way we look at the COVID impact is, a, we don't want to get dependent on CEWS funding; and b, as COVID becomes manageable, revenue will increase significantly, and the higher volume will drive higher EBITDA margins. We continue to focus on the safety of our clients and their customers, working closely with them as they navigate economic uncertainty and demonstrating why we are a partner of choice in our chosen industries. I strongly believe this client-centric approach is foundational to be in a growth organization and will serve us well in the future. Though growth remains a challenge in the current environment, we remain focused on our pipeline of high quality opportunities and are enthusiastic about the future prospects for our business and the immediate growth opportunities, particularly in modular. As you know, upon transaction closing at the end of May, we embarked on a 90-day integration plan to bring Horizon North and Dexterra together into a national support service champion. We have successfully completed that initial integration plan and now have common teams working together on delivering common goals. We have achieved cost synergies that will save the organization approximately $22 million annually for 2021 and onward. About $4.5 million of those synergies were realized in quarter 3. Drew will speak to the makeup of the synergy numbers later. I believe the important thing about synergy is not just identifying them early, but sustaining the resulting cost effectiveness over the long term. It is one of the reasons we have adopted a model of a small but effective head office, with nimble, accountable business units and fewer layers of management. This Friday, November 13, shareholders have been asked to approve a name change from Horizon North Logistics Inc. to Dexterra Group Inc., ticker symbol DXT. This name change marks a new era for the organization and the completion of our transition into a support services business, delivering quality solutions for the creation, management and operation of infrastructure across the country. As we move forward, our team is focused on delivering sustainable, profitable growth, wise and strategic spending and high-quality customer-centric products and services. I will now move to Slide 7 and speak to our Facility Management (sic) [ Facilities Management ] business. In quarter 3 2020, we saw $35.7 million of revenue in Facilities Management, with an adjusted EBITDA, excluding CEWS, of $2.1 million. For comparison, in June 2020, we saw $10.4 million of revenue and $600,000 in adjusted EBITDA. We continue to feel the impact of decreased utilization in our clients' facilities. This is especially true for our clients in aviation and nonessential retail sector. Our monthly revenues from aviation is down approximately 50% from prepandemic levels, and with the impact in nonessential retail, this translates into about $12 million in lower revenue in the quarter. This will come back. We haven't lost a single contract, but we don't expect it to come back immediately. As vaccines become widely available and traveler confidence grows, we should see a gradual return of business over the next 12 to 18 months. You can do the math and see from our current annual run rate of slightly over $140 million plus, a return to normal business activity in aviation and retail that gets us to nearly $200 million in annual revenue from this business in a relatively short order. This doesn't factor in our strong pipeline. The decreased volume and increased cost of operating in the COVID environment continues to weigh on margins. There was some improvement in the margins in Q3 compared with Q2, and we continue to balance sensible cost reductions with the need to maintain critical resources to support future growth. We remain confident that EBITDA margins of 78% are achievable in a post-COVID world. We remain engaged with current and prospective clients on our revolving plans for 2021 and beyond. We are always looking for opportunities where we can add value, be it special sanitization programs or renovation projects or refits of buildings and systems for a touchless world. We are encouraged by some emerging opportunities in the broader public and institutional sector, including health care, and continue to focus on pursuit to these areas. Overall, we are targeting opportunities worth nearly $250 million in annual contract value, expected to come to market in 2021. 2021 looks to be a big year for proposals as many 2020 RFPs were deferred in this space. This includes opportunities across defense, health care, postsecondary education and provincial and local governments and select private sector clients. We also continue to promote more integrated service solutions, which provide a strong value proposition for prospective clients with significant complex facility requirements. Overall, we are enthusiastic about the future of our FM business. We believe the current volume represents a baseline. And even if COVID-19 lingers for an extended period without a vaccine, and we -- from which we -- and it's a base from which we can grow and deliver on some significant opportunities. Now turning to our WAFES business on Slide 8, which is Workforce Accommodations, Forestry and Energy Services. We delivered a strong performance for Q3 with $103.2 million in revenue and $17.7 million in adjusted EBITDA, excluding CEWS funding. For comparison, in June 2020, revenue was $26.6 million and adjusted EBITDA, excluding CEWS, was $4.8 million. The quarter benefited from some of the seasonality of this business, including about $11 million of forestry and preplanning activity. We also benefited from higher-than-expected occupancy and open lodges, including our crossroads facility in Kitimat. COVID has impacted time lines on major developments like LNG Canada, shifting project activity in this quarter and higher-than-expected occupancy. But changing time lines, including the COVID-19 business environment, will also mean lower occupancy in some future quarters. Kitimat is an example of some of the project-driven variability, which will shift some of the revenue and occupancy from Q4 and Q1 -- in Q1 2021 to future periods. We don't expect a loss in revenue, but rather a shift in the timing. Our sales activities are focused on a number of key areas, including opportunities associated with West Coast LNG/LPG, operational projects in the oil sands, mining in Eastern and Northern Canada and support for remote infrastructure development across Canada. We are actively pursuing some significant camp service contracts in the oil sands. We are seeing increased opportunities associated with gold mining in Central Canada and some encouraging progress on major infrastructure developments in Northwestern Ontario. All great examples of the quality opportunities in our pipeline. We expect to see opportunities worth $260 million in annual value come to market over the coming year. We are also preparing for some significant renewal activity in 2021. It is important that we are recognized as a trusted partner to our clients and are demonstrating our value as we face these rebids. In a highly competitive environment, we believe our combined operations, excellence and best practices put us in a stronger position to win. Collaboration is ongoing between our WAFES and FM teams on opportunities to expand our support services into our industrial client base. These capabilities combined will bring some innovative service solutions to clients seeking to lower their total cost of ownership and have the potential to strengthen our client relationships with large energy and resource firms. In energy services, we have continued to see utilizations in matting that are well below historic averages, the product of weak drilling activity. On the other hand, our space rental business continues to perform strongly, with nearly 75% utilization of our fleet in quarter 3. Overall, we are pleased with the performance of the WAFES business unit, supported by more than 50 partnerships with indigenous communities and with activity in all of the major resource development regions in Canada. We are well positioned to be the industry leader in workforce accommodation solutions. I'll now turn to our Modular Solutions businesses and speak to Slide 9 of our presentation. Revenue for Modular Solutions business was $39.5 million in quarter 3 of 2020, with adjusted EBITDA, excluding CEWS, of $2.5 million. This in comparison to $11 million in revenue in June of 2020 and $1.1 million in adjusted EBITDA for the same period. We are making progress in terms of revenue growth and expect that ramp up significantly in quarter 4 and into 2021. I'm pleased to report that our modular business was profitable for the first 4 months of operation, following the transaction. This is a result of both changing project mix and cost-cutting programs. Mark Becker, our COO, has assisted with a deep dive review, and we continue to focus on both streamlining operations and exploring opportunities to maximize plant utilization which should help improve margins. We are very encouraged by the interest and enthusiasm we are seeing from various levels of government to support modular expansion as a method to deliver rapid social housing. You saw the release of the Canadian government's $1 billion rapid housing initiative. Half of those funds are going directly to 15 municipalities to help create 3,000 new permanent affordable housing units across Canada. Our manufacturing footprint in BC, Alberta and Ontario means we are well positioned to service projects in most municipalities identifying. The aim to commit all funds before March 31, 2021, should help jump start modular projects across these communities. This rapid housing initiative announcement dovetails nicely with the emerging programs and priorities we are seeing from local governments to invest in affordable and supportive housing, both now and into the future. Development like the major -- the majority government in BC in the recent election is extremely helpful in that regard. Given the significant opportunities emerging, we think the time is right to invest in expanding our manufacturing capacity in Southern Ontario. We will be investing $78 million to add an additional plant focused initially on social and affordable housing opportunities. This additional plant capacity is expected to generate potential incremental annual sales greater than $100 million as utilization ramps up. The payback on this investment should be no more than a couple of years. We expect this plant to be fully operational before the end of Q2 2021. The timing is critical so that we can be ready to deliver on Ontario modular projects for municipal governments. This expansion will allow our existing plant in Grimsby, Ontario to focus on existing service lines and other growing commercial applications for modular. We will operate these facilities in a coordinate way to ensure we're getting optimal utilization out of our Ontario manufacturing footprint and sharing best practices with our western plants, where we are a leader in building modular social and affordable housing. In the medium term, this additional capacity allows us to diversify our project mix and pursue other multi-tenant residential housing applications, like retirement living. Our current backlog sits at approximately $76 million. We expect this backlog to grow as we leverage our successful track record in delivering social and affordable projects, both in British Columbia and with our successful efforts in the City of Toronto supportive housing pilot project. We are already seeing success translating our experience in BC into Ontario market, and we have secured 2 new rapid housing projects located in Ottawa and the Durham region. We're focused on pipeline of more than $160 million in high-potential projects to be delivered over the next 12 to 18 months across the country. I'll now turn it back to Drew for comments on consolidated financials for Q3. Over to you, Drew.

[R. Drew Knight, Chief Financial Officer]

Thank you, John. I will start this section by taking a look at, first, our consolidated revenue numbers for Q3 2020, followed by our consolidated adjusted EBITDA and our financial leverage and liquidity position. Then finally, an overview of our path forward beyond Q3 2020. Starting on Slide 11. On a consolidated basis, our revenues for the third quarter were $176.9 million, which represents an increase of $100.8 million when compared to Q3 2019. This increase is attributable to $72.1 million of revenue from the acquisition of Horizon North and strong performance in WAFES, partially offset by the COVID-19-related revenue loss impacts in Facilities Management. Revenue of $35.7 million in Facilities Management is a decrease of $8.5 million over the comparative quarter last year. WAFES revenues of $103.2 million increased by $71.2 million over Q2 2019, in large part due to the acquisition of Horizon North. WAFES revenue also included $6.6 million related to amounts awarded to the corporation through legal proceedings with 2 former customers. Dexterra did not have a modular business in 2019, so that revenue is all a pickup in the current year. Of note, the FM contracts in the aviation and retail sectors, revenues have diminished significantly due to the pandemic by approximately $12 million per quarter. So the reported revenue decrease of $8.5 million reflects new business growth starting to fill that hole. I will now slide -- turn to Slide 12 to look at the consolidated adjusted EBITDA for the past quarter. Adjusted EBITDA for Q3 increased by $21.9 million from Q3 2019 to $27.1 million. We saw positive impacts of $9.5 million from the Canadian Emergency Wage Subsidy over the course of the quarter, with subsidies provided as follows for our business: $3.5 million for Facilities Management, $4.2 million for WAFES, $1.4 million for Modular Solutions and $0.4 million for corporate. As we outlined in our Q2 call, however, and as you have seen in earlier slides that John spoke to, we assess our business units excluding CEWS as we prepare for a postsubsidy world. CEWS has enabled us to maintain staffing levels, overall customer service levels and prepare for growth postpandemic. However, we need to ensure our business remains strong without it. Net of CEWS, adjusted EBITDA was down $1 million in FM, while WAFES increased $14.9 million and modular increased $2.5 million. Also on the Q2 call, we articulated that June's $5 million per month represented a baseline result. Due to seasonality, that's $15 million per quarter will fluctuate plus or minus $1 million or $2 million, and Q3 was a stronger quarter and beat this expectation. In a COVID world, $5 million per month remains a good metric for just -- remains a good metric when adjusted for seasonality. After COVID, when business returns in FM and WAFES for delayed projects and RFPs, it may take a couple of quarters to return, but then we should see significantly -- or we should significantly exceed the $15 million per month EBITDA per quarter as a baseline. For comments on our financial leverage and liquidity position at the company, I will discuss Slide 13 of the presentation. As you know, we were able to increase the capacity available under our credit facility based on the amendment and extension announced June 30. Our increased available limit of $175 million provides us with capacity for future operations and growth in addition to improved financial flexibility overall. At this time, Horizon North's financial position and liquidity are strong, with $58.6 million in liquidity at September 30, 2020. Free cash flow generated is $34.6 million year-to-date. Our focus is on continuing to improve the cash flow from our operations, as we strive to reduce peaks and valleys in our cash situation. Our net debt has been reduced from $138 million to $109 million since the merger at the end of May. As John outlined earlier, we are targeting a net debt amount of under $100 million at year-end. We expect this overall strengthening of our balance sheet will continue as we enter future quarters. Our debt to last 12 months EBITDA is 1.5x, and we are targeting to be significantly less than that by year-end. Based on the rapid improvement of our balance sheet, we believe the quarterly dividend of $4.8 million is appropriate and is expected to grow over time. We have a plan to make use of the tax loss carryforwards of over $73 million, starting realization shortly after the AGM in May 2021. We will continue to deliver on our CapEx-light strategy. The sustaining CapEx target does not include high-return growth projects, like the new modular plant previously mentioned. I will -- next, I will discuss Slide 14 of the presentation and the path forward beyond Q3 2020. Modular Solutions has become disciplined in the execution of their projects and is profitable with improving margins. With our federal, provincial and municipal governments exhibiting courage in their support of affordable housing, this is just in time for a surge in demand, as we have the pole position for the wave of anticipated affordable housing projects nationwide. The new incremental plant will improve capacity and efficiency to support this new business growth. Ramp-up in monthly revenue seen in Q3 compared to Q2 should continue. Average monthly revenue could grow more than 50% in 2021 over the rate seen in June 2020. In the WAFES business, post Q3, we are expecting lower camp occupancy as COVID-19 has caused changes in timing for our clients' projects and some opportunities in the pipeline have been deferred or delayed in the short term. The decreased occupancy at our crossroads lodge in Kitimat will continue through the first half of 2021 then rebound strongly through 2025. In summary, we have a hole in WAFES due to factors conspiring against us, and we need to perform and sell our way through this hole. Facilities Management has significant impact from COVID-19, as John mentioned, with aviation and retail revenues reduced by $12 million per quarter. Though the strong growth prospects for this business have been somewhat delayed, we are enthusiastic about our ability to grow this business in a post-COVID world. As John mentioned previously, we have identified $22 million in cost synergies, which will be realized in 2021. The savings are primarily from $19.3 million in staffing reductions, $1.0 million in professional fees and $1.7 million in insurance and bonds. CEWS funding is decreasing. We expect only about $1 million for October. Overall, the stated plan to grow to $1 billion in revenue and $100 million in EBITDA remains very much the goal with our significant growth prospects. However, the pandemic has caused a timing lag, as previously discussed. We will get there via disciplined management and a focus on key priorities. This concludes our prepared remarks for today. At this time, I will turn the call back to our operator for the Q&A portion of the call. [Operator Instructions] Thank you for joining us today. Josh, could you please commence the Q&A?

[Operator]

[Operator Instructions] And your first question comes from Michael Doumet with Scotiabank.

[Michael Doumet, Analyst]

Just on the -- looking for you, guys, maybe elaborate on the FM pipeline delays in Q4. I mean just so we can handicap the risks associated with continued delays. Can you talk about the mix in your pipeline? I mean, is it skate to airports, defense and retail. And then just a quick follow-up there. The $250 million opportunity next year, can you give us a sense for what we can reasonably assume as a success rate?

[John Mac Cuish]

Sure. Thanks for that question. I think the pipeline is widely dispersed across a number of sectors, so it's not really -- it covers many of the areas that we're interested in working with clients. You can see it's public, the defense opportunities, because they do advance procurement notices, and that's readily publicly available on what's coming to market there. I think the thing for us is these RFPs best laid plans and many clients anticipate that they're going to come out, but then they just shifted for us. I think we're comfortable in that target range. And our hit rates historically has been 40% on average in terms of bidding. So we don't anticipate that we would be off that mark in the future. And maybe even with more focus and preparation, we might even be able to do a bit better. But our average hit rate is 40%.

[Michael Doumet, Analyst]

Perfect. That's helpful. And just maybe moving on to a bigger-picture question here, maybe to put together all the comments that you guys have talked about. I mean, based on your comments of the $5 million of EBITDA per month, we can all extrapolate an annual EBITDA of $60 million. That's before the consideration for post-COVID recovery. Can you comment on the expected mix of growth that gets you to the $100 million of EBITDA in the medium term?

[R. Drew Knight, Chief Financial Officer]

Well, I think we've telegraphed before that the WAFES business is probably not our growth area, and the majority of the growth will come in the Facilities Management and modular businesses. In my comments earlier, the modular business, with the new plant, that revenue, once we get the plant launched later in 2021, there was going to be a 50% increase in revenues there. And we think that is sustainable over the medium term. And really, post-COVID, FM existing revenues are already depressed by roughly $50 million a year without any growth. And then as John telegraphed, we've got significant pipeline growth that will help get us there. So it's really all -- it's all going to be modular and FM going forward from a growth perspective, Michael.

[Operator]

Your next question comes from the line of Chris Murray with ATB Capital Markets.

[Christopher Allan Murray]

If I can just go back to the rapid housing initiative. And it's been interesting, but historically, it's always been a Vancouver story and maybe a Toronto story. Can you talk a little bit about the reaction you're getting from other jurisdictions? I know you mentioned that you've won some new contracts in Ottawa and Durham. But just sort of curious about other jurisdictions, particularly as the funds are going direct to cities now.

[R. Drew Knight, Chief Financial Officer]

Well, I think in BC, everything is done through the province, so it's not done through municipalities. The provincial government leads that, and they have an agency that directs all of those projects. In the other provinces of the country, it's all done through the municipalities. So as much as the Feds will announce funding, it's all got to trickle down to the municipalities. And as you mentioned, Toronto is -- has taken a lead in Ontario. But there's a wide variety of municipalities looking at social affordable housing. And it's not just municipalities either. There are some social agencies that are doing housing, like the John Howard Society and agencies like that, that have supportive housing initiatives. And then also, we have long-term care potentially coming up. Does that answer your question, Chris?

[Christopher Allan Murray]

Yes. No, that's helpful. So I mean, it seems like it's becoming a little more broader-based is a fair way to think about it.

[R. Drew Knight, Chief Financial Officer]

Yes. And I think just -- we've got -- we're in the -- we're well down the path with 7 or 8 different municipalities outside of Toronto and BC. So there's -- we already mentioned Ottawa and Durham, and there are several other municipalities that we're well down the path on.

[Christopher Allan Murray]

Okay. And then if I think about the modular business, putting the new facility in and how that's going to shape out. What's your thinking about where you want to -- where you would expect to see normalized margins in that business once it's -- those factories are up and kind of utilized at a normal basis?

[R. Drew Knight, Chief Financial Officer]

Well, I guess I would say I would answer that question two ways. So one is the Grimsby plant that we currently have to get the glut of new opportunities through that plant, there is a risk of cannibalizing the legacy business there. And that legacy business is nice, high-margin business, and so that's not something we want to do. We don't want to cannibalize good business. And so certainly, the margins there are stronger on that legacy business. But the other thing with the new plant, it gives us an opportunity to lay out the plant specifically for social affordable housing. So right now, the Toronto project that's going through Grimsby is frankly going down the plant sideways because it doesn't really fit very well. So there's going to be a significant efficiency improvement when we get the new plant up and running. And certainly, we've got lessons learned from our plants at west on how we want to lay out the plant and provide a little bit of automation, manufacturing equipment for the plant. So I think in the past you've seen margins in the Modular Solutions group probably in the 10% range, and we think there's a couple of points that we could pick up there for sure. And certainly, in the past, modular has had problems with hotels and nonsupportive housing projects. I think with our focus on really one type of project, we are -- we've become more disciplined at executing those projects, and we won't have the peaks and valleys in our margins that modulars had in the past. So it should be sustainable and stronger going forward.

[Operator]

Your next question comes from the line of Zachary Evershed with National Bank Financial.

[Zachary Evershed, Analyst]

Congrats on the quarter. First one for you is on seasonality. We saw the breakout of the forestry revenue. You also got some indication that it will be a little bit slower in workforce accommodation and WAFES, obviously. I was wondering if you could speak to the magnitude and give us an idea of how much of a slump we should expect quarter-over-quarter going into Q4.

[R. Drew Knight, Chief Financial Officer]

Yes. So I think I telegraphed on the EBITDA slide a little bit earlier that we were -- our seasonality, when we say there's a $5 million baseline in the current COVID environment, the seasonality causes $1 million to $2 million in EBITDA fluctuation quarter-over-quarter. So we don't give forward guidance, but I think you can do that math. Does that answer your question, Zach?

[Zachary Evershed, Analyst]

Yes, that's helpful. And for question number two, with the rapid housing initiative announcement and given that you guys are investing in new capacity, you'd all concerned about overinvestment in industry capacity that will be left stranded after this government money rolls through.

[R. Drew Knight, Chief Financial Officer]

Yes.

[John Mac Cuish]

Yes.

[R. Drew Knight, Chief Financial Officer]

Sure. Go ahead, John.

[John Mac Cuish]

Okay. I just -- it's exciting about this rapid housing and the inbounds and the discussions we're having with municipalities. If you look at the government announcement, this certainly carries us over the next 3 years, if you look at all the research about the need. And then I also want to point out our long-term care and senior living opportunities, which demographics are on our side, that that's a growing market as well for rapid housing in modular. So we don't think that this is something that's just short-lived. We think this is a long-term business.

[R. Drew Knight, Chief Financial Officer]

Yes. And I think, just adding to John's point. We have a leadership position in this market, and we want to maintain that leadership position. And frankly, our customers are asking us for more capacity. So we don't want to disappoint the customer.

[Operator]

Your next question comes from the line of Frederic Bastien with Raymond James.

[Frederic Bastien, MD & Equity Research Analyst]

Speaking of leadership, you did -- you are going through leadership changes on the modular side. I was wondering if you could provide more color on that.

[R. Drew Knight, Chief Financial Officer]

Well, I think we said earlier in the call that we're close to announcing a President of our modular group. But at the moment, our COO, Mark Becker, is leading that group. And there's really been no hiccups with that transition to Mark. And in fact, Mark is a real strong disciplined operator, and he's -- through best practices from the existing modular processes and then adding Mark's discipline, it's really helped that business a fair bit already. But that's all we can say right now. We can't -- we're not in a position to announce names or anything at this point.

[John Mac Cuish]

What I would just add to that is we've had a lot of interest. We're using an external search firm. And we've got some very -- short list of very interesting candidates.

[Frederic Bastien, MD & Equity Research Analyst]

Appreciate for that. Now the legal settlement helped reduce your SG&A expenses during the quarter. It looks like your run rate is around $14 million excluding that. Is this how we should think about that line item on a go-forward basis? And is there any seasonality to this SG&A?

[R. Drew Knight, Chief Financial Officer]

No. The corporate is pretty flat, not seasonality in that line, Frederic. So I think you're right, that is a reasonable run rate going forward. And I think though, as we grow post-COVID, we don't expect much of an uptick on that corporate line. So the margin pickup post-COVID is going to drop to the bottom line.

[Operator]

And your next question comes from the line of Michael Doumet with Scotiabank. .

[Michael Doumet, Analyst]

Just on the delevering, that's obviously taking place quite quickly, so nicely done there. The question is, is there any appetite for M&A? I'm just thinking obviously leverage goes down next year. So how should we think about how you guys are going to balance debt repayment, dividend increases or other capital deployment decisions?

[R. Drew Knight, Chief Financial Officer]

Yes. Certainly, we are focused on debt repayment, given COVID and the uncertainty in the world today. But once we get down to sort of, I guess, in my mind, a 1x leverage position, we're going to be pretty comfortable at that point, and we'll start to become a little more acquisitive in the new year. COVID does put a bit of a damper on there, although there could be opportunities also. So I think we're just getting through the integration process right now. And maybe into Q1 we're pretty busy with further integration activities. But come Q2, Q3, we're going to start getting a little more acquisitive-oriented -- acquisition-oriented, sorry.

[Operator]

There are currently no further questions at this time. I'll turn the call back to the presenters for any closing remarks.

[R. Drew Knight, Chief Financial Officer]

I think that's -- we don't have any further remarks. We're focused on our medium-term objective of getting to $1 billion in revenue and $100 million in EBITDA. And thanks for everyone signing into the call today. Have a good day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.