Hardwoods Distribution Inc

TSX:HDI

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and welcome to the Hardwoods Distribution Inc. Q3 2021 Results Conference Call. Today's call is being recorded.At this time, I would like to turn the conference over to Ian Tharp. Please go ahead, sir.

[Ian Tharp]

Thank you, Paula, and good morning to those joining today to discuss HDI's financial results for the third quarter of 2021. My name is Ian Tharp, Investor Relations for HDI; and joining me on the call today are Rob Brown, HDI's President and Chief Executive Officer; and Faiz Karmally, Vice President and Chief Financial Officer.HDI's Q3 earnings release, financial statements and MD&A are available on the Investors Section of HDI's website at www.hdidist.com. These statements have also been filed on HDI's profile on SEDAR at www.sedar.com.Before we start today, I want to remind listeners that during this call, management may make forward-looking statements. These statements involve various known and unknown risks and uncertainties and are based on management's current expectations and beliefs, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. Please refer to the text in HDI's earnings press release and financial filings issued today for a discussion of the risks and uncertainties associated with such forward-looking statements. Also note that all dollar figures referred to today are in U.S. dollars, unless stated otherwise.I'd now like to turn the call over to Rob Brown. Rob?

[Robert J. Brown, President, CEO & Director]

Thanks, and good morning, everyone. It's great you could join us this morning as we report another quarter of record results for HDI. As on our past calls, I'll start today with some key highlights from the third quarter of 2021. Our CFO, Faiz Karmally, will then provide a financial review. I'll finish off our prepared remarks with our outlook going forward.Let's start with a quick recap of Q3. The combination of continued favorable market conditions and very strong execution on the operating and strategic fronts contributed to record results in the third quarter. We achieved our best ever quarterly results in revenue, gross margin percentage, adjusted EBITDA and profit. I'll speak about each of these in more detail in a moment.On the market front, we benefited from a strong construction environment, which delivered robust demand and prices for our products. In both the U.S. and Canada, we demonstrated our ability to capitalize on these positive market dynamics in the quarter. In the face of global supply challenges that are currently impacting many industries, our strong and diverse supply chain allowed us consistent access to products for our customers. This access helps us win market share as our competitors may not have the same product availability that we've been able to offer. So demand has been high, our ability to supply this demand while improving margins has been strong, and our record results demonstrate these capabilities.Another important factor is our continued ability to respond to elevated levels of demand while controlling our operating expenses. Our price pass-through model keeps our selling prices aligned with product costs during inflationary conditions.Further contributing to our record quarterly results is our latest acquisition, Novo Building Products, which we successfully closed on July 30. I'll talk more about Novo in a moment. The end result was record sales of $472 million compared with 24.6% gross margin percentage to deliver an outstanding level of profitability for Q3. Our Q3 adjusted EBITDA grew 226% to $63.8 million. Profit per share climbed by 327% to $1.58 per share, and our Q3 results set new high watermarks for our key financial performance metrics.As it relates to the Novo acquisition, the early returns are very promising. Our work with the Novo team during the last 2 months of Q3 and since that time, has clarified our positive view of both the people and the operations, and our outlook for this business is even stronger than before.As a quick recap, Novo is a respected large-scale supplier of specialty building products to the professional dealer and home center retail markets. The acquisition added 14 new facilities and 1,400 employees, serving over 7,000 customer locations in 29 U.S. States. Novo is closely aligned with HDI's core business from a strategic perspective. It adds further size and scale to our platform, expands our market share and deepens our roster of specialty building products. Novo's operations are also highly complementary to our own with no significant customer overlap.One important area we now have stronger ties to through Novo comes from obtaining turnkey access to the pro dealer and home center segments. Selling into these high-performing customer segments with well-established brands builds HDI's presence in the residential and repair and remodel end markets, where conditions support a multiyear runway for growth.Novo's potential as a financial contributor is also better than we first anticipated. At the time, we last discussed Novo during our Q2 results call, we were forecasting annualized 2021 Novo-related sales of over $640 million and EBITDA of over $55 million. We've now revised those values upward to sales of over $670 million and EBITDA of over $60 million. As a reminder, the Novo acquisition is still expected to be over 30% accretive to earnings per share on a pro forma basis.I'll remind those on this call that to complete the transaction, we made efficient use of our capital structure and finance the full transactions price of $306 million, with senior secured debt at very attractive borrowing rates, while still maintaining a strong balance sheet post close.Based on our success to date in 2021, I'm pleased to report that HDI's Board of Directors approved a 20% increase to our dividend to an annualized payout rate of CAD 0.48 per share and quarterly payments of $0.12 per share.With that, I'll now pass the call back to Faiz to review our Q3 financial results in some more detail. Faiz?

[Faiz H. Karmally, VP, CFO & Secretary]

Thanks, Rob, and good morning, everyone. I'm going to provide an overview of our results for the third quarter of 2021. I'll also outline our financial position and capital allocation plans through the end of 2021 and into calendar 2022. Again, I'll remind those listening that all dollar figures Rob and I use today are in U.S. dollars, unless we state otherwise.Starting with consolidated revenue, we generated very strong sales of $471.7 million in Q3. This was up 99% or $234.7 million from Q3 in 2020. Of this, organic sales accounted for $101 million or 42.6% of the sales growth. Acquired businesses accounted for $137.7 million or 58.1% of the sales growth. Novo accounted for $118 million of the increased sales through acquisitions in Q3. In our U.S. operations, sales increased by $217.2 million or 104% year-over-year. Of this, organic sales accounted for $85.9 million or 41% of the sales growth. Acquired businesses accounted for $137.7 million or 65.7% of the total sales growth.In Canada, our sales increased by $20 million or 55% year-over-year, entirely on organic growth. Our organic sales increases in both the U.S. and Canada reflect our ability to source product in tight supply conditions and capture market share. We also benefited from higher product prices and increased demand on the back of strong market dynamics.Turning to gross profit. This climbed 158% to $116.2 million in the third quarter. This significant improvement reflects our record sales results, the addition of Novo and another best ever gross profit margin of 24.6%, surpassing the high watermark for gross margin percentage that we previously set last quarter and a 19% profit margin percentage in Q3 of 2020.Product segment prices increased without a corresponding increase in costs, and we gained margin benefits inherent in certain parts of the Novo business. We expect these benefits to be part of Novo's profit profile going forward.Our operating expenses for Q3 were $67.3 million, and these were $33.7 million higher than the third quarter of 2020. Similar to Q2, these expense levels reflect a return to more normal business operations following reduced expense level in Q3 of 2020 as we responded to the pandemic. The increase also includes expenses related to the operations of Novo and other applied businesses and Novo transaction costs.Our operating expenses were consistent as a percentage of sales at 14.3% for Q3 2021 as compared to 14.2% in the third quarter last year. This reflects our focus on expense management throughout the business.Rob mentioned earlier our record growth on the bottom line, with Q3 adjusted EBITDA climbing 226.2% year-over-year to $63.8 million. Similar to the dynamics in Q2, our record sales performance improved gross margin percentage and strong operating leverage have each played important parts in delivering this excellent result.Profit grew at an even faster pace. Q3 profit of $33.7 million represented a 330% year-over-year growth rate and profit per share climbed to $1.58 from $0.37, an increase of 327%. These are new records for HDI over the ones we set in our most recent quarter and reflects the success of our focus on both organic and acquisitions-related growth, and careful financial management across our operations.Turning now to our balance sheet. We ended the third quarter in good financial position. We financed the Novo acquisition with attractively priced senior secured debt. Our balance sheet remains in very good shape, however, and we remain on track for our pro forma leverage to be below 3x by the end of this year. We're focused on efficient use of our capital structure and our ability to support new growth initiatives that create further value for shareholders remain strong.Our priorities are focused on responsible management of our balance sheet, growth both organically and through accretive acquisitions and providing incremental total returns to shareholders through our dividends. On this latter point, I'll echo Rob's positive comments on the Board's decision to increase the dividend by 20%, to a new annual level of CAD 0.48 per share on the back of excellent financial results and our continued positive outlook for the future of HDI.Now I'll turn the call back over to Rob. Rob?

[Robert J. Brown, President, CEO & Director]

Great. Thanks, Faiz. I'll finish off with our outlook for end markets and our strategy to continue to build the long-term value of HDI. Focusing on overall demand and pricing dynamics, we expect both to remain strong through the end of 2021 and into 2022, supported by solid end market fundamentals. We continue to see favorable conditions in the residential, repair and remodel and commercial markets in which our customers operate.I mentioned supply earlier. The supply challenges that exist globally, and we do expect supply conditions to remain tight, which may disrupt availability for some of our products. HDI maintains close relationships and good access to supply from its vendors, given we are often the largest customer for our suppliers. One important pinch point in the supply chain worth mentioning is the availability of freight. As a significant importer, we have the ability to cost effectively pursue multiple freight options and our internal freight logistics team combined with our strong balance sheet have allowed us to secure product and freight options in advance. This adds an important measure of resilience to our business and is also an important competitive advantage.Turning now to some of the specific drivers on the demand side. Our outlook remains very positive, focusing on new residential construction, housing permits and starts are robust and strong market fundamentals continue to point to favorable multiyear conditions. These market fundamentals include: The need to increase housing stock in the U.S. given the significant underbuilding that has occurred in the past decade; interest rates continue to be near historic lows; and millennials, who are now the largest population demographic in the U.S. and increasingly looking to purchase their first home.Looking at the repair and remodel market, there are additional market drivers of work. North Americans continue to press ahead with plans to spend disposable income on home improvements. This is supported by rising home equity values and the availability of low-cost consumer capital. As well, the U.S. housing stock continues to age. These important factors are supporting that favorable multiyear outlook for the R&R market. With Novo on board, we have added new access points to the R&R customer base. So we're better positioned than ever to capitalize on these conditions.The demand outlook for U.S. commercial markets remains mixed. Certain sectors are expected to grow in 2022. Commercial markets are large and diverse and its drivers are more varied. For HDI, commercial includes construction activity in health care, education, infrastructure, public buildings, hospitality, office space, retail facilities and recreational vehicles. As always, the broad nature of our participation gives us access to many different parts of this market, which works to our benefit.As I noted earlier, HDI is strongly positioned from a supply perspective that we expect to have consistent and predictable access to the products we need. Our outlook is positive, and the Novo acquisition has only improved our prospects. With this transaction, we have significantly increased our size and scale while diversifying our business from a supply chain, product category, geographic and customer segment perspective. And we've achieved this at a time when our markets are enjoying conditions for demand that look to extend out for several years. We're proud not only for this acquisition, but our track record of successful results and the current positioning of our overall business.I want to conclude my comments by emphasizing the growth our business has achieved and expects to continue to deliver. The Novo acquisition marks HDI's 10th acquisition in the past 5 years. We've more than tripled the size of our business during this time, diversifying into an array of specialty higher-margin building products, and we've done it profitably. We continue to see new avenues to gain market share with organic growth options across our expanded business base and through future acquisitions. We've proven our ability to successfully secure and integrate acquisitions, and our fragmented industry holds further potential on the M&A front. I hope Faiz and I have expressed today the momentum in our business and our markets and that the future for HDI looks very promising.With that, thank you for your attention. I will now ask our operator today, Paula, to please provide instructions for a Q&A period. Paula?

[Operator]

[Operator Instructions]. Our first question will come from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk]

Congrats on a strong quarter. Rob, when we think about the 43% organic growth, any way you can help us think about price versus volume in terms of main contributors to that number? It's a big number. So I'm just trying to get -- is it more volume-driven, price-driven?

[Robert J. Brown, President, CEO & Director]

Yes. So I mean -- and we've had this question before. And I think we've described that the price versus volume is not transparently trackable in the way that it would be with the commodity business because of the different way that we sell product in the number of categories that we're in. But I would say, this year that there is -- it's a combination of the 2. We're certainly in 2021, we have enjoyed price inflation across substantially all product groups, something that we didn't really have in 2020, but it's been a contributor in the current year, but it has not been all that. Certainly, when we meet with key vendors and review volume, shipping volumes from their perspective, and again, it's very numerous metrics for that. We are up on a volume base as well. And a significant factor in that volume piece has just been -- are something perfect, but overall ability to get supply in tight markets. And that's really positioned us well with our customers. So it is a big organic number. It's a mix between the 2 factors. We don't have a percentage breakdown that we are providing.

[Yuri Lynk]

Just in the same line of thinking, I think, Faiz mentioned in his prepared remarks that product selling prices have increased without a commensurate increase in costs. Can you just expand on that? And how long do you expect that situation to last?

[Faiz H. Karmally, VP, CFO & Secretary]

Yes. Sure, no problem, Yuri. So that was really a comment. Those costs, that reference was really to the gross margin line, the operating costs, just so we're in about the same thing. And what we've seen this year, as Rob mentioned, we've seen price inflation across most product categories. And that's been happening fairly quickly, a little bit ahead of your average costing. So the product costs are moving up as well, but there's a bit of a lag there between prices moving up in the market versus prices moving up on your average cost, which leads to a little better margin over time. So that's a mixed into the margin.As prices maybe start to -- when they do normalize and your cost catch up, some of that benefit is in the margin line. You won't have any longer -- tough to say on that, Yuri, because as we talked about in our MD&A, the business is still performing really well and prices are still strong, and we're able to access product. And as you would expect, as we've talked about with our ability to source globally and some of our competitive advantages on the supply chain side, I think we're still doing well from a cost of product perspective relative to the market as well.

[Operator]

And moving on, we'll go to Hamir Patel with CIBC Capital.

[Hamir Patel]

Rob, are you able to kind of indicate what level of sales and maybe EBITDA, the guidance for Novo implies for Q4?

[Faiz H. Karmally, VP, CFO & Secretary]

Yes, I can take that one, Hamir. So if you were to -- and maybe just tell you how to think about it rather than doing the math, not on the phone with you. But I think if you took that annualized guidance that we just put out in the MD&A for Novo, the top line and the EBITDA. And what I would say, Q4 for Novo, similar to the HDI business in terms of the typical seasonality where our Q4 is typically our slowest quarter. So if you look back in our history, maybe not 2019 because that was the pandemic, but if you look at 2018 and Q4 sales and EBITDA might be on the -- of the annual amount, it might be more like 20% to 22% of the total annual amount falls into Q4. So you could think about the Novo business in a similar way, Hamir.

[Robert J. Brown, President, CEO & Director]

The other side is once you have a -- you'll have an extra month as well for Novo in Q4. We are just over 2 months in Q3.

[Hamir Patel]

Right. Okay. All right. That's helpful. And I just wanted to turn to the M&A pipeline. Any -- I just wonder anything you could share there on how it's looking? And when you look at the scale of the opportunities that you're seeing, are there potential transactions of similar scale as Novo? Or are we -- is it looking more like some of the smaller tuck-ins that you've transacted on previously?

[Robert J. Brown, President, CEO & Director]

Yes. So activity levels are high. We're having a lot of conversations. The market is active. In terms of the types of transactions we're looking at, we've been executing on our pipeline of deals for a number of years now. They're generally more small-to-medium size, they're very accretive, and we tuck those in. And yes, we'll continue to carry on with those.Complementing that would be larger scale acquisitions. And I would say that, yes, there's opportunity for those out there today as well as we've expanded the business and diversified it from a kind of product participation perspective. It's opened up the playing field in terms of acquisition targets that we would look at and that we've got comfort with. And by opening up the field, it's proportionately increased the number of larger transactions that you get to have a look at than we may have had traditionally in the past. So a shorter answer to your question is it's active and it's at both types, both the ones that you're accustomed to, but also still looking at scale transactions again for the future.

[Hamir Patel]

Okay. Great. And just the last question I had for Faiz. I don't know if you have a preliminary indication yet as to what CapEx might look like for the whole company in 2022?

[Faiz H. Karmally, VP, CFO & Secretary]

Yes. I think it's going to be -- if I think about what our run rate has been annually, it's atypically been obviously on plus or minus $4 million, let's say. I think it's going to be a little more than that. Novo does have, as we've talked about, a manufacturing component as well. They've got some more equipment. It's not a majority of their business. But as we work through our synergies with care over the next few months, there's some really investments that will make sense for us to do on that side of the business.So I would say it's probably the $4 million, the legacy business plus or minus, plus another $4 million to $6 million, potentially, next year without maybe normalizing a bit after that in future years.

[Operator]

And moving on, we'll go to Jeff Fenwick with Cormark Securities.

[Jeffrey Michael Fenwick, MD & Head of Institutional Equity Research]

Rob, I just -- I wanted to turn back to the margin discussion again, and I think it's more a matter of the rate of change that we've seen such a positive benefit come through over really the last 2 or 3 quarters. And what are your expectations about -- can it change back down at that sort of rate as well? Or is there just some macro demand right now that even if we get some more supply, let's say, coming into the market to ease some of the demand pressures that trajectory on the margins normalizing look a little less steep than it was on the way up? How should we think about that?

[Robert J. Brown, President, CEO & Director]

Yes. Very good question. On the margin, I would say a few things. So you heard what we said about kind of supply-demand pricing conditions through Q4 and into early 2022. So at this point, our expectation is that margin is tracking fairly steady, which is encouraging. That, of course, can change. And some of the things that have driven the margin increase and to your point, yes, it's been a significant upshift. Our access to supply, our global sourcing reach, which gives us more product options to bring to our customers. The discipline that we've used in passing through product -- cost increases, and then, frankly, just better tools we have in our business now internally in terms of being on a single ERP, really getting our arms around that, some things that we're doing with respect to pricing science. If I can say it that way.So in that list I just gave you, there's embedded some things that are maybe transitory and some that are permanent. So my comment would be it's steady as she goes right now. Could some of this come off in the future because we're in an unusual market situation? Sure, supply-demand conditions change. But I don't anticipate going back to where we were. I think that we've made some structural changes that should be helpful in defending if we have margin compression or pressures that come up in the future.

[Faiz H. Karmally, VP, CFO & Secretary]

I would also add, Jeff, that -- certain of our acquisitions can have a higher gross margin percentage. Novo was an example. So that's a big business that's got a slightly higher gross margin percentage profile than the rest of the business. And we expect that as a -- that's a systematic thing, that's not a one-off quarter thing. So that is also going to help in terms of how you think about the gross margin percentage going forward.

[Jeffrey Michael Fenwick, MD & Head of Institutional Equity Research]

Excellent. Great. And maybe just one other question here on your supply management that you were speaking to. How are you tackling it in terms of working capital here? Do we -- do you think you're going to carry maybe a little higher level of inventory than you might have in an otherwise normal environment? And how do we think about the movement in working capital through the end of the year and into next year?

[Faiz H. Karmally, VP, CFO & Secretary]

Yes. No, good question, Jeff. So with our 40-plus percent organic growth here, the working capital requirements are higher, just to support that pace of sales. And when I think about our working capital, maybe just focus on the asset side, I mean, the payables are where they should be. But if I think about our receivables balance, which is higher, and if you look at that from on a term basis, that, I think, is right where it needs to be in terms of matching our sales pace today. You would have seen year-to-date, but even in the quarter, I mean, that's nominal relative to the overall balance. And so where the receivables are today, I feel good, that they're kind of pace to support where our sales are today. I'll talk about Q4 in a moment, maybe just commenting right now on where we're at today at the end of Q3.In terms of the inventory, that -- if you look at that balance, that's also a big number that you may be used to seeing. But when you look at it and break it down a little bit, there's some color there. So if you look at what's in our warehouse and how that's turning, my comments for receivables hold true there as well. It's matched the sales base. The inventory has gotten a warehouse is what it should be. Where we're seeing more inventory is that in transit, that direct import supply line. And we disclosed in our MD&A, the reasons for that. And those would be, one, we're just taking certain positions in advance because we've got the balance sheet to do it, and we're getting paid in terms of the margin that you've seen. And right now in this market still having product needs to getting sales or not, and so we want to continue to get those sales. We're also -- there has also been, as we mentioned, on the supply side. I mean, global supply lanes are kind of a mess right now. So there's been some delays there. It has not inhibited our ability to get product, but it's just taking longer to get it on to North American shores. And that product is worth more. We've all read the news around how much freight can add to a container of goods and in some cases, it's the value of the goods.So for all those reasons that import supply chain piece, that inventory balance is going to be higher than maybe when you look at it and you think, and those are the reasons why. But we're doing it for the reasons you'd expect, which is in this market, having product net sales, and we're getting paid a very good margin to have that product, as you've noted in our financial statements.In terms of where that goes in Q4, I would say it's a little tougher to predict right now. But if you really think about it and take it back to sales pace, our sales pace has been very good. And into the first couple of weeks of Q4, it's continued to be good. So we've not really seen a big follow-up as you would expect on sales pace.So a little tougher to predict where that ends up in Q4. In Q4, typically, we have a big release of working capital. I'm not sure we have that this Q4. But if we don't, it's because our sales pace is matching the working capital would be my comment.

[Jeffrey Michael Fenwick, MD & Head of Institutional Equity Research]

Yes, that's very helpful. And I guess, interesting commentary on what you're seeing in the market there, where some of the seasonality isn't quite playing through at this point. So it's just the sense that there's been so much latent demand there. People are pushing projects and work a little more stronger in Q4 than you might normally see.

[Robert J. Brown, President, CEO & Director]

I think that's fair. It's generally been full [ cash ] for customers.

[Operator]

[Operator Instructions]. Moving on, we'll go to Zachary Evershed with National Bank Financial.

[Zachary Evershed, Analyst]

Congrats on the quarter. The rise in product prices that we're seeing, we've talked about it from a few different angles already, but at the risk of beating a dead horse or I'll jump on the topic. In terms of current pricing, how much do you view as a temporary spike due to the supply crunch? And how much is a catch-up of hardwood products to general inflation levels?

[Robert J. Brown, President, CEO & Director]

Well, I'm going to hop on my dead horse with the dead person and just find everybody, it's not all hardwood products by any sense. It's a very diversified architectural building products portfolio with no category over 20% today, none of our product matures. So if anybody kind of has traditionally thought of the business in a certain way associated with lumber, hardwood lumber, just challenging to kind of shift your view a little bit on that.In terms of the pricing itself, the comment I would just maybe point to from earlier, as I said it in my prepared remarks around freight, and Faiz just referenced it in his answer on working capital, that's a significant component of the price of products today. So if you get a more normalized freight market, that will contribute to a more normalized pricing environment as well. We don't see that in the short term.Personally, if you look at things that are going to be traveling by ocean freight, and we've all seen pictures of ports as parking lots, oceans as parking lots. That's going to be well into 2022 and some even predicted to 2023. And if you look at freight pressures from an inland freight perspective and trucking specifically, there's a perspective that the United States anyway, is structurally short 80,000 truck drivers relative to goods that need to be moved around North America.So I don't see the pressure coming off at any time soon, but that would be a component that obviously have a significant impact on pricing if the freight environment changed from where we're at a day.

[Zachary Evershed, Analyst]

That's really helpful color. And then you're winning market share on your better product availability, how sticky do you think those volumes or relationships are once the competition fill rates recover?

[Robert J. Brown, President, CEO & Director]

Yes. So I mean, this is not new. We battled day to day with very good regional competitors in all of our markets, and our job is to create permanent relationships when given the opportunity. Right now, we've been given a very good opportunity because of our supply and availability. So yes, we will absolutely hang on to some of that, we believe, once there's more normalization and availability amongst competitors. How much of it? I can't give you a percentage. But we view this as kind of a step-change advantage that we're trying to take advantage of.

[Zachary Evershed, Analyst]

Excellent. Then one last one for me, looking at the macro picture. How are you thinking about the impact of rising interest rates on both new residential construction as well as repair and remodel spending?

[Robert J. Brown, President, CEO & Director]

Yes. And of course, we have a -- everybody is keeping a tight eye on that as well, and inflation translates to higher interest rates, generally, from a policy response perspective. So that's to be expected. But the way we look at it is it's still historically extremely cheap when you're looking at 25-, 30-year fixed mortgage rates in the U.S. at sub-4%. I'm sure there's others on this call that can harken back to different times. That's still very, very affordable. And I would pitch that to the demand side, which is at the same time you have this big bulge coming through demographically, the millennials, who are looking to enter the housing market in a meaningful way.So I think it's something we definitely keep our eye on. And we've enjoyed a very low interest rate environment for a long time. But the reminder here is it's -- even if it goes up, it's still on a very low base.

[Operator]

And we do have a follow-up from Yuri Lynk with Canaccord Genuity.

[Yuri Lynk]

Faiz, just a modeling question or two. How should we think about the depreciation and amortization line. It was almost $4.5 million. I'm assuming a little bit higher than that is a good quarterly run rate? And is there any amortization of intangibles in there that might run off a little quicker than we would expect.

[Faiz H. Karmally, VP, CFO & Secretary]

Yes, no problem, Yuri. So I'll maybe just describe it this way, if you -- you know what HDI is and Novo, and again, because the rents are in there now because of the accounting standards. So their depreciation includes the significant amount of rent. So that might be another -- Novo is going to add to the consolidated piece, another potentially $1 million a quarter -- I mean, $1 million a month, sorry, just in amortization and a lot of that is related to the IFRS standard.And then to your point about intangible asset amortization. We did book some of that in Q2, even though our purchase price allocation is provisional, but it's close. So in the third quarter, we booked $1.5 million related to intangible asset amortization related to the Novo transaction. So that's running at about $750,000 a month. That might change a little bit as we finalize the purchase price allocation. But for now, that's how you could think about the total going forward for Q4 as an example.

[Yuri Lynk]

Okay. That's helpful. And how about the tax rate for next year?

[Faiz H. Karmally, VP, CFO & Secretary]

Yes. I think our tax rate year-to-date is about 25%, plus or minus. I think you could think about it the same way, Yuri, nothing significant there. I would disclose to you on the call in terms of that's going to change that materially.

[Operator]

And there are no further questions at this time. I'd like to turn it back to our presenters for any additional or closing comments.

[Robert J. Brown, President, CEO & Director]

Yes. Thanks, everyone, for joining us today. We appreciate the interest. Faiz and I are available to you if you've got follow-up questions or comments, please do reach out. But with that, over to you, Paula, and that's a wrap.

[Operator]

Thank you. And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.