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Savaria Corp
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Good morning, good afternoon, good evening. My name is Razia, I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation’s Q1 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 May 10th, 2023, with respect to its Q1 20223results.
Thank you. Mr. Sébastien Bourassa, you may begin your conference.
Thank you, Raz. So, basically this morning, I have the honor to lead the call because Mr. Marcel is absent for a personal reason. But he wants to know that he's always available by call or email if you have any questions and he's doing very well.
And he was proud of his Q1, so that's why he thought to let his team lead the call. So, it was a very good first quarter, historically, which is our slowest quarter for Savaria. So, we'd like to take solid entry for the hard work and we think it was a solid execution because we have a very good organic growth in the accessibility and the Patient Care.
Positively our backlog remain at a historic level, which is a very good news because it's so again that we are in a fantastic industry. And that will be good for the remaining of the year. So, very happy about that.
As Marcel said in his press release, we continue to build our plan for the $1 billion and $1 billion is a target that we want to achieve by 2025. And so we continue to elaborate on this plan to make sure we'd be able to execute.
Some key highlights in the accessibility. Mexico ramp up continue to happen. Right now, we have 45 employees We have four different assembly lines and we are doing some shipments of some units straight to the USA. So, this is very important.
Supply chain, I hope we don't have too many question on that today because for us, we consider it is relatively stable. It's a perfect, I want to know why this is going to be an issue, but overall, it is good and give us the opportunity to achieve our plans.
I think I should have keep this segment for me this morning, but you want to highlight a bit the Patient Care.
Yes. Thanks Séb. For sure, our Patient Care segment delivered record results in Q1, including an EBITDA margin at top 20% for the quarter. Again, that was a first for the segment. As you might imagine, the team is very proud of their performance as they should be.
While we don't want to get ahead of ourselves, and it's just one quarter, it goes to show what's possible. And what we're seeing -- and this is really a continuation of what we saw last year is evidence of the tremendous synergies being unlocked through the integration of Span and Handicare.
And in particular, as it relates to Q1, sales were especially strong, up 13% organically versus last year. This was driven by a number of factors, including continued strength in newbuild activities, cross-selling initiatives, and good spending by certain strategic partners.
In turn, the higher sales volume allowed for a better fixed cost absorption, which contributed to the record margins experienced in Q1. In addition, we benefited from a good product mix and the realization of some higher margin projects.
And finally, the pricing initiatives that were put in place last year or having a meaningful impact on profitability.
So, to conclude, it's always nice to start the year with a solid Q1. And we feel good about the backlog exiting the quarter. So, there's a certain level of optimism for the remainder of the year as well.
With that, I'll pass it over to Steve for the financial review.
Thanks Nick and good morning, everyone. I'm going to begin with some remarks regarding our Q1 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $211.6 million, up $28.1 million or 15.3% compared to Q1 2022. The increase was driven by strong organic growth of 14.5% originating from all segments. In addition, the corporation experienced foreign exchange tailwinds of 1.8% in the quarter, combining for 15.3% growth overall.
Gross profit and gross margin stood at $72 million and 34% respectively compared to $58.5 million and 31.9% in Q1 2022. The increase in gross profit of $13.5 million was mainly driven by higher revenues and increased gross margins and to a lesser extent, favorable foreign exchange rates used in the conversion of the result of subsidiaries.
The increase in gross margin versus last year was mainly attributable to greater profitability coming from the Patient Care segment due to better cost absorption and favorable product mix, excuse me, partially offset by continued inflationary pressures, resulting in material and labor cost increases, especially in Europe.
Adjusted EBITDA and adjusted EBITDA margin finished at $31.2 million and 14.7% respectively compared to $24.4 million and 13.3% in Q1 2022. The improvement in profitability is mainly explained by the gross margin increase as well as a decrease in selling and admin expenses as a percentage of revenue.
And now I'm going to move on to our segment results. Revenue from our Accessibility segment was $151.4 million in Q1 2023, an increase of $21 million or 16.1% compared to the same period in 2022. The increase in revenue was mainly attributable to organic growth 14.4%. Foreign currency had a further positive impact of 1.7% for the quarter as the US dollar and euro both strengthened versus the Canadian dollar.
Our revenue growth was fueled by both the residential and commercial sectors as well and price and volume increases. And we continue to build our backlog. At March 31st, 2023, our Accessibility backlog was approximately 8% higher than Q4 2022 last quarter.
Adjusted EBITDA and adjusted EBITDA margins stood at $23.4 million and 15.5% respectively compared to $20.5 million and 15.7% for Q1 2022. The increase in adjusted EBITDA was mainly driven by higher sales volumes, while the slight decrease in adjusted EBITDA margin was mainly due to continued inflationary pressures causing higher material and labor costs, especially in Europe, partially offset by better cost absorption from the increased revenues.
Revenue from our Patient Care segment was $48.8 million for the quarter, an increase of $7.2 million or 17.2% when compared to Q1 2022. Revenue growth includes organic growth of 13.2%, which was driven in large part by new contract signed with healthcare facilities, cross-selling synergies with Medicare, and pricing optimization as Nick alluded to earlier. For the quarter, foreign currency provided a 4% tailwind.
Adjusted EBITDA and adjusted EBITDA margin stood at $9.8 million and 20.1% respectively compared to $5.3 million and 12.8% for the same period in 2022. The increase in both metrics was primarily due to the increase in revenues and improvements in gross margins mainly explained by better cost absorption, product mix, pricing initiatives, and synergies with Handicare.
Revenue generated from the Adapted Vehicle segment was $11.4 million, a decrease of $0.1 million or 0.8% when compared to Q1 2022. The slight decrease in revenue is mainly related to a negative foreign exchange impact of 4.5%, which was partially offset by positive organic growth of 3.7%.
Adjusted EBITDA and adjusted EBITDA margin both before head office costs finished at $0.6 million and 5.4% respectively compared to $0.6 million and 4.9% for Q1 2022.
For the quarter, net finance costs were $7 million compared to $1.4 million in Q1 2022. Interest on long-term debt increased by $3 million when compared to Q1 2022 due to higher market interest rates.
Net finance costs were also impacted by a net foreign currency loss of $1.3 million compared to a net gain of $0.7 million in 2022, most of which was unrealized in nature.
Also the corporation incurred a gain on the ineffective portion of changes in fair value of net investment hedges of $0.8 million in 2022, which was not repeated in Q1 2023.
Net earnings were $6 million or $0.09 per diluted share for the quarter, compared to $5.3 million or $0.08 per diluted share -- diluted share, excuse me, in Q1 2022.
Adjusted net earnings was $8.4 million or $0.13 per diluted share compared to $6.8 million or $0.10 per diluted share in Q1 2022. This reflects an increase of 24% or $0.03 on a diluted share basis.
Turning now to capital resources and liquidity. Savaria generated cash flows from operating activities of $16 million for the quarter compared to $13 million in Q1 2022. The increase is mainly due to the higher profit generated by the corporation in the quarter, partially offset by higher income taxes paid versus Q1 last year.
In the quarter, the company made a net investment of $2.1 million in working capital versus $2.7 million in Q1 2022. Cash generated from investing in activities was $7.7 million for Q1 2023 compared to cash use of $4.8 million in Q1 2022.
In 2023, net cash received from the Norway divestment totaled $12.4 million, while the corporation dispersed $1.4 million for the acquisition of Ultron in 2022. Conversely disbursements of $4.5 million for fixed intangible assets were made in Q1 2023 compared to $3.6 million in Q1 2022.
Cash used in financing activities was $6.3 million for the quarter compared to $27.2 million in 2022. Q1 2023, the revolver balance increased by $8.5 million, which we can largely see reflected in the quarter ending cash balance.
As of March 31st, 2023, Savaria had a net debt position of $358.9 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 2.8 times. This represents approximately 0.24 decrease versus Q4 2022. And this reduction helps us to achieve our 2023 reduction leverage target of 0.5 turns. Savaria has funds available of approximately $135 million to support working capital investments and growth opportunities.
Looking forward, for 2023, Savaria expects to generate revenue, which will be approximately 8% to 10% higher than 2022 when normalizing for the impact of the Norwegian Auto division divestments with adjusted EBITDA margins of approximately 16%. In addition, as previously noted for 2023, we are targeting and our leverage ratio of 0.5 times.
And this outlook is based primarily on continued strong organic growth coming from the accessibility in Patient Care segments supported by high backlog levels, cross-selling synergies, and strong demand, as well as 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'll turn the call over to you Razia to open it up for questions, please.
Thank you, sir. [Operator Instructions]
And the questions come from the line of Derek Lessard from TD Securities. Please ask your question.
Yes, good morning everybody and congratulations on a really good quarter. Maybe I just wanted to, Nick, start with you and really dig down into that 20% Patient Care margin performance and some of the drivers behind that. And how you guys are thinking about the sustainability of that margin? And I guess how does that all tie into your 16% consolidated margin guidance for the year?
Hi, Derek. Again, as I mentioned in the opening remarks, we're very happy with the results, right? I think 20% was a new level for that segment. At the same time, we do realize that it was just one quarter, right? So, we want to kind of be cautious about moving forward. But it does show as possible, right, bringing the teams together and they've been doing a fantastic job.
In terms of the margins in particular, what we're seeing is anytime you get about $40 million in the quarter in terms of sales and then especially when you get about $45 million in sales, then that fixed cost absorption really kicks in. So, there's a lot of leverage in that business as the sales increase. So, that's probably one of the biggest contributing factors there to the margin that you saw there in the first quarter.
The second, I would say, big impact is the pressing issues. Something that we talked about a lot last year. There is a little bit of a delay sometimes in terms of when those kick in. And so what you're seeing here in Q1 is really kind of there's a full impact -- a meaningful impact of those price initiatives that we have been talking about for the past several quarters. So, I would say that's kind of the big drivers of the margin improvement, one, just the strong sales performance and the pricing initiatives.
Okay. And -- that's so very helpful. And just maybe on the Handicare synergies, can you just help us understand where they're coming from both on the revenue margin side and where you think maybe that there's even more opportunity to extract more?
Well, there's some big synergies that we're seeing and this is where I think there's more to come is going to be on the cross-selling, right? So, really from the commercial perspective, the team is really coming together. Salesforce integration is something that is the key project for us, I guess, as we ended last year, then going into this year. So, it's something that we're looking at. With the candidate also in the US, so realigning the sales forces. So, they're working efficiently, working together.
And we're also bidding on the whole room. So, that's something that's a little bit different than what we saw before is that now he's going to some of these bids and we're bidding on the entirety of it, right? So, whether it's the bed frame, the mattress, the ceiling lift, the sling portion of it, the case goods. So, that's actually -- what we're quite excited about is as we're looking forward to various tenders that are coming up and it's going to kind of propel sales over the next several quarters if not years is that we're really one of the few one stop-shop players, similar to what we say in accessibility being the one stop-shop for our dealers. It's a similar concept playing out there within Patient Care and that we're one of the few players that can provide the entire room.
So, that's, I would say, one of the biggest synergies that you're seeing within, I guess, between Span and Handicare. And it's something that we're just starting to step into them. So, it's something to look forward to over the next several quarters of the years. So, that's what I would say is one of the biggest synergies that we're seeing is on the commercial side.
Thanks for that, Nick. And maybe a few for -- some housekeeping for me for Steve. On the working capital, just wondering how you're thinking about it for the rest of 2023, I guess given the inflationary pressure and in Europe, are you expecting those inventories to grow as you cycle through the higher cost and make some other I guess inventory plans as you expand the Mexican plan?
Derek, good to talk to you. It's -- we're actually not expecting to see inventory climb for the rest of the year. In the quarter, we had a net investment in working capital, in working capital about $2.7 million. To be frank I'm a little bit disappointed in that, I was hoping to see a reduction versus Q4. We are planning on seeing a reduction.
So, for the rest of the year, regardless of Mexico and everything happening in Europe, we are expecting to see working capital levels remain tight. We're not expecting an investment to answer your question.
Okay. Thanks. And then maybe one final one for me before I requeue, just on depreciation. There was an increase of about $1 million on the amortization of intangibles. How should we be thinking about that?
Sure. And it can be a little bit lumpy. I mean, obviously, we did see a large jump up in the intangible amortization after the Handicare deal. But also a big part of intangible amortization is a lot of the R&D spending that we have which can be lumpy. So, we saw the increase in Q1 of about, as you said, $1 million from Q4. But if we look at Q3 last year or Q2 last year, it's -- the increase is much less.
So, I think If you want to think about that going forward, I would say there's going to be some up and downs just with regards to timing of R&D project amortization, but nothing to imply a higher run rate there.
Okay. Thanks everybody. I'll requeue and congrats.
We are now going to proceed with our next question. And the questions come from the line of Michael Glen from Raymond James. Please ask your question.
Hey, so just circling into the Accessibility segment and you're talking about -- within Patient Care, you're talking about the benefits that you're starting to see from those pricing initiatives? And I know that there some pricing initiatives you've taken in accessibility too.
Like when do you think we'll start to see those start to roll through in the margin and what type of -- should we think -- how should we think about the margin benefit as those pricing initiatives start to work through the backlog?
Thank you. So, basically for certain high backlog goes a bit of a price reset, the price increase that we do. So, we expect from the second quarter to see a little bit of better margins in terms of accessibility. But, yes, we're very lucky that our backlog has given us report to have a good first quarter. And I think we have been able also to see some of the acquisition that we added to the labor, the factory, our installation that has helped us to generate some more output. So, that's a good answer for this question.
Okay. Now, for -- so for accessibility, would you -- do you think that 1Q would represent then the low point for the year and will work better from this point forward?
Good question. Thanks for that, Michael. I mean, we do have price increases coming into effect. The 2023 price increases that came into effect this year haven't quite worked the way through the backlog yet as far as Q1 is concerned. So, we will see the impact coming through the remainder of the year.
What we're seeing right now in some of that organic growth is the price increase versus last year. So similar timing last year's price increase came into effect at the beginning of the year, takes a quarter to work its way through. So we started to see that in Q2, but we're still seeing that now versus Q1 2022.
With regards to the remainder of the year, when we look at our price increases and how much we put into effect, we -- obviously we’re trying to improve margins, but we're also need to keep in mind cost increases that we're seeing across our business. So it's one to improve margins, but also to make sure that we level offer and negate any negative impacts from vendor cost increases or other cost increases across the business.
So, yes, our plan is that the margins will keep increasing from here, but we have to keep in mind that there are cost increases happening ongoing throughout the business throughout the remaining quarters of the year as well.
Okay. And then just in terms of I know you guys have spoken in the past about targeting becoming a top three player in North America in that stair lift business. Are you able to provide an indication or translate that into what that would mean from a revenue perspective for your top line?
I think right now we have delivered some guidance of 8% to 10% of organic growth. If we look at the size of business that we are right now, I will consider that we are in the top three differently worldwide in terms of manufacture of other different products.
We are the only company in the world that can offer a stair lift, porch lift, an incline lift, a normal inhibitor, and then also some patient care products. So I think we have quite a nice company from our product offering in terms of size also.
Maybe Michael there, if you think about stair lift in North America in particular, I think there is more room to grow. So we think about the 18% you might think that maybe those will be outsized growth within stair lift in North America because there's more of a runaway there for us. So that's maybe how to how to frame that.
Okay. And one additional one, any guidance on the interest expense for the year where that would come in?
A lot of our debt is variable rate right now. So I mean, it it'd be nice to know exactly where the interest rate is going to be in the next couple of quarters. But for forecasting purposes, I would expect that for Q2, Q3 and Q4, we're going to see similar interest expense in line with Q1.
Got it. Okay. Thanks for taking the questions.
And I'm going to proceed with our next question. The question is comes from the line of Nick Agostino from Laurentian Bank Securities. Please ask your question.
Yes, good morning, buddy. So I guess my first question is just a comment that I saw in your press release where you guys talked about seeing growth beyond 2025, can you just maybe give some colors to why that comment was added?
Well, I think Nick, good morning first. I think we just want to reiterate that the $1 million plan is at our mission. What's going this way? I think in the way in the company, no and we're making steps or investments towards that. So I think Marcel just want to reiterate it again.
We're always focusing on that try to improve if something isn't working per the plan, we fine tune it. And yes, 2025 is coming soon, but we did some investment in Portugal. We're thinking that we'll be good for the next 5 to 10 years. I think it's just a general comment to reiterate that. We're in a nice industry and we're thinking about the future and not just on the short-term.
Okay. So we should read too much into that comment then.
Yes, it's more general comments.
Okay. And then my other question, for Nick, first just given the fact you put 20% up on the patient care margin in the quarter, I recognize it's not necessarily going to be a sticky number. But can you just remind us what you're looking for patient care margins for the full year And does this particular number in Q1 maybe push your thoughts a little bit higher for the full year?
I think we're a little bit early to push our thoughts for the full year. So I don't want to stray too much from -- we talked about in terms of guidance. We talked about 16% margins across the business. I don't think we give guidance by segment. So we'll kind of stick to that. I mean, I think patient care delivered a very good Q1. So, very happy, right? I mean, if it's better to be above than below, right?
So, we're not digging ourselves out of the hole as we go into the year. But I wouldn't want to read too much into it and think that it says that that bar for the rest of the quarters, I think we want to be cautious about that. And maybe after another quarter or two of good performance, maybe that will be more indicative of the trend. Right now, we're just very happy with the performance and again, we're sticking to our guidance if you will for the remainder of the year. We're not looking to change that just yet.
Okay. And just on that same question, maybe Steve, you can weigh in on this, but obviously Q1 off to a strong start. So congrats on that. And we know that it's seasonally the weakest quarter. Just given where Q1 has landed, given what you're seeing as of May, can you maybe should we maybe – when you look full year guidance of 8% to 10%. Are you guys more comfortable towards the higher end of that range just given the quarter and where we are as of May?
Yes. Good morning. Thanks for the question. Congrats a full year guidance. I mean, we're still staying at 8% to 10% and growth in EBITDA margins. I mean, yes, Q1 was a great quarter, but we're just trying not to get to ourselves for the full year. We still have three quarters to go. It was a strong start, which we're happy about and really part of the teams for delivering. But, again, we're taking 1 quarter at a time. So, so for an hour, we're staying putt.
Okay. That's it for me. Thank you.
We're now going to take our next question. And their questions come from the line of Zachary Evershed from National Bank Financial. Please ask your question.
Thank you. Good morning, everyone. You've stated I'm going to try not to beat a dead horse here, but it is what it is. You stated previously that a big component of patient care at Handicare is project base. So with the material profitability improvement keying off fixed cost absorption, should we really be worrying about that falling sharply in the coming quarters?
Hey, Zach. No, don't think we're not worried about falling off a cliff in terms of margins. We feel very good about the performance. As I mentioned, when you get above that $40 million, $45 million you really see that there's a leverage in that business. There's still a lot that we're working on. In terms of tenders that we're looking at, other projects that we'll look to deliver throughout the remainder of the year. So no, I don't think there's an expectation that it's going to fall off a cliff in terms of margins.
So now I wouldn't model that in. I think we're very confident about when we started the year as we exit 2022, did mention that we felt that we've got to a new level within patient care. And so we're seeing that new level. And they might fluctuate a little bit, but no, I wouldn't anticipate dropping back to that 10% margin that you saw historically. I think that business has changed dramatically over the past couple of years. And no, we're very confident going forward. So no, we're not anticipating, give you sort of huge drop off in margin there.
And just to add on that, maybe Nick. No, Zach, things are always open by America, okay, because maybe we have work on something also. I just see that there are two factory also in Southwest in Louisville. Or the average vendor layout, the average booster production of Synchrony. So all this has given the right support also for the sales to be able to sales and to do some good cross-selling. So I think and there's a lot of effort that has been done in the background by the team and that should be positive for the next few years, right?
That's helpful. Thanks. And then touching on the timing of accessibility price hikes again. With annual price increases. Do you expect Q2 margins to represent a high watermark this year if cost inflation continues?
Good question, Zach. Yes, it's going to be – it's likely going to be similar timing of what we saw last year with regard price increases coming into effect. We're obviously managing vendor cost increases at the same time. So I mean in theory, your point, yes, makes sense that Q2 could be higher margins than what we're seeing in Q1.
And given what you're seeing so far in terms of vendor cost increases versus what you've announced to your dealers, How do you feel about the comparison with the 19.1% last year in Q2?
So we are still seeing vendor cost increases across the business. We're not seeing into the impact that we saw last year. But it's still something that we are seeing across the business both in Europe and in North America. Just not again, as I said, not as strong as what we saw last year. So we'll see how Q2 pans out. But that's about the level of guidance that we'll provide.
Fair enough, thanks. Just one last one broader. With the 2023 budget including a multi-generation home renovation tax credit, are you targeting any incremental demand there?
Yes, I'm assuming you're talking about Canada specifically. I mean, so tax credits do come and go. With accessibility, some of our, with accessibility projects, specifically on our legacy products, these are projects that take quite a bit of time from initial specing of the job to actual sale. So we may see some uplift from tax credits such as this or tax policy changes that we might see in the future as well, but overall we don't see that having a massive impact on our business, no.
That's clear, thanks. I'll turn it over.
We are now going to proceed with our next question. And the questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question.
Thank you. Good morning. Nick, on the patient care tenders, which you mentioned a few times, just wondering if you could provide some background on how your, I guess, current pipeline of opportunities compares in size versus what you've seen historically. And assuming that the pipeline is now larger than previously, would you attribute that to patient care's stronger focus on being a one-stop shop, or is it market growth driven or both? So just any thoughts on that would be helpful.
Hey Fred, it seems like a popular today. So on the patient care side, the tender activity that we're seeing, a lot of its new build activity. So that's been a big driver of that business. No, we're seeing, especially if you think about here in Canada, there's a lack of beds. I think we talked about it, past calls or conferences that we've been a part of. So no, there's definitely a lot of new build activity that's out there. And that's driving a lot of that business. We've been successful bidding on that business. And the fact that now that we have the, I guess, the team, the Handicare team together, we're able to bid on the entirety of projects.
And so people are looking for one supplier where possible, as long as the guy can meet the various requirements of the bids. So we are seeing a combination of strong, just tendering out there, and at the same time, our success rate has been very good. So you combine that together, and that's why we feel quite optimistic about that business. And in the US as well, we are seeing some new real activity. I think the VA is probably a good segment there for us.
At the same time, we've had some, as I mentioned on the opening comments, some strategic partners of ours have increased their spend. So that also is a boon for that business. So no, I would say overall, we're confident about where we are, the backlog is still quite healthy. So no, overall things are quite positive there within patient care.
Great. Thanks for that. Moving to accessibility and Stair Lifts more specifically, Zorin [ph], if you had any comments on the progression of your business and Stair Lifts in North America and maybe an update on intentions to add production of a Stair Lifts model from Handicare in Brampton?
Good morning Frederic. Basically, we are a sales team in North America between Legacy Handicare and Savaria. They have merged together. Now, all our reps can sell Stair Lifts to a vertical to a home elevator. I think our dealers are very happy that we're able to offer the Handicare product manufacturer in North America. We have better lead time. Right now, the single free curve is already over a year in production. Right now, the lead time is better than ever. It's like eight days, so that's very positive to generate some sales.
And the second model of Handicare that I will show you, this is something that we have started to install in machining in Toronto. And by the end of the second quarter, we should start to see some output. So that means that by the end of the second quarter, both curves of Handicare will be manufactured in Toronto. That would be a good benefit to help us to generate some additional sales. I'm quite happy with the direction we're going in that.
Okay, great. Last one for me, maybe for Steve, on head office costs, just for modeling purposes. I noticed that the $2.6 million in the quarter included some one-off professional fees. What would be your normalized office costs if we do exclude one-off fees?
Yes, to answer the question, it's about $0.5 million that went through in the quarter that was one-off professional fees that we won't be seeing on an ongoing basis.
Okay. Thank you.
We are now going to move to our next question. And the questions come from the land of Julian Hung from Stifel. Please ask your question.
Hi, good morning. This is Julian stepping in for Justin this morning. My first question is regarding the backlog. So with backlog increasing, how does your backlog compare to peers? And are you still remaining ahead of the curve in terms of delivery times?
I think the peers, again, we are in the [indiscernible] we are the only company in public, so it's a bit hard to measure with the other guys, but again we are very lucky to have this backlog and then we're working hard, not just by miracle, I think the sales team is working hard, the business is very good in North America, all the operators and the vertical platform. So I think that's looking in the right direction for the year.
Okay.
What was the second question? Does it answer the question, Julian?
Yes. Answered it. Very helpful. My second question is, with global tensions on the rise, have you seen any impact on operations in China and does it shift the business overall strategy moving forward?
That's a very good question, Julian. So basically I was in China three weeks ago, and I had the chance to go visit our team in Mizzou. I did not have the chance to visit the second factory in China. But I would say we are very lucky. We have a very good team in China. It is the same people for the last five years. And even though it is not very nice, but I have asked them to come work on a Sunday. And all the people came, all the 120 people. So we have a very good team dedicated. But yes, we have opened a new factory last year in Mexico to be able to balance overtime and supply chain, make sure we can develop some additional capacity for North America. So right now I think we're quite active. We have 17 factories across the world. We're quite diversified. So I think it's been a really simple aspect.
Okay. And just one last question for me. So I see that net debt to EBIT has been going down over the last couple of quarters. Do you have a medium target for where you want the number to go and what is your comfort level for a potential acquisition?
To answer this question, we're comfortable – yes we have been seeing a decrease, I mean, we're happy with the Q1 decrease. We need to keep in mind that part of that came from the Norway cash infuse from the Norway divestment, but we're still happy with the decrease and we will deliver at least half a turn this year as well. That will allow us to finish the year at about 2.5 times. We're comfortable in that range 2 to 2.5.
With regards to your question around what level will we start looking at other acquisitions can be still on the go right now. If something comes up that's of the right size and it makes sense for us to execute, we will look at it now, and we're not necessarily waiting for a certain net debt level.
But at the same time, to echo previous comments that we've made on previous calls, it sounded a bit like a broken record here, but we are confident in the opportunity that the Handicare synergies and the continued integration with Handicare and the legacy Savaria business will provide to us. So, we're not eager to bite off any large new acquisitions at this time. We think there's plenty of runway still in front of us.
Okay. Thank you so much for taking my question.
We have no further questions at this time. I will now hand back the call for closing remarks.
Thank you very much. And again, we thank all our analysts at Savaria. You are very important for the company. Very happy on the first quarter. So I guess we will go back to work. So thank you very much. And we will see you in August for the results of the Q2. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.