Savaria Corp

TSX:SIS

Earnings Call Analysis

Firm Records Uptick, Strong Backlog, EBITDA Growth

The company is experiencing positive momentum, with North America reporting a 9% increase in growth due to high factory output and a healthy backlog, suggesting good prospects for upcoming quarters. Europe showed stability, rebounding from the previous quarter to regular lead times and improved operations with a new ERP system. The firm also successfully launched a second Handicare stairlift model in Toronto, expected to boost North American sales. The Patient Care segment saw a slower Q3 with flat organic growth, but anticipates a Q4 recovery supported by a solid backlog and encouraging bed frame orders. Debt-to-EBITDA remains favorable at around 2.2, with intentions to reduce it further. The company's overall Q3 EBITDA margin was 14%, but the year-to-date margin for Patient Care has impressively improved to 18% compared to 2022. Guidance for 2023 remains unchanged, and the company is investing in the 'Savaria One' project, with associated costs running through May 2025.

Navigating Headwinds and Leveraging Tailwinds for Steady Growth

In the financial narrative of this company, the latest chapter brings both optimism and caution for investors. The company has achieved a 4.3% revenue increase reaching $210.1 million, with organic growth contributing notably from the Accessibility Segment. Despite divesting its vehicle division in Norway and experiencing fluctuations in foreign exchange rates, the resulting headwinds haven't deterred the anticipated upsurge, amounting to 4.3% overall growth for this quarter. The gross profit also rose to $72.6 million alongside gross margins improving to 34.5%, attributable to greater profitability from the North American divisions owing to more efficient cost absorption, a favorable product mix, and improved pricing strategies. Another highlight is the adjusted EBITDA, which improved by 16%, indicating a robust financial performance by the company.

Strength in Accessibility, Promise in Patient Care

Breaking down by segments tells a story of triumphs and promises. The Accessibility segment soared to $166.3 million in revenues, a 4.8% increase driven by a strong demand in the North American residential and commercial sectors. The company is set to enrich its Accessibility portfolio in North America by manufacturing a second model of Handicare stairlifts, targeting improved lead times and sales prospects. Meanwhile, the Patient Care segment posted a modest 2.4% revenue increase, with hopes laid on a sound backlog which is expected to translate into robust year-end sales. There's a silver lining with a robust sales outlook, anticipated budget spending, and a backlog that promises sustainability beyond just the next quarter.

Operational Leverage and the EBITDA Margin Challenge

The company's operational efficiency has been a key growth driver, particularly evident through improved gross margins in North America. However, this hasn't entirely trickled down into EBITDA margins due to increased selling and administration expenses, including costs related to the ambitious Savaria One initiative. Notably, this is a long-term play with the company committing to a performance-based consulting arrangement with expectations running until May 2025. With an eye on propelling the EBITDA margin from the current 16% to a future target of 20%, investors should watch for how the company maneuvers its pricing strategies, cost savings, and improved sales pitches. Besides, the management's optimism is pinned on the benefits of this consulting partnership, which they compare to 'teacher-student' growth learning with tangible impacts on their sales and costs.

Capital Strength and Strategic Adaptability

There's a discernible vigor in the company's financial dexterity. A recent public offering and a concurrent private placement with Caisse de dépôt du Québec have fortified the capital by $92 million, offsetting credit facilities and yielding a considerably robust balance sheet. The net debt position currently stands at $290.2 million, but a commendable reduction in net debt to adjusted EBITDA ratio of 2.28x places the company in a firm position to seize growth opportunities. Looking ahead, the management forecasts a revenue hike of approximately 8-10% above 2022, while preserving the adjusted EBITDA margins at 16%. But perhaps the most compelling takeaway for investors is the unwavering focus on the Savaria One project, a blueprint designed to hone in the company's operational capacity to align with an ambitious $1 billion target.

Towards a Prosperous Horizon

In summary, through systematic debt management, operational optimizations, segmental expansions, and strategic offerings, the company positions itself as a burgeoning entity with remarkable potential. The steadfast execution of Savaria One sets a tone of transformation, geared to refine processes and elevate the business to new benchmarks. Investors are to be treated to an Investor Day in the upcoming first quarter, promising deeper insights into Savaria's path forward. Although near-term focus seems to shy away from M&A in favor of internal fortification, the company's remarkable track record of surpassing long-term targets kindles anticipation for future milestones.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q3 2023 Conference Call. [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 the 1st of November with respect to its Q3 2023 results. Thank you. Mr. Bourassa, you may begin your conference.

[Marcel Bourassa, executive]

Thank you very much, Sarah. So as you mentioned, my name is Marcel Bourassa and it's a pleasure to begin the call. After that, I will transfer that to my colleague. If I was taking in every year, I think we are going in the right direction. Now we have Q2 a little bit too weak but Q3, I think we can see that Europe will be better in the coming quarter and so that will be an impact on our sales and EBITDA. So I am very positive and one thing very importantly, our company is based on the aging of the population. And you can see, that -- we have the work, sadly, but it's happen. And we have some country that man is always a question like not very respectful for the people. But it is what it is us. Our projects is basically the aging of the population. And it will be there for, I think for me, at least forever. And -- thank you -- I read some comments yesterday about Savaria, Q3. And thank you very much. And you can see that we have a good quarter. And we have -- all have a great quarter. The backlog is there and '24 look tremendous for us. But let's talk about Q3. So I will transfer to Steve.

[Stephen Reitknecht, executive]

Thanks, Marcel, and good morning, everyone. Thanks for joining us on the call. I'm going to begin with some remarks regarding our Q3 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $210.1 million, an increase of $8.7 million or 4.3% when compared to Q3 2022. The increase was driven by organic growth of 4.1%, originating primarily from the Accessibility Segment. In addition, the corporation experienced foreign exchange tailwinds of 4.7% as well as a decrease in revenue of 4.5% due to the divestiture of the vehicle division in Norway, combining for 4.3% growth overall for the quarter. Gross profit and gross margin stood at $72.6 million and 34.5%, respectively, compared to $64 million and 31.8% in Q3 2022. The increase in gross profit of $8.5 million was mainly attributable to higher revenues and to a lesser extent, favorable foreign exchange rates used in the conversion of the results of subsidiaries. The increase in gross margin versus last year was mainly attributable to greater profitability coming from the North American divisions in the accessibility in Patient Care segment due to better cost absorption, a favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at $33.6 million and 16%, respectively, compared to $31 million and 15.4% in Q3 2022. The increased profitability is mainly explained by the aforementioned increase in gross margin, somewhat offset by higher selling and administration expenses in the quarter driven partially by $0.9 million of costs related to Savaria One. On September 15, 2023, the corporation issued 4,363,100 common shares via a public offering and 1,983,750 common shares via a concurrent private placement with Caisse de dépôt du Québec, both at a price of $14.50 for aggregate gross proceeds of $92 million, which included the full exercise of the overallotment option granted to the underwriters of the offering, and the additional subscription option granted to CDPQ. Net proceeds after transaction costs of $4.6 million was $87.4 million, which was used to reimburse credit facilities. And now I'm going to move on to our segmented results. Revenue from our Accessibility segment was $166.3 million in Q3 2023, an increase of $7.7 million or 4.8% compared to the same period in 2022. The increase in revenue was related to organic growth of 5.1%, driven by continued strong demand in both the residential and commercial sectors in North America, which saw a 9% organic growth as well as price increases. The growth was also driven by a positive foreign exchange impact of 5.4%, mainly coming from the U.S., Euro, and British pound currencies. This was partially offset by the divestiture of Norway previously noted, which caused a year-over-year decrease of 5.7% when compared to Q3 2022. Adjusted EBITDA and adjusted EBITDA margin for the Accessibility segment stood at $29.9 million and 18%, respectively, compared to $26.9 million and 17% for the same period in 2022. The increase in adjusted EBITDA and adjusted EBITDA margin was mainly due to better cost absorption from increased revenues in North America as well as improved pricing.Revenue from our Patient Care segment was $43.8 million for the quarter, an increase of $1 million or 2.4% when compared to Q3 2022. Revenue growth includes organic growth of 0.3%. As a reminder to our investors, our Patient Care business is driven in large part by project-based sales, which can be lumpy from time to time. For the quarter, foreign currency provided a 2.1% tailwind. Adjusted EBITDA and adjusted EBITDA margin stood at $6.1 million for the Patient Care segment and 14%, respectively, compared to $5.9 million and 13.8% for the same period in 2022. The slight increase in both metrics was mainly due to the increase in revenues as well as improved gross margins. For the quarter, net finance costs were $5.5 million compared to $2.5 million in Q3 2022. Interest on long-term debt increased by $2 million when compared to last year due to higher market interest rates. Net finance costs were also impacted by lower net foreign currency gain of $0.3 million compared to a gain of $2.2 million last year, most of which was unrealized in nature. Net earnings were $12.1 million or $0.18 per diluted share for the quarter compared to $10.6 million or $0.16 per diluted share in Q3 2022. Adjusted net earnings was again $12.1 million or $0.18 per diluted share compared to $11.2 million or $0.18 per diluted share last year. The year-over-year increase in net earnings is driven from increased operating income, which was mainly driven by increased gross profit across the business. So turning now to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes in noncash operating items reached $26.9 million versus $28.9 million for the same period in 2022. The slight decrease mainly reflects the impact of higher income tax paid. Net changes in noncash operating items reduced liquidity by $1.6 million compared to $9.7 million in the same quarter last year. The improvement is mainly due to a stabilization of inventory levels across the business. As a result, cash generated from operating activities in Q3 2022 stood at $25.3 million compared to $19.2 million for the same period in 2022. Cash used in investing activities was $4.5 million for Q3 2023 compared to $4.2 million in the same quarter last year, and the corporation disbursed $4.6 million for fixed and intangible assets this year compared to $4.4 million last year. Cash used in financing activities was $20.7 million for Q3 2023 compared to $10.9 million in 2022. The variation is mainly explained by a reimbursement of $91 million on our credit facilities following net proceeds from the issuance of common shares previously noted of $88.3 million as well as higher interest paid of $2.2 million in Q3 2023.As at September 30, 2023, Savaria had a net debt position of $290.2 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Savaria's net debt to adjusted EBITDA ratio was approximately 2.28x. The large reduction versus prior quarter was the result of the share issuance net proceeds being used to pay down debt. At the end of the quarter, Savaria had net funds available of approximately $203.4 million to support working capital investments and growth opportunities. And now looking forward for 2023, Savaria continues to expect to generate revenue, which will be approximately 8% to 10% higher than 2022 when normalizing for the divestiture of the Norwegian Auto division as well as adjusted EBITDA margins of approximately 16%. And as a reminder, Norway represented approximately 60% of the overall vehicle segment revenues in 2022. This outlook continues to be based primarily on the continued strong organic growth coming from both Accessibility and Patient Care segments, supported by high backlog levels, cross-selling initiatives and strong demand. And continued successful integration of Handicare and progress towards achieving the next strategic phase of synergies in line with management's plan. And with that, this completes my prepared remarks, and I'm going to turn the call to Sebastian for an operational update.

[Sébastien Bourassa, executive]

Thank you, Steve. First, I am quite happy the results on access for the third quarter. In North America, we had the growth of 9%, which came mostly from the output of Vancouver and Toronto factory, so good job guys, and we are continuing to have a very healthy backlog. So that's positive for the future quarter. In Europe, it was mostly flat, but it's a very nice rebound from the second quarter, and the situation is back to normal, with good lead time, and we have improved a lot of our visibility in the U.K. factory with the ERP that has been for to change but now we have some very good information, live data. We're quite happy with the change we have made.In Mexico, we continue to ramp up, and we have approximately 50 employees who do some weekly tracks to Toronto, the U.S. with some ports lift, and also we started some shipment to Vancouver. We are now a vertically integrated for metal works. So that's nice. Also in Toronto, we started to manufacture second model of Handicare stairlifts, the 4,000, which was the model made in U.K. So this will help us to increase our sales in the future in North America because we'll have better lead time. Finally the Savaria One, quite happy with the start, So we did a consultant due diligence on Savaria to identify opportunities. We now did a bottom-up plan with the several employees in different areas such as commercial, procurement, production, and we are now starting the implementation step-by-step over the next 2 years. The program also includes some training for our people in order to bring Savaria to operate the business as a $1 billion company with better processes. It's a very general update, but the intention is to have an Investor Day in the first quarter next year, so that we can talk more about the Savaria One project. Mr. Nicolas, Patient Care?

[Charles Rimbert, executive]

Yes. Thank you, Sebastian, and good morning. Following a very strong first half of the year, the performance within our Patient Care segment was more moderate in Q3. We had a slow start to the quarter with a relatively weak month of July. In particular, we experienced lower volumes within our bed frame business and some lumpiness with project work over the summer months. Consequently, organic growth was flat in the quarter and lower than the record levels seen in Q1 and Q2. That said, our backlog is still in good shape and was higher exiting the quarter than where we began. We also saw a positive uptick in bed frame orders during October. We feel confident about year-end budgetary spending, which bodes well for Q4 revenue and should enable us to have a strong finish to the year. From a profitability perspective, the lower sales in Q3 didn't allow us to absorb as much overhead as compared to prior quarters, which undoubtedly had a negative effect on our EBITDA margin. While overall EBITDA margin stood at 14% in Q3, we're looking over the longer period year-to-date, the patient care margin of 18% is still a significant improvement over 2022. Despite this pullback in Q3, we firmly believe that the performance this year is a testament to the strong leadership within Patient Care and proof of elastic synergies that locked through the integration of Handicare and Span. To that end, our operations teams are interacting more than ever to share best practices and improve quality, and we've reorganized our sales force to allow them to focus on their respective strengths with an acute and long-term care. So to conclude, we expect to bounce back in Q4 and have confidence in our sales leadership to deliver a good result to close out the year. And with that, I'll turn the call back over to Marcel.

[Marcel Bourassa, executive]

Thank you very much, Nicolas, and thank you to Stephen and Sebastien. I just want to restate one thing that Steve mentioned, okay? Our debt-to-EBITDA is around 2.2 right now after the offering. And when I decided to make an offering is because I want to have reduced to that by the time that we are right now. Balance sheet with a ratio of around 2%, 2.2%, we'll go maybe shortly, less than 2. And then we are in position -- a strong position to continue our growth. And maybe... I just want to mention that we have a balance sheet right now that is very strong. And we are there to make maybe some little acquisition. But right now, we are just to continue our good job of integration of Handicare. And I knew that we see the penalty is over. And me I was stuck, I was 5 minutes penalty, because we make an offering. But my penalty is about finish. And there you will see, I think that the people who recognize the [indiscernible] value of this offering that we make again is a difficult time.So I will begin the question. So we have four underline and the person will answer the question, okay, if it is okay on finance, on the projection or on patiently with Nicolas. So are you ready for the questions, Sarah.

[Operator]

[Operator Instructions]. Our first question First question is from the line of Gabriel Maho from Scotiabank.

[Gabriel Maho, analyst]

On the Savaria One project costs, is there something you expect to incur in the next couple of quarters? And can you provide us with the preview at a high level? And what to expect from Savaria One in terms of how to think it might help on the margin versus the cross-selling side. Also, finally, any way to think about the cadence of that improvement through the next 2 years?

[Stephen Reitknecht, executive]

Gabriel, I'll take this question. It's Steve here. Just on the first part of the question there on Savaria One related costs. So we did have -- just to highlight, actually, the $0.9 million that we saw in the quarter and the $1.6 million that we saw to date. I mean some of that is obviously consulting fees. Some of that is internal training, and there's -- it's a bit of a mixed bag in there. But going forward, I mean we can continue to expect costs related to Savaria One. The largest part is consulting costs and the consulting arrangement that we do have in place. It's a mix between fixed fees and performance fees. So there's a fixed portion that we're going to continue to see until the end of the project, which is expected to run at this point until approximately May 2025. And there's also a performance-based fee in there as well. So that fee is obviously more variable. So it's hard to give you an exact amount that we can expect to see in future quarters. But I would expect the number that we saw in Q3 to at least continue until the end of the project. And sorry, can you repeat the second part of your question?

[Gabriel Maho, analyst]

Yes. Just if you can give us a high level of what to expect in terms of cross-selling side on margin?

[Marcel Bourassa, executive]

I think, Gabriel, we need to go back to the vision of the $1 billion that we want to be. And this is why we'll have a call in the first quarter next year to be able to describe a little bit more about the Savaria One, how do we see the next e years. Right now, we are still at the beginning of the implementation. Right now, we have reiterated guidance for 2023. So as you can see, there's no change for this year, but there will be some small cost for the Savaria One project, but really we see some benefit in the next 2 years, and this is something that we'll be able to address in the first quarter next year. So I think it's a very good news.

[Gabriel Maho, analyst]

Good. And maybe just my second one. I know you said the ERP was fully behind you. But can you confirm it had no impact on the result for this quarter. And then more broadly, are the challenge and erupt related to the macro? Or is there something operationally that you think could be improved?

[Sébastien Bourassa, executive]

So I can take this one. So I think yes, the ERP, again, we discussed a bit earlier that again, we had a good rebound, which was flat versus last year. But again, it's a big change from the second quarter. So I consider that the ERP things is over in England, and we are back to a good lead time to be a good company. And the one thing we need to understand is in Europe and North America, yes, it has been a bit more challenging than last year, but we are not the same company yet. We don't have the same product offering, and we want to have more cross-selling in era with some vertical platform [omalibator]. So I think over time, we'll be more diversified and that would put less pressure on some of the margins. So I think again, we consider that the second quarter is over, and ERP is finished.

[Operator]

We'll now take our next question -- and this is from the line of Cheryl Zang from TD Securities.

[Yaozhi Zhang, analyst]

This is Cheryl standing in for Derek. So my first question is on patient care. So like you mentioned in your remarks, it looks like a more lumpy business given the time order. But just wondering if you could speak more to the rebound in demand that you're seeing there, it sounds like so like in the early stage of Q4.

[Charles Rimbert, executive]

I can take this. The rebound, I guess, in terms of Q4 that we had mentioned, is essentially as you described, right, there was some lumpiness that we saw over the summer months. We started the year with very high sales volumes, very happy with how the first half of the year went. I think as we had mentioned on the previous call, it was fantastic quarters in Q1 and Q2. And I would love to be able to say that we're going to have 4 fantastic quarters every year. Sometimes you have an okay quarter, and that's what we saw here in Q3. We did see an uptick as we exited the quarter in order intake and then also in October. And that's what gives us the confidence that we are seeing sales come back and orders coming back following kind of that summer slowdown, and that's what gives us the confidence for Q4. And then at the same time, Q4, there's some budgetary spending that happens. And so we do anticipate to be able to take advantage of that. So that's, I guess, where we have the confidence there, as I mentioned earlier.

[Yaozhi Zhang, analyst]

Okay. That's very helpful. And I guess my second question is -- so the -- can you speak to the backlog level in accessibility in patient care? And if there's any changes in residential given the macro backdrop?

[Sébastien Bourassa, executive]

I'll take this one. Good to hear from you on the call. The backlog remains strong. So overall, the backlog across the company is about the same level that we saw exiting last quarter, exiting Q2. So I think that we have seen certain pockets based on some of our divisions being able to increase output significantly, especially Garaventa in Garagan to Surrey and British Columbia and here in Brampton, been able to produce more on a daily basis. So we have been able to improve our lead times and ease a little bit into our backlog. But the backlog remains very healthy. There's no concerns across either residential or commercial sectors at this point, both remain very strong and for us bode well for future quarters.

[Operator]

We'll now move to our next question -- this is from the line of Michael Glen from Raymond James.

[Michael Glen, analyst]

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

[Marcel Bourassa, executive]

I will begin after maybe you send, you make some follow up, okay? I just see that -- first of all, I am very happy to have made this offering. And thank you for the people, okay, who buy this offering that even if the market right now is a little bit lower than the offering, but I think in some quick times -- it other reason that we will pass this point when they will see what we are doing. Just an example, about Europe, we manufacture for -- not America Telecab, -- right now on our design, meeting the code in Europe. We will put this in '24. Telecab. And I think, that's a diversification from just some still currency rate. But that's a major market for Europe. So we can see that we work more together. We see the need that Europe need. And we are there with our team of design to just to give them some new products than just the self. So I see very good thing, on the year '24 and '25 to reach our $1 billion of sales. And I mentioned, that on past call that we won an objective. On objective we have to have a breakable of 20% of [indiscernible] and you know something I was doing the mathematics this morning and the mathematics is there. For sure, nothing is easy. But I think we can just push, okay, with the consultant. We are very confident okay to achieve both, about EBITDA and about the sales. Maybe the sales is more easy than EBITDA, but at least will work on that. Sebastian -- say, you would complete my answer.

[Sébastien Bourassa, executive]

Yes. Thank you, Marcel. So yes, R&D is always a key element of our business, new products to the market. That's important for us. We want to be leader in that complete us. In terms of M&A, we always see that, again, complementary product is always nice because we have 1,000 dealers that we can bring it to. And so from time to time, we have three direct office right now from time to time, we buy back some of our dealers when they have no maybe succession plan, and it is a good business. So that's maybe two elements that we could bring going forward.

[Michael Glen, analyst]

And would you say overall there you are seeing -- like with the timing of the equity issuance, is it fair to say that you have seen a step change or uptick in the M&A opportunity set in front of you then?

[Sébastien Bourassa, executive]

I think now we are focused on the Savaria One project and the integration. I think again, it was just some cautiousness on the balance sheet because Marcel like to be really a bit in advance. So again, but right now, there's not a position in the coming months will focus on Savaria One. But going forward, in the coming years, we could see some opportunities.

[Michael Glen, analyst]

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

[Stephen Reitknecht, executive]

I guess to start on the CapEx front, Michael, CapEx is an area we've always spent historically 2% to 2.5% of revenues. That's always been our guide. This year, we tried to rush it down a bit closer to 2%. A big part of our CapEx, though, is R&D spend, right? And we just talked about how -- a bit about how important it is to be bringing new products to the market and be innovative. So it's -- that's not an area that we're looking to make cuts at all. We'll probably continue at least in line with where we're spending this year on R&D, internal R&D projects. For next year, we haven't yet nailed down our budget, but I would say it's going to be in the 2% to 2.5%, maybe closer to 2.5% next year as we look at Savaria One and other projects. But it's not going to be a large upswing because of Savaria One, if that's sort of what you're hinting at. With regards to working cap, similar comment around we're still working through our budgets for next year. But we are -- I can say that we don't think working capital is an area that needs to be invested more heavily in where we're looking at different inventory reduction plans at a few of our key locations. So we hope to see some results come out of that and also working across working with our vendors to improve terms and our AR position is strong and we plan on continuing that to be in a healthy position next year. So overall, not expecting a big investment in working capital. But again, Michael, we are forecasting decent revenue growth, right? The $1 billion target implies good revenue growth over the next couple of years, and there always is going to need to be working capital investment to support that top line growth.

[Michael Glen, analyst]

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

[Stephen Reitknecht, executive]

The run rate interest expense. So we are -- we have -- we are more tilted to variable than fixed. We have a small portion of our debt that's fixed. So a lot of it is market-based rates. Our interest expense this quarter I mean, without giving you a number, I mean, obviously, it's going to come down by a good chunk. But…yes, I mean, I think what you're going to see in Q4 would be a good run rate for next year. But I don't have a number to give you for what it's going to come down in Q4.

[Operator]

This is from the line of Frederic Tremblay from Desjardin Capital Markets.

[Frederic Tremblay, analyst]

Maybe starting with Europe. In past quarters, you highlighted some inflation pressures in Europe. Can you maybe provide an update on that, what you're seeing generally on that front as well as maybe an update on your plan for price adjustments? I know in the past and some early 2024 was considered maybe for some price adjustments in up. So maybe just an update on that.

[Sébastien Bourassa, executive]

I'll take this one. Thank you, Fred. So I would say the inflation has probably stabilized. It's a bit better than it was 1.5 years ago. And in terms of price increase, you know that, again, we have different brands from Savaria to Garaventa to our direct store to Handicare -- so I think there's different history of annual increase. And now we see that we have a healthy backlog. So sometimes it bring a bit against the price increase, but many brands will do a price increase in early January. So we typically see an uptick in margins in the second quarter of the following -- of the, I guess, next year.

[Frederic Tremblay, analyst]

Perfect. And so we saw organic growth of 9% in North America accessibility, which I think, as you said, implied that Europe was roughly flat, which is a good outcome versus Q2. I'm just thinking of maybe 2024 is on and sort of what Europe could potentially do on an organic growth front with potentially pricing and some of the product introductions that you're planning there without, I guess, providing formal guidance on European organic growth. How do you think about the potential of Europe in terms of top line growth in the coming years?

[Stephen Reitknecht, executive]

I can take this one. So I think you Fred, again, if we do the math, the $1 billion, which is again our target, and that's all the family together, I think it imply 8% to 10% of organic growth. So again, this year was a bit lower in Europe, but with some new products we are bringing back. So I'd expect that over time, in North America should have a similar organic growth. So I think that's what we should think Fred.

[Frederic Tremblay, analyst]

Good. Maybe last one for me on patient care. Just wondering if you can comment on the current bidding environment as well as the competitive environment in that segment?

[Charles Rimbert, executive]

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

[Frederic Tremblay, analyst]

Maybe just a quick follow-up on that. On the government business, is the margin profile there different than nongovernment Patient Care businesses? Or like how does that compare?

[Charles Rimbert, executive]

Not so much. I think here in Canada, there are certain provinces where you do see that, I would say, Quebec, for example, is a province where maybe it's a lower margin, Ontario tends to be a bit higher margin. So there are some differences province-to-province. But overall, no, I mean when we're bidding on business, whether its government or private, we do have our own margin expectations to maintain. So we're not out there just low balling get just to win business. So we are, I guess, smart from our approach there. And it's not always about pricing, even with the government, right? There are certain governments that you recognize the quality of better products in terms of patient care and clinical outcomes. So no, it's not always on price when you're going with government. But it is something to be conscious of, for sure.

[Operator]

This is from the line of Julian Hang from Stifel.

[Justin Keywood, analyst]

Justin Keywood on here. Just on the gross margin strength. I think it was the highest it's been in two years. Is there anything that drove that? And then also the EBITDA margin expansion didn't see the benefits of the gross margin. Just wondering the delta there.

[Stephen Reitknecht, executive]

I'll take this one. I mean, first on the gross margin improvement, most of that came from -- we did see some in patient care, but most of it really came from North America and accessibility is coming from the Brampton and the Surrey British Columbia site, the garmenting in British Columbia. It mostly has to do with operating leverage. We've had very large sales growth out of those two locations, specifically in the quarter that a lot of that contribution margin just flowed right to the bottom line. So that's our gross profit, which flowed through the bottom line. So that's really what helped it and drove over the overall company. SG&A did tick up this quarter. Some of it was related to Savaria One, as mentioned, but we had some other costs in other pockets of the business that made it a little higher. There are a couple of one-off costs in there as well. But we are expecting SG&A to go a little bit down next quarter, but keeping in mind that Savaria One costs are going to continue, and that's buried in our actual results. So that's going to continue for the next -- up until sort of May 2025, as mentioned.

[Justin Keywood, analyst]

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

[Marcel Bourassa, executive]

I would take this one. So it's quite -- it's big, coming from 16% to 20%. But don't forget, we have this consultant work with us, and we review our pricing, we review our cost, and don't forget one thing in the next two years, ‘24 and '25. The net from the consultant and what Savaria gets. It will be very positive for Savaria. It's why I'm very optimistic to see that we will have this this 20%, It's not that easy. I repeat that, but we'll work on the pricing with them and that's very different way right now that we think about the pricing with some knowledge that they can give us the participation. They are like a teacher for us, a teacher from university and it's great to keep. But we go after that. I can take the balance sheet. So we will have more sales. We have more sales with a bigger EBITDA. And I think when you compete that altogether, you see what you can save on costs, better sales, better sales pricing is important, better sales, but maybe the pricing is not there. And the pricing in Europe was always conservative, if we compare that to what we have in North America. So we fixed that with our friend from Europe. But if you put always that together, and I see me, I was putting on the number of man that is working on to say, man. We will treat that and maybe we will exceed that because we work from the top of the sales and the cost of materials. And they have a consultant to find maybe new supplier with the better cut. So we work on that. So we work on many fields, at the same time, it's while, that I believe, strong belief that we will find a 20% in 2 years.

[Justin Keywood, analyst]

Thank you, Marcel. I know there's been a track record of Savaria of exceeding long-term goals so we look forward to that. Maybe just one more question of clarification. On the management or the consultant fees, if I heard correctly, there's a variable component to it. If you're able just to describe, is that variable component attached to the margin expansion goal?

[Stephen Reitknecht, executive]

Yes. So I'll take this one. I mean, we'll definitely be providing more guidance on this at the Investor Day. But yes, there is a variable component and some of that -- the variable piece is tied to our performance. So the better results we see in our business, we can expect some fees associated with that. So it's a win-win on both sides of the arrangement.And Sarah, if I could just go back to a previous question, the Michael Glen had on the interest savings. I just had to pull up a file. It's about $1.5 million of interest savings, Michael, per quarter with the reduction of debt, but also the fact that we've achieved now a lower tier on our pricing based on the lower leverage ratio that we have. So it's about $1.5 million savings a quarter and about some of that is going to be obviously eaten up by higher dividends. But going back to your question, Michael, it's about $1.5 million. Sorry. Thanks. You can open it back up for questions.

[Operator]

[Operator Instructions] This is from the line of Zachary Evershed from National Bank Financial.

[Zachary Evershed, analyst]

I think most of them will have to wait for the Investor Day on Savaria One, but maybe just one on Patient Care. If the backlog is higher exiting the quarter, was it really just order timing preventing you from delivering another high 40s revenue quarter?

[Charles Rimbert, executive]

Order timing, yes, I think that, that is part of it. We see the uptick, I guess, as you exit summer, September and October, in particular, we did see some good uptick there in terms of order intake. So it is a combination of just increased order activity exiting the summer but also just a question of lumpiness within the quarter itself as it relates to projects.

[Zachary Evershed, analyst]

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

[Charles Rimbert, executive]

No. No. I mean, it's very much -- the orders coming in now. For the most part, it's trying to beat this, I guess, the year-end spend, right? So you have certain -- I guess, there are certain kind of budgets that have a December year-end, you have to eat the budget dollars. Otherwise, in many cases, they go away. So we are trying to take advantage of that. So some orders that you're seeing coming in now, this inflow now, it is very much to help us in Q4. There is some of the backlog. I will say that in the backlog, it isn't just a Q4 backlog, right? I mean, within Patient Care, given the project nature of some of the work, it has gone beyond a quarter, but that's normal. But some of the spending that you're seeing now or some of the uptick that we've seen the quarter, it is very much to help us with Q4

[Zachary Evershed, analyst]

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

[Sébastien Bourassa, executive]

I can take this one, Zachary. Again, we're 99% focused on the Savaria One So I think we need to say that there's nothing coming in the next few months. Right now, we have enough on our plates and we'll finish this year. We'll do a several one, and I'm sure port will come at the right time.

[Operator]

This is from Cheryl Zhang from TD Securities.

[Yaozhi Zhang, analyst]

Just a quick follow-up, and apologies if I missed this earlier, as I all disconnected. So with the public equity offering now close and your leverage down to 2.8x. Just curious how you think about the priority in our capital allocation.

[Stephen Reitknecht, executive]

Cheryl, thanks for the follow-up -- capital allocation for us. I mean, again, in going back to Sebastian's last point, it's not that we're looking at any near-term M&A. We are very focused on Savaria One. But that project, as I noted earlier, there's not going to be a large tick up in CapEx. So we're expecting CapEx for 2024. I mean, it's too early to comment on 2025, but there's no large CapEx spend associated with Savaria One. So we're going to come in at a historical range on CapEx for 2024. And working capital, we believe that we have to have the working capital to support the business growth, absolutely. But we believe we can ratchet down working capital levels a little bit more versus what we have right now. So I'm expecting some improvement there as well.

[Operator]

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

[Marcel Bourassa, executive]

Okay. First, thank you very much for -- to be on the call this morning. And this is a very important institution, the way you can see things for the future. You hire the people, you can take the good news of several and put that through the investors. So you are very, very important for us. And I am very happy to have the cash around 10% of our equity. So thanks to the partner -- and I'm very happy that many people participate with -- about our -- and we don't see a lot of offering right now in the market. So I was very happy to succeed to make that, and that push us at another level of comfort. And while you are comfort, you are better. So -- and we have some cash to entertain a lot of possibility. So again, I thank my people, and thanks the institution who keeps participates in our vision of Savaria at least until the end of ‘25. So thank you very much, everybody to be on the call, and thanks for your question, and thanks for my people to the one who answer the call. Thank you, Sarah.

[Operator]

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