Savaria Corp

TSX:SIS

Earnings Call Analysis

Savaria Aims for $1 Billion Revenue by 2025

Savaria Corporation confidently anticipates growth, fueled by a strong North American market performance, ongoing operational improvements as part of the Savaria One program, and strategic tuck-in acquisitions. The company reported a solid increase in cash balance and a decrease in net debt to adjusted EBITDA ratio, from 3.07 last year to 2.07. They plan on leveraging their $223.3 million funds to support capital investments and potential acquisitions that will offset the annualized revenue loss from divestitures and foster long-term growth. Despite a disappointing Q4 in their Patient Care segment, they achieved a record $183 million in sales with an 18% EBITDA margin. Savaria remains focused on procurement centralization, production optimization, and sales initiatives, expecting $5 million in quarterly expenses through 2024 related to the One program, potentially with additional fees in 2025 dependent on the program's success.

Steady Progress Amidst Strategic Shifts

The highlighted earnings call paints the picture of a company, perhaps similar to Savaria, experiencing dynamic changes with both divestitures and investments into strategic initiatives. Revenues showed resilience with a modest increase of 2.2% year-over-year, reaching $216.8 million, largely thanks to organic growth in the Accessibility segment and favorable foreign exchange tailwinds. The divestiture of their vehicle division in Norway was one strategic move made earlier in that fiscal year.

Margin Enhancement Outshines Revenue Growth

Gross profit and margins witnessed more pronounced improvement, where gross profit rose by $8.1 million to $74.3 million and gross margins expanded to 34.3%, compared to 31.2% from the previous year. This margin expansion is credited to better cost absorption, an improved product mix, and enhanced pricing strategies. Consistent with these findings, adjusted EBITDA also improved slightly to $35.1 million with a margin of 16.2%, reflecting increased profitability mainly due to these improved gross margins.

Divestiture and Investments: A Balancing Act

Savaria's strategic maneuvers are evident with the recent sale of their Van-Action and Freedom Motors divisions to Driverge Canada, aligning with their focus on core competencies and market position. However, these divestitures have also led to a projected annualized revenue loss of $50 million, which they aim to offset with potential 'tuck-in' acquisitions and the benefits anticipated from the Savaria One program. This initiative is set to incur an additional cost of approximately $5 million per quarter through fiscal 2024 and the first half of 2025. Moreover, the debt position has improved, with their net debt to adjusted EBITDA ratio dropping from 3.07 to 2.07 year-over-year, reflecting healthier balance sheet leverage.

A Transformation with Long-Term Goals

Savaria's approach mirrors that of a company undergoing an operational transformation. Despite the revenue loss from divestitures, they believe in the strength of market demand and their strategic plan, Savaria One. This transformation, along with strategically aligned acquisitions, is expected to contribute to significant long-term growth in revenue and margins, with confidence in reaching around $1 billion in revenue and a 20% adjusted EBITDA margin by 2025.

Assessing Segment Performances and Future Prospects

For Savaria, the Accessibility segment's revenue grew by 4.3%, driven by North American and European markets, while its Patient Care segment saw a decline in revenue due to various factors, including reduced end-of-year spending by institutional customers. Despite this, the Patient Care segment's adjusted EBITDA margin improved markedly to 18.3%, a sign that margin-focused strategies are bearing fruit. However, the segment's performance highlights the lumpy nature of project-based sales, thus underscoring the need for a balanced portfolio and sustained operational efficiencies.

Looking Forward with Cautious Optimism

Finally, as investors reflect on the company’s performance and strategic direction, it is worth noting Savaria executives' anticipation of achieving half of their targets by 2024 in terms of both sales and margins, despite not providing specific guidance. They also exude zest for Savaria One's potential to improve procurement processes, training, and overall corporate culture toward more centralized decision-making. This optimism is set to be showcased and elucidated further at an upcoming Investor Day event.

Earnings Call Transcript 2023-Q4

[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 Q4 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 March 6, 2024, with respect to its Q4 2023 results.Thank you. Mr. Bourassa, you may begin your conference.

[Marcel Bourassa, executive]

Thank you, Sarah. It's -- [Foreign Language]. It's a pleasure to be with you, my analysts and my guy here, Steve, Sebastien and Nicolas, who will take -- sorry, who will speak after me.It was a good quarter, a great year, but I think we are in a very good mood to have this year. And next year, we have some game changer that you will see. Our objective of '25, that I can speak after the people say to me what I can speak and what I cannot speak it. But I think I can say that in '25, we have an objective of $1 billion of sales with 20% of EBITDA.And I tell you, and you [ can meet the maths ], you are better than me to reach the $1 billion in sales, we will do that. It's not even so difficult. For sure, nothing is easy. And we are global across the globe, somewhere in Europe that actually, we have to say that is a little bit weak. But North America is very strong.So we -- I can see right now that at the end of '24, we just make our forecast for '25 because that would be -- takes some time to be at '25, but we have a very strong North America, strong at '24. And we can see that we -- at the end of the '23, we were an EBITDA at 15.5% and we'll go to 20%. I can look with our forecast that we should be roughly maybe half of that in '24 and the other half of that in '25. So I am very optimistic about the number that we put for '25.And again it would be a pleasure for me to -- you have some questions for me or you have my people who will make a little presentation. And after that, we are open to answer at our best knowledge what we do. And you see some big cost of consultation. Just that I signed that and I was very happy to sign that, because we have to be particular to be ready for the after $1 billion, after '25, what happened the following week, if I joined that week, but years. So with this study that we make with this international company.We had -- would be better -- Sebastien will speak about what we are doing in that. We would be better from purchasing to selling to a lot of thing. And so I see the future very good fortune. It's a big step to be there, but we will be there. We will be there at the end of '25 and I am very happy that we will have an open door for our people in April, so they will just see where we are right now.I will present you my new talent that we have. And you will see that we have a very good talent that we will present to you, and you will believe because it's always people, people and people. So you will believe more and more and more about our objective of '24 and '25 -- for the end of '25.So on that, it's a pleasure to have you. And I was reading everybody who writes on Savaria Q4 and for the year. And thank you very much. What we see, you are all very kind, and you understand quite well Savaria. For sure, now with this consulting and this big bump for the end of '25, I just want to do it this investor day, you will see exactly what we have done at the back of the door. And you will see that they are -- I believe them, they are at 20% and $1 billion.So I want to pass the line to Steve, our CFO. And thank you very much, everybody, to be there today. If you have some questions, don't forget to call me or I would be on the line during the call. So Steve, for you.

[Stephen Reitknecht, executive]

Thank you, Marcel. Good morning, everyone, and thanks for being on the call today. I'm going to begin with some remarks regarding our Q4 2023 consolidated financial metrics. For the quarter, we generated revenue of $216.8 million, an increase of $4.7 million or 2.2% versus last year. This was mainly driven by organic growth of 6.2% coming from our Accessibility segment. We also experienced foreign exchange tailwinds of 2.3%. This was partially offset by the divestiture of the vehicle division in Norway earlier this year.We delivered a strong gross profit and gross margin at $74.3 million and 34.3%, respectively, compared to $66.2 million and 31.2% for last year. The increase in gross profit of $8.1 million is explained by better gross margins, additional revenue and favorable foreign exchange rates. The increase in gross margin was mainly attributable to greater performance from all segments due to better cost absorption, favorable product mix and improved pricing.We also incurred $2 million in strategic initiative expenses in the quarter. For the year, these costs amounted to $3.1 million and have been carved out of adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin finished at $35.1 million and 16.2%, respectively, compared to $33.3 million and 15.7% last year. The increased profitability is mainly explained by the increased gross margins, somewhat offset by higher selling and admin expenses.On December 22, 2023, Savaria signed a sale and purchase agreement with Driverge Canada to sell our Van-Action and Freedom Motors divisions. The transaction closed on February 1 of this year, 2024. And accordingly, at December 31 of last year, these assets and liabilities of those businesses were recorded as held for sale.And now I'm going to provide some commentary on our segmented results. Revenue from our Accessibility segment was $173.7 million, an increase of $7.2 million or 4.3% compared to last year. It was driven by organic growth of 9.5% coming from strong demand in the residential and commercial sectors in North America and Europe, price increases and cross-selling synergies. We also experienced foreign exchange tailwinds of 2.8%. And this was partially offset by the divestiture of Norway business, as previously mentioned.Adjusted EBITDA and adjusted EBITDA margin stood at $28.7 million and 16.5%, respectively, compared to $27 million and 16.2% last year. The increased profitability was mainly due to better cost absorption as well as improved pricing.Looking at Patient Care. Revenue from this segment was $43.2 million for the quarter, a decrease of $2.5 million or 5.4% compared to last year. While our backlog remains very healthy, revenue decreased due to reduced year-end spending from institutional customers, product mix, and to a certain extent, large orders delivered last year not repeating this year.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 exchange provided a 0.5% tailwind for the Patient Care segment. Adjusted EBITDA and adjusted EBITDA margin stood at $7.9 million and 18.3%, respectively, compared to $7 million and 15.3% last year. The increase in both metrics was mainly due to improved gross margins, explained by the product mix and pricing initiatives.Looking again on a consolidated basis, net finance costs were $4.8 million compared to $6.2 million last year. Interest on long-term debt decreased by $0.4 million due to the reduced balance of debt. We also experienced a decrease in net finance costs due to a foreign currency gain of $1 million compared to a loss of $0.5 million last year, and we also incurred a loss on net investment hedges of $0.8 million in the quarter.Net earnings were $11 million or $0.16 per diluted share for the quarter compared to $11.3 million or $0.18 per diluted share last year. And adjusted net earnings were $12.8 million or $0.19 per diluted share compared to $12.6 million or $0.19 per diluted share last year. The decrease in net earnings was mainly due to higher income tax expenses, partially offset by lower finance -- by lower net finance costs in the quarter. The slight decrease in net earnings per share is due to the increased number of shares.And so now turning to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes in noncash operating items reached $30.7 million, which is essentially the same as last year. Net changes in noncash operating items increased liquidity by $6.4 million compared to $13.2 million a year earlier, mainly due to increased receivables. As a result, cash generated from operating activities in Q4 stood at $37.1 million compared to $43.9 million last year.Cash used in investing activities was $5 million for Q4 compared to $7.6 million last year. We disbursed $5.1 million for fixed intangible assets in Q4 2023 compared to $7.6 million in 2022. Cash used in financing activities was $21.1 million for Q4 compared to $35.9 million last year. And the variation is mainly explained by our reimbursement on the revolving facility of $2.6 million this year compared to $20.2 million a year earlier. As noted, our cash balance grew by $10 million in the quarter versus last year.As at December 31, 2023, we were having a net debt position of $269.9 million, ratio of net debt to adjusted EBITDA stood at 2.07 in comparison to 3.07 at the end of last year. Savaria has funds of approximately $223.3 million to support working capital investments and growth opportunities.Looking forward, Savaria's future prospects are promising, driven by strong market demand, the progress of Savaria One and potential tuck-in acquisition opportunities that will enhance our market position.From a financial standpoint, we anticipate average cost of approximately $5 million per quarter through fiscal 2024 and $2 million per quarter for the first half of 2025 related to Savaria One. We may see additional fees depending on the success of the program. We remain confident that the benefits of this program will increase as the year progresses, leading to long-term growth in both top line and bottom line performance.In terms of tuck-ins, these acquisitions would not only align strategically and expand our market opportunities, but also help to offset some of the $50 million of annualized revenue loss resulting from the divestiture of Van-Action and Freedom and the Norwegian vehicle adaptation businesses.Overall, we have full confidence in our ability to achieve our targets of approximately $1 billion in revenue and an approximate 20% adjusted EBITDA margin in 2025. We look forward to sharing more detailed information about our initiatives at our upcoming Investor Day in April.And with that, this completes my prepared remarks. I'm going to turn the call over to Sebastien.

[Sébastien Bourassa, executive]

Okay. Thank you, Steve. So a few comments on my side concerning the -- most of the operation and the Savaria One. So basically, I'm quite happy with the growth in 2023 in North America of like 13.6%, which was greatly supported by Vancouver and Toronto factories, so thank you to both factory. And what's important is we remain a very healthy backlog for our elevator division. So that keeps some fuel for the next few quarters.Finally, we have also some improvements in the inventory management. So I think it show at least we are trending in the right direction. So I think that's a start. And it's also part of this Savaria One to improve our working capital. In Mexico, we now have 70 employees. We have some weekly truck coming to our factory in Toronto, starting some shipments to our factory in Vancouver.We now export some finished product in the U.S., some ports lift and started some home elevator. So I think that will be a start to hopefully some new market or some customer. We saw the Canadian car division, as you saw, the division in Toronto and Montreal. What was important for us is to find a good buyer, and I think with the company we found in the U.S. drivers, it will be better for our employee to have a company that can help to develop a bit the business. So quite happy with the transition.Nicolas, will talk a bit later about the Patient Care, which was a disappointing Q4 to be transparent and modest growth in 2023. But what's important to not forget is a few years ago, we were a company of 10% of EBITDA in the Patient Care, and it's now 18%. So when we talk about 20% for Savaria One, you see the Patient Care is very close to it, and I'm pretty sure the Savaria One and the work that the team of Les and Pat are doing will be able to achieve it.At Savaria One, so I would say it's really underway. We have a strong participation from our employee. They are super-motivated to participate in it, and it's even starting to be part of our [ MD&A and DNA ]. So quite happy with that. I would say we have found some very strong pillar on the procurement, on production, selling opportunity, pricing that will help us to achieve 20% by 2025. And the most important is we'll have a strong foundation for the after $1 billion.I will not give a guidance to do on the after $1 billion. But at least, okay, we're very decentralized and for many years. So for us, it was important to take more about one company and one Savaria, one way of training. So this is really what we are currently doing. And I'm pretty confident that in the next few quarters, you will see a good improvement step by step towards a goal of 20%.And also part of this Savaria One, there's a lot of training happening for employees just to make sure we think as one company. So I will strongly invest you to -- invite you to register for Investor Day on April 9 because we'll have a chance to talk more in detail of the Savaria One. And also, if you register, you will have the chance to visit our factory in Brampton, where you can really see that it's a factory under transformation, new layout, new way to manage the company more digital board. So I think it will be a good example of where we are.So Nicolas, do you want to talk a bit more about Patient Care?

[Charles Rimbert, executive]

Sure. Our Patient Care segment delivered a record year in 2023, achieving $183 million in sales and EBITDA margins of 18% for the full year. Our operational and sales leaders within Span, Handicare and Silvalea have really come together, and 2023 results are a testament of their efforts to integrate and manage these businesses as one Savaria patient care group.Turning to Q4. Our sales in the quarter were weaker than anticipated due to a number of factors, primarily that we had some large projects in Q4 2022 that did repeat this year as well as various project delays that pushed some work into Q1. However, our order intake remained strong in the quarter, and our backlog exiting the year was at a record level, which bodes well for 2024.On the margin front, despite the lower sales in Q4, we maintained a relatively high EBITDA margin of 18.3%. The margin improvement is mainly attributable to the following. First, we had a favorable product mix in the quarter with the good mattress volumes, strong year-end sling spending and high-margin contracts within Handicare's Canadian business.Second, we continue to focus on selling the entire room. We make better margins and we can bundle our sales, and we had a good success selling packages in the quarter, namely bed packages to the VA.Third, pricing improvements in 2023 are having a positive effect, in particular with respect to beds where we've optimized pricing to preserve minimum margins and gone away from the low-end market to focus on better and best category products.Finally, I'd be remiss if I didn't mention the excellent job by our operations teams in improving production efficiencies within our factories and maintaining a diligent control over costs.To conclude, we were a bit cautious throughout the year and tempered expectations with respect to the significant margin improvement we have been observing within Patient Care. However, now that we can take a step back and review the full year's performance, we are confident that we have the right team in place and the winning formula for sustained success. We also know that we need to prioritize sales growth, and this will be a key focus for management in 2024.And with that, I'll turn the call back over to you, Marcel.

[Marcel Bourassa, executive]

Okay. Thank you very much, gentlemen. And thank you to be very enthusiastic about our future. And I think we are a little bit conservative, but it's looking very good. So Sarah, I'll transfer to you to -- if we have some call that we can answer.

[Operator]

[Operator Instructions] We'll now take the first question. This is from the line of Derek Lessard from TD Cowen.

[Derek Lessard, analyst]

And Sebastien, congrats and good luck on your new role. I just wanted to maybe hit on, Marcel, if I heard that correctly in your opening remarks, you said that you expect to get halfway at your targets in 2024. Do you mean on margin and sales?

[Marcel Bourassa, executive]

Yes, [ approximately ], it's a long word for me. Yes, average that we will do it. But I will not say that it's done, but we will work hard to say that I want to be half.

[Derek Lessard, analyst]

Okay. And I also wanted to touch on the Savaria One and I understand that you might not want to steal too much of the thunder from your upcoming Investor Day, but maybe could you just highlight some of the bigger initiatives you have in the pipe and when you expect to start offsetting some of the cost of the program?

[Sébastien Bourassa, executive]

I think I can start, and then maybe someone can complete. So basically, I would say direct really -- I'll take an example of procurement. Procurement, now we have been very decentralized. So maybe we have some vendor in Vancouver, Toronto that again, we have never look a key to put it as is they're a national company that could offer the part to put the volume to get better pricing, do a bit challenge with some of the supplier that we work with them too long, do a bit of RFQ. So that's a bit example of procurement that we have been working on.For sure, from Europe to North America, it's not always have so many common vendor. But yes, we have some for some specialized parts. So I think we have really look at procurement seriously.Production. We have been doing the same thing for many years. Sometimes you get a bit lazy. So again, how can we challenge our team to have a better flow material in the factory to be a bit more productive, so production to do a bit more output in the factory. We have been talking for almost 2 years of good backlog in Brampton and Vancouver and a bit difficulty to execute it, but you saw the growth in last year. Again, we started in Savaria One towards the second half, but you see this start to have a bit of traction on the output for the factory, and we should continue this year. So quite happy with the change.Selling opportunity. Again, we have many different brands, how can we look at things? Are we maximizing the sales in one area or another one? So a lot of work has been done also about the selling crossing opportunity.

[Derek Lessard, analyst]

Okay. That's helpful. And maybe like on that note, Sebastien, could you maybe talk about Jean-Philippe and the hire as his role of Chief Transformation Officer and maybe his key accountabilities and maybe a little bit of his background and how he is going to help you guys?

[Sébastien Bourassa, executive]

Sure. So basically, we saw that when we started this Savaria One project, it was important for us to have someone that can spend more time than me or Steve, order manager to focus just on the Savaria One to make sure we are very structured because it's easy to say, oh, I will do this initiative, I will do it by this date, but you need to do some collab with the team in a pretty rigorous way when is the date, what is the value and to continue. So JP is full time on that. And he has over 20 years of experience to do some transformation.Again, us on the side, it's not a restructuration. It's a growth story. So again, that's quite exciting for all employees. So they are very excited, but JP has his background do it in a very structured way. And what's important is what the deal we are going to finish with a consultant. We want what we have done to be sustainable. So that's why we're starting slowly to improve our team to make sure we can be sustainable after the 2025.

[Operator]

Okay. We will now take our next question. This is from the line of Michael Doumet from Scotiabank.

[Michael Doumet, analyst]

For the anticipated costs of about $5 million, I think, per quarter in '24, and Steve, you said $2 million in each of Q1 and Q2 of '25, so collectively, about $25 million to $30 million of cost, not a small amount. I wanted to get a sense for if you can break that down, is it all consulting fees? Or does restructuring get in there and maybe some technology investments? Just trying to get a sense for all the costs.

[Marcel Bourassa, executive]

Steve, do you want to answer?

[Stephen Reitknecht, executive]

Sure. Yes. Thanks for the question, Michael. It's the cost that we're expecting that I touched on the $5 million in Q4 or in every quarter for 2024, that's really going to be consulting and other onetime costs related to Savaria One. There's going to be some training costs in there, but the majority of it will be consulting fees. There's really not going to be much of an investment in assets and capital assets so that total expenditure of $20 million that we're forecasting for 2024, most of that's going to go through as an expense line item. It's being carved out as strategic initiative expenses, similar to how we recorded it for Q4 of 2023.

[Sébastien Bourassa, executive]

And just to add something on that. Yes, some people might say, oh, it's a very high cost, but that show a bit the intensity of the program. Again, it's touching other factory at a different place. So very intense factory size. Obviously, the pillar that I mentioned a bit before. So that should bring some confidence that where we were last year. We want to go in 2025 that -- again, that gives us a better chance to achieve it.

[Michael Doumet, analyst]

No, I surely appreciate the level of investments, I guess, financially and from a personnel perspective as well. I mean, if I go back to some of the earlier comments, I mean, it does feel like you're doing a lot of heavy lifting here, '24 and '25. And I guess, I don't know if there's a way to think about assessing the operational risk and sometimes there is kind of a step back for 2 steps forward type of trend.I'm just thinking to the earlier comments about expecting half the growth in '24 and the other half in '25. I mean would it help -- would it be more maybe helpful just to think that maybe more of the margin expansion is in '25, just given some of the heavier lifting?

[Marcel Bourassa, executive]

I will answer that. Thank you, Michael. And first of all, don't forget our industry, it's one of the best industry in the world. It's just about the aging of the population. And we're in and it was good for me 40 years ago when I buy it. But it's continued. It's continued. But with this study, the fundamental is who will be better everywhere. Everywhere, we will be better. And often, they are like 30 or 40 people from the consultant. They are in Europe, they are North America, they are in Mexico. They are a bit -- or in China.We have to be better everywhere. For sure, '25 should be better than '24, because we will have some subject, there are some study that they make, that it will just arrive that we will make that in execution for sure. But I want that whoever has a bit more to say in '25 and maybe could be better than 20%, because as you mentioned, for sure, some action that would be just in '25 and not in '24.You are right, Michael. Sebastien, you want to complete that?

[Sébastien Bourassa, executive]

Not much, just an easy example, Michael. [indiscernible] Inventory over 100 days. So when I -- if I have a new saving with the new parts, but I have to eat my inventory before receiving the P&L. And sometimes, if I change of supplier, I need to approve the new parts with R&D, do some correct testing. So yes, it takes -- things take time, but now we're quite happy with the list of projects that we have now.

[Operator]

We'll now take our next question. And this is from the line of Frederic Tremblay from Desjardins Capital Markets.

[Frederic Tremblay, analyst]

First question, I guess, just to follow up quickly on the expenses for strategic initiatives. On the $5 million, is there a component in there that is performance-based, meaning like linked to some of the savings and improvements of Savaria One? Or is it all a fixed cost component at this point?

[Stephen Reitknecht, executive]

So I'll take this one. I think it's important for everyone to know that we have talked about the agreement being fixed and variable. So there are fixed and variable components. We have -- but we have structured this agreement so that our interests are totally aligned with the consultant's interest. We're all working to achieve the same goal here.Without getting into too much details on how the agreement is actually structured, for 2024, we are fairly confident that the total expected expense is going to be $5 million per quarter where we may see additional fees are in 2025 and beyond as we start to see more of the success of the program come through the financials.

[Frederic Tremblay, analyst]

Okay. That's helpful. Maybe switching to tuck-in acquisitions, just something you mentioned to offset some of the divestitures. Just curious to see how you think about that. I mean past tuck-ins were, in some cases, dealers and accessibility. Is that an option? Or are you looking more at a product that would complement maybe what you have right now?

[Marcel Bourassa, executive]

You know something, we are always looking about territory or our sole products that will completely -- complete our line. And don't forget when we have products that you can put available to 1,000 dealers, so we can buy something at $5, but it can go to $10 very quickly. So it's always -- territory is always a product. So -- and Frederic, you are always good, your comments, and when I read what you write, you know Savaria.And one thing we don't forget about this study by an international company, the family own roughly 20%. So before we make a move, you imagine the guy who was 20% can look at that is what they will do this with millions of expense. We just want to be better right now and better for the future.

[Frederic Tremblay, analyst]

Yes, that makes sense. Maybe just a question on Patient Care on the 2024 outlook and maybe the first part of 2024, and Nick, you mentioned that some of the projects have been pushed back to Q1. Maybe just broadly your expectations in terms of revenue growth. I know you mentioned that would be a priority for 2024. So maybe just broadly go over what you're seeing so far in Q1 and maybe getting into Q2 in that segment?

[Charles Rimbert, executive]

Yes. I mean, there was a -- there's a lumpiness component to it. I think we talked about that several times. So we have a very strong backlog. And again, the backlog is based on certain projects that we expect to deliver over the next several quarters.Going into Q1, Q1 is going to be tough. I'm not going to lie. We had a very strong Q1 last year at -- I think it was 48 -- close to $49 million in sales, which was an all-time record for us. Also kind of exiting COVID, so 2022 was also very strong year. And so here we are going into a period in 2023 or exiting 2023, with sales that maybe were a bit lower than anticipated and lower than the market expectations.We still feel very strong about the business. We have good order intake. It's just a question of when some of these projects will land. And we're also looking to smooth out some of this lumpiness by getting better visibility into our pipeline. And by that, I mean, when we can identify some of these revenue gaps, right, if some of these projects are getting delayed, looking to see how we might be able to bridge those gaps with quick ship items, right? So maybe there's promotions that we might be able to run to help bridge those gaps in certain quarters where we're seeing some delays in certain projects to help smooth out some of that lumpiness.So all that to say is that, we are very confident about the business. We do anticipate similar kind of high-single-digit growth to help get to that $1 billion mark, it does have to come from Patient Care as well. So we do anticipate good growth next year. One is going to land quarter-to-quarter. That's something that, unfortunately, it's a bit more difficult for me to explain.

[Operator]

We'll now take our next question. This is from the line of Justin Keywood from Stifel.

[Justin Keywood, analyst]

Just on the comments of weakness in Europe versus strength in North America. Are you able to describe what factors are leading to the different dynamics in each of the markets? And then also, are you seeing any indication of strength returning in Europe and maybe in the other regard, any potential risk of growth in North America?

[Sébastien Bourassa, executive]

Okay. I can start and people can complete, Marcel. So for sure, Justin, I think, again, don't forget, last year, we had a tough Q2 in Europe. Everybody knows we changed our ERP. We don't talk about the ERP anymore. We now see some good benefit out of it. But Q4, we had some growth. But one thing not to forget is we do not have the same portfolio of products in Europe than we have in North America. And we know we want to expand the portfolio of products so that we have a one-stop shop with the elevator platform lift. It's taking a bit more time than expected, but definitely, by '25 we should have a much better range of product that we are able to generate some interesting organic growth, and that will help also the margin.So I would say that let's continue to be patient. We have a good game plan. We have a good team in place in Europe where the Savaria One is quite intense also over there. So I'm pretty sure we will see some positive things in the coming 2 years.

[Marcel Bourassa, executive]

Yes. Sebastien, just complete that, okay, Justin. That Europe represents roughly 30% of right now in '23, 30% of our EBITDA. The 17% is coming from -- mainly from North America. I will be very [indiscernible] if it was the other way. But I just see that we represent in North America, and North America is not in the recession. And -- but our people in Europe work very well. And they work until -- with the leadership of Clare. And she is very good, and she knew what she's doing. And she will be back with higher profit.So the 70% that represent roughly in North America, it's very strong. It's very strong. And I just want to add that I think Europe just go one way with Clare and his team just to be more participating in EBITDA in the coming years. But we are a team. One of the team has some difficulties. They are -- we don't speak any more with the recession in North America. But then they are in recession. So even if we have a bulletproof products from the economy, but often the people need a product, but because of the recession, they will say, we'll wait a little bit.So we know that. But it will be -- that's why I'm very confident, very, very confident that we will meet or exceed our numbers, because the people need our products. The people need our products. And when I say that the 70% is going very well, I am very optimistic. So just a little complement for the question. Thank you.

[Justin Keywood, analyst]

Yes, really appreciate the context, and it sounds like there's some potential underlying strength there that maybe shows a bit later as that market improves. I just had one other question on capital allocation. We saw deleveraging in the quarter, 2x net debt to EBITDA. Just wondering if share buybacks are on the table or potential dividend raise? Or is the idea to keep some of that capital for some future tuck-in acquisitions?

[Marcel Bourassa, executive]

Absolutely. For sure, it will be a good thing, if I buy back. But we're not in a position right now. We want to grow. And for sure, we have to spend some money. And with the consultant, that would be a use of our cash flow that we have with them. But it's better than an acquisition, because often there are 30 or 40 people working all the time at the same time for Savaria. So it's major. It's major, so that's the best investment that I can do. It's why I signed that with a smile. No, it has to come, but we will see the results you and me together very soon.

[Operator]

We'll now take our next question. And this is from the line of Zachary Evershed from National Bank Financial.

[Zachary Evershed, analyst]

So the Savaria One additional fees payable conditional on the achievement of specified financial outcomes. Could you clarify for us what margin level does the company have to reach before the performance fees kick in? And how much would they add to the total cost at the 20% margin mark?

[Stephen Reitknecht, executive]

Thanks for the question, Zach, and I appreciate you wanting more detail to try to forecast cash outflows. It's -- the way that the agreement is structured, it's at a very detailed level. And when we look at all the initiatives that we have, it's difficult to say, and we're not really willing to comment on exactly how much the potential is because we're waiting to see what the benefits are going to be coming to our financials.So it's -- I mean we know that 2024 payments of $5 million per quarter, that's exactly what we're expecting. For 2025, depending on the success of the program, it could end up being more than what we have in that $2 million per quarter. But we're actually hoping that it's going to be more in the sense that the more that we're paying on the performance side, that means the more -- the better results we're going to be getting out of the program and out of the work that we're doing with the consultants.So it's too early to comment, I think, past 2024 with regard to total fees. But again, I think the comment that I made around fees potentially being higher, but the fact that our interests are fully aligned with the consultant's interest, I think that, that's a strong signal.

[Marcel Bourassa, executive]

Okay. And Zach, just to complement what Steve very well say, that I don't sign a contract if I don't see a big return on investment and not taking 10 years but taking a couple of years. So we study the offer, and we signed the offer because it's very important, the saving that we will make after the study that I am more than satisfied right now after by 9 months, 1 year.So I signed that because I was sure I was not -- no, we are never sure, but I was very optimistic that the return will be good, very good. And so if it's good -- costs very expensive, but it will bring the -- you know they work on everything. Just in purchasing, imagine that we allocate like $400 million of purchasing, imagine a consultancy that make this kind of study all around the world, do you know exactly where is the best purchase and at what price?So they help us right now. And that's major savings. And for sure, they do that [ their life ] to do this kind of study. And I am so happy that we have the guts to go with this study, even it's very expensive. So Zachary, believe in me that -- and we are -- we -- I don't see that we will -- it will not take 6 months more. But believe in me, you will see the bottom line that will arrive with this study, plus our regular work that we do. But we will be better. And just on purchasing, I repeat, when you buy a roughly 50% with materials, that's where is the saving. Thank you.

[Zachary Evershed, analyst]

For the follow-up on that, I guess, it sounds like you guys are very optimistic on the 20% margin level achievement. But between the change in CEO and upcoming Investor Day, was there any discussion of maybe reducing the 20% target to a range or extending the time line to achieve it beyond 2025?

[Sébastien Bourassa, executive]

I guess, I have to be also comfortable with the target that we have put. So I think we're going to live with the target we just put on the market yesterday night. And I think at the Investor Day, we'll continue. So I think the target is set up and even there's a change, we are all comfortable on that, right? And I'm spending a good amount of my time on the Savaria One. So I will say what we have put, I strongly believe in it.

[Zachary Evershed, analyst]

Excellent. Then just one more, if I can sneak it in. I think you guys were aiming to get the Mexican facility up to about 100% headcount by the end of the year. You guys have 70. Is everything going well on that front? Any reason for the difference in total employee count there?

[Sébastien Bourassa, executive]

Again, Zach, it's not a competition of the numbers of employees that we have in the plant, but it's more like what we get output out of it because I would say we are quite happy with our first year. If we look what we have in China, which took us like 20 years to build, I think we have made a very good progress in our first year in Mexico. So quite happy with that.And what's nice is now with the Savaria One, I know exactly what they would do in the next 2 years because all our projects are map outs. And again, we're staffing it also. So again, I think this year, we definitely will hit 100 employees, but again, it's not a competition of numbers of employees, it's more the output out of the factory.

[Operator]

[Operator Instructions] We'll now take our next question. This is from the line of Fred Gatali from Raymond James.

[Fred Gatali, analyst]

On some of these Van-Action and Freedom Motors that were sold off. Is there a piece left on that? Or has the full business [ rolled ] off now on these adapted vehicles? And are there any contributions from these sold off businesses in Q1?

[Marcel Bourassa, executive]

I would just say something that I was there many years ago when I was with -- running -- or not running, but participating in that more with Van-Action and Freedom in Toronto. And I tell you something. That's was hard for me to sell this division. They are from Montreal, my native land. But I say, it's not that how much money we will make, it's who will buy that, that I believe they will be good for my employee. So it's not a question you pay 5 or 10. So you have to have the right price.But I am sure that we will have more employees at Van-Action at the end of the year than right now because the buyers have a lot of place in the states, over [ 1 or 2 ], that they can sell Van. So they need another place than in the states to manufacture, and they visit us and they know us and we made business with them for many years. So that's the best thing for my employee that I find -- my group can find this buyer from the space.So -- but that was hard for me, something when it's coming from so many years, at the beginning of my life, that I have that, and they were very good for me. But right now, that was the right time to pass the leadership to another company that is unique function is to help the people with [indiscernible]. So Sebastien, do you have something to them?

[Stephen Reitknecht, executive]

If I could just actually add a little bit of color as well, Marcel. Just to clarify on the selling price. So we have disclosed in the financials, the selling price is CAD 7.5 million. So there should be a gain on that. We're expecting a gain on the sale to be recorded in Q1 of this year. So the deal actually closed on February 1.I did touch on the approximately $50 million of annualized revenues that we've lost through divestments over 2023 and the beginning of 2024. About $35 million of that $50 million comes from the Norwegian business and $15 million comes from the vehicle manufacturing businesses of Van-Action and Freedom. So we still -- and to answer your question specifically, we still do have a piece of the vehicle business. It's the retail side. So we divested of the manufacturing.And sort as Marcel was saying, we felt that the home was -- the home for that business was better suited with drivers. They're going to be more successful at growing their business. It's core to them. And we're going to be taking the proceeds from that and reinvesting in the rest of our Accessibility and Patient Care businesses.

[Fred Gatali, analyst]

Okay. And just to -- just how do you think to get to this $1 billion revenue? How should we think on that target being reached through organic growth versus perhaps through addition of acquisitions?

[Stephen Reitknecht, executive]

We're looking to reach $1 billion mainly through organic growth. We -- and I would say without the divestments, we would definitely have achieved that. So we do have a little bit of a hole to fill with those divestments. That $50 million of revenue is providing -- or bridging more of a gap than the 8% to 10% of organic growth that we were roughly anticipating for a year. So we do need some tuck-ins, some tuck-in acquisitions to fill that $50 million, but that's kind of why we're saying approximately $1 billion in revenue.So there has been some changes to our business since we provided that target, meaning the divestments of those businesses. But we feel good about the organic growth coming in roughly 8% to 10% still in line with what we had said when we first came out with that target, and I think it was a year or 2 ago now.

[Operator]

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

[Marcel Bourassa, executive]

Okay. Thank you very much, guys, to be with us this morning. It's very important that we show the confidence that we have to the future. It's incredible. And I am always very enthusiastic. For sure, we have a lot of talent right now and new talent, and maybe I am just a little bit, not even a quarterback, somebody on the bench to see that. And my guys are terrific. And -- but if we're good and will be better, it's just because you guys, you take what will follow you and you put that for investors. And thank you very much for everybody, what you do for me, for us. So thank you, Sarah. [Foreign Language]

[Operator]

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