Disclaimer. As much as I wish we had a crystal ball, the reality is no one can predict the future. Second, we're also going to talk about a lot of numbers, including some non-GAAP measures such as adjusted EBITDA and adjusted free cash flow. Please take a look at our investor relations site, richardsgroup.com, and all of our filings on SEDAR+ for reconciliations to those measures. Now, enjoy the show. Welcome to another episode of the Richards Management Review podcast. I'm John Glynn, CEO, and your host today, alongside Enzio Di Gennaro, our CFO. Today, we're talking about Q1 2026 results. Let's get right into it. Enzio, take us through the numbers.
Sure, John. Thank you. Good to see everyone again. The quarter actually yielded some growth. We had 5% growth, CAD 5 million up to CAD 105 million in total consolidated revenue growth. That came from primarily the healthcare segment of our business, which yielded actually CAD 14 million worth of growth. That primarily came from acquisitions where we've got some trailing incremental revenue that's coming from the DermapenWorld business, along with the National Dental. We also saw some significant growth out of our pharma business to CAD 2 million. The offset to that was the contraction in the packaging business, where we saw it drop 17%, or CAD 9.6 million. That was driven by food and beverage and cosmetic, each proportionately dropping around 18%. That yielded, John, a lot of noise, but the benefit of being somewhat diversified.
Turning to gross margins, that's really the story in the quarter. We actually increased gross margin by over CAD 5 million. That ratio has gone from 42%-44%. That primarily came from the shift from pure distribution to OEM, where we saw the aesthetics gross margins grow significantly. In total, the healthcare business grew gross margin 5%, from 42%-47%. We saw a slight contraction in the packaging segment. Overall, a really, really good story. At the end of the day, though, we have flat EBITDA. The story around our operating expense growth continues, and the absorption of those costs is something that we're still challenged on. EBITDA margins ended at 11.3% from 12% last year. That's broken down between healthcare and packaging, where we saw healthcare at 14.8% and EBITDA percentage at packaging at 9%. I'll stop right there now.
That pretty much addresses each of the key financial measures that we report from a segmented basis. Let's talk about that for a minute.
Yeah. I was thinking we could break it down three ways, some of what you already mentioned. When I look at the business, I look at obviously packaging and healthcare. Perhaps we could start with talking a bit about what's going on in packaging, because we've had some areas that are a little more challenged than others. Let's talk both about where we're the most challenged today on revenue and margins and where there are some bright spots.
I think we'll talk about the challenges in packaging for a minute. Food and beverage continues to struggle, primarily in the U.S., John, where we're seeing a lot of pressure from inventory backlog. We have found that a lot of our customers continue to hold a lot of inventory. It's not been moving, and there's a slowdown in the entire supply chain in that side of the business. We feel that at this stage of the game, we're going to continue to try to chase that business, but do it at incrementally larger margins. That's our strategy there. I think we are faced with a challenge in that business, and we're going to continue to see that over the next three quarters, and that's something we're going to continue to.
Yeah. The macro environment's not helping us. Ever since the Liberation Day tariffs started last year, we saw a lockup that was in Q2 of last year for a period when it really got out of hand, particularly with China, then things settled. It still seems to have had a sort of shrinking, deflating effect on demand. Now, of course, with the Iran war going on, we're seeing those increase in freight rates. Those freight rates are starting to land into inventory and will show up in the cost profile of product that's selling some now, but also over the next six to nine months, because it takes time for that stuff to work its way through the system. We'll see how that develops for Q2, Q3, and Q4. That's just the freight rates.
The disruption to fertilizer was the other interesting thing with the war. If you flow that through, if that disruption of fertilizer is significant enough, it could have effects on the food production supply, which itself then later down the line affects the packaging needs. We're waiting to see how much that turns out to be real and how much is just cost versus volume. In the case of fertilizer, we care more about volume at that point because that's going to drive our business more so than cost. We're keeping a close eye on it. I thought it was interesting, too, that we saw the same pullback a little bit in cosmetic, which had been the strongest sector in packaging so far. To me, that really says this is a macro environment type thing.
Absolutely. The key point there is that's a surprise to us. We did not expect the cosmetic sector to pull back a bit. That's something we're going to keep a close eye on.
Yeah. Staying on that topic for a second, I think one thing we've been good at so far this year is starting to manage some of the operating expenses. I know we talk about the breakout. Generally we're increasing OpEx, but we'll get to explanations of why. A lot to do with our OEM business. On the packaging front, though, we have generally been able to start peeling some of that stuff back. We're limited a bit in our ability to move real estate because leases are kind of the biggest piece. Do you want to talk a little bit about what we're planning for real estate?
Yeah. On the real estate side, the only real lever, because we are locked into these deals, is to try to shrink some of the footprint. Our overall strategy was to try to get to a hub and spoke type model. I think we're still moving towards that regardless of where the business goes. In doing that, we're caught with these leases that we had to renew a year ago, two years ago, at very expensive rates. We saw upwards of up in 20% in total lease cost increases at our P&L. We're challenged by those costs. We'll do things like subleasing to try to get at least some of that back.
We feel like we can do that and optimize our operations, our warehouse operations, that we can efficiently work with what we got at the end when we're subleasing that out. That's an important move for us. The other thing is we feel like we are, from a people process and systems perspective, the spending is pretty much flagging out now on that side of things. Now we know what we've got from an infrastructure perspective, and we can work with that infrastructure and now start to reap the benefits of it.
Right.
With efficiencies and whatnot. That's important to us as well.
Yeah. Let's turn to the OEM business next. It's one of the most exciting recent changes, and it's a nice segue for the OpEx explanation of what's been happening. We've been making a lot of investments in that business. I'll speak to it anecdotally a little bit.
Sure.
Talk a bit about how it affects the numbers. We bought Dermapen World in June of last year. We're now sort of combining the forces of the Dermapen World brand, the LUVO brand, and WorldPRP, all of which we've kind of cobbled together in the last few years to create a complete aesthetics OEM business that we're going to take around the world. It's really exciting, but it means we have to put a lot of work into bringing those businesses together and cross-launching products. We've taken two important products, the LUVO BELA product, and cross-launched it under the Dermapen World brand as Synergist. We have also cross-launched the PRP product as Plasma Power, and that's in addition to other launches just organically within Dermapen World. There's a couple of red light devices that are coming out to market, a mask and a cap.
We have extensions to the dermaceutical line. Tons of new products, which is fantastic, but as an OEM, when you're launching new products, you have to spend quite a bit up front. We had two massive shows, [AMWC] in Paris. There was another show in Monaco. Big splashes there, in order to get the product out to market, and that's had impacts on the financials.
Absolutely. Despite the fact that we've seen the top-line growth and we talked about how lucrative the margins have been, the EBITDA ended up flat. The good thing about the OEM side of the business is we've got this margin to play with and we spend it seasonally. The expectation is that we continue to drive those margins and that the OpEx starts to reduce as we proceed throughout the year. That's something that we're looking forward to. Despite that, healthcare EBITDA margins still increased because our pharma business-
Yep.
has been the rock star on that side of the healthcare segment, where their EBITDA margins and gross margins are climbing substantially. That's a result of the strategic movement towards really getting high, more lucrative margin product rather than older sort of commoditized and capital business that was driving lower margins. That's exciting to see. Even though we have seen a pare back on that pharma top-line number, it's actually come with more lucrative margins. That's-
Yeah.
a big bonus for us.
It's incredible the performance that group has been able to achieve, that really puts us squarely into the healthcare distribution business. I think Q1 was fantastic for the healthcare distribution side of the house. Very strong performances out of both Clarion and Healthmark, our two largest banners. You've already talked a bit about some of the numbers. When we describe this to investors, we often talk about aesthetics, vision, pharmacy as the different verticals. Can you take us through a little bit of where you see the most impact? We've already talked about pharmacy being one of the biggest ones.
Yeah.
How are we doing in aesthetics, vision, and-
Yeah.
the others?
Well, aesthetics was a nice surprise. In addition to the acquisition revenue, we also saw some significant growth in aesthetic capital. Aesthetic capital has come back tremendously. If you'll recall last year, our Q1 was really challenged. Both pharma and aesthetics were both challenged. That group has really come out strong and they contributed significantly as well to our top-line growth. That is coming also at very lucrative margins, that aesthetic business. Overall, despite the challenges in the macro market that we expect would creep into those businesses, we actually saw some really good results in the first quarter.
Yeah.
On the vision side, they were down a bit. They have seen some pare back. Now the acquisition for NDI was actually really lucrative for us, that offset.
For dental. That's our dental business.
For dental on the other.
Yeah.
For what we're calling the other. When we disaggregate our revenue, we've got them in the other bucket along with surgical. They were up big too. That's nice to see. Some really good tailwinds, I would say, in that side of the business, no doubt about it.
Yeah. I'm excited to see the breadth of growth-
Yeah.
across the different verticals. As much as our business drives a lot through aesthetics, almost half the healthcare revenue, it's fantastic to see that dental business growing. Surgical did pretty well in the quarter, and we're continuing to build variety of our offering in vision, even though it was a little bit challenged, relatively. That actually brings us to a perfect segue. A few weeks ago, I had the chance to actually visit Clarion Medical Technologies, which is one of our largest sub-banners. I did a walkthrough of the business and sat down with Clarion's President, Cameron Dell, for an interview. Let's check it out. Welcome to Cambridge, Ontario, the home of Clarion Medical Technologies. I'm here today with Cameron Dell, President of Clarion, and we're going to be getting a tour of the building and talking about how we run things here. Cam, welcome to the podcast.
Thanks, John.
All right. Now we're going to do a little walk and talk through the office. Tell us what we're looking at.
Right in here is our main bullpen, where we really have our finance, our operations teams, as well as our logistics teams. T hat handle all the day-to-day here.
Awesome. Approximately how many people working in different functions here, just so people get a sense of how big the business is?
Overall, Clarion has approximately 200 people that are there. In the office, we have about 90 people, and in the field, we have about 90 sales and trainers, as well as field staff.
Awesome. Okay. Let's take a look at this training room. How often is Clarion running training events in this room?
I would say on a monthly basis, we would host an open house or a training event. More frequent than that, we'll have customers from around the Toronto area or Southwestern Ontario come in and look at our products and learn about our products. Really on a regular basis, our training teams are looking at new protocols as well as treatments on our devices.
Is training for us more of a support of our product sales business, or is it a business unto itself?
It's actually both. One, we have a separate training department where we will charge for certain specific trainings that are out there. In addition, it's a before-sale and after-sale thing that we offer our customers for the trainers. We have full nurses on staff, as well as those with 20 years, 25 years of energy device experience.
Awesome. I understand we've got a treatment room to take a quick look at.
Yeah.
Can we go check it out?
We can, for sure.
What's the difference between a treatment and a training room? Because people probably think those would be the same thing.
The treatment room actually is more of a sterilized, clean room, where basically people will actually get medical treatments, whether it be lasers, whether it be injections. Basically a safe space. One of the things when you're dealing with lasers is they can be extremely powerful. You have to do it within walls, because if you don't, there is a potential that it will actually burn you if you're not safety protocols with it.
That's why we have these windows, but we also have them blacked out, right? That if you were to accidentally fire a laser at that window, you're not going to shoot it through. Would this be comparable to what you'd see in one of our clinics, a customer clinic at a med spa?
100%. Some of those clinics might be a little bit smaller in terms of their treatment rooms, but yes.
All right. That's fantastic. I think our next stop's the warehouse.
Welcome to the warehouse, the heart and soul of Clarion and getting products to our customers in an efficient and accurate manner. What you're looking at here is two different sides of the warehouse. You've got one that is our consumable business, and the other side is our capital business.
Do you know what the approximate square footage is here?
Well, the whole building, including the office, is over 40,000 sq ft. In terms of the warehouse, it's probably approximately 25,000 sq ft.
Yeah It's not that big a space, but you use it very efficiently.
I'm going to show you at the back here, one of our automated fulfillment systems, which allows us to fulfill over 80% of our orders through this one machine.
Yeah, let's go take a look.
All right. This is our Kardex system, automated fulfillment system. Essentially what this is doing is taking our orders that customer service presents, and it basically will find within this large machine that particular product, that particular lot, and it will bring it down to the warehouse rep down at the bottom, where it'll flash a light on what item to pick. Then that warehouse representative will pick that item, press the button, and it'll go back into the machine. All right, we're going to go into the lab now. We'll just make our way this way. Click through these doors.
You know, Cam, when we talked before, we were talking about our R&D. When we talk about a lab, most people are going to assume that a lab means R&D. What do we do in the lab here?
One of the primary things the lab does here is whenever the equipment comes in from a manufacturer, they will quality check it. They'll make sure that it's working properly, that it has the electrical standards within Canada. Once they basically do their checklists in terms of the quality, they'll send that device out. Second thing they primarily do is its 1st level of troubleshooting. If a customer has an issue with one of their systems that customer service can't handle, it'll be sent down to the lab, and the lab will work through that in troubleshooting in terms of the system.
I know our lab and our service team are considered some of the core competitive advantages and something a bit unique to Clarion. Could you speak a bit to what we do and how others would try to do the same? I know they really can't copy what we do here.
Yeah. One of the advantages Clarion has, because we've been in business for so long, and we have over 8,000 active systems across Canada, is we can have service technicians all across from the East Coast to the West Coast. Basically, that gives us the ability to service on-site some of these equipments, and very quickly. If you think if you're a hospital and you need a surgery, you need somebody there right away. We're able to provide that service, versus some of the other manufacturers, because they don't have as big of a footprint, they will have to fly in people to do servicing, or they'll do a depot service. Clarion's always been recognized as one of the best service businesses across Canada.
Could you give listeners a sense of the kind of volume going through service, how big the team is, what it is that we cover?
Yeah. From a lab perspective, we have about eight people in the lab. From a field service technicians across Canada, we have over a dozen of those. Make sure we have at least one or two in each province, in terms of bodies.
All right. Awesome. All right. As we're coming up here on the clean room, can we talk a bit for a second for people who don't know about what a clean room is?
Yeah. A clean room is slightly different than a sterile room. Right? A clean room just makes sure that there's no particles that are in the air to make sure that the products meet a certain level of cleanliness. Right? Again, it's not a sterile product, you won't actually be able to put it inside a person. What people will do is you'll build this in a clean room, it meets a certain standard.
Yeah. This is the room here. Can we take just a quick look?
Basically, you've got a special HVAC system and ventilation that's in this clean room to allow you to make certain things. Clarion used to produce a fiber that was used for kidney stone and gallstone surgeries. Since then, we've moved on from that line, now are looking for other opportunities to basically leverage this clean room for new products, whether it be Clarion or also one of the sister companies in Healthmark who I know use a clean room.
Yeah. These can be pretty difficult to build and get certified.
Yeah, you have to keep your certifications, right? You have to basically do different testing to keep up with the Health Canada regulatory standards. There'll be particle testings once a year, and other different testings, just to make sure that it is still a validated clean room.
It's actually an advantage to have something like this because you can't just find them anywhere, right? For a sense of scale, how many people did we used to have in this room operating, and how many do you think we could?
We had five different people at different stations, you can easily fit over a dozen people comfortably in here at different sections of making a product.
Awesome. All right. Thanks for taking us through it.
All right. You're welcome.
Let's go back to your office and let's talk about the business overall.
All right, sounds good.
All right. That was a great tour. Thanks for taking us through everything. Today, we know Clarion is the largest distributor in aesthetics and vision care, but it wasn't always like that. Can you tell us a bit about the history of the company?
Clarion started over 35 years ago. It was a one-laser company. In about the year 2000, the company decided to diversify and get into more lasers at that time, which included on the aesthetic side, because primarily the first launch was around the surgical division. Shortly after that, around 2005, the company expanded into more consumable products, including skincare, intraocular lenses, as well as a dermal filler called Teosyal. Most recently, over the last 20 years, we've continued to expand our portfolio to include high technology devices, as well as kind of industry-leading market technologies. In the last five years, we launched our OEM strategy, which included the launch of a LUVO brand.
A business's sustainability is always based on one or a series of competitive advantages. When you talk to suppliers, customers, investors, anyone today, and you're answering the question of why Clarion, what do you say?
The first thing we say to our customers is we offer a basket of products that a clinic can come to us and get everything that they need. We take pride in our bundling strategy, where essentially we give discounted or free systems in return for consumable commitments. If you're a clinic and you want to get a filler, get a neurotoxin, get an energy device, you can come to Clarion to get that. If you're in the vision space and you want diagnostic equipment or intraocular lenses, again, you can come to Clarion and get your full portfolio of products.
That variety is so unique and, in your role, you must have one of the best lenses into just general market insight of what's happening out there in these different spaces. When you're sitting here today, what are you thinking are the biggest trends, positive and negative, affecting the market right now?
Well, the biggest thing The aesthetic market itself, we'll start with that, is it's rapidly changing. What is the hottest trend? Right now one of the headwinds that we're facing is around the injectable market. Fillers are kind of out of favor right now in the market, we're pivoting into other products to help fill that gap. In terms of opportunities out there, because Clarion's very nimble, we're able to pick up on new trends and new products and bring those to market extremely quickly.
Nice. Let's pull out the crystal ball then for a minute, because there is a lot going on in this industry. If you look three years into the future, where do you think this company evolves and grows? What are the biggest opportunity areas for it?
Yeah. Domestically, obviously, we're looking for new products to fit certain markets. One of the big areas that we're growing is we are moving away a little bit from being a distributor, being a more OEM strategy. That's going to give us access into other markets such as the U.S. and Europe. We're really focusing on our LUVO product brand, to basically start to grow that and launch that into Europe into 2027.
Yeah. Let's get into that for a minute. The LUVO and the OEM strategy is something new. We've told a few investors about it before, but it's as new and different to most people listening today as just understanding Clarion in general. Can you zoom in on that story for a few minutes? What is LUVO and how did the brand come about?
Yeah. One of the biggest hurdles I face as a distributor is if you're extremely successful, you could lose that product line. If you're also not successful, there's a huge pressure to buy more and more product, which is going to reduce your margins, and it's just something that's not sustainable. Approximately eight years ago, the leadership team at Clarion came up with the idea, given our expertise in the 35 years in industry is, well, why don't we develop our own energy devices and our own products? Basically, we can control not only the messaging on those products, but we can also expand outside of Canada. That's when it kind of came about, and we decided, let's move forward with it. We launched our first product about five years ago, in Canada, and approximately four years ago into the U.S.
Let's talk a little more about the product line, because we have a few really big hitters in there, and then we have some up-and-coming stuff. When you look at the product set today, what do you want people to know about what's driving the bus and what's coming next?
We've had over a dozen, half a dozen, products in LUVO. We have really two hero devices that we like. The first is called the DARWIN. It's a multi-modality system that has six different treatments. It's got your diode on it, your IPL on it, your HIFU on it, your radiofrequency microneedling. It does a whole bunch of different treatments. If you're a clinic, you don't need to buy all these different systems. You just buy a DARWIN, and it can do all these treatments, and layering these treatments for your customers as well. The second hero product that we really look at is called the BELA. The BELA is a non-invasive, medical grade, facial treatment that has a lot of different modalities in it as well, including microdermabrasion.
As we're developing these products, people must think, oh, that means we must be doing a lot of R&D work, but we've got a bit of a unique model. Can you tell listeners how we go about figuring out what our new products need to be and getting them made?
The first and foremost, we have all our salespeople in the market. We know what is new and upcoming, and we understand what the industry needs. We take a lot of our feedback from what the market is saying in terms of energy devices. Internally, we work with a third party to essentially come up with how do we create those products. Really from a cost standpoint, it's very economical because we don't have to invest in a whole R&D group that's out there. We really leverage the OEM product, for they've got all the backend infrastructure to help take our vision and build that product.
Awesome. All right. Stepping off of LUVO for a minute, we're going to zoom way back out and talk a bit about how Clarion fits into the broader Richards Health family. In that context, we've been putting a lot of efforts in the last few years to cross-pollinate people and share ideas. In fact, just as we came in today, we saw a few folks from our other business, Healthmark, doing a tour of the building. In your experience, because you've been with Clarion for quite a period, even before the Richards acquisition, what has stood out to you from the integration with Richards and the opportunities with our other healthcare operations?
I think first and foremost, I think Richards has done a fantastic job at identifying healthcare businesses to acquire, right? Clarion's really been leveraging off of that to benefit from those investments that Richards is making. Obviously, most recently, from a Clarion standpoint, we went into a new vertical, the dental business, with the acquisition of National Dental. We've expanded our OEM presence with the acquisition of HL Productions and the PRP. Using Richards' strategy has really just helped grow Clarion's business globally and also domestically into these new verticals.
Yeah.
The other thing we've really seen is a lot of synergies, right, in terms of using our people, right? We've leveraged Richards people from an IT perspective. Richards people are using our regulatory departments, as well as some of our expertise in operations to grow the other businesses that are out there. I think it's been a great mutual benefit.
There's been an incredible pool of talent here, and we've talked about regularly how I've been guilty of poaching a few folks at Clarion that you probably would've liked to keep, but we had so much opportunity to make them Richards Group employees and expand their impact. It's been great for their careers, too. Let's talk a little bit more about the tuck-in work and the global expansion plans. We've got opportunities to expand as a distributor. We've talked about LUVO and the opportunity there. How do you prioritize right now when you're thinking about top one to three things that drive the company in the next couple of years?
It's a great question. Clarion has its hands in a lot of different areas, right? We've talked about distribution, we've talked about OEM. Really what we prioritize, we have really three key drivers that we're looking to grow, right? Is growing organically. Is finding those right products, we're focused on finding those right products for the Canadian market. We're also focusing on the next priority is that international growth, right?
Yeah.
It's fine-tuning that LUVO portfolio and get into those greater, bigger markets. The last one is, as you mentioned, is the new verticals, expanding beyond surgical, vision, aesthetics into other verticals. We've got dental, looking at ortho, as well as some other verticals to grow into.
Yeah. Awesome. There's so much opportunity here. We've covered a lot of ground today in a short period of time. We had our walkthrough of the building. We talked about what we do, and obviously, we do a lot. Just in summary, if someone was watching this and is a bit overwhelmed, what are the one or two things you want them to take away as they learn about Clarion today?
Yeah, I think the key takeaway is Clarion is always trying to innovate, trying to always be a market leader. Really, we believe in partnering with our customers to basically grow their businesses. Also make sure that we give the best kind of patient outcomes, because the more the patient is serviced, the more successful those businesses will be, and the more successful Clarion will be.
Awesome. All right. Cam, thank you for the time today and for the walkthrough of the business. It's been great getting to know the company.
All right. Thanks for your time, John.
All right. Welcome back. We hope you enjoyed that little tour. We are hoping to do more of those as time goes on, so that we can give investors not just the numbers and us talking here, but a real sense of the leadership team running each of the business units and what it looks like under the hood when you get to actually see those businesses. We've talked mostly so far about the P&L and what's just gone on in the quarter on that side. There are a couple other important financial statements. Enzio, can you take us through the balance sheet and cash flow impact?
Sure, John. We'll address free cash first because that's a big one. Adjusted free cash flow, by the way, we do represent, or we do calculate free cash flow, or adjusted free cash flow on an adjusted basis to account for working capital changes and whatnot. Just top level, our conversion rate's actually down at 63% this quarter versus 81% in the past. I should note that we're using free cash flow conversion now as we've transformed into a corp. We're going to move away from P/E ratio. We'll disclose it, the math is there for everyone to see, but the metric really is free cash flow conversion for us. It is down because we did have significantly more spend on interest and on maintenance capital. That meant that our free cash flow was down to CAD 7.5 million for the quarter, from CAD 9.8 million.
We're going to continue to see additional maintenance CapEx spend in the year, as we had alluded to in our reporting, associated with ERP spend and for ongoing spend. Moving to the balance sheet now, John. Our working capital spend was consistent with last year. We're up CAD 8 million in the quarter. Last year was at CAD 7 million. Significant spending on the NCIB, Normal Course Issues Bid. We bought back 319,000 shares. That cost us CAD 9 million. Subsequent to the quarter, I'm happy to announce that we completed our bid for the total 770,000 shares. That cost us another CAD 13 million. We deployed CAD 22 million in our bid, and we're ecstatic that we were able to get that done. All-in cost was CAD 20.52 for the bid.
That takes us to a leverage of about 1.25x At the end of Q1, and obviously higher than that now as we layered on another CAD 13 million. That's almost another quarter turn on top to spend on the NCIB. That's our path forward as utilize our balance sheet to the best of our abilities. We're excited again about the NCIB and acquisitions.
Yeah. A couple of years ago, we were completely unlevered, and we've been moving on the M&A front quite a lot in the last couple of years. The NCIB's been fantastic, this actually brings us to a great time for a little bit of breaking news. We have another M&A transaction to discuss.
Yes, we do.
Enzio, you want to talk about it?
Yes, we do. We've partnered with PharmaSystems , they have sold their CPG business to us, and that business was sold to us at CAD 13.5 million. I'll let you explain what actually the business entails. It's actually an asset purchase deal, so for those of us numbers people, CAD 13.5 million was deployed to buy it. We're expecting that business to tuck in nicely with our Healthmark business, the pharma business. It'll extend product set, and at the end of the day, we think that that's going to be a great addition to our pharma offering.
Yeah, absolutely. Just to speak a bit about the business operations, Healthmark and our pharmacy business was really focused on back of house for the longest time, and this is our first real step into front of house. As Enzio mentioned, what the PharmaSystems consumer goods business really does is take bulk product, repack it, and produce a lot of house brands like Life and Equate. If you were to go into a Shoppers Drug Mart or a Familiprix, you could find their products single packed. We're talking about things like hot water bottles, finger cots. There's quite a long list. Ear plugs, there's med compliance products. That's basically the Monday, Tuesday, Wednesday pill packs. There's so many different kinds of those, and there's a couple of other little products as well we're very excited about.
It's been a fairly stable business for a long time, strong cash flow generator. We're very happy to add it to the health portfolio because we think from here, we can help them grow with our sales force across Canada, particularly penetrating a couple of markets that they're historically not the strongest in. We believe that we can open up some other sales channels on top of the few partners that they already have selling into the major chains like a Shoppers, a Rexall, a Walmart, et cetera. Welcome to the PharmaSystems CPG team, and congratulations to everyone who's done the deal work.
That takes us to, on the M&A front anyway, a behavior that we've been seeing and witnessing over the, I'd say the last three of five acquisitions we've done, John. Maybe we can just talk a little bit about that J- curve experience we've seen.
Yeah. We're starting to dub it as the acquisition J- curve, in reference to the shape of how you might see the financial performance line of what happens to profitability when we buy a business and you see a dip for a while and then it comes back up. Not all of our deals work out this way. Some of them are right on what we thought they were, and some can grow out of the gate. One of the things that we look for in deals is often either blue sky growth, which is what we did with the Dermapen World deal, or they're tuck-in acquisitions. What we're often seeing is that these are small businesses, five, 10, maybe 15 people, who are very dependent on the entrepreneur who just sold.
They don't tend to have all of the infrastructure that you need to really run these things going forward and how it needs to look when it's part of our business. We take those first 6 - 12 months to install a bunch of that infrastructure, and sort of catch the ball, so to speak. During that time, we expect that there's going to be a bit of a shift of focus into setting infrastructure and bringing things in-house, and you lose a little bit of temporary performance on the top line, on the gross margin line. That's all to be expected. What we've seen is exactly the J- curve. Once that period is over, you start to see performance tick up, and in a lot of cases, we're running well past what we initially bought the company for, and that was the point.
The second version of the J- curve is what we're seeing with something like DPW, where we've talked earlier in the pod about the number of new products that we're launching and the kind of investment that we're making. In order to pursue the blue sky growth and actually get some revenue and margin growth, which we're able to demonstrate, we do have to spend quite a bit on operating expenses. We talked about cross launching two major LUVO products, and then also supporting the launches of a series of four other significant DermapenWorld products that were already coming to market. You spend a lot on sales and marketing during that period. Your operations bill goes up. Regulatory bill goes up. A lot of that you have to do in advance of the growth coming for the business.
We're in the bit of the bottom of that curve right now, but we fully expect to see in the coming quarters that we'll start ticking up out of it. That's the acquisition J- curve.
Right.
I think that brings us to the end of the docket today. Thank you everyone for taking the time to be with us again, and we look forward to seeing you in Q2