Good morning. My name is Sarah, and I will be your conference operator today. And at this time, I would like to welcome everyone to Savaria Corporation's Q3 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. 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.
Thank you very much, Sarah. So as you mentioned, my name is Marcel Bourassa, and it's a pleasure to begin the call, okay. After that, okay, I will transfer that to my colleague. If I was taking in every year, okay, I think we are going in the right direction. Now, we have a Q2, a little bit weak, okay? But Q3, I think, okay, you can see that Europe will be better in the coming quarter, and so that will be an impact, okay, on our sales and EBITDA. So I am very positive, okay. And one thing very important, I think, it's our company is based on the aging of the population. And you can see, okay, that we have the war, okay?
It's sad, okay, but it's happened, okay. We have some country, okay, that man, okay, is always, okay, question, okay, like not very respectful for the people, but it is what it is. Us, okay, we, we are—our projects is based, okay, on the aging of the population, and it will be there, okay, for I think, for me, okay, at least forever, okay. And thank you, okay. I read some comments yesterday, okay, about you make on Savaria Q3, and thank you very much, okay. And you can see that we, we, we have a good quarter, okay, and we'll have a great quarter. The backlog is there, and 2024 looks tremendous for us. But let's talk about Q3. So I will transfer, okay, to Steve.
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 CAD 210.1 million, an increase of CAD 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 CAD 72.6 million and 34.5%, respectively, compared to CAD 64 million and 31.8% in Q3 2022. The increase in gross profit of CAD 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 and patient care segments due to better cost absorption, favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at CAD 33.6 million and 16%, respectively, compared to CAD 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, excuse me, driven partially by CAD 0.9 million of costs related to Savaria One. On September 15th, 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 et placement du Québec, both at a price of CAD 14.50. For aggregate gross proceeds of CAD 92 million, which included the full exercise of the over-allotment option granted to the underwriters of the offering and the additional subscription option granted to CDPQ.
Net proceeds after transaction costs of CAD 4.6 million was CAD 87.4 million, which was used to reimburse credit facilities. Now I'm going to move on to our segmented results. Revenue from our accessibility segment was CAD 166.3 million in Q3 2023, an increase of CAD 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 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, excuse me, 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 CAD 29.9 million and 18% respectively, compared to CAD 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 CAD 43.8 million for the quarter, an increase of CAD 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 CAD 6.1 million for the patient care segment and 14% respectively, compared to CAD 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 CAD 5.5 million, compared to CAD 2.5 million in Q3 2022. Interest on long-term debt increased by CAD 2 million when compared to last year due to higher market interest rates.
Net finance costs were also impacted by a lower net foreign currency gain of CAD 0.3 million, compared to a gain of CAD 2.2 million last year, most of which were non-realized in nature. Net earnings were CAD 12.1 million or CAD 0.18 per diluted share for the quarter, compared to CAD 10.6 million or CAD 0.16 per diluted share in Q3 2022. Adjusted net earnings was again CAD 12.1 million or CAD 0.18 per diluted share, compared to CAD 11.2 million or CAD 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. Turning now to capital resources and liquidity.
For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached CAD 26.9 million versus CAD 28.9 million for the same period in 2022. The slight decrease mainly reflects the impact of higher income tax paid. Net changes in non-cash operating items reduced liquidity by CAD 1.6 million, compared to CAD 9.7 million in the same quarter last year. The improvement is mainly due to the stabilization of inventory levels across the business. As a result, cash generated from operating activities in Q3 2022 stood at CAD 25.3 million, compared to CAD 19.2 million for the same period in 2022.
Cash used in investing activities was CAD 4.5 million for Q3 2023, compared to CAD 4.2 million in the same quarter last year, and the corporation disbursed CAD 4.6 million for fixed and intangible assets this year, compared to CAD 4.4 million last year. Cash used in financing activities was CAD 20.7 million for Q3 2023, compared to CAD 10.9 million in 2022. The variation is mainly explained by a reimbursement of CAD 91 million on our credit facilities, following net proceeds from the issuance of common shares previously noted of CAD 88.3 million, as well as higher interest paid of CAD 2.2 million in Q3 2023. As at September 30th, 2023, Savaria had a net debt position of CAD 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 2.28 x. 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 CAD 203.4 million to support working capital investments and growth opportunities. Now looking forward, for 2023, Savaria continues to expect to generate revenue, which will be approximately 8%-10% higher than 2022 when normalizing for the divestiture of the Norwegian auto division, as well as Adjusted EBITDA margins of approximately 16%. 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 gonna turn the call to Sébastien for an operational update.
Thank you, Steve. First, I need to say I'm quite happy with the results on the accessibility for the third quarter. In North America, we have the growth of 9%, which came mostly from the output of Vancouver and Toronto factories. So good job, guys. And, we continue to have a very healthy backlog, so that's positive for the future quarter. In Europe, 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 our visibility in the U.K. factory with the ERP. It was painful to change, but now we have some very good information, live data, so quite happy with the change we have made. In Mexico, we continue to ramp up, and we have approximately 50 employees.
We do some weekly trucks to Toronto, the U.S., with some porch lift, and also we started some shipment to Vancouver. We are now vertically integrated for metal works, so that, that's nice. Also in Toronto, we started to manufacture second model of Handicare stairlift, the 4000, which was the model made in the 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, on the Savaria One, quite happy with the start. So a consultant did a due diligence on Savaria to identify opportunities. We now did a bottom-up plan with the Savaria employees in different areas such as commercial, procurement, production, and now, we are starting the implementation step by step over the next two years.
The program also includes some training for our people in order to bring Savaria to operate the business as a CAD 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?
Yes, thank you, Sébastien, 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 and 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, when 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 the lasting synergies unlocked 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 within acute and long-term care. 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. With that, I'll turn the call back over to Marcel.
Yeah, thank you. Thank you very much, Carlo, and, thank you to Steve and Sébastien. I just want to reiterate one thing that Steve mentioned, okay? Our debt EBITDA is around CAD 2.2 million right now after the offering. And when I decide to make an offering is because I want to have reduced the debt by the time that we are right now, okay? Our balance sheet with a ratio around two, CAD 2.2 million will go maybe shortly less than two, okay? And then we are in position, a strong position to continue our growth, and maybe- [crosstalk] I think you know. What?
I think there was some noise on the line, Marcel. You can continue.
Okay, okay, okay. But I just want to mention, okay, that we have a balance sheet right now that is very strong, okay? And we are there, okay, to make maybe some little, little acquisition, okay? But right now, okay, we are just to continue our good job of integration of Handicare, and I know that you see the penalty, okay, is over. And me, okay, the stock, okay, I was five minutes penalty, okay, because we make an offering.
But my penalty is about to finish, okay? And then you will see, I think, okay, that the people recognize, okay, the value of this offering that we make, okay, in this difficult time. So I will begin the question. So, we are four on the line, and the person will answer the question, okay, if it is okay on finance, okay, on production or on patient lift, okay, with Nicolas. So we're ready for the question, Sarah.
Thank you. As a reminder, if you would like to ask a question, you can press star one and one on your telephone and wait for your name to be announced. And to withdraw your question, you can press star one and one again. Thank you. We'll now take our first question. First question is from the line of Gabriel Moreau from Scotiabank. Please go ahead.
Hi, good morning.
Marcel?
Yeah, 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 a preview, at a high level on 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 two years?
Hi, hi, Gabriel. I'll take this question. Steve here. Just on the first part of the question there, on Savaria One related costs. So we did have, just to highlight actually, that the CAD 0.9 million that we saw in the quarter and the CAD 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 a, 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. There is, 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 gonna 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. I'm sorry, can you repeat your the second part of your question, Gabriel?
Yes. Just, if you can give us a high level of what to expect in terms of cross-selling side on margin?
I think, Gabriel, we need to go back to the vision of the CAD 1 billion, okay, that we wanna be, and this is why we'll have a call in the first quarter next year to be able to describe a bit more about the Savaria One, how we see the next two years. Right now, we are still at the beginning of the implementation. Right now, we have already reiterated guidance for 2023, so as you can see, there's no change for this year, but there will be some small costs for the Savaria One project. But we see some benefit in the next two 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.
Good. And maybe, just my second one: I know you said the, 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 in Europe relate to the macro, or is there something, operationally that you think, could be improved?
So I can take this one. So I think, yeah, the ERP, again, we did, we discussed a bit earlier that again, we had a, we had a good rebound, which was flat versus last year. But, but again, it's a big change from the second quarter, so I consider that the ERP things is over in, in England, and we are back to good lead time, to be a good company. And one thing we need to understand is that in Europe and North America, yes, it has been a bit more challenging the 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 Europe with some vertical platform on the elevator. So I think over time, we'll be more diversified, and that will put less pressure on some of the margins. So I think again, we consider that the second quarter is over, and ERP is finished.
Perfect. That's it for me. Thank you very much.
Thank you. We'll now take our next question. This is from the line of Cheryl Zhang from TD Securities. Please go ahead.
Good morning. This is Cheryl standing in for Derek, and thanks so much for taking our questions. So my first question is on patient care. So, like you mentioned in remarks, it looks like a more lumpy business given the timing of order. But just wondering if you, you could speak to, speak more to the rebound in demand that you're seeing, there. Sounds like so, like in the early stage of Q4. Thank you.
Hi, 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. You know, 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 gonna have four 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 into 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 that 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.
Okay, that's very helpful. And I guess my second question is, so, can you speak to the backlog level in accessibility and patient care, and if there is any changes in residential demand given the macro backdrop?
Hi, Cheryl. 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 Garaventa Surrey and in 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 eat 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.
Awesome. That's very helpful. I'll jump back in the queue.
Thank you. We'll now move to our next question. This is from the line of Michael Glen from Raymond James. Please go ahead.
Hey, good morning. Just coming back, Marcel, thank you for the commentary surrounding the equity issuance. So I just wanna see if you're able to give a bit more indication. If we're thinking about Savaria in terms of the M&A outlook, like, what are, what are some of the areas of the business that you would like to add to, or, or what would represent opportunistic areas for Savaria to gain acc- get some additional business lines in?
I would begin, and after maybe Sébastien, you'll make some follow-up, okay? I just see, okay, that first of all, okay, I am very happy to have make this offering, okay? 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, okay, little reason that we will pass this point, okay? When they will see, okay, what we have, what we are doing. Just an example, okay, about Europe, okay? We manufacture for North America Telecab, okay? Right now, on our design, okay, meeting the code, okay, in Europe, okay, we'll put the N24 , okay, a Telecab, okay, a two-floor Telecab.
And I think, okay, that's a diversification, okay, from just some stair lift curve and straight, okay. But, okay, that's a major market for Europe. So we can see that, we work more together. We see the need, okay, that, Europe need, okay, and we are there, okay, with our team of design, okay, to just to give them, okay, some new products, okay, than just the, the stair lift. So I, I, I see very good thing, okay, on the, the year 2024 and 2025 to reach, okay, our, CAD 1 billion of sales. And I, I mentioned, okay, that, on past call, okay, that we want an objective, an objective, or we have to have objective, okay, of 20% of EBITDA. And, you know something, I was, I was redoing the mathematics this morning, and the mathematics is there, okay?
For sure, nothing is easy, but I think, okay, this push, okay, with the consultant, okay, we are very confident, okay, to achieve both, okay, about EBITDA and about the sales, okay? Maybe the sales is more easy than EBITDA, but at least, okay, we'll work on that. Maybe, Sébastien, okay, you will complete my answer.
Yeah. Thank you, Marcel. So yeah, for R&D is always a key element of our business, so that bringing new products to the market, that's important for us. We want to be the leader in that or complete us. In terms of M&A, we always say that again, complementary products is always nice because we have 1,000 dealers that we can bring it to. From time to time, you know, we have 30 direct offices 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.
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?
I think now we are focused on the Savaria One project and the integration. I think again, it was just have some cautiousness on the balance sheet because Marcel like to be ready a bit in advance. So again, but right now there is no acquisition in the coming months. We are all focused on Savaria One, but going forward, in the coming years, we, we could see some opportunities now.
Okay. 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?
I guess to start on the CapEx front, Michael, CapEx is an area we've always spent historically 2%-2.5% of revenues. That's always been our guide. You know, this year we tried to ratchet it down a bit closer to 2%. A big part of our CapEx, though, is R&D spend, right? And we just talked about, you know, a bit about how important it is to be bringing new products to the market and be innovative. So, 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 gonna be in the 2%-2.5%, maybe closer to 2.5% next year, as we look at, you know, Savaria One and other projects, but it's not gonna 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 you know, 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, you know, different inventory, 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, you know, working with our vendors to improve terms. And, and, you know, our AR position is, 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, you know, decent revenue growth, right? The CAD 1 billion target implies good revenue growth over the next couple of years, and there always is gonna need to be working capital investment to support that top line growth.
Okay. And then just one more. With the debt repayment, do you have an indication of, like, what your run rate interest expense will look like?
The run rate interest expense? So 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 gonna come down by a good chunk, but, yeah, I mean, I think what you're gonna 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 gonna come down in Q4.
Okay, thanks for taking the question.
Thank you. We'll now take our next question. This is from the line of Frédéric Tremblay from Desjardins Capital Markets. Please go ahead.
Thank you, good morning. Maybe, 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 sort of early 2024 was considered maybe for some price adjustments in Europe, so maybe just an update on that.
I'll take this one. Thank you, Fred. So I would say the inflation has probably stabilized. It's better, a bit better than it was one and a half 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 our annual increase, and now we see that we have a healthy backlog, so sometimes it play a bit against the to the price increase. But many brands will do a price increase in early January, so we typically see an uptick in the margins in the second quarter of the following year, of the I guess next year.
Perfect. So we saw organic growth of 9% in North America Accessibility, which, I think, as you said, implies that Europe was roughly flat, which is a good outcome versus Q2. I'm just thinking of maybe 2024 and beyond, and sort of what Europe could potentially do on an organic growth front with, you know, 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, you know, the potential of Europe in terms of top line growth in the coming years?
I can take this one. So I think, Fréd, again, if we do the math, the CAD 1 billion, okay, which is again, our target, and it's all the family together, I think it imply 8%-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, Europe and North America should have a similar organic growth. So I think that's what we should think, Fréd.
Okay, great. 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.
Yeah, thanks, Fréd. It is competitive. I'll start by saying that. But I think we're well positioned with the full offering that we have now, you know, with the both Handicare and Span teams together. Bidding has been good. I would say, you know, there's a lot of new build activity that's out there, a lot of, you know, 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.
Maybe just a quick follow-up on that. On the government business, is the margin profile there different than non-government patient care businesses, or like, how does that compare?
Not so much. I think here in Canada, you know, there's 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, you know, provinces, province to province, but overall, no. I mean, when we're bidding on a business, whether it's government or private, you know, we do have our own, you know, margin expectations to maintain, so we're not out there just, you know, lowballing it 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's certain governments that that do 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.
Great. Thank you.
Thank you. We'll now take our next question. This is from the line of Julian Hung from Stifel. Please go ahead.
Hi, Justin Keywood on here. Thanks for taking my call. 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. Thank you.
Yeah, hi, I'll take this one. I mean, first, on the gross margin improvement, most of that came from... Well, we did see some in patient care, but most of it really came from North American accessibility. It's coming from the Brampton and the Surrey, British Columbia sites, the governmental site in British Columbia. It mostly has to do with operating leverage. We've had a 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 to gross profit, which flowed to 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 one-off costs in there as well, but, you know, we are expecting SG&A to go a little bit down next quarter. But keeping in mind that Savaria One costs are gonna continue, and that's buried in our actual results. So that's gonna continue for the next up until sort of May 2025 , as mentioned.
Okay, understood. And then if we just took a step back and, you know, considering the margin expansion goal from 16% now to 20% in 2025, what would be the main drivers as far as expanding that margin?
I will take this one, okay? So it's quite... It's big, okay, coming from 16%, okay, to 20%, okay? But don't forget, okay, we have this consultant who work with us, okay? And we review our pricing, we review our costs, okay? And don't forget one thing, okay? In the next two years, 2024 and 2025, okay, the net, okay, from the consultant and what Savaria get, okay, it will be very positive for Savaria, okay? It's why I'm very optimistic, okay, to see that we will have this 20%, okay. It's that easy. I repeat that, repeat that, okay?
But we'll work on the pricing with them, okay, and that's very different the way right now that we think, okay, about the pricing, with some knowledge that they can give us, okay? The participation, okay, they are like a teacher for us, a teacher from university, okay? And it's great, okay, but we go after that, okay, take the advantage. So we will have more sales, okay? Or we'll have more sales with a bigger, okay, EBITDA, okay? And I think when you combine that all together, okay, what you can save on cost, better sales, better sales pricing. This is important. You have better sales, but maybe the pricing is not there. And the pricing, okay, in Europe, okay, was always too conservative, okay, compared that what we have in North America. So we fixed that, okay?
With our friend, okay, from Europe, okay? If you put always that together... And I see, okay, me, okay, I was putting on the number on my napkin, like, it's working. I say, "Man, okay, w-w-w-we will achieve that, okay, and maybe we will exceed that." Because, okay, we work from the top, from the sales, okay, and the cost of materials, okay, and they have a consultant help us, okay, to find maybe new supplier, okay, with a better cost. We work on that. We work on many fields at the same time. It's why, okay, that I believe, okay, strong believe that we will find the 20%, okay, in two years.
Well, thank you, Marcel. Yeah, and I, I know there's been a track record of, at Savaria, of exceeding long-term goals, so we look forward to that. Maybe just one more question of clarification. On the measurement 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?
Yeah. So, I'll take this one. I mean, we'll definitely be providing more guidance on this at the Investor Day. But yeah, there is a variable component, and, you know, some of that, the variable piece is tied to our performance. So, you know, the better results we see in our business, you know, we can expect some fees associated with that. So it's a win-win on both sides of the arrangement.
Great. Thank you for taking my call.
And, Sarah, if I could just go back to a previous question that Michael, that Michael Glen had on the interest savings. I just had to pull up a file. It's, it's about one point five million of interest savings, Michael, per quarter, with, with the reduction of debt, but also the fact that we've achieved now a lower tier on our, on our pricing based on the lower leverage ratio that we have. So, it's, it's about CAD 1.5 million savings a quarter, and, and about some of that is gonna be obviously eaten up by higher dividends. But it- coming back to your question, Michael, it's, it's about CAD 1.5 million. And sorry. Thanks, Sarah. You can open it back up for questions.
Thank you. Just as a reminder, if you do have questions, you can press star one and one on your keypad. We'll now take our next question. This is from the line of Zachary Evershed from National Bank Financial. Please go ahead.
Good morning, everyone. Thanks for taking my questions. 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's higher exiting the quarter, was it really just order timing preventing you from delivering another high 40s revenue quarter?
Order timing, yes. I think that is part of it. You know, we see the uptick, I guess, as you exit summer, you know, 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.
So nothing stopping you from executing on the backlog within the quarter?
No, no. I mean, it's very much, you know, 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 know, you have to eat up those budgeted dollars, otherwise, you know, 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 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 does go on 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 exiting the quarter, it is very much to help us, with Q4.
That's good color. Thanks. 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 Sébastien 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?
I can take this one, Zach. So I think, again, we are 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, we'll finish this year, we'll do a Savaria One, and, I'm sure opportunity will come at the right time, you know.
Great answer. Thanks. I'll turn it over.
Thank you. We'll now take our next question. This is from Cheryl Zhang, from TD Securities. Please go ahead.
Hi. Thank you. Just a quick follow-up, and apologies if I missed this earlier, as I got disconnected. So with the public equity offering now closed and your leverage down to 2.28x , just curious how you think about the priority in your capital allocation?
Yeah. Hi, Cheryl, thanks for the follow-up. Capital allocation for us, I mean, you know, again, hinting, 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 gonna 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 gonna come in at a historical range on CapEx for 2024. And working capital, you know, we believe that we have to have the working capital to support the business growth, absolutely. We believe we can ratchet down working capital levels a little bit more versus what we have right now. I'm expecting some improvement there as well.
Okay. That's very helpful. Thank you so much.
Thank you. There are no further questions at this time, so I will hand back to the speakers.
Okay, first, okay, thank you very much, okay, for, for to be on the call this morning. And this is very important, the institution, okay? The way, okay, they see things for the future, okay? You, you are the people, okay, who can take the good news of Savaria, okay, and put that, okay, through, okay, the investors. So you are very, very important for us, and I am very happy to have the cash, okay, around 10% of our equity, okay? So, thanks, okay, to the partner, okay, of BlackRock. And, I'm very happy that, many people participate, okay, with about our. And we don't see a lot of offering right now in the market, okay?
So I was very happy to succeed, okay, to make that, and that puts us at another level, okay, of comfort. And while you are comfortable, okay, you are better, okay? So we have some cash, okay, to entertain, okay, a lot of possibility. So again, I thank my people, okay, and thanks to the institutions, okay, that participate, okay, in our vision, okay, of Savaria, at least until the end of 2025. So thank you very much, everybody, okay, to be on the call, and thanks for your question, and thanks to my people for the way they answer the call. Thank you, Sarah.
Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.