Savaria Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 10 speakers on the call.

Operator

Morning, good afternoon and good evening. My name is Raziel, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q2 20 23 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer 20.

Operator

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 9th August, 2023, with respect to its Q2 2023 results. Thank you. Mr. Bourassa, you may begin your conference.

Speaker 1

20. Thank you very much again. And nice Good to hear you, my dear friend, okay. First, I begin to say that thank you to write on Savaria. 'twenty.

Speaker 1

I read what you say. And Porsche, I left that thing was done for the computer and The changing of our sector in Europe, okay. But that's a fact and that's 2. It's a time of the past right now. We're doing the page, okay?

Speaker 1

Like it was and with Savaria, one thing of this, we're 21 years 20. I may devolve, except I missed one time the last month, I think, 2 months. But we see the 2. What we see or hear from Savaria is the 2. And it will continue like that, I think, is it states 2.

Speaker 1

I have a couple of years to see and it will be always my people in order to be. 19. After that, we had a forecast, we see that we say, okay, for 2023. Nothing has changed. 2.

Speaker 1

The forecast and the other thing, okay, we will work harder and maybe other 25. So the first thing that I want to mention about that. 20. And what is important, the consultancy that we are here, okay, and I signed myself, okay, unique. 20.

Speaker 1

That's for a period of 24 months, 2 years. That's quite impressive 2. We signed up with the consultant for 2 years, okay, and we will review our cooperation. And our operation of this It's coming from the sales. We have to begin with the sales.

Speaker 1

The sales can be better, better price maybe, change of strategy. So our strategy to increase price. So we're going to university right now, okay, and I am very happy, okay, I meet them and Sam here afternoon again. 20. They make a very good job, okay?

Speaker 1

They are people, okay? They are simple people and they just want to For sure, they want to ask them for sure to collect some cash flow, but they want to ask to succeed. And 20. What is important for me when I listen to them, okay? They are not speaking about Savaria, okay?

Speaker 1

It's my people at Savaria, okay, Excuse my English is not improving too much, as you can see, over 21 years. But yes, so what's the airport is to be that there. That's exactly that's my people, okay, our people 2. We don't change when people want maybe to train them. So that's very important to me.

Speaker 1

And for sure, we make some projection ourselves, I think. 2. It's 2. It's 21 years, actually, that is always touching. And I don't want something that's 2.

Speaker 1

Confidential. Okay. In a way, I've got a call and I speak up in the thing, it's confidential. Because it's not just my broker, but the street will do exactly. So we think with our consultant, okay, they will review all our activity, okay, 20.

Speaker 1

They did still in the phase of our revenue, okay, after that our expense, our 20. Purchasing everything, okay, and at every size, okay, and they were in Mexico, they were in Europe, okay. It's, I think, Anthony, the group that we can do that, okay, for the company. Yes, but we have a big goal in 2021, in 'twenty one, in 'twenty five, okay? We want to reach, okay, EUR 1,000,000,000 of sales and we want to offer a very good EBITDA 20.

Speaker 1

With that, so we need some help of it to, we can see transformation Language, my language is not very strong in English. That's very good in French too. But After that, we will see, okay, in 2023, nothing really important will come back from this study. 20 24 to 2025, okay, high project, okay, everybody knew that, okay, high project that they can increase 20. We're in mid though by 25% each year.

Speaker 1

So you have better in math than me, okay. So you have the growth on Savaria themselves 2. And after that, with the study. So you did the math, okay? And I am very optimistic, okay, that we will reach 20.

Speaker 1

But again, that will be our primary P and L, okay, our situation, okay, we will study that, okay? We will study, we have too many factories. Everything will be discussed, okay? Or we'll have to find A new supplier, okay. They will help us to find a new supplier, okay, to have I was just for a bit of price, But I will say the quality.

Speaker 1

Quality first a bit, after that we listen a bit what we can So that's my introductory and 20. Maybe I'll make some guidance that I will receive a call with CICE, but anyway, okay. So 2. You had the 2, okay. And you will see that that's a new Savaria coming.

Speaker 1

And now for the finance, okay, 'twenty. I'll pass to Steve. He's got it to me.

Speaker 2

Thanks, Marcel, and thanks for outlining and sharing a bit more details about 2. Savaria 1, it's a project that we're all excited about internally. So thanks for that and good morning everyone on the call. I'm going to begin with some remarks regarding our Q2 2023 Consolidated Financial Metrics. For the quarter, the corporation generated revenue of $198,400,000 up $6,300,000 or 3.3 percent compared to Q2 2022.

Speaker 2

The increase was driven by organic growth of 3.4% 2, originating from both segments. In addition, the corporation experienced foreign exchange tailwinds of 3.8% and a decrease of 3.9% due to the divestiture of the vehicle division in Norway in the quarter, 20, combining for 3.3 percent growth overall. Our revenues fell short of expectations for the quarter due to a disruption in production and delivery in Europe caused by the implementation of a new ERP at our key manufacturing sites in the UK in April. We are, however, pleased to report that the implementation challenges have been sorted out with June being a record month for the organization. 20.

Speaker 2

Gross profit and gross margin stood at $67,100,000 33.8 percent respectively compared to 65 $600,000 34.1 percent in Q2 2022. The increase in gross profit $1,500,000 was mainly attributable to higher revenues and to a lesser extent favorable foreign exchange rates used in the conversion of the results of subsidiaries. 20. The decrease in gross margin versus last year was mainly attributable to the previously mentioned system implementation and by year over year inflationary impacts in Europe, partially offset by greater profitability coming from the Patient Care segment and North American entities in the Accessibility segment due to better cost absorption, favorable product mix and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at 22.29 $1,000,000 14.6 percent respectively compared to $31,500,000 at 16.4 percent in Q2 2022.

Speaker 2

20%. The reduced profitability is mainly explained by the aforementioned decrease in gross margin and the higher selling and admin expenses as a percentage of revenue. Before I move on to the segment results, it is worth noting that effective April 1, 2023, the corporation consolidated its reporting structure and combined the remaining operations of the Adapted Vehicle segment with the Accessibility segment. 2. Starting with Q2, the business is now structured into 2 reportable segments, accessibility and patient care according to their respective addressable markets.

Speaker 2

20. Accordingly, some information from previous periods was restated. Revenue from our 2. The stability segment was $150,600,000 in Q2 2023, an increase of $2,400,000 22.6% compared to the same period in 2022. The increase in revenue was related to organic growth of 2.8%, driven by continued strong demand in both the residential and commercial sectors in North America and price increases and cross selling synergies with Handy Care.

Speaker 2

20. The growth was also driven by positive foreign exchange impact of 3.9%, mainly coming from the U. S. Dollar, euro and 2. We're going to have a follow-up delivery of stairlift products in Europe during April May due to the implementation of a new ERP as mentioned.

Speaker 2

For reference, in Q2 2022, The Norwegian Vehicle division contributed $7,500,000 of revenue. Adjusted EBITDA and adjusted EBITDA margins stood at 20 $1,400,000 14.2 percent respectively compared to $26,500,000 17.9 2% for the same period in 2022. The decrease in adjusted EBITDA and adjusted EBITDA margin was mainly due to the system implementation 2. In Europe causing production and delivery issues, year over year inflationary impacts resulting in higher material and labor costs and to a lesser extent 22. Again for reference in Q2 2022, the Norwegian Vehicle Division contributed $800,000 of adjusted EBITDA.

Speaker 2

Revenue from our Patient Care segment was $47,800,000 for the quarter, an increase of $3,900,000 or 8.9 percent when compared to Q2 2022. 20. Revenue growth includes organic growth of 5.3%, which was driven in large part by new contracts signed with healthcare facilities, 20.6 percent tailwind 20. Adjusted EBITDA and adjusted EBITDA margins stood at $9,300,000 19.4 percent respectively, compared to $6,700,000 at 15.3 percent for the same period in 2022. The large increase in both metrics was primarily due to the increase in revenues and improvements in gross margin mainly explained by better cost absorption, product mix, 2.2.

Speaker 2

For the quarter, net finance costs 2.2% were $4,500,000 compared to $6,400,000 in Q2 2022. Interest on long term debt increased by 2.6 $1,000,000 when compared to last year to the higher market interest rates. Net finance costs were also impacted by a net foreign currency gain of 20.2% in the quarter compared to a net loss of $2,500,000 in 2022, most of which was unrealized in nature. Net earnings were $8,800,000 or $0.14 per diluted share for the quarter compared to $8,100,000 or $0.13 22. Adjusted net earnings was again $8,800,000 or $0.14 per diluted share 22.

Speaker 2

Compared to $8,900,000 or $0.14 per diluted share in Q2 2022. This reflects relatively flat performance on a year over year basis. 20. Turning now to capital resources and liquidity. For the quarter, cash flows related to operating activities before net 2.

Speaker 2

Changes in non cash operating items reached $17,700,000 versus $29,300,000 in the same period in 2022. 22. The decrease mainly reflects the lower EBITDA of the corporation and higher income tax paid related to deferrals from 2022. 20. Net changes in non cash operating items reduced liquidity by $17,500,000 compared to $14,700,000 a year earlier, 2019.

Speaker 2

Mainly impacted by increased working capital in Europe, excuse me. 20. As a result, cash generated from operating activities in Q2 2023 stood at $200,000 compared to $14,700,000 in the same period in 2020 2. Cash used in investing activities was $4,500,000 for Q2 2023 compared to $4,900,000 in Q2 2022. The corporation disbursed $4,600,000 for fixed and intangible assets 2023 compared to $4,900,000 in Q2 2022.

Speaker 2

Cash used in financing activities was $15,000,000 for Q2 2023 compared to $9,300,000 in the same quarter last year. 20. Variation is mainly explained by a drawing of $800,000 on the credit facility compared to $3,800,000 a year earlier and higher interest paid of $2,700,000 in Q2 2023 versus the prior year. 2. As at June 30, 2023, Savaria had a net debt position of $372,900,000 and was in compliance with all of its covenants.

Speaker 2

On On a trailing 12 month adjusted EBITDA basis, Savaria's net debt to adjusted EBITDA ratio was approximately 2.99 times. 20. This represents approximately a 0.08 improvement versus Q4 2022 and an increase 20.16 versus Q1 2023. Savaria has funds available of $119,500,000 to 2. Looking forward, 2.

Speaker 2

For 2023, Savaria continues to expect to generate revenue, which will be approximately 8% to 10% higher than 2022 20. When normalizing for the divestiture of the Norwegian Auto Division with adjusted EBITDA margins of approximately 16%. In addition for 2023, we are targeting a reduction in our leverage ratio of 0.5 turns. 20. This outlook is based primarily on continued strong organic growth coming from both the Accessibility and Patient Care segments, 2.

Speaker 2

20. And with that, this completes my prepared remarks. And I'm going to turn the call over to Sebastien.

Speaker 3

Thank you, Steve. So maybe for the last 2. And for me, Kiely, again, this ERP China change has been very disruptive in the second quarter. But I need to say one thing, there has been some very good teamwork We joined the team in U. K, Green Netherlands and Toronto and the people of Chartres were very, very hard.

Speaker 3

So thank you very much for everybody. And again, we have turned the page. It's finished. We have a good June and the future is looking good. We don't talk about the ERP anymore.

Speaker 3

But again, We have learned a lot and it has been a very good teamwork at least on the recovery. So thank you everybody. North America, I think 2. The main factory in Vancouver and Toronto for the ex facility. I think we had a relatively good output.

Speaker 3

So I think thank 2. And what's important is we remain to have a very empty backlog. So I think the future is still looking very promising for those 2 factories in North America. And also the Savaria 1 project is going to help us be better because it's important to improve. We are good, but we want to be better.

Speaker 3

So that's we see some good progression in terms of that. And Mexico, I think we're a 2 2. The employees in Mexico, again, no game changer for this year, but building our capacity for the 2025, you will see that Mexico will have an important impact. And last thing for me, I would say the supply chain is relatively stable for us. I think we don't talk about supply chain also anymore.

Speaker 3

2. On that, Ebony Kala, Patient Care.

Speaker 4

Yes. Thanks, Sebastien. Our Patient Care segment delivered another terrific quarter in Q2 20. With an EBITDA margin above 19%. It's a nice follow-up to the record Q1 and the continuation of a positive trend.

Speaker 4

20. Our order intake and sales activity remains strong as evidenced by the 5.3% organic growth in the quarter, which is rather impressive given the 20% plus organic growth experienced of last year. Although most product categories are performing well, we're seeing the strength within ceiling lifts and surfaces where we've been particularly successful bidding on new contracts. In terms of end markets, we've seen continued spend within hospital networks and at the VA, which is a big driver of our U. S.

Speaker 4

Business in an area of significant focus for us. Deal activity within our larger corporate accounts and with strategic partners is also driving higher sales. 20. However, despite a good performance in the quarter and for the first half of the year, there are still certain industry challenges that we continue to navigate, twenty. Including funding for newbuild projects, staffing shortages, namely with respect to nurses and stubbornly low census levels within U.

Speaker 4

S. Long Term Care. That said, overall, our backlog is in good shape. And as we unlock further revenue synergies between Span and Handy Care, we should continue to see a strong top line performance. From a margin perspective and similar to comments made in Q1, the higher sales volume allowed for a better fixed cost absorption, which contributed to the sustained EBITDA margin in the 19% to 20% range.

Speaker 4

The pricing initiatives that were put in place last year are also continuing to have a meaningful impact on profitability. And finally, our patient care team, much like the rest of the Savaria Group, is highly energized by our Savaria 1 project. We're doing a deep dive across the entire organization from procurement and production initiatives to commercial strategies that will help us achieve the full potential from truly integrating our businesses 2. So as you might imagine, there's quite a bit of enthusiasm within the team. And with that, I'll turn the call back over to you, Marcel.

Speaker 1

20. Great. Thank you very much, gentlemen. Okay. So, Lars, you can begin the call from our investor.

Operator

We are now going to proceed with our first question. And the questions come from the line of Derek Lessard from TD Cowen. Please ask your question.

Speaker 5

Good morning, everybody. Hope you're well. I don't want to add 20. Salt to the wound because it sounds like the wound is closed, but definitely a rare execution miss for you guys. Maybe could you just 20.

Speaker 5

Talk about or add some detail or color around what went wrong and sort of the steps that you took to rectify the issues? And then maybe 22. Again, like how confident are you that it's now in the past? So any help or color on what June or July volumes have been would be helpful.

Speaker 3

20. Well, thank you, Derek. So yes, we see the ERP change is always difficult and we're not the first company to have some difficulty to make some change. 20. Unfortunately, there was maybe a place, a department where it was a little bit more difficult in the implementation and this time was operations.

Speaker 3

So I guess I have a certain 2. Again, we went from our old system a bit more. If I make a new example of paper, it's good to new system. 20. Everything is scanning ERP, click, click, click.

Speaker 3

But you want ERP to make some transaction if maybe a bit of material is not correct 2. The inventory allocation, then you cannot close your order. Again, we do stir it. The other jobs are customs with a lot of different options. So it's not that easy, but we do a very good opportunity each day in England.

Speaker 3

Two. And basically, it was a lot of different material bond and complexity for the people. So again, we went back to when we went live, we had some help from 2. A consultant from people in Italian, Toronto to include a system to train the people to fix the bug and it took a bit more time than expected. The good news is since June, they are back to normal.

Speaker 5

Okay, that's helpful. And I guess 2. The second one is that you'll maintain your full year guide. And I think those I mean those sales are lost, if I'm not mistaken. But 20.

Speaker 5

What's your thinking on how you can make it up in order to sort of still maintain that guide?

Speaker 2

20. Yes. Hey, good morning, Derek. It's Steve here. I mean, we are still year to date even with the whole the shortfall that we had in Q2 on 2.

Speaker 2

I mean, we had a very strong Q1 and year to date, we're still at our budget revenue mark. So we are confident that 2. We're going to hit our guidance, the revenue growth. We I would say we're at this point, we have more confidence 2. Then on the EBITDA line, but we still feel that we can climb back and get to approximately 16% EBITDA margins.

Speaker 2

20. Our volumes that we're seeing in June so June for us was a record quarter. We had the highest EBITDA month, 2. We haven't disclosed the amount. We had the highest EBITDA month that we had as an entire organization.

Speaker 2

We have good momentum In the North American businesses, good momentum in patient care, as you can see in the results. And we as Sebastien and Marcel said, we have turned the page on The ERP implementation challenges and June production levels in the UK were 20. At least as high as they were prior to the ERP change and for July moving forward, our expectation and what we're seeing is that the numbers are going to be Higher than what we had before. So we can confidently say that that page has turned and we're moving forward. 2.

Speaker 2

We see strong margins in the rest of the business and now with Europe getting back on track, that's 2. How we're confident in maintaining our guidance.

Speaker 5

Okay. Thanks for that, Stephen. And maybe one last one for me. And obviously, it was probably lost in all the noise. 20.

Speaker 5

And you mentioned it in some of your prepared remarks on the Savaria 1 initiative. Just could you maybe talk about what you're expecting to get out of it? I know you said 20. You had a 24 month runway. Anything you can share with us that would be helpful for our models and forecasts?

Speaker 3

Yes. I think I can start and maybe Marcel will complete. So basically, we have done a lot of acquisition in the last 5 to 10 years And we realize today that again to be a $1,000,000,000 company, if you are always so decentralized by U. S. Opportunity because we have some talent in many different place.

Speaker 3

So sometimes we do Best thing in Netherlands, but would be different in Toronto or in Vancouver, but we want to be a bit similar. I also want to rechallenge some of our existing process. 2. And with the end of some consulting, we can even what we do right now in solar allocation, can we do better? So it's important for us to improve.

Speaker 3

This is why we have launched this initiative across all the defense department, factory location, because we want to be better at 1,000,000,000 company is a big change for Savaria. A few years ago, we were 100,000,000 company. Thank you.

Speaker 6

Thanks, Matt.

Operator

2. We are now going to proceed with our next question. And the questions come from the line of Michael Doumet from Scotiabank. Please ask your question.

Speaker 7

2. Hey, good morning, guys. I wanted to follow-up on a question from Derek. Just specifically, can you comment 20. 4 July in Europe, how sales are trending?

Speaker 7

And also, I guess, Bigger level question here. Even if the ERP disruption settles out, how much more is there to do To get the European operations back or to the level of North American operations, I guess the question is, does the ERP push off two. Some of the other initiatives that you guys were considering in the region?

Speaker 3

Thank you. No, I think again it's two. Difficult to talk about July because that will be a forward looking statement, but we are very happy with the way of the June. We have finished very strong the month. For sure, it comes in July, but And after that, the ERP, it's a continuous improvement process.

Speaker 3

We're happy right now. We are back to at least the same level we were before. 2. Of course, sir, we need to continue to do some improvement at the end of the ERP to get some of the efficiency out. But at least it's not a concern anymore.

Speaker 3

We don't talk about it anymore. We have a good visibility. We are happy with it. And at Savaria 1, we have launched it a few weeks after. We did not launch that when the people were doing the recovery 2.

Speaker 3

In UK or with the ERP, but definitely now the team is working on Savaria 1. So the ERP change is not I have a lot of ways to work on the Savaria 1 on some new initiatives.

Speaker 7

Perfect. And it sounds like there's confidence in the guidance Being maintained despite the hiccup, I guess, in Q2. But just how to think about the EBITDA margins in Q3 and Q4? 20. Just wondering if there are any lingering costs related to the ERP that could flow into Q3 and just how to think about the cadence of EBITDA, 22.

Speaker 7

Should we skew a little bit more into Q4?

Speaker 2

I mean, there's no costs from the ERP that 2. That are left to come. So know that we're not going to see anything come back from that. 2. We're done on the cost side and on the implementation side.

Speaker 2

As Sebastien said, there's maybe some fine tuning and improvements to make, but 2. We're happy with the production levels now. As far as Q3 and Q4 on the EBITDA side, I I mean, what we're seeing in North America and in Patient Care is strong improvement in EBITDA margins because of the improved leverage of the cost base 2. While we're increasing revenues. So you can see it in the Patient Care margin, you can't see it so much in accessibility because we don't disclose North America Separately from Europe, but really in the North American legacy business, including the Garaventa site in North America, 2.

Speaker 2

We are seeing really good fixed cost absorption and improved margins. So as we see the revenue recover in Europe, 20. We're going to see that fixed cost absorption come through and see improved margins. We're expecting that for Q3 20. And Q4, Michael.

Speaker 2

Very helpful, Steve. Thanks a lot, guys.

Operator

We are now going to proceed with our next question. And the questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question.

Speaker 8

Thank you. Good morning. On accessibility Europe, 2. Thanks for the comments on production rates. I was wondering if you could comment on recent order flows in Europe.

Speaker 8

20. Specifically, I'm wondering if the dealers were more hesitant to order from the facility given the past 2. I can take

Speaker 3

this one. So, Monsieur Fred, we were not 2. But right now we are back to normal. So again our dealer, they are partner with us for many, many years. So yes, 2.

Speaker 3

We have probably lost some sales in there in the Q2 because early time was not accurate in one of our 2 factories. But I think right now we're back to normal. So our sales team 20. Again, we are happy with the order intake in the last few weeks. So I think that was a huge concern for the rest of the year.

Speaker 3

I think We are back to be a good company.

Speaker 8

Okay. And on the ERP, maybe switching to the benefits 2. Going forward, can you maybe shed a bit more color on the expected benefits from the ERP and just on a, 20, I guess, qualitative basis and if there's any way to quantify sort of the benefits that you're expecting from that implementation moving forward?

Speaker 3

2. I would say for sure, Fred, on this one is always a bit difficult, Keith, because sometime when ERP becomes very old, 20. You need to change it to make sure you can continue to be operational at a good level in the factory. I think this is it. This portion, we see some gain.

Speaker 3

Now again, we're 2. A bit manual process. Now the ERP will have a better visibility, try to automate a bit of some process. So I think over time, definitely, we should see some improvement of efficiency. And again, we're example UK, we're a direct, okay, and we do manufacturing.

Speaker 3

So our current installers have a better visibility on their orders, 20. On the full process, how can we be better with invoicing? So there's a lot of different steps that we're going to see some gain, but sometimes we need to see it more

Speaker 1

20.

Speaker 8

Okay. And just 2. From the margin difference that there seems to be between Accessibility North America and Accessibility Europe, excluding the ERP, is there 20. Any sort of actions that you can point to that would need to be implemented for Europe to catch up to the North American margins?

Speaker 2

2. I mean, yes, you will remember that we've been talking about inflation impacts over the last few quarters in Europe being 2. Being stronger than the inflationary impacts in North America, and I mean, we continue to see that. So, we saw that in Q2, we saw that in Q1, and we saw that last 2 as well. So I mean, we are looking at different ways of combating this.

Speaker 2

Some of it is obviously on the price increase side. That's 2. One of the easier levers to pull, but we're also looking at our vendors. We've talked a little bit about the Savaria 1 project. Marcel talked to 20.

Speaker 2

Talked a little bit about on the vendor side as well, but looking at where we can consolidate vendors and find savings that way as well. So we're not just looking pass on increases as we get them. We're trying to find ways to reduce our

Operator

2. We are now going to proceed with our next question. And the questions come from the line of Zakaria Fichad from National Bank Financial. Please ask your question.

Speaker 9

Good morning, everyone. Thanks for taking my questions. I was hoping for a little bit more color around the 2. Looking forward to the back half, is there anything changing that would prevent a repeat of the performance seen in the first half?

Speaker 4

Hey, Zach. Well, again, I think after we had our Q1, 2. We were cautiously optimistic going into Q2. Q2 delivered another strong margin performance. As we mentioned myself and I think both Steve, a lot of that has to do with volume, 20.

Speaker 4

Right. So it's a business that once you get above that $45,000,000 mark per in terms of revenue per quarter, there is quite a bit of Leveraging that business and following those incremental dollars falling more and more to the EBITDA line. So going forward, It's just a question of maintaining strong sales growth. Our order intake, as I said, was 20. Looking good.

Speaker 4

Our backlog is in a good place. However, I do want to be cautious, right, that our expectation from the beginning of the year was a 15%, 16 20. Percent for patient care with for 2023. So I don't want to deviate too much from there, Right. So yes, we had a good start to the year, but I still would want to see a few more quarters, continuation of this trend Before I really kind of put the stake in there of this being a 19%, 20% business.

Speaker 4

So I would be still a bit more cautious over the next couple of quarters as we see this trend continue. And again, there were some and there still continue to be certain challenges from a market perspective that we're navigating through. So it's not necessarily 20. Complete smooth sailing, but we've been pretty good so far. I'm not sure if that helps or not, maybe 20.

Speaker 4

Being a bit more cautious there, I would say, going forward as well.

Speaker 9

Got you. And maybe just digging a little bit deeper on that, your employees in the segment. Do you think that they're stretched in terms of production capacity or they can maintain the current pace without having to add additional costs?

Speaker 4

No, no, I think the team is doing quite well. Again, it's a continuation of this integration that we've experienced between the Handicare and the sales, I guess the Handy Care and the Span, especially on the commercial side, the operations are going well. We're better staffed in certain areas. I think there was, For example, in St. Louis, our sewing line is fully up and staffed and that's been an area where we're lacking bodies.

Speaker 4

So I think from an ability perspective, we're there. From a capacity perspective, we're there. 20. It's just a question of continuing going out and winning contracts. There are certain delays that have happened in some of the newbuild projects.

Speaker 4

So that's something that's kind of out of our control. There is some lumpiness within the project business within HandyCare. So there again, we're trying to manage through that. 20. But no, I would say with the current staffing levels and what we currently have, I think we're well prepared to deliver going forward.

Speaker 4

There's just some things Again, within the industry, that we just have to be careful of. That's all.

Speaker 9

That's helpful. Thanks. 20. And then with adapted vehicles being folded into accessibility, should we take that as a statement that the remaining AV operations are core? Or are they

Speaker 2

20. Hey, Zach, it's Steve here. So I'll take this question. The vehicle business, I mean, it's still a piece of two. Savaria, it's still an important business for us.

Speaker 2

Just because we're not reporting on it separately in our MD and A and financials, it doesn't mean that it's getting any less 2. We have a new leader in place that's for that business. It's been in place now for a couple of quarters, 2 quarters now. And I mean, we have a bit of a plan that we're trying to execute to see improved profitability there. So I would say this business is getting more attention over the last couple of quarters than it has maybe in the last couple of years.

Speaker 2

So 2. Actually, no, it's still very core for us. It's just it's not large enough to report on as a segment. 2. The management structure reports in the same management structure.

Speaker 2

With Norway now, Don, it's such a small piece Revenue wise of the overall pie that it didn't make sense to report separately. So no, it's still core for us, Zach.

Speaker 9

Good color. Thanks. And then just one last one on the opening remarks. The 25% EBITDA growth targeted through Savaria 1, is that In each of 2024 2025 or 25% across both years in total?

Speaker 1

2. No, no, no, no. It's the $25,000,000

Speaker 3

okay each

Speaker 1

year. For us, okay, what we do directly With the scenario that we have right now. And you see that we all foresee that we expect on that to be done. We'll see around 8% to 10%. So the 25 is covered the independent business.

Speaker 1

So that's why it's important. 2. That's it's why I'm very enthusiastic about what we do since I signed the deal. And Also, at the beginning, it's just a question of the very deep knowledge of 2. Our project, Shakiya, will evaluate our turnover as he did.

Speaker 1

But we would see some little thing 2. Since the end of the year, but mainly in 2024 and 2025.

Operator

20.

Speaker 9

Appreciate the clarification. Thanks. I'll turn it over.

Operator

We are now going to take our next question. 2nd. And the question comes from line of Michael Glen from Raymond James. Please ask your question.

Speaker 6

2. Hey, good morning. Can you remind us or give an update about where things 20%. Stan, from a pricing and input cost perspective, commodities are bouncing around a lot. 22.

Speaker 6

Just looking for an update as to how things have progressed on both of those items.

Speaker 3

Nicolas, can you take the question?

Speaker 4

With respect to pricing, again, we do have pricing initiatives that we've 2. Talked about in the past, again trying to keep up with certain inflationary pressures when we do experience them. I would say overall, as Sebastien had mentioned earlier on the call from a supply chain perspective, 20%. Things are relatively stable and back to normal. There could be some issues possibly within freight over the next little while.

Speaker 4

We've seen Some carriers experienced some difficulties there. So that's something that we're monitoring to see whether freight is going to remain stable for the moment. We haven't seen much of an impact, but it is something that we're monitoring 2. As we talked about Europe, that's also something that the pricing is a little bit more difficult Environment and at the same time, there have been some inflationary pressures that we've experienced. So I would say that's another area that we're still continuing to monitor.

Speaker 4

So not sure if that helps you in terms of inputs, but no, I think things have been relatively stable in China, for example. That's also an area that 20%. We haven't seen any sort of inflationary pressures at all coming out of there. So that's a big help. So no, I think we're in a pretty good place.

Speaker 2

20. And just if I could just add a couple of additional points, Nick. I mean, specifically within the North American business, 20. Our price increases went in earlier this year. We have done some other targeted increases 20.

Speaker 2

Just in the summer right now actually. So, our Garaventa business put a price increase in the last month. So It's a continued strategy from what we saw last year and North America typically does it at the beginning of the year with the exception of Garaventa. They've done a couple of different price increases. But we are monitoring our cost our input costs and we haven't seen the increase In North America continued to what we saw in prior quarters and we haven't seen in North America to the extent that we've seen in Europe.

Speaker 2

So Excuse me, Europe, it's still we are still seeing high inflationary impacts on our input cost 2. And we're revisiting our pricing strategy there and likely going to be targeting price increases, but those will probably come 2. Not until Q1 2024.

Speaker 6

Okay. And within accessibility within North America,

Speaker 1

20. Can you in the MD and A,

Speaker 6

I think you're referencing organic and accessibility in North America was about 12%.

Speaker 8

I think that's the number in

Speaker 6

the MD and A. 20. Can you break that down or provide some insight across some of the product categories about 20. Is it meaningfully different across product categories?

Speaker 2

Yes. So it is about 12% 2. It was about 12% in the quarter in North America and that primarily has come from the legacy elevator and platform business. We are still seeing strong backlog in both commercial and residential sectors. I would say there is some opportunity for us To do a bit better on the stairlift side, so I would say more of that 12% comes from legacy platform and elevator lift products, 2.

Speaker 2

Where our backlog remains strong, and we do see further opportunities to, more so on the stairlift side.

Speaker 6

20. Okay. And then thinking about that then, I mean, there There had been concerns regarding how rising interest rates, Softer housing market could potentially impact that residential elevator market. Are you seeing any evidence whatsoever that that's Having an impact negative impact?

Speaker 3

I think that the answer to that, our backlog remained very healthy. So for us, we really not see any slowdown in our incoming order in North America. Again, we are looking to decrease early time, so it will be more aggressive, okay, On the market, but definitely our backlog is at historic level, so no impact on our sites so far. 2. Okay.

Speaker 6

Thanks for taking the questions.

Operator

We have no further questions at this time. I will now hand back to Mr. Broussa for closing remarks.

Speaker 1

So I just want to and as I could say, thank you to all 2. Thank you for the call this morning and thanks for my question and my partner in Savaria to answer the question. I think it was a great call. Thank you very much.

Operator

20. This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.

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Earnings Conference Call
Savaria Q2 2023
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