Savaria Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 7, 2024

There are 11 speakers on the call.

Operator

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q4 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer This call may contain forward looking statements, which are subject to the disclosure statement contained in Savaria's most recent press release issued on March 6, 2024, with respect to its Q4 2023 results.

Operator

Thank you. Mr. Bourassa, you may begin your conference.

Speaker 1

Thank you, Sarah. It's Mr. Lucu. It's a pleasure, Raki, to be with you, my analysts and my guy, Artiya, Steve, Sebas and Nicolas, who will speak after me, okay. It was a good quarter, okay, a great year, but I think we are in a very good mood, okay, to have, okay, this year and next year, okay, we have some game changer, okay, that you will see, okay, our objective of 25 that they can speak, okay, after the people said to me, okay, what I can speak and what I cannot speak, okay.

Speaker 1

But I think I can say, okay, that in 2025, okay, we have an objective, okay, of EUR 1,000,000,000 of sales with 20% of EBITDA. And I tell you, okay, and you can meet the max you are better than me to reach, okay, the $1,000,000,000 in sales, okay, we would do that, okay, it's not even so difficult. For sure, nothing is easy, okay. And while global, okay, across the globe, okay. Some actually we have to say that is a little bit weak, okay.

Speaker 1

But North America is very strong, okay. So we I can see right now that at the end of 2024, okay, we just make our forecast for 2025 because that would be take some time to be at 25, but we have a very strong, okay, in North America, strong of 24, okay? And we can see that we at the end of 2023, we were in EBITDA at 15.5 percent and we go to 20%, okay. I can look, okay, with our forecast, okay, that we should be roughly maybe half of that, okay, in 2024 and the other half of that, okay, in 2025. So I am very optimistic about the number that we put for 25.

Speaker 1

And again, okay, it would be a pleasure for me, okay, to you have some questions for me or you have my people, okay, who will make a little presentation. And after that, we are open, okay, to answer at our best knowledge, okay, what we do. And you see, okay, some big cuts, okay, of consultation, okay. Just that I signed that, okay, and I was very happy to sign that, okay, because we have to be particular, okay, to be ready for the after EUR 1,000,000,000, after EUR 25,000,000,000 billion. So what happened the following week following that week, what years, okay.

Speaker 1

So with this study that we make with this international company, we have we'll be better and Sebastien will speak about what we are doing in that. We will be better from purchasing to selling to a lot of things. And so I see the future very good for sure. It's a big step to be there, but we will be there. We will be there, okay, at the end of 25th.

Speaker 1

And I am very happy that we will have open door, okay, for our people, okay, in April. So they will just see, okay, where we are right now. I would present you my new talent that we have, okay, And you will see that we have very good talent, okay, that we will present to you and you will believe, okay, because it's always people, people and people. So you will believe more and more and more about our objective of 2024 2025, okay, for the end of 2025. So on that, okay, it's a pleasure to have you, okay.

Speaker 1

And I wasn't reading, everybody will write on several Q4 and for the year. And thank you very much, okay, what you see. You are all, okay, very kind, okay. And you understand quite well, Savaria. For sure, now, okay, with this consultant, okay, and this big bump, okay, for the end of 2025, okay, I just want to this Investor Day, okay, You will see exactly what we have done, okay, at the back of the door, okay.

Speaker 1

And you will see, hey, that they are at billions, then they are at 20% and €1,000,000,000 okay. So I want to pass the line to Steve, our CFO. And thank you very much everybody to be there today. If you have some question, okay, don't forget to call me or I will be on the line during the call. So Steve, for you.

Speaker 2

Thank you, Marcel. Good morning, everyone, and thanks for being on the call today. I'm going to begin with some remarks regarding our Q4 2023 consolidated financial metrics. For the quarter, we generated revenue of $216,800,000 an increase of $4,700,000 or 2.2 percent versus last year. This was mainly driven by organic growth of 6.2% coming from our Accessibility segment.

Speaker 2

We also experienced foreign exchange tailwinds of 2.3%. This was partially offset by the divestiture of the Vehicle division in Norway earlier this year. We delivered a strong gross profit and gross margin at $74,300,000 34.3 percent respectively compared to $66,200,000 31.2 percent for last year. The increase in gross profit of $8,100,000 is explained by better gross margins, additional revenue and favorable foreign exchange rates. The increase in gross margin was mainly attributable to greater performance from all segments due to better cost absorption, favorable product mix and improved pricing.

Speaker 2

We also incurred $2,000,000 in strategic initiative expenses in the quarter. For the year, these costs amounted to $3,100,000 and have been carved out of adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin finished at $35,100,000 16.2 percent respectively compared to $33,300,000 15.7 percent last year. The increased profitability is mainly explained by the increased gross margins somewhat offset by higher selling and admin expenses. On December 22, 2023, Savaria signed a sale and purchase agreement with Dry Burch Canada to sell our Van Action and Freedom Motors divisions.

Speaker 2

The transaction closed on February 1 this year, 2024. And accordingly, at December 31 last year, these assets and liabilities of those businesses were recorded as held for sale. And now I'm going to provide some commentary on our segmented results. Revenue from our Accessibility segment was $173,700,000 an increase of $7,200,000 or 4.3 percent compared to last year. It was driven by organic growth of 9.5% coming from strong demand in the residential and commercial sectors in North America and Europe, price increases and cross selling synergies.

Speaker 2

We also experienced foreign exchange tailwinds of 2.8%. And this was partially offset by the divestiture of Norway business as previously mentioned. Adjusted EBITDA and adjusted EBITDA margin stood at $28,700,000 16.5 percent respectively compared to $27,000,000 16.2 percent last year. The increased profitability was mainly due to better cost absorption as well as improved pricing. Looking at patient care, revenue from this segment was $43,200,000 for the quarter, a decrease of $25 excuse me, a decrease of $2,500,000 or 5.4 percent compared to last year.

Speaker 2

While our backlog remains very healthy, revenue decreased due to reduced year end spending from institutional customers, product mix and to a certain extent large orders delivered last year not repeating this year. As a reminder to our investors, our patient care business is driven in large part by project based sales, which can be lumpy from time to time. For the quarter, foreign exchange provided a 0.5% tailwind for the patient care segment. Adjusted EBITDA and adjusted EBITDA margin stood at $7,900,000 18.3 percent respectively compared to $7,000,000 15.3 percent last year. The increase in both metrics was mainly due to improved gross margins explained by the product mix and pricing initiatives.

Speaker 2

Looking again at a consolidated basis, net finance costs were $4,800,000 compared to $6,200,000 last year. Interest on long term debt decreased by $400,000 due to the reduced balance of debt. We also experienced a decrease in net finance costs due to foreign currency gain of $1,000,000 compared to a loss of $500,000 last year and we also incurred a loss on net investment hedges of $800,000 in the quarter. Net earnings were $11,000,000 or $0.16 per diluted share for the quarter compared to $11,300,000 or $0.18 per diluted share last year. And adjusted net earnings were $12,800,000 or $0.19 per diluted share compared to $12,600,000 or $0.19 per diluted share last year.

Speaker 2

The decrease in net earnings was mainly due to higher income tax expenses partially offset by lower finance by lower net finance costs in the quarter. The slight decrease in net earnings per share is due to the increased number of shares. And so now turning to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes in non cash operating items reached $30,700,000 which is essentially the same as last year. Net changes in non cash operating items increased liquidity by CAD6.4 million compared to CAD13.2 million a year earlier mainly due to increased receivables.

Speaker 2

As a result, cash generated from operating activities in Q4 stood at $37,100,000 compared to $43,900,000 last year. Cash used in investing activities was $5,000,000 for Q4 compared to $7,600,000 last year. We disbursed $5,100,000 for fixed intangible assets in Q4 2023 compared to $7,600,000 in 2022. Cash used in financing activities was $21,100,000 for Q4 compared to $35,900,000 last year and the variation is mainly explained by a reimbursement on the revolving facility of $2,600,000 this year compared to $20,200,000 a year earlier. As noted, our cash balance grew by $10,000,000 in the quarter versus last year.

Speaker 2

As at December 31, 2023, we were having a net debt position of 269,900,000 dollars ratio of net debt to adjusted EBITDA stood at 2.07 in comparison to 3.07 at the end of last year. Savaria has funds of approximately $223,300,000 to support working capital investments and growth opportunities. Looking forward, Savaria's future prospects are promising, driven by strong market demand, the progress of Savaria 1 and potential tuck in acquisition opportunities that will enhance our market position. From a financial standpoint, we anticipate average costs of approximately $5,000,000 per quarter through fiscal 2020 $4,000,000 per quarter for the first half of twenty twenty five related to Savaria 1. We may see additional fees depending on the success of the program.

Speaker 2

We remain confident that the benefits of this program will increase as the year progresses, leading to long term growth in both top line and bottom line offset some of the $50,000,000 of annualized revenue loss resulting from the divestiture of Van Action, Freedom and the Norwegian vehicle adaptation businesses. Overall, we have full confidence in our ability to achieve our targets of approximately $1,000,000,000 in revenue and an approximate 20% adjusted EBITDA margin in 2025. We look forward to sharing more detailed information about our initiatives at our upcoming Investor Day in April. And with that, this completes my prepared remarks. I'm going to turn the call over to Sebastien.

Speaker 3

Okay. Thank you, Steve. So a few comments on my side concerning the most of the operation and the Savara one. So basically, I'm quite happy with the growth in 2023 in North America of like 13.6%, which was greatly supported by Vancouver and Toronto factories. So thank you to both factory.

Speaker 3

And what's important is we remain a very healthy backlog for our Elevator division. So that keeps some fuel for the next few quarter. Finally, we have also some improvement in the inventory management. So I think it's shortlisted we are trending in the right direction. So I think that's a start.

Speaker 3

And it's also part of this Savara 1 to improve our working capital. In Mexico, we now have 70 employees. We have some weekly truck coming to our factory in Toronto, starting some shipment to our factory in Vancouver. We now export some finished product in the U. S, some porch lift and started some home elevator.

Speaker 3

So I think that will be a start to hopefully some new market or some customer. We saw the Acadian Car division, as you saw, the division in Toronto and Montreal. What was important for us is to find a good buyer and I think with the company we found in the U. S. Drivers, it will be better for employee to have a company that can help to develop a bit of the business.

Speaker 3

So quite happy with the transition. Nicolas will talk a bit later about the patient care, which was a disappointing Q4 to be transparent and modest growth in 2023. But what's important to not forget is a few years ago, we were a company of 10% of EBITDA in the patient care and it's now 18%. So when we talk about 20% for the Savara, but you see the patient care is very close to it. And I'm pretty sure the Savara 1 and the work that the team of LES and Pat are doing will be able to achieve.

Speaker 3

Savara 1, so we are it's really underway. We have strong participation from our employees. They are super motivated to participate in it and it's even starting to be part of our MD and A, so quite happy with that. I would say we have found some very strong pillar on the procurement, on production, selling opportunity, pricing that will help us to achieve 20% by 2025. And the most important is we have a strong foundation for the after $1,000,000,000 I will not give a guidance to deal on the after $1,000,000,000 But at least, okay, we're very decentralized and for many years.

Speaker 3

So for us, it was important to think more about the 1 company and 1 savaglia, one way of training. This is really what we're currently doing. And I'm pretty confident that in the next few quarters, you will see a good improvement step by step towards a goal of 20%. And also part of the several one, there's a lot of training happening for employees just to make sure we think as a one company. So I will strongly invite you to register for Investor Day on April 9, because we'll have a chance to talk more in detail of this Savara 1 program.

Speaker 3

And also if you register, you will have the chance to visit the factory in Brampton, where you can really see that it's effectively under transformation, newly out, new way to manage the company more digital board. So I think will be a good example of where we are. So, Nicolas, you want to talk a bit more about Patient Care?

Speaker 4

Sure. Our Patient Care segment delivered a record year in 2023, achieving $183,000,000 in sales and EBITDA margins of 18% for the full year. Our operational and sales leaders within SPAN, HandyCare and Silvily have really come together and 2023 results are a testament of their efforts to integrate and manage these businesses as one Savaria patient care group. Turning to Q4, our sales in the quarter were weaker than anticipated due to a number of factors, primarily that we had some large projects in Q4 2022 that didn't repeat this year as well as various project delays that pushed some work into Q1. However, our order intake remains strong in the quarter and our backlog exiting the year was at a record level, which bodes well for 2024.

Speaker 4

On the margin front, despite the lower sales in Q4, we maintained a relatively high EBITDA margin of 18.3%. The margin improvement is mainly attributable to the following. First, we had a favorable product mix in the quarter with good mattress volumes, strong year end sling spending and high margin contracts within Handy Care's Canadian business. 2nd, we continue to focus on selling the entire room. We make better margins when we can bundle our sales and we had a good success selling packages in the quarter, namely bed packages to the VA.

Speaker 4

3rd, pricing improvements in 2023 are having a positive effect, in particular with respect to beds where we've optimized pricing to preserve minimum margins and gone away from the low end market to focus on better and best category products. Finally, I'd be remiss if I didn't mention the excellent job by our operations teams in improving production efficiencies within our factories and maintaining a diligent control over costs. To conclude, we were a bit cautious throughout the year and tempered expectations with respect to the significant margin improvement we had been observing within patient care. However, now that we can take a step back and review the full year's performance, we are confident that we have the right team in place and the winning formula for sustained success. We also know that we need to prioritize sales growth

Speaker 3

and this will be a

Speaker 4

key focus for management in 2024. And with that, I'll turn the call back over to you, Marcel.

Speaker 1

Okay. Thank you very much, gentlemen. Okay. And thank you, kids, to be very enthusiastic about our future. And I think we are a little bit conservative, but it's looking very good.

Speaker 1

So Sarah, I'll transfer to you, okay, to if we have some call, okay, that we can answer.

Operator

Thank you.

Speaker 1

You.

Operator

Thank you. We'll now take the first question. This is from the line of Derek Lessard from TD Cowen. Please go ahead.

Speaker 5

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

Speaker 1

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

Speaker 5

Okay. And I also wanted to touch on the Savaria 1 and understand that you might not want to steal too much of the thunder from your upcoming Investor Day, but maybe could you just highlight some of the bigger initiatives you have in the pipe and when you expect to start offsetting some of the costs of the program?

Speaker 3

Yes. So I think I can start and maybe someone can complete. So basically, I would say direct really taking example of procurement. Procurement, we have been very decentralized. So maybe we have some vendor in Vancouver, Toronto that again we have never looked a key to put it as is there a national company that could offer the parts, put the volume together, get better pricing.

Speaker 3

Do have a challenge with some of this about it, we work with them too long to do a bit of RFQ. So that's a bit example of procurement that we have been working on. For sure, from Europe to North America, it's not always have so many common vendor. But yes, we have some for some specialized parts. So I think we have really look at procurement seriously.

Speaker 3

Production, we have been doing the same thing for many years. Sometimes we get a bit lazy. So again, how can we challenge our team to have a better flow of material in the factory to be a bit more productive, so production to do a bit more output in the factory. We have been talking for almost 2 years of good backlog in Brampton and Vancouver and a bit difficulty to execute it, but you saw the growth in last year. Again, we started in Sarban towards the second half, but you see this start to have a bit of traction on the output for the factory and we should continue this year.

Speaker 3

So quite happy with the change. Selling opportunity, again, we have many different brands. Okay, how can we look at things? Are we maximizing the sales in one area or another one? So a lot of work has been done also about the selling crossing opportunity.

Speaker 5

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

Speaker 3

Sure. So basically, we saw that when we started a bit this Savara 1 project, it was important for us to have someone that can spend more time than me or Steve, okay, or the manager to focus just on the Savara 1 to make sure we are very structured because it's easy to say, oh, I will do this incentive.

Speaker 1

I will do it by this date, but you need

Speaker 3

to do some pull out with the team in a pretty rigorous way When is the date? What is the value? Then to continue, so GP is full time on that. And he has over 20 years of experience to do some transformation. Again, us on the side, the standard restructuring, it's a growth story.

Speaker 3

So again, that's quite exciting for all employees. So they are very excited, but GP has this background to do it in a very structured way. And what's important is what the deal we are going to finish with the consultant, we want what we have done to be sustainable. So that's why we're starting slowly to improve our team to make sure we can be sustainable after the 2020 5th.

Speaker 6

Okay. I'll requeue. Thanks for answering my questions.

Operator

Thank you.

Speaker 1

Thank you, Derek.

Operator

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

Speaker 6

Hey, good morning guys. For the anticipated cost of about $5,000,000 I think per quarter in 'twenty four and Steve you said $2,000,000 in each Q1 and Q2 of 'twenty five. Dollars So collectively about $25,000,000 to $30,000,000 of costs, not a small amount. I want to get a sense for if you can break that down, is it all consulting fees or does restructuring get in there and maybe some technology investments? Just trying to get a sense for all the costs.

Speaker 3

David, do you want to answer?

Speaker 2

Sure. Yes. Thanks for the question, Michael. It's the cost that we're expecting that I touched on the $5,000,000 in Q4 or in every quarter for 2024, That's really going to be consulting and other one time costs related to Savaria 1. There's going to be some training costs in there, but the majority of it will be consulting fees.

Speaker 2

There's really not going to be much of an investment in assets and capital assets. So that total expenditure of $20,000,000 that we're forecasting between $24,000,000, most of that's going to go through as an expense line item. It's being carved out as strategic initiative expenses, similar to how we recorded it for Q4 of 2023.

Speaker 1

Got it. Okay.

Speaker 3

And Michael, just to add something on that, yes, some people might say, oh, it's a very high cost, but that showed that the intensity of the program, okay? Again, it's touching all the factory at different place. So very intense factory sales, all this the pillar that I mentioned a bit before. So that should bring some confidence that we were last year, we want to go in 2025 that again that give us a better chance to achieve it, right?

Speaker 6

No, I surely can appreciate the level of investment, I guess, financially and from a personnel perspective as well. I mean, if I go back to some of the earlier comments, I mean, it does feel like you're doing a lot of heavy lifting here, 2024 and 2025. And I guess, I don't know if there's a way to think about assessing the operational risk and sometimes there is kind of a step back for 2 steps forward type of trend. I'm just thinking to the earlier comments about expecting half the growth in 2024 and the other half in 2025. And would it help would it be more maybe helpful just to think that maybe more of the margin expansion is in 2025, just given some of the heavier lifting?

Speaker 1

Well, I wouldn't say that, okay. Thank you, Michael. Okay. And first of all, okay, don't forget, our industry is one of the best industry in the world, okay, is just about the aging of the population, okay. And we're in, okay, and it was good for me, okay, 40 years ago when I buy it, okay, but it's continue, okay, it's continue, okay.

Speaker 1

But with this study, okay, the fundamental is, okay, who will be better, okay, everywhere, everywhere we will be better, okay. And often, okay, they are like 30 or 40 people from the constant, they are in Europe, okay, they are in North America, they are in Mexico, okay, they are everywhere or in China, okay, we have to be better everywhere. For sure, okay, 25, okay, should be better than 2024, okay, because we will have some subject or some study that they make, okay, that it will just arrive, okay, that we will make that in execution, okay, for sure, okay. But I want to, okay, that we have a little bit more to say, okay, in 2025, okay, and maybe it will be better than 20%, okay, because as you mentioned, okay, for sure, okay, most of action, okay, that would be just in 2025 and not in 2024. You are right, Michael.

Speaker 1

Sebastian, you want to complete that?

Speaker 3

Just to use the example Michael, no, I have high inventory over 100 days. So when I if I have a new saving with the new parts, but I have to eat my inventory before the saving in the P and L. And sometime, if I change the supplier, I need to approve the new parts with R and D, do some correct testing. So again, yes, it takes things takes time, but we are quite happy to the project that we have now.

Speaker 6

Okay. That's really helpful commentary, guys. Thank you.

Operator

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

Speaker 7

First question, I guess just to follow-up quickly on the expenses for strategic initiatives. On the $5,000,000 is there a component in there that is performance based, meaning like linked to some of the savings and improvements of Severin? Or is it all a fixed cost component at this point?

Speaker 2

So I'll take this one. Hey, Fred. I think it's important for everyone to know that we have talked about the agreement being fixed and variable. So there are fixed and variable components. We have but we have structured this agreement so that our interests are totally aligned with the consultants' interest.

Speaker 2

We're all working to achieve the same goal here. Without getting into too much details of how the agreement is actually structured, For 2024, we are fairly confident that the total expected expense is going to be £5,000,000 per quarter where we may see additional fees are in 2025 and beyond as we start to see more of the success of the program come through the financials.

Speaker 7

Okay. Thanks. That's helpful. Maybe switching to tuck in acquisitions, something you mentioned to offset some of the divestitures. Just curious to see how you think about that.

Speaker 7

I mean past tuck ins were in some cases, dealers in accessibility. Is that an option? Or are you looking more at a product that would complement maybe what you have right now?

Speaker 1

As you know something, we are always looking about territory or where our sold products, okay, that will complete our line, okay. And don't forget when we have products, okay, that we can put in available to 1,000 dealers, okay. So we can buy something at $5 but it can go to $10 very quickly. So it's always territory, it's always a product. So when and Frederic, okay, you're always good, okay, with your comments, okay, and when I read what you write, okay, you know Saveria.

Speaker 1

And one thing we don't forget about this study, okay, by an international company, okay, the family owned roughly 20%, okay. So before we make a move, okay, you imagine, okay, the guy, okay, who has 20%, okay, can look at that is what they will do this with millions of expense, okay. We just want to be better right now and better for the future.

Speaker 7

Yes, that makes sense. Thanks for that, Marcel. Maybe just a question on Patient Care on the 2024 outlook and maybe the 1st part of 2024. Nick, you mentioned that some of the projects have been pushed back to Q1. Maybe just broadly your expectations in terms of revenue growth.

Speaker 7

I know you mentioned that would be a priority for 2024. So maybe just broadly go over what you're seeing so far in Q1 and maybe getting into Q2 in that segment?

Speaker 4

Yes. I mean, there was a there's a lumpiness component to it. I think we've talked about that several times. So we have a very strong backlog. And again, the backlog is based on certain projects that we expect to deliver over the next several quarters.

Speaker 4

Going into Q1, Q1 is going to be tough, I'm not going to lie. We had a very strong Q1 last year at, I think it was $48,000,000 close to $49,000,000 in sales, which was an all time record for us. Also kind of exiting COVID, so 2022 was also very strong years. And so here we are going into a period in 2023 or exiting 2023 with sales that maybe were a bit lower than anticipated and lower than market expectations. We still feel very strong about the business.

Speaker 4

We have good order intake. It's just a question of when some of these projects will land. And we're also looking to smooth out some of this lumpiness by getting better visibility into our pipeline. And by that I mean, when we can identify some of these revenue gaps, right, if some of these projects are getting delayed, looking to see how we might be able to bridge those gaps with quick ship items, right? So maybe there's promotions that we might be able to run to help bridge those gaps in certain quarters where we're seeing some delays in certain projects to help smooth out some of that lumpiness.

Speaker 7

So all that to say

Speaker 4

is that we're very confident about the business. We do anticipate similar kind of high single digit growth to help get to that $1,000,000,000 mark. It does have to come from patient care as well. So we do anticipate good growth next year. When it's going to land quarter to quarter, that's something that's unfortunately, it's a bit more difficult for me to explain.

Speaker 7

Okay. Yes, that's helpful. Thanks everyone.

Operator

Thank you. We'll now take our next question. This is from the line of Justin Keywood from Stifel. Please go ahead.

Speaker 8

Hi, good morning. Thanks for taking my call. Just on the comments of weakness in Europe versus strength in North America, are you able to describe what factors are leading to the different dynamics in each of the markets? And then also are you seeing any indication of strength returning in Europe? And maybe in the other regard, any potential risks of growth in North America?

Speaker 8

Thank you. Okay.

Speaker 3

I can start and then people can lead. So for sure, Justin, again, don't forget last year, we had a tough Q2 in Europe. Everybody knows changed our ERP. We don't talk about the ERP anymore. We now see some good benefits out of it.

Speaker 3

But Q4 we had some growth. But one thing not to forget is we do not have the same portfolio of product in Europe than we have in North America. And we know we want to expand portfolio of products so that we have a one stop shop with elevator platform lift. It's taking a bit more time than expected, but definitely by 2025, okay, we should have a much better range of product that we are able to generate some interesting organic growth and that will help also the margin. So I would say that that's going to be patient.

Speaker 3

We have a good game plan. We have a good team in place in Europe where the Savara 1 is quite intense also over there. So I'm pretty sure we will see some positive things in the coming 2 years.

Speaker 1

Yes. Just complete that, okay, Justin. That Europe represents roughly roughly 30% of right now and 23%, 30% of our EBITDA, okay. The 17% is coming from mainly from North America, okay. I would be very enqueued, okay, If it was the other way, okay.

Speaker 1

But I just see that we represent in North America and North America is not in the recession, okay. And but our people in Europe work very well, okay. And they work until with the leadership of Claire, okay. And she's very good and she knew what she is doing. And she will be back, okay, with higher profit, okay.

Speaker 1

So the 70% that represent roughly in North America is very strong, It's very strong, okay. And just want to add that, okay, that I think Europe just go one way, okay, with Claire and his team, okay, just to be more participating, okay, in EBITDA in the coming years, okay. But we are a team, okay. 1 of the team has some difficulties, okay. They are we don't speak anymore with the recession in North America.

Speaker 1

But then, okay, they are in recession, okay. So even if we have a bulletproof products, okay, from the economy, okay, but often the people need a product, okay, but because of the recession, they will say, we will wait a little bit. So we know that, okay. But it will be this way, I'm very confident, very, very confident that we will meet or exceed our number, okay, because the people need our products. The people need our products.

Speaker 1

And when I say, okay, that's the 70% is going very well, okay, I am very optimistic. So just a little complement for the question.

Speaker 7

Thank you.

Speaker 8

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

Speaker 1

Absolutely, okay. For sure, it will be a good thing, okay, if I buyback, okay. But we're not in a position right now, okay. We want to grow. And for sure, we have to spend some money, okay.

Speaker 1

And with the consultant, okay, that would be a use of our cash flow, okay, that we have with them. But it's better than acquisition, okay, because often, okay, they are 30 or 40 people working at the same time, okay, for Savaria, okay. So it's major, it's major. So that's the best investment that I can do. It's why I signed that with a smile.

Speaker 1

Now it has come, okay, but we will see the result, you and me, together very soon.

Speaker 8

Thank you very much for the detailed response.

Speaker 1

My pleasure.

Operator

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

Speaker 9

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

Speaker 2

Thanks for the question, Zach, and I appreciate you wanting more detail to try to forecast cash outflows. The way that the agreement is structured, it's at a very detailed level. And when we look at all the initiatives that we have, it's exactly how much the potential is because we're waiting to see what the benefits are going to be coming to our financials. So it's I mean, we know that 2024 payments of $5,000,000 per quarter. That's exactly what we're expecting.

Speaker 2

For 2025, depending on the success of the program, it could end up being more than what we have in that $2,000,000 per quarter. But we're actually hoping that it's going to be more in the sense that the more that we're paying on the performance side, that means the more better results we're going to be getting out of the program and out of the work that we're doing with the consultants. So it's too early to comment, I think, past 2024 with regard to total fees. But again, I think the comment that I made around fees potentially being higher, but the fact that our interests are fully aligned with the consultants' interest, I think that that's a strong signal.

Speaker 1

And Zachary, okay. Just to complement, okay, what Steve very well say, okay, that I don't sign a contract if I don't see, okay, a big return on investment, okay. And that's taking 10 years, but taking a couple of years. So we study, okay, the offer and we signed the offer because, okay, it's very important, okay, the saving that we will make, okay, after the study, okay, that I am more than satisfied right now after 9 months, 1 year. So I signed that because I was sure I was not no, we are never sure, okay.

Speaker 1

But I was very optimistic, okay, that the return will be good, very good, okay. And so if it's good, it costs very expensive, okay. But it would bring the other other day. They work on everything, okay. Just in purchasing, just in purchasing.

Speaker 1

Imagine, okay, that we have, okay, like $400,000,000 of purchasing. Imagine, okay, consulting, okay, that make just kind of study all around the world, okay, do you know exactly, okay, where is the best purchase and that was price, okay. So the A plus right now, okay, and that's major saving. And for sure, okay, they do that, okay, that's their life to do this kind of study, okay. And I am so happy that we have the guts, okay, to go with this study, okay, even if it's very expensive.

Speaker 1

So Zachary, believe in me, okay, that and we are I don't see that it will not take 6 months more, okay. But believe in me, okay, you will see, okay, the bottom line, okay, that will arrive, okay, with this study, plus, okay, our regular work, okay, that we do, okay, but we will be better, okay, and just in purchasing, I repeat, okay, when you buy roughly 50%, okay, with materials, okay, that's where is the saving. Thank you.

Speaker 9

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

Speaker 3

I guess, I had to be also comfortable with the target that we have put. So I think we're going to live with the target we just put on the market yesterday night. And I think at the Investor Day, we'll continue. So I think the target is set up and even there's a change, we are all comfortable in it, right? And I'm spending a good amount of my time on the Cyber 1, so I will see what we have put, I strongly believe in it.

Speaker 3

Okay?

Speaker 9

Excellent. Thanks. Then just one more if I can sneak it in. I think you guys were aiming to get the Mexican facility up to about 100 person headcount by the end of the year. You guys have 70.

Speaker 9

Is everything going well on that front? Any reason for the difference in total employee count there?

Speaker 3

Again, Zack, it's not the competition of the numbers of employees that we have in the plant, but it's more like what we get output out of it. So I would say we are quite happy with our 1st year, okay? If we look what we have in China, which took us like 20 years to bid, I think we have made very good progress in our 1st year in Mexico, so quite happy with that. And what's nice is now with the Sabar one, I know exactly what I will do in the next 2 years because all our projects are mapped out and again we're staffing it also. So again I think this year we definitely will hit 100 employees, but again it's another competition of numbers of employees, it's more the output out of the factory.

Speaker 9

I appreciate the color. Thank you very much. I'll turn it over.

Speaker 7

Nice to see you, Kerry.

Operator

Thank you. We'll now take our next question. This is from the line of Fred Gattali from Raymond James. Please go ahead.

Speaker 10

Hey, good morning. On some of these, the Val Action and Freedom modems that were sold off, Is there a piece left on that or has the full business rolled off now on these adapted vehicles? And are there any contributions from these sold off businesses in Q1?

Speaker 1

I want to say something, okay, that I was there many years ago, okay, when okay, I was with running or not running, but participating a lot more, okay, with Vanaction, okay, and freedom into also, okay. And I tell you something, okay, that's what's hard for me, okay, to sell this division. They are from Montreal, okay, my native land, okay. And what I say is not how much money we will make, okay, it's who will buy that, okay, that I believe, okay, they will be good for my entry. So it's not the question you pay 5 or 10, okay, because you have to have the right price, okay.

Speaker 1

But, okay, I am sure that we would have more employee as an action at the end of the year than right now, because the buyers, okay, have a lot of place in the site, okay, over 1 or 2, okay, that they can sell then, okay. So they need, okay, another place than in the States, okay, to manufacture. And they visit us and they know us and we made business with them for many years. Okay. So that's the best thing for my employee, okay, that I find, okay, my group, okay, find this buyer, okay, from this page, okay.

Speaker 1

So but that was hard for me, something when it's coming, okay, from so many years, okay, at the beginning of my life, okay, that I have that, okay, And they were very good for me. But right now, that was the right time, okay, pass the leadership to another company that is unique of a function is to help the people with mobility. So, Sebastien, do you have something to add?

Speaker 2

If I could just actually add a little bit of color as well, Marcel. Just to clarify on the selling price. So we have disclosed the financials. The selling price is CAD7.5 million. So there should be a gain on that.

Speaker 2

We're expecting a gain on the sale to be recorded in Q1 of this year. So the deal actually closed on February 1. I did touch on the approximately $50,000,000 of annualized revenues that we've lost through divestments over 2023 and the beginning of 2024. About $35,000,000 of that $50,000,000 comes from the Norwegian business and €15,000,000 comes from the vehicle manufacturing businesses of Van Action and Freedom. So we still and to answer your question specifically, we still do have a piece of the vehicle business.

Speaker 2

It's the retail side. So we divested of the manufacturing and sort of as Marcel was saying, we felt that the home was the home for that business was better suited with dry verge. They're going to be more successful at growing their business. It's core to them. And we're going to be taking the proceeds from that and reinvesting in the rest of our Accessibility and Patient Care businesses.

Speaker 10

Okay, thanks. And just to just how do you think to get to this $1,000,000,000 revenue, how should we think on that target being reached through organic growth versus perhaps the additional acquisitions?

Speaker 2

We're looking to reach a $1,000,000,000 mainly through organic growth. And I would say without the divestments, we would definitely have achieved that. So we do have a little bit of a hole to fill with those divestments. That $50,000,000 of revenue isn't providing or bridging more of a gap than the 8% to 10% of organic growth that we know we're roughly anticipating for a year. So we do need some tuck ins, some tuck in acquisitions to fill that $50,000,000 but that's kind of why we're saying approximately $1,000,000,000 in revenue.

Speaker 2

So there has been some changes to our business since we provided that target, meaning the divestments of those businesses. But we feel good about the organic growth coming in roughly 8% to 10% still in line with what we had said when we first came out with that target. I think it was a year or 2 ago now.

Speaker 10

Thanks.

Operator

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

Speaker 1

Thank you very much, Guy, okay, to be with us this morning, okay. It's very important, okay, that we show the confidence that we have, okay, to the future, okay. It's incredible, okay. And I am always very enthusiastic, okay. For sure, okay, we have a lot of talent right now, okay, and new talent, okay.

Speaker 1

And in many, I am just a little bit, that dividend call back, okay, somebody on the bench, okay, see that, okay. And my guy, okay, are terrific. And but, okay, if we are good and we'll be better, okay, it's just because you guys, okay, you take what we follow you, okay, and you put that for investor, okay. And thank you very much for everybody what you do for me for us. So thank you, Sarah.

Speaker 1

Merci, Sarah.

Operator

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

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Earnings Conference Call
Savaria Q4 2023
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