TSE:SIS Savaria Q2 2024 Earnings Report C$17.25 +0.31 (+1.83%) As of 04:00 PM Eastern Earnings HistoryForecast Savaria EPS ResultsActual EPSC$0.22Consensus EPS C$0.20Beat/MissBeat by +C$0.02One Year Ago EPSN/ASavaria Revenue ResultsActual Revenue$221.34 millionExpected Revenue$213.08 millionBeat/MissBeat by +$8.26 millionYoY Revenue GrowthN/ASavaria Announcement DetailsQuarterQ2 2024Date8/7/2024TimeN/AConference Call DateThursday, August 8, 2024Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by Savaria Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 8, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good morning, good afternoon and good evening. My name is Raz, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria's Corporation's Q2 2024 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 session. Operator00:00:29This call may contain forward looking statements which are subject to the disclosure statements contained in Savaria's most recent press release issued on August 7, 2024 with respect to its Q2 2024 results. Thank you. Mr. Bourassa, you may begin your conference. Speaker 100:00:47Well, thank you, Raz, and good morning, everyone. So today, I will start with a small recap of our Q2, then Steve will update us on our financial and GP on our Savara 1, and then we'll follow with a small Q and A section. First, I need to say that I'm very, very proud of our results and especially of the teamwork that has been done as we have reached a very important milestone in our transformation after 1 year from the launch. I need to say that our other employees continue to be very motivated on the Savaria 1 project and they are very determined to bring Savaria to $1,000,000,000 of sales and 20% of EBITDA by 2025. So some of the key highlights for the 2nd quarter. Speaker 100:01:27It was the first time that we have an EBITDA of 19% for the full Savaria with accessibility being at 20.9%, so almost 21% and Patient Care at 17%, a bit behind our target, but I think we'll get there. First time, we have a new matrix, adjusted EBITDA per share of $0.59 which is our best since the beginning of Savaria. Gross margins were up to 37.5 percent, which is 150 basis points better than the Q1. We had a growth of 15.4% for the accessibility, which is coming both from Europe and North America. So good job to the team of care and Alex. Speaker 100:02:11And I would say that other factory had pretty good output. And I think the most important to this Sarah One program is we have made a very big change in all our factory. We're very organized and ready for growth. Patient care was flat in terms of sales in the Q2, but we were against the first half of the year that was strong in 2023. We're expecting a much better second half of the year. Speaker 100:02:40Sales growth remain something very important in Savara 1 and we continue our effort for the cross selling to increase our share of wallet with other 50 people in R and D, we continue to improve our existing products and bring new products to the market and we can develop some growth and have some good organic growth. Integration of our Mehta product line that we acquired in April, basically things are progressing and we have the we will definitely bring that into production in Toronto by the end of this year, so that we can streamline a bit of manufacturing and have a better lead time to our customer. Mexico nurturing activity, it continue. Now we have 80 employees. We have some regular shipment to North America, so we're quite happy with the progress. Speaker 100:03:28We have continued to deleverage the balance sheet. Now we have a net debt to EBITDA of 1.88 with available fund of $226,000,000 if we want some to do some acquisition. For sure the priority right now remains Savara 1, but we're still looking for acquisitions to replace what we divested in the last year. To conclude, I would say we are very lucky. We continue to operate in a very nice industry with the aging of population, staying at home, the density of the residential housing that they can put a residential elevator continue to be a very important factor in our growth story and our large product offering make us a very attractive partner. Speaker 100:04:07And last, I would like to thank again all our employees and our dealer for success in the Q2. So Steve, Financial, please. Speaker 200:04:14Thank you, Sebastian, and good morning, everyone. I'm happy to be here today, and I'm excited to share some remarks regarding our Q2 2024 consolidated financial metrics. Key highlights for the quarter include, as Sebastien mentioned, double digit organic growth in both in accessibility in both North America and Europe, as well as major improvements in profitability and gross margin and adjusted EBITDA margin on a consolidated basis. For the quarter, we generated revenue of $221,300,000 an increase of 22.9000000 percent versus last year. The increase mainly came from organic growth of 11.5%, partially offset by the divestitures of Van Action and Freedom Motors, as well we had positive foreign exchange fluctuations in the quarter. Speaker 200:05:07I'm pleased to report that the corporation delivered our strongest quarterly adjusted EBITDA, which is higher than any past quarters crossing for the first time the $40,000,000 mark. We also delivered a record gross profit and gross margin of $83,000,000 37.5 percent compared to $67,100,000 and 33.8 percent in Q2 2023. The increase in gross profit Speaker 100:05:35of $15,900,000 Speaker 200:05:36is explained by increased revenues, improved gross margins in both segments due to operating leverage, improved pricing, favorable product mix as well as lower material costs. While Savaria 1 has helped us achieve these results, we incurred again this quarter $5,300,000 for strategic initiative expenses in line with previously stated expectations. JP is going to speak more about some of our ongoing initiatives in detail shortly. Adjusted EBITDA and adjusted EBITDA margin finished at $41,900,000 19 percent compared to $29,300,000 14 0.8% last year. This represents $0.59 per share, up $0.14 per share when compared to Q2 2023. Speaker 200:06:26The increased profitability is mainly explained by the increased gross margins and lower SG and A expenses as a percent of revenue as we remain diligent about our cost base. Now looking at our segmented results. So revenue from our accessibility segment was 173 point $4,000,000 an increase of $22,800,000 or 15.1% compared to last year. The increase in revenue was mainly driven from organic growth of 15.4%, driven by strong demand in both the residential and commercial sectors, price increases in North America and Europe and last year was also impacted by issues with our ERP system implementation in Europe. Adjusted EBITDA and adjusted EBITDA margin for accessibility stood at $36,200,000 and 20.9% compared to $21,400,000 14.2 percent last year. Speaker 200:07:25The increased profitability was mainly due to higher revenue and improved pricing, a favorable product mix and lower costs lower material costs for both regions. Last year was also weaker due to the previously mentioned system implementation. The backlog in accessibility segment remains healthy. To offer additional insight into our regions, we are proud to report that revenues from both Accessibility North America and Europe increased by over 15% compared to the previous year. The adjusted EBITDA margin for North America was 23.6% in the quarter, while the margin in Europe increased to 15.8%, reflecting significant improvements from a year ago as well as a sizable improvement over Q1. Speaker 200:08:16Turning to our Patient Care segment, we saw our revenues reach $47,900,000 for the quarter, which is flat compared to last 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 and can be impacted also by project delays. The backlog in Patient Care also remains healthy. Adjusted EBITDA and adjusted EBITDA margins stood at $8,200,000 17% compared to $9,300,000 19.4 percent last year for patient care. The decrease in both metrics was mainly due to higher SG and A expenses, which were partially offset by pricing initiatives. Speaker 200:09:02As we mentioned in past communications, Q1 and Q2 of 2023 were exceptionally strong and the improvements pertaining to Savaria 1 are expected to affect the upcoming quarters more. On a consolidated basis, net finance costs were $7,400,000 compared to $4,500,000 last year. Interest on long term debt decreased by $1,500,000 due to the reduced balance of debt that we're seeing, which was primarily driven by the raise last year. We also experienced unfavorable variations on foreign currency exchange and financial instruments both were unrealized in nature. Net earnings was $11,000,000 and $0.15 per diluted share for the quarter compared to $8,800,000 or $0.14 per diluted share last year. Speaker 200:09:56The increase in net earnings and net earnings per share was mainly due to higher adjusted EBITDA, partially offset by strategic initiative expenses, net finance costs and higher net income tax expenses. Adjusted net earnings was $15,600,000 or 0.22 dollars per diluted share for the quarter compared to $9,000,000 or $0.14 per diluted share for the same period in 2023, reflecting a large increase when one time non recurring strategic initiative expenses of $5,300,000 are carved out. 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 $26,700,000 compared to $17,700,000 last year attributed to the increased EBITDA. Net changes in non cash operating items decreased liquidity by $3,100,000 compared to a decrease of $17,500,000 in Q2 of last year. Speaker 200:11:03The decrease in 2024 was driven by increased prepaid expenses and other current assets as well as decreased deferred revenue, while 2023 was unfavorably impacted by trade receivables, inventories as well as trade payables, partially offset by higher deferred revenues. As a result, cash generated from operating activities in Q2 stood at 23,600,000 compared to 200,000 last year, an increase of over 23,400,000. While DIO slightly increased during the quarter, it came down for the June month end and our DSO and DPO measures both improved versus Q1, aligned with our efforts to improve working capital management throughout the business. We remain committed to enhancing working capital as we grow. Cash used in investing activities was $11,300,000 for the quarter compared to $4,500,000 last year. Speaker 200:12:07We disbursed $4,700,000 for fixed and intangible assets compared to $4,600,000 last year, so essentially flat. In addition, we disbursed $6,900,000 for the business acquisition of Maytot that was done in April of this year. To support business growth, we're expecting capital expenditures to stay in the historical range of 2% to 2.5% of revenue for the 2024 year. Cash used in financing activities was $22,600,000 for Q2 compared to $15,000,000 last year. The variation is mainly explained by the reimbursement on the credit facility of $8,800,000 in the quarter compared to proceeds drawn of $800,000 in 2023 as well as lower interest paid of 1,900,000 dollars As of June 30, 2024, our net debt was $274,900,000 The ratio of net debt to adjusted EBITDA stood improved at 1.88 in comparison to 2.07 at the end of last year. Speaker 200:13:15And so looking forward with regards to guidance, as previously stated, Savaria is not providing guidance for fiscal 2024 as we focus on the achievements of our 2025 targets of approximately $1,000,000,000 in revenue and 20% adjusted EBITDA margin. The global team is focusing on delivering on these 2025 objectives and it remains difficult to pinpoint where we are going to finish 2024 and the remaining quarters therein. Savaria's future prospects are promising, driven by strong market demand, the progress of Savaria 1 and potential acquisition opportunities that will enhance our market position. And with this and with that, this completes my prepared remarks and I'm going to turn the call over to Jean Philippe to provide further details on how we're progressing with Savaria 1. Speaker 300:14:06Thank you, Steve. Good morning, everyone. Before I dive in, I just want to take a moment to thank the hundreds of colleagues at Savaria who are contributing to our success. Their creativity, their passion, the expertise they have and their rigor in executing all the initiatives we are pursuing is what makes Savaria unique and our Savaria 1 program a success. As you saw, Q2 2024 was Savaria's best quarter ever. Speaker 300:14:32It is the new benchmark for us as it was not due to a single initiative or luck, but rather the results of steady improvements across the business that are paying off. Just to give you a sense, we implemented 75 different initiatives in the first half of this year. In Q1, we saw a modest improvement in our quarterly earnings and I mentioned that we were starting to see the color of the changes made through Savaria 1. While in Q2, we are starting to realize the true benefits of changes made and it is the 1st full quarter where we can measure those impacts. While we cannot predict what the future holds and our business is subject to many external forces, we expect the changes we implemented to have recurring benefits and continue in coming quarters. Speaker 300:15:21Let me give you an example. We made a number of changes to our commercial terms. For example, we introduced the new dealer partner program in North America. While this program was introduced in January, the first orders placed within this program were likely produced and delivered at the end of Q1. So we really see the full impact of commercial changes on our revenues in Q2. Speaker 300:15:44Another good example is procurement. We renegotiated many contracts for raw materials, parts or freight rates, but those cost savings may only be accounted for in products that are sold either in Q2 or even in Q3. If I continue in North America, our focus within Savaria 1 was on a dual objective to grow order intake, while getting our factories to grow throughput for best selling products and in particular home lifts. Like Seth mentioned before, we're very proud of the achievements we've made there. And what this meant is that on the sales side, our sales force developed detailed plans to support our top dealers in each market to grow their business and that we worked with our own direct stores to be more effective in managing and converting orders of potential customers, while in parallel our factories were getting more organized and more efficient. Speaker 300:16:37Those combined efforts is what explains well, actually I explained a bit more detail in detail what happened in the factories in the previous calls. I want to explain it again. But those combined efforts is what really enabled ourselves to grow by 15% versus same quarter last year. Also one of the highlights of this quarter is that we made our new warehouse in Toronto fully operational, which enable our factory here in Brampton to be more effective within the same footprint and absorb the methot production, which we aim to produce in house by end of this year. In Europe, our focus with Savaria 1 was mainly on improving profitability as that region has historically delivered lower EBITDA margin than our other divisions. Speaker 300:17:24To do so, we had commercial initiatives, but also reduced the cost of goods sold by completing different sourcing events in the fall of 2023 and in the first half of twenty twenty four. We also made dozens of small operational improvements to reduce the time to assemble our products while increasing their quality. Thanks to all of this and thanks to our rigor in managing costs, our EBITDA margin grew by 3% versus Q1 2024. While improving margins, we also experienced a sales growth in Europe versus Q1. Finally, our Patient Care division continues to deliver healthy results. Speaker 300:17:59Yet like we mentioned before, we invested in growing the business and expected those investments to take time to generate sales and margin growth, given the nature of the business and the long sales cycle. For example, we expanded and strengthened our sales team to cover regions that are attractive for us, but lacked coverage in the past. And those new additions are paying off, but we know growing a territory sales takes time. Finally, we're getting more efficient in our factories as well as we have materially improved the productivity of our beds facility in Bainsville and are having good success with the introduction of new package offerings, allowing fast shipments of beds and mattresses to our U. S. Speaker 300:18:39Customers. On the flip side, we had fewer projects and thus revenues in the ceiling list business in Q2. In conclusion, we're very happy with our progress and are on track with our plan for Savaria 1. If you recall, our objective is for 2025 to be at 20% EBITDA and grow the top line to CAD 1,000,000,000. We achieved a 19% adjusted EBITDA in Q2, so we are already very close to this first objective and are making progress towards the second one. Speaker 300:19:11Again, thank you to all Savaria colleagues for their support in this effort. Thank you for your attention. That closes the remarks for Savaria 1, and I'll hand it back to Sebastien. Speaker 100:19:22Thank you, JP, and thank you, Steve, for your remarks. So I guess, Raz, we are ready for some questions. Thank Operator00:19:32you, Thank you. We are now going to proceed with our first question. The questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question. Speaker 400:20:00Good morning and congrats on the strong results. Speaker 100:20:04Thank you, Fran. Speaker 400:20:06Maybe starting with Savaria 1 and sort of what's next in terms of getting the lift to the 20% margin. Is there any particular area where you feel that future initiatives will be key to get to that 20%? Obviously, I understand that there's a lot of initiatives going on. But I mean, would you say that commercial excellence operations or supply chain, is there one of those that's going to be more crucial in future quarters? Speaker 100:20:36Maybe I will start and GP will complete. So I would say, Fred, no, for sure, procurement always takes more time, okay. And it's difficult for us to necessarily change the vendor because sometimes we need to research fire product, we need to consume inventory, so it always takes more time. Unfortunately, the biggest pillar is our sales initiative, okay, and it takes time. We want to do more cross selling. Speaker 100:20:57We want to increase the share of wallet to the dealer. We want to bring them new products that they can buy from us. So I would say this one takes more time. And the rest, okay, for I would say it was a 2 year program. Now we had it's always difficult to put a percentage, but maybe we are half through it, okay? Speaker 100:21:13And we're still very comfortable with where we want to go next year. So but definitely the commercial excellence is the one that needed more time. GP, any color you want to add? Speaker 300:21:22Well, just to add, I think, so we have success on all dimensions up to now, right? So it's not like our results can be explained only by one specific set of levers. So we had improvements everywhere. But like Seth mentioned, where we expect maybe more money to flow through the P and L in the next quarters is a bit more in procurement because of that timing effect and the fact that it takes time. And on the other hand, yes, we I think our factories are better equipped than ever like they're in very Speaker 200:21:50good shape right now. Speaker 300:21:51So we're going to maybe put a bit more attention on sales growth because that's where we see the next opportunity. Speaker 400:22:00Great. Thanks for that. In terms of the demand part of the equation, very strong 15% organic growth in America and North America, which is higher than the 8% to 10% companywide outlook that you typically provide. Just wondering what's sort of driving that? Is there one product that's stronger than the others? Speaker 400:22:24And maybe get your thoughts as well on growth moving forward for accessibility North America in particular? Speaker 100:22:32For sure, Fried, okay, again, it's always a bit difficult. We have our direct store. We have Europe or North America. We have the patient care. So again, if we go back to our objective, we want to grow the full Savaria at 8% to 10%. Speaker 100:22:46For sure, North America, again, we have been a bit fueling the growth with eating a little bit of our backlog, not too much, but for sure. Home Innovator, okay, it was part of the Savara one. It was one place where we could be better. The demand is quite strong, okay, With the density of the property of the residential area, the house, townhouse going into 3 to 4 floor, the constant work with architect, contractor to bring us some repeat business. So I would say that's one area that the home elevator has been quite successful in terms of growth in North America. Operator00:23:28We are now going to proceed with our next question. The questions come from the line of Michael Glen from Raymond James. Please ask your questions. Speaker 500:23:39Hey, good morning. This is Fred Gitali on for Michael Glen. On the $15,000,000 Seville 1 and additional fees associated, could you remind us, are those performance based fees? Speaker 100:23:52And at this Speaker 500:23:53point in time, do you factor that additional $15,000,000 in your numbers? Speaker 200:24:00Sorry, just to clarify the question, it was around the cost that we've incurred year to date, so the 5,300,000 dollars in the quarter or Speaker 500:24:08No, this would be the $15,000,000 that you impossible additional fees next year, I believe. Speaker 200:24:16So we so through our Investor Day and I think we've echoed the message a few times. The total expected costs could reach $40,000,000 to $45,000,000 of the project, depending on exactly where the project finishes as far as how much EBITDA is delivered. So there is a performance component. There's also a bit of a fixed fee component in there as well. So we're not disclosing the separate details of the contract, but the contract is based both with a fixed and performance based fee. Speaker 200:24:49And a lot of that depends on how we're delivering on all of these Savera-one initiatives. So there's both components that are wrapped up in there. Speaker 500:25:01Okay. And on accessibility in Europe, I mean, how are some of the dealer there was some weakness last quarter, I believe. So how are some of the dealer and pricing initiatives churning out there? And how do you see that looking in the back half of the year? Speaker 100:25:17If I understand correctly, again about the dealer growth in Europe, okay, for sure, like the Q2 was against a weak Q2. Right now, again, if we go back to the Savara 1, it's a growth story. We are pushing a lot of incentive to cross selling. We are bringing some new products, okay, into Europe by the end of the year for vertical platforms, which will help us to accelerate our growth in coming years. So I would say, yes, we have to go step by steps. Speaker 100:25:43And definitely right now, okay, we are focused a lot on the operation costs, on the margins to bring it to a good level, but the growth sales remain a very important priority for us in Europe. Speaker 500:25:58Okay. Thank you. And if I could just squeeze in one more. Just on the LESCO facility, have you seen could you speak maybe to the contribution you've seen so far from that? Any dealer reactions as well to that facility or proximity, I should say? Speaker 100:26:14For sure, Mexico, okay, for us, it was not a short term. It was a mid long term project, again, to do a bit of nurturing, not to put all our eggs of manufacturing in 1 basket. So right now, I would not say the result of the Q2 is because of Mexico. Again, it's more for the long term that we want to make sure we have some parts there, some sub SMB. Right now, we do some port ships, some final product SMB that we do with Aerie ship to the U. Speaker 100:26:39S. And then in the future, we'd like to bring also more complete product. But right now, this factory has been focused mostly on sub assembly shipping to Brampton, Vancouver and a bit of in the patient care. Speaker 500:26:53Okay. Thank you. That's it. Speaker 200:26:56Thank you. Operator00:26:59Thank you. Thank you. We are now going to proceed with our next question. The questions come from the line of Zachary Evershed from National Bank Financial. Please ask your question. Speaker 600:27:22Good morning, everyone. Congrats on the quarter. Speaker 100:27:25Good morning, Zach. Speaker 600:27:28For the acquisitions that you're considering, what kind of threshold or hurdle rate do they have to hit to make you sit up and pay attention when your focus right now is on Saverio and operational improvements? Speaker 100:27:41Thank you, Zach, for the question. So for sure, like acquisition, okay, again, we have talked often about tuck in acquisition, small dealer for us, okay, or medium size, whatever. There's no that the owner want to sell, there's no succession or that's something we're always interested. We're listening. Meitat is a very good example that we did in the second quarter, a small company that we can bring our new products to our other dealers that again want to remain a one stop offering with the best line of products. Speaker 100:28:12So that was something we could integrate into a supply chain and try to increase the sales. So I would say new products, dealers are always something that is on top of our list. In terms of size, we could go up to $226,000,000 but right now, again, we're really focused on small tuck in, Savara 1 and let's see which approach should take on. Our friend Nick is always working full time on M and A. Speaker 600:28:38Thank you. Good color. And then on that topic, any more home runs like in the pipeline? Speaker 100:28:48For acquisitions, you mean? Speaker 200:28:50Yes. Yes. Speaker 100:28:53Again, it's hard to give some color, Zach, on that. Again, we don't want to do forward looking statement on this. So we'll see what we'd bring in the future, right? Speaker 600:29:01Fair enough. And then just one last one. I'll circle back to the project timing issue in patient care. Is there any prospect of a catch up on that in Q3? Or is it more of just a subdued environment issue? Speaker 200:29:19Yes, I would say, Zach, that we had exceptionally strong quarters in Q1, Q2. We've talked about that in Q1, Q2 of last year. We've talked about that a few times now. It's not that the market is down. It's just right now what we are seeing is just a few delays across some of the project based work and the timing of those projects finishing and completing is can be a little bit difficult to predict and we're sort of seeing a little bit of softness there in Q1 and Q2. Speaker 200:29:49But as Sebastian mentioned, we're expecting Q3 and Q4 to be a little bit better. We have been able to counteract some of that project work with other sales and our bed sales are doing very well, bed sales across North America, both Canada and the U. S. So while maybe we are seeing a little bit of weakness on the project side temporarily, it's we've done a good job of counteracting that. So what we saw in Q1 and Q2, revenues were flat against really good quarters. Speaker 200:30:21Profitability was down. We have higher SG and A costs there that we have been investing in a few different areas to support future growth that we are expecting and that we are seeing for that segment. So we remain very optimistic for that segment of the business. Yes, I guess probably that's sufficient color for now. Operator00:30:51We have no further questions at this time. I will now hand back to you for closing remarks. Thank you. Speaker 100:30:57Okay. Well, thank you, Raj, and thank you for the analysts that were present this morning. It was a bit shorter than expected. But I guess the results were very clear, very well explained. So again, thank you very much for the results in the Q2 to all our employees. Speaker 100:31:09And I think Savaria is we're in the right direction with Savaria I. I think that was the right decision that we made a year ago. We're after it and we can hopefully you can see that the 1,000,000,000, 20% is approximately at reach. Thank you. Thank you, Vas. Operator00:31:27This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSavaria Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release Savaria Earnings HeadlinesSavaria (TSE:SIS) Shares Pass Below 200 Day Moving Average - What's Next?April 19, 2025 | americanbankingnews.comIs Savaria Corporation (TSE:SIS) Trading At A 48% Discount?April 16, 2025 | uk.finance.yahoo.com[Action Required] Claim Your FREE IRS Loophole GuideThis shouldn't surprise anyone who's been paying attention, but... Pres. Trump may be about to unleash the biggest "dollar reset" since 1971.April 24, 2025 | Colonial Metals (Ad)Analysts Set Savaria Co. (TSE:SIS) Target Price at C$23.57April 14, 2025 | americanbankingnews.comWhy I’d Invest in Canadian Value Stocks for Both Stability and GrowthApril 12, 2025 | msn.comWhy I’d Allocate $15,000 to Canadian Stocks Now for Building Generational WealthApril 11, 2025 | msn.comSee More Savaria Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Savaria? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Savaria and other key companies, straight to your email. Email Address About SavariaSavaria (TSE:SIS) Corp designs, engineers, and manufactures products for personal mobility. Its products include home elevators, wheelchair lifts, commercial elevators, ceiling lifts, stairlifts, and van conversions. The company's operating segments are the Accessibility, Adapted Vehicles, and Patient Handling, divisions. The Accessibility segment deals with manufacturing, designing, installing, and distributing elevators, platform lifts, and stairlifts for people with mobility challenges. The Adapted Vehicle segment adapts vans to be wheelchair accessible for people with mobility challenges. The Patient Handling segment includes the manufacturing and distribution of a comprehensive line of therapeutic support surfaces and other pressure management products for the medical market.View Savaria ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? 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There are 7 speakers on the call. Operator00:00:00Good morning, good afternoon and good evening. My name is Raz, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria's Corporation's Q2 2024 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 session. Operator00:00:29This call may contain forward looking statements which are subject to the disclosure statements contained in Savaria's most recent press release issued on August 7, 2024 with respect to its Q2 2024 results. Thank you. Mr. Bourassa, you may begin your conference. Speaker 100:00:47Well, thank you, Raz, and good morning, everyone. So today, I will start with a small recap of our Q2, then Steve will update us on our financial and GP on our Savara 1, and then we'll follow with a small Q and A section. First, I need to say that I'm very, very proud of our results and especially of the teamwork that has been done as we have reached a very important milestone in our transformation after 1 year from the launch. I need to say that our other employees continue to be very motivated on the Savaria 1 project and they are very determined to bring Savaria to $1,000,000,000 of sales and 20% of EBITDA by 2025. So some of the key highlights for the 2nd quarter. Speaker 100:01:27It was the first time that we have an EBITDA of 19% for the full Savaria with accessibility being at 20.9%, so almost 21% and Patient Care at 17%, a bit behind our target, but I think we'll get there. First time, we have a new matrix, adjusted EBITDA per share of $0.59 which is our best since the beginning of Savaria. Gross margins were up to 37.5 percent, which is 150 basis points better than the Q1. We had a growth of 15.4% for the accessibility, which is coming both from Europe and North America. So good job to the team of care and Alex. Speaker 100:02:11And I would say that other factory had pretty good output. And I think the most important to this Sarah One program is we have made a very big change in all our factory. We're very organized and ready for growth. Patient care was flat in terms of sales in the Q2, but we were against the first half of the year that was strong in 2023. We're expecting a much better second half of the year. Speaker 100:02:40Sales growth remain something very important in Savara 1 and we continue our effort for the cross selling to increase our share of wallet with other 50 people in R and D, we continue to improve our existing products and bring new products to the market and we can develop some growth and have some good organic growth. Integration of our Mehta product line that we acquired in April, basically things are progressing and we have the we will definitely bring that into production in Toronto by the end of this year, so that we can streamline a bit of manufacturing and have a better lead time to our customer. Mexico nurturing activity, it continue. Now we have 80 employees. We have some regular shipment to North America, so we're quite happy with the progress. Speaker 100:03:28We have continued to deleverage the balance sheet. Now we have a net debt to EBITDA of 1.88 with available fund of $226,000,000 if we want some to do some acquisition. For sure the priority right now remains Savara 1, but we're still looking for acquisitions to replace what we divested in the last year. To conclude, I would say we are very lucky. We continue to operate in a very nice industry with the aging of population, staying at home, the density of the residential housing that they can put a residential elevator continue to be a very important factor in our growth story and our large product offering make us a very attractive partner. Speaker 100:04:07And last, I would like to thank again all our employees and our dealer for success in the Q2. So Steve, Financial, please. Speaker 200:04:14Thank you, Sebastian, and good morning, everyone. I'm happy to be here today, and I'm excited to share some remarks regarding our Q2 2024 consolidated financial metrics. Key highlights for the quarter include, as Sebastien mentioned, double digit organic growth in both in accessibility in both North America and Europe, as well as major improvements in profitability and gross margin and adjusted EBITDA margin on a consolidated basis. For the quarter, we generated revenue of $221,300,000 an increase of 22.9000000 percent versus last year. The increase mainly came from organic growth of 11.5%, partially offset by the divestitures of Van Action and Freedom Motors, as well we had positive foreign exchange fluctuations in the quarter. Speaker 200:05:07I'm pleased to report that the corporation delivered our strongest quarterly adjusted EBITDA, which is higher than any past quarters crossing for the first time the $40,000,000 mark. We also delivered a record gross profit and gross margin of $83,000,000 37.5 percent compared to $67,100,000 and 33.8 percent in Q2 2023. The increase in gross profit Speaker 100:05:35of $15,900,000 Speaker 200:05:36is explained by increased revenues, improved gross margins in both segments due to operating leverage, improved pricing, favorable product mix as well as lower material costs. While Savaria 1 has helped us achieve these results, we incurred again this quarter $5,300,000 for strategic initiative expenses in line with previously stated expectations. JP is going to speak more about some of our ongoing initiatives in detail shortly. Adjusted EBITDA and adjusted EBITDA margin finished at $41,900,000 19 percent compared to $29,300,000 14 0.8% last year. This represents $0.59 per share, up $0.14 per share when compared to Q2 2023. Speaker 200:06:26The increased profitability is mainly explained by the increased gross margins and lower SG and A expenses as a percent of revenue as we remain diligent about our cost base. Now looking at our segmented results. So revenue from our accessibility segment was 173 point $4,000,000 an increase of $22,800,000 or 15.1% compared to last year. The increase in revenue was mainly driven from organic growth of 15.4%, driven by strong demand in both the residential and commercial sectors, price increases in North America and Europe and last year was also impacted by issues with our ERP system implementation in Europe. Adjusted EBITDA and adjusted EBITDA margin for accessibility stood at $36,200,000 and 20.9% compared to $21,400,000 14.2 percent last year. Speaker 200:07:25The increased profitability was mainly due to higher revenue and improved pricing, a favorable product mix and lower costs lower material costs for both regions. Last year was also weaker due to the previously mentioned system implementation. The backlog in accessibility segment remains healthy. To offer additional insight into our regions, we are proud to report that revenues from both Accessibility North America and Europe increased by over 15% compared to the previous year. The adjusted EBITDA margin for North America was 23.6% in the quarter, while the margin in Europe increased to 15.8%, reflecting significant improvements from a year ago as well as a sizable improvement over Q1. Speaker 200:08:16Turning to our Patient Care segment, we saw our revenues reach $47,900,000 for the quarter, which is flat compared to last 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 and can be impacted also by project delays. The backlog in Patient Care also remains healthy. Adjusted EBITDA and adjusted EBITDA margins stood at $8,200,000 17% compared to $9,300,000 19.4 percent last year for patient care. The decrease in both metrics was mainly due to higher SG and A expenses, which were partially offset by pricing initiatives. Speaker 200:09:02As we mentioned in past communications, Q1 and Q2 of 2023 were exceptionally strong and the improvements pertaining to Savaria 1 are expected to affect the upcoming quarters more. On a consolidated basis, net finance costs were $7,400,000 compared to $4,500,000 last year. Interest on long term debt decreased by $1,500,000 due to the reduced balance of debt that we're seeing, which was primarily driven by the raise last year. We also experienced unfavorable variations on foreign currency exchange and financial instruments both were unrealized in nature. Net earnings was $11,000,000 and $0.15 per diluted share for the quarter compared to $8,800,000 or $0.14 per diluted share last year. Speaker 200:09:56The increase in net earnings and net earnings per share was mainly due to higher adjusted EBITDA, partially offset by strategic initiative expenses, net finance costs and higher net income tax expenses. Adjusted net earnings was $15,600,000 or 0.22 dollars per diluted share for the quarter compared to $9,000,000 or $0.14 per diluted share for the same period in 2023, reflecting a large increase when one time non recurring strategic initiative expenses of $5,300,000 are carved out. 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 $26,700,000 compared to $17,700,000 last year attributed to the increased EBITDA. Net changes in non cash operating items decreased liquidity by $3,100,000 compared to a decrease of $17,500,000 in Q2 of last year. Speaker 200:11:03The decrease in 2024 was driven by increased prepaid expenses and other current assets as well as decreased deferred revenue, while 2023 was unfavorably impacted by trade receivables, inventories as well as trade payables, partially offset by higher deferred revenues. As a result, cash generated from operating activities in Q2 stood at 23,600,000 compared to 200,000 last year, an increase of over 23,400,000. While DIO slightly increased during the quarter, it came down for the June month end and our DSO and DPO measures both improved versus Q1, aligned with our efforts to improve working capital management throughout the business. We remain committed to enhancing working capital as we grow. Cash used in investing activities was $11,300,000 for the quarter compared to $4,500,000 last year. Speaker 200:12:07We disbursed $4,700,000 for fixed and intangible assets compared to $4,600,000 last year, so essentially flat. In addition, we disbursed $6,900,000 for the business acquisition of Maytot that was done in April of this year. To support business growth, we're expecting capital expenditures to stay in the historical range of 2% to 2.5% of revenue for the 2024 year. Cash used in financing activities was $22,600,000 for Q2 compared to $15,000,000 last year. The variation is mainly explained by the reimbursement on the credit facility of $8,800,000 in the quarter compared to proceeds drawn of $800,000 in 2023 as well as lower interest paid of 1,900,000 dollars As of June 30, 2024, our net debt was $274,900,000 The ratio of net debt to adjusted EBITDA stood improved at 1.88 in comparison to 2.07 at the end of last year. Speaker 200:13:15And so looking forward with regards to guidance, as previously stated, Savaria is not providing guidance for fiscal 2024 as we focus on the achievements of our 2025 targets of approximately $1,000,000,000 in revenue and 20% adjusted EBITDA margin. The global team is focusing on delivering on these 2025 objectives and it remains difficult to pinpoint where we are going to finish 2024 and the remaining quarters therein. Savaria's future prospects are promising, driven by strong market demand, the progress of Savaria 1 and potential acquisition opportunities that will enhance our market position. And with this and with that, this completes my prepared remarks and I'm going to turn the call over to Jean Philippe to provide further details on how we're progressing with Savaria 1. Speaker 300:14:06Thank you, Steve. Good morning, everyone. Before I dive in, I just want to take a moment to thank the hundreds of colleagues at Savaria who are contributing to our success. Their creativity, their passion, the expertise they have and their rigor in executing all the initiatives we are pursuing is what makes Savaria unique and our Savaria 1 program a success. As you saw, Q2 2024 was Savaria's best quarter ever. Speaker 300:14:32It is the new benchmark for us as it was not due to a single initiative or luck, but rather the results of steady improvements across the business that are paying off. Just to give you a sense, we implemented 75 different initiatives in the first half of this year. In Q1, we saw a modest improvement in our quarterly earnings and I mentioned that we were starting to see the color of the changes made through Savaria 1. While in Q2, we are starting to realize the true benefits of changes made and it is the 1st full quarter where we can measure those impacts. While we cannot predict what the future holds and our business is subject to many external forces, we expect the changes we implemented to have recurring benefits and continue in coming quarters. Speaker 300:15:21Let me give you an example. We made a number of changes to our commercial terms. For example, we introduced the new dealer partner program in North America. While this program was introduced in January, the first orders placed within this program were likely produced and delivered at the end of Q1. So we really see the full impact of commercial changes on our revenues in Q2. Speaker 300:15:44Another good example is procurement. We renegotiated many contracts for raw materials, parts or freight rates, but those cost savings may only be accounted for in products that are sold either in Q2 or even in Q3. If I continue in North America, our focus within Savaria 1 was on a dual objective to grow order intake, while getting our factories to grow throughput for best selling products and in particular home lifts. Like Seth mentioned before, we're very proud of the achievements we've made there. And what this meant is that on the sales side, our sales force developed detailed plans to support our top dealers in each market to grow their business and that we worked with our own direct stores to be more effective in managing and converting orders of potential customers, while in parallel our factories were getting more organized and more efficient. Speaker 300:16:37Those combined efforts is what explains well, actually I explained a bit more detail in detail what happened in the factories in the previous calls. I want to explain it again. But those combined efforts is what really enabled ourselves to grow by 15% versus same quarter last year. Also one of the highlights of this quarter is that we made our new warehouse in Toronto fully operational, which enable our factory here in Brampton to be more effective within the same footprint and absorb the methot production, which we aim to produce in house by end of this year. In Europe, our focus with Savaria 1 was mainly on improving profitability as that region has historically delivered lower EBITDA margin than our other divisions. Speaker 300:17:24To do so, we had commercial initiatives, but also reduced the cost of goods sold by completing different sourcing events in the fall of 2023 and in the first half of twenty twenty four. We also made dozens of small operational improvements to reduce the time to assemble our products while increasing their quality. Thanks to all of this and thanks to our rigor in managing costs, our EBITDA margin grew by 3% versus Q1 2024. While improving margins, we also experienced a sales growth in Europe versus Q1. Finally, our Patient Care division continues to deliver healthy results. Speaker 300:17:59Yet like we mentioned before, we invested in growing the business and expected those investments to take time to generate sales and margin growth, given the nature of the business and the long sales cycle. For example, we expanded and strengthened our sales team to cover regions that are attractive for us, but lacked coverage in the past. And those new additions are paying off, but we know growing a territory sales takes time. Finally, we're getting more efficient in our factories as well as we have materially improved the productivity of our beds facility in Bainsville and are having good success with the introduction of new package offerings, allowing fast shipments of beds and mattresses to our U. S. Speaker 300:18:39Customers. On the flip side, we had fewer projects and thus revenues in the ceiling list business in Q2. In conclusion, we're very happy with our progress and are on track with our plan for Savaria 1. If you recall, our objective is for 2025 to be at 20% EBITDA and grow the top line to CAD 1,000,000,000. We achieved a 19% adjusted EBITDA in Q2, so we are already very close to this first objective and are making progress towards the second one. Speaker 300:19:11Again, thank you to all Savaria colleagues for their support in this effort. Thank you for your attention. That closes the remarks for Savaria 1, and I'll hand it back to Sebastien. Speaker 100:19:22Thank you, JP, and thank you, Steve, for your remarks. So I guess, Raz, we are ready for some questions. Thank Operator00:19:32you, Thank you. We are now going to proceed with our first question. The questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question. Speaker 400:20:00Good morning and congrats on the strong results. Speaker 100:20:04Thank you, Fran. Speaker 400:20:06Maybe starting with Savaria 1 and sort of what's next in terms of getting the lift to the 20% margin. Is there any particular area where you feel that future initiatives will be key to get to that 20%? Obviously, I understand that there's a lot of initiatives going on. But I mean, would you say that commercial excellence operations or supply chain, is there one of those that's going to be more crucial in future quarters? Speaker 100:20:36Maybe I will start and GP will complete. So I would say, Fred, no, for sure, procurement always takes more time, okay. And it's difficult for us to necessarily change the vendor because sometimes we need to research fire product, we need to consume inventory, so it always takes more time. Unfortunately, the biggest pillar is our sales initiative, okay, and it takes time. We want to do more cross selling. Speaker 100:20:57We want to increase the share of wallet to the dealer. We want to bring them new products that they can buy from us. So I would say this one takes more time. And the rest, okay, for I would say it was a 2 year program. Now we had it's always difficult to put a percentage, but maybe we are half through it, okay? Speaker 100:21:13And we're still very comfortable with where we want to go next year. So but definitely the commercial excellence is the one that needed more time. GP, any color you want to add? Speaker 300:21:22Well, just to add, I think, so we have success on all dimensions up to now, right? So it's not like our results can be explained only by one specific set of levers. So we had improvements everywhere. But like Seth mentioned, where we expect maybe more money to flow through the P and L in the next quarters is a bit more in procurement because of that timing effect and the fact that it takes time. And on the other hand, yes, we I think our factories are better equipped than ever like they're in very Speaker 200:21:50good shape right now. Speaker 300:21:51So we're going to maybe put a bit more attention on sales growth because that's where we see the next opportunity. Speaker 400:22:00Great. Thanks for that. In terms of the demand part of the equation, very strong 15% organic growth in America and North America, which is higher than the 8% to 10% companywide outlook that you typically provide. Just wondering what's sort of driving that? Is there one product that's stronger than the others? Speaker 400:22:24And maybe get your thoughts as well on growth moving forward for accessibility North America in particular? Speaker 100:22:32For sure, Fried, okay, again, it's always a bit difficult. We have our direct store. We have Europe or North America. We have the patient care. So again, if we go back to our objective, we want to grow the full Savaria at 8% to 10%. Speaker 100:22:46For sure, North America, again, we have been a bit fueling the growth with eating a little bit of our backlog, not too much, but for sure. Home Innovator, okay, it was part of the Savara one. It was one place where we could be better. The demand is quite strong, okay, With the density of the property of the residential area, the house, townhouse going into 3 to 4 floor, the constant work with architect, contractor to bring us some repeat business. So I would say that's one area that the home elevator has been quite successful in terms of growth in North America. Operator00:23:28We are now going to proceed with our next question. The questions come from the line of Michael Glen from Raymond James. Please ask your questions. Speaker 500:23:39Hey, good morning. This is Fred Gitali on for Michael Glen. On the $15,000,000 Seville 1 and additional fees associated, could you remind us, are those performance based fees? Speaker 100:23:52And at this Speaker 500:23:53point in time, do you factor that additional $15,000,000 in your numbers? Speaker 200:24:00Sorry, just to clarify the question, it was around the cost that we've incurred year to date, so the 5,300,000 dollars in the quarter or Speaker 500:24:08No, this would be the $15,000,000 that you impossible additional fees next year, I believe. Speaker 200:24:16So we so through our Investor Day and I think we've echoed the message a few times. The total expected costs could reach $40,000,000 to $45,000,000 of the project, depending on exactly where the project finishes as far as how much EBITDA is delivered. So there is a performance component. There's also a bit of a fixed fee component in there as well. So we're not disclosing the separate details of the contract, but the contract is based both with a fixed and performance based fee. Speaker 200:24:49And a lot of that depends on how we're delivering on all of these Savera-one initiatives. So there's both components that are wrapped up in there. Speaker 500:25:01Okay. And on accessibility in Europe, I mean, how are some of the dealer there was some weakness last quarter, I believe. So how are some of the dealer and pricing initiatives churning out there? And how do you see that looking in the back half of the year? Speaker 100:25:17If I understand correctly, again about the dealer growth in Europe, okay, for sure, like the Q2 was against a weak Q2. Right now, again, if we go back to the Savara 1, it's a growth story. We are pushing a lot of incentive to cross selling. We are bringing some new products, okay, into Europe by the end of the year for vertical platforms, which will help us to accelerate our growth in coming years. So I would say, yes, we have to go step by steps. Speaker 100:25:43And definitely right now, okay, we are focused a lot on the operation costs, on the margins to bring it to a good level, but the growth sales remain a very important priority for us in Europe. Speaker 500:25:58Okay. Thank you. And if I could just squeeze in one more. Just on the LESCO facility, have you seen could you speak maybe to the contribution you've seen so far from that? Any dealer reactions as well to that facility or proximity, I should say? Speaker 100:26:14For sure, Mexico, okay, for us, it was not a short term. It was a mid long term project, again, to do a bit of nurturing, not to put all our eggs of manufacturing in 1 basket. So right now, I would not say the result of the Q2 is because of Mexico. Again, it's more for the long term that we want to make sure we have some parts there, some sub SMB. Right now, we do some port ships, some final product SMB that we do with Aerie ship to the U. Speaker 100:26:39S. And then in the future, we'd like to bring also more complete product. But right now, this factory has been focused mostly on sub assembly shipping to Brampton, Vancouver and a bit of in the patient care. Speaker 500:26:53Okay. Thank you. That's it. Speaker 200:26:56Thank you. Operator00:26:59Thank you. Thank you. We are now going to proceed with our next question. The questions come from the line of Zachary Evershed from National Bank Financial. Please ask your question. Speaker 600:27:22Good morning, everyone. Congrats on the quarter. Speaker 100:27:25Good morning, Zach. Speaker 600:27:28For the acquisitions that you're considering, what kind of threshold or hurdle rate do they have to hit to make you sit up and pay attention when your focus right now is on Saverio and operational improvements? Speaker 100:27:41Thank you, Zach, for the question. So for sure, like acquisition, okay, again, we have talked often about tuck in acquisition, small dealer for us, okay, or medium size, whatever. There's no that the owner want to sell, there's no succession or that's something we're always interested. We're listening. Meitat is a very good example that we did in the second quarter, a small company that we can bring our new products to our other dealers that again want to remain a one stop offering with the best line of products. Speaker 100:28:12So that was something we could integrate into a supply chain and try to increase the sales. So I would say new products, dealers are always something that is on top of our list. In terms of size, we could go up to $226,000,000 but right now, again, we're really focused on small tuck in, Savara 1 and let's see which approach should take on. Our friend Nick is always working full time on M and A. Speaker 600:28:38Thank you. Good color. And then on that topic, any more home runs like in the pipeline? Speaker 100:28:48For acquisitions, you mean? Speaker 200:28:50Yes. Yes. Speaker 100:28:53Again, it's hard to give some color, Zach, on that. Again, we don't want to do forward looking statement on this. So we'll see what we'd bring in the future, right? Speaker 600:29:01Fair enough. And then just one last one. I'll circle back to the project timing issue in patient care. Is there any prospect of a catch up on that in Q3? Or is it more of just a subdued environment issue? Speaker 200:29:19Yes, I would say, Zach, that we had exceptionally strong quarters in Q1, Q2. We've talked about that in Q1, Q2 of last year. We've talked about that a few times now. It's not that the market is down. It's just right now what we are seeing is just a few delays across some of the project based work and the timing of those projects finishing and completing is can be a little bit difficult to predict and we're sort of seeing a little bit of softness there in Q1 and Q2. Speaker 200:29:49But as Sebastian mentioned, we're expecting Q3 and Q4 to be a little bit better. We have been able to counteract some of that project work with other sales and our bed sales are doing very well, bed sales across North America, both Canada and the U. S. So while maybe we are seeing a little bit of weakness on the project side temporarily, it's we've done a good job of counteracting that. So what we saw in Q1 and Q2, revenues were flat against really good quarters. Speaker 200:30:21Profitability was down. We have higher SG and A costs there that we have been investing in a few different areas to support future growth that we are expecting and that we are seeing for that segment. So we remain very optimistic for that segment of the business. Yes, I guess probably that's sufficient color for now. Operator00:30:51We have no further questions at this time. I will now hand back to you for closing remarks. Thank you. Speaker 100:30:57Okay. Well, thank you, Raj, and thank you for the analysts that were present this morning. It was a bit shorter than expected. But I guess the results were very clear, very well explained. So again, thank you very much for the results in the Q2 to all our employees. Speaker 100:31:09And I think Savaria is we're in the right direction with Savaria I. I think that was the right decision that we made a year ago. We're after it and we can hopefully you can see that the 1,000,000,000, 20% is approximately at reach. Thank you. Thank you, Vas. Operator00:31:27This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.Read morePowered by