Savaria Corporation

Good day, everyone. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q3 2021 conference call. All lines have been placed on a mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star and the number two. Today's call is being recorded. This call may contain forward-looking statements, which are subject to the disclosure statement contained in Savaria's most recent press release issued on November 10th, 2021, with respect to its Q3 2021 results. Thank you. Mr. Bourassa, you may begin your conference.

Shannon, thank you very much for this introduction. Hi, everybody. My name is Mr. Bourassa. I'm the CEO. And it's a very interesting, okay, challenging Q3 that we have, okay? But I am very happy, very proud of our results, okay, during a period of Q3 that some price increase, inflation, okay? I don't call that inflation, what happened, okay, in the freight, okay? This brutal, okay, increase, okay, I don't know if it's fair or not, but we have nothing to say. The price is that. If you're not happy, don't be happy, but they will not ship. It was that. That was another thing. The price of material increased. Labour is not easy to have. For Toronto, an example, we have our best booking ever, but it's difficult to go through and make some big increase. We extend, but it's difficult to have their labor. And plus, the Canadian dollar was very strong during Q3. But you will see that I am very confident that we will make our $100 million that we said before that we will make. We are nearer the end, and I am very confident we have just good people around in Siberia. People with talent. An example, I am very happy okay that that the result of uh and uh and care i think uh people down there we have many talents okay and produce very well and i think we are so proud okay of them okay i'm so proud with all the other division okay some division okay we have to to to be better okay and i will mention that in two minutes with that we have some increased price okay that we have done but not okay in uh We are very polite, okay, because we have some dealer that make our living for me for 30 years, and our customer, we respect them, okay, and I think they respect us. So we were, you know, somebody order an elevator to Mr. Smith, we respect the price. For the next order, okay, later, okay, or the beginning of 2022, okay, the increase of price, and we will make another increase of price at the beginning of 2022. So we go with them, okay? They are our live dealer, okay, and our direct office. So we work with them, okay? And I think it's a win-win, okay? And they are very happy that we will not increase, okay, like overnight the price, okay? We share that, okay? And you will see that we will see in 2022, I am not enthusiastic, but very enthusiastic. Patient handling was very difficult. We were in the status that we study the people, study a little bit the market. We have Educare, we have Silverly, and we have Spam. So that represents right now 20% of Silverly at $140 million. That's a lot of dollars. And I'm very proud that we have a new person, Patrick, who is VP Development North America. This guy, I like the guy. It would be a compliment to our team. And he passed the last 20 years with Arzo. And if you look at the last statement from Arzo, he has a very good EBITDA. I think this is a great company in our patient handling. So we will try to go back to an EBITDA of 15% quickly with Patrick. Welcome, Patrick. So I will... At the end, if you have some questions, I will be very happy to answer to you. If you see what we see in the future, we see a tremendous year in 2022, but we want to finish 2021 in good strength and have our $100 million. So we go in finance. I will pass to Steve.

Thanks, Marcel, and good morning, everyone. I'm going to begin with some remarks regarding our Q3 2021 consolidated financial results. The third quarter, Severia generated revenue of $180.8 million, almost double the $90.8 million reported in the third quarter last year, mainly due to the acquisition of Handicare. This is the second quarter of full consolidation of this acquisition. Gross profit and gross margin stood at $58.5 million and 32.4% respectively. compared to 32.6 million and 35.9% for the same period last year. The decrease in gross margin can be attributed to additional costs related to the supply chain, including shipping costs and also the reduction of subsidies from the COVID-19 Employment Retention Government of Canada program. Adjusted EBITDA and adjusted EBITDA margins stood at 26.3 million and 14.6% respectively compared to $16.9 million and 18.6% in Q3 2020. The significant increase in adjusted EBITDA was mainly attributable to the handicap acquisition and cost containment efforts across the company. These factors were partially offset by additional costs related to the supply chain, including shipping costs, and also by a reduction of subsidies from the COVID-19 Employment Retention Government of Canada program. Turning to segmented results, accessibility revenue reached 135.7 million in Q3 2021, almost double from 68.5 million in Q3 2020. The increase in accessibility revenue is mainly due to the acquisition of Handicare and also organic growth of 2.7%. Prior to the acquisition of Handicare, revenue was split almost equally between residential and commercial. The strong performance on the residential side in Q3 2021 was partially offset by weakness in commercial. Accessibility revenue growth was also partially offset by a negative foreign exchange impact for the quarter. Accessibility adjusted EBITDA and adjusted EBITDA margin before head office costs stood at 24.7 million and 18.2% respectively compared to 15.3 million and 22.3% in Q3 2020. The significant improvement in accessibility adjusted EBITDA is mainly due to the acquisition of Handicare, while the decrease in adjusted EBITDA margin can be attributed to additional costs related to the supply chain, including shipping costs and also to the reduction in COVID-19 employment retention Government of Canada subsidies. These items are partially offset by cost containment efforts. Patient handling revenue totaled $34.8 million in the third quarter of 2021. an increase of 17.4 million or 100.5% compared to Q3 2020. This increase was mainly related to the Handicare acquisition and also organic growth of 11%, partially offset by a negative foreign exchange impact. Patient handling adjusted EBITDA and adjusted EBITDA margin before head office costs stood at 3.1 million and 8.8% respectively compared to 2 million and 11.7% in Q3 2020. Likewise, the significant increase in adjusted EBITDA is mainly due to the acquisition of Handicare, while the decrease in adjusted EBITDA margin is partially related to additional supply chain costs and a reduction in the government of Canada's COVID-19 employment retention subsidy. These items were also partially offset by cost containment efforts. Adapted vehicles revenue reached $10.3 million in the third quarter of 2021, an increase of $5.4 million or 110% compared to the same period in 2020. Adapted vehicles adjusted EBITDA and adjusted EBITDA margin before head office costs amounted to $0.6 million and 6.1% respectively compared to $0.3 million and 5.8% in Q3 2020. The year-over-year increase in adapted vehicles revenue is once again attributable to the Handicare acquisition, partially offset by organic contraction due to timing issues and a shortage of vehicles stock. Increases in adjusted EBITDA and adjusted EBITDA margin for adapted vehicles were related to the Handicare acquisition. This was partially offset by a reduction in the government and COVID-19 employment retention subsidies. In the third quarter of 2021, net finance costs amounted to $2.5 million compared to $1.5 million for the same period last year. The increase is mainly due to higher interest expenses due to additional long-term credit facilities related to the Handicare acquisition. Net earnings reached $9.1 million or $0.15 per diluted share in the third quarter of 2021 compared to $8.1 million or $0.16 per diluted share for the same period last year. Adjusted net earnings totaled $9.6 million or $0.15 per share in the third quarter of 2021 compared to $8.2 million or $0.17 per share in Q3 2020. Turning now to capital resources and liquidity. Severia generated cash flows from operating activities of $7.7 million in the third quarter of 2021 compared to $16.3 million for the same period in 2020. The year-over-year decrease is mainly due to net changes in non-cash operating items of $12.5 million, including a ramp-up in inventories as well as increases in receivables and other current assets. A ramp-up in inventories was the result of intentional actions taken to minimize any potential supply chain disruptions on the business in Q4. As at September 30, 2021, Severia had a net interest-bearing debt position of $307.1 million. and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Severia's debt to adjusted EBITDA ratio was 3.5 times compared to 3.6 times in the prior quarter. Severia has funds available of $138 million to support working capital investments and growth opportunities. Looking forward, the uncertainty around the future impact of the ongoing global pandemic makes it difficult to predict future performance. However, considering our financial performance year-to-date with an adjusted EBITDA of $71 million, combined with current backlog levels and our strategic integration plan with Handicare, we remain confident we will achieve our previously stated goal of generating adjusted EBITDA in excess of $100 million in fiscal 2021. On that note, I'll turn the call over to Sebastian for our business and operational highlights. Sebastian?