This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Good morning. My name is Scott, and I will be your conference operator today. At this time, I would like to welcome everyone to the Solveria Corporation's Q2 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. Who would like to withdraw your question, please press star then two. This call may contain forward-looking statements which are subject to your disclosure statement contained on Solveria's most recent press release issued on August 10th, 2022. With respect to the Q2 2022 results, thank you. Mr. Barasa, you may begin your conference.
spk07: Yeah, thank you very much. uh hi everybody uh that's a pleasure for me to be here this morning okay to to discuss okay our result of q2 our result of q2 is exceptional exceptional because we make this budget okay at the end of uh 21 okay the war we were not speaking about war okay everything was good but the war happened arrived okay uh stress in materials, cost of a lot of things, the container, on the labor side, some problem. So it's very exceptional that we can realize what we realize in Q2. And me, I will say, and Sébastien was telling me that, that Q2, we can refer that at the new minimum level. So I am very happy that we see that we can be better. And I am very happy to hear your question. And as usual, I will refer that to my knowledge, to the best person in our great group. So can we go for a question, please? No, no, no, no, no, no. Just a minute, just a minute. We missed one thing. We have to have Steve speak a little bit about the mathematics of the future.
spk02: Thanks, Marcel, and good morning, everyone. I'm going to begin with some remarks regarding Q2 2022 consolidated financial metrics. For the quarter, the corporation generated revenue of $192.1 million, up $13.4 million, or 7.5% compared to Q2 2021. The increase was driven by strong organic growth of 9.7% and was somewhat offset by foreign exchange headwinds of 2.2%, netting out to 7.5% growth overall. Gross profit and gross margin stood at 65.6 million and 34.1% compared to 59.9 million and 33.5% for Q2 2021. The increase in gross profit and gross margin was mainly attributable to customer price increases and better fixed cost absorption while still battling inflationary pressures and other supply chain constraints. Adjusted EBITDA and adjusted EBITDA margin stood at $31.5 million and 16.4% compared to $27.4 million and 15.3% in 2021. The increase in adjusted EBITDA dollars and adjusted EBITDA margin is due to improvements in gross margins previously mentioned and was somewhat offset by a decrease in SEWS funding received compared to last year. Now we'll move on to the segment results. Revenue from the accessibility segment was 136 million, an increase of 5.2 million, or 4%, compared to the same period of 2021. The increase in revenue was mainly attributable to organic growth of 6.8%, which was offset by 2.8% revenue decline due to foreign currency impacts. The weakening of the euro and pound overshadowed the strength in the US dollar versus the Canadian dollar. Our revenue growth was fueled by both the residential and commercial sectors, and we continue to build our backlog. June 30th, our accessibility backlog is approximately 11% higher than it was at the end of Q1 2022. Adjusted EBITDA and adjusted EBITDA margin for the accessibility segment, both before head office costs, stood at $25.9 million and 19.1%. compared to 23.4 million and 17.9% for the same period in 2021. The improvements in adjusted EBITDA and adjusted EBITDA margin are mainly due to improvements in gross margins driven by customer price increases and better fixed cost absorption. Revenue from our patient care segment was 43.9 million for the quarter, an increase of $7.8 million or 21.5% when compared to Q2 2021. Revenue growth included organic growth of 20.2%, which was driven in large part by pent-up demand from the last two years of the pandemic and increased access to long-term care facilities as well as customer price increases. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, where the patient care segment stood at $6.7 million and 15.3%, compared to $4.7 million and 12.9% for Q2 2021. A large increase in adjusted EBITDA margin was mainly due to improvements in gross margins, which were driven by fixed cost absorption and customer price increases. Revenue generated from the adapted vehicle segment was $12.2 million, an increase of 25 million or 4% when compared to Q2 2021. Revenue growth in the adapted vehicle segment was driven by a 10.1% organic growth and was partially offset by foreign currency impact of 6.1% due to the weakening of the Norwegian krona versus the Canadian dollar. The organic growth was driven by increased ambulance and vehicle adaptations as well as pent-up demand from last year which was delayed due to vehicle supply shortages. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs for the adaptive vehicle segment, finished at 0.6 million and 5%, respectively compared to 1.3 million and 11.2% for Q2 2021. The decrease in both metrics was mainly due to a reduction in SEWS and inflationary pressures on the supply chain, as well as delays in
spk04: sourcing key materials.
spk02: For the quarter, net finance costs amounted to $6.4 million compared to $5.4 million in Q2 2021. The increase is mainly due to a net foreign currency loss of $2.5 million in the quarter, which was unrealized in nature. Interest on long-term debt was $3.1 million in Q2 2022 compared to $3.4 excuse me, 3.5 million in Q2 2021, a decrease of 0.4 million. Net earnings were 8.1 million or 13 cents per diluted share for the quarter compared to 2 million or 3 cents per diluted share for Q2 2021. Adjusted net earnings excluding amortization of intangible assets related to acquisitions reached 13 million or 20 cents per diluted share compared to 10.4 million or $0.16 per diluted share for Q2 2021. And this reflects an increase of 25.3% or $0.04 on a diluted share basis. Shifting gears and turning now to capital resources and liquidity, Severia generated cash flows from operating activities of $14.7 million for the quarter compared to $14.4 million in Q2 2021. Earnings for the quarter was somewhat offset by an investment in working capital capital, excuse me, inventory in particular. And that's similar to what we've seen for the past three quarters in order to insulate our production and sales activities from continued supply chain constraints and challenges. As of June 30th, 2022, Saveria had a net debt position of $380.1 million and was in compliance with all covenants. On a trailing 12-month basis, a just-a-deep-in-dot basis, Severia's net debt to adjusted EBITDA ratio was approximately 3.3 times, and this represents a 0.3 decrease versus where we finished last year. Severia has funds available of approximately $118 million to support working capital investments, CapEx, and other growth opportunities. Looking forward, The current changing macro environments and movements in economic and political fields create uncertainties. However, considering our recent financial performance and our strategic integration plan with Handicare, we remain confident that for fiscal 2022, we will generate revenue in excess of $775 million, with adjusted EBITDA in the range of $120 to $130 million. With that, this completes my prepared remarks. I'll turn the call back over to you, Marcel. Thank you, Steve.
spk07: Very good. Always interesting when we have good numbers, right? So we are quite excited to see what will bring Q3 and Q4. But as mentioned, Steve, we are very optimistic about the next six months. So we are ready for the question, Mr. Scott.
spk05: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
spk04: At this time, we will pause momentarily to assemble our roster. Our first question will come from Derek Lessard from TD.
spk05: Please go ahead.
spk09: Yeah, thanks, and good morning. Congratulations, everyone, on a really solid quarter given what's going on in there. Thank you. Steve, I have trouble logging in, so I caught the end of your comments at the end of accessibility. I was just wondering if you could just maybe remind me of what the backlog looks like in that segment.
spk02: So if you remember Q1 on the call, we talked about having a record backlog, and that backlog has increased again for Q2. Specifically, it's gone up over 11%. So comparing Q2 to Q1, our backlog and accessibility segment is up over 11%.
spk09: Okay, thanks for that. One of the drivers of the organic growth and accessibility that you guys pointed to was handicare standards.
spk04: Could you just maybe add some color to that comment?
spk06: I think, Derek, we had a good organic growth in the accessibility, but to be honest, it's a bit disappointed. When the backlog goes up and we're not able to achieve a double-digit growth, I guess the operations are not perfect. So we're still working in a challenging environment. We could have a few more people in a different factory. The timing of the parts are not always coming on time. So we try again in Q3 to have a better organic growth, but definitely at least the good news is the backlog is there. So that's very positive. And I think I would say it's pretty much the same from the elevator to the stairlift. Everybody can do a bit more on the organic growth.
spk09: And maybe just one last one for me before I read Q. I'm curious, are the benefits from the a new Mexican facility that's supposed to open in September. Is that included in your guidance and maybe just an update of what you're seeing in that opening there?
spk06: So I would consider a bit like if you buy a new house. So basically we're going to get the key of our house September 1st. So September we are moving in. And in Q4, we are going to start some operations, some light assembly. But as we said at the beginning, we are building capacity for the $1 billion for the future. So this year, there's no expectation from the Mexican factory. But definitely when we do a budget season for next year, we'll make sure that the Mexican factory contributes. But again, it will be a great addition to get some new people, to have shorter lead times, to bring things from Asia. For us, it's an opportunity to rebalance our supply chain. So very positive.
spk09: Thanks for that, Sebastian, and again, congratulations and good luck.
spk04: Our next question comes from Nick Agustinone from Letarian Bank Securities.
spk05: Please go ahead.
spk11: Hello, Nick. Good morning, everybody. Good morning, Marcel. I guess a couple of questions for me specifically on accessibility. I'm just wondering, now that we're seeing rate increases here in Canada, are you guys seeing any demand concerns on the residential market side of things, specifically on elevators?
spk06: I think, Nick, so far we have been quite lucky. Our backlog has increased. And right now, if you want to order a home elevator, it's more three months' sleep time from Savaria. We used to be at three to four weeks' sleep time. And after that, no, don't forget, it's not always new construction. There's a lot of units that goes in retrofit market, and people still want to stay home. They did not forget the pandemic. It is much better, but it's not totally over. And after that, we are in many, many different countries, so different countries have different maybe economic scenarios. So for now, okay, for us, it's still very positive.
spk11: Okay, and just to be clear, when you say the backlog is up, that's specific to residential elevators?
spk06: That was accessibility, which is including a platform lift, home elevator, commercial elevator, and sturdy. So the whole segment is up.
spk07: Okay. And Nick, okay, we don't forget that this segment, okay, is on several areas, okay? So when we go with the end scare, okay, these people like deliver growth. almost overnight or very short term. So the backlog is not very important for them. We don't know exactly the evolution of that because it's not important. But for us, to have the backlog, and he mentioned that, Sébastien, but when you have 400 elevators to manufacture, that's a real good problem.
spk11: Indeed it is. My other question is, I noticed in your press release, you mentioned as part of accessibility, you do call out the commercial market. And I'm just wondering, with more and more of economies opening up around the world, certainly here in Canada, and more of a push to get people back into the downtowns, how is that market doing for you guys relative to before the pandemic started? and at the height of the pandemic, how far back or how much have you been able to recover?
spk06: I think, Nick, I would say that all the segments were up and booking, so including the commercial, and I would say the commercial is almost back as the pre-pandemic level. So, again, we have a three-month lead time on some of the commercial elevator, so I would say that it's much, much better on that aspect. People are doing some projects. They are doing some renovations, so I would say it's quite positive.
spk11: Okay, that's good to hear. Maybe two more quick ones. First, is there any way, Steve, if you can call out when you look at your organic growth of 9.5% for total sales, any idea what that organic growth number would have looked like without the price increases that you guys have pushed through?
spk02: I think the picture is different by segment. So if we look at the accessibility segment, the organic growth there was almost 7%, and about half of that would have come from price increases and the other half from volume. On the patient care side, it's probably closer to 5% price increases, 5% of the total 20%. Do you think that helps?
spk11: It does, it does. And then one last quick question. On the adapted vehicle, it looks like you had some strong demand from emergency vehicles, so police and fire or ambulance. Is that something that – is there more in the books when it comes to that segment from emergency vehicles?
spk02: Yes, there is. So that segment – and that's specifically, again – the business in Norway. And they will continue to have a strong back half of this year. And they're about half of that entire business. So the Canadian business is about half and the Norwegian business is about half. And we're seeing a strong backlog in the Norwegian side of the business. So that should continue through the back half of the year. And actually quite into next year as well.
spk11: Okay, appreciate that. I'll pass the line.
spk07: Nick, go ahead. Just a minute, okay? I just want to mention that I think, okay, it's not very important, okay, our growth, okay? And you will see a difference, okay, of this growth in Q3, okay? We're working on that, okay? And we are lucky for the first time in my life, okay, we have a booking that we have, okay? So you will see in Q3 arcade and Q4 that the organic arcade will be higher in growth.
spk04: Thank you. That's for the overall business? Yes. Okay. Noted. Thank you. Our next question comes from Frederic Tremblay from Guise RJs. Please go ahead.
spk10: Good morning. First question is on inventories. Just maybe comments on your comfort level with your current inventories. You mentioned that it's been increasing for a few quarters, this growth in a difficult supply chain environment. Do you anticipate any additional investments into inventory, or are we at a level that's comfortable here?
spk02: All right, Fred, maybe it's your connection that's not very strong, but I think your question was around inventory and the investment we made in Q2 and what that potential investment looks like for the rest of the year. Is that right?
spk04: Yes.
spk02: Yeah, so we did see an increase in Q2. We saw that in Q1 and Q4 of last year as well. We're seeing that across all of our segments. It's to a small extent in the vehicle segment, but it's in the patient care and accessibility segments. Our expectation for Q3 and Q4 is to just have increases in inventory in line with revenue increases. We won't see as drastic of a working capital increase in Q3 and Q4 as we did in Q2.
spk10: one and q2 okay great and maybe sticking with uh kind of the use of cash here uh what's your expectation to do with capex for the backup of the year and i guess related to that uh expectations related to uh leverage declining as well so on the capex front um the the capex expenditure year to date has been lower than our budget we have
spk02: We have one sizable project with regards to manufacturing straight stair lifts here in Brampton that is underway. And we had planned for that expenditure in sort of Q2, Q3 timeframe. So that will be coming in in Q3 and Q4. So we will be back up to our level of about 2.5% of revenue. You'll see in the first half of this year, though, we're below that because that large project is not coming until Q3. So full year, it should be back to that 2.5 range. Our leverage, we saw a good decrease in Q2. We saw a 0.3 decrease versus year end. We've been guiding towards a half a turn per year, and we're well on track to achieve that. We know that Q1 wasn't as strong, so The fact that we're at 0.3 at a half year, we're pretty happy with that, and we will deliver on at least half a turn this year.
spk10: Okay, great. Last question for me. Just on the pricing side, as you look through your segments following the recent increases, do you envision having to announce other price increases in the near to mid-term, let's say, based on the current cost environment that you're seeing now?
spk07: You know something, I am very happy that we were, I think, not quite aggressive, but quite realistic about what happened during this year. So we are very happy right now at the level that we are. Some of my division, I think, were not as on the ball as was Saverio. But we're looking at that, and we're just following. And if it's like that, like today, maybe part of Europe has to have some increase, okay? But I think we are very satisfied about what we do here in North America. So we will follow the flow, okay? We are looking, and we are always, okay, ready, okay? But we prefer not to increase something when we are available that we are satisfied that we are right now. But we follow.
spk10: Thank you. Thank you and congrats on the strong results.
spk05: Again, if you have a question, please press stars and 1. Our next question comes from Zachary Evershed from National Bank Financial. Please go ahead.
spk01: Bonjour, Zachary. Bonjour, Marcel. Thank you for taking my questions. If we dip into a recession, hypothetically, what's your outlook for the pace of organic growth at personal care? And what are you hearing from your larger clients in that segment right now?
spk04: Cut out.
spk00: Did you say personal care or patient care? Yes, patient care. Oh, okay. So, again, we don't have a crystal ball as it relates to if or when we will be out of a recession. I think what we've seen, we can kind of speak to our backlog. We can see what our guys on the ground are saying. We had very good results, I guess, from organic growth in Q2. It builds on the strong past couple quarters that we've had. It's been a rebound of spending that's been driving that. As it relates to recessionary spending, a recessionary environment, I'm not sure necessarily that it will have any large impact immediately on that business. I think right now people are still trying to recoup some of the spending that wasn't happening in the past. So there's kind of that rebound that we're seeing, the budget dollars that are coming back towards capital equipment. And at the same time, You know, for example, there in Ontario, you saw just this past week where they're talking about kind of a crumbling healthcare system. And, you know, there's investments that are needed. So I think that's a more of a long term trend. So recession or not, I do think that there's going to be continued strong growth within kind of the healthcare infrastructure, which is good for our business, right? I mean, in terms of rooms, that's kind of how we measure, you know, the market, you know, rooms, again, being the bed, the bed frame, the mattress, the ceiling lift, the sling. So that's what we're going after. It's kind of a package deal. And I feel very strongly about that. So there is no real concern on our part of any sort of recessionary kind of a headwind in front of us.
spk07: I did just add a key that, uh, it's a very, yeah, we're very lucky. Okay. Well, sure. Okay. I have, uh, we have always to be a little bit, but when I start, uh, this company with my people, okay. We're just four employees here right now. We're 2300 employees. But because what, okay? Because we are there, okay, for the aging of the population, okay? That's our objective, okay, to help these kind of people. War, not war, recession, no recession, the people need our products. So we are just very lucky and we try to serve this industry as well as we can do, okay? So it's not maybe recession proof, okay, but it is, And you see at the beginning of the comments, okay, I see we do our budget, okay, before, okay, the war, okay? So imagine, okay, and we are right on the spot, okay, of our projection. So we can see if something change, okay?
spk08: It's not recession-proof, but almost because it's the aging of the population.
spk01: Excellent, Collier. Thank you. And then... We noticed that UK and other revenue dropped by quite a bit. Can you give us some color on what's happening there?
spk02: So we actually did see decent organic growth in our European market, but most of that was offset actually by FX headwinds, as I mentioned. So when we look at the accessibility segments, the overall organic growth of 7%. We did see numbers in that range for the European business. I mean, we don't typically disclose at that level, but it was, to my earlier point, it was all more or less offset by FX.
spk01: Gotcha. Then one last one, if I may. Do you think the current environment is good or bad for continued consolidation? And what are you hearing from peers in the industry?
spk07: You know something? That's a good question, but we're always lucky here. We know that we have over 100 million that we can take to make some acquisition, but we have some integration to do. First thing is integration, but if we see something available on the market, and as you mentioned, some is available on market, and we look at that. We're a team, and We just want to do what is the best for our shareholders.
spk04: Clear for me. Thanks. I'll turn it over. Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Marcel Barrasso for any closing remarks.
spk07: First, okay, thank you, okay, to the people on the call this morning, okay. We are very enthusiastic, okay, but... The growth of Saveria and growth of our stock depend of the analyst. Thank you very much to think about Saveria and the good work that you do to more people know about the beautiful company that we are. So thank you very much and see you in three months.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer