Savaria Corporation

Good morning, good afternoon and good evening. My name is Razia and I will be your conference operator today. At this time, I would like to welcome everyone to Savarius Corporation's Q2 2023 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. To ask a question during the session, you need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, you can please press star one and one again. This call may contain forward-looking statements which are subject to the disclosure statement contained in Savaria's most recent press release issued on the 9th of August, 2023, with respect to its second quarter 2023 results. Thank you. Mr. Bourassa, you may begin your conference.

thank you very much again and nice uh to hear you my my dear friend okay and first i i begin to to say that thank you to you to write on savannah i read the what you say and i'm sure a lot of thing was done for the computer and the changing of our But that's a fact and that's a time of the past right now we don't debate. What's the very one thing of the 21 years that I made the call, except I missed one time the last month, two months. But we say the truth. What we see or hear from Savaria is the truth. And to continue like that is an effect. I have a couple of years to see and it will be always my people know that. After that, we have a forecast that we say for 23, nothing changed. We skipped the forecast and the only thing, we will work harder and maybe harder and harder. So the first thing that I want to mention about that, and what is important, the consultant that we are, and I signed myself, that's for a period of 24 months, two years. That's quite impressive to sign with a consultant for two years. And they will review all our operations. And our operation is coming from the sales. We have to begin with the sales. The sales can be better. Better price may be. Change of strategies. Our strategy to increase price. So we are going to university right now. And I am very happy. I meet them again. They make a very good job. They are People, okay, they are simple people and they just want to help us. For sure they want to help them, for sure to collect some cash flow, but they want us to succeed. And what is important for me when I listen to them, okay, they are not speaking about Savaria, okay, it's my people at Savaria, okay, who, excuse my English, is not improving too much, as you can see, over 21 years. But yeah, so what's very important is that exactly, that's my people, our people who, we don't change our people, we want maybe to train them. So that's very important. And you know, for sure we make some projection ourselves. And it's never in the scope of what we can see or can't see. It's 21 years that it's always touching. And I don't want something that's confidential. In a way, I've got a car and I speak up in the things confidential. Because it's not just my broker, but the street will know exactly. We think, with our consultant, they will review all our activity, the phase of our revenue, after that our expense, our purchasing, everything, and at every site. And they were in Mexico, they were in Europe. It's, I think, incredible that we can do that. But we have a big goal in 21, not in 21, but in 25. We want to reach 1 billion of sales. And we want to offer a very good EBITDA with that. So we need some help. We can see transformation for the language. My language is not very strong in English, but very good in French, too. But after that, we will see. In 2023, nothing really important will come back from this study. But in 2024 and 2025, I project, everybody knows that, I project an increase of our individual by 25% each year. So you are better in math than me. So you have the growth on several years themselves. And after that, with the study. So you do the math, okay? And I am very optimistic, okay, that we will reach this number, okay? But again, okay, that will be all, find my P&L, okay? All the situation, okay, we will study that, okay? When we study, okay, do we have too many factors, okay? Everything will be discussed, okay? Or we will have to find a... new supplier okay they will have positive find a new supplier okay to add that's always a we took for the price but always the same quality quality first okay at that after that we we listen okay what we can uh improve in terms of price so that's my uh my introduction okay and um Maybe I make some guidance, but anyway. So you have the truth, and you will see that that's a new scenario coming. And now for the finance, I pass to Steve Spurgeon.

Thanks, Marcel, and thanks for outlining and sharing a bit more details about Severia One. It's a project that we're all excited about internally. So thanks for that, and good morning, everyone on the call. I'm going to begin with some remarks regarding our Q2 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $198.4 million, up $6.3 million, or 3.3%, compared to Q2 2022. The increase was driven by organic growth of 3.4%, originating from both segments. In addition, the corporation experienced foreign exchange tailwinds of 3.8% and a decrease of 3.9% due to the divestiture of the vehicle division in Norway in the quarter, combining for 3.3% growth overall. Our revenues fell short of expectations for the quarter due to a disruption in production and delivery in Europe caused by the implementation of a new ERP at our key manufacturing sites in the UK in April. We are, however, pleased to report that the implementation challenges have been sorted out, with June being a record month for the organization. Gross profit and gross margin stood at 67.1 million and 33.8% respectively, compared to 65.6 million and 34.1% in Q2 2022. The increase in gross profit of 1.5 million was mainly attributable to higher revenues and to a lesser extent favorable foreign exchange rates used in the conversion of the results of subsidiaries. The decrease in gross margin versus last year was mainly attributable to the previously mentioned system implementation and by year over year inflationary impacts in Europe partially offset by greater profitability coming from the patient care segment and North American entities in the accessibility segment due to better cost absorption, favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at 29 million and 14.6% respectively, compared to 31.5 million at 16.4% in Q2 2022. The reduced profitability is mainly explained by the aforementioned decrease in gross margin and the higher selling expenses as a percentage of revenue. Before I move on to the segment results, it is worth noting that effective April 1st, 2023, the corporation consolidated its reporting structure and combined the remaining operations of the adapted vehicle segment with the accessibility segment. Starting with Q2, the business is now structured into two reportable segments, accessibility and patient care, according to their respective addressable markets. Accordingly, some information from previous periods was restated. Revenue from our accessibility segment was $150.6 million in Q2 2023, an increase of $2.4 billion, or 1.6%, compared to the same period in 2022. The increase in revenue was related to organic growth of 2.8%, driven by continued strong demand in both the residential and commercial sectors in North America, and price increases and cross-selling synergies with Handicare. was also driven by positive foreign exchange impact of 3.9%, mainly coming from the U.S. dollar, euro, and GDP currencies. This was partially offset by the divestiture of the Norway business, as well as the decreased production of delivery of stairlift products in Europe during April and May due to the implementation of a new ERP, as mentioned. For reference, in Q2 2022, the Norwegian Vehicle Division contributed $7.5 million of revenue. Adjusted EBITDA and adjusted EBITDA margins stood at 21.4 million and 14.2% respectively, compared to 26.5 million and 17.9% for the same period in 2022. The decrease in adjusted EBITDA and adjusted EBITDA margin was mainly due to the system implementation in Europe causing production and delivery issues, year-over-year inflationary impacts resulting in higher material and labor costs, and to a lesser extent, the divestiture of the Norway operations partially offset by better cost absorption from greater revenues in North America. Again, for reference in Q2 2022, the Norwegian Vehicle Division contributed $0.8 million of adjusted EBITDA. Revenue from our patient care segment. was $47.8 million for the quarter, an increase of $3.9 million or 8.9% when compared to Q2 2022. Revenue growth includes organic growth of 5.3%, which was driven in large part by new contracts signed with healthcare facilities, cross-selling synergies with Handicare and pricing initiatives. For the quarter, foreign currency provided a 3.6% tailwind for this segment. Adjusted EBITDA and adjusted EBITDA margins stood at 9.3 million and 19.4% respectively, compared to 6.7 million and 15.3% for the same period in 2022. The large increase in both metrics was primarily due to the increase in revenues and improvements in gross margin mainly explained by better cost absorption, product mix, pricing initiatives, and synergies with Handicare. For the quarter, net finance costs were 4.5 million compared to 6.4 million in Q2 2022. Interest on long-term debt increased by 2.6 million when compared to last year to the higher market interest rates. Net finance costs were also impacted by a net foreign currency gain of 1.7 million in the quarter compared to a net loss of 2.5 million in 2022, most of which was unrealized in nature. Net earnings were 8.8 million or 14 cents per diluted share for the quarter compared to 8.1 million or 13 cents per diluted share in Q2 2022. Adjusted net earnings was again 8.8 million or 14 cents per diluted share compared to 8.9 million or 14 cents per diluted share in Q2 2022. This reflects a relatively flat performance on a year-over-year basis. Turning now to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes and non-cash operating items reached $17.7 million versus $29.3 million in the same period in 2022. The decrease mainly reflects the lower EBITDA of the corporation and higher income tax paid related to deferrals from 2022. Net changes in non-cash operating items reduced liquidity by $17.5 million compared to $14.7 million a year earlier, mainly increased by working capital in Europe. Mainly impacted by increased working capital in Europe, excuse me. As a result, cash generated from operating activities in Q2 2023 stood at $0.2 million compared to $14.7 million in the same period in 2022. Cash used in investing activities was $4.5 million for Q2 2023 compared to $4.9 million in Q2 2022. The corporation disbursed $4.6 million for fixed intangible assets in 2023 compared to $4.9 million in Q2 2022. Cash used in financing activities was $15 million for Q2 2023 compared to $9.3 million in the same quarter last year. Variation is mainly explained by a drawing of $0.8 million on the credit facility compared to $3.8 million a year earlier and higher interest paid of $2.7 million in Q2 2023 versus the prior year. As of June 30, 2023, Severi had a net debt position of $372.9 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Saveria's net debt to adjusted EBITDA ratio was approximately 2.99 times. This represents approximately a 0.08 improvement versus Q4 2022 and an increase of 0.16 versus Q1 2023. Saveria has funds available of $119.5 million to support working capital investments and growth opportunities. Looking forward, for 2023, Saveria continues to expect to generate revenue which will be approximately 8% to 10% higher than 2022 when normalizing for the divestiture of the Norwegian auto division with adjusted EBITDA margins of approximately 16%. In addition, for 2023, we are targeting a reduction in our leverage ratio of 0.5 turns. This outlook is based primarily on continued strong organic growth coming from both the accessibility and patient care segments, supported by high backlog levels, cross-selling initiatives and strong demand, and continued successful integration of Handicare and progress towards achieving the next strategic phase of synergies in line with the management's plan. And with that, this completes my prepared remarks, and I'm going to turn the call over to you, Sebastian.