Savaria Corporation

Good morning, my name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q3 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 will need to press star 1 and 1 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 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 1st of November with respect to its Q3 2023 results. Thank you. Mr. Barasa, you may begin your conference.

Thank you very much, Sarah. So, as you mentioned, my name is Marcel Bourassa, and it's a pleasure to begin the call, okay? After that, okay, I will transfer that to my colleague. If I was taking every year, okay, I think we are going in the right direction. Now, we have Q2 a little bit weak, okay? But Q3, I think you can see that progress. Europe, okay, will be better in the coming quarter, and so that will be an impact, okay, on our sales and EBITDA. So I am very positive, okay? And one thing very important, okay, is we are based, our company is based on the aging of the population. And you can see, okay, that we have the war, okay? It's sad, okay, but it's happened, okay? and we have some country okay that man okay it's always okay question okay uh like not very respectful for the people but it is what it is us okay we we are our projects is basically of the aging of the population and it will be there okay for uh i think for me okay at least forever, okay? And thank you, okay? I read some comments yesterday, okay, about you making a Q3. And thank you very much, okay? And you can see that we have a good quarter, okay? And we all have a great quarter. The backlog is there. And 24 look tremendous for us. But let's talk about Q3. So I will transfer it to Steve.

Thanks, Marcel, and good morning, everyone. Thanks for joining us on the call. I'm going to begin with some remarks regarding our Q3 2023 consolidated financial metrics. For the quarter, the corporation generated revenue of $210.1 million, an increase of $8.7 million, or 4.3% when compared to Q3 2022. The increase was driven by organic growth of 4.1%, originating primarily from the accessibility segment. In addition, the corporation experienced foreign exchange tailwinds of 4.7%, as well as a decrease in revenue of 4.5% due to the divestiture of the vehicle division in Norway, combining for 4.3% growth overall for the quarter. Gross profit and gross margin stood at 72.6 million and 34.5% respectively, compared to 64 million and 31.8% in Q3 2022. The increase in gross profit of 8.5 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 increase in gross margin versus last year was mainly attributable to greater profitability coming from the North American divisions in the accessibility and patient care segments due to better cost absorption, favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at 33.6 million and 16% respectively compared to 31 million and 15.4% in Q3 2022. The increased profitability is mainly explained by the aforementioned increase in gross margin, somewhat offset by higher selling and administration expenses in the quarter, excuse me, driven partially by 0.9 million of costs related to Severia I. On September 15th, 2023, the corporation issued 4,363,100 common shares by a public offering and 1,983,750 common shares via a concurrent private placement with Caisse de Depot de Québec, both at a price of $14.50. For aggregate gross proceeds of $92 million, which included the full exercise of the over-allotment option granted to the underwriters of the offering and the additional subscription option granted to CDPQ. Net proceeds after transaction costs of $4.6 million was $87.4 million, which was used to reimburse credit facilities. And now I'm going to move on to our segmented results. Revenue from our accessibility segment was $166.3 million in Q3 2023, an increase of $7.7 million or 4.8% compared to the same period in 2022. The increase in revenue was related to organic growth of 5.1%, driven by continued strong demand in both the residential and commercial sectors in North America, which saw 9% organic growth, as well as price increases. The growth was also driven by a positive foreign exchange impact of 5.4%, mainly coming from the US, Euro, excuse me, and British pound currencies. This was partially offset by the divestiture of Norway previously noted, which caused a year over year decrease of 5.7% when compared to Q3 2022. Adjusted EBITDA and adjusted EBITDA margin for the accessibility segments to that 29.9 million and 18% respectively compared to 26.9 million and 17% for the same period in 2022. The increase in adjusted EBITDA and adjusted EBITDA margin was mainly due to better cost absorption from increased revenues in North America, as well as improved pricing. Revenue from our patient care segment was $43.8 million for the quarter, an increase of $1 million or 2.4% when compared to Q3 2022. Revenue growth includes organic growth of 0.3%. As a reminder to our investors, our patient care business is driven in large part by project-based sales, which can be lumpy from time to time. For the quarter, foreign currency provided a 2.1% tailwind. Adjusted EBITDA and adjusted EBITDA margin stood at $6.1 million for the patient care segment and 14%, respectively, compared to $5.9 million and 13.8% for the same period in 2022. The slight increase in both metrics was mainly due to the increase in revenues as well as improved gross margins. For the quarter, net finance costs were $5.5 million compared to $2.5 million in Q3 2022. Interest on long-term debt increased by $2 million when compared to last year due to higher market interest rates. Net finance costs were also impacted by a lower net foreign currency gain of 0.3 million compared to a gain of 2.2 million last year, most of which were unrealized in nature. Net earnings were 12.1 million or 18 cents per diluted share for the quarter compared to 10.6 million or 16 cents per diluted share in Q3 2022. Adjusted net earnings was again $12.1 million or $0.18 per diluted share compared to $11.2 million or $0.18 per diluted share last year. The year-over-year increase in net earnings is driven from increased operating income, which was mainly driven by increased gross profit across the business. So 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 $26.9 million versus $28.9 million for the same period in 2022. The slight decrease mainly reflects the impact of higher income tax paid. Net changes in non-cash operating items reduced liquidity by $1.6 million compared to $9.7 million in the same quarter last year. The improvement is mainly due to the stabilization of inventory levels across the business. As a result, cash generated from operating activities in Q3 2022 stood at $25.3 million compared to $19.2 million for the same period in 2022. Cash used in investing activities was $4.5 million for Q3 2023 compared to $4.2 million in the same quarter last year. And the corporation dispersed $4.6 million for fixed and intangible assets this year compared to $4.4 million last year. Cash used in financing activities was $20.7 million for Q3 2023 compared to $10.9 million in 2022. The variation is mainly explained by a reimbursement of $91 million on our credit facilities following net proceeds from the issuance of common shares previously noted of $88.3 million, as well as higher interest paid of $2.2 million in Q3 2023. As of September 30th, 2023, Severi had a net debt position of $290.2 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Severia's net debt to adjusted EBITDA ratio was approximately 2.28 times. The large reduction versus prior quarter was the result of the share issuance net proceeds being used to pay down debt. At the end of the quarter, Severia had net funds available of approximately $203.4 million to support working capital investments and growth opportunities. And now looking forward for 2023, Severia 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, as well as adjusted EBITDA margins of approximately 16%. And as a reminder, Norway represented approximately 60% of the overall vehicle segment revenues in 2022. This outlook continues to be based primarily on the continued strong organic growth coming from both 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 management's plan. And with that, this completes my prepared remarks, and I'm going to turn the call to Sebastian for an operational update.