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spk02: 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 Q4 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. 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 pledge release issued on March 6, 2024, with respect to its Q4 2023 results. Thank you. Mr. Barasa, you may begin your conference.
spk19: Thank you, Sarah. It's Mr. Lukaku. It's a pleasure to be with you, my analysts and my guys, Steve, Stabas, and Nicolas, who will speak after me. It was a good quarter, a great year, but I think we are in a very good mood to have this year and next year. We had some game changers. that you will see, okay, our objective of 25 that they can speak, okay? Often the people say to me, okay, what I can speak and what I cannot speak, okay? But I think I can say, okay, that in 25, okay, we have an objective, okay, of 1 billion of cells with 20% of EBITDA. And I tell you, okay, and you can meet the max you are better than me to reach, okay, the one billion cells, okay, we will do that, okay? It's not even so difficult. For sure, nothing is easy, okay? And we are global, okay, across the globe, okay? Some have Europe that actually we have to say that is a little bit weak, okay? But North America is very strong, okay? So we, I can see right now that at the end of 24, okay, we just make our forecast for 25 because That would take some time to be at 25, but we have a very strong, okay, in North America, strong at 24, okay? And we can see that we, at the end of the 23, we were only at 15.5, and we go to 20%, okay? I can look, okay, with our forecast, okay, that we should be roughly, maybe half of that, okay, in 24, and the other half of that, okay, in 25. So I am very optimistic about the number that we put for 25. And again, okay, it would be a pleasure for me, okay, to have some questions for me, or you have my people, okay, who will make a little presentation. And after that, we are open, okay, to answer at our best knowledge, okay, what we do, and you see some big cuts of consultation. Just that I signed that, and I was very happy to sign that, because we had to be particular, to be ready for the, after Rwanda, after 25, what happened the following week, following that week, but years. So with this study that we make with this international company, we have – we'll be better, and Sebastian will speak about, okay, what we are doing in that. We will be better, okay, from purchasing to selling to a lot of things. And so I see the future very good. For sure it's a big step to be there, but we will be there. We will be there, okay, at the end of the 25th. And I am very happy that we will have an open door for our people in April. So they will just see where we are right now. I will present you my new talent that we have. And you will see that we have very... good talent, okay, that we will present to you, and you will believe, okay, because it's always people, people, and people. So you will believe more and more and more about our objective of 24 and 25, okay, for the end of 25. So on that, okay, it's a pleasure to have you, okay? And I was reading everybody who writes on several years, 24 and 40 years, And thank you very much, okay, what you say. You are all, okay, very kind, okay? And you understand quite well, Saverio. For sure now, okay, with this consultant, okay, and this big bump, okay, for the end of 25, okay, I just want you to do this yesterday, okay? You will see exactly what we have done, okay, at the back of the door, okay? And you will see it. I believe they are at 20% and $1 billion. So I will pass the line to Steve, our CFO. And thank you very much, everybody, to be there today. If you have some questions, don't forget to call me or I will be on the line during the call. So Steve, for you.
spk09: Thank you, Marcel. Thank you, Marcel. Good morning, everyone, and thanks for being on the call today. I'm going to begin with some remarks regarding our Q4 2023 consolidated financial metrics. For the quarter, we generated revenue of $216.8 million, an increase of $4.7 million, or 2.2% versus last year. This was mainly driven by organic growth of 6.2% coming from our accessibility segment. We also experienced foreign exchange tailwinds of 2.3%. This is partially offset by the divestiture of the vehicle division in Norway earlier this year. We delivered a strong gross profit and gross margin at $74.3 million and 34.3% respectively compared to $66.2 million and 31.2% for last year. The increase in gross profit of $8.1 million is explained by better gross margins, additional revenue, and favorable foreign exchange rates. The increase in gross margin was mainly attributable to greater performance from all segments due to better cost absorption, favorable product mix, and improved pricing. We also incurred $2 million in strategic initiative expenses in the quarter. For the year, these costs amounted to $3.1 million and have been carved out of adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin finished at $35.1 million and 16.2% respectively, compared to $33.3 million and 15.7% last year. The increased profitability is mainly explained by the increased gross margins somewhat offset by higher selling and admin expenses. On December 22nd, 2023, Saveria signed a sale and purchase agreement with Dry Verge Canada to sell our Van Action and Freedom Motors divisions. The transaction closed on February 1st of this year, 2024. And accordingly, at December 31st of last year, these assets and liabilities of those businesses were recorded as held for sale. And now I'm going to provide some commentary on our segmented results. Revenue from our accessibility segment was $173.7 million, an increase of $7.2 million, or 4.3% compared to last year. It was driven by organic growth of 9.5%, coming from strong demand in the residential and commercial sectors in North America and Europe, price increases and cross-selling synergies. We also experienced foreign exchange tailwinds of 2.8%. And this was partially offset by the divestiture of Norway business, as previously mentioned. Adjusted EBITDA and adjusted EBITDA margins stood at 28.7 million and 16.5% respectively, compared to $27 million and 16.2% last year. The increased profitability was mainly due to better cost absorption as well as improved pricing. Looking at patient care, revenue from this segment was $43.2 million for the quarter, a decrease of $2.5 million or 5.4% compared to last year. While our backlog remains very healthy, revenue decreased due to reduced year-end spending from institutional customers, product mix, and to a certain extent, large orders delivered last year not repeating this 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. For the quarter, Foreign Exchange provided a 0.5% tailwind for the patient care segment. Adjusted EBITDA and adjusted EBITDA margins stood at 7.9 million and 18.3% respectively compared to 7 million and 15.3% last year. The increase in both metrics was mainly due to improved gross margins explained by the product mix and pricing initiatives. Looking again at a consolidated basis, net finance costs were 4.8 million compared to 6.2 million last year. Interest on long-term debt decreased by $0.4 million due to the reduced balance of debt. We also experienced a decrease in net finance costs due to foreign currency gain of $1 million compared to a loss of half a million last year. And we also incurred a loss on net investment hedges of $0.8 million and a quarter. Net earnings were $11 million or $0.16 per diluted share for the quarter compared to $11.3 million or $0.18 per diluted share last year. and adjusted net earnings were 12.8 million or 19 cents per diluted share compared to 12.6 million or 19 cents per diluted share last year. The decrease in net earnings was mainly due to higher income tax expenses, partially offset by lower net finance costs in the quarter. The slight decrease in net earnings per share is due to the increased number of shares. And so now turning to capital resources and liquidity, For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached 30.7 million, which is essentially the same as last year. Net changes in non-cash operating items increased liquidity by 6.4 million compared to 13.2 million a year earlier, mainly due to increased receivables. As a result, cash generated from operating activities in Q4 stood at 37.1 million compared to 43.9 million last year. Cash used in investing activities was $5 million for Q4 compared to $7.6 million last year. We dispersed $5.1 million for fixed intangible assets in Q4 2023 compared to $7.6 million in 2022. Cash used in financing activities was $21.1 million for Q4 compared to $35.9 million last year. And the variation is mainly explained by a reimbursement on the revolving facility of $2.6 million this year compared to $20.2 million a year earlier. As noted, our cash balance grew by $10 million in the quarter versus last year. As of December 31, 2023, we were having a net debt position of $269.9 million. The ratio of net debt to adjusted EBITDA stood at 2.07 in comparison to 3.07 at the end of last year. Saveria has funds of approximately $223.3 million to support working capital investments and growth opportunities. Looking forward, Saveria's future prospects are promising. driven by strong market demand, the progress of Severia 1, and potential token acquisition opportunities that will enhance our market position. From a financial standpoint, we anticipate average costs of approximately $5 million per quarter through fiscal 2024 and $2 million per quarter for the first half of 2025 related to Severia 1. We may see additional fees depending on the success of the program. We remain confident that the benefits of this program will increase as the year progresses, leading to long-term growth in both top-line and bottom-line performance. In terms of tuck-ins, these acquisitions would not only align strategically and expand our market opportunities, but also help to offset some of the $50 million of annualized revenue loss resulting from the divestiture of Van Action, Freedom, and the Norwegian vehicle adaptation businesses. Overall, we have full confidence in our ability to achieve our targets of approximately $1 billion in revenue and an approximate 20% adjusted EBITDA margin in 2025. We look forward to sharing more detailed information about our initiatives at our upcoming Investor Day in April. And with that, this completes my prepared remarks. I'm going to turn the call over to Sebastian.
spk20: Okay, thank you, Steve. So a few comments on my side concerning mostly the operation and the SAVAIR one. So basically, I'm quite happy with the growth in 2023 in North America of like 13.6%, which was greatly supported by Vancouver and Toronto factories. So thank you to both factories. And what's important is we remain a very healthy backlog for our elevator division. So that keeps some fuel for the next few quarter. Finally, we have also some improvement in the inventory management. So I think it shows at least we are trending in the right direction. So I think that's a start. And it's also part of this severe one to improve our working capital. In Mexico, we now have 70 employees. We have some weekly trucks coming to our factory in Toronto, starting some shipment to our factory in Vancouver. We now export some finished product in the U.S., some porch lift, and started some home elevators. So I think that will be a start to hopefully some new market or some customer. We saw the Canadian car division, as you saw, the division in Toronto and Montreal. What was important for us is to find a good buyer, and I think with the company we found in the U.S., a driver, it would be better for an employee to have a company that can help to develop a bit the business. So quite happy with the transition. Nicola will talk a bit later about the patient care, which was a disappointing Q4 to be transparent. and modest growth in 2023. But what's important to not forget is a few years ago, we were a company of 10% of EBITDA in the patient care, and it's now 18%. So when we talk about 20% for the SAVAIR, you see the patient care is very close to it, and I'm pretty sure the SAVAIR-1 and the work that the team of Les and Pat are doing will be able to achieve it. SAVAIR-1, so I would say it's really underway. We have strong participation from our employees. They are super motivated to participate in it, and it's even starting to be part of our NDNA, so quite happy with that. I would say we have found some very strong pillar on the procurement, on production, selling opportunity, pricing, that will help us to achieve 20% by 2025. And the most important is we have a strong foundation for the after $1 billion. I will not give a guidance to deal on the after $1 billion, but at least we were very decentralized for many years. So for us, it was important to think more about the one company, one supplier, one way of training. This is really what we're currently doing. And I'm pretty confident that in the next few quarters, you will see a good improvement step by step towards a goal of 20%. And also part of this several one, there's a lot of training happening for employees, just to make sure we think as a one company. So I will strongly invite you to register for Investor Day on April 9th, because we'll have a chance to talk more in detail of this several one program. And also, if you register, you will have the chance to visit the factory in Brimpton, where you can really see that it's effectively under transformation, with new layout, new way to manage the company, more digital board. So I think we'll be a good example of where we are. So. You want to talk a bit more about patient care?
spk17: Sure. Our patient care segment delivered a record year in 2023, achieving $183 million in sales and EBITDA margins of 18% for the full year. Our operational and sales leaders within SPAN, Handicare, and Silverlee have really come together, and 2023 results are a testament of their efforts to integrate and manage these businesses as one severe patient care group. Turning to Q4, Our sales in the quarter were weaker than anticipated due to a number of factors, primarily that we had some large projects in Q4 2022 that didn't repeat this year, as well as various project delays that pushed some work into Q1. However, our order intake remained strong in the quarter, and our backlog exiting the year was at a record level, which bodes well for 2024. On the margin front, despite the lower sales in Q4, we maintained a relatively high EBITDA margin of 18.3%. the margin improvement is mainly attributable to the following. First, we had a favorable product mix in the quarter with good mattress volumes, strong gear and sling spending, and high margin contracts within Handicare's Canadian business. Second, we continue to focus on selling the entire room. We make better margins when we can bundle our sales, and we had a good success selling packages in the quarter, namely bed packages to the VA. Third, pricing improvements in 2023 are having a positive effect, in particular with respect to beds where we've optimized pricing to preserve minimum margins and gone away from the low-end market to focus on better and best category products. Finally, I'd be remiss if I didn't mention the excellent job by our operations teams in improving production efficiencies within our factories and maintaining a diligent control over costs. To conclude, we were a bit cautious throughout the year and tempered expectations with respect to the significant margin improvement we had been observing within patient care. However, Now that we can take a step back and review the full year's performance, we are confident that we have the right team in place and the winning formula for sustained success. We also know that we need to prioritize sales growth, and this will be a key focus for management in 2024. And with that, I'll turn the call back over to you, Marcel.
spk19: Okay, thank you very much, gentlemen. And thank you to be very enthusiastic about our future. I think we are a little bit conservative, but it's looking very good. So Sarah, I'll transfer to you if we have some call that we can answer.
spk02: Thank you. As a reminder, if you would like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. And so we'll draw your question. Please press star 1 and 1 again. Thank you. We'll now take the first question. This is from the line of Derek Lissar from TD Cowan. Please go ahead.
spk06: Yeah, good morning, everybody. And Sebastian, congrats and good luck on your new role. I just want to maybe hit on Marcel, if I heard that correctly in your opening remarks. You said that you expect to get halfway up to your targets in 2024.
spk05: Do you mean on margin and sales?
spk19: Yeah, it's a long word for me, okay. Yeah, I will do it, okay. I will not say that it's done, okay, but we will work hard, okay, to say that I want, okay, to be half.
spk06: Okay. And I also wanted to touch on the severity one and understand that, you might not want to steal too much of the thunder from your upcoming investor day, but maybe could you just highlight some of the bigger initiatives you have in the pipe and when you expect to start offsetting some of the costs of the program?
spk20: Yes, I think I can start and maybe someone can complete. So basically, I would say direct, really, I'll take an example of procurement. Procurement, we have been very decentralized, so maybe we have some vendors in Vancouver, Toronto, Again, we have never looked to put it as a national company that could offer the parts, put the volume together, get better pricing, do a bit of challenge with some of the suppliers that we work with them too long, do a bit of RFQ. So that's a bit of an example of procurement that we have been working on. For sure, from Europe to North America, it's not always that there are so many common vendors, but yes, we have some for some specialized parts. So I think we have really look at procurement seriously. Production, we have been doing the same thing for many years. Sometimes you get a bit lazy. So again, how can we challenge our team to have a better flow of material in the factory, to be a bit more productive. So production, to do a bit more output in the factory. We have been talking for almost two years Good backlog in Brampton and Vancouver and a bit difficulty to execute it, but you saw the growth in last year. Again, we started to serve one towards the second half, but you see this start to have a bit of traction on the output for the factory, and we should continue this year. So quite happy with the change. Selling opportunity. Again, we have many different brands. Okay, how can we look at things? Are we maximizing the sales in one area or another one? So a lot of work has been done also about the selling crossing opportunity, right?
spk06: Okay. That's, that's helpful. And maybe like on that note, Sebastian, could you maybe talk about Jean-Philippe and the hire as his role of chief transformation officer and maybe his key accountabilities and maybe a little bit of his background and how he's going to help you guys.
spk20: Okay, sure. So basically, yeah, we saw that when we started a bit, this SubR1 project, it was important for us to have someone that can spend more time than me or Steve or other manager. to focus just on the server one to make sure we are very structured because it's easy to say, oh, I will do this initiative. I will do it by this date, but you need to do some fallout with the team in a pretty rigorous way. When is the date? What is the value? And to continue, so GP is full-time on that. And he has over 20 years of experience to do some transformation. Again, us on the side, it's not a restructuration. It's a growth story. So again, that's quite exciting for all employees, so they are very excited, but GP has this background to do it in a very structured way. And what's important is what they do, we are going to finish with a consultant. We want what we have done to be sustainable, so that's why we're starting slowly to improve our team to make sure we can be sustainable after the 2025 term.
spk14: Okay, I'll recoup. Thanks for answering my questions.
spk02: Thank you.
spk14: Thank you, David.
spk02: We will now take our next question. This is from the line of Michael Dumais from Scotiabank. Please go ahead.
spk16: Hey, good morning, guys. For the anticipated cost of about $5 million, I think per quarter in 24, and Steve said $2 million in each of Q1 and Q2 of 25, so collectively about $25 to $30 million of cost. Not a small amount. I wanted to get a sense for If you can break that down, is it all consulting fees or does restructuring get in there and maybe some technology investments? Just trying to get a sense for all the costs.
spk20: David, do you want to answer?
spk09: Sure. Yeah. Thanks for the question, Michael. The cost that we're expecting that I touched on, the $5 million in every quarter for 2024, that's reasonable. really going to be consulting and other, another one-time costs related to severity one, there's going to be some training costs in there. Um, but the majority of it will be consulting fees. There's, there's really not going to be much of an investment in, in, in assets and capital assets. Um, this is so that, that total expenditure of 20 million that we're forecasting for 2024, most of that's going to go through as an expense line item. It's, it's being carved out as, strategic initiative expenses, similar to how we recorded it for Q4 of 2023. Got it.
spk20: Okay. Just to add something on that, you know, yeah, some people might say, oh, it's a very high cost, but, you know, that shows a bit the intensity of the program. Again, it's touching all the factories at different places, so very intense factory size, all the pillars that I mentioned a bit before. So that should bring some confidence that we were last year, we want to go in 2025, that Again, that'd give us a better chance to achieve it.
spk16: No, I surely could appreciate the level of investment, I guess, financially and from a personnel perspective as well. I mean, if I go back to some of the early comments, I mean, it does feel like you're doing a lot of heavy lifting here, 24 and 25. And, you know, I guess, you know, I don't know if there's a way to think about, you know, assessing the operational risk. And sometimes there is kind of a, a step back for two steps forward, you know, type of trend. I'm just thinking, you know, to the earlier comments about expecting half the growth in 24 and the other half in 25. I mean, would it help, would it be more maybe helpful just to think that maybe more of the margin expansion is in 25, just given some of the heavier lifting?
spk19: Well, I wouldn't say that, okay. Thank you, Michael, okay. And first of all, okay, don't forget, our industry is one of the best industries in the world, okay? It's just about the aging of the population, okay? And we're in, okay? And it was good for me, okay, 40 years ago when I bought it, okay? But it's continued, okay? It's continued, okay? But with this study, okay, the fundamental is, okay, who will be better, okay, everywhere? Everywhere will be better, okay? And Often, okay, they are like 30 or 40 people from the consultant. They are in Europe, okay. They are in North America. They are in Mexico, okay. They are everywhere or in China, okay. We have to be better everywhere. For sure, okay, 25, okay, should be better than 24, okay, because we will have some success. some subject, okay, or some study that they make, okay, that it will just arrive, okay, that we will make that an execution, okay, for sure, okay. But I want, okay, that we have a little bit more to say, okay, in 25, okay, and maybe it will be better than 20%, okay, because as you mentioned, okay, for sure, okay, some action, okay, that would be just in 25 and not in 24. You are right, Michael. But, say, you want to complete that?
spk20: No, just an easy example, Michael. I have a high inventory over 100 days. So if I have a new saving with a new part, I have to eat my inventory before the saving is the P&L. And sometimes if I change of supplier, I need to approve the new parts with R&D, do some correct testing. So, yeah, things take time. But, no, we are quite happy with the list of projects we have.
spk15: Okay, that's really helpful commentary, guys. Thank you.
spk02: Thank you. We'll now take our next question. And this is from the line of Frederic Tremblay from Desjardins Capital Markets. Please go ahead.
spk13: First question, I guess, just to follow up quickly on the expenses for strategic initiatives. On the 5 million, is there a component in there that is performance-based, meaning like linked to some of the savings and improvements of the very one, or is it all a fixed cost component at this point?
spk07: I'll take this one. Hey, Fred.
spk09: I think it's important for everyone to know that we have talked about the agreement being fixed and variable, so there are fixed and variable components, but we have structured this agreement so that our interests are totally aligned with the consultant's interests. we're all working to achieve the same goal here without getting into too much details of how the agreement's actually structured. For 2024, we are fairly confident that the total expected expense is going to be $5 million per quarter, where we may see additional fees are in 2025 and beyond as we start to see more of the success of the program come through the financials.
spk13: Okay, thanks. That's helpful. Maybe switching to... to tuck-in acquisitions, just something you mentioned to offset some of the divestitures. Just curious to see how you think about that. I mean, past tuck-ins were, in some cases, dealers in accessibility. Is that an option, or are you looking more at a product that would complement maybe what you have right now?
spk19: You know something, we are always looking about territory or still products that will complete our line, okay? And don't forget when we have products, okay, that we can put available to 1,000 dealers, okay? So we can buy something at $5, but it can go to $10 very quickly, okay? So it's always territory, it's always product, okay? And Frederic, okay, you are always... good, okay, your comments, okay, and when I read what you write, okay, you know, Saverio, and one thing we don't forget about this study, okay, by an international company, okay, their family owns roughly 20%, okay, so before we make a move, okay, you imagine, okay, oh, the guy, okay, who has 20%, okay, can look at that, it's
spk13: what they will do this with millions of expense okay we just want to be better right now and better for the future yeah that makes sense thanks for that michelle um maybe just a question on patient care um on the on the 2024 outlook and maybe the first part of 2024 nick you mentioned that some of the projects have been pushed back to q1 maybe just broadly your expectations in terms of revenue growth. I know you mentioned that would be a priority for 2024.
spk11: So maybe just broadly go over what you're seeing so far in Q1 and maybe getting into Q2 in that segment.
spk17: Yes, I mean, there's a lumpiness component to it. I think we've talked about that several times. So we have a very strong backlog And again, the backlog is based on certain projects that we expect to deliver over the next several quarters. You know, going into Q1, Q1 is going to be tough. I'm not going to lie. We had a very strong Q1 last year at, I think it was 48, close to 49 million in sales, which was an all-time record for us. You know, also kind of exiting COVID. So 2022 was also very strong years. And so here we are going into a period in 2023 or exiting 2023 with sales that maybe were a bit lower than anticipated. and lower than market expectations. We still feel very strong about the business. We have good order intake. It's just a question of when some of these projects will land. And we're also looking to smooth out some of this lumpiness by getting better visibility into our pipeline. And by that, I mean, when we can identify some of these revenue gaps, if some of these projects are getting delayed, looking to see how we might be able to bridge those gaps with quick ship items. So maybe there's promotions that we might be able to run to help bridge those gaps in certain quarters where we're seeing some delays in certain projects to help smooth out some of that lumpiness. So all that to say is that we're very confident about the business. We do anticipate similar kind of high single-digit growth. To help get to that billion-dollar mark, it does have to come from patient care as well. So we do anticipate good growth next year. When it's going to land quarter to quarter, that's something that, unfortunately, it's a bit more difficult for me to explain.
spk25: Okay. Yeah, that's helpful. Thanks, everyone. Let's see.
spk02: Thank you. We'll now take our next question. This is from the line of Justin Keywood from Stiefel. Please go ahead.
spk10: Hi. Good morning. Thanks for taking my call. Just on the comments of weakness in Europe versus strength in North America, are you able to describe what factors are leading to the different dynamics in each of the markets? And then also, are you seeing any indication of strength returning in Europe and maybe in the other regard, you know, any potential risks of growth in North America? Thank you.
spk20: Okay, I can start and then people can complete. So for sure, Justin, again, don't forget last year we had a tough Q2 in Europe. Everybody knows we changed our ERP. We don't talk about the ERP anymore. We now see some good benefits out of it. But Q4, we had some growth. But one thing not to forget, is we do not have the same portfolio of product in Europe than we have in North America. And we know we want to expand the portfolio of products so that we have a one-stop shop with elevator, platform lift. It's taking a bit more time than expected, but definitely by 2025, okay, we should have a much better range of product that we are able to generate some interesting organic growth, and that will help us through the margins. So I would say that let's continue to be patient. We have a good game plan. We have a good team in place here in Europe.
spk19: uh where the several one is quite intense also over there so i'm pretty sure we will see some positive things uh in the coming two years yeah just complete that okay justin that uh europe okay represents roughly okay uh roughly uh 30 percent of uh right now in 23 okay 30 percent 30 percent of our ebitda okay the 17 percent okay is coming from uh mainly from North America, okay? I would be very, okay, if it was the other way, okay? But I just see that we represent in North America, and North America, okay, is not in recession, okay? But our people in Europe work very well, okay? And they work with the leadership of CARE, okay? And she's very good, and she knew what she was doing. And she will be back, okay, with a higher profit, okay? So the 70%, okay, that represents roughly in North America is very strong. It's very strong, okay? And I just want to add that, okay, that – I think Europe just go one way, okay, with Claire and his team, okay, just to be more participating, okay, in the coming years, okay. But we are a team, okay. One of the team has some difficulties, okay. They are, we don't speak anymore with recession in North America. But them, okay, they are in recession, okay. So even if we have bulletproof products, okay, from the economy, okay, but often the people need it rather, okay, but because of the recession, they will say, oh, we'll wait a little bit. So we know that, okay, but it will be, that's why I'm very confident, very, very confident that we will meet or exceed our number, okay, because the people need our products. The people need our products. And when I say that the 70% is going very well, I am very optimistic. So just a little compliment for the question. Thank you.
spk10: Yeah, really appreciate the context and sounds like there's some potential underlying strength there that maybe shows a bit later as that market improves. I just had one other question on capital allocation. We saw deleveraging in the quarter, two times net debt to EBITDA. I'm just wondering if share buybacks are on the table or potential dividend raise, or is the idea to keep some of that capital for some future tuck-in acquisitions?
spk19: Absolutely. For sure, it will be a good thing for a buyback, but we're not in a position right now. We want to grow. For sure, we have to spend some money. With the consultant, that would be a use of our cash flow that we have with them. It's better than acquisition, okay? Because often, okay, there are 30 or 40 people working all the time at the same time, okay, for several years, okay? So it's major. It's major, so that's the best investment that I can do. It's why I signed that with a smile. No, it has to come, okay, but we will see the result, you and me together, very soon.
spk10: Thank you very much for the detailed response. My pleasure.
spk02: Thank you. We'll now take our next question. And this is from the line of Zachary Evershed from National Bank Financial. Please go ahead.
spk28: Thank you. Good morning, everyone. Hi.
spk29: So the severity one additional fees payable conditional on the achievement of specified financial outcomes. Could you clarify for us what margin level does the company have to reach before the performance fees kick in? and how much would they add to the total cost at the 20% margin mark?
spk08: Thanks for the question, Zach, and I appreciate you wanting more detail to try to forecast cash outflows.
spk09: The way that the agreement's structured, it's at a very detailed level, and when we look at all the initiatives that we have, it's... difficult to say and we're not really willing to comment on exactly how much the potential is because we're waiting to see what the benefits are going to be coming to our financials. I mean, we know the 2024 payments of $5 million per quarter, that's exactly what we're expecting. For 2025, depending on the success of the program, it could end up being more than what we have in that $2 million per quarter. But We're actually hoping that it's going to be more in the sense that the more that we're paying on the performance side, it means the better results we're going to be getting out of the program and out of the work that we're doing with the consultants. So it's too early to comment, I think, past 2024 with regard to total fees. But again, I think the comment that I made around fees potentially being higher, but the fact that our interests are fully aligned with the consultant's interest, I think that that's a strong signal.
spk19: Zachary, just to compliment what Steve very well said, that I don't sign a contract if I don't see a big return on investment. And that's taking 10 years, but taking a couple of years. So we study the The offer, and we signed the offer because, okay, it's very important, okay, the saving that we will make, okay, after the study, okay, that I am more than satisfied right now after nine months, one year, okay? So I signed that because I was sure, I was not, no, we are never sure, okay, but I was very optimistic, okay, that the return would be good, very good, okay. And so if it's good, it costs very expensive, okay, but it would bring the other, you know, they work, okay, on everything, okay, just in purchasing, just in purchasing. Imagine, okay, that we have, okay, like 400 million of purchasing. Imagine consulting that make this kind of study all around the world. They know exactly where is the best purchase and at what price. So they help us right now. And that's major saving. And for sure, they do that, that's their life to do this kind of study. I am so happy that we have the guts to go with this study, even if it's very expensive. So believe in me. I don't say that it will not take six months more. believe in me okay you will see okay the bottom line okay that will arrive okay with this study plus okay our regular work okay that we do okay but we will who would be better okay and just in purchasing i repeat okay when you buy a roughly 50 okay with materials okay that's where is the saving thank you
spk29: For the follow-up on that, I guess, it sounds like you guys are very optimistic on the 20% marginal level achievement, but between the change in CEO and upcoming Investor Day, was there any discussion of maybe reducing the 20% target to a range or extending the timeline to achieve it beyond 2025? I guess I have to...
spk20: to be also comfortable with the target that we have put. So I think we're going to live with the target that we just put on the market yesterday night. And I think at the end of yesterday, we'll continue. So I think the target is set up, and even as a change, we are all comfortable in it, right? And I'm spending a good amount of my time on several ones, so I would say what we have put, I strongly believe in it, okay?
spk29: Excellent, thanks. Then just one more, if I can sneak it in. I think you guys were aiming to get the Mexican facility up to about 100% headcount by the end of the year. You guys have 70. Is everything going well on that front? Any reason for the difference in total employee count there?
spk20: Again, Zach, it's not a competition of the numbers of employees that we have in the plant, but it's more like what we get output out of it. So I would say we are quite happy with our first year. If we look what we have in China, which took us like 20 years to bid. I think we have made a very good progress in our first year in Mexico, so quite happy with that. And what's nice is now with the sub-R1, I know exactly what I will do in the next two years because all our projects are mapped out, and, again, we're staffing it also. So, again, I think this year we definitely will hit 100 employees, but, again, it's not a competition of numbers of employees. It's more the output out of the factory.
spk29: I appreciate the call. Thank you very much. I'll turn it over. Yes, sir. Great.
spk02: Thank you. Just as a reminder, if there are any further questions, it's star one and one on your keypad. We'll now take our next question. This is from Raymond James. Please go ahead.
spk04: Good morning. On some of these action and freedom modems that were sold off, Is there a piece left on that, or has the full business rolled off now on these adapted vehicles? And are there any contributions from these sold-off businesses in Q1?
spk19: I would just say something. I was there many years ago when I was running, or not running, but participating a lot more with Van Action. and freedom in Toronto, okay. And I tell you something, okay, that's what's hard for me, okay, to sell this division. They are from Montreal, okay, my native land, okay. And what I say, it's not how much money we will make, okay, it's who will buy that, okay, that I believe, okay, they will be good for my employees. So it's not a question you pay $5 or $10. You have to have the right price. But I am sure that we will have more employees at Van Action at the end of the year than right now because the buyers have a lot of place in the States, over one or two years, that they can sell Van. So they need another place. any in the States, okay, to manufacture. And they visit us and they know us and we make business with them for many years, okay? So that's the best thing for my employee, okay, that I find, okay, my group, okay, find this buyer, okay, from the States, okay? So, but that was hard for me, you know, something when it's coming, okay, from so many years, okay, at the beginning of my life, okay? uh that i have the advocate and they were very good for me but right now that was the right time i could pass the leadership to another company that is unique okay function is to uh help the people with mobility so let's see you have something cool if i could just actually add a little bit of color as well marcel
spk09: Just to clarify on the selling price, so we have disclosed the financials. The selling price is 7.5 million Canadian dollars. There should be a gain on that. We're expecting a gain on the sale to be recorded in Q1 of this year. So the deal actually closed on February 1st. I did touch on the approximately 50 million of annualized revenues that we've lost through divestments over 2023 and the beginning of 2024. About 35 of that 50 comes from the Norwegian business and 15 million comes from the vehicle manufacturing businesses of Van Action and Freedom. So we still, and to answer your question specifically, we still do have a piece of the vehicle business. It's the retail side. So we divested of the manufacturing and sort of, as Marcel was saying, we felt that the home was the home for that business was better suited with DriVerge. They're gonna be more successful at growing their business. It's core to them. And we're gonna be taking the proceeds from that and revesting in the rest of our accessibility and patient care businesses.
spk04: Okay, thanks. And just how do you think to get to this 1 billion revenue, how should we think of that target being reached through organic growth versus perhaps through the addition of acquisitions?
spk09: We're looking to reach a billion mainly through organic growth. And I would say without the divestments, we would definitely have achieved that. So we do have a little bit of a hole to fill with those divestments. That $50 million of revenue is important. bridging more of a gap than the 8% to 10% of organic growth that we're roughly anticipating per year. So we do need some tuck-ins, some tuck-in acquisitions to fill that $50 million. But that's kind of why we're saying approximately $1 billion in revenue. So there has been some changes to our business since we provided that target, meaning the divestments of those businesses. But we feel good about the organic growth coming in roughly 8% to 10% still in line with what we had said when we first came out with that target. I think it was a year or two ago now.
spk02: Thanks. Thank you. And there are no further questions at this time, so I will hand the conference back to the speakers.
spk19: Thank you very much, Guy, to be with us this morning. It's very important that... we show the confidence that we have, okay, to the future, okay, it's incredible, okay, and I am always very enthusiastic, okay, for sure, okay, we have a lot of talent right now, okay, and new talent, okay, and me, I am just a little bit not even a quarterback, okay, somebody on the bench, okay, to see that, okay, and my guys, okay, are terrific, but, okay, if We are good and we'll be better, okay? It's just because you guys, okay, you take what we follow you, okay, and you put that for investors, okay? And thank you very much for everybody what you do for me, for us. So thank you, Sarah. Merci, Sarah.
spk02: Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect. you you 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 Q4 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. 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 pledge release issued on March 6, 2024, with respect to its Q4 2023 results. Thank you. Mr. Barasa, you may begin your conference.
spk19: Thank you, Sarah. It's Mr. Lukaku. It's a pleasure to be with you, my analysts and my guys, Steve, Stabas, and Nicolas, who will speak after me. It was a good quarter, a great year, but I think we are in a very good mood to have this year and next year. We had some game changers. that you will see, okay, our objective of 25 that they can speak, okay? Often the people say to me, okay, what I can speak and what I cannot speak, okay? But I think I can say, okay, that in 25, okay, we have an objective, okay, of 1 billion of cells with 20% of EBITDA. And I tell you, okay, and you can meet the max you are better than me to reach, okay, the one billion cells, okay, we will do that, okay? It's not even so difficult. For sure, nothing is easy, okay? And we are global, okay, across the globe, okay? Some have Europe that actually we have to say that is a little bit weak, okay? But North America is very strong, okay? So we, I can see right now that at the end of 24, okay, we just make our forecast for 25 because That would take some time to be at 25, but we have a very strong, okay, in North America, strong at 24, okay? And we can see that we, at the end of the 23, we were only at 15.5, and we go to 20%, okay? I can look, okay, with our forecast, okay, that we should be roughly... maybe half of that, okay, in 24, and the other half of that, okay, in 25. So I am very optimistic about the number that we put for 25. And again, okay, it would be a pleasure for me, okay, to have some questions for me, or you have my people, okay, who will make a little presentation. And after that, we are open, okay, to answer at our best knowledge, okay, what we do, and you see some big cuts of consultation. Just that I signed that, and I was very happy to sign that, because we had to be particular, to be ready for the, after one billion, after 25, what happened the following week, following that week, but years. So with this study that we make with this international company, we have – we'll be better, and Sebastian will speak about, okay, what we are doing in that. We will be better, okay, from purchasing to selling to a lot of things. And so I see the future very good. For sure it's a big step to be there, but we will be there. We will be there, okay, at the end of the 25th. And I am very happy that we will have an open door, okay, for our people, okay, in April. So they will just see, okay, where we are right now. I will present you my new talent that we have, okay, and you will see that we have a very good talent, okay, that we will present to you and you will believe, okay, because it's always people, people, and people. So you will believe more and more and more about our objective of 24 and 25, okay, for the end of 25. So on that, okay, it's a pleasure to have you, okay. And I was reading everybody who writes on several years before and for the year. And thank you very much, okay, what you say. You are all, okay, very kind, okay? And you understand quite well, Saverio. For sure now, okay, with this consultant, okay, and this big bump, okay, for the end of 25, okay, I just want you to do this yesterday, okay? You will see exactly what we have done, okay, at the back of the door, okay? And you will see it. I believe they are at 20% and $1 billion. So I will pass the line to Steve, our CFO. And thank you very much, everybody, to be there today. If you have some questions, don't forget to call me or I will be on the line during the call. So Steve, for you.
spk09: Thank you, Marcel. Good morning, everyone, and thanks for being on the call today. I'm going to begin with some remarks regarding our Q4 2023 consolidated financial metrics. For the quarter, we generated revenue of $216.8 million, an increase of $4.7 million, or 2.2% versus last year. This was mainly driven by organic growth of 6.2% coming from our accessibility segment. We also experienced foreign exchange tailwinds of 2.3%. This is partially offset by the divestiture of the vehicle division in Norway earlier this year. We delivered a strong gross profit and gross margin at $74.3 million and 34.3% respectively compared to $66.2 million and 31.2% for last year. The increase in gross profit of $8.1 million is explained by better gross margins, additional revenue, and favorable foreign exchange rates. The increase in gross margin was mainly attributable to greater performance from all segments due to better cost absorption, favorable product mix, and improved pricing. We also incurred $2 million in strategic initiative expenses in the quarter. For the year, these costs amounted to $3.1 million and have been carved out of adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin finished at $35.1 million and 16.2% respectively, compared to $33.3 million and 15.7% last year. The increased profitability is mainly explained by the increased gross margins somewhat offset by higher selling and admin expenses. On December 22nd, 2023, Saveria signed a sale and purchase agreement with Dry Verge Canada to sell our Van Action and Freedom Motors divisions. The transaction closed on February 1st of this year, 2024. And accordingly, at December 31st of last year, these assets and liabilities of those businesses were recorded as held for sale. And now I'm going to provide some commentary on our segmented results. Revenue from our accessibility segment was $173.7 million, an increase of $7.2 million, or 4.3% compared to last year. It was driven by organic growth of 9.5%, coming from strong demand in the residential and commercial sectors in North America and Europe, price increases and cross-selling synergies. We also experienced foreign exchange tailwinds of 2.8%. And this was partially offset by the divestiture of Norway business, as previously mentioned. Adjusted EBITDA and adjusted EBITDA margins stood at 28.7 million and 16.5% respectively, compared to $27 million and 16.2% last year. The increased profitability was mainly due to better cost absorption as well as improved pricing. Looking at patient care, revenue from this segment was $43.2 million for the quarter, a decrease of $2.5 million or 5.4% compared to last year. While our backlog remains very healthy, revenue decreased due to reduced year-end spending from institutional customers, product mix, and to a certain extent, large orders delivered last year not repeating this 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. For the quarter, Foreign Exchange provided a 0.5% tailwind for the patient care segment. Adjusted EBITDA and adjusted EBITDA margins stood at 7.9 million and 18.3% respectively compared to 7 million and 15.3% last year. The increase in both metrics was mainly due to improved gross margins explained by the product mix and pricing initiatives. Looking again at a consolidated basis, net finance costs were 4.8 million compared to 6.2 million last year. Interest on long-term debt decreased by $0.4 million due to the reduced balance of debt. We also experienced a decrease in net finance costs due to foreign currency gain of $1 million compared to a loss of half a million last year. And we also incurred a loss on net investment hedges of $0.8 million and a quarter. Net earnings were $11 million or $0.16 per diluted share for the quarter compared to $11.3 million or $0.18 per diluted share last year. and adjusted net earnings were 12.8 million or 19 cents per diluted share compared to 12.6 million or 19 cents per diluted share last year. The decrease in net earnings was mainly due to higher income tax expenses, partially offset by lower net finance costs in the quarter. The slight decrease in net earnings per share is due to the increased number of shares. And so now turning to capital resources and liquidity, For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached 30.7 million, which is essentially the same as last year. Net changes in non-cash operating items increased liquidity by 6.4 million compared to 13.2 million a year earlier, mainly due to increased receivables. As a result, cash generated from operating activities in Q4 stood at 37.1 million compared to 43.9 million last year. Cash used in investing activities was $5 million for Q4 compared to $7.6 million last year. We dispersed $5.1 million for fixed intangible assets in Q4 2023 compared to $7.6 million in 2022. Cash used in financing activities was $21.1 million for Q4 compared to $35.9 million last year. and the variation is mainly explained by a reimbursement on the revolving facility of $2.6 million this year compared to $20.2 million a year earlier. As noted, our cash balance grew by $10 million in the quarter versus last year. As of December 31, 2023, we were having a net debt position of $269.9 million. The ratio of net debt to adjusted EBITDA stood at 2.07 in comparison to 3.07 at the end of last year. Saveria has funds of approximately $223.3 million to support working capital investments and growth opportunities. Looking forward, Saveria's future prospects are promising. driven by strong market demand, the progress of Severia 1, and potential token acquisition opportunities that will enhance our market position. From a financial standpoint, we anticipate average costs of approximately $5 million per quarter through fiscal 2024 and $2 million per quarter for the first half of 2025 related to Severia 1. We may see additional fees depending on the success of the program. We remain confident that the benefits of this program will increase as the year progresses, leading to long-term growth in both top-line and bottom-line performance. In terms of tuck-ins, these acquisitions would not only align strategically and expand our market opportunities, but also help to offset some of the $50 million of annualized revenue loss resulting from the divestiture of Van Action, Freedom, and the Norwegian vehicle adaptation businesses. Overall, we have full confidence in our ability to achieve our targets of approximately $1 billion in revenue and an approximate 20% adjusted EBITDA margin in 2025. We look forward to sharing more detailed information about our initiatives at our upcoming Investor Day in April. And with that, this completes my prepared remarks. I'm going to turn the call over to Sebastian.
spk20: Okay, thank you, Steve. So a few comments on my side concerning mostly the operation and the SAVAIR one. So basically, I'm quite happy with the growth in 2023 in North America of like 13.6%, which was greatly supported by Vancouver and Toronto factories. So thank you to both factories. And what's important is we remain a very healthy backlog for our elevator division. So that keeps some fuel for the next few quarter. Finally, we have also some improvement in the inventory management. So I think it shows at least we are trending in the right direction. So I think that's a start. And it's also part of this severe one to improve our working capital. In Mexico, we now have 70 employees. We have some weekly trucks coming to our factory in Toronto, starting some shipment to our factory in Vancouver. We now export some finished product in the U.S., some porch lift, and started some home elevators. So I think that will be a start to hopefully some new market or some customer. We saw the Canadian car division, as you saw, the division in Toronto and Montreal. What was important for us is to find a good buyer. And I think with the company we found in the U.S., a driverage, it would be better for employee to have a company that can help to develop a bit the business. So quite happy with the transition. And Nicolas will talk a bit later about the patient care, which was a disappointing Q4 to be transparent. and modest growth in 2023. But what's important to not forget is a few years ago, we were a company of 10% of EBITDA in the patient care, and it's now 18%. So when we talk about 20% for the SAVAIR, you see the patient care is very close to it, and I'm pretty sure the SAVAIR-1 and the work that the team of Les and Pat are doing will be able to achieve it. SAVAIR-1, so I would say it's really underway. We have strong participation from our employees. They are super motivated to participate in it, and it's even starting to be part of our NDNA, so quite happy with that. I would say we have found some very strong pillar on the procurement, on production, selling opportunity, pricing that will help us to achieve 20% by 2025. And the most important is we have a strong foundation for the after $1 billion. I will not give a guidance to deal on the after $1 billion, but at least we were very decentralized for many years. So for us, it was important to think more about the one company, one Savaria, one way of training. This is really what we're currently doing. And I'm pretty confident that in the next few quarters, you will see a good improvement step by step towards a goal of 20%. And also part of this several one, there's a lot of training happening for employees, just to make sure we think as a one company. So I will strongly invest you to invite you to register for investor day on April 9th, because we'll have a chance to talk more in detail of this several one program. And also you, if you would just start, you would have the chance to visit the factory in Brinton, where you can really see that it's effectively under transformation with new layout, new way to manage the company, a more digital board. So I think we'll be a good example of where we are. So. You want to talk a bit more about patient care?
spk17: Sure. Our patient care segment delivered a record year in 2023, achieving $183 million in sales and EBITDA margins of 18% for the full year. Our operational and sales leaders within SPAN, Handicare, and Silverlee have really come together, and 2023 results are a testament of their efforts to integrate and manage these businesses as one severe patient care group. Turning to Q4, our sales in the quarter were weaker than anticipated, due to a number of factors, primarily that we had some large projects in Q4 2022 that didn't repeat this year, as well as various project delays that pushed some work into Q1. However, our order intake remained strong in the quarter, and our backlog exiting the year was at a record level, which bodes well for 2024. On the margin front, despite the lower sales in Q4, we maintained a relatively high EBITDA margin of 18.3%. The margin improvement is mainly attributable to the following. First, we had a favorable product mix in the quarter with good mattress volumes, strong gear and sling spending, and high margin contracts within Handicare's Canadian business. Second, we continue to focus on selling the entire room. We make better margins when we can bundle our sales, and we had a good success selling packages in the quarter, namely bed packages to the VA. Third, pricing improvements in 2023 are having a positive effect. in particular with respect to beds where we've optimized pricing to preserve minimum margins and gone away from the low-end market to focus on better and best category products. Finally, I'd be remiss if I didn't mention the excellent job by our operations teams in improving production efficiencies within our factories and maintaining a diligent control over costs. To conclude, we were a bit cautious throughout the year and tempered expectations with respect to the significant margin improvement we had been observing within patient care. However, Now that we can take a step back and review the full year's performance, we are confident that we have the right team in place and the winning formula for sustained success. We also know that we need to prioritize sales growth, and this will be a key focus for management in 2024. And with that, I'll turn the call back over to you, Marcel.
spk19: Okay, thank you very much, gentlemen. And thank you to be very enthusiastic about our future. I think we are a little bit conservative, but it's looking very good. So Sarah, I'll transfer to you if we have some call that we can answer.
spk02: Thank you. As a reminder, if you would like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. And so we'll draw your question. Please press star 1 and 1 again. Thank you. We'll now take the first question. This is from the line of Derek Lissar from TD Cowan. Please go ahead.
spk06: Yeah, good morning, everybody. And Sebastian, congrats and good luck on your new role. I just want to maybe hit on Marcel, if I heard that correctly in your opening remarks. You said that you expect to get halfway up to your targets in 2024.
spk05: Do you mean on margin and sales?
spk19: Yeah, it's a long word for me, okay. Yeah, I will do it, okay. I will not say that it's done, okay, but we will work hard, okay, to say that I want, okay, to be half.
spk06: Okay. And I also wanted to touch on the severity one and understand that, You might not want to steal too much of the thunder from your upcoming investor day, but maybe could you just highlight some of the bigger initiatives you have in the pipe and when you expect to start offsetting some of the costs of the program?
spk20: Yes, I think I can start and maybe someone can complete. So basically, I would say direct, really, I'll take an example of Cochrament. Cochrament, we have been very decentralized, so maybe we have some vendors in Vancouver, Toronto, Again, we have never looked to put it as a national company that could offer the parts, put the volume together, get better pricing, do a bit of challenge with some of the suppliers that we work with them too long, do a bit of RFQ. That's a good example of procurement that we have been working on. For sure, from Europe to North America, it's not always that there are so many common vendors, but yes, we have some for some specialized parts. So I think we have really looked at procurement seriously. Production, we have been doing the same thing for many years. Sometimes you get a bit lazy. So again, how can we challenge our team to have a better flow of material in the factory, to be a bit more productive. So production, to do a bit more output in the factory. We have been talking for almost two years Good backlog in Brampton and Vancouver and a bit difficulty to execute it, but you saw the growth in last year. Again, we started to serve one towards the second half, but you see this start to have a bit of traction on the output for the factory, and we should continue this year. So quite happy with the change. Selling opportunity. Again, we have many different brands. Okay, how can we look at things? Are we maximizing the sales in one area or another one? So a lot of work has been done also about the selling crossing opportunity, right?
spk06: Okay. That's, that's helpful. And maybe like on that note, Sebastian, could you maybe talk about Jean-Philippe and the hire as his role of chief transformation officer and maybe his key accountabilities and maybe a little bit of his background and how he's going to help you guys?
spk20: Sure. So basically, yeah, we saw that when we started a bit, this SubR1 project, it was important for us to have someone that can spend more time than me or Steve or other manager. to focus just on the several one to make sure we are very structured because it's easy to say, oh, I will do this initiative. Uh, I would do it by this date, but you need to do some fallout with the team and a pretty rigorous way. When is the date? Uh, what is the value then to continue? So GP is full time on that. And he has over 20 years of key of experience to do some transformation. Again, us on the side, it's not a restructuration. It's a growth story. So again, that's quite exciting for all employees, so they are very excited, but GP has this background to do it in a very structured way. And what's important is what the deal we are going to finish with the consultant, we want what we have done to be sustainable. So that's why we're starting slowly to improve our team to make sure we can be sustainable after the 2025.
spk14: Okay, I'll recoup. Thanks for answering my questions.
spk02: Thank you.
spk14: Thank you, David.
spk02: We will now take our next question. This is from the line of Michael Dumais from Scotiabank. Please go ahead.
spk16: Hey, good morning, guys. For the anticipated cost of about $5 million, I think per quarter in 2024, and Steve said $2 million in each Q1 and Q2 of 2025, so collectively about $25 to $30 million of cost. Not a small amount. I wanted to get a sense for If you can break that down, is it all consulting fees or does restructuring get in there and maybe some technology investments? Just trying to get a sense for all the costs.
spk20: David, do you want to answer?
spk09: Sure. Yeah. Thanks for the question, Michael. The cost that we're expecting that I touched on, the $5 million in Q4, every quarter for 2024, that's huge. really going to be consulting and other, another one-time costs related to severity one, there's going to be some training costs in there. Um, but the majority of it will be consulting fees. There's, there's really not going to be much of an investment in, in, in assets and capital assets. Um, this is so that, that total expenditure of 20 million that we're forecasting for 2024, most of that's going to go through as an expense line item. It's, it's being carved out as, strategic initiative expenses, similar to how we recorded it for Q4 of 2023. Got it.
spk20: Okay. Just to add something on that, you know, yeah, some people might say, oh, it's a very high cost, but, you know, that shows a bit the intensity of the program. Again, it's touching other factories at different places, so very intense factory size, all the pillars that I mentioned a bit before. So that should bring some confidence that we were last year, we want to go in 2025, that again, that give us a better chance to achieve it.
spk16: No, I surely could appreciate the level of investment, I guess, financially and from a personnel perspective as well. I mean, if I go back to some of the early comments, I mean, it does feel like you're doing a lot of heavy lifting here, 24 and 25. And, you know, I guess, you know, I don't know if there's a way to think about, you know, assessing the operational risk. And sometimes there is kind of a, a step back for two steps forward, you know, type of trend. I'm just thinking, you know, to the earlier comments about expecting half the growth in 24 and the other half in 25. I mean, would it be more maybe helpful just to think that maybe more of the margin expansion is in 25, just given some of the heavier lifting?
spk19: Well, I wouldn't say that, okay. Thank you, Michael, okay. And first of all, okay, don't forget, our industry is one of the best industries in the world, okay? It's just about the aging of the population, okay? And we're in, okay? And it was good for me, okay, 40 years ago when I bought it, okay? But it's continued, okay? It's continued, okay? But with this study, okay, the fundamental is, okay, who will be better, okay, everywhere? Everywhere will be better, okay? And Often, okay, they are like 30 or 40 people from the consultant. They are in Europe, okay. They are in North America. They are in Mexico, okay. They are everywhere or in China, okay. We have to be better everywhere. For sure, okay, 25, okay, should be better than 24, okay, because we will have some success. some subject, okay, or some study that they make, okay, that it will just arrive, okay, that we will make that an execution, okay, for sure, okay. But I want, okay, that we have a little bit more to say, okay, in 25, okay, and maybe it will be better than 20%, okay, because as you mentioned, okay, for sure, okay, some action, okay, that would be just in 25 and not in 24. You are right, Michael. But say you want to complete that?
spk20: No, just an easy example, Michael. I have a high inventory over 100 days. So if I have a new saving with a new part, I have to eat my inventory before the saving is the P&L. And sometimes if I change of supplier, I need to approve the new parts with R&D, do some correct testing. So, yeah, things take time, but we are quite happy with the list of projects we have.
spk15: Okay, that's really helpful commentary, guys. Thank you.
spk02: Thank you. We'll now take our next question. And this is from the line of Frederic Tremblay from Desjardins Capital Markets. Please go ahead.
spk13: First question, I guess, just to follow up quickly on the expenses for strategic initiatives. On the 5 million, is there a component in there that is performance-based, meaning like linked to some of the savings and improvements of the very one, or is it all a fixed cost component at this point?
spk07: I'll take this one. Hey, Fred.
spk09: I think it's important for everyone to know that we have talked about the agreement being fixed and variable, so there are fixed and variable components, but we have structured this agreement so that our interests are totally aligned with the consultant's interests. we're all working to achieve the same goal here without getting into too much details of how the agreement's actually structured. For 2024, we are fairly confident that the total expected expense is going to be $5 million per quarter, where we may see additional fees are in 2025 and beyond as we start to see more of the success of the program come through the financials.
spk13: Okay, thanks. That's helpful. Maybe switching to... to tuck-in acquisitions, just something you mentioned to offset some of the divestitures. Just curious to see how you think about that. I mean, past tuck-ins were, in some cases, dealers in accessibility. Is that an option, or are you looking more at a product that would complement maybe what you have right now?
spk19: Well, you know something, we are always looking about territory or our products, okay, that will completely complete our line, okay? And don't forget when we have products, okay, that we can put available to 1,000 dealers, okay? So we can buy something at $5, but it can go to $10 very quickly, okay? So it's always Territory is always a product, okay? And Frederic, okay, you are always good with your comments, okay? And when I read what you write, okay, you know some area. And one thing we don't forget about this study, okay, by an international company, okay, their family owns roughly 20%, okay? So before we make a move, okay, You imagine, okay, oh, the guy, okay, who has 20%, okay, can look at that, what he will do with millions of expense, okay? We just want to be better right now and better for the future.
spk13: Yeah, that makes sense. Thanks for that, Marcel. Maybe just a question on patient care. on the 2024 outlook and maybe the first part of 2024. Nick, you mentioned that some of the projects have been pushed back to Q1. Maybe just broadly your expectations in terms of revenue growth. I know you mentioned that would be a priority for 2024.
spk11: So maybe just broadly go over what you're seeing so far in Q1 and maybe getting into Q2 in that segment.
spk17: Yes, I mean, You know, there was a lumpiness component to it. I think we've talked about that several times. So, you know, we have a very strong backlog. And again, the backlog is based on certain projects that we expect to deliver over the next several quarters. You know, going into Q1, Q1 is going to be tough. I'm not going to lie. We had a very strong Q1 last year at, I think it was 48, close to 49 million in sales, which was an all-time record for us. You know, also kind of exiting COVID. So 2022 was also very strong years. And so here we are going into a period in 2023, or I think 2023, with sales that maybe were a bit lower than anticipated and lower than market expectations. We still feel very strong about the business. We have good order intake. It's just a question of when some of these projects will land. And we're also looking to smooth out some of this lumpiness by getting better visibility into our pipeline. And by that, I mean, when we can identify some of these revenue gaps, right, if some of these projects are getting delayed, looking to see how we might be able to bridge those gaps with quick-ship items. So maybe there's promotions that we might be able to run to help bridge those gaps in certain quarters where we're seeing some delays in certain projects to help smooth out some of that lumpiness. So all that to say is that we're very confident about the business. We do anticipate similar kind of high single-digit growth to help get to that billion-dollar mark. It does have to come from patient care as well. So we do anticipate good growth next year. When it's going to land quarter to quarter, that's something that's, unfortunately, it's a bit more difficult for me to explain.
spk25: Okay, yeah, that's helpful. Thanks, everyone.
spk02: Thank you. We'll now take our next question. This is from the line of Justin Keywood from Seafold. Please go ahead.
spk10: Hi, good morning. Thanks for taking my call. Just on the comments of weakness in Europe versus strength in North America, are you able to describe what factors are leading to the different dynamics in each of the markets? And then also, are you seeing any indication of strength returning in Europe? And maybe in the other regard, you know, any potential risks of growth in North America? Thank you.
spk20: Okay, I can start and then people can complete. Okay, I'm all set. So for sure, Justin, again, don't forget last year we had a tough Q2 in Europe. Everybody knows we changed our ERP. We don't talk about the ERP anymore. We now see some good benefits out of it. But Q4, we had some growth. But one thing not to forget is we do not have the same portfolio of product in Europe than we have in North America. And we know we want to expand the portfolio of products so that we have a one-stop shop with elevator platform lift. It's taking a bit more time than expected, but definitely by 2025, we should have a much better range of product that we are able to generate some interesting organic growth, and that will help also the margins. So I would say that let's continue to be patient. We have a good game plan. We have a good team in place in Europe. The several one is quite intense also over there, so I'm pretty sure we will see some positive things in the coming two years.
spk19: Yeah, just complete that, okay, Justin, that Europe represents roughly 30% of right now in 23, 30% of our EBITDA. The 17% is coming mainly from North America. I would be very if it was the other way, okay? But I just see that we represent in North America, and North America, okay, is not in the recession, okay? But our people in Europe work very well, okay? And they work with the leadership of Claire, okay? And she's very good, and she knew what she was doing. And she will be back, okay, with a higher profit, okay? So the 70%, okay, that represents... roughly, in North America is very strong. It's very strong, okay? And I just want to add that, okay, that I think Europe just go one way, okay, with Claire and her team, okay, just to be more participating, okay, in the coming years, okay? But we are a team, okay? One of the team has some difficulties, okay? They are, we don't speak anymore with recession in North America, But then, okay, they are in recession, okay? So even if we have bulletproof products, okay, from the economy, okay, but often the people need it rather, okay, but because of the recession, they will say, oh, we'll wait a little bit. So we know that, okay? But it will be this way. I am very confident, very, very confident that we will meet or exceed our number, okay, because the people need our product. The people need our products. And when I say that the 70% is going very well, I am very optimistic. So just a little compliment for the question.
spk10: Thank you. Yeah, really appreciate the context. And it sounds like there's some potential underlying strength there that maybe shows a bit later as that market improves. I just had one other question on capital allocation. We saw deleveraging in the quarter. two times that debt to EBITDA. I'm just wondering if share buybacks are on the table or potential dividend raise, or is the idea to keep some of that capital for some future tuck-in acquisitions?
spk19: Absolutely. For sure, it will be a good thing if I buy back. But we're not in a position right now. We want to grow. And for sure, we have to spend some money. And with the consultant, okay, that would be a use of our cash flow, okay, that we have with them. But it's better than acquisition, okay, because often, okay, there are 30 or 40 people working all the time at the same time, okay, for Saveria, okay. So it's major. It's major. So that's the best investment that I can do. It's why I signed that with a smile. No, it has to come, okay, but we will see the result, you and me, together very soon.
spk10: Thank you very much for the detailed response. My pleasure.
spk02: Thank you. We'll now take our next question. And this is from the line of Zachary Evershed from National Bank Financial. Please go ahead.
spk28: Thank you. Good morning, everyone.
spk29: So the severity one additional fees payable conditional on the achievement of specified financial outcomes. Could you clarify for us what margin level does the company have to reach before the performance fees kick in and how much would they add to the total cost at the 20% margin mark?
spk08: Thanks for the question, Zach. And I appreciate you wanting more detail to, you know, to try to forecast cash outflows.
spk09: It's, The way that the agreement's structured, it's at a very detailed level, and when we look at all the initiatives that we have, it's difficult to say, and we're not really willing to comment on exactly how much the potential is, because we're waiting to see what the benefits are going to be coming to our financials. So it's, I mean, we know that 2024 payments $5 million per quarter, that's exactly what we're expecting. For 2025, depending on the success of the program, it could end up being more than what we have in that $2 million per quarter. But we're actually hoping that it's going to be more in the sense that the more that we're paying on the performance side, it means the better results we're going to be getting out of the program and out of the work that we're doing with the consultants. So it's too early to comment, I think, past 2024. with regard to total fees. But again, I think the comment that I made around fees potentially being higher, but the fact that our interests are fully aligned with the consultant's interests, I think that that's a strong signal.
spk19: And Zachary, okay, just to complement, okay, what Steve very well said, okay, that I don't sign a contract if I don't see, okay, a big return on investment, okay, and that's taking 10 years but taking a couple of years. So we study, okay, the offer and we sign the offer because, okay, it's very important, okay, the saving that we will make, okay, after the study, okay, that I am more than satisfied right now after Nine months, one year. So I signed that because I was sure. No, we are never sure. But I was very optimistic that the return would be good, very good. And so if it's good, it costs very expensive. But it would bring the other day. You know, they work on everything. Just in purchasing, just in purchasing. Imagine that we have, okay, like, 400 million of purchasing. Imagine, okay, consulting, okay, that make this kind of study all around the world, okay? They know exactly, okay, where is the best purchase and at what price, okay? So, they, they help us right now, okay? And that's major, major saving, okay? And for sure, okay, they, they, they do that, okay, that's their life to do this kind of study, okay? And, uh, I am so happy that we have the guts to go with this study, even if it's very expensive. So believe in me. I don't say that it will not take six months more. Believe in me, you will see the bottom line that will arrive with this study, plus our regular work that we do. But we will be better. And just in purchasing, I repeat, when you buy roughly 50% with materials, that's where is the saving.
spk18: Thank you.
spk29: For the follow-up on that, I guess, it sounds like you guys are very optimistic on the 20% marginal level achievement, but between the change in CEO and upcoming Investor Day, was there any discussion of maybe reducing the 20% target to a range or extending the timeline to achieve it beyond 2025? I guess I have to...
spk20: to be also comfortable with the target that we have put. So I think we're going to live with the target that we just put on the market yesterday night. And I think at the end of yesterday, we'll continue. So I think the target is set up, and even as a change, we are all comfortable in it, right? And I'm spending a good amount of my time on several ones, so I would say what we have put, I strongly believe in it, okay?
spk29: Excellent, thanks. Then just one more, if I can sneak it in. I think you guys were aiming to get the Mexican facility up to about 100% headcount by the end of the year. You guys have 70. Is everything going well on that front? Any reason for the difference in total employee count there?
spk20: Again, Zach, it's not a competition of the numbers of employees that we have in the plant, but it's more like what we get output out of it. So I would say we are quite happy with our first year. If we look what we have in China, which took us like 20 years to bid. I think we have made a very good progress in our first year in Mexico, so quite happy with that. And what's nice is now with the sub-R1, I know exactly what I will do in the next two years because all our projects are mapped out, and, again, we're staffing it also. So, again, I think this year we definitely will hit 100 employees, but, again, it's not a competition of numbers of employees. It's more the output out of the factory.
spk29: I appreciate the call. Thank you very much. I'll turn it over. Yes, sir. Go ahead.
spk02: Thank you. Just as a reminder, if there are any further questions, it's star one and one on your keypad. We'll now take our next question. This is from Raymond James. Please go ahead.
spk04: Good morning. On some of these action and freedom modems that were sold off, Is there a piece left on that or has the full business rolled off now on these adapted vehicles? And are there any contributions from these sold-off businesses in Q1?
spk19: I would just say something. I was there many years ago when I was running, or not running, but participating a lot more with Van Action and Freedom in Toronto. And I tell you something, that's what's hard for me to sell this division. They are from Montreal, my native land. And what I say, it's not how much money we will make. It's who will buy that, that I believe will be good for my employees. So it's not a question you pay $5 or $10. You have to have the right price. But I am sure that we will have more employees at Van Action at the end of the year than right now because the buyers have a lot of place in the States, over one or two years, that they can sell Van. So they need another place. any in the States, okay, to manufacture. And they visit us and they know us and we make business with them for many years, okay? So that's the best thing for my employee, okay, that I find, okay, my group, okay, find this buyer, okay, from the States, okay? So, but that was hard for me, you know, something when it's coming, okay, from so many years, okay, at the beginning of my life, okay? uh that i have the advocate and they were very good for me but right now that was the right time i could pass the leadership to another company that is unique okay function is to uh help the people with mobility so i think you have something cool if i could just actually add a little bit of color as well marcel
spk09: Just to clarify on the selling price, so we have disclosed the financials. The selling price is 7.5 million Canadian dollars. There should be a gain on that. We're expecting a gain on the sale to be recorded in Q1 of this year. So the deal actually closed on February 1st. I did touch on the approximately 50 million of annualized revenues that we've lost through divestments over 2023 and the beginning of 2024. About 35 of that 50 comes from the Norwegian business and 15 million comes from the vehicle manufacturing businesses of Van Action and Freedom. So we still, and to answer your question specifically, we still do have a piece of the vehicle business. It's the retail side. So we divested of the manufacturing and sort of, as Marcel was saying, we felt that the home was the home for that business was better suited with DriVerge. They're gonna be more successful at growing their business. It's core to them. And we're gonna be taking the proceeds from that and rebusting in the rest of our accessibility and patient care businesses.
spk04: Okay, thanks. And just how do you think to get to this 1 billion revenue, how should we think of that target being reached through organic growth versus perhaps through the addition of acquisitions?
spk09: We're looking to reach a billion mainly through organic growth. And I would say without the divestments, we would definitely have achieved that. So we do have a little bit of a hole to fill with those divestments. That $50 million of revenue is important. bridging more of a gap than the 8% to 10% of organic growth that we're roughly anticipating per year. So we do need some tuck-ins, some tuck-in acquisitions to fill that $50 million. But that's kind of why we're saying approximately $1 billion in revenue. So there has been some changes to our business since we provided that target, meaning the divestments of those businesses. But we feel good about the organic growth coming in roughly 8% to 10% still in line with what we had said when we first came out with that target. I think it was a year or two ago now.
spk02: Thanks. Thank you. And there are no further questions at this time, so I will hand the conference back to the speakers.
spk19: Thank you very much, Guy, to be with us this morning. It's very important that... we show the confidence that we have, okay, to the future, okay, it's incredible, okay, and I am always very enthusiastic, okay, for sure, okay, we have a lot of talent right now, okay, and new talent, okay, and me, I am just a little bit not even a quarterback, okay, somebody on the bench, okay, to see that, okay, and my guys, okay, are terrific, but, okay, if We are good and we'll be better, okay? It's just because you guys, okay, you take what we follow you, okay, and you put that for investors, okay? And thank you very much for everybody what you do for me, for us. So thank you, Sarah. Merci, Sarah.
spk02: Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.
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