Savaria Corporation

Good morning, good afternoon, and good evening. My name is Raz, and I will be your conference operator today. At this time, I would like to welcome everyone to Savarius Corporation's Q2 2024 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, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. This call may contain forward-looking statements which are subject to the disclosure statements contained in Savaria's most recent press release issued on August 7, 2024, with respect to its Q2 2024 results. Thank you. Mr. Bourassa, you may begin your conference.

Thank you, Raz, and good morning, everyone. So today, I will start with a small recap of our second quarter. Then Steve will update us on our financial and GP on our Savaria one. and then we'll follow with a small Q&A section. First, I need to say that I'm very, very proud of our results, and especially of the teamwork that has been done as we have reached a very important milestone in our transformation after one year from the launch. I need to say that all our employees continue to be very motivated on the SAVARIA One project, and they are very determined to bring SAVARIA to 1 billion of sales and 20% of EBITDA by 2025. So some of the key highlights for the second quarter. It was the first time that we have an EBITDA of 19% for the full Savaria, with accessibility being at 20.9, so almost 21%, and patient care at 17%, a bit behind our target, but I think we'll get there. First time, we have a new matrix, adjusted EBITDA per share of 59 cents, which is our best since the beginning of Savaria. Gross margins were up to 37.5%, which is 150 basis points better than the first quarter. We had a growth of 15.4% for the accessibility, which is coming both from Europe and North America, so good job to the team of Claire and Alex. And I would say that our factory had pretty good output, and I think the most important to the SARA1 program is we have made a very big change in all our factories. We're very organized and ready for more growth. Patient care was flat in terms of sales in the second quarter, but we were against the first half of the year that was strong in 2023. We're expecting a much better second half of the year. Sales growth remains something very important in our severe one, and we'll continue our effort for the cross-selling to increase our share of wallet. With all our 50 people in R&D, we continue to improve our existing products and bring new products to the market, and we can develop some growth and have some good organic growth. Integration of our Metat product line that we acquired in April. Basically, things are progressing, and we will definitely bring that into production in Toronto by the end of this year so that we can streamline a bit of manufacturing and have a better lead time to our customers. Mexico nurturing activity, it continues. Now we have 80 employees. We have some regular shipment to North America, so we're quite happy with the progress. We have continued to deliver a balance sheet. Now we have a net debt to a bid of 1.88, with available fund of $226 million if we want to do some acquisition. What's for the priority right now? It remains a very one. but we're still looking for acquisitions that we can replace what we divested in the last year. To conclude, I would say we are very lucky. We continue to operate in a very nice industry with the aging of the population, the staying at home, the density of the residential housing that they can put a residential elevator. We continue to play a very important factor in our growth story, and our large product offering makes us a very attractive partner. And last, I would like to thank again our employee and our dealer for their success in the second quarter. So Steve, financial, please.

Thank you, Sebastian, and good morning, everyone. I'm happy to be here today, and I'm excited to share some remarks regarding our Q2 2024 consolidated financial metrics. Key highlights for the quarter include, as Sebastian mentioned, double-digit organic growth in accessibility in both North America and Europe, as well as major improvements in profitability and gross margin and adjusted EBITDA margin on a consolidated basis. For the quarter, we generated revenue of $221.3 million, an increase of $22.9 million or 11.6% versus last year. The increase mainly came from organic growth of 11.5%, partially offset by the divestitures of Van Action and Freedom Motors. As well, we had positive foreign exchange fluctuations in the quarter. I'm pleased to report that the corporation delivered our strongest quarterly adjusted EBITDA, which is higher than any past quarters, crossing for the first time the $40 million mark. We also delivered a record gross profit and gross margin of 83 million and 37.5% compared to 67.1 million and 33.8% in Q2 2023. The increase in gross profit of $15.9 million is explained by increased revenues, improved gross margins in both segments due to operating leverage, improved pricing, a favorable product mix, as well as lower material costs. While Severia 1 has helped us achieve these results, we incurred again this quarter $5.3 million for strategic initiative expenses in line with previously stated expectations. JP is going to speak more about some of our ongoing initiatives in detail shortly. Adjusted EBITDA and adjusted EBITDA margin finished at 41.9 million and 19% compared to 29.3 million and 14.8% last year. This represents 59 cents per share, up 14 cents per share when compared to Q2 2023. The increased profitability is mainly explained by the increased gross margins and lower SG&A expenses as a percent of revenue as we remain diligent about our cost base. Now looking at our segmented results. So revenue from our accessibility segment was $173.4 million, an increase of $22.8 million, or 15.1% compared to last year. The increase in revenue was mainly driven from organic growth of 15.4%, driven by strong demand in both the residential and commercial sectors. Price increases in North America and Europe, and last year was also impacted by issues with our ERP system implementation in Europe. Adjusted EBITDA and adjusted EBITDA margin for accessibility stood at 36.2 million and 20.9% compared to 21.4 million and 14.2% last year. The increased profitability was mainly due to higher revenue and improved pricing, a favorable product mix, and lower costs, lower material costs for both regions. Last year was also weaker due to the previously mentioned system implementation. The backlog in accessibility segment remains healthy. To offer additional insight into our regions, we are proud to report the revenues from both Accessibility North America and Europe increased by over 15% compared to the previous year. The adjusted EBITDA margin for North America was 23.6% in the quarter, while the margin in Europe increased to 15.8%, reflecting significant improvements from a year ago, as well as a sizable improvement over Q1. Turning to our patient care segment, we saw our revenues reach $47.9 million for the quarter, which is flat compared to last 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 and can be impacted also by project delays. The backlog in patient care also remains healthy. Adjusted EBITDA and adjusted EBITDA margins stood at 8.2 million and 17% compared to 9.3 million and 19.4% last year for patient care. The decrease in both metrics was mainly due to higher SG&A expenses, which were partially offset by pricing initiatives. As we mentioned in past communications, Q1 and Q2 of 2023 were exceptionally strong, and the improvements pertaining to Severia I are expected to affect the upcoming quarters more. On a consolidated basis, net finance costs were $7.4 million compared to $4.5 million last year. Interest on long-term debt decreased by $1.5 million due to the reduced balance of debt that we're seeing, which was primarily driven by the raise last year. We also experienced unfavorable variations on foreign currency exchange and financial instruments. Both were unrealized in nature. Net earnings was $11 million and 15 cents per diluted share for the quarter compared to $8.8 million or 14 cents per diluted share last year. The increase in net earnings and net earnings per share was mainly due to higher adjusted EBITDA partially offset by strategic initiative expenses, net finance costs, and higher net income tax expenses. Adjusted net earnings was $15.6 million or $0.22 per diluted share for the quarter compared to $9 million or $0.14 per diluted share for the same period in 2023, reflecting a large increase when one-time non-recurring strategic initiative expenses of $5.3 million are carved out. 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 $26.7 million compared to $17.7 million last year, attributed to the increased EBITDA. Net changes in non-cash operating items decreased liquidity by $3.1 million compared to a decrease of $17.5 million in Q2 of last year. Decrease in 2024 was driven by increased prepaid expenses and other current assets, as well as decreased deferred revenue, while 2023 was unfavorably impacted by trade receivables, inventories, as well as trade payables, partially offset by higher deferred revenues. As a result, cash generated from operating activities in Q2 stood at $23.6 million compared to $0.2 million last year, an increase of over $23.4 million. While DIO slightly increased during the quarter, it came down for the June month end, and our DSO and DPO measures both improved versus Q1, aligned with our efforts to improve working capital management throughout the business. We remain committed to enhancing working capital as we grow. Cash used in investing activities was $11.3 million for the quarter compared to $4.5 million last year. We dispersed $4.7 million for fixed and intangible assets compared to $4.6 million last year, so essentially flat. In addition, we dispersed $6.9 million for the business acquisition of MATOT that was done in April of this year. To support business growth, we're expecting capital expenditures to stay in the historical range of 2% to 2.5% of revenue for the 2024 year. Cash used in financing activities was $22.6 million for Q2 compared to $15 million last year. The variation is mainly explained by the reimbursement on the credit facility of $8.8 million in the quarter compared to proceeds drawn of $0.8 million in 2023, as well as lower interest paid of $1.9 million. As of June 30, 2024, our net debt was $274.9 million. The ratio of net debt to adjusted EBITDA stood improved at 1.88 in comparison to 2.07 at the end of last year. And so looking forward with regards to guidance, as previously stated, Saveria is not providing guidance for fiscal 2024 as we focus on the achievement of our 2025 targets of approximately $1 billion in revenue and 20% adjusted EBITDA margin. The global team is focusing on delivering on these 2025 objectives, and it remains difficult to pinpoint where we're going to finish 2024 and the remaining quarters therein. Saveria's future prospects are promising, driven by strong market demand, the progress of Saveria One, and potential acquisition opportunities that will enhance our market position. And with that, this completes my prepared remarks, and I'm going to turn the call over to Jean-Philippe to provide further details on how we're progressing with Saveria One.