Q2 2022 Savaria Corp Earnings Call
Fitbit
Good morning. My name is Scott and I will be your conference operator today. At this time, I would like to welcome everyone to the Silveria corporations Q2 20022 conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, and then press
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This call may contain forward-looking statements which are subject to your disclosure statement contained on some areas.
most recent press release issued on August 10th, 202022. With respect to the Q2 202022 results,
Thank you. Mr. Veraso, you may begin your conference.
Scott, thank you very much. Hi everybody, that's a pleasure for me to be here this morning at day two.
to discuss our result of Q2. Our result of Q2 is exceptional. Exceptional because we make this budget at the end of 21. The war, we're not speaking about war, everything was good, but the war happened, arrived, stress in materials, cost of a lot of things, the container on the labor side, okay, so probably more.
So it's very exceptional that we can realize what we realize in Q2. And me, I will say, and Sébastien was telling me that, that Q2, we can refer to that at the new minimum level. So I am very happy that we see that we can be better.
I am very happy to hear your question and as usual I will refer that to my knowledge of the best person in our group. So can we go for questions please? No, no, no, no, no, just a minute, just a minute. We missed one thing. We have to have Steve speak a little bit about the mathematics of the future.
Thanks Marcel and good morning everyone. I'm going to begin with some remarks regarding Q2 2022 consolidated financial metrics.
For the quarter, the corporation generated revenue of 192.1 million, up 13.4 million, or 7.5% compared to Q2 2021. For more information, visit www.fema.gov
The increase was driven by strong organic growth of 9.7% and was somewhat offset by foreign exchange headwinds of 2.2%, netting out to 7.5% growth overall.
Gross profit and gross margin stood at $65.6 million and 34.1% compared to $59.9 million and 33.5% for Q2 2021.
The increase in gross profit and gross margin was mainly attributable to customer price increases and better fixed cost absorption while still battling inflationary pressures and other supply chain constraints.
Adjust-a-Dee-ba-Dah and Adjust-a-Dee-ba-Dah margin stood at 31.5 million and 16.4 percent compared to 27.4 million and 15.3 percent in 2021.
The increase in adjusted EBITDA dollars and adjusted EBITDA margin is due to improvements in gross margins previously mentioned and was somewhat offset by a decrease in SEWS funding received compared to last year.
And now we'll move on to the segment results.
Revenue from the accessibility segment was $136 million, an increase of $5.2 million, or 4% compared to the same period of 2021.
The increase in revenue was mainly attributable to organic growth of 6.8%, which was offset by 2.8% revenue decline due to foreign currency impacts.
The weakening of the euro and pound overshadowed the strength in the US dollar versus the Canadian dollar.
Our revenue growth was fueled by both the residential and commercial sectors and we continue to build our backlog.
June 30th, our accessibility backlog is approximately 11% higher than it was at the end of Q1 2022.
I adjusted the margin for the accessibility segment both before head office costs stood at 25.9 million and 19.1% compared to 23.4 million and 17.9% for the same period in 2021.
The improvements in adjusted EBITDA and adjusted EBITDA margin are mainly due to improvements in gross margins, driven by customer price increases and better fixed cost absorption.
Revenue from our patient care segment was $43.9 million for the quarter, an increase of $7.8 million or 21.5% when compared to Q2 2021.
Revenue growth included organic growth of 20.2%, which was driven in large part by pent-up demand from the last two years of the pandemic, and increased access to long-term care facilities as well as customer price increases.
for the patient care segment stood at 6.7 million and 15.3% compared to 4.7 million and 12.9% for Q2 2021.
Large increase in adjusted EBITDA margin is mainly due to improvements in gross margins, which were driven by fixed cost absorption and customer price increases.
Revenue generated from the adaptive vehicle segment was 12.2M, an increase of 0.5M or 4% when compared to Q2 2021.
revenue growth, the adapted vehicle segment was driven by a 10.1% organic growth and was partially offset by foreign currency impact of 6.1% due to the weakening of the Norwegian krona versus the Canadian dollar.
The organic growth was driven by increased ambulance and vehicle adaptations as well as pent up demand from last year which was delayed due to vehicle supply shortages.
Adjust the DEBDA and adjust the DEBDA margin both the forehead office costs for the adaptive vehicle segments finished at 0.6 million and 5%.
respectively, compared to 1.3 million and 11.2% for Q2 2021.
The decrease in both metrics was mainly due to a reduction in the SEWS and inflationary pressures on the supply chain as well as delays in sourcing materials.
For the quarter, net finance costs amounted to $6.4 million compared to $5.4 million in Q2 2021. The increase is mainly due to a net foreign currency loss of $2.5 million in Q4, which was unrealized in nature.
interest on long-term debt was 3.1 million in Q2 2022 compared to 3.4 excuse me 3.5 million in Q2 2021 a decrease of 0.4 million.
Net earnings were $8.1 million or $0.13 per diluted share for the quarter compared to $2 million or $0.03 per diluted share for Q2 2021.
Expanded net earnings, excluding amortization of intangible assets related to acquisitions, reach $0.13 million or $0.20 per diluted share, compared to $10.4 million or $0.16 per diluted share per Q2 2021. This reflects an increase of 25.3% or $0.04 on a diluted share basis.
Shifting gears and turning now to capital resources and liquidity. The Varia generated cash flows from operating activities of $14.7 million for the quarter compared to $14.4 million in Q2 2021.
Earnings for the quarter was somewhat offset by an investment in working capital, inventory in particular, and that's similar to what we've seen for the past three quarters in order to insulate our production and sales activities from continued supply chain constraints and challenges.
I was at June 30th, 2022. So, very had a net debt position of 380.1Million and was in compliance with all covenants.
On a trailing 12 month basis, adjusted to the data basis, the various net debt to adjusted to the data ratio was approximately 3.3 times. And this represents a 0.3 decrease versus where we finished last year.
The very has funds available of approximately $118 million to support working capital investments, TAPEX and other growth opportunities.
Looking forward, the current changing macro environment and movements in economic and political fields create uncertainties. However, considering our recent financial performance and our strategic integration plan with Handicare, we remain confident that for fiscal 2022, we will generate revenue in excess of 775M. With adjusted EBITDA in the range of $120-230M.
And with that, this completes my prepared remarks. I'll turn the call back over to you, Marcel.
Thank you Steve, very good. Always interesting when we have good numbers.
So we are quite excited to see what will bring Q3 and Q4. But as mentioned, Steve, we are very optimistic about the next six months.
So we are ready for the question, Mr. Scott.
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone.
If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.
Our first question will come from Derek Lessard from TD.
from TD. Please go ahead.
Thanks and good morning. Congratulations everyone on a really solid quarter given what's going on there.
Thank you so much.
Steve, I have trouble logging in, so I caught the end of your comments at the end of accessibility. I was just wondering if you could maybe remind me of what the backlog looks like in that segment.
Sure, so if you remember Q1 on the call, we talked about having a record backlog and that backlog has increased.
Again, for Q2, specifically it's gone up over 11%. So comparing Q2 to Q1, our backlog in the accessibility segment is up over 11%.
Okay, thanks for that. One of the drivers of the organic growth and accessibility that you guys pointed to was handicare.
Could you just maybe add some color to that comment?
I think that we had a good organic growth in the accessibility but to be honest it's a bit disappointing when the backlog goes up and we're not able to achieve a double-digit growth I guess the operations are not perfect. So we're still working in a challenging environment, we could have a few more people in a different factory, the timing of the parts are not always coming on time.
We'll try again in Q3 to have a better organic growth, but definitely at least the good news is the backlog is there. So that's very positive. And I think it's pretty much the same from the elevator to the stair lift. We can do a bit more on the organic growth.
Okay, and maybe just one last one for me before I recue. I'm curious, are the benefits from the new Mexican facility that's supposed to open in September , is that included in your guidance and maybe just an update of what you're seeing in that opening there?
If I see so I would consider a bit like if you buy a new house key So basically we're going to get the key of our house September 1st So September we are moving in and in a q4 we are going to start some operations some light assembly But as we said at the beginning we are building capacity for the 1 billion for the future So this year there's no expectation from the Mexican factory, but differently when we do a budget season for next year We make sure that the Mexican factory contribute but again to a great addition To get some new people to have shorter lead times and bring to some major
Augustinone from Lotteria Bank Securities. Please go ahead.
Hello Nick. Good morning everybody, good morning Marcel. I guess a couple of questions for me specifically on accessibility. Just wondering, now that we're seeing rate increases here in Canada, are you guys seeing any demand concerns on the residential market side of things, specifically on elevators?
I think Nick so far we have been quite lucky her backlog has increased so I think and right now if you want to order home elevator it's more three months sleep time from Savaria we used to be at three to four weeks sleep time and after that no don't forget it's not always new construction there's a lot of units that goes in retrofit market and people want still want to stay home they did not forget the pandemic it is much better but it's not totally over
And after that we are in many many different countries so different countries as different maybe economic scenarios. So for now, K4OS is still very positive.
Okay, and just to be clear, we say the backlog is up that's specific to residential elevators.
that was accessibility, which is including platform home elevator, commercial elevator, and sturdier. So the whole segment is up. Okay. And Nick, okay, we don't forget that this segment, okay, is on server area, okay? So when we go with the end scare, okay, these people like deliver, almost overnight, okay, or very short term, okay? So the backlog is not very important for them, okay? We don't know exactly, okay, the evolution of that.
that because it's not important but for us okay to have the backlog okay and he mentioned that okay so when you have 400 elevators okay to manufacture okay that's a real good problem
Indeed it is. My other question is I noticed in your press release you mentioned as part of accessibility you do call out the commercial market. And I'm just wondering with more and more of economies opening up around the world, certainly here in Canada, and more of a push to get people back into the downtowns, how is that market doing for you guys relative to before the pandemic?
and at the height of the pandemic, how far back or how much have you been able to recover?
I think Nick, I would say that all the segments were up in booking, so including the commercial, and I would say the commercial is almost back as the pre-pandemic level, so again we have a three-month lead time on some of the commercial elevators, so I would say that it's much, much better on that aspect. People are doing some projects, they are doing some renovations, so I would say it's quite positive. Thanks.
Okay, that's good to hear. Maybe two more quick ones. First, is there any way, Steve, if you can call out when you look at your organic growth of 9.5% for total sales, any idea what that organic growth number would have looked like without?
the price increases that you guys have pushed through.
I think the picture is different by segment. So if we look at the accessibility segment, the organic growth there was almost 7% and about half of that would have come from price increases and the other half from volume. On the patient care side it's probably closer to 5%.
Price increases 5% of the total 20%.
Hopefully that helps.
It does, it does. And then one last quick question on the adapted vehicle, it looks like you had some strong demand from emergency vehicles, so police and fire or ambulance. Is that something that, is there more in the books when it comes to that segment from emergency vehicles? CR Shel Empire,
Yes, there is. So that segment and that specifically again...
the business in Norway and they will continue to have a strong back half of this year. And they're about half of that entire business. So the Canadian business is about half and the Norwegian business is about half and we're seeing a strong backlog in the Norwegian side of the business. So that should continue through the back half of the year.
and actually into next year as well.
Okay, appreciate that. I'll pass it on.
Just a minute. Okay. I just want to mention that
I think, okay, it's not very, very.
It seems that it's not very important about our growth and you will see a difference of this growth in Q3. We are working on that and we are lucky for the first time in my life we have a booking that we have. So you will see in Q3 and Q4
that is not very important, our growth and you will see a difference of this growth in Q3. We are working on that and we are lucky for the first time in my life we have a booking that we have. So you will see in Q3 and Q4 that the organic growth.
Thank you.
Thank you, that's for the overall business
That's for the overall business. Yes.
Yeah, okay.
noted. Thank you.
Our next question comes from...
Renwick Tremblay from GeezRJ's, please go ahead.
We got low.
Good morning.
The first question is on inventory. Just maybe comments on your compost level with your current inventory.
mentioned that it's been increasing for a few quarters.
growth in a difficult supply chain environment. So you anticipate any additional investment into inventory or we have that little bet comfortable here.
Sorry Fred, maybe it's your connection that's not very strong, but I think your question was around inventory and the investment we made in Q2 and what that potential investment looks like for the rest of the year. Is that right?
Yes.
Yeah, so we did see an increase in Q2. We saw that in Q1 and Q4 of last year as well. We're seeing that across.
all of our segments, so it's in, I mean, to a small extent in the vehicle segment, but it's in the patient care and accessibility segments. Our expectation for Q3 and Q4 is to just have
increases in inventory in line with revenue increases. So we won't see a drastic of a working capital increase in Q3 and Q4 as we did in Q1 and Q2.
Okay great, and maybe sticking with the use of cash here, what's your expectation with CapEx for the back up of the year and I guess related to that, expectations related to leverage declining as well?
So on the CapEx front, the CapEx expenditure year to date has been lower than our budget. We have one sizeable project with regards to manufacturing straight stair lips here in Brampton that is underway. And we had planned for that expenditure in Q2, Q3 timeframe. So that will be coming in Q3 and Q4.
So, we will be back up to our level of about 2.5% of revenue. You'll see in the first half of this year though, we're below that because that large project is not coming until Q3. So, full year, it should be back to that 2.5% range. Our leverage.
We saw a good decrease in Q2. We saw a point.
0.3 decrease versus year-end. We've been guiding towards a half a turn per year and we're well on track to achieve that. We know that Q1 wasn't as strong so the fact that we're at 0.3 at a half year we're pretty happy with that and we will deliver on at least half a turn this year.
Great. Last question for me. Just on the pricing side, as you look through your segments following the recent increases, do you envision having to announce other price increases in the near to mid-term, let's say, based on the current cost environment that you're seeing now?
You know, something I am very happy that we were, I think, quite not quite aggressive. Okay. But quite realistic. Okay. About what happened during this year. So, we are very happy right now at the level that we are. Okay. Some of my division. Okay. I think it was not as on the ball. Okay. That was. So, but we're looking at that.
we're just following and if it's like that like today maybe at a part of Europe has to have some increase okay but I think we are very satisfied about what we do here in North America so we follow the flow okay we are looking and we're always okay ready okay but we prefer not to increase something when we are available that we are satisfied
Thank you.
Thank you and congrats on the strong result.
I see.
Again, if you have a question, please press star then one.
Our next question comes from Zachary Evershed, National Bank Financial. Please go ahead.
Thank you for taking my questions.
If we dip into a recession, hypothetically, what's your outlook for the pace of organic growth at personal care? And what are you hearing from your larger clients in that segment right now?
C healthcare
Did you say personal care or patient care?
Take care.
Okay, no, no.
So, again, I can't, we don't have a crystal ball as it relates to if or when we will be or out of a recession. I think what we've seen, we can kind of speak to our backlog. We can see what our guys on the ground are saying. We had a very good result, I guess, from a grand growth in Q2. It builds on the strong past couple quarters that we've had. It's been a rebound of spending that's been driving that. As it relates to recessionary spending, I don't necessarily, or recessionary environment, I'm not sure necessarily that it will have.
any large impact immediately on that business. I think right now people are still you know trying to recoup some of the spending that wasn't happening in the past so there's kind of that rebound that we're seeing the budget dollars that are coming back towards capital equipment.
And at the same time, for example, they're in Ontario. You saw just this past week where they're talking about kind of a crumbling healthcare system. And there's investments that are needed. So I think that's more of a long-term trend. So recession or not, I do think that there's going to be continued strong growth within kind of the healthcare infrastructure, which is good for our business, right? I mean, in terms of rooms, that's kind of how we measure the market. Rooms, again, being the bed, the bed frame, the mattress, the ceiling lift, the slings. So that's what we're going after. It's kind of a package deal and...
because what? Because we are there for the aging of the population. That's our objective to help these kind of people. War, not war, recession, no recession. The people need our products. So we are just very lucky as we try to serve this industry as well as we can do.
So it's that maybe Rishiswam proof okay but it is...
And you see at the beginning of the comments, okay, I see we do our budget, okay, before the war, okay? So imagine, okay, and we are right on the spot, okay, of our projection. So we can see if something changed, okay? It's not recession proof, but almost because it's the aging of the population.
Excellent, Collier, thank you.
And then we noticed that UK and other revenue dropped by quite a bit. Can you give us some color on what's happening there?
So we actually did see...
decent organic growth in our European market, but most of that was offset actually by FX headwinds as I mentioned so You know when we look at the accessibility segment the overall organic growth of 7% We did see numbers in that range for the European business. I mean we don't typically disclose at that level but It was to my earlier point. It was it was all more or less offset by FX
Gotcha. Then one last one if I may. Do you think the current environment is good or bad for continued consolidation? What are you hearing from peers in the industry?
You know something? That's a good question, okay, but we're always lucky here, okay? We know that we have over one of the millions that we can take to make some acquisition, but we have some integration to do. So the first thing is integration, but if we see something available on the market and as you mentioned, some is that, okay?
We are a team, okay, and we just want to do what is the best for our shareholders.
clear for me. Thanks, I'll turn it over.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Marcel Barasso.
for any closing remarks.
First, okay, thank you. Okay to the people on the call this morning. Okay. We are very enthusiastic at several. Yeah. Okay. But the growth of several key and growth so far where our stack. Okay. Depend okay of the analyst. Okay. Thank you very much to think about the to think about several and the good work that you do. Okay. To more people know about the beautiful company that we are. So, thank you very much and see you in three months.