Q3 2022 Savaria Corp Earnings Call
It wasn't that easy or keeps come to at the board in Toronto.
So.
We really see the K to meet our EBITDA guidance okay.
And how are you.
Doug I'd answer if we were at the low the war of Oh.
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We will propose a going up that would be a lower of the.
Neither one 'twenty instead of.
One Turkey, but when you put that all together again, if I was in February I will tell you name it will exceed our hour hour bracket, okay, because there's plenty to be heavily things is too expensive.
So.
We have a very strong people work hard and I think we have great number okay. Thanks for the analysts who write to US again I'd take you are very positive about scenario. Thanks again.
I am ready or my team.
And first we go to Steve our CFO .
I think he is making a tremendous job.
Keith can you take that.
Please.
Thank you Marcella and good morning, everyone I will begin with some remarks regarding our Q3 2022 consolidated financial metrics.
For the quarter. The corporation generated revenue of $201 4 million up $20 6 million or 11, 4% compared to Q3 2021.
The increase was driven by strong organic growth of 15, 7% and was somewhat offset by foreign exchange headwinds of four 3% netting out to 11, 4% growth overall.
Gross profit and gross margin stood at $64 million, and 31, 8%, respectively compared to $58 6 million and 32.
4% for Q3 2021.
The increase in gross profit was mainly driven by higher sales volumes, while the decrease in gross margin versus last year was mainly attributable to continued inflationary pressures on the supply chain, especially in the European region, causing material cost increases.
These inflationary pressures were somewhat mitigated by initiatives taken to increase customer prices reduced shipping costs and also.
And also due to improved fixed cost absorption.
Adjusted EBITDA and adjusted EBITDA margins stood at 31 million and 15, 4%, respectively compared to $26 3 million.
And 14, 6% in 2021.
The increase in adjusted EBITDA dollars is primarily due to increased sales volumes, while the increase in adjusted EBITDA margin.
Is mainly due to lower selling and admin costs as a percent of revenue, which offset the lower gross margin year over year.
Now I'll move on to our segment results.
Revenue from our accessibility segment was $145 4 million in Q3, 2022, an increase of $9 8 million or seven 2% compared to the same periods in 2021.
The increase in revenue was mainly attributable to organic growth of 13, 3%, which was offset by a six 1% revenue decline due to foreign currency impacts.
The weakening of the euro and pound overshadow the strength in the U S dollar versus the Canadian dollar.
Our revenue growth was fueled by both the residential and commercial sectors as well as price and volume increases and we continue to build our backlog.
At September 30, our accessibility backlog was approximately 3% higher than Q2, which was already a record quarter for us.
Adjusted EBITDA and adjusted EBITDA margin, both before head office costs stood at $26 1 million and 18%, respectively compared to $24 7 million and 18, 2% for the same period in 2021.
The increase in adjusted EBITDA was mainly driven by higher sales volumes, while the slight decrease in adjusted EBITDA margin was mainly due to continued inflationary pressures on the supply chain, especially in the European region, causing material cost increases.
Which again was partially offset by better fixed cost absorption from the increased revenues.
Revenue from our patient care segment was $42 8 million for the quarter.
What do you want.
Wherever your grocery adapted vehicle segment was driven by 28.8% organic growth and it was partially offset by a negative foreign exchange impact of 1.1%.
The strong organic growth was driven by increased police and ambulance vehicle adaptations. Despite continued vehicles supply chain disruptions.
Justin EBITDA and adjusted EBITDA margin, both before had office costs finished at $8 million, and 6%, respectively, compared $2.6 million and 6.1% for Q3 2021.
For the quarter net finance costs amounted to $2.5 million essentially equivalent to the Q3 2021 amount.
Finance cost in the quarter included $4 million of interest on long term debt, which was offset by net foreign currency gain of $2.2 million.
Most of which was unrealized in nature.
Net earnings were $10.6 million.16 per diluted share for the quarter compared to $4 $8 million or 70 per diluted share for Q3 2021.
Adjusted net earnings excluding amortization of intangible assets related to acquisitions reached $15 $8 million or 25 cents per diluted share compared to $10.5 million.16 per diluted share for Q3 2021.
This reflects an increase of $49, 4% or nine cents on a diluted share basis.
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February the generated cash flows from operating activities of 19.2 million for the quarter compared to $7.7 million in Q3 2021.
This large increase was due to increased earnings and less of an investment in working capital then we saw last year as well as last quarter.
We continued to make targeted increases in inventory, while managing our Steven bowls and cables.
As at September 30th 2022.
Had a net deposition of $398 $3 million and was in it and it was in compliance with all of its covenants.
That's rolling 12 month, adjusted EBITDA basis, various net debt to adjusted EBITDA ratio was three three times.
This represents a 0.4 decrease versus Q4 2021.
It's a area has funds available approximately $102 million to support working capital investments and other growth opportunities.
And looking forward, the current changing macroenvironment and movements and economic and political fields, uncertainties. However, consuming a recent financial performance and our strategic integration plan with handy care for 2022, so very expects to generate revenue of approximately 700.
Third $75 million with adjusted EBITDA and the low end of our previously stated range of $120 million to $130 million.
And with that this completes my prepared remarks, and I'll turn the call back over to you Marcel.
Thank you very much D. Okay, good job and we can see that.
We have a fantastic quarter.
So.
I will be <unk>.
My plan works.
People I have some questions for us so we're ready for the question.
Mary Ladies and gentlemen, if you wish to ask a question at this time. Please signify pressing star one on your telephone keypad peace and show the meat function on your telephone is switched off too.
Regional equipment again, please press star one to ask a question.
Take our first question now from my current tomato Scotiabank. Please go ahead.
Hey, good morning, guys.
Michael.
Good morning pleasurable.
A two part question on Europe , I guess, what's your confidence level here on sustaining a strong profitability.
And the region and I ask you know in the near term now are you able to get more price to cover raw material and energy prices and.
And in the medium term if demand weakens the macro situation remains fluid again, what's the confidence level there.
Okay.
Yes, Okay, we have that.
No Democratic Okay portion of February you Okay.
The new increase in the January okay, roughly between four and 5% depending on their products.
In Iraq.
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The same thing so we would cover a K R exceed I wish I.
What I've been on this site of chaos inflation.
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Did you have something to add.
Yeah, Marcello I'll jump in here if I can.
So thanks for the question, Michael just just to touch on Europe .
We are strange seeing very strong sales there we saw double digit sales growth in the quarter.
There was negated significantly by by foreign currency impact so.
We're happy with the top line growth there I mean, the inflationary pressures or.
See we're continuing to work on and we're trying to mitigate where possible but.
We don't have we are still confident in our performance there and are in the future.
Bookings remains strong and revenue growth continues to be strong. So some challenges on the inflationary side, but those were somewhat expected.
Okay.
That's perfect. Okay. Thank you and then maybe the second question look I think it's fair to assume.
2022 has been a tough year for effectively all manufacturers.
Even if I assume the bottom end of the 2022 EBITDA guidance Q4, EBITDA. Despite the favorable seasonality should show some decent momentum from Q3, presumably I think setting the tone.
For 2023. So my question is on 2023 here.
Obviously, putting aside the macro discussion what do you think are some of the factors here that are in your control of that gives you the confidence that you can drive profit higher next year.
Alright, well beautiful industry update Michael Okay, Yes, okay and it's.
It is for me.
Because that.
70, Okay people located need our products around the globe Okay.
It's it is okay. If it's not the project Tomorrow, you will need one in six months one year two years okay.
Okay, we add growth will continue to have growth.
Very confidant, okay. The globe because we are open a new factory in Mexico, Okay. That's important for for US, Okay and to deliver quickly the products to our data so that that's the key and thanks, So bad seats will be there, okay and be able and 10 months okay.
Advocate that we have the factory right now and we had some people are already working okay, and we will see the impact on that the key in the <unk>.
<unk> 2023, so I am very optimistic about the 23 I'm very optimistic okay about it.
People.
Take our marketing is great and.
And we will have a order, okay, and we I think.
Slowly presenter Kate better number for sure.
23, so that's you have something to add on that.
That would just say my content no we always try to our action plan for our divisions with the kind of getting better.
Productivity manufacturing sourcing so I think we have another project on the Google next year.
Yes.
Example, just here we have a fundamental facts recovering a free curving to North America, we are just getting better and everything so that should network and next year, we have a second product ready to turn to for Thompson, which also is going to be manufacturing Toronto's in.
Mexico, we talked a lot about it but again no expectation for this year, but next year naturally <unk> enrolling for North America.
That's some example of project that we have on the go with the different divisions.
Thank you to the best perfect. Thanks Us.
Okay. Thank you Michael.
And we can now take our next question from Frederick Tremblay.
Please go ahead.
Hopefully.
My phone good morning, everyone.
Combatted and you mentioned the free care Uhm I'm just a question on that can you talk about the demand that you're seeing for that product.
From North American dealers hasn't been.
Consistent with your initial expectations, so far and what sort of the outlook for for that product specifically.
Okay. So I think.
Right now Sir.
Okay, just just to say.
Okay, what is very important okay.
Santa Cruz 74 K R.
Stephanie Okay do you have your product when can you install it okay. So.
So.
Okay projection.
Okay.
Talk to the customer is very important and what would offer okay. Very soon very soon the beginning of 283, Okay. That's what would happen at any time, okay less than two weeks.
<unk> was missing because it was a six week S was that eight two weeks, okay now, okay, well, we'll be data with.
<unk>.
<unk> <unk> <unk> <unk> to be quicker and quicker than you.
You will see a big increase of the number of sales okay. Because we are delivering okay.
Faster so best you have something to add.
Okay. So is it good is <unk>, even though we have <unk>. The demon Griffin went through a lot of training I think our time is decreasing each month.
Now we are at three and a half weeks, which is better than we were target to be had two weeks of the euro how smart sassy Auto safety Board has been cross trained on here and the reason that you can set a liberator certainties in North America auto dealers have been.
Offer a new grocery from any care to preserve so I think that's a good step is where do you think you will see some better North America Australia.
I'm in here with the manufacturing Toronto.
Great. That's helpful they'd be marsalis, who can speak on on queue for so far in terms of demand or shipment. Obviously the bookings as mentioned are more strong in Q3, how does that translating in Q4.
So far.
So far.
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Speaker.
Like no to America, So I just took it and.
We see the booking okay, and it's just like a sammy okay, we installed a.
A couple of weeks after that but like on the residential a debater W.
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I as booking an ever okay and that is that children. So that's very strong, okay, and I I see for sure.
Everything.
And change, okay, with some more or something.
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We don't see okay, Nobody know what would have been lucky in the next.
Okay two.
23, but I think what is it okay, okay <unk> position.
To be able to deliver al Qaeda project to our customers.
Well, that's a great interest in history, we add.
<unk> very good okay, what I think of it where it is a bit better okay. So.
Marian Smith, Okay that will mate, okay, what I would like to make this guidance that we.
And it may be <unk> on sales so.
I wished it to answer your questions that had any.
Yep, that's perfect just maybe one last one quickly first thing on SG&A expenses, we've seen that come download.
On a year over year and quarter over quarter basis anything in particular driving this trend in.
We sort of reached a normalized ran around 45, 46, and a quarter point of January or is there more room for that to come down.
So it depends if you are looking what's the result amortization of depreciation we are seeing D.
Intangible assets amortization related to acquisitions come down and that will continue to come down as the handicapper acquisition assets amortize off the books, but generally speaking.
So various done a good job in most regions of keeping SG&A costs relatively flat and lower as a percent of sales so keeping the cost base flat, while while we're growing the top line. So.
It's normalize for the most part the only the only piece that will continue to decreases that amortization aspect right.
Great. Thank you.
Yeah, we can now take our next question from Derek.
Okay.
T D Securities. Please go ahead.
Yeah, Thanks, and good morning, everybody maybe this is one for Nick.
Really really strong.
And.
And in in patient care.
Specifically interested neck and.
And the synergies that you're getting there from from <unk>.
What's lacking sort of sustainability of that.
Yeah, No I think it was a good a good quarter again in Q3 and thanks for the for the question they.
There are still quite a bit to go in terms of synergies.
I was just.
Scratching the surface, especially as it relates to cross selling that's the one where a big focus of ours has been over the past year.
Again, it's a lot of training that's involved it takes a while for from the span guys to learn how to sell <unk>.
Bath or vice versa, so kind of getting guys no cross trailing until this product.
Organizing a sales territory, that's something that's kind of an ongoing we have patent philbin, leading that initiative for us.
So that's the one where we still think that there's a lot of upside with cross-link.
But otherwise in terms of the markets and markets.
They've been good for us when you saw the 20% organic growth.
I know, it's a continuation of a trend that we've seen over the past couple of quarters.
Good good spending here in Canada, So good government spending in Canada.
And in the U S.
I'd be in spending et cetera.
Hospital spending hasn't been quite good for us.
So there's been the two drivers.
Business of the growth of that business.
Oh, so yeah.
Okay, and thanks for that color and just curious if there is in terms of the the backlog I know you gave it for.
Predictability segment, maybe comment on some of the backlog that you're seeing in your business.
Well the backlog here for patient care.
It's more on the I guess on the handicapped side of things right on the on the ceiling lifting installation business that we have there's more project based so there is a bit more of a backlog associated with that then there is maybe on the legacy span span side.
So the backlog, it's still quite good I think the order intake from the beginning of the year.
Is is what we're seeing some here in Q3.
Some contracts that have been one and we're just delivering on those there's been certain delays of of some of these new builds.
That also is kind of pushing system revenues out so that should hopefully impact US you know in a positive fashion, possibly whether it be in the back half of this year.
Last quarter of this year or going into next year, some stuff that has gotten pushed out.
But otherwise.
The backlog has been relatively strong there the order intake.
Possibly come down a little bit here, Yeah, I guess, we can't expect 20% growth forever, but we.
Still anticipate some strong growth you're in Q4 and going into next year things are quite especially as you think about some of this crossing initiatives that I mentioned earlier haven't quite taken hold yet and we're expecting that to kind of help boost growth going in 2023.
Okay. Thanks, Thanks, Thanks for that color neck, and maybe maybe a broader y Kerry.
Curious have you seen any improvement.
The material cost side, I guess, you get shipped to Europe , what are your shakes.
Material increases stemming from xxxx, just wondering how much more room, you guys might have push on the pricing for Darren and what's your what's your visibility look like.
Gotcha.
So yeah, maybe maybe Marcel he'll take us one.
Pricing is obviously something that we look at more than an isolated from isolated perspective, we look at our different markets are different products, it's coming to the end of the year now we've just announced in price increases for the North American market and and obviously, we are looking at our different market. So we have seen the inflationary pressures are.
Oh.
We're looking at what we can source differently than how we can mitigate that but obviously a big lever that we can pull on his price increases and that's something that we are continually looking at.
It's at this point I can't say, what what the increases are going to be for the European region in particular, but that's something that obviously, we're focused on it is going to be implementing for for next year.
Okay. Thanks, Goodbye I want to get everybody and so this is probably one for Sebastian I just.
About where you are in terms of I call. It your your Orange Orange strategy in Mexico, and Brandon. So just wondering if you're able to maybe get some indication of what you were expecting in terms of maybe some cost savings around the supply chain, where you are.
And lead tightness in.
When do you expect to Mexico to be fully rap.
Thanks for the questions for Mister clear as Martha Reeves, we we started already like seven months ago, and basically we move into a building in September when we're starting operation since this week's November 1st to do some some SMG introduce unfinished product. So November we are going to have some finished product joining from Mexico into the.
U S. I think he has not changed for our guidance of this year.
Have happened this year, but next year or two days are grown for North America.
Some additional capacity to Mexico was doing to serve went on that aspect.
And I think lead timing.
Is key from a transit time from Mexico into North America. So <unk> on the long term investment customer bezoar inventory and hopefully to find some cost savings incentive but first a key or ammunition was to rebalance image with Asia and North America. So that that was the main purpose of Mexico with again next year expectation.
Thanks for that.
Thank you.
We can now take our next question from Zachary Eversheds National Bank Financial. Please go ahead.
Good morning.
Good morning, it's actually Thomas calling in for Zack Thanks for taking my question.
The line I apologize the line tracked early in the call.
Would you mind repeating what the North American price increase will be in 2023. Please.
Okay. That's that's it okay, we'll put that a K for North America, Okay, we increase okay from them and projects OK Nowadays, maybe between four and 5% right at the start of the year and that would be.
<unk>, Okay that word backlog that is quite ILP, but we can see in the future. Okay. Bye week, we we we.
We do that right at the beginning of the year, Okay for North America and our other.
<unk> okay.
Okay.
Will do.
It will be the same thing okay. <unk>. So we are proactive.
Mmm.
<unk> two two at G to deliver a great key Iraqi in 2023.
And just one little comments.
We started this year, when we announced aggressive because we're able to be respectful with our dealer.
Certain cycle it takes up to a certain time concerns the backlog. So it's not because we have announced emphasis is an effective January at the reasonably January 1st. So I think we can expect more.
Contribution that opening price increase of North America more towards.
Due to the back up.
That's that's helpful. Thank you and maybe one last one for me.
Could you maybe talk about your neck and neck exposure to interest rate fluctuations after swaps and.
What about your net effects exposure, how much a dream.
Thank you.
So thank you okay. So that's very interesting okay, but that's a very important question anywhere it's <unk>.
Okay, Thanks and.
Thanks for the question Thomas.
On the interest rate. So we do have quite as we have a few cross currency swaps in place that are favourably impacting our interest rates. Overall, so we do have U S. U S based that and also we are benefiting from.
Excuse me sorry, we are benefiting from lower interest rates in Europe as well. So R. R. Net interest rate is lower than what you'd see published in the Canadian market. So I think we're doing a decent job there.
Regards to FX I mean, if you're if you're talking more on the top line or with regards to that but I mean on the top line, we can see the the.
FX impacts in the quarters they are quite.
Quite sizeable for for the Euro and the pound I mentioned earlier, we saw double digit growth in Europe , which which are quite happy about but.
But that was negated by the decline in the euro and the pound versus the Canadian so.
We are.
Somewhat.
Diversified there we have the strength from the U S dollar counteracting that but the weakness in the pound and the Euro was was greater than the strength in the U S. Dollar that we saw for the quarter.
Thank you very much.
And we can now take our next question from Justin keyboard Stifel. Please go ahead.
Hi, good morning.
Call.
Hey.
I have two questions up one is I'm curious how the curved stair lift is selling in in North America if if.
I've been a star.
Started because I was handicapped no that was all.
The key.
There could you know.
Getting some some traction here at home if you have any indication of how that's going so far.
Let's see.
Okay. Thank you so much congestion I think we are empty of this <unk>.
Recycling manufacturing here in Toronto, we have trained artist salespeople.
February at normal during the current product and to bring some areas have around either to Barney.
So I think as as going in the right direction with C. A double digit growth curve.
Heard of Australia, and I think as far as I mentioned at the beginning when they call as we get better of attorney client centered in plastic looking driver accident Road in North America to the current story.
Right.
The beginning of integration into their curbstone, if in North America.
Great Good to hear and then my other questions a broader goal.
I know late last year, there was a new longer term target, although it's becoming.
Nearer term of Safari are expanding sale to 1 billion by 2025.
If that goal is still on track.
Oh I would say are you. Okay I will do that <unk> 2025, okay. At the end of the year I think again I'm very positive about that.
So <unk>.
<unk>, we do update.
It was <unk> about the internal growth plus okay, we have the.
Working on that project <unk> in Europe .
I'm very optimistic about that will.
25, okay.
<unk>.
Object <unk> objective to be at 1 billion and we wish you know what is important to our <unk>.
That's a goal to reach okay.
20%.
So Dan Okay.
We will fully pushed out what <unk> finish the project, okay up to be in Mexico would develop at the same time okay.
Country and come together on there okay <unk> so I'll just.
<unk>, Okay, we advocate so I am very happy.
To me, it's a K.
For our objective okay up 2025.
That's good to hear and and just to clarify that the target would be 20% EBITDA margins at that scale level.
That's our objective okay.
So we know where we are right now and we know exactly why we want to go and.
Okay can I get the <unk> target, but.
You can imagine it would make it reached at the <unk>.
Resolve that would be the bottom line, okay. So so <unk>.
It might be for that but the people that will die at the end you can okay.
Great partner and for sure. Okay. We will it's not easy it for you right now and just and that we are okay, but we continued to work and.
And we continue to deliberate routine.
What is unfortunate okay to continue to improve our products, okay and.
Two <unk> two we said it would be the best projects at the best price.
Yes, I am very happy.
Understood and that they don't look is certainly compelling.
Thank you very much for taking my questions.
Oh, that's a pleasure.
I can now take a follow up question from Derek is that a T. D Securities. Please go ahead.
Yeah. Thanks, just a couple more for me I was curious on.
If you can maybe talk about what you're seeing in terms of your your innovation pipeline over and the next may be heading into next year, but as well as longer term.
Okay.
Yeah, just say that we don't have a a crystal ball, okay, but what is the best Crystal ball is looking at the around the globe look at the aging of the population, okay and it's that okay.
And I am more than.
Optimistic okay about okay.
Okay.
Okay, and what for sure Okay, well, we have to deliver okay, but I think we deliver okay. It's the best thing to have some things that.
That will just say that innovation is always very difficult to talk on the account because it is very very confidential.
With 50 people R&D once a month.
Improving existing product developing new products and this is I would work that is done to support the growth and right now what do we sit in previous call is it.
To bring some of the political product you new to me.
Make it C compliant, we're going to have the one stop shop in Europe . So that's one of our key focus right now.
So that's helpful. I I understand the the competitive nature of it last one for me is.
How do you guys think about returning capital to shareholders more specifically buybacks versus.
Dividend increases.
That's a good question, Okay, and that's a question of policy. Okay. So we'll begin okay to do that.
Ooh.
David <unk>, many years ago, located and more and more of <unk> EBITDA al Qaeda portion of dividends, Okay, a smaller than it was and it will become a little bit smaller than <unk>, two two and two offer anway swell a show of therapy.
And increase every year, but.
D D.
The potential of the growth of our EBITDA will be I ever done that.
The percentage of increase of how would give you dance.
Our strategy, sometimes it takes a little bit more time.
But.
You know exactly might kinky on that.
Okay.
Since the Q&A session I would now like to have the call back to Mr. Marcello.
Closing remarks.
Thank you Mary.
Thank you for that and that is that <unk> you do a good job that about about.
Yeah, I see that you are right the yesterday night.
And you are very positive okay at least <unk> then we see again this duck exchange again.
We have a <unk> and you know maybe somebody or more than other people locate that you say that was check will be around around 20 Bucks. Okay are you suggesting that.
The value can be around 20 bucks. So it would be that we have to <unk>.
<unk> our partner in <unk> in order to accompany Okay. Please continue to.
What card do and to deliver.
The best projects, Okay to the customer so thank you my employee thanks to my that is therapy, and we will see you at the beginning of next year.
Thank you thank.
Thank you Mary.
Thank you. This concludes today's call. Thank you lost your participation you may now disconnect.
[music].
Mmm.