© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Whitney, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q2 2020 Conference Call. [Operator Instructions] This call may contain forward-looking statements, which are subject to the disclosure statement contained in Savaria's most recent press release issued on August 12, 2020, with respect to its Q2 2020 results. Thank you. Mr. Bourassa, you may begin your conference.
Okay. Thank you very much, Whitney. And I am very happy to speak this morning with our analysts, our investors, our shareholders. So a little bit of history before we go. I buy this company in 1989 with 4 people, sales $200,000. We go public in 2002 and here we are in 2020. When I decided in '89 to buy Savaria from a guy called Pierre Savaria, I was looking as a consult in a good China company that it will be the future of me and my family. So it's very, very long time ago that we are in that segment that we've stick that segment, and we will stick for, I wish, generation in this segment about the aging of the population. When I look at the [indiscernible] in 1989 that was -- we saw in light in 2000 [ but by ] then in 2020, the aging of the population and what are likely the aging of [ patient ] and not just in Canada or North America, it's out around the world. So we're getting that. We have some good partners, some -- I always call my employee, partners and because they are partners. And so right now we have 26 direct offices. We have 10 factory. We have 1,500 employees, and it is tremendous about the aging of the population, and I am -- I was having the right vision at that time. And now I think our Savaria will make $27 million of EBITDA, a little bit more than in 2019. So far, I think that's a proof for the people, hey, even a pandemic will not stop these guys. So we have a pandemic. It's not easy, okay? It was not easy. It is strictly -- if I am more specific, like in Italy at the beginning of the year. And that is how it was China manufacturing. But now everything is back at the 100%. But it's not finished. Why we don't have guidelines right now because it's not finished. Just see what happen in Melbourne and we are in Melbourne. And now it started a little bit down there. Okay. We cannot install elevators. The people are afraid to that we go there for a quotation. So it's not finished. But what I am saying, I guess, it's just the past, but the past say that we make $27 million in the first 6 months. That, I think, for an investor, that's outstanding to other companies that pass through the -- this pandemic. And we'll continue to pay dividends. One day we will increase the dividend. So we are very, very happy. And thanks to my people. So this morning, you go directly to the people that you want to speak. If we think about finance, we have Mauro. If we think about the question of our operations, that's Sébastien. And if we think about Span, we speak to Nicholas Rimbert. And if you want to speak about the way I see the future or we see the future, it would be interesting, and I'm very happy to answer to you. So can we go for the question, please?
Well, Marcel?
Yes.
Well, I'll start with a quick overview of the financials.
Oh yes, excuse me. Mauro, okay, yes.
Very well. Okay. Thanks, Marcel, and good morning, everyone. I'll begin with some remarks regarding our Q2 2020 consolidated financial metrics. For the quarter, the corporation generated revenue of $84.7 million, down $9.3 million or 9.9% compared to the same period in 2019, mainly due to an economic slowdown, a repercussion of the global COVID-19 pandemic. Gross profit and gross margin stood at $29.3 million and 34.6%, respectively, compared to $32 million and 34.1% for the same period of 2019. The decrease in gross profit was mainly attributable to the lower revenue generated in the quarter. The slight increase in gross margin was mainly due to a better product mix and continued realization of Garaventa Lift integration-related synergies derived through the Corporation's accessibility segment. Adjusted EBITDA and adjusted EBITDA margin stood at $14.5 million and 17.1%, respectively, compared to $14.2 million and 15.1% for the same period in 2019. The increases in adjusted EBITDA and adjusted EBITDA margin were mainly attributable to a better product mix and continued innovation of Garaventa Lift related synergies pertaining to our Accessibility segment, a $2 million COVID-19 employment retention Government of Canada subsidy and corporation-wide cost containment efforts. Now moving on to operations. Revenue from our Accessibility segment was $60.2 million in Q2, a decrease of $6.8 million or 10.2% compared to Q2 2019. The contraction in revenue was mainly attributable to the economic slowdown, a repercussion of the global COVID-19 pandemic. Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $12.3 million and 20.4%, respectively, compared to $11.2 million and 16.7% for the same period last year. The improvements in both metrics were due to a better product mix, continued realization of Garaventa Lift related synergies and cost containment efforts. Revenue from our Patient Handling segment was $21.3 million for the quarter, stable when compared to the second quarter of 2019. Silvalea acquisition-related growth partially offset the anticipated revenue contraction attributable to the corporation's decision to exit from Span's custom products market segment effective Q3 of 2019. Adjusted for the exit of custom products, organic growth and revenue would have been 2%. Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $2.8 million and 13%, respectively, compared to $3.2 million and 15% for the same period in 2019. The decrease in both metrics was mainly due to a suboptimal Q2 2020 revenue product mix from Span, partially offset by the contribution from our Silvalea acquisition made in Q3 of 2019. Revenue generated by the Adapted Vehicle segment was $3.2 million, a decrease of $2.6 million or 44.6% when compared to the same period in 2019. Adjusted EBITDA and adjusted EBITDA margin both before head office costs were negligible compared to $0.3 million and 5.2% in Q2 of 2019. The decreases in revenue and adjusted EBITDA when compared to last year was mainly due to an economic slowdown, a repercussion of the global '19 pandemic -- sorry, COVID-19 pandemic. By extension, the lower revenue generated by the segment impacted its fixed cost absorption rate, resulting in a slightly negative adjusted EBITDA margin before head office costs. Now turning to some financial liquidity metrics. The corporation ended the quarter with a net cash position of $41.6 million, a combination of discipline in terms of working capital management, capital expenditures as well as government-related cash deferral options were key in not only maintaining but improving our cash position compared to the end of Q1, all while in the midst of the COVID-19 pandemic. The corporation's trailing 12-month net interest-bearing to adjusted EBITDA ratio remained minimal, coming in at 0.1x, providing ample liquidity for potential future business acquisitions. Looking ahead, given the anticipated global COVID-19 pandemic's social and economic-related repercussions for the remainder of the year, being able to provide an H2 forecast remains extremely difficult. However, based on strong backlog intake in July, specifically within the Accessibility segment and its ongoing cost containment efforts, the corporation remains optimistic for the second half of 2020. This concludes my prepared remarks. Marcel, back to you.
Mauro, thank you very much. So very well done, and we are ready for the question.
[Operator Instructions]Your first question comes from the line of Michael Doumet.
I was wondering if you could give us a little bit of a sense for the monthly EBITDA cadence through the quarter. I think you previously indicated or you called out that April EBITDA was flat year-over-year. And now it looks like the whole quarter was flat too. Was there some weakness in May at all? And if that did transpire, did you exit the quarter with a little bit more strength? Just some flavor there would be helpful.
Okay. And I don't know, Mauro, do you want to answer or I answer that.
No, it's my, Marcel. I mean usually, our quarters are usually skewed in terms of performance towards the end of the quarter. If we look at a quarter, we start off a certain way and then we end up strong. So that's the usual trend for quarters. Again, Q2 this year is -- it's a different animal. COVID-19 really put some dents into it. But overall, I think we came out of it very well, except we put into place some very strong cost-containment efforts to help us through. And depending on how the Q3 starts to shape out, we're ready to do some more if need be. So...
Okay. That's helpful. And maybe if you could just elaborate on the strong sales bookings in July. I mean, by strong, do you mean that they're roughly equivalent to last year? I mean are we trending so far close to flat, positive? Any comments there would be helpful.
Okay. Sébastien or Mauro, I can answer this one, okay? But I have to be careful, but sometimes I am very enthusiastically. But I am very enthusiast about what we see in July about the booking that we have here in Toronto about the Accessibility products, okay? Just to tell you, when we -- in terms of Accessibility, it was our best month of booking ever, okay? So is it a trend? For sure, you can see that it's a trend for the Q3 or Q4, were always the best quarter at Savaria. So I am very optimistic, but I am very cautious about -- in very short future because a lot of things can change. So that's what I can say, no more.
That's great color. And maybe if I can just sneak another one in. I mean, Accessibility EBITDA margin hit 20% in the quarter. Now I'm assuming the segment benefited from some wage subsidies. But nevertheless, I mean you essentially hit the top end of your margin target for that segment, again, through COVID, right? So with the margins where they are, I mean, is there much of a margin story left? Or is the focus now, much more so on growth? I'm going to leave it there.
Okay. Good question. We can stay at 20%, but what is important that we are coming with the Mini Vuelift. That we make 2 installation so far, okay? And it is just great. If you went saw that with the house of 20 years old and with a new house, just to test our products, and we are more than satisfied what we have, okay? And the margin of these products that is classified in Accessibility, it will be the better of all our products, okay? It's like a Ferrari, okay? If you look at the financial of Ferrari and GM, that's 2 different world, okay? So that -- so we are not stopping there. We see that it can be improved with this -- with important new products.
Your next question is from the line of Frederic Tremblay.
Just following up on that answer, Marcel. Maybe Sebastien, you can expand on the launch of the Mini Vuelift and I was also interested in learning in where it will initially be produced? And are you able to leverage your Chinese manufacturing facility for that particular [ project ]?
Okay. So good question. So basically, for sure, we always use China. That's a key partner for us. They do very good quality, very stable production. Even through the pandemic, we had no supply chain issue at all. So for sure, under Vuelift, some key parts has to go to China because they are better than us to manufacture some of the parts. And -- but for sure, a really better, it's custom color, is the custom travel and we like to offer a very good lead time, approximately 3 weeks to our customer. So basically, I have no choice to do many, many parts in term of [indiscernible] if we want to be able to achieve that. After that, in terms of efforts, since the beginning of the year, since we cannot travel, I would say, a big portion of my R&D team, and including myself, have been focused on the Mini Vuelift to make sure that this product is mature. I added a lot of installation myself. And [ as the session ], we have completed this week at my place. We are ready for a big launch, and that's why Marcel, until the end of the year, is going to do a lot of marketing on the Vuelift because that's a product of the future, if we want to bring some more sales, additional sales, organic growth, that goes from there. So really, that's a game changer for us. And that's a flagship. It brings some sales of other Home Elevator because, for sure, when we go see a customer, we always talk about the Vuelift, a traditional elevator with a wood cab, hydraulic or gear, whatever the customer preferred. And that's why we have a good trend since the beginning of the year on our Home Elevators. So that's a bit the answer.
Nick, can you provide an update on the claims business? I understand that some patient late installations are delayed due to limited access to long-term care facilities, but does that also impact Silvalea's spring business?
Actually, the slings have been -- has held up quite well. As you know, sling is more of a consumable tech product. It's more the kind of the recurring revenue piece of it. So it's not necessarily dependent on a new installation. As it relates to Silvalea, what has impacted Silvalea the most is maybe just kind of the various environment there in the U.K., where a good portion of their sales are generated. They had, I guess, a more difficult Q2 than the rest of Europe. Although now it seems to be improving. And so that's why we have quite a bit of optimism, I would say, as we're exiting Q2 going into Q3. But as the sling business has held up quite well. The margins has held up well. That's why the biggest story about Silvalea is that throughout this period, the management team there has done an excellent job of containing costs, of managing the business throughout this crisis. So very happy with that acquisition. It's come on the 1-year mark now. And the transfer to Greenville has also gone well. I think we're up to over 100 slings a week that have been manufactured there. So all in all, we're very happy with the sling business.
And maybe last question for me. Marcel...
Excuse me, Frederic, just to tell you, if you were talking about the Vuelift, okay? Our objective in the Vuelift is why we are very bullish with this product, that we think in year 2023, we will produce over 600. But you can do the math better than me -- 600, and we sell the average of USD 40,000, okay? That's major for Savaria, one. And inside growth, I think -- and we will work very hard to reach this kind of number. And don't forget, just in Toronto, we manufacture more than 1,500 a year, so we see another 600 is there. And don't forget, we produce in China. We can manufacture in [indiscernible] and manufacturer in Toronto. So that's that's the way that we are settle to sell our projects right away outside North America. Just add -- okay, Frederic, excuse me, your last question.
Marcel, I was actually going to ask, in the beginning of the call, you talked about your vision, the [indiscernible] in 1989 when you acquired the company. If you look at the next 3 to 5 years, what's your vision for the evolution of Savaria in terms of products and geographic footprint?
Well, Frederic, you know something, it takes years to build something, but I feel right now, Savaria balance sheet that we have, we don't have roughly any debt. We are looking about new territory, we are looking at [indiscernible] buy company about different territory. You know that we can be stronger in the West Coast of the [indiscernible]. So we want to buy dealer. And after that, we are looking maybe to buy other companies that can offer other products. So I see that this is a niche -- a small niche, but we are the leader in this niche. And we want to complete -- you have to stay the leader. We want to make some acquisition. And we are ready. Our finance is ready to make some acquisitions. So I am very -- I say I just signed a contract of 4 years with the Board because I am there, I like to be there, I love, and I love that my people and including my 2 son and my girl work in the company. So we are there to stay and be the worldwide leader.
Next question is from the line of Kyle McPhee.
In the [indiscernible] segment, can you please provide any details just on the July order intake that were mentioned in the press release, product and type, was that all the Mini Vuelift or something else?
Well, I will say just that we have the best booking in Accessibility. Why Accessibility? It is our new project of Vuelift, but is residential elevators. We have a very strong [ demand ] about stairlift -- straight stairlift and curved stairlift, good order on that one. But don't forget, that Toronto is not the only company, the only division or other division, okay? And -- but remember one thing, when we speak about Toronto about Accessibility, that represents a good chunk of our version of over 40% of our EBITDA is coming from Toronto. So I am very optimistic because we received this kind of order in our main manufacturer where we make profit or we make EBITDA.
Okay. That's good. And on the Adapted Vehicles segment, EBITDA is now at a breakeven at the current revenue run level. I'm implying it's going to potentially become an EBITDA drag if there's no more revenue contraction or if there is more revenue contraction. Does Savaria have plans to cut costs there and avoid that? Or alternatively, is there kind of a way to get revenue to start rebounding?
And you were in Montreal yesterday or lately? Because you exactly say what it is, okay? Right now with the projection that we have, we are going nowhere, okay? And going nowhere is not my strategy. So we put in place a -- we have [ installation ] guy that's coming from Magna, and we put in a couple of months down there to present the plan. We want to produce 20 cars a month and make an EBITDA of 10%. And that was started yesterday. So you have a good timing to say this question.
Okay. Sorry, just to confirm those numbers. You're hoping to get 20 cars produced per month?
Yes. But right now, we can produce 35, okay? But it's not realistic because we don't sell 35. So I cut that to 20, but I cut that to be -- I want to make 10% EBITDA, and that's what we will do at the end of the year. So next year, we can say, our -- that's a good [ virtual ] segment, the car industry. Not easy, but that can be a contribution of 10%, and it will be there for '21.
Excellent. And last one, just to come back to the question about the strong balance sheet and potential M&A. Do you guys have an active pipeline that you are working on? Have you found COVID as a headwind that's kind of stopped that? Should we a...
No, no, no. We are lucky, okay? We have it in our team a guy called Nicholas Rimbert, okay? And this guy is good, okay? And he know a lot of people around the world, okay? For sure, right now, we are cautious about acquisition far from us. And we are cautious about the price that we will be. But we have some very interesting cooking.
The next question is from the line of Nick Agostino.
I guess a couple of questions for me. First, you guys talked about more synergies on the Garaventa side. Can you speak to how much more synergies or how much more cost do you guys think you can take out of that business before we see the margins on that side, they're really fully exhausted.
Sébastien?
Yes. So basically, Nick. So basically, for sure, North America at Garaventa is improving and getting closer to Savaria, not there yet, but we have some plans to continue to improve with some more purchasing with in Asia, more productivity in Vancouver. But the biggest gain is -- will be in Europe, because in Europe, we have to improve our product mix, and that's something which is in our R&D agenda that in the next 2 years, we really want to make sure that we have every product [indiscernible] compliant for Europe, and then we'll have really the full house of Savaria Garaventa to be competitive over there. So if we want to be successful, you need to make sure we sell the right product at the right margins and like Vuelift. That's something that all our country, Italy, Swiss, Germany, Poland and Czech are making some effort of marketing to sell a really unfortunate. We need to remind one thing. The Vuelift is a long cycle time. If we shift the guys doing a retrofit, it can be really faster. But if that guy is building a new house, it may be 1 year to 2 years. So at the beginning of its planning, you need to get some drawings, and [indiscernible] around the Vuelift. But so we have to make sure that we plan our expectations correctly. But definitely, Europe is on our agenda. And as soon as we improve in Europe, we should be able to see the all Garaventa much closer to the Savaria margins.
And second question, with regard -- I think you obviously got to some Garaventa [ order ] in the quarter. [indiscernible] being back at full capacity I believe from a plant perspective. What about some of the employees you had either are working from home [indiscernible] layoffs? Have all those employees come back to work? And if not, what's the expected time line?
Sébastien, maybe put in to the people, what you have done in Toronto, our main manufacturer about the security on this branded mix. And I see the people were working home [indiscernible] with just about the salespeople and administration?
Yes. So basically, we have [indiscernible] handful of people working for home. We are -- don't forget, we are a manufacturer, it's pretty hard to assemble the elevator at your home. So something to manage your production, if you are not there. So -- and after that, installation, why is it in our direct office, you have to go to site to make some installation. So very -- handful numbers of people. They're working from home. So most of our staff is back to work. For short-term prevention, we have provided mask to all our employees at the beginning of the pandemic. I would say our factory are wearing mask, even in some area where you might think they will not wear it, but they were doing it. And we have make a test in Toronto first to do some temperature check of each employee. We install some camera system at the door. Each employee need to go come through the door. And that's something that we have the intention to roll up in a all our building. Just to protect our employees. And we have been very lucky so far. The employees have been very transparent, very responsible. So if they weren't feeling good, they have a stay home. And so I think people have been very responsible since the beginning of the pandemic.
And then last question, obviously, looking at some of your competitors in Europe, specifically Handicare. Those guys are relying a lot on the stairlift market, but they're also restructuring your business and looking to make another go at their North American operations. Have you guys seen any change on the competitive front from them? Or do you anticipate anything to change with regards to North America, either in the second half of this year or in 2021 from likes of Handicare and either [indiscernible].
I won't tell you. [indiscernible], how many years you covered Savaria?
Oh, I'd say, about 7 -- 6 or 7.
Yes. I think you are the oldest guy and is a [indiscernible]. So yes, I just want to thank you on that. And Handicare, yes, I was disappointed with their financial of Q2, and for sure, for them, they make just straight stairlift and curved stiarlift and they have [indiscernible] division in North America about patient lift, okay? And because they sell their operation and distribution and the services in Europe. So they have just North America. This is a great company. With, I think, a lot of good potential. They want to be more in North America. And as we are looking to have new products in our pipeline. Even if we manufacture straight and curved, okay, they are nothing at the same level, okay, what what they have. So sure, they are there, okay? But don't forget, they have just 2 projects, okay, straight and curved. And this segment is very, very small for us, okay? So we will see the future.
Our next question is from the line of Zachary Evershed.
Congrats on the quarter. Most of my questions have been answered, so I have 2 kind of longer-term ones. Could you comment on the level of collaboration you have with architects and designers to get your products locked into design inspections for new development?
Okay. That's a good one. It's why I decided, and maybe the first time in my life at Savaria, we decided, we need to be stronger in front of builders, in front of the people who make the decision. So what you could see a designer or you go to see an architect, okay? We want to be in their face, and we will push that in -- further in 2020 and '21, okay? For sure the right now, we don't have any exhibit that we go see the others. So we will be very active on [indiscernible] , and that's a good start to see our new products, okay? That -- it's going out, so don't forget the you are near the ocean. You take the elevator, that's a [indiscernible] and you see the ocean to go to the second or third floor. If you do that, you don't even ask what is the price, okay? You just have when do you install one. So that's -- we want that be more present. First, clearly, they need to see our products, we will be -- have some video work, and we'll be -- we hire a new person on marketing just [indiscernible] it to architect builders designer. So we will be -- you will see our products a lot more than you see that in the past.
That's great color. And then you mentioned you have very interesting things cooking in your pipeline. In the context of the pandemic, though, what are your thoughts on completing M&A without traveling to see operations.
Okay. Yes. But you know something, we discover, and it's not just me, a lot of people discovered what we can do like on [indiscernible] that we use the more often, it's incredible yesterday. We have our Board, and I think that's one of our best Board and [indiscernible] with that in place. So we can do a lot of thing on the due diligence in not on place. For sure, that nothing can be better than to be in front of the people. But I think we can make some acquisition, and we can go there, and the situation will change and I wish in 6 months or 9 months, but to go something in 3, 6 or 9 months, we have to work right now. So a lot of thing can be just solved with Internet.
Your next question is from the line of Justin Keywood.
Just on the pandemic relief programs. Is there any expected benefit for Q3?
So I would pass you -- I have one expert, and it is Mauro.
Listen, right now, we're still looking at the programs for Q3 because these programs keep changing every day. I know they've been expanded till the end of the year, but the conditions keep changing on whether or not we would be able to qualify. So as we've indicated, we're looking at our cost structure. And depending on whether or not we qualify for some of these programs, we'll adjust accordingly to make sure that we maintain our EBITDA cadence going forward. But for right now, it's a little bit early. As I said, we're looking into it. And if anything comes about it, we will definitely indicate that in our financials and MD&A in Q3, just as we've done in Q2.
Thank you for your conservative answer, Mauro.
It's the correct answer. Yes. So understood.
Yes, totally understood. Yes, just a broader question, so there's been a focus on Homecare in the U.S. and in Canada, just given the pandemic. I'm wondering if there's any types of government programs where your end customers could potentially access as far as upgrading their homes and the mobility solutions. Are there any of those currently available? And do you anticipate that that could be a change going forward?
Mr. Rimbert?
Well, it's very difficult to say what those programs may or may not do. There are some tax credits that are available when you make your home accessible. But beyond that in terms of direct grants, unfortunately, especially for some of our hiring products, I mean Marcel talked about the Vuelift or even just the traditional elevators. I don't know any government that's going to give you [indiscernible] to put elevator in your house personally. So I think for those products, regardless of what's going to happen, they won't be affected. For other products such as stairlifts or some porch lifts, there could be certain government grants or government incentives in place. The VA, for example, does offer certain programs. And if you think about insurance schemes as well, there are kind of certain areas where your insurance might pay a portion of certain Accessibility products. But for sure, it's mainly cash pay right now, and we envision that for the future as well.
And just [indiscernible], Justin, don't forget that people want to stay home. They don't want to go anymore at this kind of residence that was very tough with the pandemic. How many personal -- that was terrible what happened there. But we have very good house about but some are a little bit -- they need to be upgraded. And I'm sure some people at [indiscernible] we want that people stay home to stay home. And they -- like in England they are more favorable at the person stay home. So they give some grant to the people. And I am sure that will come one of these days in North America. Because the people don't want to go there. And the son or the doctor don't want to put this mom at this kind of house. They would prefer to be safe that this is their house or the cottage or something like that. So Justin, very good. So you make some lobbying to the government.
I'll do my best, and it will be interesting to see how that develops. But those are my questions.
Okay. Thank you.
Thank you at this time, there are no further questions.
Okay. So Whitney, thank you very much to be the manager of our call, and wish you a very good day.
Thank you, and thank everyone, for joining today's conference call. You may now disconnect.
Thank you. Thank you to my team.
Thank you.