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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 Savaria Corporation's Q2 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] This call may contain forward-looking statements, which are subject to your disclosure statement contained on Savaria's most recent press release issued on August 10, 2022, with respect to the Q2 2020 results. Thank you. Mr. Bourassa, you may begin your conference.
Thank you very much. Hi, everybody. That's a pleasure for me to be here this morning and to discuss, okay, our results of Q2. Our result of Q2 is exceptional, exceptional because we make this budget okay at the end of '21, okay? We're not speaking about war, okay? Everything was good, but the war happened. Arrive, okay, stress and materials, cost of a lot of things, the container on the labor side of things, problem. So it's very exceptional that we can realize what we arrived in Q2. And me, I would say and Sebastien was telling me the other day that Q2, we can refer that at the new minimum level. okay? So I am very happy that we see that we can be better, okay? And I am very happy to hear your questions. And as usual, I will refer that -- to my knowledge, it's the best person, okay, in our rate group. So can we go for the questions, please? No, no, no. Just a minute. We missed one thing. We have to have Steve, okay, speak a little bit about the mathematics of the Q.
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 CAD 192.1 million, up CAD 13.4 million or 7.5% compared to Q2 2021. 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 CAD 65.6 million and 34.1% compared to CAD 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. Adjusted EBITDA and adjusted EBITDA margin stood at CAD 31.5 million and 16.4% compared to CAD 27.4 million and 15.3% 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 SUS funding received compared to last year.
Now, we'll move on to the segment results. Revenue from the Accessibility segment was CAD 136 million, an increase of CAD 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 U.S. 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 30, our accessibility backlog is approximately 11% higher than it was at the end of Q1 2022.
Adjusted EBITDA and adjusted EBITDA margin for the Accessibility segment, both before head office costs stood at CAD 25.9 million and 19.1% compared to CAD 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 CAD 43.9 million for the quarter, an increase of CAD 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 2 years of the pandemic and increased access to long-term care facilities as well as customer price increases.
Adjusted EBITDA and adjusted EBITDA margin both before head office costs for the Patient Care segment stood at CAD 6.7 million and 15.3% compared to CAD 4.7 million and 12.9% for Q2 2021. The large increase in adjusted EBITDA margin was mainly due to improvements in gross margins, which were driven by fixed cost absorption and customer price increases.
Revenue generated from the Adapted Vehicles segment was CAD 12.2 million, an increase of CAD 0.5 million or 4% when compared to Q2 2021. And Revenue growth in 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. Adjusted EBITDA and adjusted EBITDA margin both before head office costs for the Adaptive Vehicle segment finished at CAD 0.6 million and 5%, respectively, compared to CAD 1.3 million and 11.2% for Q2 2021.
The decrease in both metrics was mainly due to a reduction in the SUS and inflationary pressures on the supply chain as well as delays in sourcing key materials. For the quarter, net finance costs amounted to CAD 6.4 million compared to CAD 5.4 million in Q2 2021. The increase is mainly due to a net foreign currency loss of CAD 2.5 million in the quarter, which was unrealized in nature.
Interest on long-term debt was CAD 3.1 million in Q2 2022 compared to -- excuse me, CAD 3.5 million in Q2 2021, a decrease of CAD 0.4 million. Net earnings were CAD 8.1 million or CAD 0.13 per diluted share for the quarter compared to CAD 2 million or CAD 0.03 per diluted share for Q2 2021.
Adjusted net earnings, excluding amortization of intangible assets related to acquisitions, reached CAD 13 million or CAD 0.20 per diluted share compared to CAD 10.4 million or CAD 0.16 per diluted share for Q2 2021, and this reflects an increase of 25.3% or CAD 0.04 on a diluted share basis.
Shifting gears and turning now to capital resources and liquidity. Savaria generated cash flows from operating activities of CAD 14.7 million for the quarter compared to CAD 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 3 quarters in order to insulate our production and sales activities from continued supply chain constraints and challenges.
As at June 30, 2022, Savaria had a net debt position of CAD 38.1 million and was in compliance with all covenants. On a trailing 12-month basis, adjusted EBITDA basis, Savaria's net debt to adjusted EBITDA ratio was approximately 3.3x, and this represents a 0.3% decrease versus where we finished last year.
Savaria has funds available of approximately CAD 118 million to support working capital investments, CapEx, and other growth opportunities. Looking forward, the current changing macro environments 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 CAD 775 million, with adjusted EBITDA in the range of CAD 120 million to CAD 130 million.
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 one, we have a good number, right? So we are quite excited to see what will bring Q3, okay, and Q4. But as mentioned, Steve, we are very optimistic, okay, about the next 6 months. So we are ready for the question, Mr. Scott.
[Operator Instructions] We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Derek Lessard from TD.
Congratulations, everyone, on a really solid quarter given what's going on in there. Steve, I did -- I had trouble logging in. So I caught the end of your comments at the end of accessibility. I was just wondering if you could just 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%.
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 Derek, we had a good organic growth in the accessibility. But to be honest, it's a bit disappointed when the backlog go up and we were not able to achieve a double-digit growth, I guess, the operation are not perfect. So still we're still working in a challenging environment. So we could have a few more people in a different factory. The timing of the parts are not always coming on time. So we 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 I would say it's pretty much the same from the elevator to the stairlift, everybody can do a bit more on the organic growth.
And maybe just one last one for me before I requeue. I'm curious, are the benefits from the new Mexican facility that's supposed to open in September. Are they -- is that included in your guidance? And maybe just an update of what you're seeing in that open space there.
So I will consider a bit. Like if you buy a new house key. So basically, we're going to get the key of our house September 1. So September, we are moving in. And in Q4, we are going to start some operations, some light assembly. But as we said at the beginning, we are building capacity for the CAD 1 billion for the future. So this year, there's no expectation from the Mexican factory. But definitely, when we do a budget season for next year, we'll make sure that the Mexican factory contribute. But again, it will be a great addition to get some new people, to have shorter lead times, to bring a different measure. For us, it's an opportunity to rebalance our supply chain. So very positive.
Our next question comes from Nick Agostino from Laurentian Bank Securities.
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. Our backlog has increased. So I think -- and right now, if you want to order home elevator, it's more 3 months lead time. From Savaria, we used to be a 3 to 4 weeks' lead time. And after that, 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 and it is much better, but it's not totally over. And after that, we are in many, many different countries. So different countries has different maybe economic scenario. So for now, okay, for us is still very positive.
And just to be clear, when you say the backlog is up, that's specific to residential elevators.
That was accessibility, which is including a platform lift, home elevator, commercial elevator, and studio. So the old segment is up.
And we don't forget this segment, okay, is on Savaria. So when we go with end scale, these people, like, deliver almost overnight, okay, or a very short term, okay? So the backlog is that very important and for them, okay? We don't know exactly how the evolution of that because it's not important. But for us, okay, to add the backlog, okay? And you mentioned that the case of say, but when you have 400 elevators or kitchen manufactured, okay, that's a real good project.
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, and 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 the -- 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, we said that all the segments were up in bookings, so including the commercial and also the commercial is almost back as the pre-pandemic level. So again, we have a 3-month lead time on some of the commercial elevator. So we see that as much, much better on that aspect. People are doing some projects. They are doing some renovations. So I would say it's quite positive.
Maybe 2 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 pricing 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. The patient care side, it's probably closer to 5% price increases, 5% of the total 20% if that helps.
It does. It does. And then one last quick question. On the adopted 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?
Yes, there is. So that segment, and that's 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.
I just want to mention that I think, okay, it's not very -- it seems that it is not very important, okay, our growth, okay. And you will see difference of this growth in Q3, okay? We are working on that, okay. And we are lucky for the first time in my life, okay, we have a booking that we have, okay? So you will see in Q3, okay, and Q4 that the organic will be higher organic growth.
That's for the overall business?
Yes.
Our next question comes from Frederic Tremblay from Desjardins.
First question is on inventories. Just maybe comments on your comfort level with your current inventory? I know mentioned that it's been increasing for a few quarters. Just some growth in a difficult supply chain environment. So do you anticipate any additional investments into inventory? Or are we at a level that's comfortable here?
All right, Fred, you're -- I don't -- maybe it's your connection that's not very strong, but I think your question was around the 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.
So we did see an increase in Q2, and 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 as drastic of a working capital increase in Q3 and Q4 as we did in Q1 and Q2.
And maybe sticking with kind of the use of cash here. What's your expectation in terms of CapEx for the back half 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 sizable project with regards to manufacturing straight stairlifts here in Brampton that is underway. And we had planned for that expenditure in sort of Q2, Q3 time frame. So that will be coming in, 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're going to -- we saw a good decrease in Q2. We saw 0.3 decrease versus year-end. We've been guiding towards 0.5 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 half year, we're pretty happy with that, and we will deliver on at least half a turn this year.
And 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 midterm, let's say, based on the current cost environment that you're seeing now?
Something, I am very happy, I think 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, okay, where it's not as on the ball, okay, that was Savaria. But we are looking at that and we are just following -- and if it's like that, like today, maybe the part of Europe has to have some increase. But I think we are very satisfied about what we do here in North America. So we will follow the floor. Okay, we are looking and we are always okay ready, okay? But we prefer not to increase something when we are at the level that we are satisfied that we are right now.
[Operator Instructions] Our next question comes from Zachary Evershed from National Bank Financial.
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?
Did you say personal care or patient care?
Patient care.
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 the recession. I think what we've seen, and we can kind of speak to our backlog. We can see what our guys on the ground are saying. We had very good results, I guess, from organic growth in Q2. It builds on the strong past couple of quarters that we've had. It's been a rebound of spending that's been driving that. As it relates to recessionary spending, a 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 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, there in Ontario, you saw just this past week, where they're talking about kind of a crumbling health care system. And there's investments that are needed. So I think that's more of a long-term trend. So a recession or not, I do think that there's going to be continued strong growth within kind of the health care 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 frame, the mattress, the ceiling lift, the sling.
So that's what we're going after. It's kind of a package deal, and I feel very strongly about that. So there is no real concern on our part of any sort of recessionary kind of headwind in front of us.
I would just add, okay, that at Savaria, we are very lucky, okay? For sure, okay. We have always to be at scale a little bit, okay, but when I start this company with my people, okay, or just for employee right now, we are 2,300 employees. But as what, okay? Because we are there, okay, for the aging of the population, okay? That's our objective, okay, to help these kind of people. War, no war, recession, no recession, that people need our products. So we are just very lucky as we try to serve this industry as well as we can do, okay? So it's not maybe recession proof, okay? But it is -- and you see at the beginning of the comments, okay, I see we do our budget, okay, before, okay, the work, okay?
So imagine, okay, and we are right on the spark of our projection. So we can see if something change, okay? It's not recession proof, but almost because it's the aging of the population.
And then we noticed that U.K. 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 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 all more or less offset by FX.
And one last one, if I may. Do you think the current environment is good or bad for continued consolidation? And what are you hearing from peers in the industry?
One, that's a good question, okay, but we're always lacking here, okay? We know that we have over CAD 100 million 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 available in the market. And we look at that, okay. We are a team, okay, and we just want to do what is the best for our shareholders.
This concludes our Question-and-Answer Session. I would like to turn the conference back over to Marcel Bourassa for any closing remarks.
First okay, thank you, okay, to the people who are on the call this morning, okay? We are really enthusiastic about Savaria. But the growth of Savaria and the growth of our staff depend on the analyst. Thank you very much to that think about Savaria and the good work that you do to more people know about the beautiful company that we are. So thank you very much, and see you in 3 months.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.