Savaria Corporation

Thank you. I appreciate the introduction.

I appreciate the time that our analysts or other people listen to the call. You see yesterday we released our numbers.

I think this is a great number and even it's a greater number when we see the period of the pandemic that we have least during three quarters or two quarters so far. So I am very happy that people want to stay home and they need some equipment because of the mobility when you are aging is not there.

So best example, okay, I put the first mini-lift in my house in Georgetown [ph]. And now suddenly it is in the center that's there and suddenly my house is accessible on three levels.

These products I can speak a lot of time, but that's the future of Savaria when we speak about a worldwide traction. Not many people can say, we have products that can be sold everywhere.

Because the aging of the population is not just in North America; it's across the world. So we're right now in the acquisition of -- the mode acquisition.

We have a prefect, what is perfect, we have a very good balance sheet. So we can go to make overnight some interesting acquisitions.

For sure in 2021, you will see that. We learn to use more Teams.

So we can visit factories overnight, we can do a lot of things, lot of video, and I am very enthusiastic that we have the people as I mentioned high research new people, because everything in a company the success is about people. But we have to have products and now we have a winner.

When you have a winner, you have to be quick on the market to push that quickly. So this morning on the call on the finances we have Steve.

Afterwards, if you have a question, you will speak with Steve, and after that he will make an introduction of our finances of Q3. We have on the call Nicolas Rimbert.

Everybody know Nicolas. He is looking with the acquisitions, but he is looking too about the Span.

And even if he will tell you that even if we're enemy we're not too bad with our percentage of EBITDA. So it's not an easy division.

So you'll see that, but he will answer to your questions everything about operation. Next will be Sebastien.

Sebastien knows all the factories and he is responsible of the application of rules for the COVID. So he will tell you what we have done and we are quite successful so far.

Nothing is a winning situation, but we have always to take care of our people. People are always very important for us and for everybody I wish.

So we have to take care of our customers too. We have to be sure that we install equipment safety.

And so we have that. After that you can speak with me, the old guy.

I am there for the divisions to help the divisions. And after that if you want to speak about automotive or if you want to speak about the Vuelift, I am very excited about these products.

And I take the opportunity to thank Jim my guy from Span, U.S. and Canada what he has achieved down there.

So he is retiring at the end of the year. So Jim thanks very much for the time you passed with Savaria.

And for sure I wish you good luck. And we will process right now with Steve to speak a bit about the finances of the quarter.

Steve?

Thank you, Marcel and good morning to everyone on the call. I'm going to begin this morning with some remarks regarding our Q3 2020 consolidated financial results.

For the quarter, the corporation generated revenue of $90.8 million, down $5.6 million or 5.8% compared to the same period of 2019, mainly attributable to the economic slowdown caused by the global COVID-19 pandemic. Gross profit and gross margin stood at $32.6 million and 35.9%, respectively compared to $32.1 million and 33.3% for the same period of 2019.

The increases in gross profit and gross margin were mainly due to a more favorable product mix and the continued realization of Garaventa Lift integration related synergies derived from the corporation's Accessibility segment. Adjusted EBITDA and adjusted EBITDA margin stood at $16.9 million and 18.6% respectively, compared to $15.7 million at 16.2% for the same period of 2019.

The increases in adjusted EBITDA and adjusted EBITDA margin were mainly attributable to the better product mix; continued realization of Garaventa Lift-related synergies pertaining to our Accessibility segment, as previously noted; a $2.5 million COVID-19 employment retention Government of Canada subsidy; and corporation-wide ongoing cost containment efforts. Now I'm going to move on to our segment results.

Revenue from our Accessibility segment was $68.5 million in Q3 2020, a decrease of $0.9 million or 1.3% compared to Q3 2019. The contraction in revenue was mainly attributable to the continued impact of the economic slowdown and repercussion of the global COVID-19 pandemic.

Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $15.3 million and 22.3% respectively, compared to $12.5 million and 18% for the same period of 2019. The improvements in both metrics were due to a better product mix, continued realization of Garaventa Lift synergies and ongoing cost containment efforts.

Revenue from our Patient Handling segment was $17.4 million for the quarter, a decrease of $4.2 million or 19.4% when compared to the third quarter of 2019. Organically revenue contracted mainly attributable to a reduced volume of sales in the long-term care market, a repercussion of the global COVID-19 pandemic.

Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $2 million and 11.7% respectively, compared to $3.3 million and 15.2% for the same period in 2019. The decrease in both metrics were mainly due to a reduced volume of sales in the long-term care market, a repercussion of the global COVID-19 pandemic and a suboptimal 2020 revenue, product mix from Span, which was partially offset by some contribution from our Silvalea acquisition made in Q3 of 2019.

Revenue generated from our Adaptive Vehicles segment was $14.9 million, a decrease of $0.6 million or 10.3%, when compared to the same period of 2019. Adjusted EBITDA and adjusted EBITDA margin both before head office costs were fairly flat to last year finishing at $0.3 million and 5.8% respectively, compared to $0.3 million and 5.2% in Q3 2019.

The decreases in revenue and adjusted EBITDA when comparing Q3 2020 to Q3 2019 were again mainly due to the economic slowdown, a repercussion of the global COVID-19 pandemic. Now turning to some financial liquidity metrics, the corporation ended the quarter with a net cash position of $49.3 million.

A combination of strong earnings in the period and discipline in terms of working capital management and capital expenditures were key in continuing to improve our cash position all the while in the midst of the global COVID-19 pandemic. The corporation's trailing 12-month net interest-bearing debt-to-adjusted EBITDA ratio remained minimal coming in at effectively zero, providing ample liquidity to fund future business endeavors and potential business acquisitions.

Looking ahead, given the anticipated global COVID-19 pandemic social- and economic-related repercussions for the remainder of the year, being able to provide a Q4 forecast remains extremely difficult. However based on a strong backlog intake in Q3, specifically within the Accessibility segment and its ongoing cost containment efforts, the corporation is optimistic for the last quarter of 2020, and expects to exceed the $55.6 million in adjusted EBITDA realized during Fiscal Year 2019.

And with that, that completes my prepared remarks and I'll turn the call back over to you Marcel.

Steve, thank you very much. Well done.

And as you mentioned, we are in good position with our cash flow, with our bookings. And we always make sure, we speak with our dealers.

Everywhere they see that they have some opportunity to increase sales in the coming quarter. But as you think about that an exactly whether because in Australia some problems with Melbourne.

Every place that we are we have some kind of trouble but the spirit is there and we managed to present the numbers that you see. So we are ready for questions.

Hey, good morning, everybody and good morning, and happy to be on the call finally. I hope you guys are all safe and healthy.

My first question is on the Patient Handling segment. You did point to a suboptimal product mix there as one of the margin pressures.

I was wondering if you could maybe add some color there and maybe what the ideal mix actually looks like for you guys.

Nicolas?

As it relates to the product mix there the best-margin product that we sell within that division is certain of our high-end foam mattresses. So, I guess in terms of the product mix going in here the bed frames that's something that we did experience I guess a suboptimal mix there in terms of the types of bed frames we were selling.

So, more the lower-end bed frames that were sold into the period. Again the services remains depressed given the selling environment.

That's again a very tough selling environment into long-term care. On the flip side, we did see -- one of the bright spots that we saw in the quarter and I would say year-to-date in general has been on the ceiling lifts.

So, that's a product that in terms of margin is actually helping us. It's kind of more of a higher margin product for us the lifts and the slings.

Unfortunately it's kind of on a smaller base. So, if you think about it relative to the rest of the Patient Handling division it still is quite small as a representative of the overall sales.

But I think going forward as that increases, it will definitely help to balance out the margin within that segment. The biggest contributor I would say Derek as it relates to the margins within Patient Handling is really the volume.

So, if you think about us losing 19% almost 20% in terms of revenues there within the quarter it's difficult to absorb much of our fixed costs and overhead when you have that kind of decline in sales. I would say again another bright spot is that despite that decline in sales I think I'm very proud of the team that we were still able to deliver an EBITDA margin that was close to 12% in the quarter.

So, I think very, very positive on that front. But again going forward I think what's the most optimal for us is if we have a better mix of those higher end foam mattresses certain powered surfaces that we sell within that segment, again a mix of maybe more of the higher end bed frames and a contribution a greater contribution from the sling and patient lift business.

Nick thanks for that. That's some great color and maybe just one last one from me before I re-queue.

Are you guys able to list in order maybe of magnitude the driver of the margin expansion whether it was from synergies cost containment and maybe the wage subsidy?

Just for the Patient division or for everywhere?

I guess over all Marcel.

Okay. And the best guy to answer that is Sebas, because he knows the operations he knows the supply from China.

So Sebastien?

Derek good morning. So I think a big explanation as you can see came from our Accessibility segment.

And I would say there's probably five factors to that. I would say better product mix mainly driven by our Vuelift sales.

Vuelift has been on top of our agenda since the beginning of the year. We do more marketing more R&D.

And it's a long cycle time for the Vuelift. It might take if it's retrofit it could be a three to six-months conversion cycle, but if it's a new construction it might be one year, two years.

So, you need to put a lot of seeds if you want to have some results eventually. But the Vuelift this year a big contributor.

We have been very careful this year with our cost containment efforts because of this COVID period. We are not spending too much on travel those days.

After that we have Garaventa Lift. There's a big improvement.

When we bought it we had some synergies planned for the first two, three years. I think Vince and [Indiscernible] are doing a fantastic job to implement those changes.

They are open-minded to those changes. So, I think this are moving in the right direction.

The old Savaria, I think, we have a good improvement in each store location for proximity. Factory productivity is at its best this year, so very good improvement there.

And positively the wage subsidy has contributed portion. But don't forget one thing the wage subsidy was there to protect the employment if we have less sales, we need all those persons.

But it took us many years to build this organization. So, it's important to be patient on our side because we see some good growth going forward.

Okay. Thanks.

That's very helpful. I was just wondering maybe then on the Garaventa Lift, how many -- or I guess how much more synergies do you think you have in the pipeline?

I think we are at the beginning. I think this has been a very big improvement in North America in terms of percentage of EBITDA.

Unfortunately, we don't disclose the percentage per segment within Accessibility. But the next phase is really Europe.

Europe we have good potential. We are direct in five countries; in Swiss, Germany, Italy, Poland, and Czech.

And I think we need to increase our number of dealers that can offer the Garaventa product in Europe. And the Vuelift, we are putting a lot of effort there again just to sell.

And when you sell Vuelift directly, you can imagine it will bring some very good contribution. So, I think Europe will be part of the big improvement in Garaventa.

Thanks for that Sebastian.

Bon jour Frederic.

The first question is for Nick. How quickly do you think CapEx spending will return at long-term term facilities once the COVID restrictions are lifted?

Is this something that can rebound quickly in your opinion?

Yes. I do think that longer term we feel very positive about that business.

For sure, over the next several quarters, as I'm sure you're well aware in the U.S., it seems as if we're going through maybe a second maybe a second or a third wave. I'm not sure how you quantify it there.

So I think for the foreseeable future for the next couple of months, couple of quarters it might still be difficult. But then exiting that, I do think you will see increased spend in those facilities.

We've already seen it. We've seen some projects being announced for new construction.

So some new builds. We also are seeing certain I guess demands from clients for increased budget spending for the upcoming year.

So I think that will also help. It's difficult to know the timing but I do think that once we kind of get through this kind of the severity of these lockdowns, so I can't really give you any sense of when that will be but once it is lifted I think we feel very strongly in this space that there will be investments made a, because there's a need for these types of services.

And at the same time given that they have been restricting access for new patients in many of these facilities. I do think that there is a need to increase spend, whether it be on the beds but just in general within the long-term care space.

So I think it will come back. It's just a question of timing and that is difficult unfortunately for me to give you any visibility there.

That's helpful. Marcel on the Vuelift, can you provide some details on the marketing strategy there and sort of the initial success that you've seen there in terms of leads and new orders?

Frederic, thank you for this question, because you know that they have the number one guys applied this product. That's going to be a worldwide product.

And don't forget with time I learned to be conservative but sometimes too conservative. We think that we will sell 600 Vuelifts by 2023.

It's always material [ph]. And you know that will make 30% of EBITDA So you put that at US 40,000 each that we sell on average.

So we will gain $10 million on EBITDA just because of – in 2023 just because we have these new products. But if we say 600 is it big?

600 is nothing. If I sell 600 it maybe time for me to retire and I will want to retire.

So we manufacture right now roughly 2000 elevators – roughly with Garaventa, us and China. So we make elevators.

But do you think that the market is bigger with a Vuelift than what we do in elevators? Yes, you are right, Frederic if you say yes.

So the Vuelift can put at some places that we cannot put in elevators, not just a new house but in existing house. Like I repeat my little case, that I have the first one.

And for sure, we improved since we made the installation at my place. But I have no place to put in elevators because we need like five feet by five feet to put in an elevator on each floor.

And it has to be straight at the end. That okay, that entry level, you put that in the middle of the stair and you get accessibility for each and it is just negative.

So think about something. We are doing a good EBITDA; our best EBITDA in products 30%.

The people when they see our products they say I just want this product. It is spectacular.

And for sure with the vision to the elevators there you can see the ocean or if you are in the mountains, you see the mountains. It is the products at short term in the medium term that's the product for the future of Savaria.

And thinking about your question Derek, you know that we received some grant from the government for assist the company that we have lost a little bit of sales. And we take this extra money to improve Savaria and push sales and push Savaria in a way that we are – right now we were gaining last week I gave you last week that we had put a new system for the integration or the consolidation of our accounting.

We report like in six weeks. That will be finished.

At the same time next year Steve will report you in four weeks. So we want to be like somebody well organized and we are well organized at that but we will be just better.

So after that what we need is some people around the world. We have some inquiries from Europe that some people see our products and they are from other countries and they say “Hey it's exciting.

I want to work for you. We will push these products”; So we will do the things the right things and we have some different places that we can manufacture the Vuelift.

Now it's just in Toronto but we will be in China and we will be in Europe manufacturing directly. So that's my vision of what I have right now on the Vuelift.

The Mini Vuelift that's a new version. You know That we bought like three years ago this company from the States from Colorado.

And the guy when you sells his company he tells me, Marcel you will see, you will sell quickly $100 million of these products. And I was thinking, oh man, you know, something you want to sell you want to sell.

But he was right. It has a better reason at the time than me, but he was with the company from long-term.

So we take the projects, make some modification, put the code to be sure that we are compliant everywhere where you install that. So I am very excited about the future with that Frederic.

Great. Thank you, Marcel.

The last question for me would be probably for Sebastien. I think with the strong balance sheet there's definitely room for significant M&A activity.

Just curious to get your thoughts on what was learned from past acquisitions of Span and Garaventa that you can apply to the M&A strategy going forward? Thank you.

Basically I think the best thing that we have learned Fred is to make sure we have a synergy action plan ready prior to close the transaction that we can have a good action plan for the first two years. And I think we have done a good job with Garaventa to do that.

And I think we have shown a bit in Accessibility, we can have a lot of synergies between our supply chain in China, our 26 direct stores and our 500 dealers. So definitely Accessibility can bring higher synergies to the group.

So that's a bit what we have learned. Maybe Marcel do you want to add something?

Yes. The people at Span are tremendous.

For sure in this time of the pandemic, it's not easy for them. But we've learned that our main products that we know since -- I have with this company since 30 years.

It was elevators Accessibility products like stairlifts, like stair lifts or platform lifts. So we learned some things; don't go too far from that, Marcel.

Thank you.

Good morning. First question.

You guys spoke about some strong backlog intake specifically on the Accessibility in Q3 and Q4. Can you maybe provide some color with regards to -- I'm assuming that that's going to be on the elevator side of the business.

And if that being the case, I believe in Q2 commercial elevators was driving the demand in Q3, I believe those residential elevators. Can you maybe speak to what you're seeing from those two markets when it comes to elevator demand in Q4?

Sebas, you are the expert in the specs of comp standard improvement and residential elevators. So I leave that to you.

Thank you. So, good morning Nick.

So I think, yes, July was our best month of booking at our factory in Toronto. So that was of course a big driver of this.

And it was mostly residential. We have been very busy in our residential units in terms of Eclipse, Vuelift.

And we saw that people do a lot of projects right now, renovation moving to café [ph], and buying a new house and they want maybe to keep their parents home, the movement staying at home. So definitely the residential is doing better than the commercial.

You can imagine yourself in commercial, a small restaurant, a small store that needs to be accessible. Maybe they are pushing, building -- build a project.

So definitely the residential has done better. Stair lifts has done better also in the third quarter.

That was something last year that were a bit in decline, but we had some growth in the third quarter. So that was positive.

For sure, we have finished third quarter as we push always. But I think we have a good backlog to start the fourth quarter.

But remember we do a lot of shipping towards the end of the quarter. So how will shape exactly the fourth quarter, I think we have to wait until the end to see the exact result.

But Accessibility for now is positive.

Okay. And then just maybe give us an overview of what organic growth opportunities you guys envision for 2021.

And can I assume elevators specifically on the residential side will be part of that? Just what you guys are anticipating on the ceiling lift side?

And then I know you guys gave a 2023 number on the Vuelift, maybe what you anticipate at least for 2021?

So, when you look at that where I see the good growth for sure Span with what we have with the people, with the expansion that we have in England, and they make a fantastic job down there. You know, something we will succeed to be between -- all together between 5% and 10%.

Again I have to be conservative. Elevators will be as a whole company, it will be between 5% and 10% of growth, internal growth.

Sorry. That 5% to 10% was for the entire company?

Yes the entire company. For sure on the car business, it's tough, it will be tough and it will stay tough for some time because for sure obviously you have better, you are in a wheelchair maybe it's not a good time to buy a van.

And the government seems not to have a lot of money to give to the people who need these kind of products. Maybe it will change but we will see.

But if you take the entire company, it will be very disappointing not to see a growth of between 5% and 10%.

Sorry. And that's all organic growth?

Yes.

Okay, that's it for me. Thank you.

Good morning. Congrats on the quarter.

A quick one for you on Patient Handling, the potential post pandemic has been made fairly clear. I appreciate that color.

But looking at each product line within the segment during the pandemic what are the growth prospects that we should expect? And how well can they perform?

Well, the best product I guess or the product that's outperformed the most I guess in the current environment has actually been our lift products. So, our patient lift products have done relatively well.

We've had a double-digit growth again in the double-digits here in Q3. I think year-to-date probably about 40% up within the lifts.

So, I think that's the one that stands out. Other than that, the slings are also -- have held up relatively well.

The bed frames, and mattresses as you can imagine is kind of more of a CapEx type spend. Those have been a bit weaker.

And again you have to think that that's the bulk of our Patient Handling business are the frames and the mattresses. So, when you think of the sales that we achieved in the quarter you can imagine that the biggest part of the drive there or the lack of sales has really come from some weakness in those two product categories.

Appreciate that. Thank you very much.

And then looking at your M&A pipeline do you have a clear preference for products or for dealers?

Good question. Both.

For sure if we can find new products or better products than we have right now. So, a company with products we'll look at them.

And we are fortunate to have Mr. Rimbert that works on that the majority of his time.

And after that if we can find a company that maybe don't have the products that we need but have the network that we want has some dealers or some direct sales themselves that can sell our products can sell our Vuelift, we may trade. So, you will see some trades entering 2021 because on products it's more difficult because on products we have the majority of the product.

But if we see that we have in the market better products than we have like we have some weakness in our straight stair lifts and curved stair lifts you see the numbers it's not the numbers that it should be because of who are better than us on the market and then we have to realize that. But after that network is always important because we can sell our products and nobody has a line of products like Savaria.

We can take some of our competitors, they concentrate on one product. Us, we have a family of products and I think that's very good if you have a dealer and you have right in front of you a family of products coming from the same company and not that you have to run by five or six different companies.

So, we are fortunate to have all these products. We're fortunate to have direct stores.

And we are very fortunate that we have I think the best people in the industry.

Thank you very much. I'll turn it over.

How processes are going around any virtual initiatives? Obviously, with the lockdown restrictions, restricting access and some other constraints.

And if I understand correctly, there was some pursuits in the kind of use of virtual technologies including M&A. And just wondering if you have any update around that.

So the sound was not good at the beginning of your question but I think you want to say that even with pandemic, if we continue to look? The answer is yes, very seriously.

Because we can visit sites just by a good video. People, we like to feel some people to feel in front of us directly but we have some video with them.

Yes we'll do that. And we have some people a little bit around the world to help us to confirm what we think is the company and the success of the company.

So I am very open. Even at this time, I will be open to make some closings early next year.

Okay. And then just on the timing of potential M&A is there any change from last quarter?

Are you pretty confident in some of the opportunities that you're working on? Or do you think the timeline could shift a little longer just given the situation with the pandemic?

When you say more longer, more longer is instead to be at the beginning of the year, it will be at the end of the year but it will be in 2021.

Okay. And then my final question is just around the U.S.

election outcome and if there's any anticipated change in your business either positive or negative. I know there was some funding in the long-term care space and maybe there's clearer outlook now in that area.

But any comments or observations around that would be helpful.

I don't know my team, if they follow that but I am not a political guy. Trump was good.

Trump is Trump. And I think Biden is Biden.

We will see. But one thing does not change.

It's not the price of the oil. It's not the price of gold.

It's the aging of the population. If it's Mr.

Trump or Mr. Biden the aging of the population is there.

Do we think we will get some subsidies? Yes even the government of Ontario decided, if we want some equipment they can give out a little subsidy.

But I will say nothing changed for me. Maybe somebody of the group who has more political than me knowledge.

So Rimbert, do you see something for Span?

No. I think for Span what you might see – and again, it's a lot of speculation here Justin.

But I think that what you might see for Span in the shorter term, Biden might be a bit more looking at kind of stricter lockdowns. So that's something just to kind of keep an eye on as things progress over the winter.

I think he's had a penchant to be a bit more cautious there in terms of reopenings. I would say that where it doesn't necessarily impact our business too much is that the long-term care space has remained locked down throughout this entire period in general.

So as we did see some other parts of the economy opening up over the summer, nursing homes have been given the vulnerable population there, they have been restricted throughout this entire period. So that hasn't really changed and I don't think it will regardless of if it's a Biden or a Trump presidency.

So I would say that we'll see. It's a lot of speculation.

I don't think that we're in a position really to say one way or the other what the impacts might be here.

Okay. Understood.

And thank you for taking my questions.

My pleasure.

Okay. So thank you for the people.

Thank you for everybody. Thank you for my team.

You are always great. And we are very enthusiastic.

And thank you for all the people from Vince and Vancouver, and all across the board. Thank you very much to work hard for Savaria.

Thank you.