Savaria Corporation

Okay. Thank you, James.

Hi, everybody. This is Marcel.

I am the CEO and I was the CEO for the last 30 years at Savaria. First of all, I have to thank you gentlemen to be here this morning and I was very anxious to speak to you and to thank you.

Savaria and myself will not be available that we are to be, a company with a market that over $1.2 billion sales in excess of $100 million this year. It's quite not amazing, but an interesting realization.

And if you were not there, I cannot do that. Last year, we will speak with your guy or write to us, write on us to the investor, after that the investor put money, buying some share or – and the bank.

First, I want to thank you for your work and to be dedicated to the success of Savaria. So that was the first thing I want to say this morning.

After that we do a major acquisition in Handicare, it was March 5. I am very happy.

I was looking at this company for many years. And if I [indiscernible] within the back that was there, that was looking to buy us or discuss about us, but we finished the game that we buy them.

And I am very happy about that. Very happy and very happy by the people that we meet at Handicare.

So they are great quality people and we will learn with them and they will learn a little bit from us. We are bigger family than before.

One thing is not improving is my English, what it is, what it is. So thank you for your hard work, my team.

But thank you, Handicare to take this translation so positively. In marketing, we will work with Claire and we are working together.

And after that, in production, Sebastien, find a guy, Peter to that, who can look our production worldwide and be the best. And if we do after that with Randy in North America, that's about working with Span in Luxembourg and he is there to work together and we will have a very good segment together with [indiscernible].

So again, thank you much to participate with us. And I am sure Garaventa will work together.

Vince is a great guy. Thank you, Vince.

And so gentlemen, here we are for this morning, where our Stephen, our CFO is there. We have Mr.

Rimbert, Nicolas, who was looking for a transaction with Handicare and may get terrific work, and he will speak about it if you have some question on Span or on the ceiling lifts, so that he is supportive and he handles this division. After that, who will be here with us is Sebastien Bourassa, and he can speak about the integration.

My team has done a tremendous work in the first 15 or 20 days since March 5. They work very hard.

But for sure, if we sell our product in Europe that would be not overnight, it should be more about 2022. But even without the synergy that will be big in 2022 and the future that will be great.

So we are very confident to make over $100 million because I think we are back on good results and Q3, Q4 and Q1 look good. I am very, very optimistic about to exceed that, but I’d say yesterday, this didn't work.

So let's go for the question. No, before the question, Mr.

Rimbert will add a little bit of update what’s happened in 2020.

Actually, Steve will provide the financial update, Marcel.

All right. Thanks, Nic, and thanks, Marcel, and good morning, everyone I'll begin with some remarks regarding our 2020 fiscal year consolidated financial metrics.

For the year, the corporation generated revenue of $354.5 million, down $19.8 million, or 5.3%, compared to 2019, mainly due to the economic slowdown caused by the global COVID-19 pandemic. Gross profit and gross margin stood at $122.1 million and 34.5%, respectively, compared to $125.3 million and 33.5% for 2019.

The decrease in gross profit was attributable to the sales decline caused by the pandemic, while the increase in gross margin was mainly attributable to a more favorable product mix, continued realization of Garaventa Lift integration-related synergies derived from the corporation's Accessibility segment as well as some benefits from the Canadian wage subsidy program. Adjusted EBITDA and adjusted EBITDA margin overall stood at $59.8 million and 16.9%, respectively, compared to $55.6 million and 14.9% in 2019.

The increases in adjusted EBITDA and adjusted EBITDA margin were mainly attributable to a better product mix, continued realization of Garaventa Lift-related synergies pertaining to our Accessibility segment, as previously noted, a $6.9 million COVID-19 employment retention Government of Canada subsidy, and corporation-wide cost containment efforts. Now I'll move on to our segment results.

Revenue from our Accessibility segment was $257.3 million in 2020, a decrease of $8.4 million, or 3.2%, compared to 2019. Contraction in revenue was mainly attributable to the continued impact of the economic slowdown and repercussion of the global COVID-19 pandemic.

While our residential sales remain strong throughout the year, we saw a decrease in our commercial sales, which caused the overall topline to decline for the segment. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, stood at $51.1 million and 19.9%, respectively, compared to $44.2 million and 16.6% for 2019.

The improvements in both metrics were due to a better product mix, continued realization of Garaventa Lift-related synergies and ongoing cost containment efforts. Revenue from our Patient Handling segment was $79.3 million for the year, a decrease of $7.5 million, or 8.7%, when compared to 2019.

Organically, revenue contracted, mainly attributable to reduced access to and reduced volume of sales from the long-term care market caused by COVID-19 pandemic targeted lockdowns and restrictions. Adjusted EBITDA and adjusted EBITDA margin for the Patient Handling segment, both before head office costs, stood at $10.4 million and 13.1%, respectively, compared to $12.1 million and 14% for 2019.

The decrease in both metrics was mainly due to a reduced volume of sales in the long-term care market as previously noted, a suboptimal 2020 revenue product mix and lower fixed cost absorption in our Span business. This was partially offset by the contribution from our Silvalea acquisition made in Q3 of 2019.

Revenue generated from the Adapted Vehicles segment was $17.9 million for the year, a decrease of $3.9 million, or 18%, when compared to the same period in 2019. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, finished at $0.6 million and 3.4%, respectively, compared to $0.9 million and 4% for 2019.

The decreases in revenue and adjusted EBITDA when comparing 2020 to 2019 were mainly due to an economic slowdown, a repercussion of the global COVID-19 pandemic. Now turning to some financial liquidity metrics.

The corporation ended the year with $54.2 million of cash implying a positive net cash position of $4.4 million. A combination of strong earnings for the year and discipline in terms of working capital management and capital expenditures were key in continuing to improve our cash position, all while in the midst of the COVID-19 pandemic.

And looking ahead, although, it remains very difficult to quantify the continued impact of the current pandemic accurately based on the results to date during the first quarter of 2021, coupled with the corporation's confidence in the strategic integration plan with Handicare that is underway and strong underlying long-term growth fundamentals for our markets. Management anticipates the corporation will be able to achieve adjusted EBITDA in excess of $100 million during fiscal 2021.

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

Thank you very much, Steve. Thank you.

You make a tremendous job. And it's always easy when we have good number, but anyway thank you very much.

Let’s go for the questions.

Hey. Good morning, guys.

Hi.

Hi. So going back to the synergy opportunities highlighted in the initial press release, the $12 million.

Any way you can break that out or help us better understand how much of that is cost-related and how much of that is revenue-related? I guess my thinking is that the revenue synergies are likely to be realized – or sizeable, sorry, in this deal, but likely to be realized.

I think you commented 2022 and beyond. So just something around that, please.

Okay. I will answer this one.

We see that we'll make $100 million – over $100 million. And it's coming from some plus and minus – plus and minus, a different segment just that time of the year.

One would be weaker, but the other will go higher. So really, I prefer to add.

We have more to say about this question after the second quarter. Thank you.

Okay. Fair enough.

Yes, that's fine. So maybe sticking to maybe some of the near-term stuff.

The vaccine has been widely disseminated or more widely disseminated in the U.S. so far in Q1, especially amongst the senior population.

Are you getting better access to customers in Patient Handling at this point? I mean – and maybe just what variables to consider before expecting a full recovery in that business?

Nicolas?

Sure. Hey, Michael.

Yes, I mean, cautiously optimistic, I would say. As you'll note that the vaccine rollout has been a bit all over the place from country-to-country.

In the U.S. to your point, yes, they have been quite successful in terms of the rollout to date.

So in terms of – what that means for us as it relates to accessing long-term care facilities for our sales guys, or I guess, services and installation teams, it is looking better. It is looking up.

I would say, again, lights at the end of the tunnel, it's been about eight weeks or so give or take, where we've seen some improvements there. So I think when we publish our Q1 results, we should have a little bit more color as to how we ended the quarter.

I would say January and February is still kind of in the midst of it, but as we kind of get into March and we finished off March, we're looking to have a strong finish to the quarter and we should be able to provide a little bit more color as to what the rollout looks like when our Q1 comes out in May. We'll see how it progresses through the spring.

But yes, it is improving. And so throughout 2021, we should see a pickup in volumes there from our Patient Handling business.

Got you. And if I can squeeze in one more, maybe a little bit of detail on the margin performance in Patient Handling from Q3 or from Q4 into Q3, just it got a little bit better there.

Maybe just your thoughts on how to think about margins in that business in 2021 given some of the higher resin prices and the potential impact to the foam product?

Sure. The margin performance there in Q4 was quite strong.

As you noted, there was a big jump from Q3 to Q4. I think we're at 15% – 15.7% in the fourth quarter.

We did have a strong December, especially here in Canada. So there was some good bed sales there in December.

Silvalea also had a very, very strong December, so we had a good end to the year, I would say, within Patient Handling contributing to that margin improvement that you saw in the numbers. Going forward, when we combined ourselves because we'll be reporting our Patient Handling along with Handicare going forward.

Handicare, the Lift Up program that they implemented last year, I would say had a pretty dramatic effect on the margins within their Patient Handling segment. At the end of the year, I think it was 13.4% or so within their Patient Handling business in the fourth quarter and that was kind of uptick from their Q3 results where they were over 11%.

So I guess when you think about us combined somewhere in that 14% is something that we would like to aim for. It will depend again, how kind of volumes pick up and how that fixed cost absorption is over to be achieved over the next few quarters, but that's something that would strive for us to get back up on an annual basis in that kind of 13%, 14% in building on that as volumes increase over the back half of 2021.

Got you. Any consideration on the resins, Nic, just in terms of the potential margin?

The revenues, again, it's tricky because as we exit the COVID, how that growth is going to materialize, it's difficult to predict. And again, the rollout is very different from whether it would be country-to-country or even state-to-state.

So where some states are kind of more advanced in terms of their – advancing their vaccine programs and also in terms of their loosening of certain movements and restrictions, whether it would be in facilities or elsewhere, it does have an impact. And again, our Patient Handling business, we do have – a big portion of it, it's here in Canada.

And as I think, you will test in Canada. The rollout hasn't been as fast and fluid as it has been in the states.

So that's also something to consider here that we do have a pretty big Canadian business within Patient Handling as well.

Got you. I'll leave it there, guys, and congrats for all the achievements in the last several months.

Thank you very much.

Good morning, everyone. Congrats on the quarter.

Good morning, Zach. Thank you.

I was hoping you could give us a little bit more color about the progress of integration thus far, concrete steps that you've been able to take in the last 20 days or so given the quick closing?

Sebastien Bourassa?

Sure. Hi, Zach.

Basically just like a 20 days, it was very sharp. But so far what we did a bit, we have created some committee for the Accessibility and for the Patient Handling and to start to discuss about different potential.

What is your timeline? Who’ll be in charge of that?

For sure, we cannot do everything in the same time. We have to go step-by-step.

But the most important is people are very happy to contribute. They bring a lot of ideas to the table.

So I think it's a very good start. We are talking about cross-selling opportunity, especially in Europe.

So we are training the people. That’s a start.

And what's interesting is Garaventa was already a customer when [indiscernible]. We people already know a lot each other, so they are discussing like, we all kind of work more together.

The delisting of the company is happening, basically it's happening tomorrow. So that’s part of the integration as well.

And one thing important, we have confirmed in the first 20 days that we are going to manufacture some curved stairlifts into a factory in Toronto. So that's something that should start in Q4.

And that will be very big because at the end – right now, we are shipping each stairlifts by air to North America. So we are spending lot of money by air each year.

But the most important that will give us a very good speed to the market to offer tremendously give time to our customer. So we're going to do that with a lot of automation for drawings, for machinery, so that will be very interesting to see what would happen on that in the future.

All right. So a great start in 20 days, and I'm sure in the next few quarters, you will see in terms of dollars, whether it’s me, but you can see the road to $12 billion is the start.

That's very helpful. Thanks.

In terms of your sales teams, will there be a bit of a ramp up as they're trained on the new product lines? Or are they familiar enough already with the product that it will be fairly smooth transition?

Basically, Zach, for sure I will say that will be a transition and it takes time. We’ll take an example of the Vuelift, if you go on a retrofit market, you find a customer today that might takes three to six months, but if you talk about the new construction is one to two years.

So Handicare team is excited about the Vuelift in Europe. I guess the answer is yes, but we have to go step-by-step.

First, we have to train our sales team, after that the dealers or the direct location, and eventually we will get some marketing going. So that's why Marcel was saying 2022, we should start to see a lot of cross-selling because it takes time.

It doesn't happen overnight, but definitely the opportunity is fantastic. Same thing for the stairlifts in North America.

I'm sure some of our dealer will knock on the door of Handicare or Savaria because they want maybe to have access, but the first step is to train the people.

Yes. Sebastien, let me complete that.

Again, I put the attention that we will be active on selling in Europe of our Vuelift. And that's a huge market.

We're just starting to see orders too in Germany, but it’s nothing. And we are not with Handicare, they have so many contacts.

And they are very good at what they are doing. If we came up, we think we will have a major step in our EBITDA in 2022 because we will sell products of Savaria in Europe that we’re not doing right now or ready to meet the people.

So that’s the update that I want to do – make on that.

Great color. Thanks.

And just one last one for me. In terms of your leverage comfort zone following the transaction of Handicare, obviously a big bite that required some debt, but you guys were talking about the opportunity for growth projects and tuck-in transactions in your press release.

I'm wondering if your leveraged comfort zone has moved up.

I'll take this one, Marcel. I mean, yes, we are – when we close the deal, the Handicare deal we're closing both 3.6x leverage, and yes, we do have additional credits available to us for small potential tuck-in acquisitions or future growth opportunities.

Our focus is on Handicare and to integrate that business first and foremost. I mean, the 3.6x leverage that we are closing out is higher than where we have been clearly, historically and higher than where we are and then where we'd like to be.

So our focus is going to be on delevering that fairly quickly.

Yes. And just to complete that.

I increase my volume that I hear you very well. Just two of that, I’ve seen for years and years and years of that over two that I am not comfortable.

But suddenly, we are at 3.6x to 3.8x, and I sleep very well every night since, March 5. Why?

Because I am so confident in the team down there, that we meet, we speak and speak, and they want to act. And we know that the segment of selling [indiscernible], but cannot be worse.

So it would be a lot better. And in the car division, we know that it could be minimal, but it will be minimal in the year 2022, 2023, 2024 too.

So I am very optimistic about what we will see in 2022 is well. I can tolerate at 3.6x or 3.8x, no problem because we know that.

We have this cash flow at $100 million, but we will be at the $130 million, $150 million in a couple of years. Then we’ll see that we can pay more of the debt.

And we will be back in two, maybe in four or five years. But it's nothing that we have the expansion to do.

It's why over $100 million that in excess of what we need to be sure that we can take some major acquisition or if we make expansion like in Brazil, we’ll not go right now, we will wait. But if we go there, it's a population over 200 million, so we will be there.

And we will bring our third stairlifts because the success of the third stairlift it should be near the market that we deliver. Our freight is expensive and will be more expensive in the future.

So what we want? In China, we will have to have the equipment to make the third stairlifts directly on the territory.

For example, we go in Brazil [indiscernible] in Brazil this morning. I don't know why, but I have six to eight and Brazil 200 millions.

If we go there with a machine, so we see that even that we have no modular, but we can deliver some things like in three days. So we try to be modular.

We don't need the Peter guy who wants to put an order. We don't need the third stair the next day.

So modularity when we have the equipment on place, it's even better because I think we have a better drawing on the steps if it's a modular product. So that’s why I'm so enthusiastic about that.

And I will not talk about major investment because right now we're making a major one and we can do so much improvement, that’s so much improvement that we concentrate on that.

Great answers. Really appreciate it.

I'll turn it over.

Thank you.

Yes. Good morning.

I guess just what to get a little bit more color on the EBITDA target for 2021. You mentioned Q1 performance and you also highlighted growth prospects that you've seen to date.

And I just wonder if you could provide some color as to what that performance has been like and where the growth prospects are coming from I guess for the first three months? Any color you can provide there specifically on the accessibility side of the market?

What's driving the performance you're seeing thus far?

Maybe if Steve or Sebastian can complete that. Bonjour Nick.

After that, I should say we are very strong on accessibility product. Just an example, yesterday I was looking at the booking for residential elevators.

And our backlog is 180 units. So we are very busy, very busy on that.

And I think this trend will be good throughout the years. As I mentioned, I see – because I looked at my stats, so I see that on Span, more on U.S.

side, they begin to have more order than they were having last year or early this year. So it's very good and I'm very proud of that.

So good work for the team down there. So that's one.

You know Garaventa, Garaventa had a tough first quarter because they are very concentrated on commercial. And on Savaria here in Toronto, we have a good mix of commercial and the residential and then they are more commercial.

So when the commercial will come back in school, the school is closed. They don't want to install a curved [indiscernible] third platform, they will wait.

So it’s coming back. So we have so many little things right and left that will happen.

When it will happen? It will happen soon.

What is soon? We know their accessibility there is growing, the people want to stay at home, and people say, no we’re not going to this aging house.

We know what's happened there. And [indiscernible] we'll adapt our house that you will stay with assets.

And that's great to have this kind of – that we see more and more. So as I said, they will be running, but I see other coming soon.

That’s why I'm very optimistic. But still it's coming.

When it's coming? Exactly, one-year.

We know the first quarter is always so slow. So that's the story.

So it is the same thing here. But we are very optimistic that will do.

And in later quarter, you will see exactly what that, I mean, where it's coming, which quarter is strong and what will happen. So after Q2, I will give you some more – you will see some very good results and you will see where it's coming, the increase.

Okay. Appreciate it.

Great color. If I could, my next question would be just on van conversion or adaptability.

I think last year you announced restructuring of that unit. I believe the goal was to get to somewhere around 10% EBITDA margins.

Can you maybe give us an update where you are today in achieving that?

Do you have next question? Imagine – people are on wheelchair and even like in Quebec, [indiscernible] at 8 o'clock.

We cannot go out. It’s a very bad period for people in wheelchair, very bad.

And if you need a taxi, we have to manage. So what is in the suite that we refer to at Quebec?

So it's not easy. It was not easy, but I think we are looking this year which make a breakeven.

Okay. That's it for me.

Thank you.

Thank you, Nick.

Good morning.

Good morning, Louis.

So today, I'm here on behalf of Frederic Tremblay. My first question relates to the Vuelift.

So last quarter you indicated that you aim to reach sales of 600 units per year by the end of 2023. Can you comment on the progress to achieve on that front in Q4 and Q1?

Yes. I will comment on that, but I have an expert here.

Sebastien?

Thank you. Bonjour Louie.

So basically, yes, we said earlier that we would like to do 600 units by 2023. And I would say right now we are probably at the pace of 150.

And I think we will exit the year at a pace of 200 units per year. And definitely we do a lot of marketing, a lot of activity, we do a lot of R&D to include the products.

Now if you see compliance for Europe, I think Handicare is going to fuel a bit also just the potential in Europe, so that will be very interesting. And in Turkey – we start to have a good push in Germany.

Swiss and Italy are working hard to make some sales. So I think really you will see that we will get there.

But again, Vuelift, it's a product that takes time because sometimes you go with some certain size orders, many months or years of construction. We’re also doing some quotation on some multi-unit project, and we measure our – so we know a bit that we are on the right trend to achieve our targets in the next – by 2023.

So that will be your answer for today.

Thank you. That's helpful.

My next question, in the past few months, have you seen cost inflation in the raw materials, sheet metal, and in a Savaria, are you aware inflation would accelerate. Can you talk about the leverage to mitigate the potential impact on its margin profile?

Yes. So definitely, there’s a little bit of inflation, I think it’s hard to hide.

But I think so far we are kind of like here, Asia prices are relatively stable. We have good contract with our suppliers.

We have some inventory or – so it’s not each project that is going up. And we always have cost saving project to try to offset some of the increase.

We do a lot of products in-house. So basically it's just the raw material, which is everything we're seeing on a sheet metal.

And, from time-to-time, we always do some – increase to our customer. So I think if there's an inflation, you've been here – over time, we'll be able to push it out to a customer, so I think you should be able to see some continuity on the margins going forward.

There will be a small bump in a quarter, but we don't see a big change going forward.

Thank you. That's it for me.

Thank you, Louis.

Hey, thank you for taking the follow-ups. So prior to being acquired, I believe Handicare was in the process of expanding its physical footprint in North America to build themselves stairlifts.

Given you have some floor space just want to get your sense of thinking in terms of how you're going to build that new capacity any sense of timeline? And maybe if I could just squeeze in a quick follow-up there just what CapEx expectations should be in 2021.

Yes. Sebastien?

Yes. So basically, we had footprint for curved stairlift was on the agenda of Handicare.

But basically instead of opening a new factory, we already have 15 factories. We have decided to make it in Toronto with the team of Handicare, basically now we're working on our layout, the layout is getting done and we expect by Q4 to be in production.

That's the target. In terms of CapEx, Steve, you want to explain a bit where we are in term of CapEx rate forward into company.

Sure. Thanks.

Typically, we see about 2% to 3% CapEx run rate. That's our normal rate for the underlying business for Savaria.

We have a few projects in the pipeline this year for Handicare, so we'll be coming in a little bit above that for 2021. But afterwards, we expect to get back in line with sort of our 2% to 3% typical run rate.

Perfect. Thank you, guys.

Thank you, Michael.

Good morning, everybody. And so just pair of questions for me.

Again, on the integration, you've had some time now since you announced the deal, and I know you've put out your synergy target, and I'm not expecting you guys to change that. But I was just wondering if you've been able to identify other areas or items that could maybe make your original estimates, whether it's on the timeline or amount seem conservative.

Or is there something that's gotten you even more excited than when you first announced the transaction?

Ask me the same question after – I will be able to make an answer more direct based on some number. Now is just some goal.

Something I prefer to – I can answer to you – I prefer that, I tell you that this is coming because we have some stats that show us what is coming.

Okay. That's fair.

And the last one for me is I was wondering if you guys are able to – and you've quantified it in the past, maybe the major buckets that drove EBITDA in the quarter, whether it was the wage subsidy and the Garaventa synergies and cost containment?

Steve, do you want to take this one?

Sure. Yes.

So we did have a few of those that you mentioned. We had the continued Garaventa synergies.

There was also some COVID Canadian wage subsidy come through as noted. We did have continued cost containment efforts that we've been seeing in the last few quarters.

A lot of that was just reigning in spending a little bit and tightening the buckle when it comes to obviously travel and discretionary spending. So really it's a combination of those factors.

Steve, are you able to – what was the, I guess the COVID contribution?

For the year, on the wage subsidy, you mean?

Yes, sorry in the quarter. Yes.

In the quarter, it was $2.5 million.

Okay. Thank you.

James, thank you very much, and thank you everybody to be there this morning. Thank you for my team.

And see you after the second quarter, so I see you in August. Thank you.