Savaria Corporation

Thank you, very much Marcella. So I have with me Mauro, our CFO; Sebastien and Nicolas Rimbert, 2019 is a great year for Savaria when you have like four best item okay who grew at 30, 37, 38 revenue 30%, gross profit 34%, net earning adjusted okay and it's net EBITDA just stood 37%.

That's great, great number. That's the participation of all our people or integration.

So it's really good and so you are at the time, I will be concentrating right more on thinking about outlook, what we see coming, what we are okay and I am very with that at the beginning of the year. We have new products.

So we very optimistic for 2020 but first I will pass the line okay to Mauro, our CFO.

Thank you, Marcel. Good morning, everyone.

I'll with a general overview of our financial before moving on to operations. The corporation generated revenue of CAD374.3 million in 2019 up CAD88.3 million or 30.9% compared to 2018 mainly due to acquisitions.

The corporation's accessibility segment grew organically by 3.2% while revenue within the Patient Handling and Adapted Vehicles segment contracted all in line with management's expectations. Gross profit and gross margin stood at CAD125.3 million and 33.5% in 2019 respectively compared to CAD93.4 million and 32.7% in 2018.

The increase in gross profit was in line with the increase in revenue. Gross margin as a percentage of revenue increased mainly due to a combination of a better consolidated product mix and supply chain synergies.

Adjusted EBITDA and adjusted EBITDA margin for the year stood at CAD55.6 million and 14.9% respectively compared to CAD40.3 million and 14.1% for the same period in 2018. The increase in adjusted EBITDA was in line with the increase in revenue mainly due to acquisitions made in 2018 and 2019.

The increase in adjusted EBITDA margin was due to the integration-related improvement in Garaventa Lift standalone adjusted EBITDA margin as well as improvement in patient handling adjusted EBITDA margin due in part to the exit from Span's custom products market segment and an increase in patient lift revenue. The adjusted EBITDA and adjusted EBITDA margin derived from Silvalea on July 1, 2019 also had a positive impact on the Patient Handling reportable segment's adjusted EBITDA metrics as a whole.

Now moving on to operations; revenue from the Accessibility segment stood at CAD265.7 million for the year up CAD97.1 million or 57.6% compared to 2018 due in large part to the acquisition of Garaventa Lift made in Q3 2018 and Florida Lifts in Q1 2019. Organically, revenue grew by 3.2% mainly due to an increase in core residential elevator unit sales in line with management's expectations.

Adjusted EBITDA before head office cost was CAD44.2 million for 2019 an increase of CAD14 million or 46.4% compared to the same period in 2018. This increase in adjusted EBITDA before head office -- before head office cost was mainly due to acquisitions made in 2018 and 2019.

Adjusted EBITDA margin before head office cost stood at 16.6% compared to 17.9% in 2018. The decrease in adjusted EBITDA margin before head office cost was due to the blending of Garaventa Lift's operations which have a higher structural cost base when compared to Legacy Savaria.

Garaventa Lift's standalone adjusted EBITDA margin before head office costs stood at 10.6% for the year steadily improving from 7.3% in Q1 2019 and in line with expectations. On a standalone basis and excluding the favorable impact of the adoption of IFRS16 leases the Legacy Savaria accessibility reportable segment generated an adjusted EBITDA margin before head office cost of 21.8%.

Revenue from the Patient Handling segment stood at CAD86.9 million for the year a decrease of CAD2.9 million or 3.3% when compared to the same period in 2018 mainly due to lower revenue from Span's Custom Products market segment partially offset by Silvalea acquisition-related revenue. The lower revenue from Span's custom products market segment was in line with management's decision to exit that segment effective Q3 2019.

Adjusted EBITDA and adjusted EBITDA margin before head office costs were CAD12.1 million and 14% in 2019 compared to CAD9 million and 10% respectively in 2018. The increase in both adjusted EBITDA before head office cost metrics was due to a better product mix from Span, the contribution from our Silvalea acquisition and continued cost containment efforts.

On a standalone basis and excluding the favorable impact of the adoption of IFRS16 leases, adjusted EBITDA margin before head office costs would have been 13.5%. Cost and provisions pertaining to the corporation's decision to exit from Span's custom products market segment totaled US$1.6 million US lower than the corporation's initial estimated cost of US$2 million.

Revenue from the Adapted Vehicle segment was CAD21.8 million in 2019 a decrease of CAD5.9 million or 21.2% when compared to 2018. The decrease in revenue compared to the previous fiscal year was due in part to the termination of a nonprofit organization of vehicle accessibility program at the end of 2018 as well as the nonrenewal of a province of Québec subsidy program for Adapted Vehicles in 2019.

Adjusted EBITDA before head office cost for the segment decreased from CAD2.2 million to CAD0.9 million in line with the drop in revenue. Adjusted EBITDA margin before head office cost was 4% compared to 7.8% in 2018.

The decrease in adjusted EBITDA margin before head office cost was mainly due to reduced fixed cost absorption. Excluding the favorable impact of the adoption of IFRS16 leases adjusted EBITDA margin before head office cost would've been 2.2%.

Operation 2019 was a transitional year, the corporation continued its integration of Garaventa Lift and exit Span's low margin custom product segment, leading to an improved consolidated adjusted EBITDA margin profile. From a strategic perspective, the two tuck-in acquisitions made during the year Florida Lifts and Silvalea increased the corporation's market presence in a key accessibility segment geographical area and added a complementary product line and new distribution channels to its Patient Handling segment.

We have very strong balance sheet and a net interest-bearing debt to adjusted EBITDA ratio of 0.2 times. The corporation is on solid ground to take advantage of both opportunities.

Turning to the current worldwide COVID-19 outbreak, we are closely monitoring the developments surrounding it and have taken the steps needed to protect our employees and stakeholders. The corporation is and will continue to align itself to guidance being provided by the various levels of government and agencies pertaining to this outbreak until its resolution.

Marcel back to you.

Very good, Mauro. It's always not easier but it's always fun too when you have good number of each to our people and you have are making a very good job.

So let go to hear what our people have to ask. Operator?

I'll start off on largely on the quarter and the year but obviously we'll to grasp but what the future holds. So as most economists are calling for pretty severe contraction in Q2 when we gain housing starts to decline by more than 10% US in 2020.

So for each of your accessibility subsegment I understand they have different sensitivities to the cycle, but can you just give us a rundown on how to think about the businesses as we potentially go into downturn in the next two quarters.

Okay. It's a pleasure.

For sure we are company who have the most important on the residential elevators. So that we can then articulate a bit but we are in many different territory but for sure okay that's very important for us.

Span we have an opportunity to grow okay on the metical side and when I see that [indiscernible] and everything I still very positive about 2020 but you are right, the elevator can be a little bit contraction in this accessibility six months for us. Sebastien, do you want to add something?

Yeah maybe and it's important to understand also we have some new products launch this year. We have been using within a home elevator.

We have a new [ph] attraction elevator which we're the first in the market in North America to have that. We have a mini Vuelift which we have a lot of open on mini Vuelift it's just a smaller version of the existing Vuelift.

That's something we are going to launch in Europe and North America. Even now may be some of our dealer are working a bit more from home but next week we have like five webinar with over 100 architect builders and dealers just talking about those new products.

We still see a lot of orders coming into the factory. Maybe some order to postpone little bit later but still as of right now our main factory are working except Italy and the Montréal car conversion.

The main location is busy at this time.

Okay. Thanks for the comment.

So just on the elevators I think you gave pretty good color obviously macro decline, some share gains potentially, patient handling feels like a set up to actually gain from what we're going through. Just any comments on stair lifts and platform and then just comments on Italy all well that you eluded to.

So basically Italy we have a shutdown for the next two weeks but we have been able to provide all our delivery to a different direct office so that we can put it to work in the next few weeks. So we'll see what was happen.

That one point it's important the country as to shut down a bit just like what it did in China and China did a very good job and they have shutdown during the Chinese new year and then 2.5 weeks more for a case. We're back in production since February '19.

China did not cause any disruption in all their supply chain because we have been able we had a good straight on our finished goods which is three weeks in North America, three weeks in China and at the beginning of that virus we have decided to ship all our finished goods to North America to make sure we'll have no disruptions. So as of today China is back up and running at 95%.

It will be at 100% next week. We just did a good job with all their precautions that have to do.

So the same thing has to happen entirely and this is what they are going to do in the next two weeks and hopefully after that, things will going back to normal gradually. So that's a bit.

After that stair lift that's something that last year we had decline on the stair lift. We want this year that's a focus for us.

We to have a go on our stair lift. So we have put some curved stair lift into production in Vancouver and Italy.

This is something that's to grow in the future and again we have a lot of hope on our mini Vuelift. I think that was going to help okay.

We don't need construction, we can put that into existing housing. So we're going to try to make sure we can generate some marketing growth with some new products.

And as they would have [indiscernible] that's an opportunity. There is a lot request for beds.

Right now we're working on the Beamsville to increase our capacity and even we're going to make some parts of beds into our elevator factory in Brampton just to support okay our bed factory. So we're very committed to that.

Sling, Nick will talk more later but we've put a lot of energy this year to put that into production in Greenville. So I think you'll see a good ramp-up into distinct sector this year.

And just for the financial question okay we -- when China go back okay to production for us, we're lucky to be set agenda. So we'll see what's happening in China okay.

So February '19 back roughly at 90% okay and with zero case of coronavirus okay and as of yesterday our most 100% of the people are back and they're okay, so no case okay in our factory from February to date. So we can say that as to my what can be the trend here in North America but I think to the people okay their discipline is very different in North America than in China that's two different kind of people okay but that could see that people are very disciplined.

We're get out of that, but it's something that we'll be resuming one day, Thank you very much for your question.

So first of all let me give you guys complement on managing the year supply chain. I think you guys have been doing a really good job obviously with China Italy and now the virus moving to North America again kudos on that front.

Just to try understand obviously you're pulling the guidance, so I just want to understand how Q1 you indicated that's in line with your expectations. Can you give some color as to what you were seeing on the demand side on sales and for that matter in stalls in Italy starting Italy and then more recently in North America as most of the confidence that's in quarantine.

Okay. Just to be may be more or less opportunist than I am I would pass that to Sebastien, that very much our operations.

So basically for sure we saw the first two months was pretty good. The last month of the quarter is always a push.

So March has been finished. We're working hard to push the maximum.

So far even today like on Monday we had a very good deal of order coming in may be some dealers are staying at home and pushing all the orders for the next few weeks because they want to make sure it will go to production. Italy you had it closed for two weeks but they had a good first start of the year.

They have some new product that they are making to production. So it probably changed also in 2019 for Garaventa.

All those store has been profitable in 2019. So we started with 2020 with a much solid base, there has been a big change of culture within the Garaventa.

Congratulations to all original manager and Mr. Vincent to push that through.

So I think we're going in the right direction and we continue with a lot of incentive just to build on that.

Okay. And just looking at I guess your Patient Handling segment sales are ramping up, so that's good to see.

I think you guys gave some commentary that Lifts [ph] is gaining momentum but this quarter we saw the margins come down or any color there as to how we should be -- it looks like you got a better product mix but on the other hand margins were down. Any color there.

Yeah we have it this year. We're starting that.

Hey Nick so turning to margins in the quarter, I think it goes down it was at 14.9% versus only 15% in the prior quarter. So I would probably state that is more in line with what it was in Q3 as opposed necessarily a decline.

We're talking about 0.1% of the difference there. I guess overall I would say that we led to the custom products and we look at kind of back half of 2019 where we also had the contribution that came from Silvalea where again there is a ramp up that's involved at Silvalea.

We fully expect that Q1 going forward is going to add to that margin improvement. So as you look at kind of 2020 as a whole, last year we accomplished 14% for the entire year.

Our expectations this year of course is to get better that given that we don't have the custom products which kind were a drag on the first part of 2019 numbers. So we fully expect to go above and beyond what we were doing last year.

Again what that means we'll figure that out as the month and quarters progress but we can fully expect 14%, 15% increase up over the last year is expected in the Patient Handling segment.

And don't forget it went from 2018 at 10% to 14%, so four points change is a lot of team effort from all the Span team and from Jim our President over there. So it's a hell of a work to go from 10% to 14%.

I gave you guys compliments and certainly on the Garaventa side you guys did a good job on the margins front there. Patient Handling just try to understand if there's any if you're coming up against any resistance.

It sounds like that's not the case and just keep going forward. Just a last question on the Q1 and Garaventa typically a seasonally weak order, is that the way we should be looking at again or has there been things that you guys have put in place over the last year and certainly pushing more and more into North America with the Garaventa product line and into Italy is a seasonality that we saw historically is less of a factor this year and I'll leave it there thanks.

Thank you but yeah I am very optimistic about what they give us okay so far in the quarter and Sebastien is in real contact with Vince that maybe you can take a little bit about this question Sebas.

So first of all if you look at Gavin the last year we went from 2018 from 5.9% of EBITDA to the average of a year at 10.6% but it has been a continuous improvement from the beginning to the end. I think we said it on our original outlook Q1 should mirror last year.

Winter is winter, construction is slowing down. So I think we always the art to where we're set the first quarter but differently we should continue to see an improvement through the year for Garaventa starting from Q1 to finish through Q4.

We hope this year we can improve by 2% on Garaventa by continuous improvement on our purchasing, on their pro-activity in the factory to be more efficient and just continue to build on all are stores to be profitable and we also have some new product introduction like the mini Vuelift for Garaventa and some stair lift that we make. We see a little bit this year that we're doing in Italy and Vancouver.

So all this product mix should continue to have Garaventa through 2020.

Okay. Great.

Thank you.

Thank you, Nick and I just add something there many units is something incredible for people around the world even maybe three weeks of four weeks. We'll put one in my house here in Georgetown okay that will be accessible and it would be put inside of my stairs.

So this project it's magic, easy to install. It will be just a little bit or if you don't have basically put a ramp me decide not to have it.

So I just put all okay and it's amazing. So you'll see that when I will pull that maybe four weeks what is that.

So from zero we put out accessible just at the right place. So it's fantastic.

First question on Greenville I was just wondering if your could provide an update on the ramp-up of manufacturing or patient lifts and sling and just to know as well ultimately what would be the revenue capacity of that facility. I know you're talking about $20 million target for sale by like 2021.

So just curious if we get back the ultimate capacity in that facility.

I will ask okay to Sebastien and Nicolas to answer this question for me.

I'll start. So first start with the slings so the slings as we mentioned I guess on our last call we're transferring production or certain production to Greenville.

So we're ramping up there in terms of the equipment that we have. So equipment specialized.

So equipment has been installed. We have an automatic cutter.

We have sling testing machines and so we're certainly ramping up right now. We're probably doing around 100 slings a week.

So that's a nice ramp-up from zero just a few months ago. So we are seeing a steady increase there from sling production and seeing that ramp-up.

Your initial targets are in that kind of 400 to 500 slings a month and then ramping up from there the demand estate. As it relates to the ceiling portion of it there again we do and it's important to note that we produce within both facilities and so in Greenville.

In Greenville it's primarily dedicated for the US market and Magog primarily for the Canadian and European market. We're optimistic I guess cautiously optimistic that we are seeing a pretty good ramp-up in sales ceiling lifts.

That first year I think we talked quite a bit about this going from having that one portable product. We sold a million dollars worth in 2017 and then going to $3 million in 2018 as we kind of expanded the product category.

Last year at $5 million and so we fully expect a ramp-up in those numbers as well in 2020. At the same time we're adding slings to the mix right.

So if you think about the slings that it's contributed by Silvalea and we're talking about $8 million or so of slings. So we're thinking about our $20 million there I mean it's very realistic the ramp-up in sling sales to the North American channels to get there in 2021, I think it's very realistic target for us.

And just in terms of capacity we've said it in the past, at Greenville we've moved the custom products rights. So there about40% of that facility has been freed up.

So I am not saying that we're going to fill that entire square footage. We have 180,000 square feet in Greenville.

So I am not saying that it might all be filled up with slings and with lifts. We're also building a showroom there.

So there is other kind of improvements that we're making at Greenville as well where in terms of capacity we're very well -- we're able to ramp up. So there is no increases that are necessary in terms of footprint to get to that $20 million.

Sebastien, what you do in Beamsville.

Basically in Beamsville okay as we said a bit earlier we are ramping up the production. So because all the demands of beds we're looking to work seven days a week for 24 hours a day.

I'm sending my production director over there toward the next few weeks to have them to ramp this up and we're going to make some beds parts in our Brampton factory to get delivered to one. Also we have some new product this year which is important to talk.

We have a new bed with scale that we can monitor the weight of the portion in the bit and after that we have some new products for the ceiling lift like a lift which is up to 1200 pounds which has the highest capacity on the market. We have some new gates product that fix lift can go from one room to the other.

We have a new range of sling. So I think there is a lot of different activities, which is happening to support this Span growth.

And maybe just one last thing Sebastien there. As it relates to the investments also we talked a bit about certain personal that we've hired.

So we're increasing I guess on the sales side as well our reach expand primarily may recall that the long-term care focused opposed to care focus. So we have put investments in there to tackle some of those acute care accounts.

So that's something else that we're kind of trying to push towards as we move in 2020, which will increase some of our sales in that segment. So just expanding a little bit broader just long-term care and home care, we're trying to penetrate the acute care market as well.

And we have a new director of sales right.

So we have a new guy right.

We have a person I guess a couple people that we've added on to the team there that have experience in that segment and that also have I guess corporate account type background that will be able open some doors for us primarily in the acute care side of things. So that's also something that we're very excited about as we look to 2020, 2021 to grow that segment of the market as well for our products.

And if you look at your outlook for raw material cost given the current environment how does that look going forward.

We're always on the case Fred as you know okay. There is no classic increases so far this year and this morning when I was travelling to the office very early I saw that the gas price was going down.

So I said to my purchasing manager maybe it's time to review our price of distilled, but we always are on top of the game to make sure we review if there is a cost saving opportunity to transfer some new parts to China that we work to be more productive what is the cost of the entrant. So I think we're very proactive on this part.

And the last question for me before Marcel you mentioned in the past that you will look to be active on the acquisition front in 2020. There the current situation shift that priority?

We had some with some people and we pushed that by the end of August to continue negotiation if it's there and when you look at I always see the good side of something that's my nature and I am of this nature and our advantage forward was 130 but earlier or later last week I put some forward for three years at 142. So you can imagine okay that's again I see some very good medicine when we'll go back full-time that when you collect that 142 that's not too bad.

First question for you and we touch on this a little bit I just wanted to clarify with the situation evolving very quickly even in the last few days have you seen a noticeable step change in demand?

No.

Thank you and next one…

If I speak too much. So no.

Is your business listed as an essential service in each of the geographies you work in.

Yes.

And then this one we'll get a little bit more in depth, how much of your revenue is from the installations outside the residential so in public spaces.

That's always a good question, so when there is a good question it's better to say that. No just to give you an example about working [ph].

But me okay like in Toronto what is good about maintenance that's an essential service and we're classified with that okay by another or by Québec okay. So our revenue okay it's like 20%.

So I am with right now always put the maintenance contract to all our office even with our leaders. So we feel always good that you have something that's come back month after month and the margin is very good on that and people need.

You are in a building, you need an elevator and function okay and we gave service 24X7. So we pushed that and I think our customer appreciate that.

Maybe I'll just jump in here Zack as it relates to the breakdown here I guess a lot of focus for Savaria and where those elevators are important for us but as Marcel pointed out we generate 15%, 16% of our accessibility revenues do come from parts maintenance and service. And then outside of that certain of our products are commercially oriented.

So of course elevator but if you look at some of our wheelchair lifts, most of the wheelchair lifts are installed in commercial settings and again this is for ADA compliance. As we look at various building codes throughout the US and Canada we also have I guess our elevator as well which is more geared toward the commercial setting.

So I would say we're a bit balanced there. As it relates to residential versus commercial installs on the accessibility front and they you got to think that we also have that Spain business which is about 25% of our revenue and that again isn’t necessarily impacted by certain down kicks and in housing starts or anything of that nature and that's more geared towards the current healthcare environment which at the time was actually quite positive.

Again negative COVID-19 I don't want to downplay that but in terms of our sales being we're planning sales that are helpful in this current environment.

That actually leads in my next question which is if this pandemic response extends into month or if we see a recession afterwards. How dependable do you think that patient handling revenue is under pressure?

This is a very busy it's a unique type of recession. Again I don’t to go into that.

I'm not an economist but the idea that if we get pushed into recession this would be geared it would be driven by this virus, this COVID-19 virus that we're talking about it post any sort of other financial or bank related recession. So for us I mean I would say that our revenues would be building up pretty strong here.

I mean in terms of demand we can't go into much detail as to what impact it might have and it's quite early to tell, but for sure there is a lot of interest around our beds and services. I mean there is as you well are aware, there is a shortage.

There is bed shortages in the hospital or top care facilities and there is a surge that may or may not be coming. And so to the extent that happens, I think we're quite well positioned with our product category of bed, of mattresses and of swings lift in swings.

And just one last one for me, on the front of protecting employees and putting in place more measures to make sure that everyone is safe and respecting hygiene, what kind of cost you think with those initiatives?

I don't think that cost is a very because but for sure we have put a lot of measure in place first is to follow the government regulation, We do some isolation of when people are sick or are coming back from a travel. Now there is no more travel but there was two weeks ago.

Good hygiene we'll talk about more sanitization station. Right now we're looking to sanitize all our factory in the next few days.

We recommend people for social distance. So it will be biggest cost.

Marcela can talk about it. He had a great memo last week for your employees.

Yes. That's right and I don't know if you read that but we participate with our employee good or bad news okay, we're there with them and I decided last week okay to give each employee from the guy who is in the shipping or the VP I gave them a $1,000 okay and you should see that things that I received from my people okay is just that's creativity is going to receive the money okay but that's created more evidence of salary that you look at those.

What the company is doing for us and I decide okay that you are in the states are you just change your currency okay and you said like this, they could be around 100 but in China with RMB and when you receive that it seems that I will be the Prime Minister of I don’t know China. Everybody loves me so much down there and it's just a good thing that we participate teamwork.

The majority of my questions have been answered. Just had a couple here.

First is I know you talked about the potential impacts from COVID-19 but I guess I am more interested on hearing from your guys how much on the expense reduction side can be done in the fact of if there is any further stoppages or disruption related in that.

So basically I think we're as we've said a bit to all our employee we go at that time. First of all we try to done in advance but we just see what is happening in every state and every country because we are at many different places and since we try to update our employees every week about what is a new measure that we can put in place.

So we really have to go one week at a time to see what's new measure we can put in place to protect our people. I think so far we have tried to be very proactive, example like we have limit access to our showrooms just by special appointment.

We try to some webinar with our customers. So I think that's a bit what the best we can do for now and with over time all of this situation and we are not the only company in this.

It is the same for every company.

For sure. I agree.

And then just a final one for me I think you alluded to this pretty much the majority of the call but I was just wondering if there is anything addition color you can provide. You guys are a company that has operations in Italy and China some of the early markets that seemed back from COVID.

Just wondering if there are kind of learning from being in those markets that you guys think you can incorporate into the other markets you're in that. It seems like sector faced kind of similar disruptions.

Yes Sebastien please fill in if I miss out here but you're absolutely correct, we were able to fortunately experience this kind of first and the measures that we're able to take in China and kind of whether it be from providing mass hygiene stations at employees really the sort of separation. It is a thing that we've been able to kind of experience unfortunately firsthand in China two months ago and so those are the things that we are looking to learn from as we plan for a potential similar kind consequence here in our factories in North America.

So I would say we have learned from those experiences, might be able to speak to some certain specific example but that is kind of a benefit that we were able to go to China and Marcel said earlier on February 19 we're back into production, now back at 95% production a few week later and so yes it did take two months but we are back at full speed now from our experience there is China. So Sebastien do you have any specific details you want to mention about what we might be able to learn from that.

Again it's a discipline, people will have to be disciplined and we see that slowly once everything get under control. Life is coming back to normal when I'm speaking to my people in China.

People are starting to go back to the restaurant starting to go back on the street, starting to think about the buying elevator again okay. So we just go into one step at a time but first is to be discipline that's what was the best we can do for now.

So thanks everybody okay that your interest in Savaria. I think okay you will see that we are -- we'll always benefit our diversification on territory and products okay only is a tough period.

We are I think at an advantage with many people and I repeat with a good again to generate that's just okay you have very well position for the future. So thanks again I think to look at Savaria.

So Marcella thank you very much.