Savaria Corporation

Thank you very much Whitney. And I’m very happy to speak this morning with our Analyst, our Investor, our Shareholders.

So a little bit of history before we go. I buy this company in 1989 with four people sales 200,000.

We go public in 2002 and here we are in 2020. When I decided in 2089 to buy Savaria from a guy called [indiscernible] Savaria, I was looking as a consultant to find a company that it would be the future of me and my family.

So it is very, very long time ago. We are in that segment that stick that segment and we stick for, I wish generation and this segment about the ageing of the population.

When I look at the stick in 1989, that was we sold like in 2000 but then in 2020 the ageing of the population, and what our life is the aging of population and not just in Canada or North America is all around the world. So we get them that, we have some good partners and I always call my employee partners and because they are partners.

And so right now we have 26 direct office, we have 10 factories, we have 1,500 employees and it is tremendous. About the aging of the population and I was, I think the right vision at the time.

And now I think our Savaria, will make 27 million of EBITDA, a little bit more in 2019 so far. I think that is a profile of the people.

Even a pandemic will not stop these guys. So where the pandemic, it is not easy.

It was not easy, if more specific, like in Italy at the beginning of the year and that is that - China manufacturing, but now everything is back at the 100 percent. But it is not finished, it is why we don’t have guidelines right now, because it is not finished.

Just see what happened in Melbourne and we are in Melbourne. And now it started a bit down there.

We cannot install the elevator, the people are afraid to definitely go there for a quotation. So it is not finished, but what I see, it is just the path, but the path to that will make 27 million in the first six months.

I think for an investor, that is attending to other companies that passed through this pandemic. And we continue to pay dividends, when they will increase the dividend.

So we are very, very happy and thanks to my people. So this morning you go directly to the people that you want to speak.

F you think about finance, we have now. If we think about the question about corporations, that is the best change.

And if we think about staff, we speak [indiscernible]. And if you want to speak about the way I see the future, or we see the future, it would be interesting and I’m very happy to answer to you.

Thanks, Marcel. And good morning, everyone.

I will begin with some remarks regarding our Q2 2020 consolidated financial metrics. For the quarter, the corporation generated revenue of $84.7 million down $9.3 million or 9.9% compared to the same period in 2019 mainly due to the economic slowdown, perfection of the global COVID-19 pandemic.

Gross profit and gross margin stood at $29.3 million and 34.6% respectively compared to $32 million and the 34.1% for the same period of 2019. The decrease in gross profit was mainly attributable to the lower revenue generated in the quarter.

The slight increase in gross margin was mainly due to a better product mix and continued realization of Garaventa Lift integration related synergies, derived from the corporation’s accessibility segment. Adjusted EBITDA and adjusted EBITDA margin stood at $14.5 million and 17.1% respectively, compared to $14.2 million and 15.1% for the same period in 2019.

The increases in adjusted EBITDA and adjusted EBITDA margin were mainly attributable to a better product mix and continued utilization of Garaventa Lift related synergies pertaining process in this segment, a $2 Million COVID-19 influence retention Government of Canada subsidy and Corporation wide cost containment efforts. Now moving on to operating.

Revenue from our Accessibility segment was $60.2 million in Q2, a decrease of $6.8 million or 10.2% compared to Q2 2019. The contraction in revenue was mainly attributable to the economic slowdown, or the precaution of the global COVID-19 pandemic.

Adjusted EBITDA and adjusted EBITDA margins both before head office costs stood at $12.3 million and 20.4% respectively, compared to $11.2 million and 16.7% for the same period last year. The improvements in both metrics was due to a better product mix continued realization of Garaventa Lift related synergies and cost containment efforts.

Revenue from our patient handling segment was $21.3 million for the quarter stable when compared to the second quarter of 2019. Silvalea acquisition related growth partially offset to the anticipated revenue contraction attributable to corporation’s decision to exit from spans custom products market segments effective Q3 of 2019.

Adjusted for the exits of custom products, organic growth and revenue would have been 2%. Adjusted EBITDA and adjusted EBITDA margin both before head office costs at 2.8 million and 13% respectively, compared to 3.2 million and 50% for the same period in 2019.

The decrease in both metrics was mainly due to a sub optimal Q2 2020 revenue product mix from span partially offset by the contribution from our Silvalea acquisition we made in Q3 of 2019. Revenue generated by the adaptive vehicle segment was 3.2 million a decrease of 2.6 million or 44.6%, when compared to same period in 2019.

Adjusted EBITDA and adjusted EBITDA margin both before head office cost were negligible, compared to 0.3 million and 5.2% in Q2 of 2019. The decreases in revenue and adjusted EBITDA when compared to last year was mainly due to an economic slowdown or precaution of the COVID-19 pandemic.

By extension, the law revenue generated by a segment impacted its fixed costs absorption rates, resulting in a slightly negative adjusted EBITDA margin before head office costs. Now turning to some financial liquidity metrics.

The corporation ended the quarter with a net cash position of 41.6 million. A combination of discipline in terms of working capital management, capital expenditures, as well as government related cash deferral options were key in not only maintaining, but improving our cash position compared to the end of Q1, all while in the midst of the COVID-19 pandemic.

The corporation’s trailing 12-months net interest bearing to adjusted EBITDA ratio remained minimal coming in at 0.1 times, providing ample liquidity for potential future business acquisitions. Looking ahead, given the anticipated global COVID-19 pandemics social and economic related precautions for the remainder of the year, being able to provide an H2 forecast remains extremely difficult.

However, based on strong backlog in take in July, specifically within the Accessibility segment, and its ongoing cost containment efforts, the corporation remains optimistic for the second half of 2020. This concludes my prepared remarks.

Marcel, back to you.

Mauro, thank you very much. So, very well done.

And we are ready for the questions.

Yes, good morning guys. I was wondering, if you could give us a little bit of a sense for the monthly EBITDA cadence through the quarter.

I think you previously indicated or you called it out that April EBITDA was flat year-over-year. And now it looks like a whole quarter was flat too.

Was there some weakness in May at all and if that they transpired did you exit a quarter with a little bit more strength? Just some flavor there would be helpful.

Thanks.

Okay. And I don’t know Mauro, do you want to answer or I answer that?

No, it is fine, Marcel. I mean, usually, our quarters are usually skewed in terms of performance towards the end of the quarter.

You know if you looking at a quarter, we start off certain way and then we end up strong, so that is the usual trend for quarters. Again, you know Q2 this year is different animal you know COVID-19, really put some events of good.

But overall, I think we came out of it very well. I said we put into place some very strong cost containment efforts to help us through and depending on how the Q3 start to shape out, we are ready to do some more if we need to so.

Okay, that is helpful thanks. And maybe if you could just elaborate on the strong sales bookings in July I mean, by strong do you mean that they are roughly equivalent to last year I mean, are we trending so far close to five positives in ecommerce there would helpful?

Okay. Sebastian or Mauro.

I can answer this one okay. But I have to be careful, but some time [indiscernible], but I’m very enthusiast about what we see in July, about the booking desk here in Toronto about just to be say products.

Just to tell you, we do more Accessibility. It was our best month of booking ever.

So is it better, you can says that it is a trend for the Q3 or Q4 or always be the best quarter at several year. So I’m very optimistic, but I’m very cautious about in very short future because rather things can change.

So, that is what I can say. No more.

That is a great color, thank you. Maybe if I can just make another one, and I mean enemy Accessibility EBITDA margin hit 20% in the quarter.

Now I’m assuming the segment benefited from some ways subsidies. But nevertheless, you just hit the top end of your margin targets for that segment, again through COVID.

Right? So with the margins where they are I mean, is there much of a margins story left or is the focus now much more so on growth?

And I will leave it there, thanks guys.

Okay, good question. We can say at 20%.

But what is important that we have coming with the many view, that we made two installation so far. And it is just great.

When we saw with the house of fear 20-years old and with the new house. Just to test our products and we have more than such products what we have.

And a margin of this product that is classified into Accessibility it would be the better of our products. It is like a Savaria.

So if you look at the financial of Savaria and GM, that is two different worlds. So we are not stopping there.

We see that it can be improved with important new products. Thank you.

Perfect, thanks. I will leave it there.

Hi good morning. Following up on that, answer maybe Sebastien you can expand on with the launch of the Mini Vuelift and learning in where it will eventually be produced?

And are you able to leverage your Chinese manufacturing facility for that?

Okay, so good question. So basically for sure we always use [indiscernible] that is a key partner for us.

We do very good quality, very stable products deliver to the pandemic. We have no supply chain issue at all.

So for sure under review yet some key parts as to go to China because they are better than us to manufacture some of the parts. And look for sure, it really returns custom color is a custom travel and we like to offer a very good lead time approximately three weeks for a customer.

So basically, - to do many, many parts in total for what we are able to achieve that. After that in terms of efforts.

Since the beginning of the year, since we cannot travel I would say a big portion of my R&D team including myself, have been focus on the immediate relief to make sure that this product is made sure and had a lot of instructions myself. And we are complete this week I kept my place.

We are ready okay for a big launch and that is why Marcel to the end of the year is going to do a lot of marketing with the Vuelift because that is a product of the future, want to bring some more sales, additional sales, organic growth that goes from there. So really that is a game changer for us and that is a flagship it brings some sales over the winter, because it will boost your customer.

We always talk about the Vuelift, traditional elevator with wood cab, hydraulic or gear whatever the customer prefer. That is why we have a good trend in begin over old elevators.

So that is a bit the answer.

Nick, can you provide an update on the swing business? I understand that some patients step installation are delayed due to limited access to long-term care facilities, but does that also impact Silvalea’s Slings business?

Actually, Slings have been as quite well. There is Sling is more of a consumable type product, it is more kind of recurring revenue piece of it.

So it is not necessarily dependent on a new installation. As it relates to Silvalea, what has impacted Silvalea the most is maybe just kind of the various environments there in the UK where a good portion of the sales are generated.

They had a I guess a more difficult Q2, then rest of Europe. Although now it seems to be improving and so that is why we have quite a bit of optimism, I would say, as we are exiting Q2 going into Q3.

But the Sling business, it is helped us quite well. The margins have held up.

Well, that is why the biggest story about Silvalea throughout this period, the management team, there has done an excellent job of containing costs, managing the business throughout this crisis. So very happy with that acquisitions come on the one year mark now.

And the transfer to Greenville has also gone well. We are up to over 100 Slings a week that are being manufactured there.

So, all-in-all, we are very happy with Sling business.

Just to tell you, actually we are talking about the Vuelift. Our objective in the Vuelift is why we are very bullish with this project.

We think in year 2023 we will produce over 600, but you can do the math better than me 600, and we sell the average of 40,000 U.S.. That is major for several years and inside growth, I think.

And we will work very hard to reach this kind of number. And don’t forget just in Toronto we manufacture more than 1,500 a year.

So we see 600 is there and don’t forget to produce in China, we can manufacture in - manufacturer in Toronto. So that is the way that we are settled to sell our products right away outside North America.

Frederic your last question.

Thanks for those details. Marcel I was actually going to ask in the beginning of the call you talked about your vision, the vision we you had in 1989 when we acquired the company, if you look at the next three to five years, what is your vision for the evolution of Savaria in terms of products and geographic footprint?

Frederic you know something it take the years – something, but I feel right now Savaria balance sheet that we have, we don’t have roughly any debt we are looking about new territory. We are looking at least to buy company about just in territory, that we can be stronger in the West Coast of the region.

So we want to buy dealer. And after that, we are looking maybe to buy other companies that can offer other products.

So I see that this is a nice, small niche, but we are the leader in this niche, and who wants to complete - you have to stay there, we want to make some acquisition and we are ready. Our finance is ready to make some acquisition.

So I’m very - I would say I just signed a contract of four years with the Board because I’m there, I like to be there, I love and I love that my people and including my two sons, and my girl work in that company. So we are there to stay and be there for wide leader.

Okay. Thanks everyone.

Okay. Thank you Frederic.

Can you please provide any details just some of the July order intake that were mentioned in the press release product and type was that all many viewers or something else?

I would say just that we have the best booking Accessibility. Accessibility is our you new project the Vuelift, but is residential elevators.

We have a strong mind about stairway, straight stairway and curved stairway, good order on that one, but don’t forget that Toronto is not the only company, the only division, we have other division. But remember one thing when we speak about Toronto about Accessibility that represent a good chunk of our operation of over 40% of our EBITDA is coming from Toronto.

So I’m very optimistic because we receive this kind of order in our main manufacturing where we make profit, or we will make EBITDA.

Okay that is good, thank you. And on the Adaptive Vehicles segment, EBITDA is now at breakeven at the current revenue run level, plan is going to potentially become an EBITDA drag if there is no more revenue contraction or if there is no revenue contraction.

Does Savaria have plans to cut costs there and avoid that or alternatively is there kind of a way to get revenue to start rebounding?

You were in Montreal yesterday or lately, because you exactly say what it is, okay. Right now with the production that we have, we are going nowhere, and going nowhere in not my strategy.

So we put in place - we have conditional guy that is coming from [Magnol] (Ph). And we put in up here a couple of months on there to present the plan.

We want to produce 20 cars a month and make an EBITDA of 10%, and that is what started yesterday. So you have a good timing to this question.

Okay. So, just to confirm those numbers, you are hoping to get 20 cars produced per month?

Yes. But right now we can produce a 35, but it is not to be as sick, because we don’t sell 35.

So I cut that to 20, but I cut that to be a - I want to make them present to do and that is what we will do at the end of the year. So next year, you can see, okay, our - that is a good retail segment in the car industry.

That is easy, but that can be a contribution of 10% and it would be there for 21.

Excellent. Thank you Marcel And last one just to come back to the question about the strong balance sheet and potential M&A.

Do you guys have an active pipeline that you are working on? You found COVID as a headwind that has kind of stopped that, should we -.

No, no, no. We are looking, I would say we have in our team a guy called Nicolas Rimbert.

And this guy is good and lots of people around the world for sure right now we are cautious about the acquisition for from us. And we are cautious about the price that we will be, but we have some very interesting booking.

Okay. That is great.

Thank you very much.

Okay.

I guess a couple of questions for me. First, you guys talked about more synergies on the Garaventa side.

Can you speak to how much more synergies or how much more cost you guys think, you can take out of that business before we see the margins on that side? They are really fully exhausted?

Sebastien.

So basically, for sure North America at Garaventa is improving and getting closer to Savaria not there yet, but we have some time to improve with some more purchasing within Asia, more productivity, Vancouver. But the biggest gain is, we will be in Europe, because in Europe, we have to improve our product mix.

And that is something which is in our R&D agenda that in the next two years, we really want to make sure that we have every product complying for Europe, and then we will have really the full house of Savaria, Garaventa to be competitive over there. So if we want to be successful, we need to make sure we sell the right product at the right margins and like Vuelift that is something that all our country Italy, Swiss, Germany, Poland and Czech are making some effort of marketing to sell the Vuelift.

We need to remind one thing, the Vuelift is a long cycle time. For sure, the guidance we retrofit, it can be faster.

But if the guys visited us, it may be one year to two years. So at the beginning of planning, you need to get some drawings and - round the Vuelift.

So we have to make sure that we plan our expectations correctly. But definitely geographically it is on our agenda.

As soon as we improve in Europe, we should be able to see all Garaventa much closer to the Savaria margins.

Okay. And second question with regard, I think, you obviously talked [indiscernible] in the quarter still being back at full capacity from a plan perspective.

What about some of the employees you have either working for temporary layoffs, have all those employees come back to work and if not what is the expected timeline?

Maybe put to the people what you have done in Toronto, our main manufacturing about the security the security on this pandemic. And I state of people, who are working home, it is about, this about the sales people and administration.

Yes. So basically we have full of people working from home.

Don’t forget we are manufacturer is pretty hard to assemble in the delivery in terms of [indiscernible] actually at home. So something to manage your production, if you are not there.

So after that installation wise direct office, we have to go to site to make some installation. So very handful numbers of people are working for home.

So most of our staff is back to work. In terms of prevention, we have provide masks to all our employees at the beginning of the pandemic, I would say all our factory are wearing mask, a visit some area where you might think they were not wearing it, but they everywhere is doing it.

And we have a make a test in Toronto first to do some temperature check of each employee where we saw some camera system in the door, each employee needs to go and come through the door. And that is something that we have the intention to roll up in all our building, just to protect our employees.

And then we have been lucky so far, the employee has been very transparent, very responsible, so if they were not feeling good, they stay home, and so I think people have been very responsible since the beginning of pandemic.

Okay. And then last question, obviously looking at some of your competitors in Europe, specifically Handicare those guys are relying a lot on the stair less market, but they are also restructuring their business and looking to make another go at their North American operations.

Have you guys seen any change on the competitive front from them? Or do you anticipate anything to change with regards to North America either in the second half of this year or 2021 from the likes of Handicare -.

I will tell you first of all, how many years you are probably with Savaria here?

I would say about seven, six to seven.

Yes. I think you are, you have the all this guy okay.

And it is [indiscernible], just want to thank you on that. And Handicare yes, I was disappointed with their financial of Q2.

And for sure for them they make just straight stair and curve stair [indiscernible] in North America about patient, okay. And because we sell their operation and distribution and the strategies in Europe, so they have just North America.

This is a great company with I think a lot of good potential they want to be more in North America and us, we are looking to have new products in our background even if we are manufactures straight and curve okay, they are not in at the same level what they have. So they are okay but don’t forget they have just two product straight and curve, and this segment that is very, very small for us.

So we always see the future.

Okay, thank you and good job on managing this pandemic. Thank you.

Thank you very much Nick.

Good morning everyone, congrats on the quarter. Most my questions have been answered, so I have two kind of longer term ones.

Could you comment on the level of collaboration you have with architects and designers to get your products locked into designing inspections for new developments?

That is a good one, this is why I decided. And maybe the first time in my life of Savaria, we decided we need to be stronger, in front of the builders, in front of the people who make a decision.

So rapidly you go to see a designer or you go to see an architect. We want to be in their face, and we will push that further in 2020 and 2021.

For sure, right now, if we don’t have any exhibits, as we go see the others. So we would be very active on [indiscernible] and that is a good start to see our new products that are going out, don’t forget that you are near the ocean, you take generator, that is in grass and you see ocean to go to the second or third floor.

If you do that, you don’t even ask what is the price, you just asked when do you install one. So that we want to be that be more present basically our products will be at some video and we are a new personality and marketing just visiting to architect builders designer.

So you will see our products a lot more than you see that in the past.

That is great color thanks. And then you mentioned very interesting things cooking in the pipeline.

In the context of the pandemic what are your thoughts on completing M&A without traveling to see operation?

But you know, something, we discover and not just me. A lot of people discover what we can do like on them, because of themes that we use the more often.

You think [indiscernible] yesterday we have our Board. And I think that’s one of our best Board and discuss best thing that is in place.

We can do a lot things on the due diligence not on price. For sure, that thing can be better than to be in front of the people.

But I think, we can make some acquisitions. And we can go there and distribution would change and I wish in six-months or nine-months.

But you know close something in three, six or nine-months we have to work right now. So a lot of thing can be just paid within the next.

That is very helpful. Thank you.

I will leave it there.

Okay. Thank you.

Good morning. Just on the pandemic relief reprogram.

Is there any expected benefit for Q3?

Sure. I would pass you, I have one of expert and it is Mauro.

Good morning. Right now we are still looking at the programs for Q3, because these programs keep changing every day.

I know they have been expanded till the end of the year. But the conditions keep changing whether or not we would be able to qualify.

As we have indicated and we are looking at our cost structure. And depending on whether or not we qualify for some of these programs, we will adjust accordingly to make sure that, we maintain our evidence, cadence going forward.

So right now, it is still a little bit early. I said we are looking into it.

And if anything comes about it, we will definitely indicate that in our financials and MD&A in Q3, just as we’ve done in Q2.

Thank you for your conservative answer Mauro.

It is the correct answer.

Just a broader question. There are still focused on home care in the U.S.

and in Canada just given the pandemic. I’m wondering, if there is any type of government programs where your end customers could potentially access as far as upgrading their homes and their mobility solutions.

Are there any of those currently available and anticipate that could be a change going forward?

It is very difficult to say what government program may or may not do, there are some tax credits that are available when you make your home accessible. But beyond that, in terms of direct grants, unfortunately, especially for some of our higher end products, Marcel talked about the Vuelift, or even just the traditional elevators, I don’t know any government is going to be ready to put everything in house personally.

So I think for those products, regardless of what is going to happen, they won’t be affected for other products such as stairlifts or some portable lifts. There could be certain government grants or government incentives in place.

The VA for example, does offer a certain programs and when we think about insurance schemes as well. There are kind of certain areas were insurance might be a portion of certain accessibility products, but for sure it is mainly cash pay right now and we envision that for the future as well.

And jus on the traffic Justin, don’t forget the people want to stay home, they don’t want to go anywhere anymore at this kind of presidents that was very tough with the pandemic [indiscernible] that was stable to what has happened there but we are very good house but some are a little bit they need to be upgrade. And I’m sure some people or the government we want to pay the people stay home since they home.

And they like in England, okay, they are more favorable at the beer person stay on for the decent rent to the people. And I’m sure that would come one of the views in North America because that people don’t want to go there.

And their son or the doctor don’t want to put these man at this kind of house. They would prefer to be say that these to have their house, or the cottage or something like that.

So Justin very good. So we have made some loving development.

I will do my best and it will be interesting to see how that develops. But those are my questions.

Thank you very much.

Okay. Thank you.

Okay, so Whitney, thank you very much to be the manager of our call and I wish you a very good day.