Savaria Corporation (TSX: SIS), a leader in the accessibility industry, held its Q4 2023 earnings call, outlining its strategic and financial progress. CEO Marcel Bourassa shared an ambitious goal for the company to reach $1 billion in sales with a 20% EBITDA margin by 2025.
Despite facing challenges in Europe, the company reported a solid performance in North America and remains confident in its growth trajectory. CFO Steve Reitknecht reported a slight revenue increase to $216.8 million for Q4 and an adjusted EBITDA of $35.1 million. The company has also completed the sale of its Van-Action and Freedom Motors divisions, aligning with its focus on core operations and strategic acquisitions.
Key Takeaways
- Savaria Corporation targets $1 billion in sales and a 20% EBITDA margin by 2025.
- Q4 2023 revenue rose to $216.8 million, a 2.2% increase year-over-year.
- The Accessibility segment saw a 6.2% organic growth, while the Patient Care segment declined by 5.4%.
- Savaria ended Q4 with a stronger cash balance and anticipates average costs of approximately $5 million per quarter in 2024 related to the Savaria One program.
- The company sold its Van-Action and Freedom Motors divisions, aiming to offset this divestiture with strategic tuck-in acquisitions.
Company Outlook
- Savaria is confident in achieving its 2025 financial targets.
- The company will provide more detailed information about its growth initiatives at an upcoming Investor Day in April.
- Savaria One program and tuck-in acquisitions are central to the company's strategy to drive growth and enhance market position.
Bearish Highlights
- Europe is identified as a weak market, with challenges in forecasting project timelines.
- Sales for 2023 are expected to be lower than anticipated and below market expectations.
Bullish Highlights
- North America remains a strong market for Savaria.
- The company is optimistic about its business and order intake, despite project completion uncertainties.
- Savaria anticipates high single-digit growth in 2024.
Misses
- Revenue loss from the divestiture of the Van-Action and Freedom Motors divisions.
- The Patient Care segment experienced a decrease in revenue.
Q&A highlights
- CEO Marcel Bourassa emphasized the importance of finding buyers who will benefit the employees during divestitures.
- CFO Steve Reitknecht disclosed a gain from the recent sale to be recorded in Q1.
- The company focuses on organic growth and strategic acquisitions to reach its $1 billion revenue goal.
Savaria's leadership team, including CEO Marcel Bourassa and CFO Steve Reitknecht, communicated a clear vision for the company's future during the Q4 earnings call. With a strategic plan in place, including the Savaria One program and potential acquisitions, Savaria is positioning itself to overcome regional weaknesses and capitalize on its strengths in the North American market. The company's financial health, underscored by a growing cash balance and a manageable net debt position, supports its ambitious growth targets. As Savaria continues to navigate the competitive accessibility landscape, stakeholders can look forward to more detailed insights at the upcoming Investor Day in April.
Full transcript - None (SISXF) Q4 2023:
Operator: Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation’s Q4 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] This call may contain forward-looking statements which are subject to the disclosure statement contained in Savaria most recent press release issued on March 6, 2024, with respect to its Q4 2023 results. Thank you. Mr. Bourassa, you may begin your conference.
Marcel Bourassa: Thank you, Sarah. It’s -- Merci vous. It’s a pleasure to be with you, my analysts and my guys up hear, Steve, Sébas, and Nicolas, who will take -- who will speak after me, okay. It was a good quarter, okay, a great year, but I think, we are in a very good mood, okay, to have, okay, this year and next year, okay. We have some game-changers, okay, that you will see, okay. Our objective of 2025 is that I can speak, okay. Often, people say to me, okay, what I can speak and what I cannot speak, okay. But I think I can say, okay, that in 2025, okay, we have an objective, okay, of $1 billion sales with 20% EBITDA. And I tell you, okay, and you can be the maxi-arbiter than me, to reach, okay, the $1 billion sales, okay. We will do that, okay. It’s not even so difficult. For sure, nothing is easy, okay. And we are global, okay, across the globe, okay, some have Europe. Actually, we have to say that is a bit weak, okay, but North America is very strong. So we -- I can see right now that at the end of 2024, okay, we just make our forecast for 2025, because that would take some time to be at 2025, but we have a very strong North America, okay, strong at 2024, okay. And we can see that -- we -- at the end of 2023, we were an EBITDA 15.5% and we go to 20%, okay. I can look, okay, with our forecast that we should be roughly maybe half of that, okay, in 2024 and the other half of that, okay, in 2025. I am very optimistic about the number that we put for 2025. And again, okay, it would be a pleasure for me, okay, if you have some questions for me or you have my people, okay, who will make a presentation. After that, we are open to answer, at our best knowledge, okay, what we do. And you see, okay, some big costs, okay, of consultation, okay. This -- that I signed up, okay, and I was very happy to sign up, okay, because we have to be particularly, okay, to be ready for the after $1 billion, after 2025. What happens the following week, following that week, but years, okay. With this study that we make with this international company, we had -- we would be better and Sébastien will speak about, okay, what we are doing in that. We would be better from purchasing to selling to a lot of things. And so I see the future, very good for sure. It’s a big step to be there, but we will be there, we will be there, okay, at the end of 2025. I am very happy that we will have an open door for our people, okay, in April. So, they will just see, okay, where we are right now. I will present to you my new talent that we have, okay, and you will see that we have very good talent, okay, that we will present to you and you will believe because it’s always people, people, and people. So, you will believe more and more and more about our objectives of 2024 and 2025, okay, for the end of 2025. So, on that, okay, it’s a pleasure to have you, okay. I was reading everybody who writes on Savaria before and for the year. And thank you very much, okay. You are all, okay, very kind, okay, and you understand quite well Savaria. For sure, now, okay, with this consultant and this big bump, okay, for the end of 2025, okay, I just want to do this Investor Day. You will see exactly what we have done, okay, at the back of the door, okay, and you will see that they are at 20% and $1 billion, okay. So, I will pass the line to Steve, our CFO, and thank you very much to everybody to be there today. If you have some questions, okay, don’t forget to call me or I will be on the line during the call. So, Steve, over to you.
Steve Reitknecht: Thank you, Marcel. Good morning, everyone, and thanks for being on the call today. I’m going to begin with some remarks regarding our Q4 2023 consolidated financial metrics. For the quarter, we generated revenue of $216.8 million, an increase of $4.7 million or 2.2% versus last year. This was mainly driven by organic growth of 6.2% coming from our Accessibility segment. We also experienced foreign exchange tailwinds of 2.3%. This was partially offset by the divestiture of the vehicle division in Norway earlier this year. We delivered a strong gross profit and gross margin at $74.3 million and 34.3%, respectively, compared to $66.2 million and 31.2% for last year. The increase in gross profit of $8.1 million is explained by better gross margins, additional revenue and favorable foreign exchange rates. The increase in gross margin is mainly attributable to greater performance from all segments due to better cost absorption, favorable product mix and improved pricing. We also incurred $2 million in strategic initiative expenses in the quarter. For the year, these costs amounted to $3.1 million and have been carved out of adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin finished at $35.1 million and 16.2%, respectively, compared to $33.3 million and 15.7% last year. The increased profitability is mainly explained by the increased gross margins, somewhat offset by higher selling and admin expenses. On December 22, 2023, Savaria signed a sale and purchase agreement with Driverge Canada to sell our Van-Action and Freedom Motors divisions. The transaction closed on February 1st of this year, 2024. Accordingly, at December 31st of last year, these assets and liabilities of those businesses were recorded as held for sale. Now I’m going to provide some commentary on our segmented results. Revenue from our Accessibility segment was $173.7 million, an increase of $7.2 million or 4.3% compared to last year. It was driven by organic growth of 9.5%, coming from strong demand in the residential and commercial sectors in North America and Europe, price increases and cross-selling synergies. We also experienced foreign exchange tailwinds of 2.8% and this was partially offset by the divestiture of Norway business, as previously mentioned. Adjusted EBITDA and adjusted EBITDA margin stood at $28.7 million and 16.5%, respectively, compared to $27 million and 16.2% last year. The increased profitability was mainly due to better cost absorption, as well as improved pricing. Looking at Patient Care, revenue from this segment was $43.2 million for the quarter, a decrease of 25, excuse me, a decrease of $2.5 million or 5.4% compared to last year. While our backlog remains very healthy, revenue decreased due to reduced year-end spending from institutional customers, product mix and to a certain extent, largest -- large orders delivered last year, not repeating this year. As a reminder to our investors, our Patient Care business is driven in large part by project-based sales, which can be lumpy from time-to-time. For the quarter, foreign exchange provided a 0.5% tailwind for the Patient Care segment. Adjusted EBITDA and adjusted EBITDA margin stood at $7.9 million and 18.3%, respectively, compared to $7 million and 15.3% last year. The increase in both metrics was mainly due to improved gross margins, explained by the product mix and pricing initiatives. Looking again at a consolidated basis, net finance costs were $4.8 million, compared to $6.2 million last year. Interest on long-term debt decreased by $0.4 million due to the reduced balance of debt. We also experienced a decrease in net finance costs due to foreign currency gain of $1 million, compared to a loss of $0.5 million last year and we also incurred a loss on net investment hedges of $0.8 million in the quarter. Net earnings were $11 million or $0.16 per diluted share for the quarter, compared to $11.3 million or $0.18 per diluted share last year. And adjusted net earnings were $12.8 million or $0.19 per diluted share, compared to $12.6 million or $0.19 per diluted share last year. The decrease in net earnings was mainly due to higher income tax expenses, partially offset by lower finance -- by lower net finance costs in the quarter. The slight decrease in net earnings per share is due to the increased number of shares. Now turning to capital resources and liquidity. For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached $30.7 million, which is essentially the same as last year. Net changes in non-cash operating items increased liquidity by $6.4 million, compared to $13.2 million a year earlier, mainly due to increased receivables. As a result, cash generated from operating activities in Q4 stood at $37.1 million, compared to $43.9 million last year. Cash used in investing activities was $5 million for Q4, compared to $7.6 million last year. We dispersed $5.1 million for fixed and tangible assets in Q4 2023, compared to $7.6 million in 2022. Cash used in financing activities was $21.1 million for Q4, compared to $35.9 million last year, and the variation is mainly explained by a reimbursement on a revolving facility of $2.6 million this year, compared to $20.2 million a year earlier. As noted, our cash balance grew by $10 million in the quarter versus last year. As of December 31, 2023, we were having a net debt position of $269.9 million. The ratio of net debt to adjusted EBITDA stood at $2.07 million in comparison to $3.07 million at the end of last year. Savaria has funds of approximately $223.3 million to support working capital investments and growth opportunities. Looking forward, Savaria ‘s future prospects are promising, driven by strong market demand, the progress of Savaria One and potential token acquisition opportunities that will enhance our market position. From a financial standpoint, we anticipate average costs of approximately $5 million per quarter through fiscal 2024 and $2 million per quarter for the first half of 2025 related to Savaria One. We may see additional fees depending on the success of the program. We remain confident that the benefits of this program will increase as the year progresses, leading to long-term growth in both topline and bottomline performance. In terms of tuck-ins, these acquisitions would not only align strategically and expand our market opportunities, but also help to offset some of the $50 million of annualized revenue loss resulting from the divestiture of Van-Action, Freedom Motors and the Norwegian vehicle adaptation businesses. Overall, we have full confidence in our ability to achieve our targets of approximately $1 billion in revenue and an approximate 20% adjusted EBITDA margin in 2025. We look forward to sharing more detailed information about our initiatives at our upcoming Investor Day in April. And with that, this completes my prepared remarks. I’m going to turn the call over to Sébastien.
Sébastien Bourassa: Okay. Thank you, Steve. So a few comments on my side concerning most of the operations and the Savaria One. Basically, I’m quite happy with the growth in 2023 in North America of 13.6%, which was greatly supported by Vancouver and Toronto factories. So thank you to both factories. And what’s important is, we remain a very healthy backlog for our elevator division. So that keeps some fuel for the next few quarters. Finally, we have also some improvements in the inventory management. So I think it shows at least we are trending in the right direction, so I think that’s a start. It’s also part of the Savaria One to improve our working capital. In Mexico, we now have 70 employees. We have some weekly trucks coming to our factory in Toronto, starting some shipments to our factory in Vancouver. We now export some finished products in the U.S., some porch lifts and started some home elevators. So I think that will be a start to hopefully some new market or some customer. We saw the Canadian car division as you saw the division in Toronto and Montreal. What was important for us is to find a good buyer and I think with the company we found in the U.S., a driver, it would be better for employees to have a company that can help to develop a bit the business. So quite happy with the transition. Nicolas will talk a bit later about the Patient Care, which was a disappointing Q4 to be transparent and modest growth in 2023. But what’s important to not forget is, a few years ago, we were a company of 10% of EBITDA in Patient Care and it’s now 18%. So when we talk about 20% for the Savaria, you see the Patient Care is very close to it and I’m pretty sure with the Savaria One and the work that the team of Les and Pat are doing, we’ll be able to achieve it. Savaria One, so I would say, it’s really on the way. We have a strong participation from our employees. They are super motivated to participate in it and it’s even starting to be part of our DNA, so quite happy with that. I would say we have found a very strong pillar on procurement, on production, selling opportunity, pricing, that will help us to achieve 20% by 2025. And the most important is we have a strong foundation for the after $1 billion. I will not give a guidance to deal on the after $1 billion, but at least we were very decentralized and for many years, so for us, it was important to think more about the one company, one Savaria, one way of training. This is really what we’re currently doing, and I’m pretty confident that in the next few quarters, you will see a good improvement step-by-step towards the goal of 20%. And also part of this Savaria One, there’s a lot of training happening for employees, just to make sure we think as a one company. So I will strongly invest to -- invite you to register for Investor Day on April 9th, because we’ll have a chance to talk more in detail of this Savaria One program. And also, if you register, you will have the chance to visit the factory in Brampton, where you can really see that it’s effectively under transformation, with new layout, new way to manage the company, more digital board. So I think it will be a good example of where we are. So, Nicolas, do you want to talk a bit more about Patient Care?
Nicolas Rimbert: Sure. Our Patient Care segment delivered a record year in 2023, achieving $183 million in sales, and EBITDA margins of 18% for the full year. Our operational and sales leaders within Span, Handicare and Silvalea have really come together and 2023 results are a testament of their efforts to integrate and manage these businesses as One Savaria Patient Care group. Turning to Q4, our sales in the quarter were weaker than anticipated due to a number of factors, primarily that we had some large projects in Q4 2022 that didn’t repeat this year, as well as various project delays that pushed some work into Q1. However, our order intake remained strong in the quarter and our backlog exiting the year was at a record level, which bodes well for 2024. On the margin front, despite the lower sales in Q4, we maintained a relatively high EBITDA margin of 18.3%. The margin improvement is mainly attributable to the following. First, we had a favorable product mix in the quarter, with good mattress volumes, strong gear and sling spending and high margin contracts within Handicare ‘s Canadian business. Second, we continue to focus on selling the entire room. We make better margins when we can bundle our sales and we had a good success selling packages in the quarter, namely bed packages to the VA. Third, pricing improvements in 2023 are having a positive effect, in particular with respect to beds, where we’ve optimized pricing to preserve minimum margins and gone away from the low-end market to focus on better and best category products. Finally, I’d be remiss if I didn’t mention the excellent job by our operations teams in improving production efficiencies within our factories and maintaining a diligent control over costs. To conclude, we were a bit cautious throughout the year and tempered expectations with respect to the significant margin improvement we had been observing within Patient Care. However, now that we can take a step back and review the full year’s performance, we are confident that we have the right team in place and the winning formula for sustained success. We also know that we need to prioritize sales growth and this will be a key focus for management in 2024. And with that, I’ll turn the call back over to you, Marcel.
Marcel Bourassa: Okay. Thank you very much, gentlemen, okay, and thank you to be very enthusiastic about our future, and I think, we are a little bit conservative, but it’s looking very good. So, Sarah, I’ll transfer to you, okay, to -- if we have some call, okay, that we can answer.
Operator: Thank you. [Operator Instructions] Thank you. We’ll now take the first question. This is from the line of Derek Lessard from TD (TSX:TD) Cowen. Please go ahead.
Derek Lessard: Yeah. Good morning, everybody. And Sébastien, congrats and good luck on your new role. I just want to maybe hit on, Marcel, if I heard that correctly in your opening remarks, you said that you expect to get halfway to your targets in 2024. Do you mean on margin and sales?
Marcel Bourassa: Yeah. Approximately -- appromax [ph]. Oh, man, it’s a long word for me, okay. Yeah, I raised that. We will do it, okay. I would not say that it’s done, okay, but we will work hard, okay, to say that I want, okay, to be happy.
Derek Lessard: Okay. And I also wanted to touch on the Savaria One and understand that you might not want to steal too much of the thunder from your upcoming Investor Day, but maybe could you just highlight some of the bigger initiatives you have in the pipe and when you expect to start offsetting some of the costs of the program?
Sébastien Bourassa: Yeah. So I think, at any time, maybe someone can complete. So, basically, I would say that actually, really, I’ll take an example of procurement. Procurement, we have been very decentralized, so maybe we have some vendor in Vancouver, Toronto, that, again, we have never looked, okay, to put it as, is there a national company that could offer the parts, put the volume together, get better pricing, do a bit of a challenge with some of the suppliers that we work with them too long, do a bit of RFQ, but that’s a good example of procurement that we have been working on. For sure, from Europe to North America, it’s not always that there’s so many common vendors, but yes, we have some for some specialized parts. So, I think, we have really looked at procurement seriously. Production, we have been doing the same thing for many years. Sometimes we get a bit lazy. So, again, how can we challenge our team to have a better flow material in the factory to be a bit more productive? So, production, to do a bit more output in the factory, we have been talking for almost two years of good backlog in Brampton and Vancouver and a bit difficulty to execute it, but we saw the growth in last year. Again, we started to serve one toward the second half, but you see this part, we have a bit of traction on the output for the factory and we should continue this year. So, quite happy with the change. Selling opportunity, again, we have many different brands, okay, how can we look at things, are we maximizing the sales in one area or another one? So, a lot of work has been done also about the selling, crossing opportunity.
Derek Lessard: Okay. That’s helpful. And maybe like on that note, Sébastien, could you maybe talk about Jean-Philippe and the hire as his role of chief transformation officer and maybe his key accountabilities and maybe a little bit of his background and how he’s going to help you guys?
Sébastien Bourassa: Okay. Sure. So, basically, yeah, we saw that when we started a bit this Savaria One project, it was important for us to have someone that can spend more time than me or Steve, okay, or their manager to focus just on a Savaria One to make sure we are very structured, because it’s easy to say, oh, I will do this initiative, I will do it by this date, but you need to do some pull out to the team and a pretty rigorous way, when is the date, what is the value and to continue. So, JP is full time on that and he has over 20 years, of experience to do some transformation. Again, us on the side, it’s not a restructuration, it’s a growth story. So, again, that’s quite exciting for all employees. So, they are very excited. But JP has his backgrounds within a very structured way. And what’s important is what the deal we are going to finish with the consultant, we want what we have done to be sustainable. So, that’s why we’re starting slowly to improve our team to make sure we can be sustainable after these points in time.
Derek Lessard: Okay. I’ll re-queue. Thanks for answering my questions.
Operator: Thank you.
Sébastien Bourassa: Thank you, Derek.
Operator: We will now take our next question. This is from the line of Michael Doumet from Scotiabank (TSX:BNS). Please go ahead.
Michael Doumet: Yeah. Hey. Good morning, guys. For the anticipated costs of about $5 million, I think, per quarter in 2024, and Steve said, $2 million in each of Q1 and Q2 of 2025. So, collectively about $25 million to $30 million of costs. It’s not a small amount. I wanted to get a sense for if you can break that down. Is it all consulting fees or does restructuring get in there and maybe some technology investments? Just trying to get a sense for all the costs.
Marcel Bourassa: Steve, do you want to answer?
Steve Reitknecht: Sure. Yeah. Thanks for the question, Michael. It’s -- the cost that we’re expecting that I touched on, the $5 million in Q4 or in every quarter for 2024. That’s really going to be consulting and another one-time cost related to Savaria One. There’s going to be some training costs in there, but the majority of it will be consulting fees. There’s really not going to be much of an investment in assets and capital assets. This is -- so that total expenditure of $20 million that we’re forecasting for 2024, most of that’s going to go through as an expense line item. It’s being carved out as strategic initiative expenses, similar to how we recorded it for Q4 of 2023.
Michael Doumet: Got it.
Marcel Bourassa: Okay. Michael, just to add something on that. Yeah. Some people might say, oh, it’s a very high cost, but that shows the intensity of the program, okay. Again, it’s touching other different places, so it’s very intense, factories, sales, all the pillars that I mentioned a bit before. So, that should bring some confidence to where we were last year. We want to go in 2025, but again, that gives us a better chance to achieve it.
Michael Doumet: No. I surely can appreciate the level of investment, I guess, financially and from a personnel perspective as well. I mean, if I go back to some of the earlier comments, I mean, it does feel like you’re doing a lot of heavy lifting here, 2024 and 2025. And I guess, I don’t know if there’s a way to think about assessing the operational risk and sometimes there is kind of a step back or two steps forward type of trend. I’m just thinking, to the earlier comments about expecting half the growth in 2024 and the other half in 2025, would it help -- would be more -- maybe helpful just to think that maybe more margin expansion is in 2025, just given some of the heavier lifting? M Well, I wouldn’t say that, okay. Thank you, Michael, okay. And first of all, okay, don’t forget that our industry is one of the best industries in the world, okay. It’s just about the aging of the population, okay. And we’re in, okay, and it was good for me, okay, 40 years ago when I bought it, okay. But it’s continued, okay? It’s continued, okay? But with this study, okay, the fundamental is, okay, we will be better, okay, everywhere. Everywhere, we will be better, okay? And often, okay, they are like 30 or 40 people from the consulting. They are in Europe, okay? They are North America. They are in Mexico, okay? They are everywhere or in China, okay? We have to be better everywhere. For sure, okay, 2025, okay, should be better than 2024, okay, because we will have some subject, okay, or some study that I make, okay, that it will just arrive, okay, that we will make in execution, okay, for sure, okay? But I want, okay, that we have a little bit more to say, okay, in 2025, okay, and maybe to be better than 20%, okay, because as you mentioned, okay, for sure, okay, some action, okay, that would be just in 2025 and not in 2024.
Sébastien Bourassa: You are right, Michael.
Marcel Bourassa: Sébastien, you want to complete that?
Sébastien Bourassa: No. No. Just an easy example, Michael. No. I have my inventory over 100 days, so if I have a new saving with the new parts, but I have to eat my inventory before the saving is the P&L and sometimes if I change of supplier, I need to approve the new parts, which are indeed do some correct testing. So, yeah, things take time, but no, we are quite happy with this project, yeah.
Michael Doumet: Okay. That is really helpful commentary, guys. Thank you.
Operator: Thank you. We will now take our next question and this is from the line of Frederic Tremblay from Desjardins Capital Markets. Please go ahead.
Frederic Tremblay: Good morning.
Marcel Bourassa: Hi, Frederic.
Frederic Tremblay: Bonjour. Yeah. First question, I guess just to follow up quickly on the expenses for strategic initiatives, on the $5 million, is there a component in there that is performance based, meaning like linked to some of the savings and improvements of Savaria One or is it all a fixed cost component at this point?
Steve Reitknecht: Sorry, I will take this one. Hey, Fred. I think it is important for everyone to know that we have talked about the agreement being fixed and variable, so there are fixed and variable components, we have -- but we have structured this agreement so that our interests are totally aligned with the consultant’s interest. We are all working to achieve the same goal here without getting into too much detail of how the agreement is actually structured. For 2024, we are fairly confident that the total expected expense is going to be $5 million per quarter, where we may see additional fees are in 2025 and beyond as we start to see more of the success of the program come through the financials.
Frederic Tremblay: Okay. Thanks. That is helpful. Maybe switching to tuck-in acquisition is just something you mentioned to offset some of the divestitures. I am just curious to see how you think about that. I mean, past tuck-ins were, in some cases, dealers in Accessibility. Is that an option or are you looking more at a product that would complement maybe what you have right now?
Marcel Bourassa: As you know, Frederic, we are not always looking at territory or our -- so products, okay, that will completely complete our line, okay. And don’t forget, when we have products, okay, that we can put available to 1,000 dealers, okay, so we can buy something at $5, but it can go to $10 very quickly, okay. So it’s always territory, it is always a product, okay. So and Frederic, okay, but we have always good, okay, well, your comments, okay, and when I read what you write, okay, you know Savaria. And one thing we don’t forget about this study, okay, by an international company, okay, their family owns roughly 20%, okay. So, before we make a move, okay, you imagine, okay, how the guy, okay, who has 20%, okay, can look at that and what he would do with millions of expenses, okay. We just want to be better right now and better for the future.
Frederic Tremblay: Yeah. That makes sense. Thanks for answer. Thanks for that, Marcel. Maybe just a question on Patient Care on the 2024 outlook and maybe the first part of 2024. Nick, you mentioned that some of the projects have been pushed back to Q1. Maybe just broadly your expectations in terms of revenue growth. I know you mentioned that would be a priority for 2024. So, maybe just broadly go over what you’re seeing so far in Q1 and maybe getting into Q2 in that segment?
Nicolas Rimbert: Yes. I mean, there’s a lumpiness component to it. I think we’ve talked about that several times. We have a very strong backlog, and again, the backlog is based on certain projects that we expect to deliver over the next several quarters. Going into Q1, Q1 is going to be tough. I’m not going to lie. We had a very strong Q1 last year at, I think, it was $48, close to $49 million in sales, which was an all time for record for us. We also kind of exiting COVID, so 2022 was also very strong year and so here we are going into a period in 2023 or existing 2023 with sales that maybe a bit lower than anticipated and lower than market expectation. We’re still very strong about the business. We have good order intake. It’s just a question of when some of these projects will land. And we’re also looking to smooth out some of this lumpiness by getting better visibility into our pipeline. And by that, I mean, when we can identify some of these revenue gaps. If some of these projects are getting delayed, we’re looking to see how we might be able to bridge those gaps with quick ship items. So, maybe there’s promotions that we might be able to run to help bridge those gaps in certain quarters where we’re seeing some delays in certain projects to help smooth out some of that lumpiness. So, all that to say is that, we’re very confident about the business. We do anticipate similar kind of high single-digit growth to help get to that $1 billion mark. It does have to come from Patient Care as well. So, we do anticipate good growth next year. When it’s going to land quarter-to-quarter, that’s something that unfortunately is a bit more difficult for me to explain.
Frederic Tremblay: Okay. Yeah. That’s helpful. Thanks, everyone.
Marcel Bourassa: Yeah. Thanks.
Operator: Thank you. We’ll now take our next question. This is from the line of Justin Keywood from Stifel. Please go ahead.
Justin Keywood: Hi. Good morning. Thanks for taking my call. Just on the comments of weakness in Europe versus strength in North America, are you able to describe what factors are leading to the different dynamics in each of the markets? And then also, are you seeing any indication of strength returning in Europe and maybe in the other regard, any potential risks of growth in North America? Thank you.
Sébastien Bourassa: Okay. I can start and then people can complete, okay. So, for sure, Justin, okay, again, don’t forget last year, we had a tough Q2 in Europe. Everybody knows we changed our ERP. We don’t talk about the ERP anymore. We now see some good benefits out of it. But Q4, we had some growth. But one thing not to forget is we do not have the same portfolio of product in Europe than we have in North America. And we know we want to expand the portfolio of products so that we have a one-stop shop with elevator platform lift. It’s taking a bit more time than expected, but definitely by 2025, okay, we should have a much better range of products that we are able to generate some interesting organic growth and that will help us with the margins. So, I would say that let’s continue to be patient. We have a good game plan. We have a good team in place in Europe. Where the other one is quite intense also over there. So, I’m pretty sure we will see some positive things in the coming two years.
Justin Keywood: Thank you.
Marcel Bourassa: Yeah. Justin, okay, just to complete that, okay, Justin, that Europe represents roughly, okay, roughly 30% of right now in 2023, okay, 30% of our EBITDA. The 17% is coming mainly from North America, okay. I would be very hanky if it was the other way. But I just see that we represent in North America and North America, okay, is not in the recession, okay. And -- but our people in Europe work very well, okay. And they work with the leadership of Clare, okay. And she’s very good and she knows what she’s doing and she will be back, okay, with higher profit, okay. So, the 17%, okay, that represent roughly in North America is very strong, okay. And I just want to add that, I think, Europe should just go one way, okay, with Clare and her team, just to be more participating in, okay, EBITDA in the coming years, okay. But we are a team, okay. One of the teams has some difficulties, okay. They are -- we don’t speak anymore with the recession in North America. But then, okay, they are in recession. So, even if we have the bulletproof products, okay, from the economy, okay, but often the people need a product, okay, but because of the recession, they will say, we’ll wait a little bit. So, we know that, okay. But it will be this way. I’m very confident, very, very confident that we will meet or exceed our number, okay, because the people need our products. And when I say, okay, that’s the 70% is going very well, okay, I am very optimistic, okay. So, just a little compliment for the question. Thank you.
Justin Keywood: Thanks. I really appreciate the context and it sounds like there’s some potential underlying strength there that maybe shows a bit later as that market improves. I just had one other question on capital allocation. We saw deleveraging in the quarter, 2 times net debt-to-EBITDA. I’m just wondering if share buybacks are on the table or potential dividend raise or is the idea to keep some of that capital for some future tuck-in acquisitions?
Marcel Bourassa: Absolutely, okay. For sure, it will be a good thing if I buy back, okay. But we’re not in a position right now, okay. We want to grow. And for sure, we have to spend some money, okay. And with the consultants, okay, that will be a use of our cash flow, okay, that we have with them. But it’s better than acquisition, okay, because often, okay, there are 30 or 40 people working all the time at the same time, okay, for Savaria, okay. So, it’s major, so that’s the best investment that I can do. It’s why I signed that with a smile. No, it has to come, okay, but we will see the results very soon.
Justin Keywood: Thank you very much for the detailed response.
Marcel Bourassa: My pleasure.
Operator: Thank you. We’ll now take our next question. And this is from the line of Zachary Evershed from National Bank Financial. Please go ahead.
Zachary Evershed: Thank you. Good morning, everyone.
Marcel Bourassa: Hi.
Zachary Evershed: So, the Savaria One additional fees payable conditional on the achievement of specified financial outcomes. Could you clarify for us what margin level does the company have to reach before the performance fees kick in and how much would they add to the total cost at the 20% margin mark?
Steve Reitknecht: Thanks for the question, Zach. And I appreciate you wanting more detail to try to forecast cash outflows. The way that the agreement’s structured, it’s at a very detailed level. And when we look at all the initiatives that we have, it’s difficult to say and we’re not really willing to comment on exactly how much the potential is, because we’re waiting to see what the benefits are going to be coming to our financials. So it’s -- I mean, we know the 2024 payments of $5 million per quarter. That’s exactly what we’re expecting. For 2025, depending on the success of the program, it could end up being more than what we have in that $2 million per quarter. But we’re actually hoping that it’s going to be more in the sense that the more that we’re paying on the performance side, it means the better results we’re going to be getting out of the program and out of the work that we’re doing with the consultants. So, it’s too early to comment, I think, past 2024 with regards to total fees. But again, I think, the comment that I made around the fees potentially being higher, but the fact that our interests are fully aligned with the consultants’ interests, I think that that’s a strong signal.
Marcel Bourassa: And Zachary, okay, just to complement, okay, what Steve very well said, okay. I don’t sign a contract if I don’t see, okay, a big return on investment, okay. And that’s taking 10 years, but taking a couple of years. So we study, okay, the offer and we signed the offer because, okay, it’s very important, okay, the savings that we will make, okay, after the study, okay, that I am more than satisfied right now after nine months, one year, okay. So, I signed that because I was sure. I was not -- we are never sure, okay, but I was very optimistic, okay, that the return would be good, very good, okay. And so, if it’s good, it’s very expensive, okay, but it will bring the other thing. They work on everything, okay, just in purchasing. Imagine, okay, that we have, okay, like $400 million of purchasing. Imagine, okay, a consultant that makes this kind of study all around the world, okay. They know exactly, okay, where is the best purchase and at what price, okay. So, they help us right now, okay, and that’s a major saving, okay. And for sure, okay, they do that, okay, that’s their life to do this kind of study, okay. And I am so happy that we have the guts, okay, to go with this study, even if it’s very expensive. So, Zachary, believe in me, okay, that -- and we are -- we -- I don’t see that we will -- it will not take six months more, okay? But believe in me, okay, you will see, okay, the bottomline, okay, that will arrive, okay, with this study, plus, okay, our regular work, okay, that we do, okay? But we will be better, okay? And just in purchasing, I repeat, okay, when you buy roughly 50%, okay, with materials, okay, that’s where is the saving.
Zachary Evershed: Thank you. For the follow-up on that, I guess, it sounds like you guys are very optimistic on the 20% marginal achievement. But between the change in CEO and upcoming Investor Day, was there any discussion of maybe reducing the 20% target to a range or extending the timeline to achieve it beyond 2025?
Sébastien Bourassa: I guess, I have to be also comfortable with the target that we have put. So, I think, we are going to live with the target we just put on the market yesterday night. And I think at the Investor Day, we’ll continue. So, I think the target is set up, and if there’s a change, we are all comfortable in it, right? And I’m spending a good amount of my time on Savaria One. So, I would say, what we have put, I strongly believe in, okay?
Zachary Evershed: Excellent. Thanks. Then just one more, if I can sneak it in. I think you guys were aiming to get the Mexican facility up to about 100% headcount by the end of the year. You guys have 70. Is everything going well on that front? Any reason for the difference in total employee count there?
Sébastien Bourassa: Again, Zach, it’s not a competition of the numbers of employees that we have in the plan, but it’s more like what we get output out of it. So, I would say we are quite happy with our first year, okay? If we look what we have in China, which took us like 20 years to build, I think we have made a very good progress in our first year in Mexico. So, quite happy with that. And what’s nice is now with the Savaria One, I know exactly what I will do in the next two years because all our projects are mapped out, and again, we’re staffing it also. So, again, I think, this year, we definitely will hit 100 employees. But again, it’s not a competition of numbers of employees. It’s more the output out of the factory.
Zachary Evershed: I appreciate the color. Thank you very much. I’ll turn it over.
Marcel Bourassa: Yes. See you, Zachary.
Operator: Thank you. [Operator Instructions] We’ll now take our next question. This is from the line of Fred Gatali from Raymond James. Please go ahead.
Fred Gatali: Hey. Good morning. On some of these Van-Action and Freedom Motors that were sold off, is there a piece left on that or has the full business rolled off now on these adapted vehicles? And are there any contributions from these sold-off businesses in Q1?
Marcel Bourassa: I want to say something, okay, that, I was there many years ago, okay, when, okay, I was with running or not running, but participating a lot more, okay, with Van-Action, okay, and Freedom in Toronto, okay. And I tell you something, okay, that’s what’s hard for me, okay, to sell this division. They are from Montreal, okay, my native land, okay. And what I say, it’s not how much money we will make, okay. It’s who will buy that, okay, that I believe it will be good for my employees. So it’s not a question you pay 5 or 10, okay. You have to have the right place -- right price, okay. But, okay, I am sure that we will have more employees at Van-Action at the end of the year than right now, because the buyers, okay, have a lot of places in the States, okay, well over 100, okay, that they can sell Van, okay. So they need, okay, another place in the States, okay to manufacture and they visit us and they know us and we make business with them for many years, okay. So that’s the best thing for my employees, okay, that I find, okay, my group, okay, find this buyer, okay, from the States. So, but that was hard for me, something when it’s coming, okay, from so many years, okay, at the beginning of my life, okay, that I have that and they were very good for me, but right now, that was the right time, okay, to pass the leadership to another company that is unique, okay. The key function is to help the people with mobility. So Sébastien, you have something to add?
Steve Reitknecht: If I could just actually add a little bit of color as well, Marcel…
Marcel Bourassa: Yeah.
Steve Reitknecht: Just to clarify on the selling price. So we have disclosed the financials. The selling price is C$7.5 million. There should be a gain on that. We’re expecting a gain on the sale to be recorded in Q1 of this year. So the deal actually closed on February 1st. I did touch on the approximately $50 million of annualized revenues that we’ve lost through divestments over 2023 and the beginning of 2024. About $35 million of that $50 million comes from the Norwegian business and $15 million comes from the vehicle manufacturing businesses of Van-Action and Freedom. So we still -- and to answer your question specifically, we still do have a piece of the vehicle business. It’s the retail side. So we divested of the manufacturing. And so, as Marcel was saying, we felt that the home was -- the home for that business was better suited with drivers. They’re going to be more successful at growing their business. It’s core to them and we’re going to be taking the proceeds from that and re-vesting in the rest of our Accessibility and Patient Care businesses.
Fred Gatali: Okay. Thanks. And just to -- how do you think, to get to this $1 billion revenue, how should we think of that target being reached through organic growth versus perhaps through the addition of acquisitions?
Steve Reitknecht: We’re looking to reach a $1 billion, mainly through organic growth. We -- and I would say without the divestments we would definitely have achieved that. So we do have a little bit of a hole to fill with those divestments. That $50 million of revenue is providing -- bridging more of a gap than the 8% to 10% of organic growth that we’re roughly anticipating per year. So we do need some tuck-ins -- some tuck-in acquisitions to fill that $50 million. But that’s kind of why we’re saying approximately a $1 billion in revenue. So there has been some changes to our business since we provided that target, meaning the divestments of those businesses. But we feel good about the organic growth coming in roughly 8% to 10% still in line with what we had said when we first came out with that target. I think it was a year or two ago now.
Fred Gatali: Thanks.
Operator: Thank you. And there are no further questions at this time. So I will hand the conference back to the speakers.
Marcel Bourassa: Yeah. Thank you very much, guy, okay, to be with us this morning, okay. It’s very important, okay, that we show the confidence that we have, okay, to the future, okay, it’s incredible, okay, and I am always very enthusiastic, okay, for sure, okay, we have a lot of talent right now, okay, and new talent, okay, and you see I am just little bit hesitant little bit [ph] okay, somebody on the bench, okay, should see that, okay. And my guys, okay, are terrific, and -- but, okay, if we are good and we’ll be better, okay, it’s just because you guys, okay, you take what we follow you, okay, and you put that for investors, okay. And thank you very much for everybody what you do for me, for us. So thank you, Sarah. Merci, Sarah.
Operator: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.