Savaria Corporation (SIS) Earnings Call Transcript & Summary

Thank you. Good day and thank you for standing by. Welcome to Savarius Corporation's Q2 2026 Investor and Analyst Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I'd like to hand the conference over to your first speaker today, Sebastian Marasa, CEO.

Thanks Stephanie and good morning everyone. So today I will start with a small recap of our Q2 results. Steve will update us on financial and GP would provide an update on server one, followed by a Q&A session. So again, I'm very proud of the results of Q2 as it is our highest revenue ever at $246 million, with a growth of 8.4% that is well balanced between patient care and accessibility. and we achieved an EBITDA margins of 21%, which really showed that the server one success over the last few years continue to be present. And I'm very thankful to our team for all the hard work that they make those great results quarter after quarter. So today there's three things that I would like to highlight. First, the growth. I'm happy that we have a third good corner in the road in terms of growth, which show that some good incentives that we have put in place for the next five years is starting to work. In North America, we continue to develop the market of home elevator with Arket architect, builder, contractor, and of course your dealers. We increase our sales focus on stair lift, method, dam weather, and material lift. We continue to have a push with architect and builder, and a good lead time is really helping this product line. We added a state-of-the-art paint shop in Greenville for the manufacturing of a wood cabin. which will be in operation, will starting to be in operation in the third quarter for DirectStore and will be launched for a dealer in October. And that will be really help us complete that best product offering feature for a dealer. and also a building expansion is on plan to open in Q4 this year. In Europe, we are We expand the one-stop shop, we promote the VPL incline, and now with the VPL product line, it's pretty much a complete product portfolio. So that will really help us for the future. who continue to be the partner of choice on Sterilift. In patient care, Growth has been good since the beginning of the year, but margins are slightly behind what we desired as there has been a bit more inflation in this division than others. But we did a mid-year price increase and I'm hopeful that by the end of the year, in the fourth quarter, you will see an improvement on the margins as before. The strategy to under-room and continue to develop the long-term care continue to be the core of activity of this division. Second, best gross margins ever at 39.6%, which really shows that we continue to improve, we continue to have good initiative, despite the small contraction we had in the patient care in the second quarter. Third, acquisition. As we said during Investor Day, we have the ambition to do some acquisition in the next five years for approximately $200 million, some small mid-sized stocking that will help us in some area where we see some more potential, or bring some new products to our distribution network to continue the best product portfolio with a one-stop shop. So far this year, we did Baxter Laborator in Texas, which shows that we want to grow the earth presence in this booming market in Texas. And in July, we closed Vipal, a small manufacturer of home leaf and no-rise commercial in Italy to help us to develop the URAP with some code-compliant products. With our net debt-to-bidder ratio at 0.7 at the end of the second quarter, our liquidity continued to grow, and now at $333 million available for capital allocation, we are in a very good position. To conclude, I'm quite happy with the first six months of this year as we in Billender invested we have the ambition to grow the business at 12 per cent per year for the next five years and maintain our margins at 20 plus which ultimately will lead us to 1.6 billion of sales with an EBITDA over 220 million by 2030. So thanks to all the people at several that follow an extra third of growth, and thanks for the analysis for your good works. Steve, financial, please.

Thank you, Sebastian. Good morning, everyone. I'll now provide some additional detail on our second quarter results. So key highlights for the quarter include, firstly, revenue grew by 8.4% in Q2, driven by organic growth of 6.6%. Year-to-date revenues reached $481.3 million, representing 7.7% growth on a year-to-date basis. Secondly, adjusted EBITDA margin reached 21.1%. That's a 50 basis point improvement over prior year, by continued gross margin expansion across the business. And finally, our leverage ratio continued to improve, sitting at 0.87 times as at June 30th, giving us significant flexibility to support our growth strategy, including acquisitions and planned capital expenditures. Turning now to consolidated revenues, we generated $245.8 million in the quarter. That's an increase of $19 million or 8.4% as I mentioned over last year. This includes organic growth of 6.6%, also a 0.8% contribution from the acquisitions of Baxter earlier this year and Western LA. elevator last year, as well as a positive foreign exchange impact of 1%. Accessibility revenue increased by 8.7% to 192 million, mainly driven by organic growth of 6.4%. Sales increased in both Canada and the United States, while Europe continued to deliver another strong quarter supported by continued growth in stairless sales. Patient care revenue increased by 7.3% to 53.7 million, entirely driven by organic growth. This reflected higher US sales and continued growth in the UK. Now, looking at gross margin operating income, consolidated gross margin was 39.6% compared compared with 39% in Q2 2025, that's an increase of 60 basis points. Gross profit increased 8.8 million year over year, providing testament to the continued success and ongoing benefits of SEBARIA-1. Operating income increased by $9.1 million, or 34.1%, to $35.8 million, representing a margin of 14.6% compared with 11.8% in Q2 2025. The increase was driven by higher revenue, gross margin expansion, lower other expenses, and the termination of strategic initiative expenses following the completion of Severia I last year. this was partially offset by higher selling in admin as we invest for growth. Adjusted EBITDA reached $51.8 million, representing a margin of 21.1% compared with $46.7 million and 20.6% last year. Accessibility adjusted EBITDA margin reached 23.6%. That's 170 basis points over last year's 21.9% margin. And patient care adjusted EBITDA was 18.4% compared with 20.9% last year. Net finance costs were 1.7 million in the quarter compared with 4.7 million last year. Interest on long-term debt decreased by $1.2 million, mainly due to a lower debt balance. recorded a foreign currency gain of 0.6 million compared to a loss last year of 0.5 million, and a net gain of 0.1 million this year on financial instruments compared to a loss of 0.7 million last year. Correspondingly, net earnings increased by 54.4% to $25.2 million or $3.5 million. $0.34 per diluted share compared with $16.3 million or $0.23 per diluted share in Q2 2025. Now, taking a look at cash flow and liquidity, cash flow from operating activities was $33.3 million compared with $30.3 million in Q2 last year. The increase was mainly driven by higher net earnings and a favorable unrealized exchange foreign exchange gain, partially offset by higher income taxes paid this year. Cash used in investing activities was $13.4 million compared with $3.6 million last year. We invested $12.5 million in fixed and intangible assets in the quarter, including $5.3 million for the Greenville building expansion and related equipment for that site. As of June 30th, available funds were $333.4 million. compared to $311.7 million at year end, and net debt decreased to $172.8 million from $191.5 million at year end. After quarter end on July 1, 2026, we acquired all outstanding shares of VPAL, SPA, a manufacturer of residential lifts and elevators based in Ferentilo, Italy. Total consideration was 13 million Canadian or 8 million euros. subject to customary adjustments for net financial position and net working capital. Our Q2 results support our long-term outlook. Revenue grew by 8.4%, including 6.6% organic growth, and adjusted EBITDA margin reached 21.1%. Building on this momentum, we continue to target annual revenue growth of approximately 12% through 2030, while maintaining adjusted EBITDA margins of at least 20%. And with that, this concludes my prepared remarks. I'll now turn the call over to JP for additional comments.

Thank you Steve and good morning everyone. So today I'll speak about three things, how SavariaOne is fueling growth, how SavariaOne is also helping us with better margins and a little bit about the V-PAL acquisition. For me the key message is that year to date we're on track with our objectives of organic growth for the business as well as profitability across the board. For example, the fact that both segments grew 7 to 8% in Q2 is a big success. And the growth we see is balanced across product segments as well as across geographies. But a lot of this is due to some efforts we did in the recent past and in the last two years. So I'll give you a few examples. In the patient care business, we had a lot of success in Q2 installing ceiling lifts, but that is in part due to the fact that we upgraded our ceiling lift lineup with the M-series and started selling it about a year ago and with that we won bids that we installed in Q2. Also in Selville in the UK, this is a smaller part of our business but still strategic. We moved to a new factory about a year and a half ago which allowed us to have better production capacity and now we are selling to the NHS. We're able to grow this business because we can produce more at a good price. We also revamped our lineup of slings for Silvally, so that's also helping the business grow. Another thing that's important and patient here is that we did improvements in the sling manufacturing of St. Louis and also worked with external partners to have more capacity for the disposable sling. things. And now we had a good growth in ceiling sales, which we were able to ship thanks to all these efforts we did in the past. Finally, it's worth noting that we also established a dual assembly line so we can now assemble the M-series ceiling lifts, both in Canada and in the U.S. in St. Louis. So in the current context, we can really assemble close to the market. Now, in accessibility in North America, as Sebastian mentioned in his address, we had great growth again across the board. It's been a consistent theme for North America. But one of the highlights for me is the growth we had in our direct stores where we made deliberate efforts for years to develop our referral networks, to do education with our to also go and work with contractors and promoters of multi-unit residential projects who now spec our lifts in their offer and that pays us. So now our direct stores have orders for multi-unit projects that are very substantial. When we bought MATOT, we spent a ton of efforts to in-source production in Brampton to make the production process also faster and leaner. And this is paying off because now we are growing MATOT sales, but we're also able to produce and ship in much shorter lead times than we used to in the past. And that's helping our sales. Finally, we also migrated our website to a new domain this quarter, and the website has been redesigned to provide us better domain authority, as well as enable better AI search visibility, which is critical in the current world. In Europe, we re-engaged with growth by winning back historical dealer relationships thanks to our consistent efforts in improving product quality. We also expanded cross-selling of platform lists, so we're now selling Artera and X3 platform lists across all markets in Europe, including in our own departments. direct stores in the UK and Netherlands. We also continue to drive growth in the largest direct markets by having innovative commercial strategies and just great delivery overall consistently. We also see that now we not only are we recognized for better quality, but we are starting to introduce new product innovations. For example, we introduced the K2 stair lift earlier this year, and just now we changed our new outdoor rail for 4,000. So that's a new offering that we think is going to have some traction. And finally, we made a number of small commercial changes that make it simpler to do business with us. So the overall message for me is that we are rigorously managing growth initiatives in Savoia One, just like we focused a lot on cost initiatives in the past. This being said, we continue to also improve our costs and you can see it in the expansion of gross profit and the expansion of the bottom line results. Each month we continue to implement initiatives. So for example, in Q2, we implemented at least 50 new initiatives, and a lot of those relate to procurement to reduce the cost of goods sold, and you can see that that shows in our financials. And this is especially relevant in today's world because we know there is inflationary pressures across the board, but in most of our businesses, we're able to to offset those with either efficiency gains in production or material cost reductions thanks to our initiatives. The only exception this quarter is patient care, where as Sebastian mentioned, we have some great pressures from some commodity cost inflation that we now need to counter with some price increases mid-year. So, our focus as a business continues to be on growth, and this is where most of our attention and our efforts are oriented towards, but people working in the factories and people working in the offices on procurement continue to innovate, continue to improve our business nevertheless, so we can improve our cost position. Finally, the last highlight for me from SAVARA 1 is the capacity expansion in Greenville, as Seb mentioned. So I'll be brief, but the fact that we now have, we already were assembling Eclipse in Greenville for months, but every quarter, every month, we are expanding the capabilities over there. We also had investments of new machinery. We commissioned the paint line, which is very critical. It's a high-quality cabin built and shipped in the U.S. And over time, we are shifting more and more orders from Canada production to U.S. production for the U.S. market. Third topic for me is the Vpal acquisition. So just a bit more details on that business. We closed the acquisition in early July. It is a strategic acquisition for us because of the know-how of this team at Vpal in the lift business, because the fabrication process is largely in-house, Technology is well known and renowned in Europe. What happened is very shortly after, two weeks later, we had a large group of our global leaders including myself and Sebastian who went there to kick off the integration plan. So we already are in motion to integrate the business and in fact I am speaking to you from Italy where I'm doing a roadshow with the sales team at Vipel this week to meet our top leaders. and their top dealers, so we're definitely in motion. And we are already seeing opportunities to cross-sell in both ways, so meaning we can cross-sell our products to their dealers and vice versa, we can sell V-PAL to our dealers. And this is going to be an integration that will take years with different steps, so we are very excited about the acquisition. a lot of ambitions for Vpal, but of course we'll go step by step. First by selling the products that they have today and over time improving the operations, improving the products and really integrating them in our business. So in conclusion, we see good performance year-to-date and in Q2 and that converts us that There's a clear link between our efforts in Safari 1 and the results we see in the business.

Thank you. That's it for me. Seb, over to you for closing words. Thank you, GP. A very good call on the server one improvement. So I guess we are ready for questions. So, Stephanie, can we open the queue, please? Thank you.

Yes, thank you. This is at this time we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Frederick Tremblay from Desjardins Capital Markets. Your line is now open.

Thank you, good morning. Just maybe following up first on the VPAL, you mentioned already seizing opportunities to cross-sell. Just wondering, I guess, I think I know the answer, but what was the initial reaction from VPAL's dealers to Submariner One's acquisition of the company and how do you think about introducing your products to the Vipal dealers going forward.

be the best person to answer as G.P. because G.P. you're in Italy this week meeting dealers, right? So what's the- yes, yes, exactly. So I met five already and I have five, a couple more tomorrow. But honestly the reaction was very positive on both sides and you know, you're always a bit apprehensive when you do something like this, but I was pleasantly surprised. Everybody's excited. I think their dealers are excited because they see Savaria as an established, well-structured company. And they also are now curious. They're learning about our products because what happens is most of V-PAL's dealers are lifting companies that do mostly lifts or residential lifts and sometimes lifts. It's a real, we call it a sensori in Italian, but it's like faster, larger lifts. But they always have a small part of their business, which is platform lifts or some requests for stair lifts. And now many of them have been happy to see that we have this offering and we already received some orders from dealers that said, okay, I might as well work with you. I like DePals, so why not work with Savaria? That's been their reaction and on our side, many of our dealers, especially in Italy, knew about DePals, so many of them, again, in the accessibility space, it's the opposite. They tend to have a small part of their business which is selling home lifts. So now we're introducing DePals to them and the reaction was very positive. They like Savaria, what they recognize in Savaria is the quality of the support and customer service and technical support they get. So they are now keen to see, okay, maybe we can try the VPAL products, and if we can provide the same support, they'd be excited to work with us.

That's the feedback I'm getting. Yes, that's great. And maybe just to get a sense of the opportunity, just wondering if you could remind us how many dealers and direct stores that Barrio has in Europe and how does that compare to the number of dealers that Vipal currently has?.

Yes, so high level, it's a tricky question because we have I think more than 325 dealers if I recall across Europe, but the reality is in each market, not all dealers are equal, so there are some dealers that are much larger than others, but in comparison, the difference DePAL had, I think, less than 50 dealers. Okay, so that's the kind of size of the opportunity. And our dealers are across Europe. DePAL was much stronger in Italy than the rest of Europe. So there's a lot to be of opportunities for us to grow the business. And it turns out, the last thing to know is that there's not that much overlap. between our dealers. That was an interesting, like a positive surprise for us that our networks are actually complementary. So a lot of the dealers are new to Savaria and vice versa.

Okay, great. Maybe just the last one for me quickly. Adjusted EBITDA margin in accessibility was really strong in the quarter at 23.6%. I was wondering if there's a couple of main drivers to highlight there behind that strength and just your thoughts on the sustainability potential to expand that accessibility margin further in the coming quarters and years. Thanks.

Good question, Fred. Yes, I'm very happy with that. And I think it shows again the strength of Savaria to be able vertical integrated. We have factory in China, Mexico, and everywhere where we operate, we have machines, we make parts by ourselves. There's 32% of our sales which is in our direct market. The rest is with partner distributors. So I think, again, the proof, okay, and the vertical integration is quite important, it's good. And after that, product mix. Every year we bring new products with good margins. So I think it's always contributing to that. The 23%, I think for sure is, I hope it's sustainable, but we have to be careful because when we make acquisition, they are lower than that, so it might play a bit in the average. So I think if we go back four months ago, we said that in the next few years we want to be at 20% plus for the consolidated savariats, but you can see that it is a good opportunity. Great, thank you and congrats on this strong quarter.

Thank you, Fred. Thank you. Our next question comes from Cheryl Truong of TD Cowan. Your line is now open.

Good morning, Sebastian and Steve and JP. Thanks so much for taking my question. Congrats on a strong quarter. I wanted to start on patient care margin. In the prepared remarks, you called out the higher material costs and mid-year price increases for medication. Just curious if if you could expand on what the cost inflation was and the magnitude of the pricing that you're putting through.

Thank you, Cheryl, for the question. Again, we have to be careful, okay, because patient care, I think we're a bit tough with them this quarter, okay? If we look, we had good growth in the beginning of the year, and yet there's been a bit more inflation due to some commodity like, for example, foam and aluminum. But now that the team came back, they said, no, there's inflation, we have to pass it on to our customers, so that was their suggestion to do a mid-year price increase. And basically I'm hoping that we get an additional 2% in the fourth quarter in term of net increase. So I think it's temporarily, but again, we need to be careful. It's just one quarter. What is sometimes more difficult is the growth, and we know also in patient care they typically have a good fourth quarter. So I think maybe at the end of the year we can judge if it was just a quarter or it's a year issue.

And then on accessibility, obviously there's strong organic growth. Could you maybe expand on what you're seeing in terms of consumer demand and where your backlog is?.

Our backlog is still good. Unfortunately, we don't give colour on our backlog, but in our direct office, I think JP said, we have our healthy backlogs, so it would give us a good visibility. In our factory, okay, unfortunately, we always want to have good lead time, so our backlog is usually consistent. But I'm quite happy with that. And I think new product that we launched, For example, the Luma, new Trudeau floor, that was the first year we have that. We're coming out with some new option, okay, this fall for the Trudeau floor elevator. So definitely also the new product are helping, like Metat, now we're doing pretty good in manufacturing in terms of lead time, so that's helping to grow the business. Again, the beauty of Saro is the diversification that's really helping us to maintain this growth. Okay, thank you very much.

Thank you. Our next question is from Razi Hassan of Paradigm Capital. Your line is now open.

Good morning. Thanks for taking my question for JP on your – on your –.

Can you maybe just talk about the M&A landscape and the quality of assets and multiples you're seeing for manufacturers and dealers there?.

overall and any challenges you're seeing in Europe on the M&A landscape? If it's okay, I will take the answer. So basically, I think we have disclosed in the document that in 4BPAD, we have paid $8 million. It was more or less $8 million of sales. So I could argue it was a one-to-one ratio with the sales. In terms of EBITDA ratio, again, it's just we don't disclose that usually, okay, how much we pay each dividend. when it is some small token. So in terms of M&A landscape, I think again we like to balance our approach. It was a long time we did not do one in Europe, so I think now that really adds a portfolio, but we'll see over time, if there's worldwide, if there's some opportunity with dealer or against small manufacturer validators that can complement the product portfolio.

Okay, thanks. And then maybe on Steve, you know, again, lots of talk about the accessibility segment. Maybe just talk about the puts and takes in operating leverage that you're seeing there and what's driving that.