Good morning, good afternoon, and good evening. My name is Raz, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q2 2024 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. To ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. This call may contain forward-looking statements, which are subject to the disclosure statements contained in Savaria's most recent press release, issued on August 7, 2024, with respect to its Q2 2024 results. Thank you. Mr. Bourassa, you may begin your conference.
Well, and thank you, Raz, and good morning, everyone. So today I will start with a small recap of our second quarter. Then Steve will update us on our financial and JP on our Savaria One, and then we'll follow with a small Q&A section. First, I mean, I need to say that I'm very, very proud of our results and especially of the teamwork that has been done, as we have reached a very important milestone in our transformation after one year from the launch. I need to say that our other employees continue to be very motivated on the Savaria One project, and they are very determined to bring Savaria to CAD 1 billion of sales and 20% EBITDA by 2025. So some of the key highlights for the second quarter.
It was the first time that we have an EBITDA of 19% for the full Savaria, with accessibility being at 20.9%, so almost 21%, and patient care at 17%, a bit beyond our target, but I think we'll get there. First time we have a new metric, Adjusted EBITDA per share of CAD 0.59, CAD 0.59, which is our best since the beginning of Savaria. Gross margins were up to 37.5%, which is 150 basis points better than the first quarter. We had a growth of 15.4% for the accessibility, which is coming both from Europe and North America, so good job to the team of Claire and Alex.
And I will say that all our factory had pretty good output, and I think the most important to the Savaria One program is we have make a very big change in all our factory. We are very organized and ready, okay, for more growth. Patient care was flat in terms of our sales in the second quarter, but we were against the first half of the year that was strong in 2023. We're expecting a much better second half of the year. Sales growth remained as something very important in our Savaria One, and we continue our effort for the cross-selling to increase our share of wallet. With all our 50 people in R&D, we continue to improve our existing products and bring new products to the market, and we can develop some growth and have some good organic growth.
Integration of our Matot product line that we acquired in April. Basically, things are progressing, and we have the, we will definitely bring that into production in Toronto by the end of this year, so that we can streamline a bit of manufacturing and have a better lead time to our customer. Mexico nearshoring activity, it continue. Now we have 80 employees. We have some regular shipment to, North America, so we're quite happy with the progress. We have continued to deleverage, the balance sheet. Now we have a net debt to EBITDA of 1.88, with, available fund of CAD 226 million if we want some, to do some acquisition.
For sure, the priority right now remains Savaria One, but we're still looking for acquisition that we can replace what we divest in the last year. To conclude, I will say we are very lucky. We continue to operate in a very nice industry with the aging of the population, the staying at home, the density of the residential housing, that they can put a residential elevator, continue to play a very important factor in our growth story, and our large product offering makes us a very attractive partner. Last, I would like to thank again all employee and our dealer for success in the second quarter. So Steve, financial, please.
Thank you, Sébastien, and good morning, everyone. I'm happy to be here today, and I'm excited to share some remarks regarding our Q2 2024 consolidated financial metrics. Key highlights for the quarter include, as Sébastien mentioned, double-digit organic growth in both accessibility in both North America and Europe, as well as major improvements in profitability and gross margin and Adjusted EBITDA margin on a consolidated basis. For the quarter, we generated revenue of CAD 221.3 million, an increase of CAD 22.9 million, or 11.6% versus last year. The increase mainly came from organic growth of 11.5%, partially offset by the divestitures of Van-Action and Freedom Motors. As well, we had positive foreign exchange fluctuations in the quarter.
I'm pleased to report that the corporation delivered our strongest quarterly Adjusted EBITDA, which is higher than any past quarters, crossing for the first time the CAD 40 million mark. We also delivered a record gross profit and gross margin of CAD 83 million and 37.5% compared to CAD 67.1 million and 33.8% in Q2 2023. The increase in gross profit of CAD 15.9 million is explained by increased revenues, improved gross margins in both segments due to operating leverage, improved pricing, a favorable product mix, as well as lower material costs. While Savaria One has helped us achieve these results, we incurred again this quarter CAD 5.3 million for strategic initiative expenses in line with previously stated expectations.
JP is going to speak more about some of our ongoing initiatives in detail shortly. Adjusted EBITDA and Adjusted EBITDA margin finished at CAD 41.9 million and 19% compared to CAD 29.3 million and 14.8% last year. This represents CAD 0.59 per share, up CAD 0.14 per share when compared to Q2 2023. The increased profitability is mainly explained by the increased gross margins and lower SG&A expenses as a percent of revenue as we remain diligent about our cost base. Now looking at our segmented results. Revenue from our accessibility segment was CAD 173.4 million, an increase of CAD 22.8 million, or 15.1% compared to last year.
The increase in revenue was mainly driven from organic growth of 15.4%, driven by strong demand in both the residential, excuse me, and commercial sectors, price increases in North America and Europe, and last year was also impacted by issues with our ERP system implementation in Europe. Adjusted EBITDA and Adjusted EBITDA margin for accessibility stood at CAD 36.2 million and 20.9% compared to CAD 21.4 million and 14.2%, last year. The increased profitability was mainly due to higher revenue and improved pricing, a favorable product mix, and lower costs, lower material costs for both regions. Last year was also weaker due to the previously mentioned system implementation. The backlog in accessibility segment remains healthy.
To offer additional insight into our regions, we are proud to report the revenues from both Accessibility North America and Europe increased by over 15% compared to the previous year. The Adjusted EBITDA margin for North America was 23.6% in the quarter, while the margin in Europe increased to 15.8%, reflecting significant improvements from a year ago, as well as a sizable improvement over Q1. Turning to our patient care segment, we saw our revenues reach CAD 47.9 million for the quarter, which is flat compared to last 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, and can be impacted also by project delays. The backlog in patient care also remains healthy.
Adjusted EBITDA and Adjusted EBITDA margin stood at CAD 8.2 million and 17% compared to CAD 9.3 million and 19.4% last year for patient care. The decrease in both metrics was mainly due to higher SG&A expenses, which were partially offset by pricing initiatives. As we mentioned in past communications, Q1 and Q2 of 2023 were exceptionally strong, and the improvements pertaining to Savaria One are expected to affect the upcoming quarters more. On a consolidated basis, net finance costs were CAD 7.4 million, compared to CAD 4.5 million last year. Interest on long-term debt decreased by CAD 1.5 million due to the reduced balance of debt that we're seeing, which was primarily driven by the raise last year. We also experienced unfavorable variations on foreign currency exchange and financial instruments.
Both were unrealized in nature. Net earnings was CAD 11 million or CAD 0.15 per diluted share for the quarter, compared to CAD 8.8 million or CAD 0.14 per diluted share last year. The increase in net earnings and net earnings per share was mainly due to higher Adjusted EBITDA, partially offset by strategic initiative expenses, net finance costs, and higher net income tax expenses. Adjusted net earnings was CAD 15.6 million or CAD 0.22 per diluted share for the quarter, compared to CAD 9 million or CAD 0.14 per diluted share for the same period in 2023, reflecting a large increase when one-time non-recurring strategic initiative expenses of CAD 5.3 million are carved out. Turning now to capital resources and liquidity.
For the quarter, cash flows related to operating activities before net changes in non-cash operating items reached CAD 26.7 million, compared to CAD 17.7 million last year, attributed to the increased EBITDA. Net changes in non-cash operating items decreased liquidity by CAD 3.1 million, compared to a decrease of CAD 17.5 million in Q2 of last year. The decrease in 2024 was driven by increased prepaid expenses and other current assets, as well as decreased deferred revenue, while 2023 was unfavorably impacted by trade receivables, inventories, as well as trade payables, partially offset by higher deferred revenues. As a result, cash generated from operating activities in Q2 stood at CAD 23.6 million, compared to CAD 0.2 million last year, an increase of over CAD 23.4 million.
While DIO slightly increased during the quarter, it came down for the June month-end, and our DSO and DPO measures both improved versus Q1, aligned with our efforts to improve working capital management throughout the business. We remain committed to enhancing working capital as we grow. Cash used in investing activities was CAD 11.3 million for the quarter, compared to CAD 4.5 million last year. We dispersed CAD 4.7 million for fixed and intangible assets, compared to CAD 4.6 million last year, so essentially flat. In addition, we dispersed CAD 6.9 million for the business acquisition of Matot that was done in April of this year. To support business growth, we're expecting capital expenditures to stay in the historical range of 2%-2.5% of revenue for the 2024 year.
Cash used in financing activities was CAD 22.6 million for Q2, compared to CAD 15 million last year. The variation is mainly explained by the reimbursement on the credit facility of CAD 8.8 million in the quarter, compared to proceeds drawn of 0.8 million in 2023, as well as lower interest paid of, of CAD 1.9 million. As of June thirtieth, 2024, our net debt was CAD 274.9 million. The ratio of net debt to Adjusted EBITDA stood improved at 1.88, in comparison to 2.07 at the end of last year.
So looking forward, with regards to guidance, as previously stated, Savaria is not providing guidance for fiscal 2024 as we focus on the achievement of our 2025 targets of approximately CAD 1 billion in revenue and 20% Adjusted EBITDA margin. The global team is focusing on delivering on these 2025 objectives, and it remains difficult to pinpoint where we're going to finish 2024 and the remaining quarters therein. Savaria's future prospects are promising, driven by strong market demand, the progress of Savaria One, and potential acquisition opportunities that will enhance our market position. And with that, this completes my prepared remarks, and I'm gonna turn the call over to Jean-Philippe to provide further details on how we're progressing with Savaria One.
Thank you, Steve. Good morning, everyone. Before I dive in, I just want to take a moment to thank the hundreds of colleagues at Savaria who are contributing to our success. Their creativity, their passion, the expertise they have, and their rigor in executing all the initiatives we are pursuing is what makes Savaria unique and our Savaria One program a success. As you saw, Q2 2024 was Savaria's best quarter ever. It is the new benchmark for us, as it was not due to a single initiative or luck, but rather the results of steady improvements across the business that are paying off. Just to give you a sense, we implemented 75 different initiatives in the first half of this year.
In Q1, we saw a modest improvement in our quarterly earnings, and I mentioned that we were starting to see the color of the changes made through Savaria One. Well, in Q2, we are starting to realize the true benefits of changes made, and it is the first full quarter where we can measure those impacts. While we cannot predict what the future holds, and our business is subject to many external forces, we expect the changes we implemented to have recurring benefits and continue in coming quarters. Let me give you an example. We made a number of changes to our commercial terms. For example, we introduced the new dealer partner program in North America. While this program was introduced in January, the first orders placed within this program were likely produced and delivered at the end of Q1.
We really see the full impact of commercial changes on our revenues in Q2. Another good example is procurement. We renegotiated many contracts for raw materials, parts, or freight rates, but those cost savings may only be accounted for in products that are sold either in Q2 or even in Q3. If I continue in North America, our focus within Savaria One was on a dual objective to grow order intakes while getting our factories to grow throughput for bestselling products, and in particular, home lifts. Like, Steve mentioned before, we're very proud of the achievements we've made there.
What this meant is that, you know, on the sales side, our sales force developed detailed plans to support our top dealers in each market to grow their business, and that we worked with our own direct stores to be more effective in managing and converting orders of potential customers, while in parallel, our factories were getting more organized and more efficient. Those combined efforts is what explains. Well, actually, I explained a bit more details in detail what happened in the factories in the previous call, so I won't explain it again. But those combined efforts is what really enabled our sales to grow by 15% versus same quarter last year.
Also, one of the highlights of this quarter is that we made our new warehouse in Toronto fully operational, which enable our factory here in Brampton to be more effective within the same footprint and absorb the Matot production, which we aim to produce in-house by end of this year. In Europe, our focus with Savaria One was mainly on improving profitability, as that region has historically delivered lower EBITDA margin than our other divisions. To do so, we had commercial initiatives, but also reduced the cost of goods sold by completing different sourcing events in the fall of 2023 and the first half of 2024. We also made dozens of small operational improvements to reduce the time to assemble our products while increasing their quality. Thanks to all of this, and thanks to our rigor in managing costs, our EBITDA margin grew by 3% versus Q1 2024.
While improving margins, we also experienced a sales growth in Europe versus Q1. Finally, our patient care division continues to deliver healthy results. Yet, like we mentioned before, we invested in growing the business and expected those investments to take time to generate sales and margin growth, given the nature of the business and the long sales cycle. For example, we expanded and strengthened our sales team to cover regions that are attractive for us, but lacked coverage in the past. Those new additions are paying off, but we know growing a territory sales takes time. Finally, we're getting more efficient in our factories as well, as we have materially improved the productivity of our beds facility in Beamsville and are having good success with the introduction of new package offerings, allowing fast shipments of beds and mattresses to our U.S. customers.
On the flip side, we had fewer projects and thus, revenues in the ceiling lift business in Q2. In conclusion, we're very happy with our progress and are on track with our plan for Savaria One. If you recall, our objective is for 25, 2025 to be at 20% EBITDA and grow the top line to CAD 1 billion. We achieved a 19% Adjusted EBITDA in Q2, so we are already very close to this first objective and are making progress towards the second one. Again, thank you to all Savaria colleagues for their support in this effort. Thank you for your attention. That closes my remarks for Savaria One, and I'll hand it back to you, Sébastien.
Thank you, JP, and thank you, Steve, for your remarks. So I guess, Raz, we are ready for some questions.
Thank you, sir. As a reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question. The questions come from the line of Frederic Tremblay from Desjardins Capital Markets. Please ask your question.
Good morning, and congrats on the strong results.
Thank you, Fred.
Maybe starting with Savaria One and sort of what's next, in terms of getting the lift to the 20% margin, is there any particular area where you feel that, you know, future initiatives will be key to get to that 20%? Obviously understand that, there's a lot of initiatives going on, but, I mean, would you say that commercial excellence, operations or supply chain, is there one of those that's gonna be more crucial in future quarters?
Maybe I will start, and JP will complete. So I would say, Fred, no, for sure, procurement always takes more time, okay? And it's difficult for us to necessarily change the vendor, because sometimes we need to recertify our product. We need to consume inventory. So procurement always takes more time. But for sure, the biggest pillar is our sales initiative, okay? And it takes time, you know. We want to do more cross-selling. We want to increase the share of wallet, the dealer. We want to bring them new products that way they can buy from us. So I would say this one takes more time. And the rest, okay, for... I would say it was a two-year program.
Now, we had it's always difficult to put a percentage, but maybe we are half through it, okay, and we're still very comfortable where we wanna go next year, so but definitely, the commercial excellence is the, the one that need more time. JP, any color you want to add?
Well, just, just to add, Fred, so we have success on all dimensions up to now, right? So it's not like our results can be explained only by one specific set of endeavors. So we had improvements everywhere. But like Seb mentioned, where we expect maybe more money to flow through the P&L in the next quarters is a bit more in procurement because of that timing effect and the fact that it takes time. And on the other hand, yeah, we, I think our factories are better equipped than ever. Like, they're in very good shape right now, so, we're gonna put maybe a bit more attention on sales growth because that's where we see the next opportunity.
Great. Thanks for that. In terms of the demand part of the equation, you know, very strong, 15% organic growth in America, North America, which is higher than the 8%-10% company-wide output that you typically provide. Just wondering what, what's sort of driving that? Is there one product category that's stronger than the others? And maybe get your thoughts as well on growth moving forward for accessibility, North America in particular.
For sure, Fred. Okay, again, it's always a bit difficult to know. For Savaria, we have our direct store, we have the Europe or North America, we have the patient care. So again, if we go back to our objective, we want to grow the full Savaria at 8%-10%. For sure, North America, again, we have been a bit fueling the growth with eating a little bit of our backlog, not too much, but for sure, home elevator, okay, it was part of the Savaria One. It was one place where we could be better. The demand is quite strong, okay, with the density of the population of the residential area, all townhouses going into 3-4 floor. The constant work with architect, contractor, it bring us some repeat business.
So I would say that's one area that the home elevator has been quite successful, in terms of growth in North America.
Good. That's it for me. Thank you.
Thank you, Fred.
Thank you. We are now going to proceed with our next question. The question's come from the line of Michael Glenn from Raymond James. Please ask your questions.
Hey, good morning. This is Fred Bastien from Michael Glenn. On the CAD 15 million Savaria One and additional fees associated, could you remind us, are those performance-based fees, and at this point in time, do you factor that additional CAD 15 million in your numbers?
Sorry, just to clarify the question, it was around the cost that we've incurred year to date, so the CAD 5.3 million in the quarter, or, or-
No, no, this would be the CAD 15 million that you in possible additional fees next year, I believe.
So through our Investor Day, and I think we've echoed the message a few times, the total expected costs could reach CAD 40 million-45 million of the project, depending on exactly where the project finishes as far as how much EBITDA is delivered. So there is a performance component. There's also a bit of a fixed fee component in there as well. So, you know, we're not disclosing the separate details of the contract, but the contract is based both with a fixed and performance-based fee. And a lot of that depends on how we're delivering on all of these Savaria One initiatives. So there's both components that are wrapped up in there.
Okay. And, on accessibility in Europe, I mean, how are some of the dealers? There was some weakness last quarter, I believe. So how are some of the dealers and pricing initiatives turning out there, and how do you see that looking in the back half of the year?
If I understand correctly, again, about the dealer growth in Europe. Okay, for sure, like, the second quarter was, again, it's a weak second quarter. Right now, again, if we go back to the Savaria One, it's a growth story. We are pushing a lot of our initiative, the cross-selling. We're bringing some new products, okay, to Europe by the end of the year for vertical platforms, which will help us to accelerate our growth in coming years. So I would say, yeah, we have to go step by steps, and then, and definitely right now, okay, we are focused a lot on the operation costs, on the margins, to bring it a good level, but the growth sides remain a very important priority for us in Europe.
Okay, thank you. And if I could just squeeze in one more, just on the Mexico facility, have you seen, could you speak maybe to the contribution you've seen so far from that? Any dealer reactions as well, to that facility or, or of proximity, I should say?
For sure, Mexico, okay, for us, it was not a short term. It was a mid, long term project, again, to do a bit of nearshoring, not to put all our eggs of manufacturing in one basket. So right now, I would not say the result of the second quarter is because of Mexico. It, again, it's more for the long term that we want to make sure we have some parts there, some sub-assembly right now. This, we do some parts shipments, some final product assembly that we do with every shipment to the U.S.. And in the future, we'd like to bring also more complete product, but right now, this factory has been focused mostly on sub-assembly, shipping to Brampton, Vancouver, and a bit of in the patient care.
Okay, thank you. That's it.
Yep.
Thank you. As a final reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. It's star one and one for any questions. Thank you. We are now going to proceed with our next question. The question comes from the line of Zachary Evershed from National Bank Financial. Please ask your question.
Hey, morning, everyone. Congrats on the quarter.
Hey, Zach.
Well, for the acquisitions that you're considering, what kind of threshold or hurdle rate do they have to hit to make you sit up and pay attention, when your focus right now is on Savaria One and operational improvements?
Thank you, Zach, for the question. So for sure, like, acquisition, okay, again, we have talked often about tuck-in acquisition, small dealer for us, okay, or medium-sized, whatever, that, there's no... That the owner want to sell, there's no succession or, that's something we're always interested. We're listening. Matot is a very good example that we did in the second quarter. A small company that we can bring our new products to our other dealers that, again, want to remain a, a one-stop, offering with the best line of products. So that was something we could integrate into our supply chain and try to increase the sales. So I would say new products, dealers, are always something that is on top of our list.
In terms of size, we could go up to CAD 226 million, but right now, again, we're really focused on small tuck-in, Savaria One, and let's see what the future to come. Our friend Nick is always there, working full time on M&A.
Thank you. Good color. And then on that topic, any more home runs like Matot in the pipeline?
More acquisitions, you mean?
Yep.
Yeah.
Yeah. Again, sorry to give some color, Zach, on that. Again, we don't want to do forward-looking statement on this, so we will see what we bring in the future, but.
Fair enough. And then just one last one. I'll circle back to the project timing issue in patient care. Is there any prospect of a catch-up on that in Q3, or is it more of just a subdued environment issue?
Yeah, I would say, Zach, that, you know, we had exceptionally strong quarters in Q1 and Q2. You know, we've talked about that in Q1 and Q2 of last year. We've talked about that a few times now. It's not, it's not that the market is down, it's just right now, what we are seeing is just a few delays across some of the project-based work, and the timing of those projects finishing and completing can be a little bit difficult to predict, and we're sort of seeing a little bit of softness there in Q1 and Q2, but as Sébastien mentioned, we're expecting Q3 and Q4 to be a little bit better.
We have, you know, we have, been able to counteract some of that project work with other sales, like our bed sales are doing very well, bed sales across North America, both Canada and the US. So, you know, while, while maybe we are seeing a little bit of weakness on the project side, temporarily, it's, we've done a good job of counteracting that. So, you know, what, what we saw in Q1 and Q2, the revenues were flat against really good quarters. Profitability was down. We have higher SG&A costs there, that we have been investing in, in a few different areas to support future growth that, that we are expecting and that we are seeing for that segment. So, you know, we remain very, very optimistic of, for that segment of the business.
Yeah, I guess probably that's sufficient color for now.
That's helpful. Thanks. I'll turn it over.
Thank you, Zach.
We have no further questions at this time. I will now hand back to you for closing remarks. Thank you.
Okay. Well, thank you, Raz, and thank you for the analysts that were present this morning. Was a bit shorter than expected, but I guess the results were very clear, very well explained. So again, thank you very much for the, for the results in the second quarter to all our employees, and I think Savaria is, we're on the right direction with the Savaria One. I think that was the right decision that we made a year ago. We're up to it, and we can, hopefully, you can see that the CAD 1 billion, 20% is, is approximately, at reach. Thank you.
Thank you, Raz.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.