ACQ AutoCanada Inc

• Revenue was $1,601.0 million as compared to $1,756.3 million in the prior year, a decrease of (8.8)%
• Net (loss) income for the period was $(33.1) million, including an $(11.3) million impairment of non-financial assets in the current quarter and a write off of $(13.2) million of deferred tax assets relating to U.S. Operations, as compared to $45.2 million in the prior year, a decrease of $(78.3) million
• Diluted (loss) earnings per share was $(1.47) as compared to $1.75 in the prior year
• Adjusted EBITDA¹ was $27.0 million versus $94.1 million in the prior year, a decrease of $(67.0) million

EDMONTON, AB, Aug. 13, 2024 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX: ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three-month period ended June 30, 2024.

"AutoCanada faced several headwinds during the second quarter which substantially affected our performance. The CDK outage disrupted operations resulting in lost sales and profits, OEM inventory grew across the industry causing higher days supply in key brands and impacting floorplan costs, and rising unemployment combined with falling GDP in a still elevated rate environment perpetuated consumer uncertainty." stated Paul Antony, Executive Chairman of AutoCanada.

 "Given increasingly challenging operating conditions, during the second quarter we engaged Bain & Company to support us in accelerating key strategic initiatives that will structurally improve AutoCanada. We are actively reviewing strategic alternatives for all non-core and underperforming assets. We have also immediately halted all M&A and return of capital initiatives, and have frozen all discretionary spending.  We are solely focused on reducing leverage, stabilizing and improving profitability, and molding AutoCanada into a best-in-class operator that is positioned for long-term success."

Second Quarter Key Highlights and Recent Developments

AutoCanada was negatively impacted by a cyber incident with CDK Global ("CDK"), our dealer management system ("DMS"). CDK is used across our dealership operations and supports many aspects critical to our business, including the management of our sales, parts and service, inventory, business development, and accounting functions.

The CDK outage started on June 19, 2024, and officially ended on July 1, 2024 ("CDK Outage"). The recovery, validation, and cleanup process for CDK to be "back to normal" was not fully completed until end of July 2024.

Once we became aware of the CDK outage, we immediately enacted measures to safeguard our system and data environments. We also performed a thorough assessment of the potential impact to our operations and enacted a plan to ensure business continuity. We subsequently fortified our internal security measures and increased our threat detection efforts.

While our dealership operations were able to transition to a manual dealership operating process, our Q2 2024 results were ultimately negatively impacted by lost sales of new and used vehicles and related F&I deals, lost service repair orders², and other one-time incremental costs to support the business.

Consolidated revenue decreased due to the CDK Outage and weaker performance across new vehicle, used vehicle, P&S, and F&I operations, partially offset by positive contributions from collision operations and recent acquisitions.

Consolidated gross profit decreased due to the CDK Outage and weaker performance across new vehicle, used vehicle, P&S, and F&I operations, resulting in lower new and used retail vehicle sales and lower contributions from F&I, an increase in the used vehicle inventory provision to adjust for current market conditions in Canada and the U.S., partially offset by positive contributions from collision operations and recent acquisitions.

Operating expenses before depreciation² declined due to lower employee costs as a result of weaker sales resulting from the CDK Outage, and management's restructuring of variable pay plans in 2024, partially offset by one-time management transition costs.

Floorplan financing expenses increased as a result of higher interest rates and rising new inventory levels partially offset by lower used vehicle inventory levels.

Net loss for the period resulted from lower gross profits for the reasons stated above, impairment of U.S. non-financial assets in the current quarter, write off of U.S. recognized deferred tax assets, and higher floorplan financing expenses, partially offset by gains from the sale of a property completed during the quarter.

Adjusted EBITDA¹ for the period and adjusted EBITDA margin¹ decreased primarily as a result of lower gross profits (as discussed above) combined with higher floorplan financing expenses.

Canadian Operations Highlights

Revenue and gross profit decreased due to the CDK Outage and also weaker performance across new vehicle, used vehicle, and P&S operations, partially offset by positive contributions from collision operations and recent acquisitions, and an increase in the used vehicle inventory provision taken in the current quarter. Customers prioritized the purchase of lower priced vehicles and are stretching out vehicle servicing needs due to the current high cost of living environment. Growth in collision gross profit was largely driven by strong customer demand and increased production capacity.

Used vehicle gross profit per retail unit² decreased due to the softening of the used vehicle market and noted increased used vehicle inventory provision.

Excluding the impact of the CDK Outage on reducing total retail units² sold, F&I performance remained relatively consistent with the prior year, as F&I gross profit per retail unit average² decreased slightly as compared to prior year. Current high interest rate environment has shifted payment mix towards more cash and lease, and away from more profitable finance deals. This negative pressure has been offset with higher product penetrations on each transaction.

Adjusted EBITDA¹ declined due to the reasons stated above combined with higher floorplan financing expenses.

U.S. Operations Highlights

Revenue and gross profit declined due to lower used retail vehicle² sales, including an increase in the used vehicle inventory provision taken in the current quarter, and lower F&I performance, partially offset by contributions from new retail vehicle² sales. Used vehicle performance was negatively impacted by market dynamics that made sourcing optimal used vehicle inventory more challenging. P&S gross profit increased due to the successful implementation of various initiatives to improve operational effectiveness.

Net income decrease includes $(11.3) million impairment of non-financial assets and write off of $(13.2) million of deferred tax assets in the current quarter.

Adjusted EBITDA¹ declined due to lower used vehicle gross profits and higher floorplan financing costs, partially offset by higher P&S gross profit.

Collision Operations Highlights

Collision revenue and gross profit increased reflecting contributions from increased production capacity, re-negotiation of vendor agreements to reduce cost, strong customer demand supported by increased Original Equipment Manufacturers ("OEM") certifications and insurance referrals, and increased demand for paintless dent repair attributable to an increase in hail activity as compared to the prior year.

Collision gross profit percentage² decreased due to an increase in labour cost and change in sales mix as a result of increased lower margin paintless dent repair work.

Same store² revenue and gross profit increased, and same store gross profit percentage² decreased for the reasons noted.

Adjusted EBITDA¹ decreased largely due to increased operating expenses, particularly employee costs and administrative costs, as a function of the operational growth and recent acquisitions.

Other Recent Developments

During the quarter:

• For the period from April 1, 2024 to June 30, 2024, under the previously announced normal course issuer bid ("NCIB") and automatic share purchase plan ("ASPP"), the Company has repurchased and cancelled 264,554 common shares for an average price of $21.96 and total cash consideration of approximately $5.8 million.
• On April 22, 2024, the Company entered into the fourth amended and restated credit agreement ("New Credit Facility") with the existing lending syndicate. The New Credit Facility included the following:
  • Extend the maturity date to April 22, 2027 to maintain a three-year term;
  • Creation of a new $25.0 million capital expenditure term facility, and a corresponding $25.0 million accordion facility, to support the anticipated leasehold spending in the coming quarters;
  • Total aggregate bank facilities increased from $1.610 billion to $1.635 billion, with no changes to the revolving, wholesale flooring, and wholesale leasing facilities;
  • Administrative enhancements to the Company's ability to floor more used vehicles; and
  • Transition from Canadian Dollar Offered Rate ("CDOR") to Canadian Overnight Repo Rate Average ("CORRA").
• On May 1, 2024, the Company completed the sale of specific land and building in Alberta for cash consideration of $10.0 million plus closing adjustments resulting in a gain of $3.4 million. The land and buildings were presented as held for sale in the Interim Financial Statements.
• On June 24, 2024, the Company acquired substantially all of the assets of Nurse Chevrolet Cadillac Dealership and Collision Centre in Oshawa, Ontario. The acquisition supports management's strategic objectives of further expanding the Company's automobile dealership presence and collision centre capacity in the province of Ontario.
• On June 28, 2024, due to noted CDK Outage, the Company amended the New Credit Facility to increase Total Net Funded Debt to Bank EBITDA Ratio covenant requirement from 4.00 to 4.50 for the period June 28, 2024 to September 29, 2024.

After the quarter:

• On July 30, 2024, S&P Global Ratings ("S&P") issued a research update where the Company's Credit Rating was reaffirmed at 'B+' and outlook was revised from 'Stable' to' Negative'.
• For the period from July 1 to August 13, 2024, the Company repurchased and cancelled 109,100 shares for an average price of $18.99 under its NCIB and ASPP for consideration of $2.1 million.

Conference Call

A conference call to discuss the results for the three months ended June 30, 2024 will be held on August 13, 2024 at 2:30 pm Mountain (4:30 pm Eastern). To participate in the conference call, please dial 1-888-664-6392 approximately 10 minutes prior to the call.

This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://investors.autocan.ca/event/2024-q2-conference-call/

MD&A and Financial Statements

Information included in this press release is a summary of results. It should be read in conjunction with AutoCanada's Interim Consolidated Financial Statements ("Interim Financial Statements") and Management's Discussion and Analysis ("MD&A") for the three-month period and six-month period ended June 30, 2024, which can be found on the Company's website at www.autocan.ca or on www.sedarplus.ca.

All comparisons presented in this press release are between the three-month period ended June 30, 2024 and the three-month period ended June 30, 2023, unless otherwise indicated. Results are reported in Canadian dollars and have been rounded to the nearest thousand dollars, unless otherwise stated.

Condensed Interim Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)
(in thousands of Canadian dollars except for share and per share amounts)

Condensed Interim Consolidated Statements of Financial Position

(Unaudited)
(in thousands of Canadian dollars)

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)
(in thousands of Canadian dollars)

NON-GAAP AND OTHER FINANCIAL MEASURES

This press release contains certain financial measures that do not have any standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned these measures should not be construed as an alternative to net income (loss) or to cash provided by (used in) operating, investing, financing activities, cash, and indebtedness determined in accordance with GAAP, as indicators of our performance. We provide these additional non-GAAP measures ("Non-GAAP Measures"), capital management measures, and supplementary financial measures to assist investors in determining the Company's ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used.

Adjusted EBITDA and adjusted EBITDA margin are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that these Non-GAAP Measures should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, cash flows from operating, investing and financing activities or as a measure of liquidity and cash flows. The Company's methods of calculating referenced Non-GAAP Measures may differ from the methods used by other issuers. Therefore, these measures may not be comparable to similar measures presented by other issuers.

We list and define these "NON-GAAP MEASURES" below:

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is an indicator of a company's operating performance over a period of time and ability to incur and service debt. Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to:

• Interest expense (other than interest expense on floorplan financing), income taxes, depreciation, and amortization;
• Charges that introduce volatility unrelated to operating performance by virtue of the impact of external factors (such as share-based compensation amounts attributed to certain equity issuances as part of the Used Digital Division);
• Non-cash charges (such as impairment, recoveries, gains or losses on derivatives, revaluation of contingent consideration and revaluation of redemption liabilities);
• Charges outside the normal course of business (such as restructuring, gains and losses on dealership divestitures and real estate transactions); and
• Charges that are non-recurring in nature (such as provisions for settlement income).

The Company considers adjusted EBITDA provides improved continuity with respect to the comparison of our operating performance over a period of time.

Adjusted EBITDA Margin

Adjusted EBITDA margin is an indicator of a company's operating performance specifically in relation to our revenue performance. The Company considers adjusted EBITDA margin provides improved continuity with respect to the comparison of our operating performance with retaining and growing profitability as our revenue and scale increases over a period of time.

NON-GAAP AND OTHER FINANCIAL MEASURES RECONCILIATIONS

Adjusted EBITDA and Segmented Adjusted EBITDA

The following table illustrates segmented adjusted EBITDA for the three-month periods ended June 30:

The following table illustrates collision adjusted EBITDA for the three-month periods ended June 30:

Adjusted EBITDA Margin

The following table illustrates segmented adjusted EBITDA margin for the three-month periods ended June 30:

Forward Looking Statements

Certain statements contained in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause actual results to differ materially from those projected in these forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe", "shall" and similar expressions) are not historical facts and are forward-looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict.

Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Therefore, any such forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this press release.

Details of the Company's material forward-looking statements are included in the Company's most recent Annual Information Form for the year ended December 31, 2023 (the "AIF"). The AIF and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedarplus.ca) describe the risks, material assumptions, and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

About AutoCanada

AutoCanada is a leading North American multi-location automobile dealership group currently operating 85 franchised dealerships, comprised of 28 brands, in eight provinces in Canada as well as a group in Illinois, USA. AutoCanada currently sells Acura, Alfa Romeo, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, FIAT, Ford, GMC, Honda, Hyundai, Infiniti, Jeep, Kia, Lincoln, Mazda, Mercedes-Benz, MINI, Nissan, Porsche, Ram, Subaru, Toyota, Volkswagen, and Volvo branded vehicles. In addition, AutoCanada's Canadian Operations segment currently operates 3 used vehicle dealerships and 1 used vehicle auction business supporting the Used Digital Division, 13 RightRide division locations, and 11 stand-alone collision centres within our group of 27 collision centres. In 2023, the Company generated revenue in excess of $3 billion and our dealerships sold over 100,000 retail vehicles.

Additional Information

Additional information about AutoCanada is available at the Company's website at www.autocan.ca and www.sedarplus.ca.

SOURCE AutoCanada Inc.