AutoCanada Inc.

Good morning. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Auto Canada second quarter 2023 earnings call. The 2023 second quarter results were released this morning before markets opened, and you can access the news release as well as the complete financial statements and management discussion and analysis on the website at autocanada.com. The news release, financial statements, MD&A have been also filed on CDAR. 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. If you'd like to ask a question at that time, please press star, followed by one on your telephone keypad. If you'd like to withdraw your question, please press star, followed by two. Listeners are reminded that certain matters discussed in today's conference call Our answers that may be given to questions asked and could constitute forward-looking statements which are subject to risk and uncertainties related to Auto Canada's future financial or business performance. Actual results could differ materially from those anticipated of these forward-looking statements. The risk factors that may affect results are detailed in Auto Canada's annual information form and other periodic filings and registration statements, and you can access these documents at the CDARS database found at cdarplus.ca. I'd like to remind everyone that this call is being recorded today, Thursday, August 10, 2023. I would now like to turn the conference over to Mr. Paul Anthony, Executive Chairman of Auto Canada, Inc. Please go ahead, Mr. Anthony.

Thanks a lot, and good morning, everyone, and thank you for joining us on today's call. We appreciate everybody for joining today and for the opportunity to update you on our business strategy, growth, and progress. In Q2, Auto Canada's revenue grew 4.2% to $1.8 billion today. resulting in $94.1 million in adjusted EBITDA, and that's up 24% year-over-year, and $1.75 in earnings per share, up 32% year-over-year. These strong second quarter results were driven by the team's focus on operational initiatives, including selling more cars with less inventory, supported by robust market conditions. These factors allowed us to outperform despite a 49% increase in finance costs, including a $9.6 million increase in flooring costs over 2022. New light vehicle inventories have begun to replenish, and this coupled with pan-op demand following the pandemic supply constraints has resulted in higher vehicle prices and strong GPUs in both new and used light vehicles. Our Canadian new GPU increased by $89 to $5,636 per unit and our used vehicle GPU grew $601 to $2,320 per unit because of market conditions and our focus on sales discipline and inventory management. Parts service and collision repair also had robust performance, as did our same-store F&I business, which posted its 19th consecutive quarter of growth in gross profit per unit. We remain focused on growth and profitability, and we look to gain further efficiencies across our entire business. Our model is dynamic and diversified, allowing our operations to adjust to changing market conditions and to serve customers through a variety of channels across a full range of products, services, and brands. In Q2, our normalized operating expenses before depreciation as a percent of gross profit was 66.8%, and that's a considerable improvement over 70.7% in the same period last year. is the second lowest operating expense ratio this company has ever achieved in any quarter. And that demonstrates the effectiveness of the operational efficiencies and initiatives underway that have allowed us to do more with our investment in inventory, technology, facilities, and people while still executing our overall growth strategy. Our Q2 2023 results were accompanied by a significant achievement, and that's the release of Auto Canada's inaugural ESG report. This comprehensive report reflects our dedication to responsible practices and showcases our commitment to transparency and sustainable value creation for our stakeholders and the community that we serve. We invite all and every interested party to explore Auto Canada's inaugural ESG report on our website. I do want to take a moment to thank all of our OEM partners and our entire team for their dedication and hard work, which allowed us to achieve a multitude of company records during the quarter, including a new vehicle volume sold, used vehicle volume sold, and a number of repair orders completed. That's just to name a few. With that, I'm gonna turn it over to Azeem to discuss our financial results in more detail. Azeem?

Thank you, Paul. Good morning, everyone. During the second quarter, we recorded sales of $1.8 billion, adjusted EBITDA of $94.1 million, and diluted earnings per share of $1.75. Sales increased by 4.2% when compared to the same period of 2022, including the contribution from 28 acquisitions completed over the past two years. Our same-store revenues, which does not include acquired revenue, decreased by 1.8% in the second quarter. Notably, Canadian same-store new retail vehicle unit sales growth was 4.2% during the quarter. marking the second sequential quarter of good growth as new light vehicle supplies continue to normalize. Our Canadian same-store used retail vehicle units sold decreased by 4.3% in the quarter, with the ratio of Canadian used to new retail units sold decreasing to 1.56 from 1.70 last year. During the last 12 months, Auto Canada sold 32,505 new retail vehicles and 54,479 used retail vehicles in Canada, a ratio of 1.68 to 1. As you'll recall, when this management team came on board in 2018, this metric was 0.62 to 1 on an annual basis in Canada. As new light vehicle supply replenishes, we expect our use-to-new ratio to stabilize. We remain focused on growing our used vehicle market share, given the appealing, unconstrained nature of the used vehicle market. Increasing volumes retailed gives us more high-margin sales opportunities through leveraging our best-in-class F&I department, as well as our parts and service footprint through vehicle reconditioning. The US division retailed 1,363 new units during the quarter. However, new gross margins decreased 43.5% versus the second quarter of 2022. Recall that last year, the shortage of new vehicles resulted in US dealers selling new vehicles for prices above manufacturer suggested retail price. a practice that is not allowed in Canada and created outsized profitability in U.S. new vehicle sales across the industry. We expect year-over-year GPUs to normalize in our U.S. division as the supply of new vehicles in the U.S. is replenished. Consolidated parts, service, and collision repair experience strong demand, with same-store sales increasing by 17.8%. This translated into healthy profitability in this segment as customers have kept their vehicles longer, requiring more service needs, and increased warranty-related work. Parts, service, and collision repair gross profits increased by 13.8%, and gross profit percentage decreased to 54.5%. Same-store F&I revenue increased by 4.8%, gross profit increased by 3.8%, and gross profit percentage decreased to 93.4%. These results reflected our selling more products per deal. Consolidated gross profit percentage was 18.1%, an increase from 16.6% in the second quarter of 2022. Normalized operating expenses before depreciation were $213 million, or 66.8%, of gross profit compared to $198 million or 70.7% of gross profit in Q2 2022. The decrease as a percentage of gross profit resulted from higher new and used GPUs, growth in high margin parts service and collision repair business, as well as a focus on operating initiatives related to cost control and productivity. Adjusted EBITDA was $94.1 million, an increase of 24% over the same period of 2022, while our adjusted EBITDA per diluted share increased by 43% to $3.88 from $2.71. As of June 30, 2023, we had $145 million outstanding on our $375 million revolving credit facility. Other debt also consisted of $350 million in 5.75% seven-year senior notes and $31 million in non-recourse mortgages on three dealership properties, as well as approximately $1 billion in floor plan, which supports our inventory. We also have unrestricted cash on hand of approximately $68 million. Excluding our floor plan facilities and our lease liabilities, our total net funded debt as of the end of Q2 was $460 million compared to $465 million in Q1, 2023. Our total net funded debt to bank EBITDA covenant ratio of 2.08 is down from 2.25 from the last quarter and is well below our 4.0 maximum. We have access to approximately $299 million of liquidity under our revolving facilities and cash on hand as of the end of June 30th, 2023. As we move through the upcoming quarters and continue to allocate capital, we expect the leverage ratio to remain consistent. Our effective fixed rate portion of total debt, including swaps, is approximately 41%. we will be focusing on opportunities to increase that portion from current levels over the coming quarters to add greater stability to the business given the current rate environment. Our basic weighted average number of shares outstanding was approximately 23.5 million shares as of June 30th, 2023, which is an 11.4% decrease compared to the approximately 26.6 million shares as of the end of the second quarter last year. For the trailing 12-month period ended June 30, 2023, Auto Canada purchased and canceled approximately 3 million shares for total cash consideration of $82 million at an average price of $27.39 per share. We will continue to use share buybacks strategically when appropriate while maintaining a solid balance sheet and prioritizing high-value growth objectives. I will now turn the line back over to Paul to discuss the outlook.