AutoCanada Inc.

Good morning, my name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to the Auto Canada 3rd Quarter 2023 Earnings Call. 2023 3rd 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, and DNA have also been 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 would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. And if you would like to withdraw your question, please press star followed by 2. Listeners are reminded that certain matters discussed on today's conference call are answers that may be given to questions asked and could constitute forward-looking statements which are subject to risks and uncertainties related to AutoCanada's future financial or business performance. Actual results could differ materially from those anticipated or those forward-looking statements. The risks factors that may affect results detail in Auto Canada's annual information form and other periodic filings and registration statements and you can access these documents on the CDARS database found at cdarplus.ca I'd like to remind everyone that this conference call is being recorded today Thursday November 9th 2023 and I would like to introduce Mr. Paul Anthony Executive Chairman of Auto Canada. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Last summer, Auto Canada passed several milestones, and the company entered its 30th year in existence, its 18th year as a public company, and completed the fifth year of its go-forward plan. It's an incredible testament to our customers, OEM partners, and our team who just show up every day to power our success. As a management team, we've spent considerable time over the summer reflecting on the five years we've spent at Auto Canada, remembering the challenges we faced in the early days in 2018 to stabilize the company and create a diversified and durable business, and most importantly, contemplating what the future holds. While a lot has changed since 2018 across the consumer landscape in automotive and at Auto Canada, Our commitment to being a leader within the personal transportation ecosystem is the guiding principle that underscores everything we do. With this in mind, over the course of July and August, we embarked on a series of operational strategy sessions to create the playbook that's going to lead our organization for the next five years. This new five-year plan is called Project Elevate. It was launched with our dealers in August and is featured in our new investor presentation which was released on our website earlier this morning. And you can find it at investors.autocan.ca. Project Elevate continues the evolution of our company that began in 2018 and is focused on three priorities. Number one, maximizing gross profit. Number two, optimizing the cost structure. And three, modernizing our corporate infrastructure. We intend to gradually close the gap to our normalized peer profitability over the coming years. And to do this, we've identified a multitude of areas where you can realize productivity gains, cost efficiencies, and capture greater share of wallet by maximizing all revenue opportunities, as well as our investments in people, process, and technology in a full-service omnichannel ecosystem. Project Elevate initiatives include an enhanced used vehicle sourcing and speed to market strategy, optimization of F&I and fixed operations through best practices and bandwidth management across all of our stores, ramping our F&I and instant cash offer consumer solutions on multiple marketplaces, creating a growth-oriented and cost-effective organization to get rid of ineffectual spending, centralizing procurement, and improving utilization of resources through dedicated financial planning and analysis, enhanced marketing strategies, and IT modernization. Combined, these initiatives will unlock economies of scale within the organization which will not only benefit profitability but create a platform for future growth. For example, Our Canadian F&I GPU per retail unit average of $3,353 is industry leading within North America. However, despite having an industry leading average, there's a lot of dispersion between stores, with our best performing store achieving over $5,000 and our worth just over $1,000. If we can just get our worst performing stores to our current average, it represents as much as an additional $30 to $40 million in annual adjusted EBITDA. We're not talking about a Herculean task, but it's just one that takes time and training, measuring and managing. This is just one of many Project Elevate initiatives we're going to be working towards over the coming years. While there are going to be peaks and valleys as we pursue our objectives, we're aiming straight towards our goals. The recent addition of Drew Forret as Chief Administrative and Transformation Officer and Mike Farah as VP Financial Planning and Analysis, as well as the promotions of Jeff Thorpe to President North America and Brian Feldman to Chief Operating Officer, which were announced in September, give Auto Canada the specialized and expanded leadership capability needed to realize our full potential. I'd like to take the opportunity right now to welcome Drew and Michael to Auto Canada and congratulate Jeff on Brian on their much-deserved promotions. With that, I'd like to pass the line over to Azeem Lalani, who's going to discuss our third quarter results in detail. Azeem?

Thank you, Paul, and good morning, everyone. During the third quarter, we recorded sales of $1.7 billion, adjusted EBITDA of $66.7 million, and diluted earnings per share of 81 cents. Sales increased by 2.1% when compared to last year, including the contribution from 28 acquisitions completed over the past two years. Our same-store revenue decreased by 3.7% during the quarter. Canadian same-store new retail vehicle unit sales growth was 8.4% during Q3. reflecting replenishing new light vehicle supply as compared to last year. Our Canadian same-store used retail vehicle units sold decreased by 7.4% in the quarter, with the ratio of same-store Canadian used to new retail units sold decreasing to 1.60 from 1.87 last year. During the last 12 months, Auto Canada sold 33,794 new retail vehicles and 54,598 used retail vehicles in Canada, resulting in a used-to-new ratio of 1.62. As new light vehicle supply replenishes, we expect our used-to-new ratio to naturally come down and then stabilize. We remain focused on growing our used vehicle market share through Project Elevate initiatives, given the unconstrained nature of the used vehicle market. Increasing vehicle 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 U.S. division retailed 1,370 new units during the quarter. However, new vehicle gross margins decreased by 42.9% versus the third quarter of 2022. Recall that last year, the shortage of new vehicles resulted in U.S. dealers over-earning on new vehicle sales, creating outsized profitability in U.S. new vehicle sales across the industry. We continue to 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 experienced strong demand, with same store sales increasing by 8.9%. Same store parts, service, and collision repair gross profits increased by 7.2%, and gross profit percentage decreased to 53.6%. Same store F&I revenue decreased by 1.8%, Gross profit decreased by 2.7%, and gross profit percentage decreased to 96%. These results reflect a greater propensity for consumers to put down large deposits and minimize financing costs due to elevated interest rates. Consolidated gross profit percentage was 17.5%, an increase from 16.8% in the third quarter of 2022. Normalized operating expenses before depreciation were $206 million, or 70.9% of gross profit, compared to $192 million, or 70.3% of gross profit last year. The slight increase as a percentage of gross profit resulted from lower expenses in Canada offset by increases in the US due to higher advertising, insurance, and property tax expenses. During the quarter, floor plan finance costs increased by $8.9 million, reflecting the increase in interest rates, higher new vehicle inventory balances, offset by lower used vehicle inventory levels. Adjusted EBITDA was $66.7 million, a decrease of 13% over last year, while adjusted EBITDA per diluted share decreased by only 3.1% to $2.72 from $2.81. As of September 30, 2023, we had $165 million outstanding on our revolving credit facility. Other debt also consisted of $350 million in 5.75% seven-year notes and $31 million in non-recourse mortgages on three dealership properties, as well as approximately $1.1 billion in floor plan, which supports our inventory. We also have access to approximately $309 million of liquidity under our revolving facilities and cash on hand as of September 30th, 2023. Excluding our floor plan facilities and our lease liabilities, our total net funded debt as of the end of Q3 was $449 million, up by $11 million from the last quarter. Our total net funded debt to bank EBITDA covenant ratio was up slightly at 2.18 compared to 2.08 at the end of Q2 and well below our 4.0 maximum. Our effective fixed rate portion of total debt including swaps is approximately 39%. During the quarter, we entered into a $25 million forward interest rate swap with a fixed one month CEDAW rate of 4.53%. This swap will replace an existing swap that matures on December 1st with an expiring CEDAW rate of 2.18%. At September 30th, 2023, our basic weighted average number of shares outstanding was 23.6 million shares, which is an 8.8% decrease compared to the approximately 25.9 million shares outstanding as of last year. We will continue to use share buyback 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.

Thanks, Azim. The third quarter trend of replenishing new light vehicle inventory has continued so far during November, enabling greater consumer choice and a more competitive market dynamic than what was experienced during the acute supply shortages of 21 and 22. Additionally, consumer preference for lower price point vehicles and to minimize the amount of financing required for their vehicle purchases are trends that have resulted from a higher rate environment and are expected to persist absent a change in monetary policy. On a positive note, we're excited about the upcoming opportunity and opening of our new Maple Ridge GM store, which we believe has the potential to become a top quartile dealership within our portfolio once it's fully ramped. Our focus over the past five years under the Go Forward plan has been to establish industry-leading new used subprime F&I parts and service and collision repair businesses, plus a real estate portfolio that supports our operations. We now have a diversified and durable business model that can adapt to changing market conditions and meet our customers' needs with a broad range of products and services. The next leg of our journey for Auto Canada under Project Elevate will seek to unlock economies of scale and efficiencies within the organization that will only serve to make us stronger and prepare us for future expansion. We're going to do this while maintaining a responsible balance sheet and investment philosophy with a focus on optimizing return on our capital deployed for the long term. We are positioning the company to accomplish 10 to 15 dealership acquisitions on average annually over a five-year period as part of Project Elevate, but the near-term focus is on optimizing our operations to unlock this opportunity for M&A. We believe that an attractive buying opportunity will present itself as valuation expectations for private dealerships start to compress over the next 18 to 24 months, and we plan to be ready. But to be clear, our near-term focus is on operational excellence and creating the foundation to build a skyscraper. That's going to conclude our prepared remarks for this time, and I'll turn it over to the operator for Q&A.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, as mentioned, please press star followed by 1 on your touch-tone phone. And if you would like to withdraw from the question queue, you will need to press star followed by 2. And also, if you're using a speakerphone, please lift the handset before pressing any keys. Please go ahead and press star 1 now if you do have any questions. And your first question will be from Chris Murray at ATB Capital Markets. Please go ahead.

Yeah, thanks, folks. Good morning. You know, there's a lot of moving parts in Project Elevate, and maybe to try to summarize it a little bit, I know you put out, you know, other metrics when we went through the go-forward plan, but how will we think about tying this together in terms of your goals, in terms of absolute financial targets?

So just to be clear, you're looking for me to give you guidance. If it's guidance you're looking for, I can't really. I would say we have a path to, I would say, trending more towards margins like our U.S. peers. And we feel that over the course of the next couple of years, we have a line of sight into into really being a comparable company as far as margins go. And so that's kind of how we're aligning our sites. And once we do that, we think that, you know, the company, the share price on and on is more reflective of that. And so, I mean, you can back into the math yourself if you kind of look at the US peers and kind of get an understanding of where we are today.

Okay. The other thing, Paul, and we've talked about this in a couple different iterations, was the kind of a huge digital strategy that has turned into, you know, a partly right ride. But then there's also the new Kijiji strategy. And this is really the first time we've kind of seen a couple slides in the deck just talking about Kijiji and what that might be. Can you maybe expand a little bit on how that's been evolving and what you think that will do, both from your ability to source used cars as well as sell additional F&I products?

Yeah, I mean, we think it's an amazing opportunity for us. And part of that is because the price of new car payments and car payments right now are getting close to $900 a month. and consumers can't afford it. And so what people are really going to be looking for, we feel over the course of the next couple of years with a higher interest rate environment are going to be more affordable cars, cars that can be bought for $15,000 to $25,000, maybe even $30,000. And those price point cars are just not available everywhere. And so the advantage we have with Kijiji is we've signed a long-term deal with them. where we are going to basically be the instant cash offer engine for used cars from consumers before they get advertised. And so for us, it's a great opportunity to get vehicles in our hands without actually buying and paying auction fees and so on and so forth. Those are probably the highest profitability vehicles that we could get access to. when you buy off the street. We just now have a bit of a competitive advantage vis-a-vis the deal we did with Kijiji. On the F&I side, and by the way, it's a significant number on a daily basis. I'm not going to share the exact number, but it's a significant number. On the F&I side, look, Kijiji is the number one marketplace in the country. selling consumer vehicles to consumers. So if you think C2C, where a consumer wants to sell a vehicle and they're not looking to trade it in, Kijiji is that marketplace, and they could have anywhere between a million to a million and a half vehicles, depending on the year, being sold on a yearly basis. If you kind of think about what we do really well at Auto Canada, our F&I team are unbelievable at... maximizing F&I, selling products that are needed by a consumer, and delivering those products through the sale of our vehicles. At Auto Canada, we're really constrained by the number of vehicles that we sell, both new and used, to attach F&I to. I mean, it's something that when I talk to investors on a daily, weekly, monthly basis, everybody asks us, how many new cars are you going to sell? They multiply the ratio of used to new. They say, okay, that's the total number of vehicles you're going to sell. They then multiply the number of our gross profit on the front end. Then they look at our F&I on the back end. They add it all up and they say, this is what you're going to make this year. And so really we're constrained, and I've talked about this before in previous earnings calls, but we're constrained by the number of new cars we sell and that are used to new ratio. I would say at our dealerships, part of the most profitable portion of the dealership is F&I. And knowing that, One of the things that's not available on Kijiji from a consumer to a consumer is financing and insurance products like warranty. And so we've entered into a long-term deal with Kijiji where we are now going to become the F&I office for those million to million and a half transactions per year. And you're going to ask us, what do you expect the attach rate to be? And the answer to that is we don't know. this is part of building a startup. And, you know, we have a lot of thoughts and we think worst case and best case. But if we're even the worst case in this situation is a pretty staggering number. And so it's up to us to execute. Does that make sense?

Yeah. And is it fair to think, though, that you'll be at a lower GPU? And then, again, as you said, it's a sort of solve for what the attach rate is going to be. Is that the right way to think about this? So this might take a few quarters before it starts to materialize, or is this something you think will be turned on kind of right away?

So I think it's going to take several quarters to materialize. I think we're going to learn as we do this. We have a complete information management department and a business intelligence unit run by Patricia and her team. And we're going to be really understanding the propensity for people to be buying online F&I and learning from that. what products go with what products, how to position those products. But it's something we're going to learn over time. And then everything we've seen just kind of studying other companies that have done this in the United States, and nobody's really done this. Like the closest analog to Kijiji in the U.S. would be Craigslist, and nobody's really been able to crack Craigslist. The closest, though, that we can kind of think about for selling online F&I would be somebody like Carvana. And they intercept at a certain point with human intervention. And so it's going to be us. We're going to deliver this first fully electronically or online. And at some point, we're going to learn where it needs human intervention. And then we'll do that by chat and then having a live person. And so this is an evolution. I wouldn't say that you should see this within a couple quarters. It's going to evolve over time, but it's It's a huge unlock in our business if we can figure this out, and I think we have the team to do it.

Okay, that's interesting. I'll leave it there. Thanks.

Next question will be from David Ocampo at Cormark Securities. Please go ahead.

Thanks for taking my questions. Paul, I just want to touch on the GPU in F&I and just the disparity that you talked about between the underperformers and your best performers. And in your deck, you did call out software and you also did that in your prepared remarks. But I was just wondering if there's anything structurally different at the dealership, whether that's brand, size, location, that may prevent you from getting every dealership up to the current average.

I think if you really dig in, it's going to be people. It's, you know, there's a lot of times that I have said that something won't work and, you know, somebody else has looked at it and they've figured it out. And so I think it's just the willingness for people to believe that it can happen. I think everything we're talking about here, why I'm so excited about this is Jeff and Brian just came off of 25 years and 18 years of doing this at AutoNation. And so it's why I believe they've just finished this evolution. It's not just finished, but we're probably where AutoNation or Lithia was seven or eight years ago. And my experience with Canada to the US is we're usually five to 10 years behind on a lot of process and sometimes product. And so there's nothing that makes me think that it can't happen. There's not a thing. And in fact, when we launched this to the dealers, we talked to Jeff and to Brian about how realistic is this to expect and what was their experience in doing this before. And this is just change, and change is not easy, and it's going to be about people. But there's nothing to stop us.

Got it. That makes a lot of sense there. And then I guess on the gap that you talked about between you and your peers on just a margin basis, and it does seem like the big delta is on SG&A. And you did call out that you plan on acquiring 10 to 15 stores over the next five years annually. Do you need to get larger in order to bridge that margin gap, or can you do that with your current footprint today?

So here's the way we think about it. And I think what you're trying to ask is, are we going to start buying 10 to 15 stores a year right now? And is that kind of the way you're asking the question?

Is that required for you guys to bridge the gap between you and your peers or can you do that all organically with your current footprint?

It's a great question and it's something that I realize now that probably is a little bit unclear. We are not in acquisition mode right now. The only thing that to me that looks attractive is our stock because we're trading where we're trading and it looks like You know, the pricing compared to everything else in the market doesn't make sense. So the way we look at it is we've got to go and get operationally excellent within our business and get closer to our U.S. peers. And that allows us to basically unlock the access to the next level, which is M&A. And we need to do that first, in our view. We have no business... buying dealerships at these expanded multiples when there's so much work to do within our own dealer group and there's so much opportunity within our own dealer group so if I really believe what I'm saying then really the opportunity lies within ourselves for the next year year and a half and as we do that I think we should be rewarded and once we're rewarded we think that unlocks the next level of M&A does that make sense?

No, that does. I'll hop back and see. Thanks for answering my questions.

Great. Thank you. Next question will be from Michael Dumais at Scotiabank. Please go ahead.

Hey, good morning, guys. Hey, Michael. Last quarter was really, really impressive just in terms of EBITDA. So if you look at this quarter, the major difference, at least that I see, is it appears to be like a moderation in gross profit from use. There's a couple other areas, but that, you know, particularly stands out. So I appreciate, you know, the macro has been a little bit more challenged, particularly with higher rates. But I'm wondering if there's anything that explains the lumpiness and maybe just to shake out what could be, you know, viewed as an underlying trend.

I think if you were comparing us to last quarter for sure, this quarter is like we went through heavier weather for sure. I would say that a couple things. Jeff and Brian just took over the United States platform as well as Canada. And if the U.S. performed kind of like it did last year or maybe prior to that, We probably would say it was a great quarter. But what we're doing in the U.S. is exactly what Jeff and Brian did in Canada with the team. And so we basically ripped out all the wires and rewiring the entire building. And that involves creating a different aging policy for the U.S. vehicles. It involves different process around F&I, different process around car sales, just different process in general. And so as a result of that, the U.S. is probably where Canada was, call it a year ago in its evolution. The good news is that they have tons of experience operating U.S. dealerships, including in Illinois. And I think, you know, we've got capable leaders running that organization for us as well that are willing to execute on the plan. And so when I kind of focus on the U.S., I think that that was also a big piece. I think in Canada, you know, the macro is definitely, it's changing. And we call it out every, well, we called it out during COVID. I think we try and call it out all the time that these are unnatural times. You have strikes. you have COVID, you have inventory shortage, you have governments mandating EVs, you have OEs saying, you know, we're all in on EV and then we're half in on EV and everything is changing. And so I think that if you kind of zoom out, if it weren't against the backdrop of Q2, you'd probably say Q3 was great in Canada. I think we did really well in Canada, especially relative to our peers. I think that, you know, we were overshadowed by a great Q2, and we also have a little bit of a hangover from the U.S., the U.S. business, you know, complete rewire. And so I think that's kind of the way we're looking at it.

Yeah, that makes a ton of sense. Thanks for that, Paul. I guess moving back to the the goal of achieving normalized peer margins. I wonder if you can maybe expand on how the drivers stack up to one another. So I think you talked about, you know, maximizing gross profit and the example of F and I in there and then optimizing the cost structure. So how the, how the two stack up versus one another. And then I think you also said that, you know, you'd like to kind of pull the organic levers before doing M and A. So what, I mean, if you're thinking this is a five-year plan, does maximizing gross profit and optimizing the cost structure, does that happen more quickly given that it happens before the M&A?

Yeah, so we have a plan, but obviously I don't want to be held to this, but it's a pretty big plan, but we'd like to see this happen within the next year or two for us to really take advantage. So it coincides with you know, kind of the compressed multiples and generational assets starting to transact. And so, you know, it's up to us to hurry up and get there. So we would like to see over the next year to two years, maybe three years, Project Elevate really unlocking. In my head, I have it like a video game, like getting us to the next level.

That sounds like a good game. And then just on the maximizing of gross profit versus the cost structure, because the margin for us, I guess just to think about it as one thing, but the absolute dollar amount would vary depending on the equation between those two. So just thinking about the extent of how those two should work.

I guess I would say, think about what a reasonable margin would be. for us and look at our you know our revenue and multiply it and we should be kind of closer to those us peers that's that's the way i as i know as i mentioned before chris that that's the way i would back into it i'm not going to give you the guidance but that's the way i would do it that's the way we're doing it appreciate the color thanks thank you

Next question will be from Krista Friesen at CIBC. Please go ahead.

Hi, thanks for taking my question. I was just wondering on the Project Elevate if you could give us a bit more detail on how we should think about the timing of some of this. Should it be fairly linear over the next couple years here, or are there a few things that you can do now which would maybe front-end load some of the projects some of the changes and cost savings?

I would say that it's... So we haven't broken it down to what's going to happen by quarter for expectations, so I'm not sure how you're going to model it. But, you know, we intend to get there over the next couple years. And I think, you know, we talk about, you know, the go-forward plan. It was like 50 used cars being sold. It was like F&I coming on, so on and so forth. And I would say everything I've learned is that was lower hanging fruit. What we're doing right now is even more change management. While before we were never really in the used car business and we got dealers to be more in the used car business, there was a methodology behind that and you can kind of see it going. And then also the F&I, you know, there's a, ability for us to go into a store make a difference and then know what it took and then start going into additional stores right now we're working with you know kind of quartile bandwidth management and dealing with with some of our stores that have had lower results than some of our other stores and it's a change this is a change management exercise and it is not easy it I think I've said this before It's not low-hanging fruit, but it's fruit, and we can get it, and it's there for us to get. It's a different philosophy, and so I don't want to start getting everybody anchored on, you know, this is where we're going to be next quarter and the quarter after that. What we will commit to is that we're going to get it, and it's likely going to be in the next two to three years.

Okay, great. That's really helpful. I'll jump back in the queue now. Thank you.

Next question will be from Luke Hannon at Kennecourt. Please go ahead.

Thanks. Good morning, everyone. Staying on the subject of Project Elevate, I'm curious, Paul, I mean, I appreciate that you probably won't be able to share the full details on this, but when it comes to getting dealer buy-in on these goals, are you changing anything as far as specific incentives that will make them a little bit more aligned to achieve those goals, or have those largely been left untouched?

So that is happening, and I think that's something that both Drew and Mike and Azeem will be working with our ops team to actually align everybody towards those goals on Project Elevate.

Okay, got it. And then on the topic of enhancing your used vehicle sourcing, I appreciate the disparity in GPU that you call out there, the difference between those internally sourced units versus external units. But my question is, in an environment where it seems like consumers overall are a little bit more hesitant to trade in their vehicles, how exactly are you going to go out and capture that trade-in and not have to rely on external sourcing? In other words, in an environment where inherently it seems like it's structurally against you being able to capture those units, how are you going to make sure that you can maintain your overall mix of internally sourced units?

Yeah, so that's exactly why we did the Kijiji deal. There are thousands of cars being listed every day from consumers that want to sell a car but not buy another car. And so we have access to those to put instant cash offers on every one of those cars prior to everybody else having access. It's a big deal.

Okay, and then on that then... I appreciate you can't hand out the secret sauce, so to speak, but naturally to figure out what you're going to think is the appropriate price for a vehicle that you're going to buy through that platform, there's probably some sort of data inputs that you're relying upon to figure out what is the appropriate price. So can you give us any sense of what makes you comfortable with whatever it is that you're feeding into this model to figure out what could be the right price that the data and the assumptions that you're using are appropriate in the circumstances, I guess? Or how do you stress test that model and make sure that you're not overpaying for any inventory that may come through that platform?

So glad you asked. That's the only thing that I can add value to Auto Canada. I've been part of building this before in my previous life with CarProof. So we built VIN-specific valuation that was kind of better than any industry standard so done this before and what Auto Canada and we have done now is lock up data that we think is going to be mission critical to putting exact valuations at a VIN specific level on cars to make it kind of us be the de facto the single source of truth for pricing and Frankly, we think that we have a better mousetrap than anybody else. We've been building it out for quite some time.

Got it. Okay, thank you very much.

Thanks.

Next question will be from Tammy Chen at BMO Capital Markets. Please go ahead.

Hi, thanks for the question. On Project Elevate, should we also anticipate some level of investment in order to achieve these goals that you have?

Yes, I think, yeah, so the investments around, you know, information and creating dashboards to have better visibility and the managing at the dealership level and for our VPs. And again, I think that's a big part of both Drew and Mike coming on board and working with Patricia and our business intelligence department to basically give us access to have real-time visibility so we can make changes in real-time. And so the investment is around creating dashboards and products for us to be able to use internally. They're not massive spends, but it's a lot of time and energy to create these. But a lot of them have been created before they got here. And as I said, both Jeff and Brian have actually – done this before and managed, so they know a lot about what they want. And what I love about both Mike and Drew coming on board is they're bringing a fresh perspective of additional items that can be used to actually triangulate to get to stuff a little bit easier.

Okay.

Pivoting to the demand environment right now, hear what you're saying on interest rates, affordability, yet from all the data year to date, especially in the new vehicle side in Canada, been surprisingly resilient. And your results are reflecting that too, even in Q3, your same store new volume units are up, and your GPU is holding in fairly well. How would you characterize at this point the demand environment is it still fairly resilient because of pent-up demand or incrementally compared to let's say Q2 and Q1, you're starting to see some more cracks in terms of the consumer's ability to keep this going?

It's a great question. Demand is still up and it's surprising. Everything is still holding steady. I would say And we see that. I think, again, we keep on saying we called this last year or the year before. We've said this a few times. There were a bunch of new cars that weren't built, which means that there were a bunch of used cars that haven't been built. And consumers need transportation. And so you have an aging car park. People need to replace stuff. People need to fix stuff. It's surprisingly resilient. The other thing, and I've heard this, I forget which earnings call I heard, but I'll steal it from another public, that potentially, you know, housing is becoming so expensive and people are renting and potentially taking those dollars and transferring it and buying a car instead of, you know, maybe postponing a house purchase or condo purchase and so on and so forth. I don't know if that's true. It's a possible thesis, but things are holding up and frankly, we're all somewhat surprised.

Okay. Last question I had is, I guess, more of a housekeeping question. I was just curious. I noticed your Canada fixed segment or sorry, the parts and services segment, the growth margin has ticked down a bit. I've been trending more at 53, 54, 55%. I'm just wondering, was there just something unique in the quarter or we're just starting to come to a lower margin now? Just wanted to understand that. Thank you.

So I don't have the answer for that. I don't have an answer. I'd have to dig in. But yeah, maybe I'll hand it over to Azeem.

Yeah, that one is actually just a mix issue because that also includes the collision centers as well. And if the mix trends towards more collision work, that's lower margin work. And so it's actually just a mix issue.

Got it. Thank you.

Thank you. And at this time, Mr. Anthony, we have no other questions. Please proceed.

We appreciate everybody's time today and look forward to chatting to everybody in the new year. We'll wish everybody a happy holidays and a healthy new year and look forward to talking to some of you before the new year and many of you after. So thanks again. We'll talk to you soon.

Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.