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.