AutoCanada Inc.

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the AutoCanada fourth quarter 2023 earnings call. The 2023 fourth 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 at that time, please press star followed by the one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Listeners are reminded that certain matters discussed in 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 of these forward-looking statements. The risk factors that may affect results are detailed in AutoCanada's annual information form and other periodic filings and registration statements, and you can access these documents at the CDAR's database found at cdarplus.ca. I would like to remind everyone that this conference call is being recorded today. Thursday, March 7th, 2024. I would now like to introduce Mr. Paul Antony, Executive Chairman of Auto Canada, Inc. Please go ahead, Mr. Antony.

Thanks, Operator. Good morning and welcome to our fourth quarter and full year earnings call. During Q4, total revenue increased by 6.9% on solid new vehicle sales and robust demand for parts, service, and collision repair, which more than offset softer used vehicle sales, primarily in the U.S. market. For the full year, Auto Canada achieved $6.4 billion in sales and $1.1 billion in gross profit, both of which are new records for the company. That said, higher interest rates were a headwind during the fourth quarter and last year, resulting in greater floor plan and finance costs and impacting consumer affordability and financing preferences. For context, our floor plan interest expense increased from $33.6 million in 2022 to $68.6 million in 2023, and that was an increase of $35 million. However, despite mixed economic indicators and affordability concerns, our fourth quarter and 2023 annual results speak to consumer demand for our products and services. The breadth of our offering and the hard work and dedication of our team who are doing an excellent job navigating challenging market conditions. During the fourth quarter and so far in 2024, we've made considerable progress against Project Elevate initiatives. As a reminder, Project Elevate is our five-year strategic plan, which was launched at the end of last summer and aims to narrow the gap to normalize peer profitability through productivity enhancements, cost efficiencies, and revenue maximization strategies across our full-service omnichannel ecosystem. In 2023, we made some key management changes and additions in support of Project Elevate, including appointing Jeffrey Thorpe as President of North American Operations, Brian Feldman as Chief Operating Officer, and adding Drew Forret as Chief Administrative and Transformation Officer, and Michael Farah as Vice President, Financial Planning and Analysis. In January, we restructured our U.S. operations and implemented new operating standards, including sales practices, inventory procurement, and management processes, F&I certification and training, and parts service collision repair best practices. These changes are expected to result in immediate cost savings and gradually bring the U.S. segment to sustainable profitability over the course of this year. We've also made considerable headway in project elevate initiatives in our Canadian operations. Projects to modernize corporate infrastructure are underway in finance, HR, and information technology, and best practice playbooks have been launched across several functions. We're supporting our employees in training to achieve optimal outcomes through new Auto Canada universities, and we are in the early days of implementing standard operating expense targets by brand across our Canadian stores. These efforts are foundational to our five-year project to elevate objectives to maximize gross profit, optimize our cost structure, and modernize our corporate infrastructure, which will improve our full-cycle profitability and create a platform for growth. None of our accomplishments would be achievable without our OEM partners, and I'd like to take this opportunity to thank them for their continued support. With that, I'll turn the line over to Azeem to discuss Q4 results in greater detail.

Thank you, Paul, and good morning, everyone. During the fourth quarter, we recorded sales of $1.5 billion, adjusted EBITDA of $46.4 million, and diluted loss per share of 81 cents. Sales increased by 6.9% when compared to the same period of 2022, including the contribution from 28 acquisitions completed over the past two years. Our same-store revenue increased by 2.8% in the fourth quarter. Canadian same-store new retail vehicle unit sales growth was 8.6% during Q4, reflecting replenishing new light vehicle supply as compared to last year. Our Canadian same-store used retail vehicle units sold decreased by 6.3% in the quarter, with a ratio of same-store Canadian sales used-to-new retail units sold decreasing to 1.53 from 1.77 last year. During the last 12 months, Auto Canada's used-to-new ratio was 1.57. As new light vehicle supply replenishes, we foresee our used-to-new ratio moderating and eventually stabilizing. Auto Canada was among the top 10 used car retailers by volume in North America last year. we continue to focus on used vehicle acquisition and efficiency plans to outperform the broader used car market. Being a strong used car retailer gives us more high-margin sales opportunities, leveraging our top-tier F&I department and our parts and service footprint through vehicle reconditioning. The U.S. Division retailed 1,419 new units during the quarter and new gross margins increased 3.8% versus the fourth quarter of 2022. As expected, we are seeing year-over-year GPUs in our U.S. division gradually normalize with the replenishment of new vehicle supply in the U.S. market. Consolidated parts service and collision repair experienced strong demand, with same-store sales increasing by 10.2%, and same-store parts, service, and collision repair gross profits increasing by 2.8%. Same-store F&I revenue decreased by 5.6%, and gross profit decreased by 7.2%. These results reflected a growing proportion of retail vehicle sales being purchased without dealer financing, resulting in fewer opportunities to sell warranty and insurance products. Normalized operating expenses before depreciation were $194 million or 75.2% of gross profit compared to $179 million or 73.7% of gross profit in Q4 2022. The increase in operating expenses resulted primarily from recent acquisitions. Adjusted EBITDA was $46.4 million, a decrease of 9% over the same period of 2022. Fully diluted earnings per share was a loss of 81 cents, including a $1.50 per share impact from consolidation of our used digital division. Excluding this one time item, earnings per share for the fourth quarter would have been 69 cents versus 52 cents in Q4 last year. As of December 31, 2023, we had $187 million outstanding. on our $375 million revolving credit facility. Excluding our floor plan facilities and our lease liabilities, our total net funded debt to bank EBITDA covenant ratio was 2.39 as compared to 2.08 at the end of Q3 and well below our 4.0 maximum. We have access to approximately $291 million of liquidity under our revolving credit facilities and cash on hand as of the end of December 31, 2023. During the quarter, we entered into a $25 million forward interest rate swap with the fixed one month CEDAW rate of 4.53%. Subsequent to the quarter, we entered into a $75 million interest rate swap with a fixed one month CEDAW rate of 3.77%. Our effective fixed rate portion of total debt, including swaps, is approximately 37%. Our basic weighted average number of shares outstanding was 23.6 million shares, which is a 6% decrease compared to the approximately 25.1 million shares as of the end of the fourth quarter last year. We recently renewed our NCIB and will use share buyback strategically when appropriate while maintaining a solid balance sheet and considering growth opportunities and long-term shareholder returns.

I will now turn the line back over to Paul. Thanks, Azeem. In both Canada and the U.S., new light vehicle inventory is replenishing following COVID-19 supply shortages. In Canada, DeRogier is forecasting 2024 new vehicle sales of 1.8 million units, and that's up from 1.7 million units last year. The increasing new light vehicle inventory is expected to result in normalizing gross profit per retail unit, and that's a trend that's already been playing out in the U.S., where inventory replenishment is tracking ahead of Canada. While we expect a similar effect in Canada as new car inventory becomes more available, it's possible that the impact on gross margin in Canada diverges from the U.S. experience because Canadian dealers did not sell over MSRP during the pandemic shortage. We remain focused on Project Elevate initiatives to support our North American-leading used car retail business. That includes used vehicle acquisition and efficiency plans that will help us continue to outperform the broader used car market. We're also focused on the upcoming commercial launch of the Kijiji F&I and ICO initiatives, which are slated to occur this year at the end of Q2 and beginning of Q4, respectively. We recently opened our brand-new Maple Ridge GM dealership located in Maple Ridge, B.C., And this store features both a dealership and 14 service bays and is the company's first General Motors dealership in the Metro Vancouver area. Additionally, we're excited for the opportunity to open a Porsche Classic Center and service in Windsor, Ontario. We received approval in November for this open point, which will offer classic Porsche vehicles for sale, provide service and parts. It will be the first Porsche Classic Center in Canada. We remain highly focused on our five-year business plan, and we remain opportunistic in our approach to capital allocation between share buybacks, acquisitions, and other growth initiatives with the objective of maximizing shareholder returns over the long term. That's it for our prepared remarks at this time. I'm going to turn it over to the operator, but not before I thank all of our partners and associates across the organization. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from David Ocampo from Cormac Securities. Please go ahead.

Thanks. Thanks for taking my questions. First one here. Paul, I know it's early days, but I definitely saw the potential and the opportunity by investing 25 million for that 10% stake. I was hoping you could lay out some early targets that we should look for, some bogeys that how we should be thinking about this opportunity on a go-forward basis as it unfolds.

Listen, we had a thesis. So, hi, David, and thanks. We had a thesis on the business. which was because of the volume of people that buy and sell and transact vehicles on Kijiji, that even if we were to capture a small number of them, either through finance or warranty, that that small number still translated into a massive opportunity. And right now we're just in the beginning stages of we've created the user experience and we're basically just beta testing. And so I think it's probably too soon to say what your expectations should be. But I would just say the way we look at it, even if we're modestly, very modestly successful in that business, it translates into a very big opportunity for Auto Canada and for IAEA.

I appreciate that it's early days. When I take a look at the new side of the equation, at least in Canada, and you talked a bit about it in your opening remarks, we're close to 100 days of inventory, which is pretty close to pre-pandemic levels. Yet your new vehicle margins in Canada, they're still comfortably above the 7% range that you guys were doing previously. Do you think you know, that 7% or 7.5% mark is the right rate on a go-forward basis, or can we hang out in that 8% range?

You know, I think right now coming out of COVID, it's learnings for everybody. I don't think anybody expected the market to stay where it was two years ago. It was I remember having these conversations, and I think we used to open up every single earnings call with, we don't know what the future will bring. I would say that that still holds true today. We don't know what the future will bring. We're going back into more normal times. I think you can expect more normal operations of the business. That said, I think we've learned a lot. We've learned how to do more with less, and so there are different levers within the organization that we can pull on to... probably optimize the business considerably more.

Yeah. Yeah, that makes sense. And this is kind of another one of those types of questions. When we think about OpEx as a percentage of sales, we're seeing that gravitate higher in the U.S. And I know Project Elevate is supposed to bridge the gap between you and your peers. But I'm curious what you guys are thinking on kind of that absolute percentage number, just given that the U.S. numbers continue to change here.

So the U.S. is actually a really easy explanation, as much as it's a harder fix, but it's easier to say. And the answer is, in the U.S., for the last two to three years, two years for sure, we've benefited from the shortage of new cars and used cars. And so as such, we're able to charge more for our vehicles in the United States over MSRP, and we're basically taking orders on cars. And so for us, we actually built a team around selling vehicles with that model in mind. Now that supply is starting to return to more normalized levels, we had a bloated expense structure in the United States. And so we had two issues. We had an expense issue where we had too much expense But on the other side of that, we were not holding gross on our vehicles because prices are coming back more in line with what they should be, and the market's much more competitive. So you have higher operating expense, lower margin. Our job now is to increase the volumes in the United States, hold gross, and drop expense. So there's a bunch of different levers, again, in the United States that will be pulled, and actually Jeff and Brian – you know, the, the minute that they took the helm in the U S they, they, they executed on the strategy. And I would say that probably 50% of the work is done. We have Nick Budik in the, in the U S that's leading the charge, um, with a lot, a lot of help from Josh Patterson and, and the team there is fully aligned and, and on the ground, um, and already making a difference.

Yeah. I guess it's neat just trying to get some better guidance out of you, but, uh, If I look at SG&A as a percentage of gross profit, it's kind of in that mid-70% range for the year. Do you think that could start with a six, like the U.S. peers, the franchise dealerships down south?

Yeah, I do, actually. I do think that we're going to get there. I think I've said, and I keep on going back to what I said, and this still stands true. I'll say it over and over again to make sure that we say it on every call. There is fruit. It's just not low-hanging anymore. And what that means is we need to build the infrastructure and the systems to actually go and execute against shared services within the organization. And that's not cheap, and it's not easy, and it's not fast. But once done, you have a platform that the OpEx is much less on and is way more efficient. And so Jeff and Brian have been focused on driving – the organization to kind of rally around, you know, the different systems that we're putting in place. Azim and his team are doing that in the finance department, and Drew and Mike Farah are actually doing the same thing. This is a heavy lift, and it's something that will pay dividends in the future. Our expenses for sure will be getting in line.

Okay, that's perfect. That's all for me. I'll hop back in the queue. Thanks, Paul.

Thank you. Next question comes from Chris Murray from ATB Capital Markets. Please go ahead.

Yeah, thanks, folks. Good morning. Paul, I was wondering if you could talk a little bit about consumer behavior and what you're seeing around the F&I line. You know, anything, you know, as prices of new vehicles are a lot higher now, but also, you know, higher interest rates, Are you guys seeing additional pressure or unusual pressure on F&I, kind of it's the marginal dollar that gets beaten up in this kind of environment?

So we are, and what we're seeing is far more cash deals on vehicles. And so when you take financing out of the picture, it just means that we need to sell more products per deal. We just need to sell products that actually align with what the customer needs. And so rather than just pushing fees and so on, and this is where Jeff and Brian, again, bring a lot of insight, we're actually selling products that are morally and ethically right and fit the vehicle and fit the consumer, but at the same time earn Auto Canada profit. And Michael Pestrak and his team have done a fantastic job of actually holding F&I fairly constant in a challenging environment because you're looking at rates that have gone through the roof, which increases the number of cash deals, which have negatively impacted our whole F&I department, and yet they managed to actually keep the numbers relatively constant. So I'm super, super impressed with our team. I would say on consumer behavior, yeah, the consumer behavior has changed. Actually, our whole goal right now is the cost of vehicles need to come down. cars are completely out of control, cars and trucks. And the price of new vehicles and the price of used vehicles are at such a point where there's just so much consumer pushback and everybody's migrating to the cheaper cars. And so the sooner that we get on to this whole, you know, that instant cash offer engine that we're doing right now with Kijiji, we think that we're going to have a bit of an asymmetric advantage versus everybody else in the industry because we're going to have access just a larger market and more than our fair share of used affordable vehicles, you know, call it under $30,000 where the consumer's at.

Okay, that's helpful. We've been talking to some other dealers about electric vehicles and their experience and their thoughts around it. And a lot of them have talked, at least to us, about uncertainties around leasing in the electric vehicle market. And The major concern on their part has been, you know, how to figure out what residual values look like on electric cars. So, you know, kind of as an extension of that, I was wondering if you have any thoughts on how you guys are seeing, you know, the takeoff of electric vehicles. There's been the OEM slowing production just because there's been lots of debate about it. But, you know, what are your thoughts about, you know, where the market's at today and your ability to both be able to retail and lease and deal with use in the electric vehicle market?

Again, I'm going to say exactly what I said a year ago and two years ago. Electric vehicles are a solution. I don't think they are the solution, especially right now. I think over time they get there, but you have an unnatural influence with the government mandate, and that's driving behavior that's not rational. And so what you're seeing is a pushback, because a lot of the early adopters have adopted, and now you're seeing people migrating more towards plug-in hybrids and hybrid vehicles, which is 100%, in my view, the answer. And I think that's a gateway to getting there. That's a total gateway. I mean, you get people into a hybrid vehicle, they get used to plugging their car in if it's a plug-in hybrid, you know, over the course of the next 7 to 10 years, they eventually say, you know what, this is not that bad. We build out a charging infrastructure. It's actually a disciplined growth curve upwards as opposed to telling everybody, you know, you've got to have an electric vehicle tomorrow and there's not enough power to power the system. It'd be like, you know, saying everybody needs a gasoline-powered engine and there's no gas stations. It's actually created this neurotic behavior from some OEMs where they've gotten ahead of themselves because there's this panic that if they don't abide by the government mandates, they won't be able to sell vehicles. And unfortunately, you have government driving these mandates, which are actually irrational. So all that to say, I think that you're seeing now the OEMs come back to earth and and say, I think plug-in hybrids are the gateway there. I totally agree with that. I think there's a spot for internal combustion engines as well. There's a spot for electric vehicles, like full electric vehicles. I do think adoption will happen, but I think it takes a little bit longer. But somebody's got to solve the price point. These vehicles are priced out of this world, and it doesn't do a brand any good to put a vehicle on the lot. and offer it for sale, and then the vehicle to sit there and not sell. You have a battery degrading because of the stale date on the battery. People have this apprehension where just like buying milk or eggs, they look to buy something that has the longest stale date out. And so if you start collecting vehicles on your lot with stale dates that are a year or two old, they're depreciating at a much more rapid rate than an internal combustion engine. And so I think this is more about balance and disciplined progress versus all in. And so we'll see what happens over time. But we're very, very conscious that somebody needs to come with vehicles that are affordable for the masses. Like somebody needs to put affordable hybrids, plug-in hybrids and electric vehicles for the masses in front of the consumer. You do that, you'll drive adoption. and I think we'll see the world start tilting.

Okay. I'll leave it there. Thanks, folks.

Okay. Thank you. Next question comes from Michael Jumay from Scotiabank. Please go ahead.

Michael, if you're speaking, we can't hear you.

Apologies, the line has disconnected. We'll move on to Krista Friesen from CIBC. Please go ahead.

Hi, thanks for taking my question. I was wondering if you could just maybe give us a little bit more detail around how you think about the timeline of some of the benefits from Project Elevate and when we can see that start to materially impact results.

You know, we just went through this at our board meeting, and so I think we're starting to see it now. You'll start seeing it more in Q2 and onwards. A lot of the initiatives that took place in Q1 will start gathering speed over the course of the full year, and I think we'll see the, you know, probably 2025 we'll really see the benefits of it. But again, we're putting in the processes in place that we're very optimistic from what we've seen already today of what was started basically in September. Again, Jeff and Brian came in not thinking that they were going to be going into the U.S. in September. And so that was a bit of a distraction to get that up and running. and doing Project Elevate in Canada. We just decided to do Project Elevate across the entire organization, and so it was just a little bit more for them. Well, I say a little bit more. It was a lot more for them, but they're doing a great job, and I think we'll really start seeing the benefits of this in 2025 and then accelerate more as we keep going out.

Okay, great. And then maybe if you can just speak to how you're thinking about capital allocation and M&A. Obviously, you renewed your NCIP, but maybe on the M&A front, are you prioritizing collision centers over use, or how are you thinking about that?

Yeah, so that's a great question. In fact, I wonder if you had a bug planted at our board meeting, because we were talking about some of the collision centers, and frankly, you know... I don't think anybody really has an idea of how good our collision centers operate. And, you know, when we look at them and we look at the comparisons in the industry, like some of the other publics, like Boyd and so on, you know, our metrics on collision are pretty much as good, if not maybe even a shade better, and it's contained within our ecosystem. And so I think, you know, we've made the decision internally to kind of, help break out collision for everybody to have a better understanding of what we're doing. And that will be in the coming months. You'll start seeing that. So everybody gets a better idea of just how valuable our collision business is. And, you know, when we think about M&A versus share buybacks versus, when I say M&A, new car stores, used car stores, collision repair or share buybacks or dividends, We weigh it all against IRR and basically a framework of how we think about it. And we're just kind of directing capital in the way that makes the most sense for maximizing shareholder return and what's in the best interest of the balance sheet of the company.

Thanks. I appreciate the color on that, and I will jump back in the queue. Okay.

Thank you. Next question comes from Michael Jumei at Scotiabank. Please go ahead.

I'll try that again, guys. Apologies. Good morning. I guess for the first question, I did want to dig in a little bit more into the cost because it does feel like to me there's several initiatives here in play that make the cost picture a little bit harder to understand from the outside. And I guess the way I'm thinking about it is presumably there's costs in there associated with Project Elevate. There's some costs associated with other growth initiatives as well. So maybe the question is, how are costs excluding those trending right now? And then if you can quantify project-based costs and how long maybe they can run for.

I might ask you to reframe the question. Like, I think I understand it. There's going to be costs to, you know, the used digital business, like Kijiji ICO, the F&I business. We're basically building a startup inside of Auto Canada, right? And a startup does not have profitability tomorrow, but we're long-term greedy here at Auto Canada, and that means that we don't expect this to – We don't – we're not doing things to pop the stock. We're doing things for long-term sustainability of the business. We're actually investing in the business. And that takes money, and it takes time, it takes energy, and that's what we're doing. And so I would think about it that way for used digital, you know, right ride. The collision business, even though that's kind of starting to really spool up, but that was a startup inside of Auto Canada. And five years later, it's turning into a real – It's a real organization. Art's done an unbelievable job building that business out with his team. On Project Elevate, there's customer repair orders. There's an HRIS that we're putting in. We're putting in this consolidated financing software so everybody can get access to data just much easier. But, like, we're redoing our IT systems. Like, we're talking millions of dollars of expense. And I'm not saying that it should have been done earlier. It would have been nice if it was done 10 years ago. But it would also have been nice if it was done five years ago. But it wasn't. And, you know, when we were in the midst of COVID, I remember sitting with our team saying – We need to do a sensitivity analysis to know how long we can go if we close our doors. Because nobody knew when we were going to open up with COVID, right? We had days where we thought that the dealerships might be closed for a week, a month, and so on. And so you can't really spend the money that was needed to build out the infrastructure at that time. And then... Before that, this was probably too small, this organization, to necessarily build out the systems that we had in place. Plus, we didn't have management that knew what this organization needed because they had never been there. They were basically used to running 20 stores, 30 stores, 40 stores. But as this thing has grown to be what it is today, we need to set this thing up to be ready to be 150, 250 stores. And if we're going to do that properly, it requires building out the infrastructure, and that's what we're doing today. I don't know if I've answered your question, but I just – there's – it's a lot of work, but there's a big reward at the end if we do it right.

Yeah, no, it's great, Collar. And I think you probably got to 90% of the way through the question. I guess, you know, what I'm trying to think from the outside looking in is you're doing a lot. A lot of the costs that you're putting in today are for, you know, a better tomorrow. I'm trying to get a sense for how much those costs are to get a better sense for what the cleaner, you know, base business operating margins are, right, if that makes sense. Just try to quantify all these costs if you can.

You're basically – is the question how much was project elevate cost in Q4? Is that what your question was?

That combined with the startup costs associated with the areas you're looking to expand, including used digital, collision, all that stuff. Just trying to get a sense for really kind of like normal course costs versus growth-related costs. Again, maybe a little bit tricky to get a handle on maybe numerically, but just trying to at least gauge the magnitude of it.

I don't know. We're putting in, as I said already on this question, HRIS, we're doing a big consolidation project with regards to our finance. There's a ton of money being spent building out the IT and the development of RightRide Use Digital. There's just standard scaffolding that we're building in place, though I don't have a dollar amount for you right now, Michael.

Okay. No, fair enough. I'll settle with the color that you provided, Paul. Maybe turning to capital allocation. Look, if I look at the proceeds of the two properties sold in BC and Alberta and compared to your market cap today, you know, it highlights that there's value here, right? And you also initiated the NCIB, which again, I would assume that doesn't reflect any disagreement with that statement. Are there ways that you're considering potentially unlocking more value in and getting potentially more aggressive on buybacks?

Are you saying, are we going to sell more things? Is that what you're asking and then using it to buy shares back?

I mean, I'll let you answer the question the way you want, Paul, but not far away. Yeah.

I would say we look at the best uses of our capital and we also look at our assets, you know, on a quarterly basis. And we actually sit together as a team and really, along with the board, debate what are assets that we think are going to produce cash flow over the next several years and good sharehold return and actually have longevity. And then we weigh that against some of the capital expenditures that have to be initiated on some of these dealerships or these facilities that we have and we often think about is it worth it for us or are we the best owner of that business or is somebody else a better owner and so we you know kind of mark to market those things on a quarterly yearly basis and kind of make a decision then but I would say that we've done what we've done right now I don't know that it would be prudent for me to say what more we're going to do but We're really happy with the assets that we have. And, you know, as far as share buybacks, I've said before, if the opportunity to buy shares back present themselves to us and we end up buying them, it's because we think that the stock price is a gift and it, you know, comes around like a comet. And so when it does, we'll take advantage of it.

Perfect. Thanks, Paul. Appreciate it. Thanks.

Thank you. The next question comes from Maxim Sucha from National Bank Financial. Please go ahead.

Hey, Paul. Sorry. Hey, Max. It looks like Michael took my question around sort of that, but I guess more precisely, you know, the necessity to be in the U.S., how do you think about it sort of from a long-term perspective? Because it feels like a lot of efforts to sort of control a relatively small part of your revenue generation. Maybe any call on that would be helpful. Thank you.

Yeah. So the benefit for us in the U.S. So first of all, I'll look at the downside. The downside is we've got to rebuild in the U.S. That's the downside. The good news is we've got to rebuild, which means there's opportunity. And the better news is Brian and Jeff have actually done this before. So as Nick Budek and the team. And in fact, I think Jeff has actually operated out of the Illinois area. And so for that, we have a stable of people to be able to go and recruit and help us achieve the goals that understand the playbook. With that said, I think we've got a lot of our team in place now in the United States. And I would say that I am of the belief that that this business is going to be profitable in this year and even more so over the next year and two years, as long as they execute on the playbook that we've seen. And it makes me, frankly, excited for the U.S. opportunity. And so it's just like we had to retool the business once. It's now being retooled again, but more in line with the Canadian operation.

Right. And then maybe just in terms of, you know, project elevate, like obviously I understand that, you know, it's easy to say, like, let's reduce expenses. But in terms of sort of providing the tools, I mean, like what exactly are you guys kind of focusing on? Is it the implementation of, you know, some sort of ERP? Like what exactly are you doing from a process perspective, if you don't mind sharing a couple of kind of highlights?

So we've got a bunch of playbooks that are – Service directors, Brian, Jeff, you know, and the entire team have rallied around. We have playbooks. So we have a used car playbook now. We have a new car playbook. We have a service playbook. And there's an F&I playbook. And what that means is they've basically gone with the entire team, taken some of our worst performing dealers in some of these different areas, made these dealers lighthouse stores and taken hand raisers. In other words, taken stores that were not performing well, given them the opportunity to say, hey, do you want to participate in being a lighthouse dealer so we can show everybody how to turn these businesses around if you implement these best practices? And once they actually do that and start getting to the desired results, we actually kind of meet with the entire organization, which we did in January in Alberta, in Calgary, and basically show the results of the Lighthouse dealers. And what's remarkable is taking stores that were actually not performing well in certain areas and actually showing the power of operating according to the process in the playbook and seeing the results. And it's pretty phenomenal. Now, we've only done that with probably I'm guessing seven or eight of the stores, but it's really a lot of quartile and bandwidth management, and that's what's going on. It's basically teaching process.

Okay, super helpful. Thank you so much.

Thank you. There are no further questions. I will turn the call back over for closing comments.

Hey, listen, really appreciate everybody joining the call today. We are looking forward to, you know, Q4, Q1 are typically tougher months in Canada and where we operate in Illinois given the harsh winters, and it's not often easy operating when people don't want to go out in cold weather. And so we really appreciate everybody's patience as we're kind of rebuilding the business and are grateful to our shareholders and our partners. and our team. So thank you very much and look forward to chatting with everybody over the course of the next quarter.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.