AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss the financial results for the first quarter of 2024 and its strategic plans moving forward. I'm Chris, your moderator for today's call. Before we begin, I'd like to remind everyone that today's discussion may include forward-looking statements which are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. I encourage you to review AutoCanada's filings on CDARplus for a discussion of these risks the first quarter news release, financial statements, and MD&A. 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. I'd like to remind everyone that this conference call is being recorded today, Thursday, May 2nd, 2024. Now I'd like to turn the call over to Mr. Paul Antony, Executive Chairman of Auto Canada Inc. Please go ahead.

Thanks, Chris, and good morning, everyone. I appreciate you joining us today as we discuss our recent financial performance and the transformational changes we're making to position Auto Canada for long-term success. As you've seen from our financial results, we faced significant headwinds in the past corner. primarily driven by challenging macroeconomic and market conditions. Despite our best efforts, these conditions impacted our top-line growth and profitability during the quarter. However, I want to emphasize that we remain confident in our ability to navigate through these challenges and emerge stronger on the other side. Our first quarter results reflect the impact of replenishing new light vehicle inventory against the backdrop of high vehicle prices and high interest rates. which are influencing customer spending preferences and impacting our business at all levels of the P&L. These factors, along with certain temporary challenges resulting from our region and brand mix, caused our revenue to decline 7.7% and our adjusted EBITDA to decline 51.2% compared to the same period last year. While challenging, the experiences of the first quarter underscores the importance of the strategic initiatives we've been implementing to drive long-term growth and create a lower cost and more profitable company for the future. Over the past several months, we've been laying the foundation for the next phase of comprehensive transformation at Auto Canada, with the team kicking off the implementation of our Project Elevate strategic plan last year. This plan is aimed at enhancing our operational efficiency and competitive positioning in the market. This includes, one, maximizing gross profit. While we remain committed to our existing operations, we've identified new growth opportunities as well as opportunities to maximize gross profit through on-the-ground bandwidth management and best practices. For example, we're pushing ahead with the development of our online Kijiji F&I and ICO applications, which will open a currently untapped e-commerce market for AutoCanada. We've also been working to improve the time it takes to get a used car through reconditioning and to the front line and available for sale, with average days reconditioning now at 8.3 days versus 63 days when we began. Getting a used car to the front line faster allows us to realize better GPU on the used car sale and increase parts and service utilization, which is a very profitable segment for us. These are just a few of the examples of where we're implementing solutions that require time to train and put into practice, but set us up for better outcomes and long-term success. Number two, optimizing our cost structure. We've identified areas within our operation where we can optimize processes, reduce costs, and improve productivity. During the first quarter, we restructured our US operations and developed standard operating expense ratios by brand for our Canadian stores. We're now in the middle of the Canadian implementation, which is expected to be complete this summer, and will contribute savings in the back half of this year and into 2025. We're also leveraging our new FP&A function and the combined extensive experience of our exec team to identify areas within our operations where we can optimize processes, reduce costs, and improve productivity. Inventory management, demo car management, travel and entertainment, and streamlining procurement are all areas where we see an opportunity. While Project Elevate is a multi-year project, we understand the urgency in realizing cost savings and efficiencies and are looking at all opportunities to accelerate savings where we can given the current market conditions. Number three, modernizing our corporate infrastructure. We're focusing resources on putting in place systems and processes that will make us better today and give us a platform to realize greater economies of scale in the future. Upgrades to financial and human resource systems are underway, along with a comprehensive operational IT modernization project across the organization. These upgrades will give us better data and management tools, allowing us to continue to find new costs and efficiency opportunities due to increased visibility benefiting the company as a whole. Finally, I'd like to highlight an important change to our first quarter results presentation. Beginning in Q1 2024, Auto Canada is going to break out the results from its collision division as a separate division from parts and service. Over the past five years, the company has established management systems and processes in support of growing collision, completing 11 collision acquisitions that bring our collision footprint to 27 locations. When this current management team arrived, the collision business was losing money. It generated over $10 million now in EBITDA in 2023, and in Q1 delivered 34.4% in gross profit growth. We believe that we've now reached a pivotal time in this division whereby it has established a solid base from which to grow. As such, we're providing more detailed financial information to allow our stakeholders to measure our continued progress. With that, I'm going to turn the line over to Azeem to discuss the Q1 results in greater detail. Azeem?

Thank you, Paul, and good morning, everyone. Before I begin my prepared remarks, I would like to highlight that we have changed our same store definition to refer to financial performance from locations that have been operational for 13 months from 25 months previously. We believe this will make our financial results more easily comparable to market and peer benchmarks. During the first quarter, we recorded sales of $1.4 billion. adjusted EBITDA of $22 million, and diluted loss per share of 10 cents. Sales decreased by 7.7% when compared to the same period of 2023, and same-store revenue decreased by 9.9% in the first quarter, primarily driven by lower used vehicle sales volumes. Same-store new retail vehicle unit sales growth was 3.4% during Q1, reflecting replenishing new light vehicle supply as well as a general divergence in performance at the brand level across Canada in Q1. For example, the top five selling brands in Canada during Q1 were Subaru, Honda, Jaguar, Volkswagen, and Nissan, which represent only 30% of our stores. This is cyclical as brand market share shifts from year to year depending on consumer preferences and vehicle lineups. So we fully expect this to change at some point. But during Q1, it was a factor for Auto Canada. Our same store used retail vehicle units sold decreased by 14% in the quarter. with the ratio of same-store used-to-new retail units sold decreasing to 1.46 from 1.76 last year. 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, and we continue to focus on initiatives to maintain our leadership to maximize high-margin sales opportunities through our top-tier F&I department and our parts and service footprint. The U.S. Division retailed 1,378 new units during the quarter, and new gross profit decreased by 10.6% versus the first quarter of 2023. As expected, we are seeing year-over-year new GPUs in our U.S. division gradually normalize with the replenishment of new vehicle supply in the U.S. market. Parts and service revenue was up slightly in both Canada and the U.S., resulting from good demand and rate increases. Same store gross profit declined slightly in Canada due to sales mix and rose in the U.S. on strong demand and following implementation of improvement initiatives during the first quarter. Consolidated collision repair had solid performance with same store gross profit increasing by 31.3%. Same-store F&I revenue decreased by 11.2% and gross profit decreased by 12.1%. These results reflected lower used sales volumes coupled with 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 $191 million or 83.4% of gross profit compared to $194 million or 76.2% of gross profit last year. The $4.6 million decrease in employee expenses during the quarter were partially offset by slight increases in administrative expenses. As of March 31, 2024, we had $190 million outstanding on our $375 million revolving credit facility. Excluding our floor plan facilities and lease liabilities, our total net funded debt to bank EBITDA covenant ratio was 2.79, well below our 4.0 maximum. We have access to approximately $293 million of liquidity under our revolving facilities and cash on hand as of the end of March 31, 2024. During the quarter, we entered into a $75 million interest rate swap with a fixed one-month CEDAW of 3.77%. Our effective fixed-rate portion of total debt, including swaps, is approximately 37%. Subsequent to the quarter, we amended our credit facility with our existing lending syndicate. The maturity date was extended to April 2027 and includes a new $25 million CapEx term facility and a corresponding $25 million accordion feature which increases total aggregate bank facilities to $1.635 billion. We ended the quarter with approximately 23.6 million shares outstanding. In Q1, we repurchased and cancelled 78,688 shares at an average cost of $24.67 per share. So far in Q2 under the NCIV and ASPP, we have repurchased and canceled 78,000 common shares at an average price of $24.53 and total cash consideration of approximately $1.9 million. I will now turn the line back over to Paul to discuss the outlook.