AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss financial results for the second quarter of 2024. I'm John, 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 file links on CDAR+, For a discussion of these risks, the second 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 the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by the number two. I'd like to remind everyone that this conference call is being recorded today, Tuesday, August 13, 2024. Now, I'd like to turn the conference call over to Mr. Paul Anthony, Executive Chairman of Auto Canada, Inc. Please go ahead, Mr. Anthony.

Thank you and good evening, everyone. During the second quarter, Auto Canada faced a combination of factors that significantly impacted our performance. These include the CDK outage, which resulted in lost sales and profit during Q2, mounting OEM inventory, and more specifically Stellantis, leading to higher day supply and floor plan costs. Economic uncertainty marked by rising unemployment and falling GDP in a still elevated rate environment. As these factors evolved, we were unable to implement our strategic initiative swiftly enough to adequately counter increasingly challenging market dynamics. Our recent performance has not met our own expectations, and it has become clear to me that we need to further deepen our focus on both the leveraging and the profitability of our core dealership operations. With that said, during the second quarter, we engaged Bain & Company to accelerate key project elevate initiatives. We're also immediately halting all M&A and return of capital initiatives have implemented a freeze on discretionary spending, and are actively reviewing strategic alternatives for all non-core and underperforming assets. In the coming months, we will concentrate with precision on enhancing the structure and efficiency of our core dealership operations. We are committed to making the necessary changes to stabilize the company and eventually put us back on the path to profitable growth. I want to take this time to acknowledge our employees and OEM partners and thank them for their commitment and support during what was a challenging second quarter. I also want to welcome Sam Cochran to the team. Sam is a seasoned executive and joins us as a CFO. He brings a wealth of experience navigating and leading companies through transformational change. With that said, I'd like to pass the line over to Sam to discuss the second quarter financial results.

Thank you, Paul, and good evening, everyone. During the second quarter, we recorded total sales of $1.6 billion, down 8.8% year over year, adjusted EBITDA of $27 million, down $67.1 million from Q2 last year, and a diluted loss per share of $1.47. There were a number of things that impacted our second quarter adjusted EBITDA, including the CDK outage, $4.7 million management transition charge, $4.5 million in increased floor plan costs, a $6.8 million loss in our U.S. operations, a $1.3 million loss from RightRide, and a $12.7 million net used inventory provision, which negatively impacted used GPU in both Canada and the U.S. Our diluted earnings per share also reflects these items, as well as an $11.3 million impairment of intangible assets and a $13.2 million write-off of deferred tax assets related to the U.S. operations. Canadian operations second quarter revenue fell 9% year-over-year to $1.4 billion, with same-store sales declining 10.5%. Canadian gross profit declined 19.9% to $223.8 million, with same-store gross profit falling 20.6%. Adjusted EBITDA was $32.4 million, down 63.7% from Q2 2023. During the second quarter, our Canadian operations were negatively impacted by the CDK outage. An erosion in consumer purchasing power, lack of demand for certain brands, reduced service repair orders, and a softening used vehicle market. These factors resulted in year-over-year declines in our new vehicle, used vehicle, and F&I GPUs, and pressured our parts and service and collision operations. Further, growing floor plan expense due to higher rates and elevated days inventory more than offset a single-digit decline in Canadian operating expenses before depreciation versus the prior year. resulting in the drop in Canadian adjusted EBITDA experience during the second quarter. U.S. second quarter revenue fell 7.9% year over year to $191.2 million. U.S. growth profit declined 34.2% to $25.8 million, and adjusted EBITDA was a loss of $5.4 million, compared to a positive $4.9 million in the second quarter of 23. This was driven by a decline in new, used, and F&I GPU, which offset the increase in new light vehicles units sold. The U.S. restructuring done earlier this year resulted in a 12.5% decline in U.S. operating expenses before depreciation. However, this was outpaced by the headwinds presented by the CDK outage and tough market conditions during the quarter, resulting in operating expense outstripping gross profit and leading to the second quarter U.S. adjusted EBITDA loss. In light of the CDK outage, during Q2, we obtained covenant relief from our lenders, amending our total net funded debt to bank EBITDA ratio covenant to 4.5 from 4, from June 28, 2024, to September 29, 2024. As of June 30, 2024, we had $185 million outstanding on our $375 million revolving credit facility, with a total net funded debt to bank EBITDA covenant ratio of 4.09. We will continue to work closely with our banking partners as we navigate the next few quarters. I will now turn the line back over to Paul to discuss the outlook.