AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss the financial results for the fourth 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 Auto Canada's filings on CDER Plus for a discussion of these risks, the fourth quarter news release, and 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 touchtone phone. 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, Wednesday, March 19, 2025. Now, I'd like to turn the call over to Mr. Paul Anthony, Executive Chairman of Auto Canada. Please go ahead, Mr. Anthony.

Thank you, Operator. Good evening, everyone, and thank you for joining us today for our fourth quarter 2024 Earnings Call. I'm Paul Antony, Executive Chairman, and with me is Sam Cochran, CFO. We appreciate your time and interest. During the fourth quarter, there was good demand for new light vehicles in Canada driven by OEM incentives and lower financing costs following 200 basis points of rate cuts by the Bank of Canada last year. Additionally, we saw positive contributions from parts and service, recent acquisitions, reduced floor plan expenses, and lower operating costs, which helped offset declines in new, used, and F&I GPU, and led to our Canadian operations growing adjusted EBITDA by 12.8% year-over-year in Q4. However, so far in 2025, the Canadian market has cooled, and while industry forecasts are for flat new light vehicle unit sales growth in 2025, we're navigating an increasingly complex landscape. The North American automotive sector and the Canadian economy are very vulnerable to U.S. tariffs and escalating trade tensions, and inflationary pressures present risks to market stability and demand. Amid these challenges, Auto Canada remains highly focused on executing its transformation plan, launched in Q3 of 2024, with three key priorities. The first is operational transformation. We are targeting $100 million in annual run rate cost savings compared to our trailing 12-month second quarter 2024 operating expenses, excluding depreciation, amortization, and one-time items by the end of 2025. This started with heightened restrictions on discretionary spending and hiring in 2024 September, and expanded to include the introduction of the ACX operating method in the fourth quarter. Last year, we realized $7.9 million in savings from our transformation plan, tracking an annualized run rate savings of $9 million as of December 31st. Key savings schedules are included on investor presentation and include $63 million from standardizing dealership operations, $23 million from enhanced controls and financial disciplines, $10 million from improved inventory management, $5 million from centralizing administrative functions. Annual run rate savings should reach $36 million in Q1 2025, $64 million in Q2, $82 million in Q3, and $100 million by the end of Q4. We expect this transformation plan to allow us to realize $32.6 million in cost savings, net of restructuring costs to our bottom line in 2025. Our second priority has been strategic review, which has concluded and aligned our asset portfolio with core Canadian dealerships and collision operations. Key actions taken include closure of all right-ride locations, which incurred a minus $11 million adjusted EBITDA loss in 2024, the sale of three non-core Stellantis dealerships generating $59.5 million in net proceeds, and the reclassification of the U.S. business as a discontinued operation as of December 31st, 2024, following a $24.2 million adjusted EBITDA loss in 2024 with efforts ongoing to secure a buyer. Finally, our third focus is on reducing our leverage ratio to between two and three times EBITDA through profitability improvements and debt reduction initiatives. Successful execution of the ACX operating method is critical to this effort. Accordingly, we have paused share buybacks and acquisitions since the fall of 2024 until we achieve a more comfortable leverage profile and position. Auto Canada is committed to its transformation plan and long-term value creation, and I would like to thank the team for their dedication as they continue to work diligently towards accomplishing our goals. I also want to take this time to thank our investors and OEM partners for their continued support. With that, I'm going to turn the call over to Sam for a detailed review of Q4 financials. Sam?

Thank you, Paul, and good evening, everyone. Before I begin, I would like to highlight that, unless noted, the financial results discussion will focus on continuing operations, which are the core Canadian operations, given that the U.S. business has been moved to discontinued operations as we actively seek a buyer for these assets. During the fourth quarter, we recorded total sales from continuing operations of $1.3 billion, down 1.2% year over year, adjusted EBITDA of $54.1 million, up 12.8% from Q4 last year, and a diluted earnings per share of $0.33. Including discontinued operations, we reported adjusted EBITDA of $47.2 million, which includes a $27.4 million adjustment for the settlement with the FTC, which was announced late last year. Our Canadian business performed better than expected during the quarter, with the combination of OEM incentives in certain brands and lower interest rates contributing to strong sales activity in October and November. New vehicle unit sales grew 4.7% year-over-year, while used unit sales fell 8.4% due to inventory mix challenges and industry-wide post-COVID normalization of the used car market. New and used vehicle gross profit per unit dropped 14.3% and 5.4% respectively, offsetting modest growth in parts and service. Operating expenses as a percentage of gross profit decreased 13.2 percentage points, driven by lower inventory and floor plan rates, plus $5.6 million in cost savings resulting from our transformation plan. In total, we realized $7.9 million in savings from this plan, and we are tracking at $9 million in total permanent annual run rate cost savings as of the end of December 31, 2024. As of December 31, 2024, we had $157 million outstanding on our $375 million revolving credit facility with a total net funded debt-to-bank EBITDA covenant ratio of 4.89%. As Paul noted in his opening remarks, the outlook for 2025 remains uncertain. While strong consumer demand boosted sales in October and November, December saw a sharp slowdown, and so far in 2025, Canadian new light vehicle sales have declined 2.8% year over year. Currently, consumer sentiment indicators suggest a cautious approach reflecting heightened economic uncertainties. As we navigate these challenging dynamics, we are highly focused on disciplined execution of our transformation plan to build resilience, reduce leverage, and secure a stable foundation for the future. That concludes our prepared marks. At this time, I'd like to turn the call over to the operator to open the line for Q&A.