AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss the financial results for the third quarter of 2025. 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 filings on CEDAR Plus for a discussion of this risk. the fourth 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, press star followed by two. I'd like to remind everyone that this conference call is being recorded today, Thursday, November 13, 2025. Now, I'd like to turn the call over to Mr. Samuel Cochrane, Interim Chief Executive Officer of Auto Canada, Inc. Please go ahead, Mr. Cochrane.

Good evening, everyone, and thank you for joining us. This quarter marks an important transition for Auto Canada. As many of you know, Paul Anthony has stepped away from his role as Executive Chair. I want to begin by recognizing Paul's leadership and contributions over the past several years and thank him for his commitment to Auto Canada's transformation and personal mentorship to me. I'm honored to step into the role of interim CEO at such a pivotal time. My focus is to complete the transformation in the coming weeks and then quickly pivot the business's attention towards operational excellence to ensure a successful 2026. The key to 2026 is to build back volumes on our lower cost base by focusing on the fundamental elements of servicing our customers. Turning to the results, recent trends continued from a top-line perspective as we managed through several overlapping factors. Revenue from continuing operations was 1.2 billion compared to 1.4 billion in the prior year. reflecting softer performance across new and used vehicle sales, parts and service, and F&I. As expected, ongoing store restructuring and continued softer demand in certain brands contributed to in-quarter revenue pressure. Additionally, the year-over-year comparison was particularly difficult as Q2 2024's TDK outage shifted some business into Q3 2024, creating an unusually tough comp. Despite these headwinds, the underlying progress of our transformation continued. Adjusted EBITDA from continuing operations was $58.1 million compared to $63.1 million last year, with margins up year-over-year at 4.8%. While volumes were lower, disciplined cost control helped offset a large part of the impact and allowed for continued margin expansion. Our cost transformation remains firmly on track, and we plan to be wrapped up in the next couple weeks. As of September 30th, we've achieved roughly $100 million of our $150 million 2025 annual run rate savings target, driven by headcount optimization, tighter expense and inventory management, procurement efficiencies, and process improvements. The benefits of this leaner structure are already visible in our expanded EBITDA margin and normalized operating expenses, which are down more than 20% year-over-year. The bright spot, again, this quarter was our collision business, which continues to deliver consistent, high-quality growth. Collision revenue grew 19% year-over-year, driven by higher demand, new OEM certifications, and increased insurance referral activity. Subsequent to the quarter, we expanded our network with the acquisition of Doug's Place Rathcona, further strengthening our presence in Edmonton. On the strategic front, we continued to advance the sale of our U.S. dealership. To date, we've received approximately $37 million in proceeds, net of working capital, with another $12 million expected to close before year-end. The remaining transactions are on track to close through the first half of 2026, bringing total anticipated proceeds to around $130 million. near the top end of our previously stated range. These proceeds will be used to reduce debt and enhance balance sheet flexibility. At the end of the quarter, our total net funded debt-to-bank EBITDA ratio was 3.4 times, trending towards our long-term target range of two to three times. We're entering the final stretch of 2025 with a more stable financial position and a simpler, more efficient operating model. Our short-term priorities are clear. deliver the remaining cost reductions, complete the U.S. investitures, and pivot the business towards operational excellence with a focus on the customer. Beyond that, we're beginning to plan for Phase 2 of our turnaround, a shift towards disciplined, profitable growth. As part of our next phase, we will focus on expanding gross profit across a leaner, more durable cost base. Planning for our 2026 dealership operational strategy is already underway, and it's clear there's significant opportunity ahead. In the near term, we will also continue expanding in collision, where we see a low-risk path to sustained double-digit returns on capital. With just a 2% share of the Canadian dealership market and a 1% share in collision, the long-term growth runway remains substantial.

I'd also like to take a moment to acknowledge the leadership changes announced earlier today. As part of strengthening our operational foundation for the next phase of growth, we promoted three outstanding leaders –

Michael Pestrak to Interim President, Dealership Operations, Art Crawford to President, Collision Operations, and Cynthia Hill to General Counsel. Each has been instrumental in driving meaningful progress within the business and will play a key role as we execute our strategy. At the same time, Brian Feldman and Jeff Thorpe have stepped down from their executive roles as part of a planned transition and will remain with the company as senior advisors through early 2026. I want to personally thank Jeff and Brian for their many contributions and continued support during their transition. Their leadership has been instrumental in positioning Auto Canada for long-term success. These leadership changes are about continuity and momentum and ensuring we have the right team and structure in place to carry the business into its next phase of disciplined, profitable growth. Our approach will be focused and returns-driven, We are determined to make Auto Canada the best and biggest operator of dealerships and collision centers in Canada, and we will stay true to that focus. Before closing, I want to thank our employees across the country for their commitment during this period of change. Their dedication and adaptability have been essential to everything we've achieved. I also want to thank our OEM partners for my warm welcome and their continued collaboration and support. This quarter reflects meaningful progress across the business, and the path forward is clear. The cost structure is leaner, the balance sheet is stronger, and the team is aligned behind a common purpose. We're well positioned to finish this year strong and build momentum into 2026. With that, we'll open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. The first question comes from the line of Ty Cullen from CIBC. Your line is now open.

Hey, good evening. Thanks for taking my question. Maybe to start, so it sounds like the timeline for closing the remaining U.S. dispositions has been pushed out a little bit. Can you maybe just help us understand what's behind that delay and what's your level of confidence in the timeline and the proceeds that you laid out in your comments? And maybe you can remind us, are there definitive agreements in place for the remaining four dealerships that were not announced earlier this year?

Yeah, thank you. Thanks for the question. So I'll start by saying the confidence remains high in the proceeds. and it's really just a timing issue. One surprise getting into the automotive industry is actually how long it takes to sort of buy and sell these assets, just going from LOI to APA to OEM approval. It has been a process, and especially in the U.S., it's just taken a while, but still have high confidence to get it across the line. We do have one still. One is under a definitive agreement. That's the one that we expect to close this year. And the others are close to that stage. And we'll close in Q1 at the latest Q2 next year.

Okay, got it. That's helpful. Thanks. And then switching gears, you know, I appreciate that growth has been deprioritized a little bit as you're going through this transformation process. But why was the same store performance down so sharply versus the market in Q3? And can you be a little more specific about what's driving that? And would your expectation be that Q3 is going to kind of be the worst of it in terms of growth versus the overall market?

Yeah, thanks for the question. There's a few things happening in Q3, and I mentioned it on my script. There's the CDK impact in the comp. There's also softness in certain brands. But honestly, just over 70% of the impact on gross, so that's car volumes and fixed ops traffic, is really from the restructuring activities and all the things that we have done to get the cost out. Whether that's reducing marketing spend, reducing inventory, and reducing headcount are all things that are going to lead to softness and growth. And, yeah, I mean, listen, the cost out has had an impact on our volumes, right, in units and traffic in our service bays. But with the cost out coming to an end in the coming weeks, we are pivoting the business back to focus squarely on the three pillars of our dealership operations, new cars, used cars, and fixed operations. The job ahead is pretty clear, and that's what I meant by a common purpose is to grow our volumes in these areas. at the lower cost base by focusing on building our talent internally. So we've got to improve training. We've got to continue to recruit high-quality talent and make sure they're integrated well into the team. We've got to focus on the customer and get our CSI scores back up and doing some basic other things in the dealership like tracking and improving sales to service bay retention to drive traffic in our fixed operations, right, drive appointments in our service bays, doing a better job sourcing used cars from internal sources. You really make the money on a used car at the buy-in, right? So used GPUs were lower this quarter. It's because we've got to get better at sourcing internally. We've got to increase that as our percentage of cars and buy less from rental cars or buy less from auction and have more sourced internally. Ensuring we have the playbooks that we've built implemented at the dealership level with the right training to drive new car velocity in the stores. And finally, we are piloting auto trader again. We just turned that on a couple of weeks ago in about a third of our dealerships as we're trying to look to pivot the business back to growth. Now, listen, these aren't giant investments. It's really attention and strategy. So I do expect the cost out to remain out and build back the volumes and really just pivot the focus of the business back on just the fundamentals. And with that myopic focus on the core business, I am confident this team can build those volumes back over 2026 at our leaner cost base. I hope that gives you enough color there, Tyler.

Yeah, yeah, no, that's really helpful. Maybe just one sort of follow-up to that. I mean, you outlined a lot of steps there, a lot of things to kind of refocus on. I mean, how long do you think it will take to kind of get your growth to a point where it's more in sync with the overall market again?

I see now as stabilizing. So you asked whether Q3 was a trough. Yeah, I do believe it's sort of bottoming out here. And we're actually wrapping up those restructuring activities in the coming weeks, which is exciting. And I expect it to take about 2026. By the end of 2026, I expect to exit 2026 with the volume built back at the wiener cost base.

Okay, thanks. I'll pass the line.

Thank you. Your next question comes from the line of Luke Hannon from Mechanical Genuity. Your line is now open.

Thanks. Good evening, everyone. Sam, I wanted to just follow up on the earlier line of questioning on the U.S. dealerships that sell. So if I heard you correctly, It's $37 million in proceeds that you've recognized, Dave, from those U.S. sales, $130 million total. It sounds like most of that cash in the door is going to be weighted towards the early part of next year. Is that fair?

Yeah, that's correct. I think we've got another $12 million we expect this year and the rest next year.

Got it. Very helpful. Thanks. And then I wanted to follow up, too, on used GPUs. I mean, it was down significantly this quarter. Is there anything specific or one time to call out there? Is that environment related? Is that internal process related? Can you just shed some more light on what exactly happened in the used business specifically that would have impacted GPU this quarter?

So we really just got to buy cars better and buy them at a better price so we can sell them at a better profit. It's almost that simple. and we've got to do a better job of that going forward. In the quarter, we still need to drive volume through the dealership, so we're buying cars from auction, we're buying cars from other sources that just give us less profit to make on the sale. We still make profit on the back end, on F&I, and obviously we try to retain in the service shop, so it's still worth doing, but to get that used GPU up, which we will do, we've got to buy cars better and source internally better, and that's what we're going to work on moving forward.

Okay, thanks. And then if we move to the collision business for a moment here, it's mentioned in the press release there's an increase in paintless dent repair, and that had a mix impact or specifically a margin impact. What exactly drove that? Are you seeing that normalized now? What can you share on that front?

Yeah, that will normalize, and it's interesting. That business, it really depends on the severity of the storms. So what happened last year is there was really severe storms and there wasn't, there was too much work to do. So we had to sublet a lot of the workout. And obviously that sublet workout is at less margins. So that is normalizing and we do expect that to get better. Now in the future, if there's another severe storm season, you will see better revenue and we still want that business, but we're going to get it at a lower margin because some of that work has to be sublet out. Does that make sense?

It does. That's helpful. Thanks. I also wanted to follow up and ask about the consumer backdrop, I guess, the Canadian consumer backdrop, because correct me if I'm wrong, I don't think you touched on it in your prepared remarks. I know that as of Q2, the thought was that the second half of the year, you were cautiously optimistic when it came to consumer health and buying trends. How did that play out during the quarter? And then what are you seeing to date?

Yeah, so... Listen, I think the consumer remained resilient and the Canadian consumer remains relatively strong. I think better off than if you would have asked me earlier, January, February, earlier in the year when the tariffs were making noise into March and April as well. So I think I remain cautiously optimistic about the consumer. And we have a budget out now from the federal government and we're sort of digesting that. But I remain cautiously optimistic heading into 26 that the consumer will remain robust. So that's good. And then interest rates have obviously come down a bit, and that should provide a bit of help as well.

Thanks. Last one, and then I'll pass the line here. On M&A, so it sounds like, again, by the end of Q1, early part of Q2, that's when the U.S. dealership sales will happen. By that point, you'll have also generated some more cash, too. I imagine you'll probably be closer to two times net funded debt to keep at the Is that the point at which you would begin to start looking at M&A again as far as the use of capital?

Yeah, I think that's a good way to think about it. I think, yes, when we get down to round two, that's when we have better flexibility in the balance sheet to do M&A and continue that growth story. In the near term, there's more opportunities on the collision side of the business. a little bit of work still to do on the dealership side of the business to build those volumes back at that leaner cost base and really earn that right to go and acquire. But yes, you know, that is correct. Somewhere in that range for sure.

Got it. Thank you very much.

Okay. Your next question comes from the line of Sabahat Khan from RBC Capital Markets. Your line is now open.

Great. Thanks and good afternoon. I'm just kind of Continuing on the line of kind of the top-line trends and the outlook as we head into sort of 2026, I guess, it totally sounds like there's some comments around maybe just kind of buying cars better. And, you know, how much of sort of this top-line performance in the quarter do you think is more just kind of things you could have done better operationally versus maybe just a macro backdrop needing to be maybe in a better place? Just some thoughts on that, please. Thanks.

Yeah, no, I said it earlier and I'll say it again. I think about 70% of the impact this quarter, I wouldn't say things we could have done better. I would say it's prioritizing our focus, right? The focus during the first part of this year was getting the cost out and restructuring the business and building that base. And now we're pivoting that focus to building back those volumes. So to answer your question, I think about 70% of the impact this quarter can be built back over 2026 as we pivot our attention back to the four fundamentals of our business, right, selling new cars, selling used cars, and servicing and fixing cars. Hopefully that answers your question. And I think we'll exit 2026 with that built back up.

Great. And then just your comments earlier on sort of building out the collision side, you know, is that something you expect to dedicate more capital to going forward than you have in the past? Maybe more so just resourcing it from a people perspective. How are you still building up that strategy as we move forward?

Thanks. Yeah, I'll probably provide more details in the new year. But what I want to get across is in terms of acquisitions in the near term, call it three to five months, you're likely to see more deals on the collision side. And that's because there's still work to do on the dealership side in terms of building back those volumes on the leaner cost base in and working hard to kind of earn that right to get back to acquisitions, and obviously a little bit of the leveraging still to do. So all those factors are playing into it. But I just want you to know that that collision is going to be the near-term focus for M&A. And we have a great team there, and they've shown success. I mean, that business, looking back to 2019, was losing money. ARK Property came in here and built a great business that's doing, I don't know, over $20 million of EBITDA this year, right, and growing. So fantastic job to him and his team. And I got the honor to be at their conference this year, and it's a really high-functioning team. And they've earned the right to do more M&A. So we look forward to doing that.

Great. Thanks so much for that.

Your next question comes from the line of Maxim Sichev from National Bank Capital Markets. Their line is not open.

Hi, good evening. Sam, maybe the first question for you. I mean, obviously, I appreciate that, you know, when you adjust the platform, there's, you know, temporary impact on the revenue generation. But when we start thinking about, you know, normalizing volumes, I mean, what gives you the confidence that you will not have to scale sort of SG&A or Allpax accordingly? Because, I mean, we have gone through a number of these. you know, repeat cycles in the past where we kind of cut to them, the volume stuck up, and then SG&A comes back. So what is different right now in the operating structure of the business that gives them the visibility and the confidence to achieve that?

Yeah, thanks for the question. So the biggest thing is we gave guidance around $115 million of cost out. The real opportunity on the cost is larger than that. However, it's not true run rate, right? We do expect to reinvest that into our business. So that 115 number you're looking at is the true run rate savings. And there were other activities we did to free up dollars that we need to now go invest. That investing does keep the 115 out, but it frees it up to sort of move resources where we can be more targeted. For example, we're turning auto trader back on in a pilot, right? So that's a targeted investment where we're trying to drive more traffic through our dealerships. and get more leads and used. We're going to have to look at targeted investments we can make with certain sales spiffs, maybe in the service bay, right? So there's things that we're going to have to invest in to drive back that growth and focus on training, right? Training and driving our CSI score up. So there are investments to make. But that $115,000 is net of those. So that gives me a lot of confidence. And then just talking to the GMs across the country. They've been in the car business. They've been doing this, some of them, 10, 20, 30, 40 years. They know what to do, right? So we just got to make sure we free up the resources, turn the business focus back on those fundamentals, and start to drive growth. I got a lot of confidence in it, Max.

Yeah, no, that's good to hear. And I guess, so like in terms of operating leverage, and I don't know if you have thought about this sort of like in a kind of rule of thumb dynamic, but let's say the revenue is up 5%, you know, how much I guess of a margin accretion should we expect kind of on a prospective basis in a normalized environment so that we can start thinking about, again, not necessarily the blue sky dynamic when it comes to the EBITDA margin, but what should be the normalized margin in what's called, you know, 2026? How should we frame that?

Let's think about it at least from an even margin for now, right? We are 4.4, I believe, for the year, 4.8 in the quarter. So the key is to maintain that margin and grow it while growing the top line, right? I'm not going to give guidance on the exact percentage that's going to drop at this point, but that's the goal.

Okay, that's great. And then in terms of the collision strategy, so do you mind maybe talking a little bit around more of a medium-term outlook on that front? I mean, obviously, you have great leadership right now to drive the strategies there, but maybe some incremental thoughts on that would be great.

Yeah, I think, Max, on collision, we love that business. We think it's one of our key pillars of growth. We have a great team and we have great assets there. And we believe in our strategy of the OEM certifications that, you know, people buy a car, they want it fixed like it was built. And, you know, if you don't fix it like it was built, like who has that liability? There's tons of trends pointing in that direction. You can even look at... the OEC connection deal that Francisco Partners just bought, Repair Logic, like that, like the trends are going that way and we feel like we're in a good spot to continue to grow there. But in terms of like more broadly laying out the path for collision, give us a bit of time on that to bring that to you.

Okay. No, that's great. Thank you so much. That's it for me.

Your next question comes from the line of Chris Murray from ATB Capital Markets. Your line is now open.

Yeah, thanks. Good evening. Um, Maybe asking this question about the consumer in a slightly different way, just F&I for a second. You know, one of the things that happens as we get into these downturns is that F&I has to kind of adjust, although you seem to have held on to the retail unit average not badly, but the gross profit percentage has dropped pretty significantly. I'm just wondering if you're seeing sort of consumer behavior take up on F&I, if you're seeing sort of changes in mix or changes in what people will pay for. either new or used in any color that way that maybe gives us some help on understanding sort of some buying process.

So thanks for bringing up F&I. I mean, you might have noticed that we've promoted two people to sort of help in this period of phase two of building back the volumes. Art Crawford on the collision side has proved himself, zero to nothing, and then Michael Pestrack on the F&I side. His performance has been very, very strong. So thanks for bringing it up. And his consistency in delivering results has been great. And I look forward to working with him on the broader business. In terms of trends we're seeing underneath that, a little bit here and there, like credit turndowns and these sort of things, but nothing really large to note at this time. The consumer does remain positive. robust, at least considering what we thought it was going to be earlier in the year, which is good to see.

Okay. The other question I had, and look, you guys have made some acquisitions in the used vehicle side of things. I guess part of the strategy was always about, you know, building a fused relative to new sales really about driving F&I and maintenance business and things like that, and parts and service, and really having stickier customers, if you will, more of a lifecycle approach to running the dealership. Now that you've taken out these costs, I'm starting to wonder about, you've made a lot of comments about building back volume. Is this more, you know, is there a change in strategy we should be thinking about, about how you're building back that volume or what you're targeting in that volume? Is it sort of a return to more new volume versus huge? Just sort of how we're thinking about the broader strategies we go into next year.

No, I think if you look back to any strategic documents of this company in the past, there's really three key things to focus on. I mean, outside of collision, they're growing well and we're all happy with that. We're happy with the dealership business as well. The cost is up. We saw that, right? Leverage ratio is down, adjusted EBITDA margins up. Despite the thought that's on the top, we're actually still seeing that cost out is sticking and it's solid. So what's the strategy going forward to build back those volumes? I talked a bit about it earlier. It's really driving, it's not a focus on just one, of just use or just new or just, fixed operations. It's really all three of them. And we really got to just focus and wake up every day focused on increasing our service bay occupancy, right? Tracking our new sales. Right now, we don't track. We sell a new car. We don't track the retention of the service bay. We should start tracking that and making that a key KPI and maybe even incentivizing people based on that, right? I want people who buy new cars from our dealerships being retained by the service bay, right? And that's going to drive more, right? And then we also have to buy used cars better. That's going to drive more traffic into our dealerships. Sometimes people come in for a used car, they'll buy a new. We should also retain the used cars that we sell in our service base. So it's really, it's the same strategy, just refocused on it after a long year of restructuring activities. And I just want to thank all the employees for being so resilient and adaptable through this change. and I know they're ready to just refocus on the core business. Okay. That's helpful. Thanks. We'll leave it there.

As a reminder, if you wish to ask a question, please press star 1. There are no further questions at this time. I will now turn the call over to Sam Cochrane for closing remarks.

Thank you, everyone, and looking forward to seeing you in the new year. All the best.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.