AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss the financial results for the fourth 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 lights 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 would 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 18, 2026. Now, I'd like to turn the call over to Mr. Samuel Cochrane, Chief Executive Officer and Interim Chief Financial Officer of Auto Canada, Inc. Please go ahead, Mr. Cochrane.

Good evening, everyone, and thanks for joining us. I'd like to start by thanking the board for their trust in appointing me to lead Auto Canada at such an important time for the company. Before getting into Auto Canada's results, I want to briefly touch on the state of the automotive market. Demand for automotive vehicles in the fourth quarter was impacted by earlier pull-forward activity. Paraplegic policy changes drove stronger demand in the first half of 2025, and the sunset of Canadian EV tax credits created a tough comparison to the strong fourth quarter of 2024 and resulted in softer store traffic. Across the industry, we also saw affordability pressures continue to weigh on consumers. New and used vehicle gross profit per unit declined for many dealer groups as vehicle availability increased, pricing normalized, and consumers made cost-conscious purchasing decisions. At the same time, inflationary pressures and lower GPUs drove SG&A as a percentage of gross profit higher across the sector. With that context, let me discuss 2025 before turning to the quarter. 2025 was a year of significant change for AutoCanada. we undertook one of the most comprehensive transformations in the company's history with a clear objective, reset the cost structure, simplify the business, and position for the next phase of growth. We largely achieved that goal, but work remains. By the end of the year, we reached $115 million in annual run rate cost savings, materially lowering the operating cost base of the company. Operationally, the most challenging issue late in the year was execution at the store level. during the transformation. As we made changes across the organization, some stores temporarily lost momentum, which impacted sales productivity and gross profit performance relative to the market. Also, certain initiatives were implemented too broadly and without enough flexibility and alignment, which temporarily impacted store operations. Importantly, we have identified those issues and have put a new operations leadership team in place to stabilize and improve the business and restore execution across the network. In the third quarter, we were underperforming the market by roughly 19 percentage points in new retail unit volumes. That improved to roughly 10 percentage points in Q4, and we continued to see improvement in the first quarter as we correct those execution issues. The falling Jeep news we experienced in the third and fourth quarters of 2025 largely reflected used vehicle procurement decisions made earlier in the year that were not well aligned with subsequent reductions in staff and marketing spend. This resulted in elevated levels of aged inventory entering 2026. In the near term, we expect to work through that inventory at lower GPUs while implementing stronger controls and reporting around used vehicle purchasing to improve performance going forward. You will see us gradually close the volume gap to the broader market through 2026. The GPU is expected to improve in the second half of the year. With that, let me turn to the quarter. Revenue from continuing operations in Q4 was $1.1 billion, down 11.8% year-over-year, primarily due to lower new and used vehicle volumes. Gross profit declined 19.5% year-over-year to $174 million. Normalized offering expenses declined 13.2% to $131.5 million versus the fourth quarter of 2024, partially offsetting the impact of market dynamics and operational disruptions. Adjusted EBITDA from continuing operations was $32.7 million compared to $54.4 million in the prior year. Approximately 80% of that decline was related to operational disruptions discussed above, with the remaining 20% driven by market dynamics. For the full year, sales declined 7.1% to $4.9 billion and gross profit declined 10.4% to $785 million. However, adjusted EBITDA increased to $198 million, up 11.5% year-over-year, highlighting the impact of the structural cost reset alongside continued strength in our collision business. Looking ahead to 2026, our focus is on five key priorities. First, stabilizing and improving our automotive retail business. Second, pursuing disciplined and organic growth in our collision business. Third, improving the support our head office provides the dealerships and collision centers. Fourth, Strengthening our recruitment and retention of top operational leaders across the country. We want Auto Canada to be the best place to work for high performers. And fifth, maintaining a lean and efficient cost structure. To achieve that, there are several areas where we are focused on. First, we need to operate our dealership better. This means improving sales productivity, inventory management, trade capture, and service utilization across the network. To do this, we need to empower our general managers and frontline staff to make decisions closest to our customers. We also need to improve our service offerings to our dealerships from our store support center. We believe market-leading volumes can be restored over the next six to nine months, and GPUs will normalize over the coming year as execution continues to improve. Second, we will continue to grow our collision platform. Collision remains one of the most attractive parts of the business, with strong margins, insurance-driven demand, and a highly fragmented market. Our platform today includes 33 locations, and we have the team and strategy to support more than 100 stores. We also have a strong track record of acquiring and integrating collision centers. We have a robust pipeline of opportunities and intend to pursue those acquisitions as our balance sheet allows us. Third, we are focused on improving the administrative services supplied by our store support center to free up our frontline teams to focus on our customers and operate their businesses effectively. Fourth, we are focused on creating a culture of high performance, which will allow us to recruit, develop, and retain the best operators across the country. We must become the best place to work for high performance. And finally, we will remain disciplined on costs. Turning briefly to the balance sheet, we expect leverage to remain around four times net funded debt to bank EBITDA in the near term as we complete the final U.S. dealership sales and continue improving earnings. We made further progress exiting the U.S. portfolio and continue to expect total proceeds of approximately $130 million, including approximately $81 million that has not yet been received and is expected this year. These proceeds will continue to be used to reduce debt and strengthen the balance sheet. Before opening the line for questions, I want to thank our employees and OEM partners for their commitment during a year of significant change. With that, operator, we are ready to 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 touchtone phone. you will hear a prompt that your hand has been raised. If 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. Our first question comes from the line of Luke Hannan from Canaccord Genuity. Your line is now open.