AutoCanada Inc.

Thank you for joining AutoCanada's conference call to discuss the financial results for the first quarter of 2026. I'm Ludi, 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 this forward-looking statement. I encourage you to review AutoCanada's filings on CEDAR Plus for a discussion of this risk the first quarter news release, financial statements, and MD&A. All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I'd now like to turn the floor to Mr. Samuel Cochrane, Chief Executive Officer and Interim Chief Financial Officer of Autocanada, Inc. You may begin.

Good evening, everyone, and thank you for joining us. Before discussing our quarter, I want to begin with a few comments on the broader operating environment. As we move through the first quarter and into the early part of the second quarter, the Canadian automotive market remains soft. Industry demand for new light vehicles continue to decline year over year as consumers face elevated vehicle pricing, persistent affordability concerns, rising fuel costs, and broader macroeconomic uncertainty. Fuel prices are an important factor to monitor closely. Higher fuel costs can influence consumer appetite for vehicle purchases, impact discretionary spending on service and maintenance, which can sometimes be deferred, and even affect kilometers driven, which has implications for collision demand over time. While collision remains a resilient business, we are mindful that consumer behavior can shift in this type of environment. Against that backdrop, our first quarter results were largely as expected, with adjusted EBITDA from continuing operations of 31 million compared to $43 million in the prior year. The $31 million in adjusted EBITDA included a $5 million forfeiture of share-based compensation expense related to departing executives. These results are below our long-term expectations for the business. That being said, we saw meaningful progress towards rebuilding sales productivity in our dealership business late in the quarter and into April, and I am encouraged by the momentum being built by Fade and his team. We also continue to see growth in our core collision business, despite the hail business lagging due to reduced storm activity, and are set up well for continued collision expansion. In the automotive retail business, the largest area of pressure continued to be used vehicle profitability. Used vehicle gross profit per unit was negative 48 in the quarter as we worked through aged inventory and operated in a broader used market that remained highly competitive and margin challenged. We expect used growth profit per unit to improve sequentially over the year as we enhance the tools and analytics available to our buyers, which will improve sourcing, build better merchandising habits, and increase the speed of our reconditioning. At the same time, there were several important positives in areas of progress during this quarter that reinforced why we believe the automotive retail business is moving in the right direction operationally. The key theme for Q1 was restoring operational adequacy and stability. Since the leadership change was implemented in mid-February, we have taken decisive actions to simplify the organization and get closer to our core operations, improve accountability, strengthen operational oversight, and refocus the business on execution fundamentals. This work is still early, but we are beginning to see encouraging signs. March and April showed sequential improvement in used vehicle profitability trends, supported by stronger sales productivity and better inventory pricing and management. We also added regional and functional leadership during the quarter, who are both experienced Canadian automotive executives. They will focus on strengthening performance management and accountability at the dealerships. Our view is straightforward. While natural conditions are outside of our control, operational execution is not. Our automotive retail priorities remain centered on the key controllable drivers of the business. Improving sales productivity and conversion, rebuilding new vehicle margins, increasing fixed operation absorption and service utilization, improving inventory discipline and working capital efficiency, and maintaining expense discipline while we grow our top line. We believe these actions are establishing a stronger operational foundation that will allow the business to perform more consistently. Turning to collision operations, this continues to be a strategically important part of the company. Collision growth profit increased year-over-year, and margins remained strong despite a challenging comparison related to elevated hail activity in the prior year. In the first half of 2025, we worked through a significant backlog of hail-related repairs stemming from the catastrophic Townsend storm in July 2024. The corner was also impacted by the recent opening of three new collision centers, which are still ramping towards full utilization. Together, the typical hail comparison and the added cost associated with these new facilities account for approximately $2.5 million of the year-over-year decline in collision even on this quarter. The underlying traditional collision business continues to perform well, supported by strong insurance, related demand, standing OEM certifications, and growing insurer relationships. During the quarter, we complete the acquisition of modern auto body in Edmonton. which expands our regional density and enhances OEM certifications in an important market. Modern auto body did not have any insurance partners at the time of closing, which is one of the areas of synergies we are focused on post-closing. We continue to view Collision as a highly attractive long-term growth platform due to its resilient margin profile, fragmented market structure, and strong consolidation opportunities. Importantly, our strategy here remains disciplined. and we intend to continue pursuing targeted, accretive collision acquisitions focused on regional density, OEM certification capabilities, and long-term margin expansion. Art and the team have demonstrated an ability to meaningfully improve both cost and revenue post-acquisition. Operationally, several important initiatives are also underway within collision, including expanding OEM certifications, increasing insurance ERP partnerships, scaling apprenticeship and technician development programs, advancing the national operating model, expanding higher margin services such as diagnostics, calibrations, and codings, and continuing the rollout of our national collision brand strategy. These initiatives are intended to improve long-term operating leverage, margin stability, and referral volumes across the platform. Turning to the balance sheet, strengthening financial flexibility and reducing leverage remain a major priority during the quarter. We continue to make meaningful progress on the divestiture of our U.S. dealership portfolio. To date, we have received approximately $65.8 million in gross proceeds from completed transactions and continue to expect full proceeds of approximately $130 million upon completion of the remaining divestitures. These proceeds are expected to be directed primarily toward debt reduction, further strengthening the balance sheet. Up to quarter end, we also completed and amended an extended syndicated credit facility that improves our financial flexibility, extends maturity through 2028, simplifies the structure of the facility, and provides additional operating flexibility while we continue executing our initiatives. Our capital allocation philosophy is grounded in maximizing long-term shareholder value while protecting balance sheet flexibility. In the near term, this means prioritizing debt reduction, high return operational investments, selective collision acquisitions, and opportunistic share repurchases where appropriate. We are approaching all capital decisions with a strong emphasis on return thresholds, liquidity, preservation, and strategic set. As we look ahead, we expect 2026 to remain a transitional year for the dealership business and growth focus for our collision business. Near-term market conditions are likely to remain challenging, and consumer affordability pressures continue to impact demand trends. However, we also believe the company is approaching an operational inflection point. The actions taken during Q1 to stabilize operations, improve leadership accountability, streamline costs, strengthen the balance sheet, and sharpen strategic focus are beginning to create momentum inside the organization. Our focus remains firmly on creating value by stabilizing and improving the automotive retail business. We believe the automotive retail business is beginning to stabilize, and we are seeing early signs of improvement, especially in used volumes and profitability, and therefore, are cautiously optimistic about the quarters ahead. Pursuing discipline in organic and organic growth in our collision business, our core collision business continues to grow. And even though we have seen reduced hail activity, we are well positioned for the hail season to start. On the inorganic side, we continue to build our pipeline with many exciting opportunities, and we expect to be active on the M&A front this year. Improving the services provided by the SOAR Support Center to our dealerships and collision centers. This will be one of the major priorities of the new CFO who was just hired. I'm looking forward to having Mike join the team. He will add a lot of horsepower. strengthening our recruitment and retention of top operational leaders across the country. As discussed above, we added seasoned automotive, Canadian automotive talent to the team this year, and we will continue to focus on building and retaining the best operating team in the industry. And lastly, maintaining the lean cost structure. We continue to identify and execute on opportunities to downsize our corporate costs while improving service levels to the operating business. This relentless focus will build a stronger, more disciplined, and more resilient Auto Canada, one with better operational consistency, a solid balance sheet, growing collision scale, and improved long-term earnings quality. While there is still meaningful work ahead, we believe the foundation being established today positions the company to deliver stronger and more sustainable performance over time. I want to end the call by thanking our employees. You are all Auto Canada, and I thank you for your commitment to our customers, stakeholders, and to each other. Together, we will build an iconic automotive company right here in Canada. With that, operator, please open the line for questions.

Thank you, and ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number 1 on your telephone keypad. If you would want your question, please press the star 2. With that, our first question comes from the line of Chris Murray with ETB Coromar Capital Markets. Please go ahead.