TSE:ACQ AutoCanada Q2 2024 Earnings Report C$29.50 +0.89 (+3.11%) As of 10:30 AM Eastern ProfileEarnings HistoryForecast AutoCanada EPS ResultsActual EPS-C$0.96Consensus EPS C$0.34Beat/MissMissed by -C$1.30One Year Ago EPSN/AAutoCanada Revenue ResultsActual Revenue$1.60 billionExpected Revenue$1.62 billionBeat/MissMissed by -$23.08 millionYoY Revenue GrowthN/AAutoCanada Announcement DetailsQuarterQ2 2024Date8/13/2024TimeN/AConference Call DateTuesday, August 13, 2024Conference Call Time4:30PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by AutoCanada Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 13, 2024 ShareLink copied to clipboard.Key Takeaways Q2 sales fell 8.8% to $1.6 billion, adjusted EBITDA dropped to $27 million (down $67.1 million year-over-year) and diluted loss per share was $1.47, driven by a CDK outage, higher floorplan costs, mounting Stellantis inventory and broader economic headwinds. AutoCanada has engaged Bain & Company to fast-track Project Elevate, halted all M&A and capital return programs, frozen discretionary spending and is reviewing non-core and underperforming assets to prioritize deleveraging and core dealership profitability. Canadian revenue declined 9% to $1.4 billion with adjusted EBITDA down 63.7% to $32.4 million, while U.S. revenue fell 7.9% to $191.2 million and delivered a $5.4 million EBITDA loss, reflecting a $12.7 million used-vehicle provision and continued operational headwinds in U.S. and RightRide segments. Management secured covenant relief by amending the net funded debt/EBITDA ratio to 4.5x through September 29, 2024, with $185 million drawn on a $375 million revolving credit facility and ongoing collaboration with lenders. Sam Cochran joined as CFO to steer the company through transformational change, as leadership commits to structural improvements, enhanced operational efficiency and transparent progress updates. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallAutoCanada Q2 202400:00 / 00:00Speed:1x1.25x1.5x2xThere are 8 speakers on the call. Operator00:00:00Thank you for joining AutoCanada's Conference Call to discuss Financial Results for the Q2 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 filings on SEDAR Plus for a discussion of these risks, the 2nd quarter news release, financial statements and MD and A. Operator00:00:36All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. 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 AutoCanada Inc. Operator00:01:09Please go ahead, Mr. Anthony. Speaker 100:01:11Thank you, and good evening, everyone. During the Q2, AutoCanada 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 floorplan 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 initiatives swiftly enough to adequately counter increasingly challenging market dynamics. Speaker 100:01:55Our 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 deleveraging and the profitability of our core dealership operations. With that said, during the Q2, we engaged Bain and Company to accelerate key Project Elevate initiatives. We're also immediately halting all M and 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. Speaker 100:02:52I 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 Q2. 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 Q2 financial results. Speaker 200:03:23Thank you, Paul, and good evening, everyone. During the Q2, we recorded total sales of 1,600,000,000 dollars down 8.8% year over year. Adjusted EBITDA of $27,000,000 down $67,100,000 from Q2 last year and a diluted loss per share of $1.47 There were a number of things that impacted our 2nd quarter adjusted EBITDA, including the CDK outage, a $4,700,000 management transition charge, dollars 4,500,000 in increased floor plan costs, a $6,800,000 loss in our U. S. Operations, a $1,300,000 loss from RightRide and a $12,700,000 net used inventory provision, which negatively impacted used GPU in both Canada and the U. Speaker 200:04:14S. Our diluted earnings per share also reflects these items as well as an $11,300,000 impairment of intangible assets and a $13,200,000 write off of deferred tax assets related to the U. S. Operations. Canadian operations 2nd quarter revenue fell 9% year over year to $1,400,000,000 with same store sales declining 10.5%. Speaker 200:04:39Canadian gross profit declined 19.9 percent to $223,800,000 with same store gross profit falling 20.6%. Adjusted EBITDA was $32,400,000 down 63.7% from Q2 2023. During the Q2, 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 and I GPUs and pressured our parts and service and collision operations. Further, growing floorplan 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 experienced during the Q2. Speaker 200:05:42U. S. 2nd quarter revenue fell 7.9% year over year $191,200,000 U. S. Gross profit declined 34.2 percent to $25,800,000 and adjusted EBITDA was a loss of 5,400,000 dollars compared to a positive $4,900,000 in the Q2 of 2023. Speaker 200:06:00This was driven by a decline in new, used and F and 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. Speaker 200:06:14Operating 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 2nd 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. Speaker 200:06:45As of June 30, 2024, we had $185,000,000 outstanding on our $375,000,000 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. Speaker 100:07:08Thank you, Sam. With the CDK outage that has now been resolved, the challenging economic and operating conditions that we experienced during the Q2 have not. Going forward, our sole objective will be to successfully execute initiatives that will structurally improve our core dealership profitability, reduce leverage and allow us to adapt to the evolving market landscape. We anticipate that these efforts may lead to some uncertainty as we realign our operations and resources. However, this restructuring is necessary to position us for best in class performance over the next decade. Speaker 100:07:51We appreciate the support of our shareholders, employees and OEM partners as we work through this transformative phase. A commitment to transparency will be a cornerstone of our approach and we will provide updates to our stakeholders on our progress and in any adjustments to our strategy in the coming quarters. That concludes our prepared remarks. At this time, I want to turn the call over to our operator to open up the lines for Q and A. Thank you. Operator00:08:22Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from the line of Luke Hannon from Canaccord Genuity. Your line is now open. Speaker 300:08:58Thanks and good afternoon everyone. Paul, maybe if you can just give us a 30,000 foot view on like what exactly has led to the business being in the shape that it's in today? And I realize there's a lot going on from a macro perspective, but we have also had several of the U. S. Peers come out and know, yes, there are some headwinds that they're seeing on the consumers on their consumer, but not quite as bad as it seems like what you have laid out earlier today. Speaker 300:09:29So maybe just, I don't know, another higher level view or maybe a little bit more detail on what exactly is going on here? Speaker 400:09:37I mean, I think we talked about it, but you probably haven't enough time, Luke, to digest, but just a high level bridge. There was roughly, I think, EBITDA pre IFRS was 11 point $3,000,000 or $11,200,000 There's roughly $20,000,000 in inventory write down and severance. There's roughly $5,000,000 year over year interest expense differential this year versus last. And I don't want to throw an exact dollar out, but I'm going to say, we don't know the exact impact of the CDK, but 15% to 20% of the EBITDA reduction could be attributed to that. And then we have some businesses that didn't perform this year versus last. Speaker 400:10:36And Right Ride is really off as opposed to last year and our U. S. Business is way off. And if you add all that up, you're approaching $60,000,000 of EBITDA as opposed to $80,000,000 last year, which is the best in the company's history. But in previous years, 2022 2021, you're around that 65 ish, 69 mark. Speaker 400:11:06And so we know what to do. CDK certainly didn't help. And it's up to us to go execute, but that's roughly the bridge. Is that helpful, Luke? Speaker 300:11:18Yes. No, that is helpful. And maybe just on RightRide for a second because I remember the thesis for that business, if I remember correctly, was that it should perform a little bit better even during more harsh economic backdrops. It should be a little bit countercyclical because you'll have sort of a top grading of the credit portfolio there, if you will. You have some maybe folks whose credit scores are on the precipice or the edge of moving into subprime, you should get more volumes or inflows into that business. Speaker 300:11:52So I mean what's driving the underperformance there? Speaker 400:11:56Yes. That's so a couple of things. Interest rates obviously going up makes creditworthy people harder and harder to find. And so we're having less people approved. Second thing that we did as a company and this is on me. Speaker 400:12:22We basically started opening up RiteRight stores when COVID hit and it was the right thing to do, right? We were selling a lot of cars and taking orders for vehicles and we started getting more into the prime, near prime space and lost focus in the subprime space. And frankly, subprime is a lot harder. It's a lot harder to do. It takes a different salesperson. Speaker 400:12:48It's a different sales process. And so for us, we focused on the lower hanging fruit, which is just selling vehicles because of the shortage. And so what we're doing right now is all of our non profitable and non core assets are under strategic reviews and we kind of draw on the line in the sand as an organization that if a store is not meeting our expectation, we need to find a more permanent solution. We're not going to continue to allocate management time and financial resources to things that aren't meeting our expectations. Speaker 300:13:23Got it. Okay, thanks. Last question for me. I mean, you did touch on the strategic alternatives or looking to maximize value with those non core assets. I mean, why not also expand that to just look for the best strategic alternative for the business as a whole rather than the non core assets alone? Speaker 400:13:46Right now, I think from our perspective, we've got a pretty significant plan to go and execute against. And I think it's up to us to actually go demonstrate. And during the demonstration phase, people will reward us by buying our stock. And if they don't reward us by buying our stock, somebody will likely figure out a way to buy the company if it's undervalued would be my expectation. Speaker 300:14:22Okay. I'll leave it there. Thanks. Operator00:14:31Your next question comes from the line of Chris Murray from ATB Capital Markets. Your line is now open. Speaker 500:14:38Yes. Thanks folks. Good afternoon. I guess maybe turning back a couple of pieces of the IT thing. So first of all, the CDK, just wondering is there any possibility of any sort of insurance coverage either on your behalf or theirs in any sort of that recovery? Speaker 500:14:57And then alongside that, you also put out a separate press release tonight about another cybersecurity incident. Wondering if we can get maybe a little more color about what that means and if that was tied to your earlier CDK incident. Speaker 400:15:13So I would say that at this point in time on insurance, we do we're working with our insurance partners to discuss what coverage we do have for cyber and business interruption. So that's what I would say on the insurance side and that's TBD. On the was our most current release, a result of CDK, I would say we don't have enough information to say at this point in time and so too soon to say. Speaker 500:15:53Okay. And I guess the other piece of that, I mean just to try to figure it out, like how impacted is this new cybersecurity incident? Are we going to be looking at something similar like your operations are impaired at this point or any color on that? Speaker 400:16:10So it seems like and I don't know how much I should say, but it seems like we were as a result of what happened with CDK, our BI team went ahead and started locking down things preemptively to protect the company. And my guess is as a result of locking things down preemptively, it triggered another event. And we think that it's fairly sectioned off and probably not as impactful to the organization. But again, too soon to tell. But at first appearance, it seems like it's quite contained. Speaker 500:17:04Okay. All right. I'll leave that one for now. Maybe turning back to think about the inventory breakdown. Sam, I'm not sure if you can just maybe repeat what the write down was. Speaker 500:17:17But the just looking at it, can you maybe talk a little bit about the breakdown of the write down? You did mention that Stellantis inventory is a little bit high. Was this in new vehicles? Was this in used vehicles, which we've seen previously? Any color on the rationale for the write down and what you're seeing so far in Q3 in terms of inventory turns? Speaker 400:17:43I mean, I'll take that and I can pass it over to Sam from there. But it was roughly $12,700,000 in inventory write down. It was on used inventory in both Canada and the United States. And we're continuing to monitor the inventory against market conditions to ensure that we're appropriately provided. Making sure that we get off this used inventory in this manner was a big contributor to the decline in our GPU and used cars reported during the quarter. Speaker 400:18:15I don't know if that's helpful for you. Speaker 500:18:19Yes. No. And basically, was it the kind of thing that the impacted inventory basically had to discount to sell? Is that the right way to think about it? Speaker 400:18:30It's a few things. Obviously, with CDK being down, I don't want to blame everything on CDK, but with CDK being down, there was just a ton of vehicles not sold. And so if they're not being sold, they're kind of depreciating. And we've got data to say that we need to sell inventory in the 1st 60 to 90 days. Otherwise, they actually become quite less profitable. Speaker 400:18:59I would say the lack of new light vehicle sales that occurred during the pandemic meant that there's fewer good quality used cars available today. And also Stellantis represents roughly 25 percent of our dealer network in Canada and the consumer demand for Stellantis has been soft. This management team has certainly moved our reliance on Stellantis away from being a large Stellantis consolidator and now we have all brands. But again, 25% of our network is pretty significant. And when it's when Stelantus is soft at 25%, it kind of impacts our used business because if we're not selling new cars, we're not getting trade ins. Speaker 400:19:51And therefore, it's more difficult for us to actually go and acquire good used inventory for good gross margins. But we're just going to watch the market dynamics as it relates to inventory and provisions. And also I would say, just as a side note, this is something we're hyper focused on with Bain, that we've been spending time doing right now, making sure that we're managing proper inventory level in order to make sure that our flooring expenses are part of the bigger plan. Speaker 500:20:26Okay. My last question maybe just on the strategic review process. It feels like the underlying business ex CDK in Canada was we'll call CDK a major contributor to what you were seeing here. Collision business seems to be going okay. You already called out right ride as maybe an area for opportunity. Speaker 500:20:47But I guess the other question is about the U. S. Business. And just thoughts around that. I know we've had this discussion for, I think, several quarters now about can you turn it around what you can do with it? Speaker 500:20:59But is this kind of your way of thinking that or expressing that maybe the U. S. Business is it should be sold or looked at with a different ownership's record? Speaker 400:21:11Listen, I think I said that, but all of the non profitable and non core operations are under strategic review. And we've really drawn kind of a line in the sand now that if a store is not meeting our expectations, it's important for us to find something that we can actually more permanently execute on because just throwing resources at markets and areas that we don't seem to be able to have the ability to turn in a more permanent fashion. And if they're not meeting our expectations, we need to actually act differently. Speaker 300:21:58Okay. I'll leave it there. Thank you. Speaker 400:22:00Thanks. Operator00:22:04Your next question comes from the line of David Ocampo from Cormark Securities. Your line is now open. Speaker 600:22:12Thanks. Good afternoon, everyone. David. Paul, I just want to stick with the strategic review. I mean, when we think about the non core underperforming assets, can you maybe speak to the appetite in the marketplace for these assets? Speaker 600:22:27Because I mean, if you're generating negative profitability, I mean, it'd probably be hard to fetch an appropriate valuation for those businesses. So just curious on your thoughts there. Speaker 400:22:40Look, I think, what I would tell you is that for this management team operating in Canada, even though they have a ton of experience in the United States, it's a different market, it's a different lift. And so spending time and energy to properly turn those stores, I don't think makes sense given the current conditions. With that said, a lot of the stores that we purchased, right, we were able to buy and kind of high grade and top like top grade. And I would with quite a bit of confidence believe that there's a lot of people that these are brands that are highly desirable. And I would think that there are buyers that could actually go and execute where we don't have the competency or the patients actually do in a market like this. Speaker 600:23:55Yes. That makes some sense. And then just going back to the write down, I mean, if I look at your inventory levels and just your commentary on the breakdown, it does seem like the write downs only 3% of your used vehicle inventory. Just curious if there's any risk of further write downs if the market continues to deteriorate here and just maybe some commentary on how you're changing your sourcing just given the preference for lower priced vehicles? Speaker 400:24:21There is risk. I think the risk is macro. But we have definitely been starting to source vehicles, cheaper vehicles. They're tougher to buy. But I think the risk is more on the macro level. Speaker 400:24:40And yes, I don't know what more I can add that I haven't already said. I think that we're being extremely cautious on all used vehicles given the buildup on the new cars. And recall that I mentioned we're working alongside Bain and one of the key initiatives with us is and working together is making sure that our inventory levels and flooring is top of mind and paramount to this organization. Speaker 600:25:23That's helpful there, Paul. Then maybe just a quick one for Sam. I know you guys received the relief from your lenders on some of your covenants. But when I take a look at your adjusted EBITDA numbers, it doesn't seem like it backs out any of those one time related costs, at least in this quarter. How are the lenders looking at the adjusted EBITDA numbers? Speaker 600:25:43Are they excluding all those numbers? Just so we have some better visibility on how to model out the leverage as we move throughout the Speaker 200:25:51year? Yes, good question. So there is a different bucket of add backs that the lenders look at than what you'll see there. For example, in the quarter, the significant one is we had $4,500,000 of severance related to some senior leaders. So that wasn't added back to the $11,200,000 but that will be added back to the bank EBITDA. Speaker 200:26:15So that's probably the significant call out for your modeling. Is that helpful? Speaker 600:26:21Yes, that's helpful. And we could take it offline later today too, if I have any Speaker 200:26:25Yes, absolutely. Yes, yes. And listen, we're going to have to work with them obviously going forward and appreciate their support. Speaker 600:26:34Okay. Thanks a lot, Sam. Thanks, Paul. Speaker 400:26:37Thanks, David. Operator00:26:41Your next question comes from the line of Christa Friesen from CIBC. Your line is now open. Speaker 700:26:48Hi, thanks for taking my question. So just on the comprehensive review of Bain, it sounds like you've been working with them for at least a month or 2 now. At this point in time, is there anything that's kind of started or any initiatives that have been started under their direction? Or is it still kind of just in a holding pattern right now to see how to move forward? And I'd also just assume at this point that Project Elevate, that's pretty much been put on Speaker 600:27:24hold indefinitely? Speaker 400:27:25Yes. So let me just unpack that. The Bain I would say the view from Bain is it validates the opportunity for improvement in our business and to bring our cost structure more in line with our peers. And so I would just go back to our cost the cost structure of our peers and kind of use that for Basecamp. I would tell you that most of the execution is going to happen over the next 12 months. Speaker 400:28:02It's not going to be easy, but we are going to do it. There are going to be one time costs associated with this stuff. We're not going to give guidance on it. But we do know the kind of work that we need to do will have some costs. And some of the immediate things that we're going to do is halt M and A, share buyback, limit discretionary spending and growth CapEx and look at all the strategic alternatives for things that don't have sufficient profitability. Speaker 400:28:37But I would say that this is all stuff that we've wanted to do for a long time. I don't know. I wouldn't say wanted to do. That the company needed to do for a long time, but you kind of look the other way sometimes when you're taking orders for cars versus selling them and it's a different world. And so now is the time. Speaker 700:29:12Great. And I guess, I mean, obviously, there's been a lot that's gone on this past quarter with the CDK hack and whatnot. Have you seen any sort of underlying improvement, maybe even just recently with the recent rate cuts? Like is there any sort of silver lining you can point to either in the quarter or thus far into Q3? Speaker 400:29:39Sorry. I'm sorry. Could you repeat that? Speaker 700:29:42Just any sort of silver lining that you can point to, maybe you're starting to see a little bit of improvement in traffic just given the rate cuts we've had here in Canada? Or is everything still pretty negative? Speaker 400:29:59I don't want to say it's negative, but I would just say, look, CDK came back online at the beginning of July, but we still didn't have it fully functional until toward the end of July. We're kind of 1.5 weeks into August. It's too soon to tell is what I would share with you. But I would say that it's just something we can't forecast right now. From my perspective, let's I think that we'll have more insight probably in the next month or so. Speaker 400:30:36But I think given everything that's been going on from 2 hacks and just and a poor quarter, I think right now we just need to focus on the business. Speaker 700:30:51Okay, thanks. I'll jump back in the queue. Operator00:30:58There are no further questions at this time. I would now turn the call back to Mr. Paul Anthony. Please continue. Speaker 400:31:05Really appreciate everybody's support here and we recognize our need to do better and are optimistic for the next quarter and hopeful that we'll be delivering far better results. So thanks everybody for your time and I'm sure many of you will speak to over the course of the quarter. Thanks. Operator00:31:29Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by Earnings DocumentsPress Release AutoCanada Earnings HeadlinesAutoCanada (TSE:ACQ) shareholders have earned a 13% CAGR over the last five yearsAugust 4, 2025 | finance.yahoo.comCanadian auto dealership chain on the hunt to buy competitors, dumps U.S. laggardsJuly 21, 2025 | financialpost.comFYour blueprint for crypto wealthMark August 12th on your calendar. 27 of crypto's most successful minds are about to reveal everything…August 11 at 2:00 AM | Crypto 101 Media (Ad)Small caps to watch: Algoma Steel, AutoCanada, Dye & Durham and moreJuly 18, 2025 | theglobeandmail.comAutoCanada to divest 13 U.S. dealershipsJuly 17, 2025 | msn.comAUTOCANADA ANNOUNCES AGREEMENTS TO DIVEST 13 U.S. DEALERSHIPSJuly 16, 2025 | finance.yahoo.comSee More AutoCanada Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like AutoCanada? Sign up for Earnings360's daily newsletter to receive timely earnings updates on AutoCanada and other key companies, straight to your email. Email Address About AutoCanadaAutoCanada (TSE:ACQ) Inc operates car dealerships in Canada. The company offers new and used vehicles, spare parts, maintenance services, and customer financing. AutoCanada retails brands such as Chrysler, Dodge, Jeep, Ram, Cadillac, Chevrolet, Buick, GMC, Audi, Volkswagen, BMW, Mini, Infiniti, Nissan, Hyundai, Kia, Fiat, Mitsubishi, and Subaru. The majority of revenue is generated in the new-vehicles sales segment.View AutoCanada ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Airbnb Beats Earnings, But the Growth Story Is Losing AltitudeDutch Bros Just Flipped the Script With a Massive Earnings BeatIs Eli Lilly’s 14% Post-Earnings Slide a Buy-the-Dip Opportunity?Constellation Energy’s Earnings Beat Signals a New EraRealty Income Rallies Post-Earnings Miss—Here’s What Drove ItDon't Mix the Signal for Noise in Super Micro Computer's EarningsWhy Monolithic Power's Earnings and Guidance Ignited a Rally Upcoming Earnings SEA (8/12/2025)Cisco Systems (8/13/2025)Alibaba Group (8/13/2025)Applied Materials (8/14/2025)NetEase (8/14/2025)Deere & Company (8/14/2025)NU (8/14/2025)Petroleo Brasileiro S.A.- Petrobras (8/14/2025)Palo Alto Networks (8/18/2025)Home Depot (8/19/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 8 speakers on the call. Operator00:00:00Thank you for joining AutoCanada's Conference Call to discuss Financial Results for the Q2 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 filings on SEDAR Plus for a discussion of these risks, the 2nd quarter news release, financial statements and MD and A. Operator00:00:36All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. 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 AutoCanada Inc. Operator00:01:09Please go ahead, Mr. Anthony. Speaker 100:01:11Thank you, and good evening, everyone. During the Q2, AutoCanada 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 floorplan 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 initiatives swiftly enough to adequately counter increasingly challenging market dynamics. Speaker 100:01:55Our 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 deleveraging and the profitability of our core dealership operations. With that said, during the Q2, we engaged Bain and Company to accelerate key Project Elevate initiatives. We're also immediately halting all M and 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. Speaker 100:02:52I 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 Q2. 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 Q2 financial results. Speaker 200:03:23Thank you, Paul, and good evening, everyone. During the Q2, we recorded total sales of 1,600,000,000 dollars down 8.8% year over year. Adjusted EBITDA of $27,000,000 down $67,100,000 from Q2 last year and a diluted loss per share of $1.47 There were a number of things that impacted our 2nd quarter adjusted EBITDA, including the CDK outage, a $4,700,000 management transition charge, dollars 4,500,000 in increased floor plan costs, a $6,800,000 loss in our U. S. Operations, a $1,300,000 loss from RightRide and a $12,700,000 net used inventory provision, which negatively impacted used GPU in both Canada and the U. Speaker 200:04:14S. Our diluted earnings per share also reflects these items as well as an $11,300,000 impairment of intangible assets and a $13,200,000 write off of deferred tax assets related to the U. S. Operations. Canadian operations 2nd quarter revenue fell 9% year over year to $1,400,000,000 with same store sales declining 10.5%. Speaker 200:04:39Canadian gross profit declined 19.9 percent to $223,800,000 with same store gross profit falling 20.6%. Adjusted EBITDA was $32,400,000 down 63.7% from Q2 2023. During the Q2, 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 and I GPUs and pressured our parts and service and collision operations. Further, growing floorplan 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 experienced during the Q2. Speaker 200:05:42U. S. 2nd quarter revenue fell 7.9% year over year $191,200,000 U. S. Gross profit declined 34.2 percent to $25,800,000 and adjusted EBITDA was a loss of 5,400,000 dollars compared to a positive $4,900,000 in the Q2 of 2023. Speaker 200:06:00This was driven by a decline in new, used and F and 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. Speaker 200:06:14Operating 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 2nd 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. Speaker 200:06:45As of June 30, 2024, we had $185,000,000 outstanding on our $375,000,000 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. Speaker 100:07:08Thank you, Sam. With the CDK outage that has now been resolved, the challenging economic and operating conditions that we experienced during the Q2 have not. Going forward, our sole objective will be to successfully execute initiatives that will structurally improve our core dealership profitability, reduce leverage and allow us to adapt to the evolving market landscape. We anticipate that these efforts may lead to some uncertainty as we realign our operations and resources. However, this restructuring is necessary to position us for best in class performance over the next decade. Speaker 100:07:51We appreciate the support of our shareholders, employees and OEM partners as we work through this transformative phase. A commitment to transparency will be a cornerstone of our approach and we will provide updates to our stakeholders on our progress and in any adjustments to our strategy in the coming quarters. That concludes our prepared remarks. At this time, I want to turn the call over to our operator to open up the lines for Q and A. Thank you. Operator00:08:22Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from the line of Luke Hannon from Canaccord Genuity. Your line is now open. Speaker 300:08:58Thanks and good afternoon everyone. Paul, maybe if you can just give us a 30,000 foot view on like what exactly has led to the business being in the shape that it's in today? And I realize there's a lot going on from a macro perspective, but we have also had several of the U. S. Peers come out and know, yes, there are some headwinds that they're seeing on the consumers on their consumer, but not quite as bad as it seems like what you have laid out earlier today. Speaker 300:09:29So maybe just, I don't know, another higher level view or maybe a little bit more detail on what exactly is going on here? Speaker 400:09:37I mean, I think we talked about it, but you probably haven't enough time, Luke, to digest, but just a high level bridge. There was roughly, I think, EBITDA pre IFRS was 11 point $3,000,000 or $11,200,000 There's roughly $20,000,000 in inventory write down and severance. There's roughly $5,000,000 year over year interest expense differential this year versus last. And I don't want to throw an exact dollar out, but I'm going to say, we don't know the exact impact of the CDK, but 15% to 20% of the EBITDA reduction could be attributed to that. And then we have some businesses that didn't perform this year versus last. Speaker 400:10:36And Right Ride is really off as opposed to last year and our U. S. Business is way off. And if you add all that up, you're approaching $60,000,000 of EBITDA as opposed to $80,000,000 last year, which is the best in the company's history. But in previous years, 2022 2021, you're around that 65 ish, 69 mark. Speaker 400:11:06And so we know what to do. CDK certainly didn't help. And it's up to us to go execute, but that's roughly the bridge. Is that helpful, Luke? Speaker 300:11:18Yes. No, that is helpful. And maybe just on RightRide for a second because I remember the thesis for that business, if I remember correctly, was that it should perform a little bit better even during more harsh economic backdrops. It should be a little bit countercyclical because you'll have sort of a top grading of the credit portfolio there, if you will. You have some maybe folks whose credit scores are on the precipice or the edge of moving into subprime, you should get more volumes or inflows into that business. Speaker 300:11:52So I mean what's driving the underperformance there? Speaker 400:11:56Yes. That's so a couple of things. Interest rates obviously going up makes creditworthy people harder and harder to find. And so we're having less people approved. Second thing that we did as a company and this is on me. Speaker 400:12:22We basically started opening up RiteRight stores when COVID hit and it was the right thing to do, right? We were selling a lot of cars and taking orders for vehicles and we started getting more into the prime, near prime space and lost focus in the subprime space. And frankly, subprime is a lot harder. It's a lot harder to do. It takes a different salesperson. Speaker 400:12:48It's a different sales process. And so for us, we focused on the lower hanging fruit, which is just selling vehicles because of the shortage. And so what we're doing right now is all of our non profitable and non core assets are under strategic reviews and we kind of draw on the line in the sand as an organization that if a store is not meeting our expectation, we need to find a more permanent solution. We're not going to continue to allocate management time and financial resources to things that aren't meeting our expectations. Speaker 300:13:23Got it. Okay, thanks. Last question for me. I mean, you did touch on the strategic alternatives or looking to maximize value with those non core assets. I mean, why not also expand that to just look for the best strategic alternative for the business as a whole rather than the non core assets alone? Speaker 400:13:46Right now, I think from our perspective, we've got a pretty significant plan to go and execute against. And I think it's up to us to actually go demonstrate. And during the demonstration phase, people will reward us by buying our stock. And if they don't reward us by buying our stock, somebody will likely figure out a way to buy the company if it's undervalued would be my expectation. Speaker 300:14:22Okay. I'll leave it there. Thanks. Operator00:14:31Your next question comes from the line of Chris Murray from ATB Capital Markets. Your line is now open. Speaker 500:14:38Yes. Thanks folks. Good afternoon. I guess maybe turning back a couple of pieces of the IT thing. So first of all, the CDK, just wondering is there any possibility of any sort of insurance coverage either on your behalf or theirs in any sort of that recovery? Speaker 500:14:57And then alongside that, you also put out a separate press release tonight about another cybersecurity incident. Wondering if we can get maybe a little more color about what that means and if that was tied to your earlier CDK incident. Speaker 400:15:13So I would say that at this point in time on insurance, we do we're working with our insurance partners to discuss what coverage we do have for cyber and business interruption. So that's what I would say on the insurance side and that's TBD. On the was our most current release, a result of CDK, I would say we don't have enough information to say at this point in time and so too soon to say. Speaker 500:15:53Okay. And I guess the other piece of that, I mean just to try to figure it out, like how impacted is this new cybersecurity incident? Are we going to be looking at something similar like your operations are impaired at this point or any color on that? Speaker 400:16:10So it seems like and I don't know how much I should say, but it seems like we were as a result of what happened with CDK, our BI team went ahead and started locking down things preemptively to protect the company. And my guess is as a result of locking things down preemptively, it triggered another event. And we think that it's fairly sectioned off and probably not as impactful to the organization. But again, too soon to tell. But at first appearance, it seems like it's quite contained. Speaker 500:17:04Okay. All right. I'll leave that one for now. Maybe turning back to think about the inventory breakdown. Sam, I'm not sure if you can just maybe repeat what the write down was. Speaker 500:17:17But the just looking at it, can you maybe talk a little bit about the breakdown of the write down? You did mention that Stellantis inventory is a little bit high. Was this in new vehicles? Was this in used vehicles, which we've seen previously? Any color on the rationale for the write down and what you're seeing so far in Q3 in terms of inventory turns? Speaker 400:17:43I mean, I'll take that and I can pass it over to Sam from there. But it was roughly $12,700,000 in inventory write down. It was on used inventory in both Canada and the United States. And we're continuing to monitor the inventory against market conditions to ensure that we're appropriately provided. Making sure that we get off this used inventory in this manner was a big contributor to the decline in our GPU and used cars reported during the quarter. Speaker 400:18:15I don't know if that's helpful for you. Speaker 500:18:19Yes. No. And basically, was it the kind of thing that the impacted inventory basically had to discount to sell? Is that the right way to think about it? Speaker 400:18:30It's a few things. Obviously, with CDK being down, I don't want to blame everything on CDK, but with CDK being down, there was just a ton of vehicles not sold. And so if they're not being sold, they're kind of depreciating. And we've got data to say that we need to sell inventory in the 1st 60 to 90 days. Otherwise, they actually become quite less profitable. Speaker 400:18:59I would say the lack of new light vehicle sales that occurred during the pandemic meant that there's fewer good quality used cars available today. And also Stellantis represents roughly 25 percent of our dealer network in Canada and the consumer demand for Stellantis has been soft. This management team has certainly moved our reliance on Stellantis away from being a large Stellantis consolidator and now we have all brands. But again, 25% of our network is pretty significant. And when it's when Stelantus is soft at 25%, it kind of impacts our used business because if we're not selling new cars, we're not getting trade ins. Speaker 400:19:51And therefore, it's more difficult for us to actually go and acquire good used inventory for good gross margins. But we're just going to watch the market dynamics as it relates to inventory and provisions. And also I would say, just as a side note, this is something we're hyper focused on with Bain, that we've been spending time doing right now, making sure that we're managing proper inventory level in order to make sure that our flooring expenses are part of the bigger plan. Speaker 500:20:26Okay. My last question maybe just on the strategic review process. It feels like the underlying business ex CDK in Canada was we'll call CDK a major contributor to what you were seeing here. Collision business seems to be going okay. You already called out right ride as maybe an area for opportunity. Speaker 500:20:47But I guess the other question is about the U. S. Business. And just thoughts around that. I know we've had this discussion for, I think, several quarters now about can you turn it around what you can do with it? Speaker 500:20:59But is this kind of your way of thinking that or expressing that maybe the U. S. Business is it should be sold or looked at with a different ownership's record? Speaker 400:21:11Listen, I think I said that, but all of the non profitable and non core operations are under strategic review. And we've really drawn kind of a line in the sand now that if a store is not meeting our expectations, it's important for us to find something that we can actually more permanently execute on because just throwing resources at markets and areas that we don't seem to be able to have the ability to turn in a more permanent fashion. And if they're not meeting our expectations, we need to actually act differently. Speaker 300:21:58Okay. I'll leave it there. Thank you. Speaker 400:22:00Thanks. Operator00:22:04Your next question comes from the line of David Ocampo from Cormark Securities. Your line is now open. Speaker 600:22:12Thanks. Good afternoon, everyone. David. Paul, I just want to stick with the strategic review. I mean, when we think about the non core underperforming assets, can you maybe speak to the appetite in the marketplace for these assets? Speaker 600:22:27Because I mean, if you're generating negative profitability, I mean, it'd probably be hard to fetch an appropriate valuation for those businesses. So just curious on your thoughts there. Speaker 400:22:40Look, I think, what I would tell you is that for this management team operating in Canada, even though they have a ton of experience in the United States, it's a different market, it's a different lift. And so spending time and energy to properly turn those stores, I don't think makes sense given the current conditions. With that said, a lot of the stores that we purchased, right, we were able to buy and kind of high grade and top like top grade. And I would with quite a bit of confidence believe that there's a lot of people that these are brands that are highly desirable. And I would think that there are buyers that could actually go and execute where we don't have the competency or the patients actually do in a market like this. Speaker 600:23:55Yes. That makes some sense. And then just going back to the write down, I mean, if I look at your inventory levels and just your commentary on the breakdown, it does seem like the write downs only 3% of your used vehicle inventory. Just curious if there's any risk of further write downs if the market continues to deteriorate here and just maybe some commentary on how you're changing your sourcing just given the preference for lower priced vehicles? Speaker 400:24:21There is risk. I think the risk is macro. But we have definitely been starting to source vehicles, cheaper vehicles. They're tougher to buy. But I think the risk is more on the macro level. Speaker 400:24:40And yes, I don't know what more I can add that I haven't already said. I think that we're being extremely cautious on all used vehicles given the buildup on the new cars. And recall that I mentioned we're working alongside Bain and one of the key initiatives with us is and working together is making sure that our inventory levels and flooring is top of mind and paramount to this organization. Speaker 600:25:23That's helpful there, Paul. Then maybe just a quick one for Sam. I know you guys received the relief from your lenders on some of your covenants. But when I take a look at your adjusted EBITDA numbers, it doesn't seem like it backs out any of those one time related costs, at least in this quarter. How are the lenders looking at the adjusted EBITDA numbers? Speaker 600:25:43Are they excluding all those numbers? Just so we have some better visibility on how to model out the leverage as we move throughout the Speaker 200:25:51year? Yes, good question. So there is a different bucket of add backs that the lenders look at than what you'll see there. For example, in the quarter, the significant one is we had $4,500,000 of severance related to some senior leaders. So that wasn't added back to the $11,200,000 but that will be added back to the bank EBITDA. Speaker 200:26:15So that's probably the significant call out for your modeling. Is that helpful? Speaker 600:26:21Yes, that's helpful. And we could take it offline later today too, if I have any Speaker 200:26:25Yes, absolutely. Yes, yes. And listen, we're going to have to work with them obviously going forward and appreciate their support. Speaker 600:26:34Okay. Thanks a lot, Sam. Thanks, Paul. Speaker 400:26:37Thanks, David. Operator00:26:41Your next question comes from the line of Christa Friesen from CIBC. Your line is now open. Speaker 700:26:48Hi, thanks for taking my question. So just on the comprehensive review of Bain, it sounds like you've been working with them for at least a month or 2 now. At this point in time, is there anything that's kind of started or any initiatives that have been started under their direction? Or is it still kind of just in a holding pattern right now to see how to move forward? And I'd also just assume at this point that Project Elevate, that's pretty much been put on Speaker 600:27:24hold indefinitely? Speaker 400:27:25Yes. So let me just unpack that. The Bain I would say the view from Bain is it validates the opportunity for improvement in our business and to bring our cost structure more in line with our peers. And so I would just go back to our cost the cost structure of our peers and kind of use that for Basecamp. I would tell you that most of the execution is going to happen over the next 12 months. Speaker 400:28:02It's not going to be easy, but we are going to do it. There are going to be one time costs associated with this stuff. We're not going to give guidance on it. But we do know the kind of work that we need to do will have some costs. And some of the immediate things that we're going to do is halt M and A, share buyback, limit discretionary spending and growth CapEx and look at all the strategic alternatives for things that don't have sufficient profitability. Speaker 400:28:37But I would say that this is all stuff that we've wanted to do for a long time. I don't know. I wouldn't say wanted to do. That the company needed to do for a long time, but you kind of look the other way sometimes when you're taking orders for cars versus selling them and it's a different world. And so now is the time. Speaker 700:29:12Great. And I guess, I mean, obviously, there's been a lot that's gone on this past quarter with the CDK hack and whatnot. Have you seen any sort of underlying improvement, maybe even just recently with the recent rate cuts? Like is there any sort of silver lining you can point to either in the quarter or thus far into Q3? Speaker 400:29:39Sorry. I'm sorry. Could you repeat that? Speaker 700:29:42Just any sort of silver lining that you can point to, maybe you're starting to see a little bit of improvement in traffic just given the rate cuts we've had here in Canada? Or is everything still pretty negative? Speaker 400:29:59I don't want to say it's negative, but I would just say, look, CDK came back online at the beginning of July, but we still didn't have it fully functional until toward the end of July. We're kind of 1.5 weeks into August. It's too soon to tell is what I would share with you. But I would say that it's just something we can't forecast right now. From my perspective, let's I think that we'll have more insight probably in the next month or so. Speaker 400:30:36But I think given everything that's been going on from 2 hacks and just and a poor quarter, I think right now we just need to focus on the business. Speaker 700:30:51Okay, thanks. I'll jump back in the queue. Operator00:30:58There are no further questions at this time. I would now turn the call back to Mr. Paul Anthony. Please continue. Speaker 400:31:05Really appreciate everybody's support here and we recognize our need to do better and are optimistic for the next quarter and hopeful that we'll be delivering far better results. So thanks everybody for your time and I'm sure many of you will speak to over the course of the quarter. Thanks. Operator00:31:29Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by