ACQ AutoCanada Inc

• Revenue was $1,657.4 million as compared to $1,623.9 million in the prior year, an increase of 2.1%
• Net income for the period was $22.8 million versus $32.9 million in the prior year, a decrease of (30.6)%
• Diluted earnings per share was $0.81, a decrease of $(0.35) from $1.16 in the prior year
• Adjusted EBITDA¹ was $66.7 million versus $76.4 million in the prior year, a decrease of $(9.7) million

EDMONTON, AB, Nov. 9, 2023 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX: ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three month period ended September 30, 2023.

"During the quarter our Canadian same store operations achieved solid growth in new light vehicle units, as well as Parts, Service and Collision Repair sales, and benefited from strong unit sales growth at recently acquired stores due to the implementation of best practices. However, the elevated rate environment resulted in higher floorplan interest expense, impacting Canadian adjusted EBITDA. Our US operations experienced mid-single digit growth in new units sold, which combined with normalization of new retail GPU, higher operating costs, and floorplan interest expense, made for a difficult quarter for our US business." said Paul Antony, Executive Chairman of AutoCanada.

"In this more challenging interest rate environment, AutoCanada remains focused on operational excellence. To this end, over the course of the summer the management team developed Project Elevate, which is a new 5-year strategic plan that aims to substantially close the gap to normalized peer profitability. The recent promotions of Jeff Thorpe to President, North America, Brian Feldman to Chief Operating Officer, and the additions of Drew Forrett as Chief Administrative & Transformation Officer and Michael Ferra as VP, Financial Planning & Analysis, adds to our bench strength to execute on Project Elevate's objectives."

Project Elevate is featured in our new investor presentation, which can be found at https://investors.autocan.ca.

Third Quarter Key Highlights and Recent Developments

Consolidated revenue increased as a result of higher new vehicle revenues arising from increased new vehicle sales volumes and higher average selling price per new vehicle². The growth in new vehicle revenues reflects the continued recovery in new vehicle inventory levels with new vehicle inventory days of supply² increasing by 14 days to 72 days. Increases in parts, service and collision repair ("PS&CR") revenues coupled with contributions from recent acquisitions also resulted in higher revenues. This was offset by declines in used vehicle revenues reflecting lower used vehicle sales volumes and lower average selling price per used vehicle² reflecting consumer demand and payment sensitivity in the current high interest rate environment.

Consolidated gross profit and gross profit percentage² increased as a result of contributions from new vehicles, PS&CR operations and recent acquisitions.

Both operating expenses before depreciation² and normalized operating expenses before depreciation¹, which excludes stock based compensation and transaction costs, increased primarily due to recent acquisitions and higher expenses in the U.S. Operations. Overall, normalized operating expenses before depreciation as a percentage of gross profit¹ declined in Canada but was offset by an increase in the U.S. reflecting higher insurance premiums, advertising expenses and property taxes.

Floorplan financing expenses increased significantly as a result of higher interest rates and higher new inventory levels, partially offset by interest rate swaps in place and lower used vehicle inventory levels, with used vehicle inventory days of supply² decreasing by (10) days to 67 days.

Net income for the period was $22.8 million as compared to $32.9 million in Q3 2022, as a result of contributions from recent acquisitions and PS&CR operations, offset by higher floorplan financing expenses. Diluted earnings per share was $0.81, a decrease of $(0.35) from $1.16 in the prior year.

Adjusted EBITDA¹ for the period was $66.7 million as compared to $76.4 million in Q3 2022. Adjusted EBITDA margin¹ was 4.0% compared to 4.7% in the prior year, a decrease of (0.7) ppts. This decrease was a result of lower contributions primarily from the U.S. Operations coupled with an increase in floorplan financing expenses.

Canadian Operations Highlights

Revenue increased as a result of contributions from new vehicles sales reflecting higher new retail² sales volumes and higher average selling price per new vehicle², as well as growth in PS&CR revenues and contributions from new acquisitions. This was offset by declines in used vehicle revenues reflecting lower used vehicle sales volumes and average selling price per used vehicle². The increase in new vehicle inventories contributed to higher new retail vehicle² sales volumes while change in sales mix contributed to a lower new vehicle gross profit percentage². PS&CR gross profit increased as a result of strong customer demand as the age of vehicles continued to increase due to the limited availability of new vehicles over the past few years. F&I gross profit per retail unit average² decreased as well reflecting a growing proportion of retail vehicle sales being purchased with cash resulting in fewer opportunities to sell warranties and insurance.

Adjusted EBITDA¹ was down due to lower gross profit from used vehicle sales and F&I coupled with higher floorplan financing expenses offset by contributions from recent acquisitions.

U.S. Operations Highlights

Revenue and gross profit declined due to lower used vehicle sales volumes and lower average selling price per new vehicle² offset by higher new retail unit sales and strong PS&CR performance. The recovery of new vehicle inventory contributed to rising new vehicles sales volumes. However, the current selling environment has changed and average selling prices have declined compared to the prior year when customers were frequently paying above manufacturers suggested retail price ("MSRP"). For used vehicles, management has prioritized gross profit over sales volumes with decreased availability of quality retail used vehicle inventory. PS&CR gross profit increased due to strong customer demand for vehicle maintenance as the average age of vehicles increase. F&I gross profit per retail unit average² decreased reflecting a growing proportion of retail vehicle sales being purchased with cash, which resulted in fewer warranty and insurance product sales.

Adjusted EBITDA¹ declined due to lower used and new vehicle gross profits coupled with higher operating expenses and floorplan financing expenses, offset by contributions from PS&CR operations.

Other Recent Developments

During the quarter:

• On September 8, 2023, the Company and CanadaOne Auto agreed to resolve their legal proceedings that were commenced in 2019. As part of this resolution, AutoCanada has agreed to sell to CanadaOne Auto properties on which two of CanadaOne Auto's dealerships are located, and CanadaOne Auto has agreed to amend the leases for two AutoCanada dealerships located on properties owned by CanadaOne Auto. The transaction is expected to close during the fourth quarter of 2023.
• On September 19, 2023, the Company entered into a $25.0 million forward interest rate swap with a deferred start date of December 1, 2023 and fixed one-month Canadian Collar Offered Rate ("CDOR") of 4.53%. The swap has an initial settlement date of December 1, 2026 and may be extended by the counterparty to December 1, 2028. This swap will replace an existing $25 million interest rate swap with a fixed one-month CDOR of 2.18% that matures on December 1, 2023.

Outlook

Canadian new light vehicle inventory days supply² increased by 13 days to 75 days during the third quarter, with the trend of replenishing inventory continuing so far during November. Greater consumer choice due to improved inventory levels, as well as consumer preference for lower price point vehicles and cash deals, resulting from higher interest rates, are expected to persist in the near term, and may impact gross profit per new, used and F&I retail units sold. That said, our diversified business model allows us to quickly adapt to changing market conditions, and our operational team is actively managing the shift in market dynamics. While higher interest rates are expected to continue to impact customer affordability, some of the direct impacts may be partially offset by inventory management practices, vehicle financing products which provide flexibility in financing terms, inclusive of incentives and term extensions. Additionally, limited new light vehicle supply during 2020-2022 has resulted in fewer new vehicles being converted to used vehicles in the market, which has increased the average age of vehicles on the road. This is expected to continue to benefit our Parts, Service and Collision Repair business in the coming months.

Conference Call

A conference call to discuss the results for the three months ended September 30, 2023 will be held on November 9, 2023 at 9:00am Mountain (11:00am Eastern). To participate in the conference call, please dial 1-888-664-6392 approximately 10 minutes prior to the call.

This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://investors.autocan.ca/event/2023-q3-conference-call/

MD&A and Financial Statements

Information included in this press release is a summary of results. It should be read in conjunction with AutoCanada's Interim Consolidated Financial Statements and Management's Discussion and Analysis for the three-month periods and nine-month periods ended September 30, 2023, which can be found on the Company's website at www.autocan.ca or on www.sedarplus.ca.

All comparisons presented in this press release are between the three-month period ended September 30, 2023 and the three-month period ended September 30, 2022, unless otherwise indicated. Results are reported in Canadian dollars and have been rounded to the nearest thousand dollars, unless otherwise stated.

Condensed Interim Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands of Canadian dollars except for share and per share amounts)

Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of Canadian dollars)

Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of Canadian dollars)

NON-GAAP AND OTHER FINANCIAL MEASURES

This press release contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing, financing activities, cash, and indebtedness determined in accordance with Canadian GAAP, as indicators of our performance. We provide these additional non-GAAP measures ("Non-GAAP Measures"), capital management measures, and supplementary financial measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used.

Adjusted EBITDA, adjusted EBITDA margin, normalized operating expenses before depreciation, and normalized operating expenses before depreciation as a percentage of gross profit are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that these Non-GAAP Measures should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Company's methods of calculating referenced Non-GAAP Measures may differ from the methods used by other issuers. Therefore, these measures may not be comparable to similar measures presented by other issuers.

We list and define these "NON-GAAP MEASURES" below:

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is an indicator of a company's operating performance over a period of time and ability to incur and service debt. Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to:

• Interest expense (other than interest expense on floorplan financing), income taxes, depreciation, and amortization;
• Charges that introduce volatility unrelated to operating performance by virtue of the impact of external factors (such as share-based compensation);
• Non-cash charges (such as impairment, recoveries, gains or losses on derivatives, revaluation of contingent consideration and revaluation of redemption liabilities);
• Charges outside the normal course of business (such as restructuring, gains and losses on dealership divestitures and real estate transactions); and
• Charges that are non-recurring in nature (such as provisions for settlement income).

The Company believes adjusted EBITDA provides improved continuity with respect to the comparison of our operating performance over a period of time.

Adjusted EBITDA Margin

Adjusted EBITDA margin is an indicator of a company's operating performance specifically in relation to our revenue performance.

The Company believes adjusted EBITDA margin, provides improved continuity with respect to the comparison of our operating performance with retaining and growing profitability as our revenue and scale increases over a period of time.

Normalized Operating Expenses Before Depreciation

Normalized operating expenses before depreciation is an indicator of a company's operating expense before depreciation over a period of time, normalized for the following items:

• Transaction costs related to acquisitions, dispositions, and open points; and
• Share-based compensation expense.

The Company believes normalized operating expenses before depreciation provides a comparison of our operating expense normalized for impacts that are not indicative of the Company's operating expenses over time. Note the current definition of normalized operating expenses before depreciation differs from previous definitions.

Normalized Operating Expenses Before Depreciation as a Percentage of Gross Profit

Normalized operating expenses before depreciation as a percentage of gross profit is a measure of a company's normalized operating expenses before depreciation over a period of time in relation to gross profit.

The Company believes this measure provides a comparison of our operating performance normalized for impacts that are not indicative of the Company's operating expenses over time.

NON-GAAP AND OTHER FINANCIAL MEASURES RECONCILIATIONS

Adjusted EBITDA and Segmented Adjusted EBITDA

The following table illustrates the adjusted EBITDA and segmented adjusted EBITDA for the three-month period ended September 30, over the last two years of operations:

Adjusted EBITDA Margin

The following tables illustrates adjusted EBITDA margin for the three-month period ended September 30, over the last two years of operations:

Normalized Operating Expenses Before Depreciation and Normalized Operating Expenses Before Depreciation as a Percentage of Gross Profit

The following table illustrates segmented normalized operating expenses before depreciation and normalized operating expenses before depreciation as a percentage of gross profit, for the three-month periods ended September 30, over the last two years of operations:

Forward Looking Statements

Certain statements contained in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause actual results to differ materially from those projected in these forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe", "shall" and similar expressions) are not historical facts and are forward-looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict.

Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Therefore, any such forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this press release.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at www.sedarplus.ca) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

About AutoCanada

AutoCanada is a leading North American multi-location automobile dealership group currently operating 83 franchised dealerships, comprised of 28 brands, in eight provinces in Canada as well as a group in Illinois, USA. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Ford, Infiniti, Nissan, Hyundai, Subaru, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, BMW, MINI, Volvo, Toyota, Lincoln, Acura, Honda and Porsche branded vehicles. In addition, AutoCanada's Canadian Operations segment currently operates 3 used vehicle dealerships and 1 used vehicle auction business supporting the Used Digital Retail Division, 12 RightRide division locations, and 11 stand-alone collision centres within our group of 27 collision centres. In 2022, our dealerships sold approximately 100,000 vehicles and processed over 900,000 service and collision repair orders in our 1,367 service bays generating revenue in excess of $6 billion.

Additional Information

Additional information about AutoCanada is available at the Company's website at www.autocan.ca and www.sedarplus.ca.

SOURCE AutoCanada Inc.