AutoCanada Inc. (ACQ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you, and welcome to the Annual Meeting of Stockholders of AutoCanada. Please note that today's meeting is being recorded. [Operator Instructions] Please note that your registered name will be announced along with your question during the Q&A following the formal portion of the meeting. [Operator Instructions] It is now my pleasure to turn your meeting over. Paul Antony, the floor is yours.

Thank you so much. Good afternoon, and welcome to the Annual Meeting of Shareholders of AutoCanada, I guess our first virtual. My name is Paul Antony. I'm the Chairman of the company, and I will be chairing the meeting of shareholders today. Meeting is being held virtually via live webcast, and we have established the following rules to have an orderly meeting. [Operator Instructions]. When asking a question, please indicate your name, which entity you represent, if any, and confirm that you're a registered shareholder or a duly appointed proxy holder. Questions will generally appear shorter after they are submitted. But only be addressed during the question period at the end of the meeting, provided the questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. For the purposes of meeting today, voting on all matters will be conducted by an electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all business items. When you're asked to vote, you'll receive a message on the virtual interface, requesting you to register your votes. You only have a certain amount of time to do so. The polls are open. We'll now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I'll move and second all motions. I now ask the Annual Meeting of the Shareholders of the company come to order. I appoint Peter Hong, Chief Strategy Officer and General Counsel of the company, as Secretary of the meeting. For the purpose of this meeting, I appoint Computershare Trust Company of Canada through its representatives as Scrutineers to compute the vote of any polls taken at this meeting and report thereon to me. The purposes of today's meeting are set out in the management information circular of the company dated May 19, 2020. The notice calling this meeting, the management information circular and the form of the proxy were mailed to shareholders on May 26, 2020. Unless there is any objection, I'll dispense with the reading of the notice of meeting. Copies of the management information circular and other meeting materials are available under the company's profile on the SEDAR website. Our transfer agent, Computershare Trust Company of Canada has attested to the proper mailing of the notice calling this meeting. There has been filed with me proof of service of such mailing provided by Computershare. I direct that a company (sic) [ copy ] of such proof of service be attached to the minutes of this meeting as a schedule. I have been advised there are more than 2 persons representing more than 5% of the outstanding voting shares of the company present. And therefore, a quorum of shareholders of the company is present, and the meeting is properly called and duly constituted for the transaction of business. I've received the Scrutineer's report, and I direct that their formal report be attached in the minutes of this meeting as a schedule. As the first item of business on the agenda for today's meeting, I present to the meeting, the audited consolidated financial statements of the company for the fiscal period December 31, 2019, together with the auditor's report to the shareholder thereon. Copies of such documents are available on our website and on SEDAR, and it is not proposed to read them to the meeting. The next item of the business is the election of the Directors. The 7 Directors to be elected by the shareholders of the company will hold office until the close of business of the first Annual Meeting of Shareholders of the company following election or until their successors are elected or appointed. Dennis DesRosiers, Stephen Green, Barry James, Maryann Keller, Elias Olmeta, Michael Rawluk and I, Paul Antony, have been nominated as Directors for the ensuing year or until their successors are elected or appointed. Each of the persons nominated has confirmed that he or she is prepared to serve as a Director. I move and second a motion to elect the Directors. Voting will be conducted by ballot after I present the next item of business. The next item of business is the appointment of auditors of the company for the ensuing year and to authorize the Directors of the company to fix the remuneration of the auditor. The Audit Committee of the Board of Directors has approved subject to the shareholder confirmation the appointment of PricewaterhouseCoopers LLC as the auditors of the company. I move and second that PricewaterhouseCoopers LLC be appointed the auditors of the company until the next Annual Meeting of Shareholders and the Board of Directors be authorized to fix their remuneration. Voting today will be conducted by electronic ballot, and I ask the Computershare now open the balloting to register holders and appointed proxy holders. The polls are open. And at this point, all registered holders and duly appointed proxy holders who have properly logged in with their control numbers or user name and wish to vote will be able to see on the screen, all motions being brought forth at this meeting. Please register your votes by accessing the voting page and selecting the For or Withhold button next to the name of each proposed Director and the For or Against button next to the resolution with respect to the appointment of PricewaterhouseCoopers as the company's auditors. We'll provide registered shareholders and duly appointed proxy holders approximately 1 minute to complete the electronic ballot. [Voting]

Electronic balloting is now closed. I would ask the Scrutineer compile the report regarding the results of voting matters on all matters. I've been advised by the Scrutineers that the ballots and proxies deposited for the meeting have been voted in favor of the resolutions. Each of the 7 nominees have been elected as Directors of the company to serve until the next Annual Meeting of Shareholders, until their successors are elected or appointed. The appointment of PwC LLC as the auditor of the company has been approved, and the Board of Directors of the company has been authorized to fix the remuneration. I direct that the results of the poll be included with the minutes of this meeting. And the results of the voting will be announced in a press release in accordance with the policy of the TSX and filed on SEDAR. The formal items of business set out in the notice of minutes (sic) [ meeting ] have now been dealt with. I move and second this meeting now terminate. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. And I'll now turn the meeting over to Mike Borys, the Chief Financial Officer of the company for a presentation, and then there'll be a question-and-answer period. Mike?

Thank you, Paul. Good afternoon, everyone. Before we begin, I direct you to this disclaimer about our forward-looking information. This is on Slide 2. Today's presentation will discuss forward-looking information, amongst other matters, that should be considered in connection with this slide. Speaking to Slide 3. We made impressive gains in 2019, significantly advancing our go-forward plan in Canada and in the U.S., driving strong year-over-year increases in adjusted EBITDA, more notably in the last 3 quarters of the year. 2019, overall, was marked by a number of key wins and accomplishments. I'll preface all of that by restating our top 3 priorities for 2019, a year that we knew would be a working transition into 2020. Number one, in Canada, we wanted to prove out our go-forward plan to provide a more complete, stable and growth-oriented business model for any economic environment. Our results indicate that we've done just that. Our Canadian operations have done an excellent job in driving both new and used retail vehicles sold. We have established and are working to optimize our key initiatives in the areas of F&I Project 50, which speaks to our focus on used cars, special finance, collision centers, business development center, or BDC, and export/wholesale. From Q2 onwards, our strategies gained traction, and our adjusted EBITDA run rate followed suit. Our second priority was on improving our U.S. business, and we continued to see progress in stabilizing the business, and initiatives are beginning to lay the foundation for future profitability. In the second half of 2019, our U.S. business improved to breakeven levels. Our third priority takes us to Slide 4. So on Slide 4, our third priority was to fix the balance sheet, drive our debt down and improve upon our financial flexibility. Our results clearly indicate we've done just that. We have reduced our net indebtedness by $145 million in the year. We took our net debt leverage from 6 at the end of 2018 to 2.6 at the end of 2019. And most importantly, that performance allowed us to refinance our soon-to-be-maturing debenture and renew our credit facility, giving us an average tenure -- tenor of 4 years on our long-term debt. Turning to Slide 5. Since the fall of 2018, we've managed the systematic transformation of our operational methodology. We've moved towards a focus on a complete business model, maintaining that focus on new vehicle sales with greater alignment with our OEMs but with an enhanced focus on used vehicle sales. Outside of selling more used vehicles to help counter the cyclicality of new vehicle sales, we are focused on the stable, recurring and high-margin revenues in F&I, parts, services and collision repair. While these areas of the business are more difficult to scale, and may take longer to develop, they provide stability through economic cycles, supporting long-term growth and generation of cash in any economic environment. In the U.S., we remain focused on building on the success we've seen in Canada, with a complete business model and enhancing profitability. Moving to Slide 6. These new strategies are bearing fruit as we outperformed the Canadian market for all 4 quarters in 2019 for same-store new retail sales. For the year, we are positive 1.8% as compared to a market decline of 5.2%. For the year, our same-store used retail growth was positive 22.5% as compared to a market average of 9.1%. The outperformance we delivered is largely due to increased experience of general managers across our dealerships and the focus on operational excellence and OEM relationships. Slide 7. As for Q1 2020 results, we continue to realize ongoing traction and momentum across our complete business model through the end of February 2020, recording strong year-over-year dealership gains. January and February combined were the best on record for those months. In the last 2 weeks of March, however, the effect of COVID-19 more than offset the positive performance to that point. On a consolidated basis, adjusted EBITDA for the quarter was $5.7 million compared to $11.5 million in the prior year. Because March seasonality accounts for about double the first 2 months' performance in the quarter, the impact of COVID-19 in the last 2 weeks of March drove the decline in our results. For the fifth consecutive quarter, we outperformed the Canadian market with same-store new retail unit sales down 16.9% compared to the market decline of 18.7%. Our used to new retail units also increased to 1.08 in the quarter from 0.85. This better than 1:1 ratio provides critical diversification in our business as we start to see the economy recover. In the U.S., we continue to see marked progress in stabilizing the business, even with the impact of COVID-19. As we've seen for several quarters now, the U.S. management team's initiatives continue to lay the foundation for future profitability. We continue to manage cash with an eye to preserving liquidity and our financial flexibility. Our ongoing actions to manage working capital combined with our refinancing of the debentures and our credit facility renewal have allowed us to come into this pandemic environment with the strongest balance sheet since the current team joined the company. On to Slide 8. In response to the COVID-19 situation, we took immediate and proactive steps to ensure the well-being and safety of our employees and customers and the continuity of our operation. We implemented cost and cash spending reduction measures and have worked closely with our various stakeholders to limit the impact on liquidity. We amended our syndicated credit facility, providing covenant relief through to June 2021. We managed our cost structure through a number of levers noted here and optimize our bias towards a variable cost structure. We've deferred capital spending, bringing our expected total CapEx spend closer to $12 million for the year as compared to a 2-year average annual spend of $29 million. We suspended the dividend, driving $8 million in cash savings for the balance of 2020 or $11 million on an annualized basis. We have a portfolio of noncore assets valued at approximately $13 million that we're working to liquidate. In Q1, we realized $1.1 million in proceeds from this portfolio. We expect to realize approximately $25 million in Q2 from the Canadian wage subsidy program. This is up from the $17 million we confirmed with our Q1 MD&A and webcast. We have received approximately $7 million from the -- and that's CAD 7 million from the U.S. loan program with opportunity for forgiveness pending. We've restructured 1/3 of our interest rate swap portfolio. We expect to see approximately $2 million in cash savings over the next 12 months. These actions, in addition to strong operations performance are expected to bring down our debt level since the end of the first quarter by approximately $20 million to $25 million and net debt closer to $145 million, leaving us with available liquidity of approximately $150 million. While we don't yet know what the future holds with COVID-19, with the actions taken to date, we feel we're very well positioned to weather any outcome and capitalize on the recovery. Slide 9. Accordingly, and as a result of these efforts, we are seeing a more moderate impact than initially expected from the pandemic. We have experienced steady improvements in unit sales since the end of March as restrictions begin to ease and our business model adapts to the new normal. Notably, Canadian retail vehicle new and used unit sales for AutoCanada have progressively improved, and we've seen favorable trending since the end of April. For sure, we are encouraged by double-digit year-over-year growth to date in June, showing positive 28% to June 18. Slide 10. We're very proud of a number of accomplishments in 2019, including the many awards our dealerships achieved, as you can see on this slide. We are extremely grateful to all of our team members, our dealers and head office support team who made these achievements possible. And on Slide 11, you can see that we've continued the success in 2019 with several dealership accomplishments and awards to date in 2020. I'll now turn over some final comments to Paul to wrap up our presentation.

Thanks, Mike. In summary, we're extremely pleased with the progress made in 2019 to make our company stronger. We're committed to continuing to exceed our previous performance standards on behalf of our customers and shareholders. While we don't know what the future holds at this point with COVID-19, we've taken proactive steps to ensure we'll weather any outcome. And we're confident that our business, our complete business model, our balance sheet and our team will position us to emerge from this pandemic even stronger. We remain excited about the many opportunities in front of us. We feel very well positioned with strong growth potential by simply executing against our many go-forward initiatives. At this time, I want to thank our employees for their extraordinary efforts and dedication through a very busy and successful year in 2019 and all that they will do and have already done in 2020, also to our Board of Directors and senior management leadership team for their engagement and leadership and our fellow shareholders for continued support. [Operator Instructions] And for each question we answer, we'll summarize the question, read out loud the name of the person who asked such a question, and if applicable, the entities such person represents. As there are no further questions, that concludes the Q&A period, and thank you for joining the annual meeting today.

And this concludes the meeting. You may now disconnect.