Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AutoCanada Inc (AOCIF, Financial) recorded total sales of $1.6 billion in Q2 2024.
- The company has engaged Bain & Company to accelerate key Project Elevate initiatives.
- AutoCanada Inc (AOCIF) is halting all M&A and return of capital initiatives to focus on core operations.
- A freeze on discretionary spending has been implemented to manage costs.
- The company is actively reviewing strategic alternatives for all non-core and underperforming assets.
Negative Points
- Total sales were down 8.8% year-over-year.
- Adjusted EBITDA fell significantly by $67.1 million from Q2 last year.
- The company reported a diluted loss per share of $1.47.
- Canadian Operations revenue fell 9% year-over-year, with same-store sales declining 10.5%.
- US Operations recorded a loss in adjusted EBITDA of $5.4 million, compared to a positive $4.9 million in Q2 2023.
Q & A Highlights
Q: Paul, can you give us a high-level view on what exactly has led to the business being in its current shape?
A: Paul Antony, Executive Chairman: The decline in EBITDA can be attributed to several factors, including a $20 million inventory write-down and severance, a $5 million year-over-year interest expense differential, and the CDK outage, which contributed to 15-20% of the EBITDA reduction. Additionally, RightRide and our US business underperformed significantly.
Q: What's driving the underperformance of RightRide?
A: Paul Antony, Executive Chairman: Higher interest rates have made it harder to find creditworthy customers. We also shifted focus to prime and near-prime spaces during COVID, neglecting the subprime market, which is more challenging. We are now reviewing all non-profitable and non-core assets to find more permanent solutions.
Q: Why not expand the strategic review to include the entire business rather than just non-core assets?
A: Paul Antony, Executive Chairman: We have a significant plan to execute and demonstrate our capabilities. If we succeed, the market will reward us by buying our stock. If not, someone might buy the company if it's undervalued.
Q: Is there any possibility of insurance coverage for the CDK outage or the recent cybersecurity incident?
A: Paul Antony, Executive Chairman: We are working with our insurance partners to discuss coverage for cyber and business interruption. It's too soon to say if the recent incident is related to the CDK outage, but it seems contained and less impactful.
Q: Can you provide more details on the $12.7 million inventory write-down?
A: Paul Antony, Executive Chairman: The write-down was on used inventory in both Canada and the US. The CDK outage led to unsold vehicles depreciating, and the lack of new light vehicle sales during the pandemic resulted in fewer good quality used cars. We are monitoring market conditions to ensure appropriate provisions.
Q: Is the US business under consideration for sale or a different ownership structure?
A: Paul Antony, Executive Chairman: All non-profitable and non-core operations are under strategic review. We need to find more permanent solutions for stores not meeting our expectations, rather than continuing to allocate resources to them.
Q: Can you speak to the appetite in the marketplace for non-core, underperforming assets?
A: Paul Antony, Executive Chairman: While we may not have the competency or patience to turn these stores around, the brands are highly desirable, and there are likely buyers who can execute better in these markets.
Q: Are there any risks of further inventory write-downs if the market continues to deteriorate?
A: Paul Antony, Executive Chairman: Yes, there is a macro-level risk. We are being cautious with used vehicles and working with Bain to manage inventory levels and flooring expenses.
Q: How are lenders looking at adjusted EBITDA numbers, especially with one-time costs?
A: Samuel Cochrane, CFO: Lenders consider a different set of add-backs than what is publicly reported. For example, $4.5 million in severance costs will be added back to the bank EBITDA, which is not reflected in the public adjusted EBITDA.
Q: Have any initiatives started under Bain's direction, and is Project Elevate on hold?
A: Paul Antony, Executive Chairman: Bain and Project Elevate are integrated. We are focusing on halting M&A, limiting discretionary spending, and reviewing non-profitable assets. Execution will happen over the next 12 months, with some one-time costs expected.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
