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 and year ended December 31, 2019. All figures are in Canadian dollars unless otherwise stated.
“We’ve ended the year with a third consecutive strong quarter and a year marked by key wins and accomplishments”, said Paul Antony, Executive Chairman. “We’ve proven out the Go Forward Plan in Canada and that we can build out a complete, stable and growth-oriented business model for any economic environment. We’ve stabilized operations in the US and are moving towards positive contributions in 2020. We’ve fixed our balance sheet with our recent refinancing of the credit facility and the senior unsecured debentures, substantively improving upon our credit profile and financial flexibility. We enter 2020 on solid footing, with a proven business model, able to weather the current uncertainties associated with the COVID-19″.
Consolidated AutoCanada 2019 Fourth Quarter Highlights
DEBT REFINANCING COMPLETED ON THE HEELS OF A THIRD CONSECUTIVE STRONG QUARTER
The Company performed well in the fourth quarter, building on the momentum from our strong second and third quarters.
- Revenue was $809.1 million, an increase of $26.3 million or 3.4%
- Total vehicles sold were 16,593, an increase of 317 units or 1.9%
- Net income (loss) for the period was $(16.8) million (or $(0.61) per diluted share) versus $(36.0) million (or $(1.30) per diluted share). In the period, impairment charges of $(24.0) million were incurred as compared to impairment charges of $(23.8) million in 2018. The adoption of IFRS 16 resulted in additional total expenses, which negatively affected the Company’s net (loss) in the quarter by $(2.5) million.
- A total impairment charge of $(24.0) million is comprised of $18.2 million impairment of the U.S operating segment as management has taken a conservative view on the outlook of the U.S. platform, and a small recovery of $0.2 million related to the Canadian operating segment. There was an additional $6.0 million impairment charge to the redundant non-core asset portfolio.
- Adjusted EBITDA increased 236.1% to $21.1 million, an increase of $14.8 million; of the $14.8 million increase, $10.1 million was attributed to the impact of IFRS 16. Adjusting for the impact of IFRS 16, Adjusted EBITDA was $10.9 million, an increase of 74.3% over the prior year.
- Continued focus on working capital initiatives and continued improvements in operational performance allowed the Company to reduce its net indebtedness by $44.5 million in the quarter.
Canadian Operations Highlights
SAME STORE UNIT GROWTH OF 10.5% DRIVES 31% NORMALIZED ADJUSTED EBITDA GROWTH
Management continued to focus on implementing and building upon its Go Forward initiatives for Canadian Operations during the quarter. Earnings performance was driven by a combination of strong unit growth, the impact of our F&I initiative and our focus on improving used retail vehicle sales. Same-store new retail unit sales growth was 1.3% as compared to the market decrease of (1.2)%, for brands represented by AutoCanada. Sales growth and gross profit improvement are supported by our continued focus on OEM relationships, which includes achieving sales unit and customer satisfaction targets and a number of other key measures as reflected within the various OEM balanced scorecards. Our F&I initiative helped increase gross profit per retail unit average to $2,475, an increase of 14.6%. In line with our initiative to sell more used vehicles through retail sales rather than wholesaling, our used to new retail units ratio increased to 0.84 in the quarter, from 0.69.
- Revenue was $698.3 million, up 6.9%
- Total retail vehicles sold were 13,211, an increase of 1,024 units or 8.4%
- Same-store new and used retail unit sales increased by 10.5% to 12,243
- Used to new retail units ratio increased to 0.84 from 0.69, an increase of 20.6%
- Net (loss) income for the period was $6.0 million, up 213.5% from a net loss of $(5.3) million in 2018. 2019 results included impairment charges of $5.8 million versus $0.4 million in 2018. The adoption of IFRS 16 resulted in additional total expenses, which negatively affected the Canadian Operations segment net income (loss) by $1.3 million
- Adjusted EBITDA increased 93.3% to $22.1 million, an increase of $10.7 million; IFRS 16 resulted in an increase to Adjusted EBITDA of $9.2 million. Adjusting for the impact of IFRS 16 in 2019, Adjusted EBITDA was $12.9 million, an increase of 12.5% over the prior year.
- Sale and leaseback transactions executed from the beginning of 2019 to the end of Q3 2019 resulted in an increase of $2.1 million lease costs in the quarter in comparison to the prior year. Normalizing prior year results for these sale-leaseback costs, Adjusted EBITDA reflected an increase of 31% over the prior year.
U.S. Operations Highlights
CONTINUED PROGRESS – BETTER THAN BREAK-EVEN RESULTS
The U.S. Operations segment continued to see improvements as a result of the focus on improving the expense structure which included a reset of all vendor contracts and restructuring of compensation towards performance-based rather than fixed arrangements. Time in position for the new management team has impacted the progress of operational performance, as indicated by Adjusted EBITDA being $(1.1) million, as compared to $(5.2) million in the prior year. The net assets and liabilities of four dealerships have been reclassified out of held for sale as of December 31, 2019.
- Revenue was $110.8 million, a decrease of (14.6)%
- Retail unit sales decreased to 2,542, down 430 units or (14.5)%
- Net (loss) income for the period was $(22.8) million versus $(30.8) million in 2018. 2019 results included impairment charges of $18.2 million versus $23.4 million in 2018. IFRS 16 adjustments resulted in additional total expenses for the U.S. segmented operations for the period, which negatively affected the U.S. Operations segment net income (loss) by $0.7 million
- Adjusted EBITDA was $(1.1) million, an increase of $4.1 million from 2018; IFRS 16 resulted in an increase to Adjusted EBITDA of $0.9 million. Adjusting for the impact of IFRS 16 in 2019, Adjusted EBITDA was $(2.0) million as compared to $(5.2) million in the prior year
- Results for the quarter include the impact of $3.7 million in write-downs primarily associated with receivables and inventory in our U.S. segment. Adjusting for the impact of IFRS 16 in 2019, normalized Adjusted EBITDA would have been $1.8 million as compared to $(5.2) million in the prior year.
SAME-STORE USED RETAIL UNIT SALES GROWTH OF 23.6%
Total same-store new and used retail unit sales for Canadian Operations increased 10.5% to 12,243, with new retail units showing an increase of 1.3% and used retail units up 23.6%. The increase of new retail units by 1.3% compares with a market decrease of (1.2)% in the Canadian new vehicle market for the brands represented by AutoCanada, as reported by DesRosiers Automotive Consultants. The same stores metric includes only Canadian dealerships that have been owned for at least two full years since acquisition.
- Revenue increased to $647.9 million, an increase of 8.7%
- Gross profit increased by $12.1 million or 11.8%
- Used to new retail units ratio increased to 0.86 from 0.70
- Finance and insurance gross profit per retail unit average increased to $2,512, up 15.8% or $343 per unit; Gross profit increased to $30.7 million as compared to $24.0 million in the prior year
- Parts, service and collision repair gross profit increased to $49.3 million, an increase of 4.3%
Financing and Investing Activities and Other Recent Developments
NET INDEBTEDNESS REDUCED TO $157.9 MILLION
In continuation of the Company’s optimization of the balance sheet and operations, the following transactions occurred in the three-month period ended December 31, 2019:
- A Canadian redundant property was sold for $2.7 million in proceeds, which resulted in a net loss of $(0.2) million.
- Ceased operations of two under-performing U.S. franchises, on November 11, 2019.
- Subsequent to December 31, 2019, the Company completed the following financing transactions on February 11, 2020. The transactions improved the overall credit profile of the Company, increasing the average tenor as of December 31, 2019 of long-term debt from approximately 16 months to approximately 4 years:
- Entered into an amended and restated $950 million syndicated credit facility (the “New Credit Facility”), with a maturity date of February 11, 2023.
- Closed $125 million of 8.75% senior unsecured notes due February 11, 2025
- S&P Global Ratings (“S&P”) revised the Company’s outlook to stable, affirmed its ‘B’ issuer credit rating and assigned a ‘B-‘ rating to the Company’s $125 million senior unsecured notes
On February 21, 2020, the Board of Directors of the Company declared a quarterly eligible dividend of $0.10 per common share on the Company’s outstanding Class A common shares, payable on March 16, 2020 to shareholders of record at the close of business on March 2, 2020.
For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) (the “ITA”) and any corresponding provincial and territorial tax legislation, all dividends paid by AutoCanada or any of its subsidiaries in 2010 and thereafter are designated as “eligible dividends” (as defined in 89(1) of the ITA), unless otherwise indicated. Please consult with your own tax advisor for advice with respect to the income tax consequences to you of AutoCanada designating dividends as “eligible dividends”.
Senior Unsecured Notes
The Company issued $125 million 8.75% Senior Unsecured Notes (the “New Notes”) on February 11, 2020 to fund the Tender Offer for all the outstanding $150 million Notes. Through the Tender Offer, the Company redeemed $124 million of the outstanding $150 million Notes on February 13, 2020. Subsequent to the settlement of the Tender Offer, the Company issued a call notice for the remaining $26 million outstanding Notes with an expected settlement date of March 13, 2020 at which point the Company will extinguish the outstanding Notes using proceeds from the New Credit Facility. The New Notes hold a term of five-years and mature February 11, 2025.
The New Notes were issued at a discounted issue price of $990.11 per $1,000 principal amount of notes (99.011%) for an issue yield of 9.00%. Interest is payable semi-annually on February 11 and August 11 of each year the Notes are outstanding. The initial interest payment date for the New Notes will be August 11, 2020.
Amended and Restated Credit Facilities
On February 11, 2020, the Company entered into an amended and restated $950 million syndicated credit agreement (“New Credit Facility”) with Scotiabank, CIBC, RBC, HSBC, ATB and the Bank of Montreal (“BMO”). The New Credit Facility has specified-use tranches and provides the Company with revolving credit capacity for operational and growth purposes as well as floorplan financing to assist with the purchasing of inventory. The maturity of the New Credit Facility is February 11, 2023.
The following table summarizes the Company’s results for the quarter and year ended December 31, 2019:
SELECTED QUARTERLY FINANCIAL INFORMATION
The following table shows the unaudited results of the Company for each of the eight most recently completed quarters. The results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given comparable period.
The following tables summarize the results for the quarter and year ended December 31, 2019, on a same-store basis by revenue source and compares these results to the same period in 2018.
Same-Store Revenue and Vehicles Sold
Same-Store Gross Profit and Profit Percentage
MD&A and Financial Statements
The information included in this press release is a summary of results. It should be read in conjunction with AutoCanada’s consolidated financial statements and management’s discussion and analysis for the quarter ended December 31, 2019, which can be found on the Company’s website at www.autocan.ca or on www.sedar.com.
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, and financing activities determined in accordance with Canadian GAAP, as indicators of our performance. We provide these 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. The following “Non-GAAP Measures” are defined in the annual MD&A: Adjusted EBITDA; Free Cash Flow; Average Capital Employed; Return on Capital Employed; Net Indebtedness and Lease Adjusted Leverage Ratio.
A conference call to discuss the results for the quarter and year ended December 31, 2019 was held on March 13, 2020 at 9:00am Mountain (11:00am Eastern). To participate in the conference call, please dial 1.888.231.8191 approximately 10 minutes prior to the call.
AutoCanada’s presentation that will be discussed on the conference call is available at the Company’s website at www.autocan.ca.
This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://www.autocan.ca/investors/Q42019/.