Mr. Paul Antony reports

AUTOCANADA ANNOUNCES THIRD QUARTER RESULTS

AutoCanada Inc. has released its financial results for the three-month period ended Sept. 30, 2023.

Highlights:

• Revenue was $1,657.4-million, as compared with $1,623.9-million in the prior year, an increase of 2.1 per cent.
• Net income for the period was $22.8-million versus $32.9-million in the prior year, a decrease of 30.6 per cent.
• Diluted earnings per share were 81 cents, a decrease of 35 cents from $1.16 in the prior year.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $66.7-million versus $76.4-million in the prior year, a decrease of $9.7-million.

"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 floor plan interest expense, impacting Canadian adjusted EBITDA. Our U.S. operations experienced mid-single-digit growth in new units sold, which, combined with normalization of new retail GPU, higher operating costs and floor plan interest expense, made for a difficult quarter for our U.S. 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 five-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 and transformation officer and Michael Ferra as VP, financial planning and analysis, adds to our bench strength to execute on Project Elevate's objectives."

Project Elevate is featured in the company's new investor presentation, which can be found on AutoCanada's website.

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 vehicle. The growth in new vehicle revenues reflects the continued recovery in new vehicle inventory levels with new vehicle inventory days of supply 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 vehicle reflecting consumer demand and payment sensitivity in the current high-interest-rate environment.

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

Both operating expenses before depreciation and normalized operating expenses before depreciation, which excludes stock-based compensation and transaction costs, increased primarily due to recent acquisitions and higher expenses in the U.S. operations. Over all, normalized operating expenses before depreciation as a percentage of gross profit declined in Canada but was offset by an increase in the United States, reflecting higher insurance premiums, advertising expenses and property taxes.

Floor plan 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 supply decreasing by 10 days to 67 days.

Net income for the period was $22.8-million, as compared with $32.9-million in Q3 2022, as a result of contributions from recent acquisitions and PS&CR operations, offset by higher floor plan financing expenses. Diluted earnings per share was 81 cents, a decrease of 35 cents from $1.16 in the prior year.

Adjusted EBITDA for the period was $66.7-million, as compared with $76.4-million in Q3 2022. Adjusted EBITDA margin was 4.0 per cent, compared with 4.7 per cent in the prior year, a decrease of 0.7 percentage point. This decrease was a result of lower contributions primarily from the U.S. operations, coupled with an increase in floor plan 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.

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 with 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 floor plan 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 Sept. 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 Sept. 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 Sept. 30, 2023 and the three-month period ended Sept. 30, 2022, unless otherwise indicated. Results are reported in Canadian dollars and have been rounded to the nearest thousand dollars, unless otherwise stated.

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.

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