Q3 2020 Uni-Select Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by and welcome to the Uni Select Inc. Cookie cutter.
The quarter results conference call.
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Thank you Julie and good morning, everyone and thank you for joining us for the Uni select third quarter conference call.
I think this morning, our Brent Wyndham, President and CEO of units, the like and President and few of the Cavium automotive group.
And it can be executive Vice President and Chief Financial Officer.
The following their comments, we will open the call for questions.
Please note that the all documents referred to in today's conference call Inc.
We didn't get swept cats that presentation can be found on our website that you need to the dotcom in the investors section.
As noted on slide two I would like to remind you about call. It the caution regarding forward looking statements.
Which is applied to our presentation income all the amounts are expressed the U.S. dollars, except as otherwise specify.
With that let me turn the call over to Brett.
Thank you Laurie.
Good morning, Thank you for joining us our third quarter sales improved net squeeze through the draw from experience in the second quarter.
During the bounce back in the market as expected the all the parts of businesses rebounded more rapidly than the paint business first I would like to thank our team members for their continued hard work and.
Dedication in each country and I'm president in challenging times.
All of them, we could not have achieved these improved results I would also like to thank our customers our supply partners for their unwavering support.
Today I'll provide a brief overview of the market conditions. The summary of our third quarter results by business unit and update on our coal the 19 measures and the continuous improvement plan.
Following my comments, Eric will review our profitability in the financial condition, and we will flatten out work based on the visibility as we have the today.
Let's turn the page four from the general market conditions.
It's important to highlight of our three businesses are highly correlated to the respective margin performance as a result of third quarter sales fall the upward trend experienced in the market for most of the quarter.
In the U.S. the CCC reported the Mark month over month improvement from April the August.
The slight pull back in September.
Followed by Us and slightly better October on an average of the market was approximate was down approximately 20% in the month of July August and September in line with the shell decline, we have seen the French national from the third quarter in Canada.
According the way of mobility, the why the per.
The city to change in the kilometers from improved month over month, and the troughs and April until August the turning the 2019 run rates from the someone much over September and October you're seeing a slight reversing the trend.
In the UK.
Impact of the pandemic yet.
The the hard initially.
That's been the quickest market the recovery. According to the UK government statistics also of the car road traffic increase sequentially in the past quarter from 83% of normal levels July to 91% in August and 92 in September.
However, with the recent Reconfirming the.
The trend is back down to 85% of normal levels of October at.
At this point, we are seeing some pullback in all three markets from October TPG, and the lesser extent, Canada.
First the are being impacted by closures and reconcilement measures do the second wave of coal the 19 the.
U.S. refinish market continues to be impacted by the driving patterns of more miles driven.
Well the impact from claims however, we do not expect the retraction the disjunction the severe in the second quarter.
Given the market conditions, and our seasonality, we're expecting soft yourselves in the fourth quarter now, let's turn to the.
Impact from currency on page five the.
The appreciation of the U.S. dollar compared to the Canadian dollar and the appreciation of the British pound versus the U.S. dollar translated into 2.9 million positive impact on our consolidated sales in the third quarter.
Turning to page seven please.
Before I review of the results of the quarter I wanted to provide a few comments on the historical seasonality pattern.
The table you see on page seven is our typical pattern free cold the 19, while the impact of the academic that's the sort of this typical pattern. We still expect our four core sales to be solved some of the reason I mentioned earlier.
Beyond that.
We are currently reviewing the seasonality pattern.
The changes brought on by the pandemic for example, the.
The fact of the UK Ministry of transports mandatory testing of vehicles was pushed back.
All have an impact on the seasonality of TPH results, we will provide an update as required.
Turning the page eight and the key highlights from the third quarter.
Overall third quarter results were better than expected by magnet and what the magnitude varied by business unit.
The actions we put in place on the onset of the pandemic clearly mitigated the impact on our results consolidated sales from the third quarter were down 12% of 395 million from.
451 day in last year, primarily attributable to the the slower recovery and finished master as expected we.
Well good performances at both cash and TPH.
The fact organic growth improved significantly from the negative 31.9% of the second quarter to the negative 12% in the third quarter.
Adjusted EBITDA of 33 million.
From 38 million last year, while our consolidated sales of my returned to a normalized level, we managed to maintain our adjusted EBITDA margin of 8.4% attach.
The Testament to the successful execution of our business continuity plan and our continuous productivity improvement initiatives. These actions combined with a focus on our working capital management translated into a strong operating cash flow generation of 60 to me.
Which were used primarily to further reduce our debt by 47, a remarkable feat in these times in the third quarter. We integrated three <unk> 38 company owned stores, primarily of finished master and ended the quarter with 393 stores in the network.
Sure turned the page nine or give us a quick update from continuous improvement.
Recall that we announced in the expected improvements from the CRP in June.
These newly implemented initiatives are based on the long term approach to the southern free work productivity and efficiency of an all segments.
While ensuring our customer service levels remain or focus.
Plan had an objective of generating 28 of 30 million of annualized savings by the end of 2020.
Based on the first quarter run rate core operating run rate.
In the third quarter, we generate the 60 million in annualized cost savings combined with the savings realized in the second quarter, we generated 30 million in annualized cost savings since we launched the profit per plan.
Essentially completed on plan the plan on target and ahead of schedule.
The said this the remains ongoing initiatives.
Finished not true.
On an ongoing basis, all three business units will continue their journey towards the continuous improvement culture. In fact, the pandemic helped us identify further opportunities to accelerate our transformation from those we are driving the number of initiatives each of the businesses to improve our overall efficiencies in conjunction with the businesses we of swarmed the continuous improvement team.
The focus is on identifying and implementing these various initiatives.
Again, I would like to thank our channel are manufactured channel partners is there the their collaboration support and certainly our customers and our team members say six success in safety.
Our in remainder of our primary focus.
Let's turn the page the I'm pleased for finish line.
The finished master we're experiencing the market recovery in line with what we had telegraphed in the past few months sales were down 24% to $163 million in line with the markets. We operate mainly related to the code of 19.
While organic growth.
Organic growth improved from the <unk> from the negative 36.6% in the second quarter two of negative 24.1 in the third quarter refinish market continues to be softer than other segments of the aftermarket having said. This we believe we are maintaining our market share and fully meeting the expectations of our customers in these challenging times in the call.
After we integrated a number of stores, while minimizing the negative impact on sales.
We ended the quarter with 148 stores or 30 last company owned stores, you're confident we will continue to serve our customers in the same manner.
For the with this footprint.
The adjusted EBITDA decreased to 7.9 million or a margin of 4.9%.
The $21.4 million for a margin of 9.9% of last year. The decrease is due to the lower fixed cost absorption rebates the timing of price increases from paint manufacturers' last year, which did not repeat this year and the shift in customer mix. It was partially compensated by the savings and the C.I.P. and reduce expenses.
In fact, we continue to see the impact from the channel shift as national accounts of grown market share by 100, the 200 basis points. According to our internal data.
Teams will continue through art and continue to review the strategy of.
Acquired to grow our value to our customers in order to remain our number one market position.
Let's turn the page 11 sort of the Canadian on loans.
The Canadian automotive group sales return of the 2019 run rate at 137, the driven by acquisitions and organic growth.
Right the impact of the cold the 19 on lower P b cells. So.
Similar to the U.S. PV sales are also lagging of.
The versus the other segments of the aftermarket in Canada.
Organic growth improved significantly from the negative 18% in the second quarter two of positive 20 basis points from the third quarter.
In fact, the automotive parts are solid.
By the challenges we are facing with the manufacturer partners on supply chain issues.
In the quarter, we integrated three company owned stores and the ended with the 74 stores.
The adjusted EBITDA reached $19.1 million per a margin of 13.9 per cent compared to $12.6 million.
The margin of 9.2 from the same period last year, the significant improvement was driven by savings from the productivity improvements.
From the CRP and government subsidy, partially offset by the benefits received last year, but not repeated this year, including the sale of pro color banner.
Volume rebates and onetime incentives.
Excluding the government subsidies and net of the net is additional bad debt expenses, the adjusted adjusted EBIT true.
We still have been much better than last year of 16.1 day, where margin 11.7%.
Our teams ability and dedication to manage the business continues to grow and the showing sustained improvements in our profit and our profitability.
At the end of the quarter, we completed the acquisition of pieces of the auto say John.
The leading distributor of automotive parts and paints the two locations in the province of Quebec. This expands our corporate store footprint on the Montreal, South shore region and will complement our strong network of independent members.
Recently, we announced the appointment of Dakota, SVP General manager of the Western region, Doug as the former CEO of.
One of Canada's largest privately held automotive distributors, we also announced the appointment of Jason best of the newly expanded role of SVP General manager of the Eastern region.
You're confident that these changes will continue to improve our focus and execution in order to pave the way for our continued success in the Canadian market.
Turning to page 12 of the parts of the lines.
SCPA had a strong recovery in the third quarter as the actions taken over the last few months of born positive results from the team sales reached $95 million compared to 98.
Last year.
Organic growth improved significantly from the negative organic growth of 41.7% of the second quarter to a negative 5.3% of third quarter market. The remarkable recovery in the short period of time.
In the quarter, we integrated five company owned stores ending the quarter with 171 stores.
Adjusted EPS, the adjusted EBITDA reached 8.7 million for a margin of 9.2%.
To 6.5 or a margin of 6.7% last year. These results were driven by the savings from the productivity initiatives from the CRP reduce spending and governmental subsidies.
Excluding the government subsidies and net of the additional obsolescence. The adjusted EBITDA was still been the much better than last year at $8.6 million in the margin of 9.1%.
We believe this profit this profitability.
The sustainable and will be further improved in fact, our team is acting with greater urgency and continues to build talent in the areas of logistics and sales execution in this environment.
That completes my sort of section I will now turn the call over the air to to review the financial debt.
Thank you Brad and good morning, everyone in the third quarter, our net finance cost was $8.8 million compared to 7.9 million last year, mainly due to higher interest rates. Following the issuance of the convertible debt in December 2019 of the bank refinancing in between.
In addition, our income tax rate was much higher at 34.5 percentage this quarter compared to 8.5 per se last year, primarily due to the non taxable portion of the gain of the sell the per caller per rep in 2019 as well as the taxable portion of the same game, which was offset by the to the amount of capital losses previous the wrecked unrecognized expense.
Excluding this gain the 2019 tax rate would have been 20 points of 26.8 per se.
As a result, we reported net income of 4 million or 11 cents per share versus the profit of $25 million or 58 cents per share of that here.
Good earnings for the quarter were 8 million or 18 cents per share of assist 11 million or 25 cents per share last year the.
The decrease in adjusted earnings was mainly attributable to lower adjusted earnings before tax and the different income tax rate.
However, it is important to note that the adjusted earnings improved significantly by the sequential basis and turned positive in the quarter.
Now, let me comment on our cash flow on page 50, Rick.
Recall that our third quarter of cash flow from operation is typically positive and we were able to maintain the seasonality trend even of the face of course, the 19, where our revenue were impacted by 12% compared to the same period last year.
We generated $62 million of cash flow from operation in third quarter versus 2 million last year, and 35 million of the second quarter. The significant improvement was mainly due to our tight working capital management and the timing of vendor financing.
We continue to manage our inventory tightly in fact since the beginning of the year, we reduced our inventory level by approximately 140 million of which approximately one out of it to 110 million should be considered the permanent reduction of win for us.
The result, we generated $33 million of free cash flow for the quarter compared to $30 million last year. This increase is partly due to lower capital expenditure in line with our tight cash management by us.
Turning to page 16.
You can observe that we kept our capital deployment to a minimum of the third quarter. We continued to invest modestly in capex and merchant advances and use our cash mainly to reduce our debt in line with our capital allocation of our the.
Note that the dividend paid in April with the last one paid as all future dividends have been suspended in order to provide more financial flexibility.
Turning to page 17.
That's September Thirtyth 2020, our outstanding total net debt stood at 300, the 97 million.
Including 97 million of via for US leases obligation a decrease of 47 million versus the 444 million and $94 million, respectively three months earlier.
We were able to accomplish this in a difficult operating environment due to the efficient control of our working capital limit and reduce spending.
When you exclude IR from leases obligation total net debt to adjusted EBITDA. The stood at 3.2 times versus 3.29 times for the same period last year and 3.6 items in the second quarter.
Turning to page 18. Furthermore, we maintain sufficient liquidity at the end of the third quarter, we had $252 million available under our credit facility 90 million of cash on hand, and $17 million of letter of credits for total of 254 million of available liquidity.
The remaining compliance with our bank of it based on our assumptions and expectations. We believe that our current liquidity and future cash flow in the coming periods will be sufficient to meet our operating financial the capital the.
Turning to page 21 for the outlook.
Let me start by saying that yet there are still really the significant uncertainty going forward. The from the pandemic our outlook is based on certain assumptions and visibility as of today.
I've mentioned a few times on this call our sales are highly correlated to the market the aftermarket and refinish market for October 2020 showed seasonal and covered with 19 weakness compared to September breaking the sequential improvement experience since the beginning of the benefit.
More specifically for Finnish Master, we continue to expect sales recovery on a regional basis with national and MSR sales recovering faster than the independent channel.
Overall, it will take more time for the sales of the segments to fully recover in fact at this point, we expect the refinish MPV market to continue to be behind the.
Prequaled, the 19 level, where the short medium term of lower miles driven and traffic density has significantly impacted the clean.
For CAGR, we expect fourth quarter sales to be in line with the same period last year when normalized for the disposition of the from color, but I know that the here.
48, we expect the minister of transport required testing will be more than offset by the market challenge with the ongoing shut down due to the ticket the wave of COVID-19, coupled with the hang over effect from the uncertainty of supply chain impact from the Brexit. However, we do not expect this the to be the same level as the one experience of the same from quarter.
Since the Ministry of transport no further not free to delayed the inspection and the dollar is so far remains open.
Overall, we expect the experience supply chain the issue with manufacturers pattern into the first quarter of 2021 to continue to expect the company consolidated sales to be back to more normal level of starting of the back half of 2021 or the 2022.
For modeling purposes, the net finance costs from the fourth quarter should be marginally higher compared to the third quarter, while the Q4 tax rate should be between 20 and 25%.
We will continue to focus on tight cash management in the period of reduced demand in fact, we expect to generate neutral to modestly positive cash flow for the operation from operation of the fourth quarter.
We will manage capital investment and working capital prudently as it relates to Capex advanced the merchant members and incentives to customers who are in the process of relaunching certain initiatives and other will be delayed to 2021.
For the full year of 2020, we now expect to invest between debt and 12 million the capex and approximately 6.5 to 7.5 million or approximately 45% of what we invested in 2019 for merchant members and incentive to customers.
Taking into account all of these variables, we expect our total net debt levels at the end of the year to be similar to the third quarter.
However, it should be noted that we expect the debt level to rate in the first quarter due to seasonality restocking and payment of rebates to our members.
In line with this we expect to use our greater level of cash flow from operation in the first quarter of 2021.
We are confident that we have a solid financial plan to address the current crisis and sufficient liquidity to meet our current operating and capital of me.
This completes the financial review of the third quarter I will now turn the call back to Brent.
Thank you Eric.
In conclusion, we expect the fourth quarter to be a softer given the normal seasonality patterns.
The volatility of market conditions brought on by the onset of the second wave of covert as Eric mentioned.
And the slow recovery in the paint business in the us.
But we are we continue to be confident that our business and our ability to maintain our market share and our and our market position. We're.
We are executing the continuous improvement culture for sustainable results and growth in our building the talented leadership team with the high level of focus on execution and urgency.
We have the financial flexibility to execute our business plans and each one of the businesses, we're resilient industry and we're prudent each and every day I.
I would like to first thank our team members again for their commitment to adapt to the to execute.
And for our customers and suppliers and shareholders for their support.
With that I will turn it over for questions.
Thank you add this tiny true like that's the question Press Star one on just how much the on two of which I have question Presidente again Thats. The question Press Star one.
Your first question comes from the line of spin off line with the shopping.
Please go ahead.
Good morning, Brandon Good morning, and congratulations for the the strong improvement in the results us, especially in the current context.
Of when I look at your comments the in terms of outlook, obviously, it seems that the cautious outlook about the given the the the second away.
Jed live and where do you see the greatest Empaque and what kind of weakening have we seen in October income version two to September.
Well I would say the right now our biggest concern and focus certainly is probably the ta.
UK.
Was there the reactions of COVID-19.
Certainly were having the hot spots inside of Canada, but really I would say ta at this point.
Okay, that's great and great disclosure about the impact of the government subsidies are there any amounts we should expect cash in Q4 and beyond.
The only about four now and what we foresee us the subsidies in the UK as it relates to operating expenses.
The other program through at through US support the company is on the lease type expenses. So it should be in the same type of magnitude that we've disposed of in Q3 or Q4.
Okay, that's great and also congratulations about the recent addition, with the Doug quotes.
Could you discuss the of fortune ITSI to leverage the dogs, the strong background and maybe provide an update all of the strategy in the western Canada and the of fortunate fees.
Ahead for you in the seller.
Well I think dougs low.
Long tenure in the automotive aftermarket of brand stores and understanding the market.
We'll certainly benefit all of our team members as well as our customers.
And certainly we saw signs of huge opportunity for us to do that he and Jason both of our industry guys within the Canadian market.
For all their lives. So we feel like it really lines of us to be able to leverage their expertise and.
And certainly we're very proud that we could have both of those so those guys lean the the Canadian group.
Okay, and with respect to the recall of re to Precrisis level for Chegg NTP in the back castle of 2021, the the second wave change your expectation about the the timing of the recovery for those two regions.
Well I guess I'll speak the Mel let Eric comment I think that Thats. The reason, we're staggering into the latter part of two.
Anyone in the early part of the 2022.
Because I think the trend was very very positive for us in Q3.
And so we're being we're just trying to be cautious and certainly were not.
Pessimistic at any in the.
Can you shake form or fashion the businesses saw solid.
In all three so.
Okay, that's great and last one for me could you just talk about the price paid and revenue contribution for the two stores that came from the.
Acquisition of peers that those Sandra.
Yes, so the price paid us approximately $5 million overall and the the contribution the will.
The.
I'm not going to disclose too much details on this one the of in away the it's relatively small.
But I think it fits squarely into the strategy of Canada, and they will enhance the results of Canada overtime. The way, we're quite happy with the addition.
Okay, and 5 million hits us or Canadian Navy <unk>.
It's all the antibody us all the equivalent.
Perfect. Okay. Thank you very much for the time.
Thank you.
And your next question comes from the line of for US Ahmad with Laurentian Bank. Please go ahead.
Hi, Good morning, guys good morning.
Congrats on the on the excellent quarter.
Thank you highlight for us.
Since my first question is just on the I was hoping maybe we could dig into finished last year a little bit I. Appreciate the color that you provided but just wondering maybe you could speak to what you're seeing regards to the EMEA. So sales recovering from us in the independent channel and really what's driving that.
Yeah I looked at the.
The it's an interesting.
The question of the says that the way.
We have the experience of what we've seen in the various channel is that the MSR sales everybody at faster why is that theres.
Theres a couple of theories out there, but when could be simply that the insurance companies are redirecting traffic to deal with the Miss so with the debt capacity check of any of that volume.
The overall decrease in the market the of activity.
And some independent I think.
Were slower to us to get back in two of the the cycle.
The experience in Q2, so what's interesting is some of the embedded the remain open throughout Q2.
The preserve their their volume to us for an extent they went back to back off of it obviously, but the state open.
Some of the vessel was actually shut down in Q2.
Number of of their Uh huh.
Many on the operations and have restarted them somewhere in the in Q2 and sort of back on track rate. So it's that mix that we saw the evolution in Q2 and the further to some of it in Q3, where the the missiles here you have rebounded a bit faster I don't know brand if theres anything you want to add to that.
No I would concur I think you know there are just very aggressive as they've come back out of.
The cold shutdown and.
The system the channel shifts of I think we will continue the C.
Okay and in terms of I guess going forward and perhaps maybe looking ahead.
Do you think like this kind of mindset that insurance companies are taking the preference from the sales in this environment do you think that'll continue post coded.
Perhaps if they see better service levels from the Msos versus the independents.
I mean look it's hard to speculate with the with the will do or not.
I mean, the the EPS was ever value prop. The traditional segment has a slightly different of value prop. So it depends on what the customer is looking for.
And ultimately the interest companies are probably trying to balance the to the two sets of books right and my experience when interest companies. They don't want to put all the rigs in the same basket sort of do want to have some diversification to service their customers.
We would expect some of that to continue having said that there is clearly a long term trend of consolidation. The you were in the middle market.
The refinish market the that trend in our opinion will continue in the foreseeable future.
Okay, Great that's very helpful.
I was also hoping maybe we could.
I was curious about the margin net was very strong this quarter I'm.
Just curious how we should look at a sustainable margin going forward I mean, there was a bit of noise with the cost out of it and the the government support this quarter and I know I know you provided some color on what the margin would have been without the government support but how.
How should we look at it the next four quarters.
Well look the.
Brand will complement but if I take it by business in the game business.
Moving on to our opinion, it's very sustainable.
No. It is seasonal in Canada as you know to Q2 Q3 story of the I've always been stronger than Q1, and Q4, partly because of weather related events, but notwithstanding all of that we expect mark.
The improvements of stable the improvement in the margins that we've experienced in Canada.
Q3 was a very very strong quarter in fact, the probably.
Probably one of the strongest in the last five years from my own personal experience.
There's been a lot of things done in the past and that journey started in 2018, and theres, some robust processes and procedures of and put in place and as we have optimized the resources, we see the benefit right than the.
We expect that to continue its course in the in the.
Those type of range, removing obviously the subsidy.
On TPG look we're quite happy with the rebound.
There is real the actions of been taken.
We I will say on that basis, we'll be walking before running on the on the margins, but we're very encouraged by the progress made at TPG throughout the year and the Theres. Good thing is also being worked on that should make the sustainable.
Finished master it's a it's a mix right I mean, the fact that we lost the north of $50 million of revenue this quarter compared to the prior quarter last year volume has an impact on the on the distributor margin. So you got to factor that into your analysis.
We believe its fleet the 100 basis point of impact on the bid the just the volume of aspect honored on a 20 basis point.
And then you looked at the dynamic of the market Dsos and we're working really hard to true right side, the model and service the to the to teach out all of the traditional NMS old.
And we'll report more on that segment of.
As we continue to work on it ex.
Activity and if you look at the roadmap that we set for Canada for us than TV now at them.
We're hopeful that there's good things coming down the road.
Okay, Great that's very helpful.
Sorry.
No I was just going to echo.
Average comments I think that the.
Both Tpa and CAGR from the margins are in line with our expectations based on the work we've done and.
And quite frankly, we're beginning to do the same kind of work in process inside TB LCM.
And certainly.
We're doing with us.
Good of the fluctuation due to volume.
Which is a little bit different many of the two businesses.
Okay. It.
Makes sense and then just last one from me.
You guys mentioned that you took a bit of a reserve on us and inventory just wondering if you could extend on day and just kind of speak to what that was about.
Well look we with the reduction of entry of the north of $140 million.
The slow compared to us little bit to the the river, where the water level goes down you may find the sum of some element that you are not as pleased with and some of this is linked to that.
It's not abnormal when the when you have a change of pattern and also a bit of change of product that you're selling assortment because of the current the kind of kind of the context that you'll you'll see that Pfizer in line. The may not be as robust as your revenue would like so thats part of the journey that we have taken the in the last two quarters.
Okay. That's great. Thank you very much for asking the questions.
Thank you. Thank you.
And your next question comes from the line of Jonathan that line with BMO capital markets. Please go ahead.
Good morning. Thanks.
Thanks, John comments, so far good morning from.
On the.
Do you have the October to date.
Sales for the three divisions.
For us.
Look I think it's very much in line with what we're seeing as the market data as Brian highlighted.
We no.
I think on us and at this point.
Thank you.
So if I look at finish master.
From an organic growth perspective.
In October of versus last year, we're down about 24%.
In the CAG automotive in October, it's about minus 2% and NPPA, it's minus 4%.
On a combined basis of about 13%.
Year over year sales decrease in October.
And as we said in our comments, it's a very dynamic environment out there. So it will depend a little bit what happened on the macro level for each countries in terms of how governments are reacting to the local bid the as tuition.
But its really tracking the which we see in the market.
Got it Okay do you have any way to frame the impact of the UK locked down I think thats started around the beginning of November.
All of all of the that was the the locked down so far has not resulted in as much as a decrease of sales that we've experienced in Q2 for sure very low.
Different.
As we said the install the remained open.
Look there everybody is the is the is that it's really a threat to the recent the lockdown.
And no I think October sales are came out better than we expected and so will the will address the set that.
We experienced with the happening in the field the realplayer.
Yes, I think Jonathan I think two things Jonathan I would say is one is that it's really been geo targeted.
From the from the light downs of the restrictions as you know, especially like in Canada and.
And then secondly, I think everybody's learning to us.
The deal on live from the new norm.
And it's it's not the same severity that we saw in certainly in Q2.
Thanks.
On prior calls Youve provided the percentage of stores that were open.
Would you have the.
Percent of stores that were opened at the end of Q3.
I my knowledge all of our own stores that we have not entered so for the integration stores of stores were open.
Yep.
Okay, Thanks and.
As sales recover.
And you think about reopening stores to service demand and I'm thinking longer term.
Right maybe post vaccine.
Can you serve us that level of demand with the new store base.
And like how the permanent should we.
Consider that that portion of the the cost savings from the SEC.
Well I would say.
The excellent question I mean, we're doing right now sensitivity studies and all in all three businesses of about where our footprint is and where the market is.
And the how do we how do we grow we're not we're not going to contract source for us.
So we're looking at where the greenfields need to be in the UK were looking at where.
Where we need to grow in Canada.
The reason for the acquisition.
And quite frankly, we are beginning to do that work without fail. We certainly believe that we can service the the.
The 29 to your run rate easily with the footprint we have today.
Really so even us demandware to recover all the way the 2019, you could fully service that with the new footprint. Okay. Thanks.
That will that include does that include the labor day, though.
Well I think all of the no. No question you would have to increase free.
Frequency of delivery and drivers and so the variable rate of labor would certainly have an impact but from a physical plant.
And the branch count that's really what I was speaking to.
Okay, and I'm not sure if you're able to share of something like the us on this call, but would you be able to frame the portion of labor thats related to the delivery is vs.
You know branch staff.
No for competitive reasons, we would not the Jonathan.
Yeah, that's fine.
On the acquisition side of encouraging to see small acquisition in Canada. This quarter are you able to comment on the pipeline going forward and.
How you're thinking about managing cash in this environment.
Well certainly.
We're certainly being prudent with our cash but.
We're talking to all of our members were talking to the we trying to understand the market and what the opportunities are and we'll address those of that come up.
This was something we've been working on for some time as you can imagine so.
But we're certainly optimistic about the future so, especially for Canada from that regard.
Okay, and maybe just on Finnish Master brand I realize it's very early days.
In terms of your assessment, there, but when we are able to expand a little bit on when you might be able to share with us more about.
Your next wave of of initiatives.
Well I would say we've we've got some we got some real work going on right now, it's I wouldn't think share.
Good bye.
The first quarter will be able to give more color, but we're what we're doing.
Certainly we've been pretty transparent about us ERP.
In the past few months and will continue to be not just on how sound at all three businesses.
Certainly I'll jump.
Okay. Thanks for your comments.
The key John.
Hey, Dan if you'd like to ask the question of press Star one on your telephone and the next question comes from the line of sectarian ever share with nationally National Bank financial. Please go ahead.
Morning, everyone congrats on the quarter growth.
During the factory. Thank you.
As of the question I had on the IP was just answered so just a quick one on the permanent inventory reduction which looks quite impressive.
Do you expect that there's going to be any issues with managing fill rates any sacrifices that had to be made on the scope or will you be able to maintain the same service levels just on a much reduced inventory platform.
So I hope the.
I'll take the I'll take the first pass at that.
Certainly none of the the reductions of the inventories were really designed and put any jeopardy to our show rates.
We just adjusted to the demand cycles and it allowed us as you know until really destock inside of the LCM.
But I would say the.
Certainly, we're we're investing back in the inventories strategically and were working with our supply partners because they are having supplies.
Packs right now as you know.
And Thats the global that's just not in Canada. That's in the UK. That's here certainly isn't the PB sectors of isn't the automotive.
So clearly what we believe the levels on a day and sustain it.
I think weve message is about a $100 million minutes per month, and that's that's really where we're in the state.
I want to make here that the the reduction of of entry.
Was not done to the sacrifice of the fill rates of.
Quite okay quite the opposite and the reason why there might be some fill rates you choose us more with the supply and manufacturers that at the shutdowns during the course of it at our time to read the restart production line and be as efficient as productive as the were a precursor of it just takes time to ramp of the production line and that's certainly what we've experienced in the more us or when the.
Auto parts business and to a lesser extent and the Finnish Master business.
That's really helpful. Thanks, guys I'll turn it over thanks.
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And your next question comes from the line of Caroling of Jody with Gabelli. Please go ahead.
Hi, guys. Thank you for taking my question.
So my question is more about the covenants that you outlined in the <unk>.
I really am which was very helpful. The that's like and obviously you train 20 assets.
I mean.
Our car.
Fairly easy to me given like you said today.
Over the can you kind of just talk about the 2021.
The intake and what you think that what you're thinking of Aaron and if theres any and the.
And any thoughts around us its the average testing down.
Why what may happen there.
So.
Well in the Investor presentation, you do have the covenant care.
Clearly stated from 2021, all the way to 2023, so I would refer you to debt pay.
Asia really to the page 19 of the Investor deck.
And then you have the ratio of and the financial covenants of and the important thing is we have a.
Financial debt Covenant light structure in place to allow us to weather the storm of coated throughout 2021, and the putting 2020.
And the first leverage that line in Q4 2021.
And it's based on a trailing 12 months of EBITDA and the same same type of methodology for interest the coverage ratios.
Look as it relates to go of it.
Inc. If I would have that answer I guess the would be heavily retired right [laughter]. The reality is we have to manage the business with a lot of uncertainty and we've done that and I think we've demonstrated that in Q2 and Q3, then we'll continue to do so.
Okay and any.
GAAP any thoughts on puts and takes of meeting the 2021 covenant.
Well I don't foresee any issues of the being compliant to our covenant the at this point of.
That said the Q1, the 20 2021 and all the way through Q3 of those Italy we.
We have very minimal.
Requirements to meet Joe.
Just take the minimum liquidity requirement of $35 million, we had $452 million of liquidity this quarter. So as it ties into our $252 million of liquidity. So I think we have plenty of liquidity.
In front of us and the EBITDA of the is the trailing 12 months total EBITDA from the requirements that we need to achieve.
So why the idle unforeseen issue there.
Great. Thank you.
And there are no further question at this time I will turn the call back over to the presenters for closing remarks.
Thank you very much Julie.
I'd like to thank each of you for being with US today, we're very encouraged with our Q3 results we look forward to us.
Moving and updating you guys aren't earn next quarterly call.
Until then be safe and.
Have a good day, thank you very much.
Thank you.
This concludes today's conference call you may now disconnect.
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