Q1 2021 Uni-Select Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Uni Select Inc. 2021 of the first quarter results conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time today on this call.
All of you require me to the assistance. Please press star zero for the operator.
Today's call is being recorded but also on items that may Sue it behaves and of course, the telephonic. So live as it does the permits you missed the number with you.
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And I would like to turn the conference over to Louise you know chief legal and administrative officer and corporate Secretary. Please go ahead.
Thank you till the.
Good morning, everyone and thank you for joining us for the Uni select set first quarter conference call.
Presenting this morning are of Brent Windom, President and CEO of Uni select.
President and CEO of the Keynesian automotive group.
And Eric <unk>, Executive Vice President and Chief Financial Officer.
Following their comments, we'll open the call for questions.
Please note that all documents referred.
You referred to in today's conference call, including gets the webcast presentation can be found on our website can you select Dot Com Inc.
On the investors section.
As noted on slide two I would like to remind you about the caution regarding forward looking statements.
As applied to our presentation and comments all.
All amounts are expressed in U S dollars, except as otherwise specified.
With that let me turn the call over to Brett.
Thank you Laurie.
Good morning, everyone and thank you for joining us for our Q1 results conference call.
Before we begin I would like to give a special thanks to our team for supporting our customers.
On the unusual times.
And going the extra mile of ensure that we've served our customers of the high standards. We continue to manage for the proper safety protocols.
Safeguard our team members and our customers.
We can proactively adjust our operations for the evolution of the pandemic.
Let's turn to page for for the market conditions. Please.
In the U S. The <unk>.
<unk> reported double digit month over month decline in January and February in line with the pattern of the previous six months.
However in March.
Reverse the negative trends on actual the and actually up eight.
The eight 1% for a total negative the $9 five the first quarter.
I would like to make two observations about the data please.
First of its important to know that we track our performance when the CCC data and in the markets in which we operate the from that point of view, we are tracking and maintaining our overall the market position.
Claims counts in March 2021.
Are actually down 12, 7% compared to March 2019, the more comparable months that does not include the impact from COVID-19. Therefore, the slope of recovery in the refinish market is still ongoing.
In Canada with the limited data, we have we have seen a strong rebound of pre COVID-19 levels this quarter.
However, the there remains challenges related to the current lockdowns from coast to coast.
In the U K.
The current impacts from the third confinement hit hard in January but recovered quickly. According to the U K government Statistics office car road traffic hit a low of 29% of normal levels and its worst day in January.
Since recovered to over 90% and we are proud of how the team has continued to manage through the volatility overall the industry data suggests that the performance of each of our businesses are in line with the respective market.
Let's turn the page seven for the highlights of the first quarter.
We had a strong start for the year.
Despite being up against the comparable quarter was marginally impacted by the early stages of the pandemic.
In essence, the auto of course of business continues to improve.
Five of the additional of Lockdown measures in Canada, and the U K kind of volatile supply chain.
However, as expected the refinish business in the U S is on a slower path of recovery.
Consolidated sales for the first quarter were down 9% the $370 million from $408 million last year, primarily attributable to a slower recovery of Jewish mastered.
And to a lesser extent the reduced number of days the number of billing days the.
Factors were partially offset by the continued improvements of gag.
And the sustained results with Tpa.
I would also add that we had a positive impact from the currency conversion of thought.
Organic growth continue the sequential improvement and ended the end of the a negative 10, 2% for the first quarter up from 12% in for the fourth quarter.
In turn the adjusted EBITDA increased 68% to $28 million or a margin of seven 6% compared to 17 million of our margin of four 1% last year.
The margin improved the solid 350 basis points. The margin improvement was primarily driven by the benefits from our actions in 2020.
The ongoing cost control measures in 'twenty, one as well as the improved gross margins of CAG and Tpa two of <unk>.
The extent it was also due to a particular items such as the reversal of bad debt in the quarter.
Well as FX losses, and one time charges totaling $4 5 million last year. These factors were partially offset partially compensated by the lower absorption of fixed costs.
Finally.
In combination with our strong collection efforts and active inventory management translated into a lower than expected seasonal increase in our debt levels, Eric will provide more details on this later.
Turning to page eight for finished master of Bleach finished mastered the Mac continues to improve but remains in the rebound mode under 2019 levels. This quarter severe weather conditions on the U S southwest and northeast and negative impacts on some of the regions, where we operate adding pressure to the market and recovery and translate into the score of.
As discussed before.
Sales were down 22% of $158 million due to the impact on the pandemic and the challenging environment organic growth continue the sequential improvement from the trough said on the second quarter last year and ended Q1, 'twenty one better than Q4, 'twenty with the negative impact of $38 million, while our sales were down.
On our market position continues to remain strong as sales were mostly in line for the markets on which we operate.
While our adjusted EBITDA was $10 1 million for the first quarter versus $12 1 million for the same period last year, our margin increased from 6% the 606, 4% for 40 basis points.
The improvement is primarily due to the benefits for the improvement plans and cost control measures.
The partial reversal of bad debt as well as the one time charge last year the.
These factors were partially offset by the lower fixed cost absorption.
For the second quarter in a row finish master is reported as reported adjusted EBITDA and margins exceeding the previous quarter, which is a testament to the success of the numerous measures put in place in 2020, our deep dive into our guy on the operational effectiveness of starting to take shape and normalize for seasonality, we expect to see continue.
The progressive improvements during the year.
Let's turn to page nine please for the Canadian group.
Jack continue to perform well under the current context, increasing sales and profitability over the same period as last year.
The impact from the additional government imposed lockdown measures in the first quarter sales reached 115 million up 6% from the 109 million last year, driven by the positive currency conversion effect and acquisitions, partially offset by the lower number of billing days sales of returns of the 2019 levels in fact of surpassed.
For them in the past three quarters, and we have experienced upward demand trends.
Spiked the impact from the pandemic, demonstrating a robust and resilient business model.
Growth was marginally positive for this quarter in line with the past few quarters, we've seen a solid performance of our independent members and ongoing improvement in our corporate stores. Despite the lockdown measures.
In the quarter, we completed the integration of our corner cell system for all of our corporate stores, except for the ones recently acquired which will continue to lag.
<unk> adjust.
Adjusted EBITDA reached one of them excuse me reached $11 8 million or a margin of 10, 2% up from $2 $7 million or a margin of $2 five per cent for the same period last year.
This marked improvement was mainly driven by the benefits from the improvement plans and cost control measures as well as the improved gross margins.
It was also due to the favorable variance in.
Foreign exchange, which led to the margin.
Note. This is our fourth consecutive quarter, where the adjusted EBITDA margin is above 10%. This is truly reflects our team's ability and dedication to manage the business continues to grow and as shown in these robust sustained results going forward.
We will continue to execute several initiatives to drive sustainability improve our customer service.
We will focus on profitable growth and make select tuck in acquisitions.
On page 10.
Page 10 for the parts of the lines.
Tpa continues to improve its results increasing sales and profitability over the same period last year. Despite.
Despite the impact from the additional government imposed lockdown measures in the first quarter.
Sales reached $97 million in line for the same period last year as a positive currency conversion was offset by the impact from the pandemic and the lure of billing days.
Organic growth was negative four 5% slightly improved but generally in line with the second half of 2020.
In the quarter, we continued to migrate our store for a single point of sales system for the for all of the UK branches.
Adjusted EBITDA reached $9 9 million for a margin of 10, 2% up from $4 7 million or margin of four 8% last year.
The margin was up 540 basis points over the last year and represents the highest margin generated by Tpa since Q1 2018.
Note. This is the third consecutive quarter of the Tpa has improved its adjusted EBITDA margin.
Over the current corresponding period last year, we believe this profitability can be sustained and improved over time.
Going forward, we will continue to execute our continuous improvement initiatives.
We will focus on profitable growth.
Make selective greenfield is dependent on the market conditions.
I will now turn it over to Eric to complete our financial would be Eric.
Thank you Brett good morning, everyone.
Turning to page 12 for comments relating to our cash flow.
Recall that we typically burn cash in the first quarter. This year, we use only of 500000 of cash from operations versus 13 million of for the corresponding period last year. This improvement was mainly due to our growth profitability and continued proactive working capital management as we put strong emphasis on cash collection and inventory management. This quarter are on.
Proof of our profitability also a few of our free cash flow, which we double from $14 million in Q1, 'twenty two 'twenty 7 million in Q1 2021.
Turning to our cash.
Turning to our cash on page 13, we use our liquidity to fund customer investments for $4 million and invested in capital expenditure for $2 million, we only invested a small amount of in the Capex. This quarter as we are still in the process of ramping up our program after a year long pause.
Turning to our financial position on page 14.
Given our proactive cash management and improve profitability. Our total net debt only increased modestly from three months ago.
As at March 31, 2021, our outstanding total net debt stood at $380 million to $83 million, including $98 million of <unk> leases obligation, representing an increase of $13 million versus $370 million and $101 million respectively. At the end of 2020.
Driven by our improved profitability and proactive cash management, our leverage ratio of further decreased to three eight times in Q1 2021 from for two times at the end of 2020.
Turning to page 15.
At quarter end, we had approximately $267 million of liquidity, which is the nimble position considering our requirements.
As at March 31, 2021, we were in compliance with all of our bank covenants note that in Q2 2021, we are required to have the minimum EBITDA of $20 million and we are very confident to be able to achieve this.
Turning to page 17 for the outlook our outlook has not changed significantly from what we were expecting three months ago. We expect our consolidated 2021 sales to improve over 2020, but not two returned to 2019 level before the second half of 2022.
<unk> mentioned previously the refinish market will take longer to recover than the auto parts business I think there's not only dependent on miles driven but also on new car sales and traffic density.
In terms of profitability, we expect our consolidated adjusted EBITDA in absolute dollars and on a margin basis to improve over 2020, but at varying degrees depending on the business segments. The one factor to keep in mind for 2021 is that it is unlikely that we will benefit from the same level of government subsidies as we did in 2020 note that we receive about $6 million.
Government subsidy is last year of which $4 2 million was in the third quarter and mostly related to cash and about 700000 was in the second quarter and mostly related to TBA.
For finish Master, we expect sales to improve over 2020, but we do not expect to return to 2019 levels as the impact from the pandemic is compounded by the original structural changes in the refinish industry.
We also expect to improve our adjusted EBITDA margin versus 2020 of our objective is to continue to tailor our cost to serve for the various channels.
For tag, we expect both sales and adjusted EBITDA margin improvements over 2020 on.
Our objective continues to be to grow organically and through strategic acquisition to consolidate our position, indicating the market. Similarly for Tpa, we expect both sales and adjusted margins improvement over 2020 of our objectives continue to be to grow primarily through selective Greenfield. We are currently fighting to open a few in 2021 depend.
On market conditions.
For modeling purposes, net finance costs for 2021 should be in line with last year, excluding the loss of debt extinguishment, while the tax rate should be between 20% and 22%.
In terms of cash deployment, we will continue to manage capital investment and working capital of proactively. However, we will be ramping up certain investment back to near pre COVID-19 level for 2021, we expect to invest about $12 million for maintenance capex and between $10 million to $16 million for development Capex, while capex investment to remain low in the first quarter.
We anticipate of Mark to ramp up in the second half of the year. We also expect to invest between $14 million to $16 million in customer incentives.
Considering all of these factors, we expect our total net debt level at the end of 2021 to be similar to the level of 2020, However, our leverage ratio should be lower as our adjusted EBITDA is expected to be higher.
Note that there remains of renewable uncertainty in some markets to depend AMIC and the slower recovery in the refinish market. Therefore, our outlook is based on certain assumptions on visibility as of today.
Turning to page 18, I would like to conclude our comments relating specifically to the second quarter. We expect Q2 2021 to be of marked improvements over the same period last year. The second quarter is typically the strongest quarter of the year and the impact from the pandemic hit two of the Q2 2020 as a result, we're getting growth in adjusted EBITDA margin.
In all three business segments are expected to increase year over year, but at varying degrees.
Note that we will we would expect the overall performance of TBA to be better than the comparable quarter last year when compared to Q2 2019. The result will be partly mitigated by the shift of the MLT mandatory testing last year due to the pandemic, while we do not expect this shift to alter the total sales for the year it will impact the seasonality of the.
Results of CPA at this time it is difficult to determine the magnitude of the shift.
In addition note that the total debt net debt level in Q2, 2021 will marginally rise from Q1 2021 level, but the increased sales due to the increased sales that will have an impact on our accounts receivables and some restocking in the business, but its associated payables.
In line with this we expect to use cash flow from operation again in the second quarter and turn cash flow positive during the second half of the year.
In closing we are confident that we have a solid financial plan to ride the last mile of the pandemic and ample liquidity to meet our current operating and capital needs.
This concludes our presentation, we're on already for hence for questions operator.
Ladies and gentlemen, if you do have any questions. Please press star followed by one on the touched on the phone you will hear a tweet on prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two and if you are using a speaker phone. We do ask that you. Please lift the handset the first.
Once again, please press star one if you have any questions.
And your first question will be from non Nam on Saturday at the Laurentian Bank. Please go ahead.
Yeah, Hi, good morning.
Good morning.
So my first question on the floor on the gross margin side, there's a slight improvement there but in your prepared remarks, you mentioned about all the day supply.
The supply chain. So I'm just wondering if you could provide some color of that if you were seeing any cost pressures are there any supply chain issues.
And just the there has been clear.
The increase to any of the pricing for <unk>.
All of the tea business.
But the segments that you have there.
Okay.
So I would say in the auto parts side is really where we're seeing any challenges on the supply chain certainly not in the refinish side.
But on the auto parts side, certainly we've seen some cost increases on our freight and delays from our shipments and certainly we've seen some volatility in sort of of our domestic suppliers.
Both in the U K as well as in Canada, we continued to manage through those.
And certainly it's a challenge but.
As you can see we've sort of mitigated most of that.
Certainly from a from a pricing point of view non we're starting to see price increases of inflation's coming from some of our.
On our supply partners and certainly we've increased our cost or pricing on the.
Due to the freight costs we have.
<unk> seen that come through on the direct sourcing product side of our business so to some but nothing significant at this point.
Okay. So you can continue to serve the clients even on the discretionary yeah, yes, okay, yes, Sir.
That's right and just.
On the finished lots of side I just wanted to get my head around it so.
From what I understand the Lockdowns have been much less in the U S as opposed to Canada, but the.
The contraction in the Finnish Masters of I know you mentioned the density of new cars, but.
Arguing the other factors other than that because of the sale of all the cards has been much higher the lockdowns have been substantially curious so is it just about the new car sales that eventually or is it an uptick in the business or is there something else that we should look at as well.
Well I believe that the fundamental thing that's impacting it today, it's just the driving patterns I mean, we're certainly seeing the.
The less density in the major markets.
Resulting in the west collisions.
You can see that in the insurance reports has been insurers reports as well.
Certainly thats true in Canada as well.
For different reasons, but.
It's just pure demand right now.
Okay, That's fair and just last from nice and the North Sea.
In the PPA business, you had mentioned that you transition to a single system I'm. Just wondering if there is anything left on the cost side is there something that youre doing there or that's pretty much done and now it's about growing the top line there.
Well, we certainly have done most of the heavy lifting in the Tpa in CAG has done.
But we're certainly on a continuous improvement journey and all three businesses.
And we're certainly beginning on.
We've done a lot of work for.
For them as well.
So theres certainly goodness in front of us in all three of the businesses that we're going to continue to pursue.
Alright, that's it for me thank you.
Thank you next question will be from Benoit Poirier Theres All day. Please go ahead.
Yes, good morning, everyone and congrats for the good quarter.
Good morning, gentlemen.
So now when we look at the margins on the parts alliance in the kidney the units.
Any of group doesn't improve its back on track. There has been also new appointments combined with the names for balance sheet I was wondering whether it does open the door for a look at some strategy moves and if so could you maybe provide some color.
Okay.
I don't think we're in a position at this point of the model to really comment on that I don't think the you know right now we're focused on operating the business is continuing to see the improvements that we've seen.
And certainly as Brian comes on board, he and I will.
We'll have those discussions of the appropriate time, if it's there.
Okay, that's perfect great color and brand when we look at the polar vortex in February.
Are you be able to quantify what was the impact on the overall business, especially when we look in Canada and the U S is it something that the.
Some of the ideas.
I'm, sorry, I missed the first part of that day, one I apologize.
With respect to the polar vortex in February.
In the U S and the Western Canada.
Would you be able to quantify the impact on your overall business at the finish master and the Canadian automotive.
We certainly are experiencing the same kind of the impacts when you look at the the.
The the collision side in Canada.
It's.
There is no question that we're <unk> sector has been impacted by the pandemic.
On the same slow recovery that we're seeing in the U S.
Okay.
Just a few million dollars been way of we reassess it a few million dollars of this is not a left.
The less and less than five but it's not insignificant in terms of margin contribution when the when it happens right.
It also involves flow is also made of all closing stores during the in some cases are going to weather the storms that occurred in some of our customers were actually shut down for a number of days in certain markets.
Okay.
Specifically for finish master of what we've seen a strong improvement in margin.
But do you see further of fortunate these to adjust costs.
The.
Boost some of the performance improvement plan in 2021, the Brent.
Yes, we are certainly working on that right now on the runway in front of us as we really get more color of that been while we'll certainly share that.
As we've said we've been really taken a deep dive into that for the last the Q.
A few weeks and months.
And certainly that sort of focus right now.
Okay, that's great and by the way.
Right.
As the market recovery of the sales.
Go up and I will also help the <unk>.
The finished master of business into from an overhead absorption perspective the right.
So I think as the marketing.
Go back in the rebound.
You'll see a lot of it's going to the bottom line.
Okay, and where do you see the margin back once the the.
Sales reached the the pre pandemic level, let's say in the second half of 2022, what is kind of the targeted debt level for a finished master.
Well, we don't give color on margins for a quarter I think of what we've indicated to the investment community for finish Master, we see EBITDA margin in the range of 6% to 8%.
We believe the dose ranges are sustainable.
Okay, great quality of debt.
Yes, I think it's a matter of more of revenue for us at the at this point and as Brent said Theres some initiatives underway to further.
Helped the business on the performance.
Net sales is an important element for us.
Okay and last one for me just with respect to the dividend any any thoughts about the timing to reinstate the dividend itself.
D R.
In terms of timing any color would be great. Thanks.
I think for the current time and it will be ultimately the decision of the board of anyway, but I think it's true for the current time to focus on deleveraging Morris with anything else.
And I think that will be.
What will be a trigger point at some point.
That's perfect. Thank you very much for the time.
Thank you Ben.
Thank you next question will be from Jonathan Lamers of BMO. Please go ahead.
Thanks.
Brent in Canada, the distribution centers really outperformed the corporate owned stores.
Is that dynamic sustainable.
On these distribution center sales is that sustainable at these levels.
We believe so I believe that we're seeing marked improvement in all channels of the business with the exception of as I said earlier, just the PBE side of our business.
In Canada.
The substantial improvement in the corporate stores year over year.
Well as we've seen them.
On the independents have done very well in.
We continue to support them.
Thanks.
Eric would you have the April organic sales by division to share with us either relative to 2019, ideally or year over year.
No I don't I don't have that in front of me, but all I can tell you it's positive vis vis 2020 for sure.
The little bit short compared to 2019, as we would expect but.
But I think youll see the quarter in the growth and look at it we're happy with April as what I would say in the.
It seems to be of continuous positive trend for the remainder of the quarter.
Do you have that chart showing that the CCC claim.
Claims counts for the month of March.
We're about 13% below.
19, and that was better than.
Like Youre seeing a nice steady sequential improvement from January February March and in debt.
Like did that continue into April.
Well look at the first as you know of February was a bit bumpy.
Because of the weather switching in the U S.
And look as I've said in the three businesses are compared to April of 2020, obviously.
It's in the right direction.
And the finished faster is mimicking the market as we said and so it's all about the market.
The performance to for us in the coming weeks months.
But we do believe that we're tracking market that's the market rebound in the well.
Get some goodness out of that.
Thanks.
When should the investment community expect Brian Mcmanus to begin joining these quarterly calls.
Hi, Brian and I will talk but I would I would imagine probably next quarter.
Okay. Thanks for your comments.
Thank you.
Thank you.
Once again, ladies and gentlemen, if you do have any questions. At this time. Please slowly press star followed by one on the telephone keypad.
And your next question will be from Zachary of a shed of National Bank. Please go ahead.
More on arrow and congrats on the quarter.
Good morning of that good morning.
Can you speak to the size of the acquisition opportunities you are considering in Canada and are you willing to pull the trigger on those today or are you waiting to reach a certain leverage thresholds.
Well I would say that as.
We said most of these will be viewed as tuck ins, so there'll be accretive to our existing footprints.
So that we bring leverage to the model.
So on the size of those would not.
There'll be materials of the business, but not necessarily transformational.
And I think as far as timing, it's hard to always predict when those are going to exactly happen but.
We're certainly in and process on the on the number of fronts.
And I think we are certainly managing prudently are our cash and.
In our covenants, so we'll make sure we're within both of those.
That's helpful. Thanks.
Last one for me looking to regions that are opening up in the U S debt are farther ahead.
Are you seeing any evidence of persistent headwinds to congestion or rush hour traffic patterns that could be due to increased work from home.
Look I think that that's the phenomenon, we were all trying to figure out how to really dial that in.
Because it's something that I think is going to be here.
The new reality.
There is no real good benchmarks yet of everybody's.
Doing the a lot of statistical looks I think will be of much smarter.
And that position probably.
In the months and quarters to come.
But certainly it's had an impact of Jonathan the short term.
Alright, Thank you very much I'll turn it over.
Thank you.
As a reminder, ladies and gentlemen, if you do have any questions you will need to press star followed by one on you touched on the phone.
And at this time gentlemen, we have no further questions. Please proceed.
So thank you very much for joining us today.
And we look forward to updating you on that in the quarters to come and we'll talk to you or to or on our next quarterly call have a good day and please be safe.
Thank you very much.
Thank you, Sir ladies and gentlemen, this does indeed Andrew.
And as your conference call for today once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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