Q4 2022 Uni-Select Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to Uni Select Inc. 's 2022 fourth 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 during this call you.
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Note that today's call is being recorded.
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And I would like to turn the conference over to Max Wogan, Chief Legal Officer, and corporate Secretary. Please go ahead.
Thank you.
Good morning, everyone and thank you for joining us for Uni select fourth quarter and year end conference call.
Presenting this morning are Brian Mcmanus executive chair and CEO of Uni select and Anthony <unk>, Our Chief Financial Officer.
Following their comments, we will open the call for questions.
Please note that all documents referred to in today's conference call, including this webcast presentation can be found on our website at Uni select dot com in the investors section.
As noted on slide two I would like to remind you about the caution regarding forward looking statements, which applies to our presentation and comments.
All amounts are expressed in U S dollars unless otherwise specified with that let me turn the call over to Brian .
Thank you Matt Good morning, everyone and thank you for joining us for our fourth quarter and year end results conference call.
Please turn to slide four.
In 2022, Uni select generated sales of $1 $73 billion, driven by solid organic growth of 10, 7%.
We also achieved significant profitability improvement with a 26% increase in adjusted EBITDA to $185 million and a 67% rise in diluted adjusted EPS to $1 74.
The year also marked an important turning point for the business as we gradually transition to growth by making acquisitions in Canada and opening select Greenfield stores in the U K.
These expansion opportunities were financed by strong cash flow generation stemming from operational improvements and working capital discipline.
During the year, we were also able to reduce our long term debt by nearly $80 million keeping us on a strong footing to pursue acquisition opportunities that may present themselves.
Moving on to slide five for key highlights of the fourth quarter.
On a consolidated basis sales increased six 2% to $425 million.
From $400 million last year, primarily due to organic growth of 10, 6%.
All business units reported organic sales growth, which was mainly attributable to price increases, reflecting the current deflationary environment.
Adjusted EBITDA reached $39 million or nine 2% of sales versus $37 million or nine 4% of sales last year as price increases are better product mix and scaling benefits were offset by certain inflationary cost.
Diluted adjusted EPS remained stable year over year at 32.
Primarily reflecting variations in effective tax rate for the period.
In the U K I am pleased to report the appointment of <unk> as President and COO of GSS effective January 3rd suite beer brings more than 30 years of leadership experience in the aftermarket industry and is off to a running start with GSS.
I'll now turn the call over to Anthony to complete the financial review.
Anthony.
Thank you Brian .
Let's move on to page seven for finished faster.
Sales increased three 4% to $173 million in the fourth quarter.
While organic growth was 5%, mainly driven by the effect of price increases.
Adjusted EBITDA reached $14 4 million.
Or eight 3% of sales.
Compared to $15 6 million or nine 3% of sales for the same period last year.
There's variation reflects the adverse timing of vendor rebates versus prior year.
As well as normal course, bad debt expenses incurred in 2022 as opposed to a recovery in 2021.
Higher fuel costs and higher performance bonuses also weighed on the results.
These factors were partially offset by price increases and higher sales driving scaling benefits.
Turning to page eight for the Canadian automotive group.
Sales in the fourth quarter reached $150 million.
Up 10, 6% from $136 million last year.
Excluding the significant $10 7 million dollar headwind from favorable from unfavorable translation effects due to the value of the Canadian dollar versus the U S dollar.
Sales rose 18, 5%.
This solid improvement includes organic growth of 10, 5% driven.
Driven by higher prices.
And a nine 1% sales increase from acquisitions.
Adjusted EBITDA was $18 1 million.
Or 12% of sales.
Up from $16 8 million or 12, 4% of sales last year.
This slide 40 basis point decrease reflects FX losses.
Higher delivery and travel costs.
As well as higher performance bonuses.
Yeah.
These items were somewhat offset by price increases.
More favorable product mix.
And scaling benefits from higher sales.
Turning now to page nine for GFS.
Sales in the fourth quarter increased four 7% to $101 million.
Compared to $96 million for the same period last year.
This increase reflects strong organic growth of 26%.
Driven by price increases.
The contribution of 10 Greenfield stores opened earlier in the year.
As well as higher e-commerce sales.
These factors were partially offset by a negative currency translation effect of $15 4 million.
Adjusted EBITDA was $10 2 million.
Or a margin of 10, 1%.
Versus $7 $4 million or a margin of seven 6% last year.
This 250 basis point improvement.
Stems from higher sales driving scaling benefits.
And the timing of vendor rebates, which were partially offset by inflationary cost related to fuel utilities and payroll.
As Brian mentioned, we have new leadership at DSS, and we are optimistic about the potential of our U K network.
Turning to page 11 for comments relating to our cash flow.
We generated approximately $45 million in cash flow from operations in the fourth quarter of 2022 <unk>.
Compared to $28 million in the same period last year.
This strong improvement is due to sound working capital management and improved profitability.
Okay.
After accounting for net investment in merchant advances and capital investments.
We generated free cash flow of $40 million in the fourth quarter.
Up from $20 million for the same period last year.
This brought our total free cash flow for the year to $152 million.
Versus $92 million last year.
This solid cash flow performance reflects efforts made across all areas of the business.
Our teams worked hard to improve operational efficiency and to focus on working capital, enabling Uni select to deliver strong cash flow.
I want to thank all of them for this excellent performance.
Turning to our financial position on page 12.
At the end of the year.
Total net debt stood at $234 million.
Which included $96 million of <unk> 16 lease obligations related to buildings.
This represents decreases of $30 million and $75 million, respectively over the past three and 12 months.
Driven by lower net debt and higher adjusted EBITDA.
Our total net debt to adjusted EBITDA ratio continued to improve.
Decreasing to one three times at the end of Q4 from 1.4 times at the end of Q3.
We also closed 2022 with $281 million available liquidity.
Compliance with financial covenants, which positions us favorably to pursue potential opportunities.
In summary, we.
We are pleased with the progress made in 2022 across all three of our business units.
I will now turn the call back to Brian for concluding remarks, Brian .
Thank you Anthony.
Please turn to slide 14.
As we enter 2023, we are confident that our business strategy, we will continue to generate positive momentum for Uni select.
Our key priorities remain on improving profitability by driving organic growth through higher volume across our business units continuing to focus on operational improvements and delivering synergies from recent acquisitions.
We still expect to encounter headwinds from persisting currency translation impact labor and inflation challenges as well as ongoing but moderating supply chain issues.
I am fully confident that our strong team who share our vision and values of ownership teamwork and respect will continue to produce solid results.
For these reasons, we anticipate higher adjusted EBITDA and adjusted EPS in 2023 compared to 2022.
Discipline efficiency and accountability are increasingly part of our DNA as we empower our people to take action oriented towards the creation of shareholder value.
In closing I want to thank all of our employees for a solid year their efforts and teamwork are essential elements and continuously improving the way, we manage our business, thus, providing greater value to our customers and members.
This concludes our presentation, we're now ready to answer your questions operator.
Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if Youre using a speakerphone you will need to lift our hands.
Seth before pressing any Keith. Please go ahead and press Star one now if you do have any questions.
And your first question will be from David Ocampo at core Mark Securities. Please go ahead.
Thanks, Good morning, everyone.
Good morning, Good morning, David.
My first question is on the Joseph margins, they were up quite a bit and I'm not sure. If that's just the Brian effect with him taking over last quarter, but maybe you guys can talk about the sustainability of those levels.
What makes you so positive.
On a go forward basis is it because you guys think you can bridge the gap or narrow the gap a little bit more between <unk> and GSO.
Yes, Thanks, David.
I definitely want to take credit on that.
The team over there is doing a great job I think of a lot of it is scaling benefits, we're getting from the higher sales and we've.
We've seen good results on volume as well as some of the price effect over to GSS and so we're optimistic that again.
Again, we always like to point you to the LTM when youre thinking about sort of the go forward margins.
So we're comfortable that.
It'll hold going forward.
Okay. That's good and then I've been getting.
Quite a bit of questions on.
Pricing for some of the components and products that you guys are selling are you guys still seeing inflation.
Some of the parts or is there potential deflation.
The components that you guys are solid.
For the most part it's it's come down a bit.
I'm not going to say there is zero deflation I think there's certain areas, where we've seen that.
But in general we're still feeling some price pressures across the three divisions in terms of potential.
Price increases coming through over there.
In the coming quarters, Yes, I'd say its balanced day to day I mean, there's nothing new.
I think particular to call out.
No no concern on our minds.
Got it and then last one for me.
I guess with.
There's still a little bit of economic uncertainty out there are you guys seeing that as a tailwind for for your private label products is there more of a push there since I know it's.
Kind of mid priced good value type products.
Yes, David there is.
A few things.
There's a sort of a secular tailwind.
That we've been seeing in terms of.
Aging aging of the car Park.
And I think certainly any any economic factors that would have people hold onto their cars longer would be would be a good thing.
Hard to comment on how that would translate into a into private label demand given that our positioning of private label products sort of varies between.
Between between the businesses in between the various product categories.
But I think overall.
Any any potential economic.
Any potential economic softness.
Should pose a bit of a tailwind to us.
Okay. That's all my questions. Thanks, Thanks, a lot guys.
Thanks, Dave.
Thank you next question will be from <unk> at the Royal Bank Capital markets. Please go ahead.
Yes, so good morning, Brian Good morning, Anthony.
Would you please.
Provide some color on the <unk>.
Each business segment heading into 2023, especially in terms of sales initiatives that will drive volume and organic growth in the 2023.
Yeah I think.
I've already discussed USF in terms of.
We feel we're going to continue to see.
Sales increase because of the focus there and I think it's our goal and in <unk>.
Finished master is as well as our CAG too.
Continue to push on topline growth.
I don't want to get into the specifics in terms of strategies or things like that that Juana.
As you know, we're pretty guarded with that type of stuff.
Okay.
Looking at <unk> now bet Brian .
And that's been appointed how does this change the teams moving forward for the strategy the focus still to drive volume.
Slow down a bit on greenfield location.
Yeah.
It Hasnt changed.
<unk> brings with him a good.
Good track record of good history, and certainly will focus on the operational aspects of the business over there.
So it's very still much aligned with our thought before we're going to tackle any more greenfields, we just want to get the ones that we started.
Built last year are up and running to the level that we're comfortable that it makes sense and.
Obviously focus on our existing branches as well so definitely no no different plans in terms of where we're going with GSO.
Okay.
Joining me from the free cash flow standpoint 2022.
Great performance a lot of the efforts on the working capital management could you discuss about <unk> for 2023, and maybe talk about the new routing software inventory optimization efforts.
Yeah, I won't get into the individual specific initiatives, but I think what I.
I would say is.
There's been a bit of a well known a bit there's been a quite substantial right sizing over the last over the last 18 months.
I think I think what youll see going forward is us.
Kind of growing the working capital in line with in line with sales may be getting a little bit of efficiency out of it.
But I wouldn't expect any.
Any releases of working capital or any meaningful releases of working capital.
Over over 2023.
Okay, perfect and last one for me when we look at E. Commerce sales you made a call out four GSS.
What I understand it the first time, where you have been discussing about E. Commerce sales is this only specific to GSS or what would be the overall strategy when it comes to e-commerce.
Ryan.
Yeah. It's a good question Ben why it is currently only specific to GSS and it is something that.
We plan in the coming quarters to start.
In CAG as well.
Okay. That's it thank you reported.
Thank you.
Your next question will be from Luke Hannan of Canaccord Genuity. Please go ahead.
Yes.
Thanks, Good morning, everyone I wanted to start on the what you're seeing now in the business as far as labor pressures labor pressures excuse me, where you are seeing currently and maybe how it's evolved over the course of the last year or is it simply.
Point, now, where it's just simply higher compensation to attract that talent or is there some other sort of big factor.
Curious to know if that differs across each of your segments.
I would say not only differs across each one of our business units would also differ geographically depend.
Depending on what region, we're operating in and even within the region. It would differ depending on the types of jobs, where we're looking for it. So it's really a factor of.
The labor market in our region and sort of where where people are competing for the same type of labor, but I would say not a lot has changed in the last little while it's still still a very competitive market out there for.
For employees and.
We're holding our own were.
Making the changes we need to do and we believe were.
An attractive company to work for us so.
It's but yes, it still remains a challenge.
Got it.
And then my second question here.
Vendor rebates I'm curious to know what if anything.
Pacifically impacts timing here or is it just when you hit those certain sales levels or Todd.
<unk> targets or is there something else that causes that fluctuation quarter to quarter structurally.
Yes, it's really it's really there's a few things.
Sort of case by case, when we when we earn them or when we're able to actually reconcile the the amount or the purchases with the supplier.
So nothing nothing sort of structurally that I would call out its typical typical ebbs and flows in the business.
And look as we've as we've said the best way to think about sort of margins is to look at the last 12 months.
And I think I would just add to that.
You will recall 2021, we were a bit more conservative.
And left where we were unsure of whether we're going to hit some of the rebates. We left some of them until the end of the year last year into the fourth quarter, whereas this year, we had a bit more experience and comfort and I think we were able to I don't want to say smooth it out, but we were more comfortable recognizing rebates.
A bit sooner.
Understood. Thanks for all the color.
Thank you next question will be from Daryl Young of TD Securities. Please go ahead.
Hey, good morning, everyone.
First question is on finish master.
The results were maybe a little bit lighter than I would've anticipated just given some of the commentary, we're hearing about pricing and raw material price pass throughs.
Is there any additional color you can give us in terms of the volume and price mix or what might be happening that seems faster.
Hey, Darrell it's Anthony there is.
There is there is definitely pricing ongoing I think we've been we've been pretty open about our push towards driving through more and more volume.
And you're starting to see some initial wins in a few geographies.
I think thats, what youre seeing in terms of your question related to margin or revenue Daryl.
Well actually both.
So I think I have covered the covered the volume and I think what youre seeing what youre seeing with respect to Brian with the sorry with respect to rebates as what Brian mentioned earlier.
There was some sort of favorable timing of rebates in Q4 of last year.
And as well as a bad debt reversal in Q4 of last year and if you recall at the time, we sort of called those out.
So what youre seeing now here is probably a little bit of unfavorable <unk> of timing and rebates.
Bad debt expense to sort of normal course.
And higher performance bonuses, just given the fact that the results for DSS.
Sorry for finished master over the year were.
Were quite strong.
So this is sort of in line with what we would've expected.
Okay and would you finished bachelor be maintaining market share within the industry.
I would say so.
Okay.
And then my next my second question is just with respect to CAG.
Yes.
Would you guys be tracking the within the jobber network inventory levels within the job of our network and would that be sitting at relatively normal levels and I'm just trying to think about purchasing patterns for next year is there any is there would there.
They have been buying in front of the inflationary environment and stockpiling inventory that maybe hampers you going forward or.
Is there any dynamics there.
It's a good question a little difficult to answer I would say when we had less it would be less too.
To do with sort of the inflationary of price changes and probably more to do and you'd have to go back.
Probably over a year ago, when some of the supply constraints were happening with certain parts, where we saw a bit of.
I don't want to call it hoarding, but.
Our job is putting inventory at that time, but I.
My my feeling is now it's more normalized what we would have.
Historically, I think there's less of that happening.
Got it okay, and so that's not a risk that you would see across other divisions as well just in terms of customers or.
You are buying in safety stock, we've seen it across some other distribution businesses, where people were aggressively buying knowing that more inflation was coming down the pipe.
I would say that is.
Actually probably slowed down over the last several quarters.
Perfect. That's all from me thanks, guys.
Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on you touched on the phone.
And your next question is from Zachary <unk> at National Bank.
Good morning, everyone congrats on the quarter.
Thanks, Ed.
So you are seeing great results from cost discipline and operating leverage broadly speaking how much further can you push margins if growth were to stall out or is the path forward strictly on a higher top line.
I think.
We will continue to be disciplined.
Across all our business units on how we approach cost obviously theres factors beyond our control.
Related to labor inflation.
Energy costs fuel things like that that would put pressure there in <unk>.
We will do our best to try to offset as we continue to drive efficiencies, but ultimately.
To your point that gets.
Density is going to be the key key driver for us and so our ability to drive sales is going to be important.
The other thing I would add Zack.
There are certain things.
Certain things that we can do it initiatives that we've had ongoing for a while.
Don't depend on purely cost rate spoken we spoke at.
At length about private label business, and how we see an opportunity there and it's being well received by the customer base.
So thats something that that we hope to continue going forward.
Great color. Thanks.
And then how sticky are the prices in each segment and if we were to see deflation, how well will organic growth stand up.
Okay.
I think we've addressed this one a few times in the past right Zach we've gone back.
Gone back.
As reasonable as reasonably as we put in.
Can't really identify peers.
Period of protracted deflation in the products that we.
And the products that we sell.
So that.
That would be that would be my comment on that.
Thank you then just one last one how is the acquisition pipeline looking for Canada and are you working on anything in the U S or UK.
But we won't we won't talk to the specifics.
But I would say.
We're certainly learning that.
As much as we may be a willing acquirer, we need willing sellers as well. So we were constantly looking at various opportunities of different sizes.
We'll see what the coming months.
Or quarters hold for us.
Thanks for taking my questions I will turn it over.
Thank you. Your next question will be from <unk> Khan.
<unk> at RBC capital markets. Please go ahead.
Okay, great. Thanks, and good morning, I, just wanted to follow up on a bit more on the U S commentary from earlier.
Can you kind of think about 2023, we've been hearing from the paint guys about kind of pricing in the system. Obviously, the macro is a little uncertain can you maybe parse a little bit.
Our outlook for next year, how are you thinking about volume versus price the body shops still seem to be popped up a little bit you know could that be a tailwind if that clears up some kind of a bit more color on the drivers in that market over the next kind of 12 months.
Yeah.
Yes, Hi, this is Anthony.
Okay, I think thats right I think the body shops are do continue to be plugged up.
You read the same commentary, we do about from a paint manufacturers I think there will be.
There will be increasing price and.
And we also believe that collision rates are still below pre pandemic levels.
So I think those are the three three potential drivers for growth going forward.
Okay, Great and then I guess on the UK market. The macro there probably became a bit uncertain North America. You bought this made a bunch of changes I guess have you seen have you seen kind of the macro environment and how your business is affected does that tell you anything about how we'll be happy in North America, and others view that maybe as people keep their cars longer it's probably.
The tailwind is that sort of influenced by what youre seeing and kind of the UK today, just curious what the underlying trends there have been more so on the demand side.
That's the kind of cost side more practical.
Yes. It is.
Bit difficult.
To say whether its entirely macro.
How much of it is macro and how much is just call it our team.
Being successful at winning more business.
Probably a mix of both but it's a good point, you're bringing up I think we are seeing demand hold well in the U K.
Right.
Greater economic hardships than we're facing in North America.
Okay, and then just one last quick one I guess just on the capital allocation side of our balance sheet improved.
You said you are looking out for M&A is still but I guess if that besides.
If that doesn't materialize for a period of time is it possible that you may look at other options like maybe a return of capital or something on those lines ex acquisition doesn't materialize in the near to medium term, whereas acquisitions telecom priority.
I would say acquisitions would still be a priority for where are we for capital deployment.
But to your point.
The.
In terms of returning capital shareholders that'll be obviously a board decision.
I can't say when that point in time will come but I think we still feel there is opportunities out there on the acquisition front.
Okay.
Great. Thanks, very much for that.
Excellent. Thank you. Thank you and at this time, we have no further questions registered. Please proceed with your closing remarks.
Thank you operator, and thank you everybody for listening we look forward to updating you on our progress at our next quarterly call have a great day.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines have a good weekend.
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