Q4 2024 AutoCanada Inc Earnings Call

Operator: Thank you for joining AutoCanada's conference call to discuss the potential results for the fourth quarter of 2024.

Thank you for joining other candidates conference call to discuss the results for the fourth quarter of 2024.

John: I'm John, your moderator for today's call. Before we begin, I'd like to remind everyone that today's discussion may include forward-looking statements. which are subject to risks and uncertainties. Actual results could differ materially from those anticipated in this forward-looking statement.

I'm, Johnny your moderator for today's call.

Before we begin I'd like to remind everyone that today's discussion may include forward looking statements.

Which are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in the forward looking statements.

John: I encourage you to review Autocanada's filings on CDER Plus for a discussion of this risk. the fourth quarter news release, and financial statements and MD&A.

I encourage you to review arthritis filings and see there plus for a discussion of the statistics.

The fourth quarter news release, and financial statements and M. D N a.

John: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star followed by the number one on your touchtone. Thank you. If you'd like to withdraw your question, please press star followed by the number 2.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you'd like to ask a question at that time. Please press star followed by the number one on your Touchtone phone.

If you'd like to withdraw your question. Please press star followed by the number two.

John: I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 19, 2025.

I'd like to remind everyone that this conference call is being recorded today.

Wednesday March 19 2025.

Paul Anthony: Now, I'd like to turn the call over to Mr. Paul Anthony, Executive Chairman of AutoCanada. Please go ahead, Mr. Anthony. Thank you, Operator. Good evening, everyone, and thank you for joining us today for our fourth quarter 2024 earnings call. I'm Paul Antony, Executive Chairman, and with me is Sam Cochran, CFO. We appreciate your time and interest. During the fourth quarter, there was good demand for new light vehicles in Canada driven by OEM incentives and lower financing costs following 200 basis points of rate cuts by the Bank of Canada last year. Additionally, we saw positive contributions from parts and service, recent acquisitions, reduced floor plan expenses, and lower operating costs, which helped offset declines in new, used, and F&I GPU, and led to our Canadian operations growing adjusted EBITDA by 12.8% year-over-year in Q4.

Speaker Change: Now I'd like to turn the call over to Mr. Paul Anthony Executive Chairman Auto Canada. Please go ahead Mr. Anthony.

Speaker Change: Thank you operator, good evening, everyone and thank you for joining us today for our fourth quarter 2024 earnings call I'm, Paul Anthony Executive Chairman and with me is Sam Cochrane CFO. We appreciate your time and interest.

Speaker Change: During the fourth quarter, there was good demand for new light vehicles in Canada, driven by OEM incentives and lower financing costs. Following 200 basis points of rate cuts by the bank of Canada last year.

Speaker Change: Additionally, we saw positive contributions from parts and service recent acquisitions reduced floorplan expenses, and lower operating costs, which helped offset declines of new used and F&I GPU and led to our Canadian operations growing adjusted EBITDA by 12, 8% year over year in Q4.

Speaker Change: <unk>.

Paul Anthony: However, so far in 2025, the Canadian market has cooled, and while industry forecasts are for flat new light vehicle unit sales growth in 2025, we're navigating an increasingly complex landscape. The North American automotive sector and the Canadian economy are very vulnerable to U.S. tariffs and escalating trade tensions, and inflationary pressures present risks to market stability and demand.

Speaker Change: However, so far in 2025, the Canadian market is called and while industry forecasts are for flat New light vehicle unit sales growth in 2045, we're navigating an increasingly complex landscape.

Speaker Change: North American automotive sector, and the Canadian economy are very vulnerable to U S tariffs and escalating trade tensions and inflationary pressures present risk to market stability in demand.

Paul Anthony: Amid these challenges, AutoCanada remains highly focused on executing its transformation plan launched in Q3 of 2024 with three key priorities. The first is operational transformation. We are targeting $100 million in annual run rate cost savings compared to our trailing 12-month, second quarter 2024 operating expenses, excluding depreciation, amortization, and one-time items by the end of 2025. This started with heightened restrictions on discretionary spending and hiring in 2024 September and expanded to include the introduction of the ACX operating method in the fourth quarter. Last year, we realized $7.9 million in savings from our transformation plan, tracking an annualized run rate savings of $9 million as of December 31st.

Speaker Change: Amid these challenges auto Canada remains highly focused on executing its transformation plan launched in Q3 of 2024 with three key priorities.

Speaker Change: The first is operational transformation, we are targeting $100 billion in annual run rate cost savings compared to our trailing 12 months second quarter 2024 operating expenses, excluding depreciation amortization and one time items by the end of 2025, they started with heightened.

Speaker Change: Restrictions on discretionary spending and hiring in 2020 for September and expand it to include the introduction of the ACF operating method in the fourth quarter.

Speaker Change: Last year, we realized $7 $9 million in savings from our transformation plan tracking an annualized run rate savings of $9 million as of December 31st.

Paul Anthony: Key savings schedules are included on investor presentation. and include $63 million from standardizing dealership operations. Twenty-three million dollars from enhanced cons, controls, and financial disciplines. Ten million dollars from improved inventory management. $5 million from centralizing administrative function. Annual run rate savings should reach $36 million in Q1 2025, $64 million in Q2, $82 million in Q3, and $100 million by the end of Q4. We expect this transformation plan to allow us to realize $32.6 million in cost savings, net of restructuring costs to our bottom line in 2025.

Speaker Change: These savings schedules are included on our Investor presentation.

Speaker Change: And include <unk>.

Speaker Change: $63 million from standardizing dealership operations $23 million from enhanced cons controls and financial disciplines $10 million from improved inventory management.

Speaker Change: $5 million from centralizing administrative functions.

Speaker Change: Annual run rate savings should reach $36 million in Q1, 2025 $64 million in Q2.

Speaker Change: $82 million in Q3 and $100 million by the end of Q4, we expect this transformation plan to allow us to realize $32 $6 million in cost savings net of restructuring costs to our bottom line in 2025.

Paul Anthony: Our second priority has been strategic review, which has concluded and aligned our asset portfolio with core Canadian dealerships and collision operations. Key actions taken include closure of all right right locations which incurred a minus 11 million dollar adjusted EBITDA loss in 2024. The sale of three non-core Stellantis dealerships generating $59.5 million in net pros. and the reclassification of the U.S. business as a discontinued operation as of December 31, 2024, following a $24.2 million adjusted Evadel loss in 2024, with efforts ongoing to secure a buyer. Finally, our third focus is on reducing our leverage ratio to between two and three times EBITDA through profitability improvements and debt reduction initiatives.

Speaker Change: Our second priority has been strategic review, which is concluded and aligned our asset portfolio with core Canadian dealerships in collision operation.

Speaker Change: Actions taken include.

Speaker Change: Closure of all right right locations, which incurred a minus $11 million adjusted EBITDA loss in 2024.

Speaker Change: The sale of three non course, the Atlantis dealerships generating $59 5 million in net proceeds.

Speaker Change: And the reclassification of the U S business.

Speaker Change: As a discontinued operation as of December 31, 2024, following a $24 $2 million adjusted EBITDA loss in 2024 with efforts ongoing to secure a buyer.

Speaker Change: Finally, our third focus is on reducing our leverage ratio to between two and three times EBITDA through profitability improvements and debt reduction initiatives success.

Paul Anthony: Successful execution of the ACX operating method is critical to this effort. Accordingly, if we have paused share buybacks and acquisitions since the fall of 2024. until we achieve a more comfortable leveraged profile and position.

Speaker Change: Successful execution of the asset ACX operating method is critical to this effort.

Speaker Change: Accordingly, we have paused share buybacks and acquisitions since the fall of 2024 until we achieve a more comfortable leverage position profile and position.

Paul Anthony: AutoCanada is committed to its transformation plan and long-term value creation, and I would like to thank the team for their dedication as they continue to work diligently towards accomplishing our goals. I also want to take this time to thank our investors and OEM partners for their continued support.

Speaker Change: Auto candidate is committed to its transformation plan and long term value creation and I would like to thank the team for their dedication as they continue to work diligently towards accomplishing our goals I also want to take this time to thank our investors and OEM partners for their continued support.

Sam Cochran: With that, I'm going to turn the call over to Sam for a detailed review of Q4 financials. Thank you, Paul, and good evening, everyone. Before I begin, I would like to highlight that unless noted, the financial results discussion will focus on continuing operations. which are the core Canadian operations given that the U.S. business has been moved to discontinued operations as we actively seek a buyer for these assets. During the fourth quarter, we recorded total sales from continuing operations of $1.3 billion, down 1.2% year-over-year, adjusted EBITDA of $54.1 million, up 12.8% from Q4 last year, and had diluted earnings per share of $0.33.

Sam Cochrane: With that I'm going to turn the call over to Sam for a detailed review of Q4 financials.

Speaker Change: Yep.

Speaker Change: Thank you Paul and good evening, everyone before I begin I would like to highlight that unless noted the financial results discussion will focus on continuing operations.

Speaker Change: Which are the core Canadian operations, given that the U S business has been moved to discontinued operations.

Speaker Change: We seek a buyer for these assets.

Speaker Change: During the fourth quarter, we recorded total sales from continuing operations of $1 3 billion down one 2% year over year adjusted EBITDA of $54 1 million up 12, 8% from Q4 of last year and diluted earnings per share of 33.

Sam Cochran: Including discontinued operations, we reported adjusted EBITDA of $47.2 million, which includes a $27.4 million adjustment for the settlement with the FTC, which was announced late last year. Our Canadian business performed better than expected during the quarter with the combination of OEM incentives in certain brands and lower interest rates contributing to strong sales activity in October and November. New vehicle unit sales grew 4.7% year-over-year, while used unit sales fell 8.4% due to inventory mix challenges and industry-wide post-COVID normalization of the used car market. New and used vehicle gross profit per unit dropped 14.3% and 5.4% respectively, offsetting modest growth in parts and service.

Speaker Change: Including discontinued operations, we reported adjusted EBITDA of $47 2 million, which included $27 4 million adjustment for the settlement with the FTC, which was announced late last year.

Speaker Change: Our Canadian business performed better than expected during the quarter with a combination of OEM incentives in certain brands and lower interest rates contributing to strong sales activity in October and November.

Speaker Change: New vehicle unit sales grew 4.7% year over year, while used unit sales fell eight 4% due to inventory mix challenges and industry wide post COVID-19 normalization of the used car market.

Speaker Change: New and used vehicle gross profit per unit dropped, 14.3% and 5.4%, respectively offsetting modest growth in parts and service.

Sam Cochran: Operating expenses as a percentage of gross profit decreased 13.2 percentage points, driven by lower inventory and floor plan rates, plus $5.6 million in cost savings resulting from our transformation plan. In total, we realized $7.9 million in savings from this plan, and we are tracking at $9 million in total permanent annual run rate cost savings as of the end of December 31, 2024. As of December 31st, 2024, we had $157 million outstanding on our $375 million revolving credit facility with a total net funded debt-to-bank even-to-covenant ratio of 4.89.

Speaker Change: Operating expenses as a percentage of gross profit decreased $13 two percentage points, driven by lower inventory and floor plan rates plus $5 6 million in cost savings, resulting from our transformation plan.

Speaker Change: In total we realized $7 9 million in savings from this plan.

Speaker Change: Tracking at 9 million and total permanent annual run rate cost savings as of the end of December 31 2024.

Speaker Change: As of December 31st 2024, we had $157 million outstanding on our $375 million revolving credit facility with a total net funded debt to make EBITDA covenant ratio of 4.89.

Sam Cochran: As Paul noted in his opening remarks, the outlook for 2025 remains uncertain. While strong consumer demand boosted sales in October and November, December saw a sharp slowdown, and so far in 2025, Canadian new light vehicle sales have declined 2.8% year over year. Currently, Consumer Settlement Indicators suggest a cautious approach reflecting heightened economic uncertainty. As we navigate these challenging dynamics, we are highly focused on disciplined execution of our transformation plan to build resilience, reduce leverage, and secure a stable foundation for the future.

Speaker Change: As Paul noted in his opening remarks, the outlook for 2025 remains uncertain.

Speaker Change: Strong consumer demand boosted sales in October and November December saw a sharp slowdown in so far in 2025 Canadian new light vehicle sales.

Speaker Change: Declined two 8% year over year.

Speaker Change: Currently consumer sentiment indicators suggest that cautious approach, reflecting heightened economic uncertainty.

Speaker Change: I think navigate these challenging dynamics, we are highly focused on disciplined execution of our transformation plan.

Speaker Change: Resilience reduce leverage and secure a stable foundation for the future.

Sam Cochran: That concludes our prepared marks.

Speaker Change: That concludes our prepared remarks at this time I'd like to turn the call over to the operator to open the line for Q&A.

Operator: At this time, I'd like to turn the call over to the operator to open the line for Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone.

Speaker Change: We need a prompt that your hand, that's been raised.

Speaker Change: Should you wish a decline from the polling process. Please press star followed by the number too.

Speaker Change: If you're using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.

Luke Hannon: Your first question comes from the line of Luke Hannon from Canaccord. Your line is now open. Thanks and good evening everybody.

Speaker Change: Your first question comes from the line of Luke Hannan from Canaccord. Your line is now open.

Speaker Change: Thanks.

Paul Anthony: I'd like to hear I guess overall how it is that you guys are handling the current tariff situation right now. I realize it's an incredibly fluid environment, it's possible a couple of weeks from now it might not even necessarily be an issue but at this point it certainly seems like it will be at this point. So just trying to figure out really two things. One, what is your base case going forward as to you know the impact on your and then secondly, what exactly are you doing on a day-to-day basis just as far as planning, maybe conversations with OEMs, that sort of thing to best strategize around this.

Luke Hannan: Good evening everybody.

Speaker Change: I'd like to hear I guess overall, how it is that you guys are handling the current.

Luke Hannan: Eric situation right now.

Luke Hannan: Incredibly fluid environment, it's possible a couple of weeks from now it might not even necessarily be an issue, but at this point. It certainly seems like it will be at this point. So just trying to figure out really two things one what is your base case going forward as to <unk>.

Luke Hannan: On your business and then secondly, what exactly are you doing on a day to day basis, just as far as planning, maybe conversations with Oems that sort of thing to the best strategize around us.

Paul Anthony: Yeah, so Luke, I would say. With regards to the tariff. I think that you know I don't think it's possible for any of us to answer competently what potentially can happen. I think that anything can happen, and so we're really focused on our controllables. And our controllables are the cost out, so we're. We're 100% leaning in on the operations of our business, making sure that we operate in line with our peers and...

Luke Hannan: Yeah, So look at it.

Luke Hannan: I would say.

Luke Hannan: With regards to the tariffs.

Luke Hannan: I think that you know.

Luke Hannan: I don't think it's possible for any of us to answer competently, what what what potentially could happen I think that anything can happen and so we're really focused on our controllable.

Luke Hannan: And our controllable cost out so we're.

Luke Hannan: We're 100% leaning in.

Luke Hannan: On the operations of our business, making sure that we operate in line with our peers.

Luke Hannan: And.

Paul Anthony: were kind of Looking at this kind of in some ways, kind of like COVID, it was just very unknown and we're trying to build the best balance sheet we possibly can with the most efficient operating model that we can, with the things that we know that we can control, if that makes sense. As far as the tariffs go, you know, we have some risk mitigation in place that we, you know, we're, we're. We're discussing internally, but it's anybody's guess as to where the world goes with tariffs on either side of the border. Okay, that makes sense.

Luke Hannan: Where kind of.

Luke Hannan: Looking at this kind of and in some way, it's kind of like Covid. It was just very unknown and we're trying to build the best balance sheet, we possibly can with the most efficient operating model that we can with the things that we know that we can control them.

Luke Hannan: If that makes sense.

Luke Hannan: As far as the tariffs go away.

Luke Hannan: You have some risk mitigation in place that we you know where where.

Luke Hannan: We're discussing internally, but it's anybody's guess as to where the world goes with with tariffs on either side of the border.

Luke Hannan: Okay that makes sense. Thanks, and then I also wanted to ask about.

Luke Hannon: And then I also wanted to ask about, you know, the decision to sell the US business. Maybe it's a two-part question here. First, I know when it comes to, Paul, when you've done M&A here at AutoCanada in the past, one of the things that's come up is this sort of bid-ask spread that develops as a result of, you know, one party thinking normalized earnings is one number, the other party thinking it's another, and then just not able to bridge that gap as part of the negotiation process. What's your view on what the normalized earnings for this US business is as of today?

Luke Hannan: The decision to sell.

Luke Hannan: The U S business maybe.

Speaker Change: Two part question here first I know when it comes to Paul with when you've done M&A here at auto Canada. One of the things. That's come up is this sort of bid ask spreads that developed as a result of one party thinking normalized earnings is one number of the other party thinking it's another and then just not being able to bridge that gap as part of the negotiation.

Process, what's your view on what the normalized earnings for this U S businesses as of today. That's our number one other question and then number two is I guess sort of related to tariffs do you see the process.

Paul Anthony: That's part number one of the question. And then number two is, again, sort of related to tariffs. Do you see the process, you know, being slowed down at all just as a result of this sort of macro uncertainty? So in the U.S. I don't really think that we have a view on what normalized results are in the U.S. And the reason is, look, we've tried... time and time again to rebuild that business and it just seems like we... probably don't have the right talent in there. Until now, we're actually doing a bit of a cost out on that business as well, trying to make it...

Speaker Change: It slowed down at all just as a result of this.

Speaker Change: Macro uncertainty.

Speaker Change: So in the U S.

Speaker Change: I I don't really think that we have a view on what what normalized results are in the U S. And the reason is look we've tried.

Speaker Change: Time, and time again that rebuild that business and it just seems like we.

Speaker Change: Probably don't have the the right the right talent in there until you know now where we're actually doing a bit of a cost out in that business as well trying to make it you know.

Paul Anthony: turnaround but but from our perspective i don't think that we have you know what normalized earnings should be in the united states i think that was a question in it if that was a question i Under somebody else's leadership, that might change. We think that there's a lot of people... that have a better capability to run that business. With that said... These are all highly desirable brands in the United States, Mercedes-Benz. Porsche, Toyota, Honda, Subaru, Hyundai, Kia, General Motors, Chrysler, like they're all great brands. And so... We think that the desirability for these assets will be strong.

Speaker Change: Turnaround, but from our perspective I don't think that we have you know what normalized earnings should be in the United States. I think that was the question isn't it if that was the question.

Speaker Change: Under somebody else's leadership that might that might change, we think that there's a lot a lot of people.

Speaker Change: That have a better capability to run that business with that said.

Speaker Change: These are all highly desirable brands in the United States, a Mercedes Benz.

Speaker Change: Porsche Toyota Honda two.

Speaker Change: Through and Ikea.

Speaker Change: General Motors, Chrysler I think they're all great brands.

Speaker Change: And so we.

Speaker Change: We think that the desirability for these assets will be will be strong and you know.

Speaker Change: We we we we we've made a decision to move on from the U S market.

Paul Anthony: We've made a decision to move on from the U.S.

Paul Anthony: market.

Luke Hannon: Last question, and then I'll pass the line here. As mentioned in the press release, just as far as subsequent events, it looks like you guys, if I'm reading this correctly, as of earlier this month, you're entitled to roughly $15 million from repayment of loans related to subsidiary, and then there's an additional $16 million that you're entitled to. So what exactly is this, I guess, and when roughly might we expect this to flow through on your balance sheet?

Speaker Change: Last question and then I'll pass along here as mentioned.

Speaker Change: And that in the press release, just as far as subsequent events.

Speaker Change: Like you guys if I'm reading this correctly as of earlier. This month, we are entitled to roughly $15 million from.

Speaker Change: Loan related to subsidiary and then there's an additional $16 million you are entitled to so what what exactly is this I guess in when roughly might we expect this.

Speaker Change: Through on your balance sheet.

Sam Cochran: Dan, over to you. Yeah, so this was a structure in place for a certain dealership where we didn't have full ownership of it, but we had control through a loan. I would expect that to hit our balance sheet in Q1. Okay, great. Thank you.

Tim: Tim over to you.

Tim: Yeah. So this was a structure in place for a certain dealership, where we didn't have full ownership of it but we had control through a loan.

Tim: I would expect that to hit our balance sheet in Q1 Luke.

Tim: Okay, great. Thank you.

Tim: Yeah.

David Ocampo: Your next question comes from the line of David Ocampo from Cormark Securities. Your line is now open. Thanks. Good evening, everyone.

Tim: Your next question comes from the line of David Ocampo from <unk> Securities. Your line is now open.

David Ocampo: Thanks, Good evening everyone.

Tim: David.

Paul Anthony: Paul, I get that tariffs are a little bit fluid, but just following up on Luke's question or line of questioning there, have you guys altered your inventory mix at all, whether increasing the amount of new or used vehicles that you have on the lot or opposite, decreasing the amount of cars that you have on the lot? Yeah, so on the on the use side, we're we're significantly down. and the number of used cars that we have in stock. The reason for that is that. buying cars in the in the face of a tariff war that might or might not happen.

Speaker Change: Well I guess, the tariffs are a little bit fluid, but just following up on lukes question or line of questioning there have you guys altered your inventory mix at all whether increasing the amount of new or used vehicles that you have on a lot of our or opposite decreasing the amount of cars that you have on the lot.

Speaker Change: Yeah. So on on the used side worse were significantly down.

Speaker Change: And the number of used cars that we have in stock.

Speaker Change: And the reason for that.

Speaker Change: Is that.

Speaker Change: Buying cars in the in the face of.

Speaker Change: A tariff war that might or might not happen.

Paul Anthony: at this point in time could potentially result in us overpaying for cars and if for whatever reason Come September, October, that the tariffs don't take place. you'd be sitting on just a pile of inventory that would potentially be overpriced. And it's just not a risk that we're willing to walk into right now. And so we're thinking, you know, more strategically. From our perspective, having less inventory right now on the used car side makes a lot more sense than having more inventory. The downside risk if the tariffs actually happen versus don't happen, I think the way we've kind of gone through it is that the downside risk of having more cars is far worse than the upside that we could pick up if the tariffs go into place.

Speaker Change: At this point in time could potentially result in us overpaying for cars and if for whatever reason.

Speaker Change: Come September October.

Speaker Change: That the tariffs don't take place.

Speaker Change: You'd be sitting on just a pile of inventory that would potentially be overpriced and it's just not a risk that we're willing to walk into right now and so we're thinking you know more strategically.

Speaker Change: And.

Speaker Change: From our perspective, having less inventory right now in the used car side. It makes a lot more sense than having more inventory the downside the downside risk if the tariffs actually happened versus don't happen I think what the way we've kind of gone gone through it.

Speaker Change: Is that the downside risk of having more cars.

Speaker Change: As far worse than the upside that we could pick up if the tariffs go into place.

David Ocampo: Okay, that seems to make a lot of sense and it is prudent. Maybe...

Speaker Change: Okay that seems to make a lot of something that is prudent.

Speaker Change: Maybe.

Paul Anthony: Maybe Sam or you can handle this, Paul, but just moving the US operations to discontinued ops, I think IFRS standards means that the business or the expectation that you guys have is it will be sold in the next 12 months. So is your base case that the assets are sold or do you guys terminate franchise agreements like you guys are doing with Volvo? I mean, I'm happy to take it, like, uh... We're fully committed to selling these. We have a banker in place. And... You know, I think we would look at each other and say that all these stores have value.

Speaker Change: Maybe.

Speaker Change: Sandra you can handle this paul but.

Speaker Change: Just moving to U S operations to discontinued ops, I think IR for our standards means that the.

Speaker Change: The business or the expectation that you guys have is it will be sold in the next 12 months. So as your base case that the assets are sold or do you guys terminate franchise agreements like you guys are doing with Volvo.

Speaker Change: Okay.

Speaker Change: I mean, I'm happy to take a like we're fully committed to selling these we have a banker in place and.

Speaker Change:

Speaker Change: No I think that well I think we would look at each other and say that all of these stores have value.

Paul Anthony: And so we don't see a point where we're terminating. at this point in the timeline.

Speaker Change: And so we don't we don't see a point, where we're terminating anything.

Speaker Change: At this point and the timeline.

Speaker Change: Oh I'm sorry go ahead Paul.

Paul Anthony: Volvo was a little bit of a different story. They didn't want to be in that market any longer. And frankly, it was one of six stores under one roof. And so it made more sense for us to close down the deal. Gotcha.

Speaker Change: Although with a little bit of a different story.

Speaker Change: They didn't want to be in that market any longer and frankly, one of one of six stores under one roof and so it made more sense for us to close down the brand.

Speaker Change: Gotcha Okay.

David Ocampo: Okay, and maybe a last one. Now that you guys have completed the pilot program, and it does seem like there's a high degree of certainty that the exit run rate from the cost savings initiatives will be around $100 million.

Speaker Change: Okay, and maybe last one now that you guys have.

Speaker Change: The pilot program and it does seem like there's a.

Speaker Change: A high degree of certainty that the exit run rate from the cost savings initiatives will be around $100 million.

Paul Anthony: It may be too early, but do you think there's more to squeeze out of the lemon here beyond the $100 million? I, I mean. I think that what we've told everybody is what we feel comfortable and confident we're going to get. And I think that there might be more beyond that, but let's focus on what we've told everybody and let's deliver what we've told everybody.

Speaker Change: It may be too early but do you think theres more to squeeze out of the lemon here beyond the $100 million.

Speaker Change: I I mean.

Speaker Change: I think that what we've told everybody is what we feel comfortable and confident we're going to get.

And I think that there might be more beyond that but let's let's focus on what we've we've told everybody and lets deliver what we told everybody.

David Ocampo: Okay, that's it for me. Thanks a lot, everyone.

Speaker Change: Okay. That's it for me thanks, a lot everyone.

Operator: Would you add my third?

Speaker Change: Dan would you add reminder.

Operator: As a reminder, if you have any questions, please press star 1 on your telephone keypad.

Speaker Change: As a reminder, if you have any questions. Please press star one on your telephone keypad your.

Maxim Sychev: Your next question comes from the line of Maxim Sychev from National Bank Financial. Your line is now open. Hi, good afternoon, gentlemen. Maybe the first question for Sam if I may, how should we think about leverage? Am I just providing some, you know, data points as, like, if you're trying to sort of provide a bit of sensitivity, let's say EBITDA is kind of flat, how should we think about the leverage trending as the year progresses? And I guess like impacts on working capital, etc. Yeah, I think, you know, I think we ended the year around five leverage.

Speaker Change: Your next question comes from the line of Maxim <unk> from National Bank Financial Your line is now open.

Speaker Change: Hi, good afternoon gentlemen.

Speaker Change: Okay.

Speaker Change: Maybe the first question for Sam, but how should we think about leverage demand just providing some.

Speaker Change: Datapoints as.

Speaker Change: Like if you were trying to sort of provide a bit of sensitivity, let's say EBITDA is kind of flat how should we think about the leverage trending as the year progresses and.

Speaker Change: And I guess like impacts on working capital et cetera. Thanks.

Speaker Change: Yeah, I think I think we ended the year round five leverage.

Sam Cochran: I think you should think of leverage to sort of staying a bit elevated throughout the year in that sort of scenario until we exit the US businesses. The way that our EBITDA works for bank purposes is the US losses don't get backed out until the stores are actually sold. So they don't get the discontinued ops treatment. So when those when those dealerships are actually sold and closed, and we expect those to happen, you know, within the year, you'll start to see the leverage come down based on that sort of soft scenario you're saying. Does that make sense, Mac?

Speaker Change: I think you should think of leverage deserves gain a bit elevated throughout the year in that sort of scenario and totally exited the U S businesses.

Speaker Change: The way that our EBITDA works for bank purposes is the U S losses don't get backed out until those stores are actually sold so.

Speaker Change: So they don't get the discontinued ops treatment so when those when those.

Dealerships are actually sold and closed and we expect those to happen with it within the year.

Speaker Change: Youll start to see the leverage come down based on that sort of soft scenario, you're saying.

Speaker Change: Does that make sense Max yeah.

Maxim Sychev: Yeah, that's perfect.

Sam Cochran: Thank you. And then there was language around this, I presume, a small inventory adjustment on the use side of things. Do you mind maybe just quantifying how much that was in the quarter? I don't know exactly what you're looking at there, but we did do an actual new inventory provision this quarter for about 2.6 million. And so the reason behind that was, we had some 23 and 22 that were getting a bit old. So, being a bit conservative, we took a provision on some older new vehicles. I think that might be what you're seeing.

Speaker Change: Perfect. Thank you and that there was language around us I presume a small inventory adjustment on the used side of things do you mind, maybe just quantifying how much that was in the quarter.

Speaker Change: I don't know exactly what youre looking at there, but we did do an actual new inventory provision this quarter for about $2 6 million.

Speaker Change: And so the reason behind that was we had in 'twenty three and 'twenty two that we're getting a bit old so being a bit conservative we took a provision on some older new vehicles, I think that might be what you're seeing he actually used provision in the quarter was quite small.

Maxim Sychev: The actual use provision in the quarter was quite small. Okay, okay, that's great. And then, Paul, if I may, in terms of, and again, correct if I'm wrong, the language around macro needing to stay kind of flattish in order to fully realize cost savings opportunity, is that kind of accurate? Or am I misreading the verbiage? That's absolutely accurate. And I guess, do you mind maybe delving a little bit about why that's the case, if we're kind of looking specifically at the cost side of the equation, or are you taking into account operating leverage, etc.? I think the way we're thinking about it is...

Speaker Change: Okay. Okay, that's great and then.

Speaker Change: Paul if I may in terms of and again correct me if I'm wrong the language around macro needing to stay kind of flattish.

Speaker Change: Fully realize cost savings opportunities that kind of accurate or am I misreading.

Speaker Change: The Turkish banks.

Speaker Change: But that's absolutely accurate.

Speaker Change: And I guess do you mind maybe.

Speaker Change: Delving a little bit.

Speaker Change: About why that's the case, if we're kind of looking specifically at the cost side of equation or are you taking into account operating leverage et cetera.

I think the way we're thinking about it is.

Paul Anthony: We're controlling what we can, right? So we're making the assumption that last year was a bit of a low water mark. And we're basically looking at the. the hard costs out of the business, things that we can control. Right. And so, I mean, if hypothetically, I don't know, like, you know, new car sales are down 10%, does it mean that the cost savings opportunity is going to kind of grind down to like 80 versus 100 million? Is that the level of sensitivity we should be thinking about? So Max, no, I think, oh, go ahead, Paul.

Speaker Change: We're controlling what we can right and so we're making the assumption that last year was a bit of low low watermark.

Speaker Change: And where we're basically looking at the.

Speaker Change: The hard cost out of the business things that we can control.

Speaker Change: Right and so I mean, if hypothetically I don't know like new car sales were down 10% doesn't mean that the cost savings opportunity is going to kind of grind down to like 80 versus $100 million is not so the level of sensitivity, we should be thinking about.

Speaker Change: So no I think Oh go ahead Paul.

Sam Cochran: Oh, yeah, we're going to say no. We think there's a $100 million opportunity to take out of the business, but I'll let you carry on. Yeah, no, exactly. We think it's sort of 100 million. I mean, unless there's a sort of catastrophic scenario, Max, where, but even in that case, as sort of, you know, deal and volumes go down, there's still opportunity to cut, right? So you got to think about the store archetype. Really, what the store archetype is, is how many salespeople per deal? What's our, what's our strategy on reception? What's our strategy on lot attendance, right?

Yeah, We're gonna say no. We think we think theres, a $100 million opportunity to take out of the business, but I'll, let you carry on fan.

Paul Anthony: Yeah, I know exactly where we think it's sort of a 100 million I mean, unless there's a sort of a catastrophic scenario, Max where but even in that case it sort of.

Paul Anthony: Deal volumes go down there's still opportunity to cut rates. So you got to think about the store archetype really what the store archetype is is how many salespeople per deal what's our what's our strategy AUM reception, what's our strategy on lot of attendance right even in a soft scenario resetting those head count those are real hard costs right.

Sam Cochran: So even in a soft scenario, resetting those headcounts, those are real hard costs, right? it's renegotiating contracts, it's shared services, right? So these things are all hard costs. So even in a soft scenario, we're gonna be able to get to the 100 million. Does that make sense? Yes, 100%. I just want to clarify that that's exactly the case. Yeah, that's great. Yeah.

Paul Anthony: It is renegotiating contracts it shared services right. So these things are all hard costs. So even in a soft scenario, we're gonna be able to get to the $100 million does that make sense.

Paul Anthony: Yes, 100% I just wanted to clarify that that's that's exactly the case that's great. Yeah. Okay. Okay. That's it for me. Thank you so much super helpful.

Maxim Sychev: Okay.

Paul Anthony: That's it for me. Thank you so much, gentlemen. Super helpful. There are no further questions at this time. I will now turn the call back to Mr. Paul Anthony. Please continue. Listen, we appreciate everybody's time on this call and look forward to presenting to everybody back for the next May board meeting and, you know, while there's uncertainty in the market, we're going to be doing the best we can to remain disciplined. and continue to work our plan. So thanks everybody and look forward to talking to everybody in May. Ladies and gentlemen, this concludes today's conference call.

Paul Anthony: Okay.

Speaker Change: There are no further questions at this time I will now turn the call back to Mr. Paul Anthony Please continue.

Paul Anthony: Listen we appreciate everybody's time on this call and look forward to presenting to everybody back for the next May Board meeting and you know while there's uncertainty in the market we're gonna be doing.

Speaker Change: The best we can to remain disciplined.

And continue to work our plan. So thanks, everybody and look forward to talking to everybody in may.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: Thank you for your participation. You may now disconnect.

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