Q4 2024 AutoCanada Inc Earnings 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 statements.

I encourage you to review <unk> filings on SEDAR plus for a discussion of the statistics.

The fourth quarter news release and financial statements and MD&A.

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 too.

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

Now I'd like to turn the call over to Mr. Paul Anthony Executive Chairman of Auto Canada. 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 Am Paul Anthony Executive Chairman and with me is Sam Cochrane 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 cost following 200 basis points of rate cuts by the bank of Canada last year. Additionally.

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.

Sure.

However, so far in 2025, the Canadian market has cooled and while industry forecasts are for flat new light vehicle unit sales growth in 2045, 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 <unk>.

Tensions and inflationary pressures present risk to market stability in demand.

Amid these challenges auto Canada 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 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. This started with heightened restrictions on discretionary spending and.

Hiring in 2020 for September and expanded to include the introduction of the AC Ax 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 31.

Key savings schedules are included on our Investor presentation.

And include 60.

$63 million from standardizing dealership operations $23 million from enhanced cost controls and financial disciplines $10 million from improved inventory management.

$5 million from centralizing administrative functions.

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.

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

Key actions taken include.

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

The sale of three non course to Lantus dealerships generating $59 5 million in net proceeds.

And the reclassification of the U S business.

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.

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.

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

Accordingly, we have paused share buybacks and acquisitions since the fall of 2024.

Until we achieve a more comfortable leverage position profile and position.

Auto candidates 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 goal I also want to take this time to thank our investors and OEM partners for their continued support with that I'm going to turn the call over to Sam for a detailed review of Q4 financials.

Sam.

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 one 2% year over year adjusted EBITDA of $54 1 million up 12, 8% from Q4 last year and diluted earnings per share of 33.

Including discontinued operations, we reported adjusted EBITDA of $47 2 million.

This 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 four 7% year over year.

<unk> unit sales fell eight 4% due to inventory mix challenges and industry wide post COVID-19 normalization of the used car market.

New and used vehicle gross profit per unit dropped 14, 3% and five.

4%, respectively, offsetting modest growth in parts and service.

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.

In total we realized $7 $9 million in savings from this plan and we are tracking at 9 million and total permanent annual run rate cost savings as of the end of December 31 2024.

As of December 31, 2024, we had $157 million outstanding on our $375 million revolving credit facility with a total net funded debt to bank EBITDA covenant ratio of $4 89.

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 two 8% year over year.

Currently consumer sentiment 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.

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.

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.

Prompt that your hand, that's been raised.

<unk> declined from the polling process. Please press star followed by the number two.

If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.

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

Thanks, and good evening everybody.

I'd like to hear I guess overall, how it is that you guys are handling the current tariff situation right now.

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 I'm just trying to figure out really two things one what is your base case going forward as to the impact 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 this.

Yeah. So.

Okay.

I would say.

With regards to the tariffs.

I think that you know.

Yeah.

I don't think it's possible for any of us to answer competently.

What potentially can happen.

That anything can happen and so we're really focused on our controllable.

And our controllable cost out so where.

We're 100% leaning in.

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

And.

We're 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 tariff go.

You have some risk mitigation in place that we were.

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.

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

The decision to to shell.

<unk> business maybe.

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

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

The process 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 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 the right talent in there until now where we're actually doing a bit of a cost out on that business as well trying to make it.

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 in if that was the question.

Yeah.

Under somebody else's leadership that might 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.

Your savings bands.

Porsche Toyota Honda to Peru.

Di.

General Motors, Chrysler I think Theyre all great brands.

And so we.

We think that the desirability for these assets will be will be strong and.

<unk>.

We have made a decision to move on from the U S market.

Last question and then I'll pass the line here as mentioned.

In the press release, just as far as subsequent events.

Looks like you guys if im reading this correctly as of earlier. This month, we are entitled to roughly $15 million from.

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

Through on your balance sheet.

Yeah.

Tim 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 loop.

Okay, great. Thank you.

Oh.

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

Thanks, Good evening everyone.

Kevin.

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 the what are the opposite of decreasing the amount of cars that you have on the line.

Yeah, so on on the used side.

Worse were significantly down.

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

And the reason for that.

Is that.

Buying cars in the in the face of.

A tariff war that might or might not happen.

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

Come September October.

The tariff don't take place.

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 more strategically.

And.

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.

The way, we've kind of gone gone through it is that the downside risk of having more cars.

As far worst than the upside that we could pick up if the tariffs go into place.

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

Maybe.

Maybe.

Sandra you can handle this paul but.

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

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 terminated franchise agreements like you guys are doing with Volvo.

Yeah.

I mean, I'm happy to take a like we're.

We're fully committed to selling these we have a banker in place and.

I think that I think we would look at each other and say that all of these stores have value.

And so we don't we don't see.

A point, where we're terminating anything.

At this point and the timeline.

Oh, sorry go ahead, Paul that Volvo is a little bit of a different story.

They didn't want to be in that market any longer and frankly, it's why.

One of one of six stores under one roof.

And so it made more sense for us to close down the brand.

Got you, Okay, and maybe 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 rates from the cost savings initiatives will be around $100 million.

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

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 let's focus on what we've we've told everybody and lets deliver what we told everybody.

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

Yeah.

Sam would you add a reminder.

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

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

Hi, good afternoon gentlemen.

Okay.

Maybe the first question <unk>, how should we think about leverage too much is providing some.

Data points as.

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.

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

Yes, I think I think.

Ended the year round five leverage.

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.

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 they don't get the discontinued ops treatment so when those windows.

Dealerships are actually sold and closed and we expect those to happen within.

Within the year.

Youll start to see the leverage come down based on that sort of soft scenario you are saying.

Does that make sense Max.

Yes.

Thank you and then the.

There was language around.

Presumably small inventory adjustment on the used side of things do Mike maybe just quantifying how much that was in the quarter.

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.

So the reason behind that was we had some 23% and 22 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 are seeing the actual used provision in the quarter was quite small.

Okay. Okay, that's great and then.

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 in order to fully realize cost savings opportunities that kind of accurate or am I misreading.

The footage thanks.

But 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 equation or are you taking into account operating leverage et cetera.

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

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

And we're basically looking at the.

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

Right and so 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 levels of sensitivity, we should be thinking about.

So Max no I think Oh go ahead, Paul Oh, Yes, we're going to say no. We think we think there's $100 million opportunity to take out of the business, but I'll, let you carry on fan.

Yeah, no exactly we think it's sort of a $100 million unless there is a sort of catastrophic scenario, Max where but even in that case and sort of.

Deal in volumes go down there is still opportunity to cut rates. So you've got to think about the store archetype really what the store Oncotype 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 the soft scenario resetting those head count those are real hard costs right.

Renegotiating contracts it shared services right. So these things are all hard costs. So even in a soft scenario, we're going to be able to get to the $100 million that makes sense, yes.

Yes, 100% I just want to clarify that that's exactly the case, yes, yes, that's great.

Okay. Okay. 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 is 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. Thank you for your participation you may now disconnect.

Luke Hannan: 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 these forward-looking statements. I encourage you to review AutoCanada's filings on SEDAR+ for a discussion of these risks, the fourth quarter news release, and financial statements and MD&A. 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 phone. If you'd like to withdraw your question, please press star followed by the number two. I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 19, 2025.

Luke Hannan: Now, I'd like to turn the call over to Mr. Paul Antony, Executive Chairman of AutoCanada. Please go ahead, Mr. Antony.

Paul Antony: 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 Cochrane, 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. 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.

Paul Antony: 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. 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 months, 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 31.

Paul Antony: Key savings schedules are included on investor presentation and include $63 million from standardizing dealership operations, $23 million from enhanced comps controls and financial disciplines, $10 million from improved inventory management, and $5 million from centralizing administrative functions. 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. Our second priority has been strategic review, which has concluded and aligned our asset portfolio with core Canadian dealerships and collision operations.

Paul Antony: Key actions taken include closure of all Wright Ride locations, which incurred a -$11 million adjusted EBITDA loss in 2024, the sale of three non-core Stellantis dealerships generating $59.5 million in net proceeds, and the reclassification of the U.S. business 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. Finally, our third focus is on reducing our leverage ratio to between two and three times EBITDA through profitability improvements and debt reduction initiatives. Successful execution of the ACX operating method is critical to this effort. Accordingly, we have paused share buybacks and acquisitions since the fall of 2024 until we achieve a more comfortable leverage profile and position.

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

Sam Cochrane: 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 a diluted earnings per share of $0.33. Including discontinued operations, we reported an 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.

Sam Cochrane: 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. 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.

Sam Cochrane: As of December 31, 2024, we had $157 million outstanding on our $375 million revolving credit facility, with a total net funded debt-to-bank EBITDA covenant ratio of 4.89. 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 sentiment 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. 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.

Luke Hannan: 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 touch-tone 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 two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Luke Hannan from Canaccord Genuity. Your line is now open.

David Ocampo: Thanks, and good evening, everybody. I'd like to hear, I guess, overall how it is that you guys are handling the current tariff situation right now. I really think 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. Just trying to figure out really two things. One, what is your base case going forward as to, you know, the impact on your business? 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?

Paul Antony: Yeah, Luke, I would say with regards to the tariffs, 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. We're really focused on our controllables. Our controllables are the cost out. We're 100% leaning in on the operations of our business, making sure that we operate in line with our peers. We're kind of looking at this in some ways, kind of like COVID. It was just very unknown. 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.

Paul Antony: As far as the tariffs go, we have some risk mitigation in place that we're discussing internally, but it's anybody's guess as to where the world goes with tariffs on either side of the border.

David Ocampo: Okay, that makes sense. Thanks. I also wanted to ask about the decision to sell the U.S. 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 one party thinking normalized earnings is one number, 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. business is as of today? That's part number one of the question. Number two is, again, sort of related to tariffs, do you see the process being slowed down at all just as a result of this sort of macro uncertainty?

Paul Antony: In the U.S., I don't really think that we have a view on what normalized results are in the U.S. The reason is, we've tried time and time again to rebuild that business. 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 turn around. From our perspective, I don't think that we have what normalized earnings should be in the United States. I think that was a question, and if that was a question, 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. They're all great brands.

Paul Antony: We think that the desirability for these assets will be strong. We've made a decision to move on from the U.S. market.

David Ocampo: Last question, and then I'll pass the line here, is 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 the Ukrainian loans related to a subsidiary, and then there's an additional $16 million that you're entitled to. What exactly is this, I guess, and when roughly might we expect this to blow through on your balance sheet?

Paul Antony: Sam, over to you.

Sam Cochrane: 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, Luke.

David Ocampo: Okay, great. Thank you.

Luke Hannan: Your next question comes from the line of David Ocampo from Cormark Securities. Your line is now open.

David Ocampo: Thanks. Good evening, everyone. Thanks, David. 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?

Paul Antony: Yeah, on the used side, we're significantly down in the number of used vehicles that we have in stock. The reason for that is that buying vehicles in the face of a tariff war that might or might not happen at this point in time could potentially result in us overpaying for vehicles. If for whatever reason, come September or October, the tariffs don't take place, you'd be sitting on just a pile of inventory that would potentially be overpriced. It's just not a risk that we're willing to walk into right now. We're thinking more strategically, and from our perspective, having less inventory right now on the used vehicle side makes a lot more sense than having more inventory.

Paul Antony: 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 vehicles is 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 Sam, or you can handle this, Paul, but just moving the U.S. operations to discontinued ops, I think IR for our standards means that the business or the expectation that you guys have is it will be sold in the next 12 months. Is your base case that the assets are sold or do you guys terminate franchise agreements like you guys are doing with Volvo?

Paul Antony: I'm happy to take it. We're fully committed to selling these. We have a banker in place. I think that we would look at each other and say that all these stores have value, so we don't see a point where we're terminating anything at this point.

Sam Cochrane: The timeline.

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

David Ocampo: Gotcha. Okay. Maybe the 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. It may be too early, but do you think there's more to squeeze out of the lemon here beyond the $100 million?

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

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

Sam Cochrane: Sam, would you add?

Luke Hannan: As a reminder, if you have any questions, please press star one on your telephone keypad. Your next question comes from the line of Maxim Sytchev from National Bank Financial. Your line is now open.

Maxim Sytchev: Hi, good afternoon, gentlemen. Maybe the first question for Sam, if I may, how should we think about leverage? Do you mind just providing some 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 leverage trending as the year progresses? I guess like impacts on working capital, etc. Thanks.

Sam Cochrane: I think we ended the year around five leverage. I think you should think of leverage sort of staying a bit elevated throughout the year in that sort of scenario until we exit the U.S. businesses. The way that our EBITDA works for bank purposes is the U.S. losses don't get backed out until the stores are actually sold. They don't get the discontinued ops treatment. When those dealerships are actually sold and closed, and we expect those to happen 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, Max?

Maxim Sytchev: Yeah, that's perfect. Thank you. There was language around, 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?

Sam Cochrane: 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. The reason behind that was we had some 2023s and 2022s that were getting a bit old. Being a bit conservative, we took a provision on some older new vehicles. I think that might be what you're seeing. The actual used provision in the quarter was quite small.

Maxim Sytchev: Okay, that's great. 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 in order to fully realize cost savings opportunity, is that kind of accurate or am I misreading the verbiage? Thanks.

Paul Antony: That's absolutely accurate.

Maxim Sytchev: 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.?

Paul Antony: I think the way we're thinking about it is we're controlling what we can, right? We're making the assumption that last year was a bit of the low watermark, and we're basically looking at the hard costs out of the business, things that we can control.

Maxim Sytchev: Right. 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 million versus $100 million? Is that the level of the sensitivity we should be thinking about?

Sam Cochrane: Max, no, I think, go ahead, Paul.

Paul Antony: 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, Sam.

Sam Cochrane: Yeah, no, exactly. We think it's sort of $100 million. I mean, unless there's a sort of catastrophic scenario, Max, where, even in that case, as deal and volumes go down, there's still opportunity to cut, right? You have to think about the store archetype. Really, what the store archetype is, is how many salespeople per deal, what's our strategy on reception, what's our strategy on lot attendance, right? Even in the soft scenario, resetting those headcounts, those are real hard costs, right? It's renegotiating contracts. It's shared services, right? These things are all hard costs. Even in a soft scenario, we're going to be able to get to the $100 million. Does that make sense?

Maxim Sytchev: Yeah, no, 100%. I just want to clarify that that's exactly the case.

Sam Cochrane: Yeah, that's great.

Maxim Sytchev: Okay. That's it for me. Thank you so much, gentlemen. Super helpful.

Luke Hannan: There are no further questions at this time. I will now turn the call back to Mr. Paul Antony. Please continue.

Paul Antony: Listen, we appreciate everybody's time on this call and look forward to presenting to everybody back for the next May board meeting. 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. Thanks, everybody, and look forward to talking to everybody in May.

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