Q2 2026 AutoCanada Inc Earnings Call
Speaker #1: Thank you for joining AutoCanada's conference call to discuss the financial results for the second quarter of 2026. I'm John, your moderator for today's call.
Speaker #1: 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.
Speaker #1: I encourage you to review AutoCanada's filings on SEDAR+ for a discussion of these risks, as well as the second-quarter news release, financial statements, and MD&A.
Speaker #1: 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. I'd now like to turn the call over to Mr. Samuel Cochrane, Chief Executive Officer of AutoCanada, Inc.
Speaker #2: Good evening, everyone, and thank you for joining us. Before getting into the quarter, I want to spend a few minutes on the environment and the progress we are making across the business.
Speaker #2: The Canadian auto market remains soft in Q2. Consumers are still dealing with affordability pressures, higher financing costs, and broader economic challenges facing Canada. Looking ahead, we expect a challenging market through the balance of the year.
Speaker #2: Against this backdrop, the financial results for the quarter were as expected. But more importantly, we focused on what was in our control and made progress on the priorities we set this year.
Speaker #2: Used vehicle volumes and GPUs improved, inventory moved faster, and finance and insurance performance was strong. These are encouraging signs that the changes put in motion earlier this year are starting to take hold.
Speaker #2: As expected, new vehicle sales and GPUs remained under pressure, reflecting both the softer market and the work still underway to rebuild sales productivity and knowledge across our network.
Speaker #2: The team is working quickly to implement a new in-house sales training program across our dealerships, and this program, combined with getting our new operating team up to full capacity, will begin to move the needle on new vehicle sales and GPUs early in 2027.
Speaker #2: Parts and service for the quarter performed as expected. Looking ahead, we see a big opportunity to increase our gross profit in parts and service by driving higher customer retention through targeting our customers both after the initial sale of the car and after each service visit.
Speaker #2: We are also looking to be more proactive in recruiting technicians, to ensure we have the right level of staffing to service our customers. Our dealership operations priorities for the balance of the year remain unchanged.
Speaker #2: Improving sales productivity and conversion, rebuilding used vehicle margins, increasing fixed operations absorption and service bay utilization, improving inventory discipline and working capital efficiency, and maintaining expense discipline while we grow our top line.
Speaker #2: Turning to the collision business, this continues to be an important growth platform for AutoCanada. The headline revenue comparison and year-over-year decline in adjusted EBITDA were affected by reduced hail work and the recent new store openings, which need some time to get to capacity.
Speaker #2: Importantly, gross profit increased and margins improved, reflecting a stronger mix and contribution from acquired collision businesses. During the quarter, we added Contemporary Coachworks North and South in Calgary, Mascarone in Thunder Bay, and ACX Stratford in Ontario.
Speaker #2: These acquisitions expand our capabilities and build density in markets where we can benefit from insurer relationships, OEM certifications, and dealership referrals. Our focus now is on integrating these businesses and improving performance across the platform.
Speaker #2: That includes expanding certifications and insurer relationships, increasing throughput, strengthening technician development, and growing high-value services such as diagnostics and calibrations. We will continue to pursue collision opportunities selectively, with a clear focus on returns, integration capacity, and balance sheet discipline.
Speaker #2: We also made good progress simplifying the portfolio and sharpening our focus. During the quarter, we completed the sale of Hyundai of Lincolnwood and Toyota of Lincolnwood. We have now received approximately $106 million from the U.S.
Speaker #2: We have agreements in place for the remaining dealerships, and still expect proceeds of at least $130 million, subject to customary closing conditions and OEM approvals.
Speaker #2: After quarter-end, we also sold three Canadian dealerships in British Columbia. While we are committed to growing our dealership network across Canada, we will not tolerate assets that do not meet our long-term return objectives.
Speaker #2: Where we see a path to improve performance, we will act decisively to execute a turnaround. Where we do not, we will redeploy capital into opportunities that deliver stronger returns and greater value for our shareholders.
Speaker #2: Before turning the call over to Mike, I wanted to welcome him to AutoCanada. Mike joined us as CFO in July and has already focused on strengthening financial discipline, improving decision support for our operating teams, and helping move the company toward its target leverage range.
Speaker #2: Mike, over to you.
Speaker #3: Thank you, Sam, and good evening, everyone. I am pleased to have joined AutoCanada and look forward to working with Sam, the board, and our operating teams as we improve performance, strengthen the balance sheet, and enhance financial discipline across the organization.
Speaker #3: Revenue from continuing operations increased 6% year over year to $1.4 billion, with growth in both new and used vehicle sales and continued strength in finance and insurance.
Speaker #3: Same-store revenue increased 5.5%. Growth was offset by lower parts and service revenue and lower collision revenue. Gross profit declined 8.1% to $207 million, and gross profit percentage declined 220 basis points to 14.6%.
Speaker #3: The decline reflects continued pressure on vehicle margins and softer fixed operations performance, partially offset by strengthened collision and finance and insurance. Adjusted EBITDA from continuing operations was $52 million, compared with $64 million last year.
Speaker #3: Adjusted EBITDA margin was 3.7%, compared with 4.8% in the prior year. Net income from continuing operations was $12.1 million, or $0.46 per diluted share, compared with $18.9 million, or $0.72 per diluted share in the prior year.
Speaker #3: In the dealership business, used vehicle revenue increased 13.3%, supported by a 10% increase in retail units and a 2.9% increase in average selling price.
Speaker #3: As Sam noted, gross profit for used vehicles improved sequentially but remained under pressure as we continued to work through aged inventory. The improvement in inventory days of supply is encouraging, but restoring margins while maintaining healthy inventory turns remains a key priority.
Speaker #3: Finance and insurance continue to be an area of strength. Gross profit increased 4%, and average gross profit per retail unit increased to $3,410 from $3,337 in the prior year, reflecting stronger execution at the dealership level and improved product penetration.
Speaker #3: Operating expenses before depreciation declined 2.7% to $153 million. We remain focused on controlling costs while continuing to invest in areas that support long-term growth and operational performance.
Speaker #3: Turning to the balance sheet, the total net funded debt to bank EBITDA ratio was 3.6 times at the end of the quarter. In April, we amended and restated our syndicated credit agreement.
Speaker #3: The facility provides aggregated bank commitments of $1.38 billion, removes the prior borrowing-based structure, and extends the term to November 2028. The amended facility enhances liquidity and operational flexibility, providing a stronger foundation as we execute our turnaround plan.
Speaker #3: Reducing leverage remains a top priority, and we intend to direct proceeds from the remaining U.S. divestitures toward debt reduction. In parallel, restoring dealership earnings, improving working capital efficiency, and maintaining disciplined capital allocation will be essential to moving toward our target leverage range of 2 to 3 times total net funded debt to bank EBITDA.
Speaker #3: Our capital allocation priorities for the balance of this year are clear. First, protect liquidity and financial flexibility. Second, invest in high-return operational initiatives. Third, pursue selective, accretive acquisitions where returns and balance sheet capacity support it.
Speaker #3: And fourth, consider share repurchases where it makes sense to do so. As I begin my role, I'm inheriting a strong finance foundation and a talented team.
Speaker #3: Our priorities are straightforward: strengthen the balance sheet and ensure capital is deployed where it earns the highest returns. Finance must be a partner to the business, helping our operating teams make better decisions, improve returns, and allocate capital effectively.
Speaker #3: We have a clear understanding of where improvement is required, and we will measure progress against both financial and operational objectives. With that, I'll turn the call back to Sam.
Speaker #2: Thank you, Mike. As we look ahead, we continue to view 2026 as a transition year for the dealership business and a year of disciplined growth for Collision.
Speaker #2: The market remains challenging, and the pace of recovery will depend on both our execution and the broader environment. That said, we believe the business is moving in the right direction.
Speaker #2: During the first half of the year, we strengthened leadership and accountability, improved inventory discipline, increased used vehicle volumes, expanded our collision platform, and made significant progress exiting the U.S.
Speaker #2: Dealership portfolio. Our focus for the balance of the year is clear: continue to improve dealership operations across the board, integrate our recent collision acquisitions, and continue to grow our ACX Collision platform.
Speaker #2: Complete the remaining U.S. divestitures and reduce debt, and continue building the strongest operating team across the country. There is still a lot of work ahead, and we are not satisfied with the current profitability.
Speaker #2: But we can see a clear path to stronger and more consistent financial results. I want to close by thanking our OEM partners and employees.
Speaker #2: Your focus, resilience, and commitment to our customers and to one another are what move this company forward. Together, we are building a stronger AutoCanada.
Speaker #2: With that, operator, please open the line for questions.
Speaker #1: 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 touch-tone phone.
Speaker #1: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the number 2.
Speaker #1: If you are using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of Luke Hannan from Canaccord Genuity.
Speaker #1: Please go ahead.
Speaker #4: Thanks. Good evening, everyone. Sam, I want to follow up on your prepared remarks and just make sure I'm not missing anything here. So, in the past, you've talked about, when it comes to the U.S.—
Speaker #4: Divestitures, you had expected proceeds of between $130 million and $150 million. If I heard you correctly in the prepared remarks, you said now that you expect to get over $130 million.
Speaker #4: Is there anything—has anything changed there, and does it have to do with that incremental, I think it's $19 million, or up to $19 million, for land dispositions that you guys previously classified as held for sale?
Speaker #2: Yeah, that's right. And I think what I said was at least 130. So, and the difference is really the land.
Speaker #4: Okay, got it. So then.
Speaker #2: Yeah, we have property. We have property in Chicago, and we own the land in Peoria. So that's the difference.
Speaker #4: So just to make sure I understand—so if you collected 106 before, previously, you're looking for 115 to 130. So let's just say there's 19 that you would have had to get to the midpoint of that, roughly the midpoint of that, I guess.
Speaker #4: And then there's an incremental $19 million now that you're getting from this land in Chicago.
Speaker #2: Yeah, it's not all in the land. Some of it's in goodwill in the dealerships. But, directionally, correct. Yeah.
Speaker #4: Okay, all right. So that's helpful, thanks. Just as I'm thinking about that, maybe that's a good segue actually, into sticking with the balance sheet here.
Speaker #4: You'd sold some dealerships out in B.C., and obviously we heard you in the prepared remarks—it sounds like these assets weren't generating the returns that you expect.
Speaker #4: So, of course, it makes sense to divest them. If we're—how much EBITDA are you losing as part of that? Really, what I'm getting to is if we're trying to figure out a pro forma net debt to EBITDA, it feels like you're not all that far off from the upper end, at least, of what your long-term target is.
Speaker #2: Yeah. So, for those three dealerships, the TTM was zero—it was actually losing a bit of money. That being said, to answer your question, I would just put zero adjustment.
Speaker #2: In the model. And sorry, what was your question about against target? I missed that part.
Speaker #4: Well, no. So all I was saying is I was getting at you can see where I'm getting at with this line of questioning. I'm just trying to figure out what your pro forma net debt to TTM EBITDA is.
Speaker #4: But I think you've given me a...
Speaker #2: Got it.
Speaker #4: You know, we can look at it and figure it out.
Speaker #2: Yeah, yeah, got it. Yeah. I would just do.
Speaker #4: So, yeah, okay. Is there anything more to do as far as cleaning up the Canadian business? Are there any more dealerships left that potentially aren't meeting that threshold, and potentially more divestitures to come in Canada?
Speaker #2: I mean, long term, we're very committed to growing the platform across the country. We see lots of opportunity to actually get back to growth in the future.
Speaker #2: Once we've sort of finalized the improvements in our current portfolio that we're working hard on, and that we've seen great progress on in Q2.
Speaker #2: But there probably are one or two that are on the fence, and other unlocks that could be there, but nothing imminent at this time.
Speaker #4: Okay, okay, that’s fair. Last one for me, and then I’ll pass the line. Looking at the collision repair business, I’m just trying to figure it out because you have done a lot of acquisitions there.
Speaker #4: And then also, you called out the paint—the repair activity that you would have done in the year-ago period. Can you give us—I mean, what was the organic growth in the collision repair segment when we strip out the impact of what would have happened last year, and then also the acquisitions that you would have made during the period?
Speaker #2: Yeah, I don't have that exact number at my fingertips, but the vast majority—we went through it earlier today—the vast majority of the collision centers were growing.
Speaker #2: The reduction in revenue in the hail section is substantial in the vast majority of what you're seeing there, because there just hasn't been as much hail activity.
Speaker #2: That being said, late in the summer here, we have seen an uptick in the Prairies of hail activity, so that business is picking back up.
Speaker #2: I expect a much stronger Q3 and Q4 on the collision side.
Speaker #4: Okay, thanks. I'll pass the line.
Speaker #2: Yeah.
Speaker #1: Our next question comes from the line of Maxim Sichev from National Bank. Please go ahead.
Speaker #3: Hi. Good evening, gentlemen. Sam and Mike, obviously, welcome. Maybe the first question for Sam, on new vehicles: I guess, how much of the volume weakness is macro demand versus kind of like ACQ-specific sales productivity issues?
Speaker #3: I mean, how would you characterize the two, if it's possible? Thanks.
Speaker #2: Yeah, so thanks, Max. Obviously, on the dealership operation side, we have a brand-new team that is just getting up to speed. If I look at the quarter, April was a much different picture than June on the new car side.
Speaker #2: Actually, in June, for the first time in a long time, we won market share on the new side. So, a little bit of the volume in the quarter is still sort of issues that we're working through.
Speaker #2: And the rest, really, is the economy. And when you see the macro units, remember that we don't hold any Toyota or Tesla. And Toyota and Tesla are having a really hot summer.
Speaker #2: So, if you look at just our brands and our performance against our brands, and you look at the second half of Q2, we actually performed quite well.
Speaker #2: So that's a good trend. Now, Max, listen, there's still lots of work to do. We're building new training programs and systems, and we still have new team members that we're getting up to speed.
Speaker #2: So, I think there's still more to come on driving new volumes and NGPUs, but we saw good trends in the second half of the quarter, for sure.
Speaker #2: So, yeah, does that answer your question?
Speaker #3: Yeah, yeah, it sure does. And then, in terms of—I mean, have those trends persisted into, kind of, July or August? I'm not sure if you're getting any sense there.
Speaker #3: Maybe if you can comment as well in relation to if you are seeing any regional differences in terms of—I mean, I presume the West is a bit stronger right now versus the East—but any comment, that would be helpful.
Speaker #3: Thanks.
Speaker #2: Yeah, no, Alberta is really strong. Everyone's optimistic about the investments coming into Alberta, British Columbia, and Ontario with what's happening with real estate and jobs.
Speaker #2: Although jobs in July looked a bit better, so cautiously optimistic there. But B.C. and Ontario are definitely struggling more than you would in Alberta, Saskatchewan, or Manitoba.
Speaker #2: But overall, on the new side, it's a resilient market. GPUs are coming down a little bit—still some of that post-COVID normalization. Our sales effectiveness with the OEMs has improved.
Speaker #2: Can we do better? Yes. But if you look at our brand mix versus how we performed against the market, like I said, June and July, we're winning share.
Speaker #2: So, Max, like I said back in Q1, the first step was winning volume back. That's happened—we're having strong volume. And then we need to build the profitability around that.
Speaker #2: We no longer have an OpEx issue. It's a gross issue, and the opportunity is there, and it's in our control. So, we feel good about that.
Speaker #2: We can't control the macro, but we're controlling what we can control.
Speaker #3: Of course. And then actually, to your point around OpEx, because I think your normalized operating expenses were sort of flat year-over-year, I mean, kind of despite, like I would say, restructuring, organizational changes, etc.
Speaker #3: So, I mean, in order to see a higher EBITDA and to get that operating leverage, it's revenue that has to increase. I mean, there's not much more you can do right now in OpEx.
Speaker #3: Is that how we should be thinking about this, or...?
Speaker #2: Yeah, I think that's a bit—yeah, I think that's about right. I think there's maybe $4 or $5 million on OpEx where we're heavy in areas where we can do better with automation, better processes, and technology.
Speaker #2: But it's not a massive opportunity on the OpEx side, Max. I think you really should be focused on new volumes, used volumes, and those GPUs coming back.
Speaker #2: We're already seeing the volumes. And like I said, June, July, we're winning market share. It's now getting those GPUs back to normal after the reset that we all know about in the past.
Speaker #2: So, yeah, cautiously optimistic about that.
Speaker #3: Okay, that's great. Thank you so much. That's it for me.
Speaker #1: As a reminder, if you have any questions or follow-up, please press star one. Our next question comes from the line of Chris Murray from ATB Capital Markets.
Speaker #1: Please go ahead.
Speaker #3: Yeah, thanks, Sam. Just thinking about the outlook and how we should think about the next couple of quarters. The last few quarters, certainly you've been talking about the fact of maybe having inventory not in the right place.
Speaker #3: I think you were still struggling with some of that, maybe with used vehicles. How are you feeling about, in this kind of uncertainty, the mix of vehicles you have on the floor right now in terms of their aging? I don't know if Mike wants to throw any of his opinion in on kind of the inventory management or where we're sitting right now.
Speaker #3: But just trying to get a feel for how we could see some improvement in the cadence on those GPUs as we go into Q3 and Q4.
Speaker #2: Yeah, it's a great question. So, we feel really good about where we are from an inventory units perspective. Especially on the U side, we got a lot more revenue while holding a lot less inventory, right?
Speaker #2: So that is a really good sign when you can have 6,000 or 7,000 cars in, and you turn 50% of those in a month. So that is something that this company hasn't done in a very long time, maybe since COVID.
Speaker #2: So we're getting good velocity. New inventory is also in a lot better shape. So now, for Q3, there are still some long-dated cars that we have to get through throughout the end of the summer here and the end of the selling season.
Speaker #2: So I wouldn't expect a huge improvement on GPUs in Q3. But in Q4 and going into '27, you should start seeing normalized front-end GPUs.
Speaker #2: And with the processes and controls we're putting in place, we don't expect to have to have these conversations any longer. So that's what Fade and I are working hard on.
Speaker #2: And Mike's here now to help put horsepower behind that too. He's only been here a few weeks, so I don't want to put him on the spot to talk about inventory on the call.
Speaker #2: You'll hear from him in November for sure. Let's give him at least a month to get going. But does that answer your question, Chris?
Speaker #3: Yeah, no, that's fair. Thank you. And then one of the other things you did talk about too—and we haven't talked about it—is the sort of parts and service piece of the business.
Speaker #3: I know, I think the last couple of quarters you mentioned you were having some issues with staffing. I'm wondering how that's coming along. And I think you kind of called it out as a bit of a focus again for the second half.
Speaker #3: Can you just talk about what you folks are seeing there? Traditionally, when you get into these kinds of areas with maybe a shakier consumer, you generally get more business in the parts and service line, just as people keep cars longer.
Speaker #3: But just wondering how you're seeing things with your own internal operations, and also if there's any color you can add to what you're seeing on consumer behavior.
Speaker #2: Yeah, there's not much with the consumer right now. The fleet is older, Chris, but I think it's sort of been old for a while now.
Speaker #2: So, it's kind of baked into the cake, into the run rate a little bit. And it might be eking a bit older, but not seeing any meaningful trends there.
Speaker #2: We're really focused on better targeting and marketing to our customers. When they come in and buy the car and have to reach service, we’ve hired a new staff member who's focused 100% on that.
Speaker #2: We haven't had that in the past. In terms of culture, and rebuilding after the turnover that happened, I have to give it to Fade.
Speaker #2: And when he joined, the turnover was very high, but very quickly, he's been able to turn the culture around, get accountability, and get people excited to work for AutoCanada.
Speaker #2: There's a real energy brewing here, and we're able to attract really good talent—not just on the GM side, but also with the techs and in fixed ops.
Speaker #2: So I got to hand it to Fade for his ability to do that—quickly, too. I mean, it was amazing to watch.
Speaker #3: Okay, great. All right, I'll leave it there. Thanks.
Speaker #1: There are no further questions at this time. I will now turn the call over to Mr. Samuel Cochrane. Please continue.
Speaker #2: Yeah, thank you. Everyone, enjoy the rest of your night, and thanks for listening to the call. Have a good night.
