EDMONTON, Nov. 8, 2018 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX: ACQ), a multi-location North American automobile dealership group, today reported its financial results for the three and nine-month periods ended September 30, 2018.

"Three months ago, we set out on an ambitious course to improve our operations and become the industry leader," said Paul Antony, Executive Chairman. "We have implemented parts of our Go Forward Plan and we expect to have the main aspects of the plan fully implemented by the beginning of 2019. As our new initiatives take hold, we foresee very material improvements in our performance in 2019."

2018 Third Quarter Highlights

• Revenue was $866.9 million, up 3.9% compared with the third quarter of 2017. Same store revenue declined by 3.0%.
• Operating expenses were $127.7 million, up 15.5% from the same period last year. Operating expenses as a percentage of gross profit were up to 94.7% from 80.1% in the same period in 2017. Included in operating expenses is management transition costs of $3.25 million, a number of non-recurring expenses such as inventory adjustments, bank and legal fees to amend our credit agreement, and costs associated with implementing our Go Forward Plan.
• Operating expenses in the U.S. Operations exceeded gross profit by $2.2 million. Our U.S. Operations incurred non-recurring expenses of $1.4 million. As a result of steps to improve our U.S. Operations, we expect the gross profit to increase and further reductions in operating expenses by 2019.
• Gross profit was $134.8 million, down 2.3% compared with the same quarter in 2017, with gross profit as a percentage of revenue slightly decreasing to 15.6% from 16.5%. Same store gross profit declined 8.5%.
• New vehicle sales were 12,474, up 3.8% from the same period in 2017. Revenue from the sale of new vehicles was $509.3 million, up 2.3% from the same period in 2017. The sale of new vehicles accounted for 58.7% of the Company's total revenue and 21.6% of gross profit versus 59.6% of revenue and 26.7% of gross profit in the third quarter of 2017.
• Used vehicle sales were 6,389, up 24.8% compared with the same quarter last year. Revenue from the sale of used vehicles was $206.7 million, up 7.4% from the same quarter last year. The sale of used vehicles accounted for 23.8% of the Company's total revenue and 9.6% of gross profit, versus 23.1% of revenue and 8.1% of gross profit in the third quarter of 2017.
• Parts, service and collision repair generated $113.1 million of revenue, up 7.9% from the same period in 2017. This accounted for 13.0% of the Company's total revenue and 42.4% of its gross profit, up from 12.6% of revenue and 39.0% of gross profit in the same quarter of 2017.
• Finance and insurance generated $37.9 million of revenue, a decrease of 4.3% from the same period in 2017. This accounted for 4.4% of the Company's total revenue and 26.3% of its gross profit, down from 4.7% of revenue and in line with 26.3% of gross profit in the third quarter of 2017.
• EBITDA attributable to AutoCanada shareholders decreased to $10.8 million from $25.8 million compared with the same quarter last year.
• Including the impairment of non-financial assets, the Company generated a net loss attributable to AutoCanada shareholders of $(16.5) million (Adjusted net loss attributable to AutoCanada shareholders of $(0.6) million), or $(0.60) per share (Adjusted net loss per share attributable to AutoCanada shareholders $(0.02)) versus net income of $12.1 million in 2017 ($13.6 million on an adjusted basis) or $0.44 per share ($0.50 on an adjusted basis).
• Total impairment charges were $19.6 million in the third quarter, or $0.50basic earnings per share net of tax.

Third Quarter Business Highlights

• The Company executed a sale and leaseback transaction for the BMW Laval and Sherwood Park Volkswagen dealership properties with Automotive Properties Real Estate Investment Trust, for a purchase price of $55.5 million. On the transaction, the Company recognized a gain of $4.6 million. The net proceeds of the transaction were used to fund the acquisition of Mercedes-Benz Heritage Valley and to repay existing mortgages on the properties.
• The Company negotiated an amendment to its three-year credit agreement. The amendment increased the Total Funded Debt to EBITDA Ratio covenant to 4.50:1.00 for the period commencing on September 1, 2018 and ending on June 30, 2019.

Go Forward Plan

Following a comprehensive review of the Company's operations, the Board of Directors endorsed a Go Forward Plan. The plan involves managing costs while increasing sales and employee productivity, and is being implemented across AutoCanada's dealerships. Highlights of the plan include:

• Enhancing the Company's Finance & Insurance offerings at dealerships. The Company has appointed a new Vice President responsible for the division. The Company expects to improve its Finance & Insurance business through a combination of new products for used car sales and manager training at dealerships.
• Creating a new specialty finance division to make non-traditional (subprime) financing available at all dealerships as well as through a new online presence to be launched before 2019.
• Optimizing the Company's collision centres, through a combination of renegotiated supply contracts to realize savings in operating expenses, along with greater coordination by tracking and managing their performance independent from other business lines. Long term, the Company expects to increase the number of collision centres it owns through acquisitions, including stand-alone facilities.
• Disposing of non-performing assets in order to eliminate carrying costs. This includes parcels of land acquired for open points that were not obtained.
• Establishing a new wholesale division to take advantage of arbitrage opportunities between Canada and the US.
• Leveraging the Company's buying power to reduce costs at dealerships.

In addition to these initiatives, the Company is taking other actions to increase the sale of used vehicles and drive more business to its service bays. AutoCanada's growth will also continue to be supported through disciplined, accretive acquisitions that offer brand and geographical diversity.

The following table summarizes the Company's results for the quarter ended September 30, 2018:

Outlook

Several macro-economic factors that created a degree of uncertainty for the auto industry and AutoCanada's business have come into clearer focus over the last quarter. Among these, the successful negotiation of the new United States Canada Mexico Agreement was widely seen as good news for the North American auto industry, minimizing the risk of a trade war in the sector and allowing the industry to continue to operate largely as it has been doing.

Central banks in Canada and the United States have recently raised key interest rates and are expected to do so again in the coming months. Higher rates will adversely impact borrowing expenses on variable interest rate debt, such as vehicle floorplan payables, increasing our costs. Monthly loan payments for new and used vehicles are also typically linked to market interest rates, meaning rising interest rates will likely make vehicle ownership less affordable at the same time as other household debt becomes more expensive.

The auto industry in North America is coming off several record-setting years and the sale of new vehicles is trailing where it was at this point last year. While many analysts expect sales to remain healthy, most expect a decline in volume this year. Vehicle leasing and manufacturer incentives remain at high levels, particularly as the new model year rolls out. If those incentives are scaled back, it could impact sales volumes. Of note, however, is that the sale of higher-margin trucks, crossover and sport utility vehicles, in both Canada and the US, continues to increase as consumers shift away from lower-margin passenger cars. This trend is expected to continue and may generate greater profitability on vehicle sales, even if the overall number of units sold decreases.

The fragmented nature of the automotive dealership sector continues to provide us with the opportunity to scale our geographical presence and drive revenue growth through acquisitions. This is another trend expected to continue and, with a robust pipeline of opportunities under active consideration, we expect to grow our business in this manner in both the short and long-term.

While macro-economic factors determine total vehicle demand, we expect to deliver materially better results as we embark on our Go Forward Plan, even if the broader industry faces varying headwinds. This will come through a combination of focusing on less cyclical parts of our business and on lines of our business that generate higher margins. As part of our Go Forward Plan, we expect to materially increase our returns from used car sales, parts, service and collision, and finance and insurance. With regard to finance and insurance, we are optimizing our offerings at our dealerships and online. Other aspects of the Company's Go Forward Plan are expected to lead to an increase in vehicle sales and a decrease in operational expenses as the Company better leverages its buying power to achieve meaningful cost reductions.

Dividends

Management reviews the Company's financial results on a monthly basis. The Board of Directors reviews the financial results periodically to determine whether a dividend is to be paid based on a number of factors with a goal to efficiently allocate capital to fuel AutoCanada's future growth while also rewarding and sharing the Company's success with our shareholders.

On November 8, 2018, the Board declared a quarterly eligible dividend of $0.10 per share on AutoCanada's outstanding Class A common shares, payable on December 15, 2018 to shareholders of record at the close of business on November 30, 2018.

For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) (the "ITA") and any corresponding provincial and territorial tax legislation, all dividends paid by AutoCanada or any of its subsidiaries in 2010 and thereafter are designated as "eligible dividends" (as defined in 89(1) of the ITA), unless otherwise indicated. Please consult with your own tax advisor for advice with respect to the income tax consequences to you of AutoCanada designating dividends as "eligible dividends".

Real Estate

The Company is planning to enter into sale-leaseback transactions in respect of certain of its dealership properties, and certain related improvements, for a total purchase price of up to $50 million in the fourth quarter of 2018. The Company intends to use the net proceeds to repay its credit facility.

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table shows the unaudited results of the Company for each of the eight most recently completed quarters. The results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given comparable period.

The following tables summarize the results for the three months ended September 30, 2018 on a same store basis by revenue source and compares these results to the same period in 2017.

MD&A and Financial Statements

Information included in this press release is a summary of results. It should be read in conjunction with AutoCanada's consolidated financial statements and management's discussion and analysis for the quarter ended September 30, 2018, which can be found on the Company's website at www.autocan.ca or on www.sedar.com.

Non-GAAP Measures

This press release contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP.  Therefore, these financial measures may not be comparable to similar measures presented by other issuers.  Investors are cautioned these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing, and financing activities determined in accordance with Canadian GAAP, as indicators of our performance.  We provide these measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used. The following "Non-GAAP Measures" are defined in the annual MD&A and quarterly report; Operating (loss) profit; EBITDA; Adjusted EBITDA; Adjusted Net Earnings, Adjusted Net Earnings per Share and Adjusted Diluted Net Earnings Per Share; EBIT; Free Cash Flow; Adjusted Free Cash Flow; Absorption Rate; Average Capital Employed; Adjusted Average Capital Employed; Return on Capital Employed; and Adjusted Return on Capital Employed.

Conference Call

A conference call to discuss the results for the three and nine months ended September 30, 2018 will be held on November 9 at 9:00am Mountain (11:00am Eastern). To participate in the conference call, please dial 1.888.231.8191 approximately 10 minutes prior to the call.

AutoCanada's presentation that will be discussed on the conference call is available at the Company's website at www.autocan.ca.

This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://www.autocan.ca/investors/Q32018/

About AutoCanada

AutoCanada, a leading North American multi-location automobile dealership group currently operating 69 franchised dealerships, comprised of 27 brands, in eight provinces in Canada as well as a group in Illinois, USA and has over 4,200 employees. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, Smart, BMW, MINI, Volvo, Toyota, Lincoln and Honda branded vehicles. In 2017, our dealerships sold approximately 63,000 vehicles and processed approximately 870,000 service and collision repair orders in our 999 service bays generating revenue in excess of $3 billion.

Additional information about AutoCanada Inc. is available at www.sedar.com and the Company's website at www.autocan.ca.

Forward Looking Statements

Certain statements contained in management's discussion and analysis are forward‑looking statements and information (collectively "forward‑looking statements", including "with respect to", "among other things", "future performance", "expense reductions" and the "Go Forward Plan"), within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward‑looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is  anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe", "shall" and similar expressions) are not historical facts and are forward‑looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict. Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward‑looking statements. Therefore, any such forward‑looking statements are qualified in their entirety by reference to the factors discussed throughout this document.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward‑looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward‑looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward‑looking statement.

Additional Information

Additional information about AutoCanada is available at the Company's website at www.autocan.ca and www.sedar.com.

SOURCE AutoCanada Inc.