AutoCanada (TSX:ACQ) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
ACQ reported a decline in adjusted EBITDA to $31 million from $43 million year-over-year, influenced by a $5 million forfeiture of share-based compensation.
The company is seeing progress in rebuilding sales productivity and dealership business, with improved trends in used vehicle profitability.
ACQ's collision business continues to grow, despite challenges from reduced hail activity, with strategic acquisitions like Modern Auto Body in Edmonton.
Efforts to improve operational efficiency include enhancing sales productivity, improving inventory management, and reducing corporate costs.
The company aims to complete the divestiture of its US dealership portfolio, expecting $130 million in total proceeds, which will be largely used for debt reduction.
ACQ is cautiously optimistic about operational improvements showing early positive trends, particularly in used vehicle sales.
Management emphasizes a disciplined approach to capital allocation, focusing on debt reduction and strategic investments in collision business expansion.
Full Transcript
OPERATOR
Thank you for joining AutoCanada's conference call to discuss the financial results for the first quarter of 2026. I'm Ludy, 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 first quarter news release, 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. I'd now like to turn the call over to Mr. Samuel Cochrane, Chief Executive Officer and Interim Chief Financial Officer of AutoCanada Inc. You may begin.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Good evening everyone and thank you for joining us. Before discussing our quarter, I want to begin with a few comments on the broader operating environment as we move through the first quarter and into the early part of the second quarter. The Canadian automotive market remained soft. Industry demand for new light vehicles continued to decline year over year as consumers faced elevated vehicle pricing, persistent affordability concerns, rising fuel costs and broader macroeconomic uncertainty. Fuel prices are an important factor to monitor closely. Higher fuel costs can influence consumer appetite for vehicle purchases, impact discretionary spending on service and maintenance which can sometimes be deferred and even affect kilometers driven which has implications for collision demand over time. While collision remains a resilient business, we are mindful that consumer behavior can shift in this type of environment. Against that backdrop, our our first quarter results were largely as expected with adjusted EBITDA from continuing operations of $31 million compared to $43 million in the prior year. The $31 million in adjusted EBITDA included a $5 million forfeiture of share based compensation expense related to departing executives. These results are below our long term expectations for the business. That being said, we saw meaningful progress towards rebuilding sales productivity and in our dealership business late in the quarter and into April and I'm encouraged by the momentum being built by fate and his team. We also continue to see growth in our core collision business despite the hail business lagging due to reduced storm activity and are set up well for continued collision expansion. In the automotive retail business, the largest area of pressure continued to be used vehicle profitability. Used vehicle gross profit per unit was negative. 48 in the quarter as we worked through aged inventory and operated in a broader used market that remained highly competitive and margin challenged. We expect used gross profit per unit to improve sequentially over the year as we enhance the tools and analytics available to our buyers, which will improve sourcing, build better merchandising habits and increase the speed of our reconditioning.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
At the same time, there were several important positives and areas of progress during the quarter that reinforce why we believe the automotive retail business is moving in the right direction operationally. The key theme for Q1 was restoring operational adequacy and stability. Since the leadership changes implemented in mid February, we have taken decisive actions to simplify the organization and get closer to our core operations, improve accountability, strengthen operational oversight and refocus the business on execution fundamentals.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
This work is still early, but we are beginning to see encouraging signs. March and April showed sequential improvement in used vehicle profitability trends supported by stronger sales productivity and better inventory pricing and management. We also added regional and functional leadership during the quarter who are both experienced Canadian automotive executives. They will focus on strengthening performance management and accountability at the dealerships.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Our view is straightforward. While macro conditions are outside of our control, operational execution is not. Our automotive retail priorities remain centered on the key controllable drivers of the business improving sales productivity and conversion, rebuilding new vehicle margins, increasing fixed operation absorption and service utilization, improving inventory discipline and working capital efficiency and maintaining expense discipline. While we grow our top line, we believe these actions are establishing a stronger operational foundation that will allow the business to perform more consistently.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Turning to Collision operations this continues to be a strategically important part of the company Collision gross profit increased year over year and margins remained strong despite a challenging comparison related to elevated hail activity and in the prior year. In the first half of 2025 we worked through a significant backlog of hail related repairs stemming from the catastrophic Calgary storm in July 2024. The quarter was also impacted by the recent opening of three new collision centers which are still ramping towards full utilization.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Together the difficult hail comparison and the added cost associated with these new facilities account for approximately 2.5 million of the year over year. Decline in Collision EBITDA this quarter the underlying traditional collision business continues to perform well supported by strong insurance related demand, banning OEM certifications and growing insurer relationships. During the quarter we completed the acquisition of Modern Auto Body in Edmonton which expands our regional density and enhances OEM certifications in an important market. Modern Auto Body did not have any insurance partners at the time of closing which is one of the areas of synergies we are focused on post closing. We continue to view Collision as a highly attractive long term growth platform due to its resilient margin profile, fragmented market structure and strong consolidation opportunities. Importantly, our strategy here remains disciplined and we intend to continue pursuing targeted accretive collision acquisitions focused on regional density, OEM certification capabilities and long term margin expansion.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Art and the team have demonstrated an ability to meaningfully improve both cost and revenue post acquisition operationally. Several important initiatives are also underway within Collision including expanding OEM certifications, increasing insurance ERP partnerships, scaling apprenticeship and technician development programs, advancing the national operating model, expanding higher margin services such as diagnostics calibrations and coatings and and continuing the rollout of our national collision brand strategy. These initiatives are intended to improve long term operating leverage, margin stability and referral volumes across the platform. Turning to the Balance Sheet Strengthening financial flexibility and reducing leverage remained a major priority during the quarter, we continued to make meaningful progress on the divestiture of our US dealership portfolio. To date, we have received approximately 65.8 million in gross proceeds from from completed transaction and continue to expect total proceeds of approximately 130 million upon completion of the remaining divestitures.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
These proceeds are expected to be directed primarily toward debt reduction, further strengthening the balance sheet. Subsequent to quarter end, we also completed an amended and extended syndicated credit facility that improves our financial flexibility, extends maturity through 2028, simplifies the structure of the facility and provides additional operating flexibility while we continue executing our initiatives. Our capital allocation philosophy is grounded in maximizing long term shareholder value while protecting balance sheet flexibility. In the near term, this means prioritizing debt reduction, high return operational investments, selective collision acquisitions and and opportunistic share repurchases where appropriate. We are approaching all capital decisions with a strong emphasis on return thresholds, liquidity preservation and strategic fit. As we look ahead, we expect 2026 to remain a transitional year for the dealership business and growth focused for our collision business. Near term, market conditions are likely to remain challenging and consumer affordability pressures continue to impact demand trends. However, we also believe the company is approaching an operational inflection point. The actions taken during Q1 to stabilize operations, improve leadership accountability, streamline costs, strengthen the balance sheet and sharpen strategic focus are beginning to create momentum inside the organization. Our focus remains squarely on creating value by stabilizing and improving the automotive retail business. We believe the automotive retail business is beginning to stabilize and we are seeing early signs of improvement, especially in used volumes and profitability, and therefore are cautiously optimistic about the quarters ahead pursuing disciplined, inorganic and organic growth in our collision business. Our core collision business continues to grow and even though we have seen reduced hail activity, we are well positioned for the hail season to start. On the inorganic side, we continue to build our pipeline with many exciting opportunities and we expect to be active on the M and A front this year. Improving the services provided by the store support center to our dealerships and collision centers. This will be one of the major priorities of the new CFO who was just hired. I'm looking forward to having Mike join the team. He will add a lot of horsepower. Strengthening our recruitment and retention of top operational leaders across the country. As discussed above, we added seasoned automotive Canadian automotive talent to the team this year and we will continue to focus on building and retaining the best operating team in the industry and lastly, maintaining a lean cost structure. We continue to identify and execute on opportunities to downsize our corporate costs while improving service levels to the operating business. This relentless focus will build a stronger, more disciplined and more resilient Auto Canada. One with better operational consistency, a solid balance sheet, growing collision scale and improved long term earnings quality. While there is still meaningful work ahead, we believe the foundation being established today positions the company to deliver stronger and more sustainable performance over time. I want to end the call by thanking our employees. You are all Auto Canada and I thank you for your commitment to our customers, stakeholders and to each other. Together we will build an iconic automotive company right here in Canada. With that operator, please open the line for questions.
OPERATOR
Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. To withdraw your question, please press a star too. With that, our first question comes from the line of Chris Murray with ATB Cormar Capital Markets. Please go ahead.
Chris Murray (Equity Analyst)
Yeah, thanks Sam. Good evening. Maybe just starting with some of the unit metrics, both in terms of sales and gpu. You did mention in your script that you thought that Q1 was probably. I don't know if a trough is the right way to describe it, but certainly an inflection point. You were somewhat cautious, optimistic. So it comes a couple pieces of this question. One, should we. Should we think we have these numbers as a bit of a flush, if you will, and we'll get back to more normalized numbers. And then I guess the other piece of this is at what point would
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
you think you would be at least back at kind of market market rates over the coming year? Yeah. Thanks, Rick. Part of that question set out for me. I'm not sure if that happened for everyone, but I think you're asking was this sort of a flush and when do we get back to Sort of normal numbers. I believe that was the essence of the question. Right? Yeah, that was it. Thank you. Okay, so as we discussed in March, basically as expected, it was a little bit better. Actually, March picked up volumes a little bit better than expected, which is why the sort of EBITDA was a little bit stronger than I would have thought in mid March. And those trends, those positive trends, especially on the used GPUs and volumes are continuing into April and May. So that's a very positive sign, which makes us cautiously optimistic. And like I said back in March, what you're going to see in the short term is volumes pick up. GPUs are going to remain compressed in the first half of the year, although they're going to get better from here. Q2 will be better than Q1. I think used GPUs will start to normalize in the second half. On the new side and the parts and service side, I think it will be more nine to 12 months for those to sort of get back to normal conditions, you know, build up the product knowledge. We got to recruit more techs on the fixed op side. We just hired a new team on the RVP side and on the fixed op side that are just getting onboarded now, so sometimes sort of rebuild the cadence there. So, you know, going into 2027, you know, we should be on a more normalized basis for sure. But you'll see quicker improvement on the use side, like, you know, even next quarter. So I, hopefully that answers your question. Yeah, it seemed about that in March, basically. Yeah. And sorry that the, the question was, I asked it cut out. But the other question was about inventory levels and do you feel comfortable that you've kind of right size the inventory levels to give you enough inventory for sell through as we go into Q2 and Q3. Yeah, great question. So the really impressive part of what the team's done, what fate and the team has done, is not only sort of got through sort of problem, used cars age used cars, basically used cars that don't have enough profit on them. We've actually improved the age at the same time and now have way better profitability in our used cars in April and in May and even in late March. So definitely going to see improvements there. And the aging is getting better. So in the second half of the year it's going to be. And going into the end of the year it's going to be clean. Okay. And the other question I had is kind of like a bigger, maybe strategic one. You know, you talked, I think the Last, the last call we did, you know, you, you indicated that you thought it would be about a 12 to 18 month period for the turnaround, which would sort of put you into kind of later 27. It sounds like you're still thinking that's going to be the issue. But how much of the turnaround is conducive or tied to kind of the broader economy? And how much do you really believe is within your control? Yeah, listen, we can't control the macro, right? The macro soft coast to coast volumes are down, so we're running uphill. But a lot of the improvements we're making internally are things that we can control in execution. Right. Bringing in for the first time ever, bringing in a leader on the fixed side who could identify strategies around recruiting more tech. Right. Which will drive better service bay utilization. We just don't have enough right. And we didn't have the right focus on that. That's a $20 million opportunity on the fixed side and we control that used car side as well. How well we position them for sale and price them. So there's a lot of things in our control that we can make better. And that gives me confidence the macro will be what it is. Chris, but there's a lot that we can control to make the business better. So when I say 12, 18 months. Yeah, that's right. The macro will do what it will do, but we will be operating in our normal kins by then and we can be judged against the market at that time. Does that make sense? Yeah, it does. Thanks. I'll leave it there.
OPERATOR
All right, thank you. And once again, if you would like to ask a question, simply press Star one on your telephone keypad and your next question comes from the line of Luke Hannon with Kenaccor Genuity. Please go ahead.
Luke Hannon (Equity Analyst)
Yeah, thanks. Good evening, Sam. I want to follow back the commentary that you had in your prepared remarks. And then also I think you talked about this in the mdna, so you talked about in your scripts, the market. I'm just talking about new vehicles. The market was down mid single dig in April. And so I was just curious to know. I know before in the past, when it comes to the mix of brands that you have in new, that had been a bit of a drag for you previously. Has that issue I guess been cleaned up or I guess really what the question here is before Auto Canada has had a history of outperforming the new vehicle market. Are you closer to doing that today than you were, let's say, three or six months ago?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
We are Closer. There's still more to do. Right. We got to rebuild the team and the product knowledge. A lot was lost in the turnover in the last year. But the negative side of that is could we have sold more cars if we sort of let go a little bit more of gross? Right. So volume on new and hitting our OEM targets with more consistency. So yes, we're closer. I do still think you're not going to see it overnight on the new side. As I said in the past, you'll see quicker improvements on the used side, used GPUs and then the new and parts and service more, more late second half of the year. But yes, we're closer for sure.
Luke Hannon (Equity Analyst)
Okay. And then also I want to follow up on the the US Divestitures. I know that there's been a change or there was a change in the past when it comes to the cadence of when you actually expect that that cash come in the door. Last quarter there was a change. Has there been any change since last quarter on when you actually expect to collect the cash here?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
So there should be another deal that happens in the summer and then the rest should be in the fall.
Luke Hannon (Equity Analyst)
Okay. And then just as far as the waiting, you know how much is most of that can be coming in the summer, most of that going to be coming in the fall.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
A big chunk is probably coming in the summer and then the rest will trail in the fall.
Luke Hannon (Equity Analyst)
Okay. Okay. And then maybe last used has been, it feels like for a long time there's been peaks and valleys, we'll say in used. And I realize that there's a lot of moving parts. There's a lot that's changed in the used part of the business. But I guess specifically what I'm trying to figure out is what is being done differently now on sourcing that's improved overall gpu. I know there's a lot that's going on when it comes to reconditioning and maybe selling cars at better prices. But I'm curious. Yeah, go ahead. I'm just curious more specifically what has changed when it comes to sourcing vehicles that's allowed you to realize improvements in gpu?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Yeah, no, great question. So, for example, in the past there was our used buyers, whether they were GMs or other people at dealerships, they were buying cars without the right analytics and tools to be able to ensure a minimum profit on the car, like a minimum standard of profit. So we've been rolling out a buy box to all the stores that basically shows them the minimum acceptable profit that you can make on the car before you buy it. So really we're empowering the people buying cars with better data so they can make better decisions. That's helping a lot. Right. There's other tactics that we're looking at, whether it's through throttle or increasing trade ins with service lane acquisitions, but a lot of it is really just better information to help them make better decisions.
Luke Hannon (Equity Analyst)
Is there any change also when it comes to incentives either there or elsewhere in the organization that helps bring in new talent?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Not incentives, no, but just people for sure join the team to help. But no big change in incentives? No. Okay. Okay, I'll leave it there. Thanks.
OPERATOR
Thank you. And the next question comes from the line of Ty Collin with tibc. Please go ahead.
Ty Collin (Equity Analyst)
Hey, good evening, Sam. Thanks for taking my question. Maybe just to start off, can you maybe give a little bit more color on what was behind the improvement in new vehicle GPU in the quarter both sequentially and year over year? I think the MDMA references higher pricing as a factor, but was there anything else to call out? Anything mix related or quarter specific? And is this kind of a decent run rate for the rest of the year?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
No. On the new side on the GPUs, I'd actually think they're a bit too high. I think probably if we let go a bit more of that number, we could have driven a lot more volume. So I wouldn't take that as a run rate. I would expect that to come down over the year and I expect our volume to increase. I think we've got to capture more of the market and be a bit more aggressive on our pricing. Okay, that's helpful.
Ty Collin (Equity Analyst)
And then maybe on used GPUs. I know earlier in the call you laid out your expectation that you see some sequential improvement in Q2 and throughout the rest of the year, but you also called out just some general market related pressures on used vehicle profitability. So is there sort of an absolute level of used vehicle GPU that you're striving to get back to and what would that be and when do you think you can get there?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Yeah, listen, I think on the front we got to get back to around 1,000, at least the minimal acceptable standard I expect. Market depending. Can't control the macro all the time, but I expect to be there in the late second half of the year. And it's not like there'll be progression along the way. Right. You'll see improvements in Q2 and then improvements again in Q3.
Ty Collin (Equity Analyst)
Okay, that's really helpful. And then maybe just last Thing. Can you clarify the comment? Earlier in the call, I think you'd made a reference to the hail event representing around $2.5 million worth of the year over year decline in collision repair. Can you maybe just clarify that comment?
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Sure. There was a catastrophic storm in July of 24 in Calgary and there was a huge backlog of work for our hail business that carried us all the way almost through 25, honestly, to the point where our revenue was a record in hail. We had to give a bit back on margin because we actually had to outsource some of the repairs because the volume was too high. And now the storms have been really light in 25 and so far in 26. So there's a drastic decrease in hail revenue. Just for example, Q1, last year was around 8 million in hail revenue and this year was around 1. For the quarter, hail was a big headwind. And then the other headwind is we have three new facilities, beautiful facilities that we've opened up. We're really excited about them, but we're ramping them up to full utilization. So there's a bit of drag on margin as we ramp up those new facilities. So that's that two and a half I was talking about. Okay, great. Thank you so much. Our actual core collision business continues to grow, which is. Which is fantastic.
Ty Collin (Equity Analyst)
Yeah, yeah. Okay, got it. All right. Thanks, Sam. All the best. Thank you.
OPERATOR
Thank you. And I'm showing no further questions at this time. I would like to turn it back to Mr. Samuel Cochrane for closing remarks.
Samuel Cochrane (Chief Executive Officer and Interim Chief Financial Officer)
Thank you everyone for joining the call and looking forward to updating you next quarter. Have a good one.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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