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AUTOCANADA REPORTS FOURTH QUARTER 2022 RESULTS

March 2, 2023 | AutoCanada

  • Revenue was $1,388.2 million as compared to $1,195.8 million in the prior year, an increase of 16.1%
  • Net income for the period was $14.8 million versus $69.4 million in the prior year
  • Adjusted EBITDA1 was $50.7 million versus $65.9 million in the prior year, a decrease of $(15.2) million
  • Current year results include an incremental used vehicle writedown provision of $(12.4) million and an increase in floorplan financing costs of $(13.3) million
  • Adjusted EBITDA margin1 was 3.6% versus 5.5% in the prior year, a decrease of (1.9) percentage points
  • Diluted earnings per share was $0.52, a decrease of $(1.86) from $2.38 in the prior year
  • A Substantial Issuer Bid was completed to purchase and cancel 1,851,851 common shares at a purchase price of $27.00 per share, representing an aggregate purchase price of $50.0 million in Q4 2022
  • For the year ended December 31, 2022, including two Substantial Issuer Bids and the Normal Course Issuer Bid, a total of 4,741,879 common shares were purchased and cancelled for total consideration of $139.1 million
  • Indebtedness of $555.1 million at the end of Q4 2022 compares to $285.9 million at the end of Q4 2021
  • Net indebtedness1 of $446.8 million at the end of Q4 2022 compares to $212.7 million at the end of Q4 2021

EDMONTON, AB, March 1, 2023 /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 twelve month period ended December 31, 2022.

"AutoCanada's finish to the year with record fourth quarter revenue and strong same store performance is a testament to the high-level focus the entire organization placed on our strategic objectives, not only in the quarter but over the full year," said Paul Antony, Executive Chairman of AutoCanada.  "I am very proud of the results our team achieved to maximize our complete business model, particularly our continued focus on growing our used to new retail units ratio which gave us the opportunity to leverage our best in class F&I and parts, service and collision repair business operations. Contributions from acquisitions also supported our performance and have exceeded expectations."

"I remain excited about what the future holds for AutoCanada. We are confident in our ability to navigate the evolving landscape of the automotive industry given our complete business model, our strong balance sheet and the resiliency we've built into our platform and remain well positioned to drive value for our shareholders and stakeholders through our many growth opportunities."

In addition, effective February 27, 2023, Mike Borys has retired from the role of Chief Financial Officer. Azim Lalani will be appointed as AutoCanada's new Chief Financial Officer in March 2023.

2022 Fourth Quarter Key Highlights and Recent Developments

All comparisons presented below are between the three-month period ended December 31, 2022 and the three-month period ended December 31, 2021, unless otherwise indicated.

Executive Overview

The business model continued to perform in the fourth quarter. Results in the quarter were being impacted by fluctuations in used vehicle pricing that necessitated the incremental used vehicle writedown provision and by the increase in floorplan costs. Our finance and insurance ("F&I") and parts, service and collision repair ("PS&CR") business operations were strong contributors to performance in the quarter, supported by strong used retail volume. Acquisitions have also been a positive contributor to results and have exceeded Year 1 pro forma targets to date.

Net income for the period was $14.8 million as compared to $69.4 million in Q4 2021. Diluted earnings per share was $0.52, a decrease of $(1.86) from $2.38 in the prior year.

Adjusted EBITDA1 for the period was $50.7 million as compared to $65.9 million in Q4 2021. Adjusted EBITDA margin1 of 3.6% compares to 5.5% in the prior year, a decrease of (1.9) percentage points ("ppts"). This decrease is largely driven by the noted $(12.4) million incremental used vehicle writedown provision, adjusting used vehicle inventory to net realizable value, and the year-over-year increase of $(13.3) million in floorplan financing costs.

Gross profit increased by $14.1 million to $242.6 million, an increase of 6.2%, as compared to prior year. This increase was largely driven by the increases of $17.1 million from F&I and $19.7 million from PS&CR. This continued improvement in our F&I and PS&CR gross profit is representative of our continued optimization and refinement of business processes and integration of acquisitions to date.

Gross profit percentage2 was 17.5% in the quarter as compared to 19.1% in the prior year. This decrease is largely driven by the current used vehicle macro environment, resulting in both a compression of used vehicle gross profit percentage2 and the incremental used vehicle writedown provision. While used retail vehicle2 gross profit percentage2 weakened, used retail vehicle2 sales increased by 2,525 units, up 21.2%, to 14,418 units, and contributed to the consolidated used to new retail units ratio2 moving to 1.78 from 1.45. Used vehicle sales volume also contributed to our strong F&I and PS&CR gross profit performance.

Our U.S. Operations contributed $34.3 million of gross profit, a decrease of $(4.9) million or (12.4)% as compared to prior year. This decrease in gross profit was primarily driven by compression of new and used vehicle gross profit percentage2 and $(3.3) million of incremental used vehicle writedown provision taken in the quarter. Used retail vehicles2 sales increased 26.0% as compared to the prior year and supports both the increases in F&I gross profit by $2.7 million, or 22.2%, and PS&CR gross profit by $4.5 million, or 48.8%.

Operating expenses before depreciation as a percentage of gross profit2 increased by 6.6 ppts to 75.7%. The increase is largely due to the noted compressed gross profit and increased operating expenses before depreciation2.  Operating expenses before deprecation2 increased by $25.7 million and is largely driven by acquisitions and related costs, and increased head count to facilitate organizational growth.

Floorplan financing costs increased by $(13.3) million, or 564%, to $15.7 million as compared to prior year. The increase is attributable to the combination of rising interest rates and an increase in our used vehicle inventory position. While rising interest rates are expected to impact customer affordability, we consider the availability of vehicle inventory to remain the most significant challenge to sales growth. Additionally, some of the direct impacts of rising interest rates may be offset by vehicle financing products which provide flexibility in financing terms, inclusive of incentives and term extensions. Management continues to monitor the macro environment and will adjust F&I product offerings and other aspects of the business, where necessary, to meet customer needs.

We continue to actively manage our vehicle inventory as the chip shortage remains an issue and continues to impact the supply of new vehicle inventory. While we have seen positive indicators and noted gradual improvements in both the availability of inventory and product allocations, we are not anticipating a return to "normalcy" in new vehicle inventory levels until late 2023 to 2024. Compensating for constrained new vehicle supply, we have managed our used vehicle inventory position to meet current market demands.

Net indebtedness1 increased by $96.0 million from September 30 2022 to $446.8 million at the end of Q4 2022. This increase is primarily driven by the purchase and cancellation of $(50.0) million of common shares under a Substantial Issuer Bid ("SIB"), and $54.6 million of acquisitions, including Kavia Auto Body Inc., Excellence Auto Collision Limited, and Sterling Honda. Free cash flow1 on a trailing twelve month ("TTM") basis was $136.7 million at Q4 2022 as compared to $107.2 million in Q4 2021; the increase in free cash flow1 between years was driven primarily by reduced stock based compensation related cash payments and improvements in working capital. Additionally, our net indebtedness leverage ratio1 of 2.1x remained well below our target range at the end of Q4 2022, as compared to 0.2x in Q4 2021.

Had all of the acquisitions, completed as of Q4 2022, occurred at January 1, 2022, pro forma net income1 would have been $91.6 million for the TTM ended December 31, 2022, as compared to pro forma net income1 of $174.8 million for the year ended December 31, 2021. Pro forma normalized adjusted EBITDA1 would be $274.7 million for the TTM ended December 31, 2022, as compared to pro forma normalized adjusted EBITDA1 of $266.4 million for the year ended December 31, 2021.

We have established an acquisition pipeline, with dealerships and collision centres representing in excess of $395 million in annual revenue currently being evaluated. We are at varying stages of the acquisition process with these targets, ranging from signed letters of intent to signed purchase agreements, with the potential deals remaining subject to due diligence, OEM approvals, and other standard closing conditions. We remain well-positioned to continue to execute on our acquisition strategy in the coming quarters.

Our performance, both in Canada and U.S. Operations, continues our trend of sustainable improvement and demonstrates the efficacy of our complete business model and strategic initiatives. We remain aware that uncertainty continues to exist in the macroeconomic environment given the ongoing challenges associated with the lingering effects of the global pandemic, inflation, rising interest rates, and the ongoing Ukraine conflict. Uncertainties may include potential economic recessions or downturns, continued disruptions to the global automotive manufacturing supply chain, and other general economic conditions resulting in reduced demand for vehicle sales and service. We will continue to remain proactive and vigilant in assessing the impacts on our organization and remain committed to optimizing and building stability and resiliency into our business model to ensure we are able to drive industry-leading performance regardless of changing market conditions.

Consolidated AutoCanada Highlights

TOTAL VEHICLES2 SOLD INCREASED BY 14%

For the three-month period ended December 31, 2022:

  • Revenue was $1,388.2 million, an increase of $192.4 million or 16.1%
  • Total vehicles2 sold were 23,190, an increase of 2,894 units or 14.3%
  • Used retail vehicles2 sold increased by 2,525 or 21.2%
  • Net income was $14.8 million (or $0.52 per diluted share) versus $69.4 million (or $2.38 per diluted share)
  • Adjusted EBITDA1 decreased by (23.1)% to $50.7 million, a decrease of $(15.2) million
  • Current year results include an incremental used vehicle writedown provision of $(12.4) million and an increase in floorplan financing costs of $(13.3) million
  • Adjusted EBITDA1 on a TTM basis was $264.8 million as compared to $251.9 million in the prior year
  • Net indebtedness1 of $446.8 million reflected an increase of $96.0 million from the end of Q3 2022
  • Net indebtedness leverage ratio1 of 2.1x at the end of Q4 2022, as compared to 1.5x in Q3 2022

Canadian Operations Highlights

TOTAL GROSS PROFIT INCREASED BY 10%

Our F&I and PS&CR segments, driven by 20.2% increase in used retail unit sales, were key drivers of the 10.0% increase in total gross profit. F&I gross profit increased by $14.4 million or 27.9% to $65.9 million and PS&CR gross profit increased by $15.3 million or 22.9% to $82.0 million as compared to prior year.

Unless stated otherwise, all results for acquired businesses are included in all Canadian references in the press release.

For the three-month period ended December 31, 2022:

  • Revenue was $1,172.7 million, an increase of 17.4%
  • Used retail unit2 sales increased by 1,962 or 20.2%
    • Average TTM Canadian used retail unit sales per dealership per month, excluding Used Digital Retail Division dealerships2, improved to 63, as compared to 52 in the prior year
  • Used to new retail units ratio2 increased to 1.64 from 1.45
    • TTM used to new retail ratio2 improved to 1.67 at Q4 2022 as compared to 1.43 at Q4 2021
  • F&I gross profit per retail unit average2 increased to $3,503, up 11.9% or $373 per unit
  • Net income was $15.0 million, down (75.8)% from a net income of $62.3 million in 2021
  • Adjusted EBITDA1 decreased by (17.2)% to $45.7 million, a decrease of $(9.5) million
    • Current year results include the incremental used vehicle writedown provision of $(9.1) million
    • Adjusted EBITDA margin1 was 3.9% as compared to 5.5% in the prior year, a decrease of (1.6) ppts driven primarily by the incremental used vehicle writedown provision and increased floorplan financing costs

U.S. Operations Highlights

USED RETAIL VEHICLES SOLD INCREASED BY 26%

Used retail vehicle unit sales increased by 26.0%. Our F&I and PS&CR departments continue to offset the compressed new and used vehicle gross profit percentage2.

  • Revenue was $215.5 million, an increase of 9.4%, from $197.0 million
  • Used retail vehicles2 sold increased by 26.0%
  • F&I gross profit per retail unit average2 increased to $4,064 per unit, up 20.0% or $677 per unit
  • Net income decreased by $(7.4) million to $(0.2) million from $7.1 million
    • Net income on a TTM basis was $14.8 million as compared to $17.1 million in the prior year
  • Adjusted EBITDA1 was $5.0 million as compared to $10.7 million, a decrease of $(5.7) million
    • Current year results include an incremental used vehicle writedown provision of $(3.3) million
    • Adjusted EBITDA1 on a TTM basis was $32.8 million as compared to $31.2 million in the prior year

Same Store Metrics - Canadian Operations

USED RETAIL VEHICLES2 SOLD INCREASED BY 7.6%

The continued optimization of the Company's complete business model is highlighted by the growth in same store used retail vehicle2 sales. Our total gross profit of $165.8 million continues to be driven by our strong F&I and PS&CR performance and included an incremental same store used vehicle writedown provision of $(6.2) million.

Refer to Section 20 Same Store Results Data of the MD&A for the definition of same store and further information.

  • Revenue increased to $943.8 million, an increase of 2.2%
  • Gross profit decreased by $(9.9) million or (5.7)%
  • Used to new retail units ratio2 increased to 1.55 from 1.29
    • Used retail vehicles2 sold increased by 7.6%, an increase of 628 units
  • F&I gross profit per retail unit average2 increased to $3,844, up 16.1% or $532 per unit; F&I gross profit increased to $56.1 million as compared to $48.4 million in the prior year, an increase of 15.8%
  • PS&CR gross profit increased to $64.6 million, an increase of 7.2%
    • PS&CR gross profit percentage2 increased to 57.7% as compared to 56.0% in the prior year

Financing and Investing Activities and Other Recent Developments

AMENDED CREDIT FACILITY AGREEMENT EXTENDED TO APRIL 15, 2026

Net indebtedness1 of $446.8 million resulted in a net indebtedness leverage ratio1 of 2.1x. Financing and investing activities included the following:

Acquisitions

The Company completed $54.6 million of acquisitions in Q4 2022 and $178.7 million for the year. The acquisitions support management's strategic objectives of expanding our presence across Canada and operational capacity.

  • On October 27, 2022, the Company acquired 100% of the shares of Kavia Auto Body Inc. ("Kavia Auto Body"), a collision centre located in Saskatoon, Saskatchewan.
  • On November 7, 2022, the Company acquired 100% of the shares of Excellence Auto Collision Limited ("Excellence Auto Collision"), an entity that operates two luxury-brand focused collision centres (Excellence Auto Collision Silver Star and Excellence Auto Collision Midwest) located in Scarborough, Ontario and Toronto, Ontario.
  • On December 1, 2022, the Company acquired substantially all of the assets to be used in the operations of Sterling Honda, a Honda dealership in Hamilton, Ontario.
  • On February 27, 2023, the Company acquired 100% of the shares of 5121175 Manitoba Ltd. ("DCCHail"), a paintless dent repair entity, located in Calgary, Alberta. DCC Hail operates with a national presence and specializes in the insurance claim management process and repair of hail damaged vehicles.

Share Purchases

  • On December 16, 2022, the Company completed a SIB, by way of a modified Dutch auction, to purchase, for cancellation, the common shares of the Company (the "Second Offer"). The Company purchased and cancelled 1,851,851 common shares at a purchase price of $27.00 per share under the Offer, representing an aggregate purchase price $50.0 million, which represents 7.29% of the total issued and outstanding Shares of the Company before giving effect to the Second Offer.
  • For the year ended December 31, 2022, a total of 4,741,879 common shares were purchased and cancelled for total consideration of $139.1 million, net of transaction costs.

Credit Facility Amendments

  • On December 12, 2022, the Company executed the accordion feature to increase the revolving credit limit by $50 million to $275 million from $225 million and amended our existing credit facility for administrative changes.
  • On January 30, 2023, Standard & Poor's Ratings Services ("S&P") issued a research update where our Issuer Credit Rating remains unchanged at 'B+'.
  • On February 3, 2023, the Company amended and extended our existing credit facility to increase our total aggregate bank facilities to $1.6 billion. This included increasing our revolving credit limit to $375 million from $275 million. We maintained a three-year tenor by extending the maturity date to April 15, 2026.

1    

See "NON-GAAP AND OTHER FINANCIAL MEASURES" below.

2    

This press release contains "SUPPLEMENTARY FINANCIAL MEASURES". Section 15. NON-GAAP AND OTHER FINANCIAL MEASURES of the Company's Management's Discussion & Analysis for the three month period ended December 31, 2022 ("MD&A") is hereby incorporated by reference for further information regarding the composition of these measures (accessible through the SEDAR website at www.sedar.com).


Fourth Quarter Financial Information

The following table summarizes the Company's results for the quarter and year ended December 31, 2022:

Three Months Ended December 31

Year Ended December 31

Consolidated Operational Data

2022

2021

% Change

2022

2021

% Change

Revenue

1,388,206

1,195,782

16.1 %

6,040,619

4,653,415

29.8 %

Gross profit

242,622

228,514

6.2 %

1,042,873

834,183

25.0 %

Gross profit %

17.5 %

19.1 %

-1.6 ppts

17.3 %

17.9 %

-0.6 ppts

Operating expenses

197,397

170,008

16.1 %

811,018

612,609

32.4 %

Operating profit

58,604

99,410

(41.0) %

254,551

270,068

(5.7) %

Net income for the period

14,810

69,398

(78.7) %

91,060

167,199

(45.5) %

Basic net income per share attributable to AutoCanada shareholders

0.55

2.54

(78.3) %

3.28

5.98

(45.2) %

Diluted net income per share attributable to AutoCanada shareholders

0.52

2.38

(78.2) %

3.03

5.60

(45.9) %

   Adjusted EBITDA 1

50,669

65,873

(23.1) %

264,800

251,863

5.1 %

   New retail vehicles2 sold (units)

8,100

8,204

(1.3) %

36,216

35,799

1.2 %

   New fleet vehicles2 sold (units)

672

199

237.7 %

1,892

1,872

1.1 %

   Total new vehicles2 sold (units)

8,772

8,403

4.4 %

38,108

37,671

1.2 %

   Used retail vehicles2 sold (units)

14,418

11,893

21.2 %

63,611

48,729

30.5 %

   Total vehicles2 sold

23,190

20,296

14.3 %

101,719

86,400

17.7 %

   Same store new retail vehicles2 sold (units)

5,714

6,380

(10.4) %

25,636

28,762

(10.9) %

   Same store new fleet vehicles2 sold (units)

625

192

225.5 %

1,715

1,864

(8.0) %

   Same store used retail vehicles2 sold (units)

8,876

8,248

7.6 %

40,736

37,035

10.0 %

   Same store total vehicles2 sold

15,215

14,820

2.7 %

68,087

67,661

0.6 %

   Same store2 revenue

943,849

923,341

2.2 %

4,281,582

3,808,650

12.4 %

   Same store2 gross profit

165,804

175,749

(5.7) %

746,401

689,709

8.2 %

   Same store2 gross profit %

17.6 %

19.0 %

(1.4) %

17.4 %

18.1 %

(0.7) %

1    See "NON-GAAP AND OTHER FINANCIAL MEASURES" below.

2     This press release contains "SUPPLEMENTARY FINANCIAL MEASURES". Section 15. NON-GAAP AND OTHER FINANCIAL MEASURES of the Company's Management's Discussion & Analysis for the three month period ended December 31, 2022 ("MD&A") is hereby incorporated by reference for further information regarding the composition of these measures (accessible through the SEDAR website at www.sedar.com).

3     See the Company's MD&A for the quarter and year ended December 31, 2022 for complete footnote disclosures.

4     In Q4 2021, it was determined there were Revenues and Cost of sales accounts incorrectly classified between revenue streams in the first three quarters of 2021 within the U.S. Operations segment. As a result, the classification of these accounts has been corrected and we have revised the Q1, Q2, and Q3 2021 amounts. This reclassification had no impact on total gross profit.


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.

MD&A
Footnote
Reference
3

Q4

2022

Q3

2022

Q2

2022

Q1

2022

Q4

2021

Q3

2021

REVISED

Q2

2021
REVISED

Q1

2021

REVISED

Income Statement Data

5

New vehicles 4

6

508,008

557,492

583,870

511,195

467,085

498,142

547,593

451,061

Used vehicles 4

6

626,397

807,236

840,998

595,514

524,043

518,791

539,785

354,922

Parts, service and collision repair 4

6

168,544

161,805

160,307

152,009

136,800

116,953

122,459

108,427

Finance, insurance and other 4

6

85,257

97,416

100,851

83,720

67,854

72,868

71,218

55,414

Revenue

1,388,206

1,623,949

1,686,026

1,342,438

1,195,782

1,206,754

1,281,055

969,824

New vehicles 4

6

48,218

58,760

58,950

53,384

50,632

46,525

44,619

34,639

Used vehicles 4

6

17,775

32,627

34,125

36,772

38,118

39,669

40,269

23,206

Parts, service and collision repair 4

6

95,661

88,707

90,713

78,431

75,917

64,748

68,115

57,874

Finance, insurance and other 4

6

80,968

93,540

95,490

78,752

63,847

69,250

64,838

51,917

Gross Profit

242,622

273,634

279,278

247,339

228,514

220,192

217,841

167,636

Gross profit %

17.5 %

16.8 %

16.6 %

18.4 %

19.1 %

18.2 %

17.0 %

17.3 %

Operating expenses

197,397

207,266

212,709

193,646

170,008

159,880

154,773

127,948

Operating expenses as a % of gross profit

81.4 %

75.7 %

76.2 %

78.3 %

74.4 %

72.6 %

71.0 %

76.3 %

Operating profit

58,604

69,303

69,954

56,690

99,410

62,841

66,153

41,664

Recovery of non-financial assets

(8,691)

(39,846)

Net income

14,810

32,870

39,058

4,322

69,398

38,769

37,698

21,334

Basic net income per share attributable to AutoCanada shareholders

0.55

1.22

1.40

0.11

2.54

1.37

1.33

0.77

Diluted net income per share attributable to AutoCanada shareholders

0.52

1.16

1.33

0.10

2.38

1.27

1.23

0.71

Dividends declared per share

   Adjusted EBITDA 1

3

50,669

76,374

75,561

62,196

65,873

68,265

70,491

47,234

   Free cash flow 1

3

32,177

35,319

63,318

5,852

7,603

12,372

67,803

19,391

Operating Data

5

   New retail vehicles2  sold

4

8,100

9,186

9,878

9,052

8,204

9,255

10,107

8,233

   New fleet vehicles2 sold

4

672

433

497

290

199

358

575

740

   Total new vehicles2 sold

4

8,772

9,619

10,375

9,342

8,403

9,613

10,682

8,973

   Used retail vehicles2 sold

4

14,418

17,381

17,740

14,072

11,893

13,831

13,271

9,734

   Total vehicles sold2

4

23,190

27,000

28,115

23,414

20,296

23,444

23,953

18,707

# of service and collision repair orders completed2

4

263,796

241,907

261,671

221,632

232,373

199,870

214,149

182,869

# of dealerships at period end

1

86

85

82

80

80

68

67

67

   # of same store dealerships

1, 2

49

49

49

49

49

49

49

49

# of service bays at period end

1,367

1,331

1,322

1,293

1,303

1,108

1,098

1,098

   Same store2 revenue growth

2

2.2 %

17.6 %

14.2 %

17.2 %

14.1 %

15 %

54.2 %

27.8 %

   Same store2 gross profit

   growth

2

(5.7) %

8.7 %

10.3 %

23.2 %

29.4 %

18.6 %

102.5 %

35.0 %

1    See "NON-GAAP AND OTHER FINANCIAL MEASURES" below.
2     This press release contains "SUPPLEMENTARY FINANCIAL MEASURES". Section 15. NON-GAAP AND OTHER FINANCIAL MEASURES of the Company's Management's Discussion & Analysis for the three month period ended December 31, 2022 ("MD&A") is hereby incorporated by reference for further information regarding the composition of these measures (accessible through the SEDAR website at www.sedar.com).
3     See the Company's MD&A for the quarter and year ended December 31, 2022 for complete footnote disclosures.
4     In Q4 2021, it was determined there were Revenues and Cost of sales accounts incorrectly classified between revenue streams in the first three quarters of 2021 within the U.S. Operations segment. As a result, the classification of these accounts has been corrected and we have revised the Q1, Q2, and Q3 2021 amounts. This reclassification had no impact on total gross profit.


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 year ended December 31, 2022, which can be found on the Company's website at www.autocan.ca or on www.sedar.com.

NON-GAAP AND OTHER FINANCIAL 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, financing activities, cash and cash equivalents, and indebtedness determined in accordance with Canadian GAAP, as indicators of our performance. We provide these additional non-GAAP measures, capital management measures, and supplementary financial 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.

Adjusted EBITDA, adjusted EBITDA margin, normalized adjusted EBITDA, income statement impacts and adjusted EBITDA on a pre-IFRS 16 basis, pro forma adjusted EBITDA, pro forma normalized adjusted EBITDA, pro forma net income, free cash flow, net indebtedness, and net indebtedness leverage ratio are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that these non-GAAP measures should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Company's methods of calculating referenced non-GAAP measures may differ from the methods used by other issuers. Therefore, these measures may not be comparable to similar measures presented by other issuers.

It should be noted that certain of the financial measures described below include pro forma items estimating the impact of the acquisitions if they had occurred on the first day of the relevant period, or as of a specified date. Readers should understand that these estimates were determined by management in good faith and are not indicative of what the historical results of the businesses acquired in the acquisitions actually were for the relevant period, or what those results would have been if the acquisitions had occurred on the dates indicated, or what they will be for any future period. As a result, the pro forma financial measures may not be indicative of the Company's financial position that would have prevailed, or operating results that would have been obtained, if the transactions had taken place on the dates indicated or of the financial position or operating results which may be obtained in the future. These pro forma financial measures are not a forecast or projection of future results. The actual financial position and results of operations of the Company for any period following the closing of the acquisitions will vary from the amounts set forth following pro forma financial measures, and such variation may be material.

We list and define these "NON-GAAP MEASURES" below:

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is an indicator of a company's operating performance over a period of time and ability to incur and service debt. Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to: 

  • Interest expense (other than interest expense on floorplan financing), income taxes, depreciation, and amortization;
  • Charges that introduce volatility unrelated to operating performance by virtue of the impact of external factors (such as share-based compensation amounts attributed to certain equity issuances as a part of the Used Digital Retail Division);
  • Non-cash charges (such as impairment, recoveries, gains or losses on free-standing derivatives, revaluation of contingent consideration and revaluation of redemption liabilities);
  • Charges outside the normal course of business (such as restructuring, gains and losses on dealership divestitures and real estate transactions); and
  • Charges that are non-recurring in nature (such as provisions for wholesale fraud and settlement income).

The Company believes adjusted EBITDA provides improved continuity with respect to the comparison of our operating performance over a period of time.

Normalized Adjusted EBITDA

With the onset of COVID-19 during the second quarter of 2020, the impact of COVID-19 related government restrictions resulted in charges that are one-time in nature, and related government programs resulted in subsidies that are non-recurring in the future.

Normalized adjusted EBITDA is an indicator of a company's operating performance over a period of time and ability to incur and service debt, normalized for charges that are non-recurring in nature related to the pandemic such as:

  • Canada Emergency Wage Subsidy ("CEWS") income, expected to recur until the Company is no longer eligible for the subsidy;
  • Canada Emergency Rent Subsidy ("CERS"), expected to recur until the Company is no longer eligible for the subsidy;
  • One-time forgiveness of Small Business Association Paycheck Protection Program ("PPP") loans;

The Company believes normalized adjusted EBITDA provides improved continuity with respect to the comparison of our operating performance normalized for impacts related to the COVID-19 pandemic.

Pro Forma Adjusted EBITDA and Pro Forma Normalized Adjusted EBITDA

The Company believes pro forma adjusted EBITDA and pro forma normalized adjusted EBITDA provides improved understanding of the progress of our acquisition strategy as if the acquisitions had occurred at the beginning of the period. Pro forma adjusted EBITDA and pro forma normalized adjusted EBITDA includes management's estimate of the net income generated by our acquisitions prior to interest expense (other than interest expense on floorplan financing), income taxes, depreciation, and amortization, assuming acquisitions in the year had occurred on the first day of the year ended December 31, 2022 prior to any synergies, pursuant to the terms of the credit facilities. Pro forma adjustments estimated by management were derived from dealership financial statements. The Company's blended rate of Canadian corporate tax of 25.5% was applied to pro forma adjustments where applicable.

Refer to the Notes to the Consolidated Financial Statements for the year ended December 31, 2022 and Section 5, Acquisitions, Divestitures, Relocations, and Real Estate of the Company's MD&A for further details.

Pro Forma Net Income

The Company believes pro forma net income provides improved understanding of the progress of our acquisition strategy as if the acquisitions had occurred at the beginning of the period. Pro forma net income includes management's estimate of the net income generated by our acquisitions, assuming acquisitions in the year had occurred on the first day of the year ended December 31, 2022, prior to any synergies, pursuant to the terms of the credit facilities. Pro forma adjustments estimated by management were derived from dealership financial statements. The Company's blended rate of Canadian corporate tax of 25.5% was applied to pro forma adjustments where applicable.

Refer to the Notes to the Consolidated Financial Statements for the year ended December 31, 2022 and Section 5, Acquisitions, Divestitures, Relocations, and Real Estate of the Company's MD&A for further details.

Adjusted EBITDA Margin

Adjusted EBITDA margin is an indicator of a company's operating performance specifically in relation to our revenue performance.

The Company believes adjusted EBITDA margin provides improved continuity with respect to the comparison of our operating performance with retaining and growing profitability as our revenue and scale increases over a period of time.

Income Statement Impacts and Adjusted EBITDA on a Pre-IFRS 16 basis

The Company adopted IFRS 16 on January 1, 2019. On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases, which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate. There are also corresponding income statement impacts to net income and other comprehensive income.

The Company believes adjusted EBITDA on a pre-IFRS 16 basis provides improved continuity for purposes of comparing to our historical operating performance prior to fiscal year 2019. Our Credit Facility financial covenants are calculated and presented on a pre-IFRS 16 basis. In addition, the net indebtedness leverage ratio is calculated on a pre-IFRS 16 basis.

Adjusted EBITDA on a pre-IFRS 16 basis is calculated as adjusted EBITDA less the rental expense, fair market value rent adjustment and step lease rent adjustment eliminated from the adoption of IFRS 16 lease liabilities accounting standards.

Refer to the Notes to the Consolidated Financial Statements for the year ended December 31, 2022 for further details.

Free Cash Flow

Free cash flow is a measure used by Management to evaluate the Company's performance. While the closest Canadian GAAP measure is cash provided by operating activities, free cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures. It shall be noted that although we consider this measure to be free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for distributions, re-investment in the Company, potential acquisitions, or other purposes. Investors should be cautioned that free cash flow may not actually be available for such purposes. References to "Free cash flow" are to cash provided by (used in) operating activities (including the net change in non-cash working capital balances) less capital expenditure (not including acquisitions of dealerships and dealership facilities).

Net Indebtedness Leverage Ratio

Net indebtedness leverage ratio is a measure used by management to evaluate the liquidity of the Company.

The Company believes presenting the net indebtedness leverage ratio on a pre-IFRS 16 basis provides improved continuity for purposes of comparing to our historical operating performance prior to fiscal year 2019 and remains relevant while our Credit Facility financial covenants continues to be calculated and presented on a pre-IFRS 16 basis. Net indebtedness leverage ratio is calculated as net indebtedness compared to Adjusted EBITDA pre-IFRS 16 on a TTM basis.

We list and define "CAPITAL MANAGEMENT MEASURES" below:

Net Indebtedness

Net indebtedness is used by management to evaluate the liquidity of the Company.

Net indebtedness is calculated as indebtedness, net of unamortized deferred financing costs, adding back embedded derivative asset, and less cash and cash equivalents.

NON-GAAP AND OTHER FINANCIAL MEASURES RECONCILIATIONS

Adjusted EBITDA, Normalized Adjusted EBITDA, Pro Forma Adjusted EBITDA, and Pro Forma Normalized Adjusted EBITDA Reconciliation

The following table illustrates adjusted EBITDA for the three-month periods ended December 31, over the last two years of operations:

2022

2021

Period from October 1 to December 31

Net income for the period

14,810

69,398

Add back:

Income tax expense

9,994

24,463

Depreciation of property and equipment

5,664

4,830

Interest on long-term indebtedness

8,121

6,161

Depreciation of right of use assets

8,326

7,465

Lease liability interest

8,283

6,520

55,198

118,837

Add back:

Recoveries of non-financial assets, net

(8,691)

(39,846)

Share-based compensation (Used Digital Retail Division)

391

Loss on redemption liabilities

4,829

14,116

Unrealized fair value changes in derivative instruments

(2,496)

(2,853)

Amortization of loss on terminated hedges

817

817

Unrealized foreign exchange losses

497

25

Gain on termination of lease

(492)

Unrealized fair value changes on embedded derivative

(24,778)

Loss on disposal of assets, net

124

47

Adjusted EBITDA

50,669

65,873

The following table illustrates adjusted EBITDA, normalized adjusted EBITDA, pro forma adjusted EBITDA, and pro forma normalized adjusted EBITDA for the trailing twelve month period ended December 31, over the last two years of operations:

2022

2021

Period from January 1 to December 31

Net income for the period

91,060

167,199

Add back:

Income tax expense

32,824

54,021

Depreciation of property and equipment

20,852

17,272

Interest on long-term indebtedness

29,325

21,900

Depreciation of right of use assets

30,781

26,420

Lease liability interest

29,828

23,062

234,670

309,874

Add back:

Recoveries of non-financial assets, net

(8,691)

(39,846)

Share-based compensation (Used Digital Retail Division)

391

Loss on redemption liabilities

4,829

14,116

Loss on extinguishment of debt

9,860

1,128

Unrealized fair value changes in derivative instruments

(9,321)

(7,873)

Amortization of loss on terminated hedges

3,268

3,268

Unrealized foreign exchange losses

192

115

Loss on extinguishment of embedded derivative

29,306

Loss on termination of lease, net

427

Unrealized fair value changes on embedded derivative

(29,306)

Loss (gain) on disposal of assets

296

(40)

Adjusted EBITDA

264,800

251,863

Normalizing items:

Less:

Canada Emergency Wage Subsidy

(4,388)

Canada Emergency Rent Subsidy

(336)

Forgiveness of PPP loans

(6,728)

Normalized Adjusted EBITDA

264,800

240,411

Pro forma items had the acquisitions occurred on January 1:

Net income for the period

583

7,634

Add back:

Income tax expense

200

2,464

Depreciation of property and equipment

689

1,765

Interest on long-term indebtedness

5,058

5,698

Depreciation of right of use assets

1,185

3,224

Lease liability interest

2,207

5,235

Pro Forma Adjusted EBITDA

274,722

277,883

Pro Forma Normalized Adjusted EBITDA

274,722

266,431

Pro Forma Net Income

91,643

174,833


Segmented Adjusted EBITDA and Segmented Normalized Adjusted EBITDA

The following table illustrates segmented adjusted EBITDA for the three-month period ended December 31, over the last two years of operations:

Three Months Ended December 31, 2022

Three Months Ended December 31, 2021

Canada

U.S.

Total

Canada

U.S.

Total

Period from October 1 to December 31

Net income (loss) for the period

15,043

(233)

14,810

62,253

7,145

69,398

Add back:

Income tax expense

9,908

86

9,994

24,144

319

24,463

Depreciation of property and equipment

5,168

496

5,664

4,467

363

4,830

Interest on long-term indebtedness

5,100

3,021

8,121

4,818

1,343

6,161

Depreciation of right of use assets

7,658

668

8,326

6,796

669

7,465

Lease liability interest

7,305

978

8,283

5,630

890

6,520

50,182

5,016

55,198

108,108

10,729

118,837

Add back:

Recoveries of non-financial assets, net

(8,691)

(8,691)

(39,846)

(39,846)

Share-based compensation (Used Digital Retail Division)

391

391

Loss on redemption liabilities

4,829

4,829

14,116

14,116

Unrealized fair value changes in derivative instruments

(2,496)

(2,496)

(2,853)

(2,853)

Amortization of loss on terminated hedges

817

817

817

817

Unrealized foreign exchange losses

497

497

25

25

Gain on termination of lease

(492)

(492)

Unrealized fair value changes on embedded derivative

(24,778)

(24,778)

Loss on disposal of assets, net

124

124

47

47

Adjusted EBITDA

45,653

5,016

50,669

55,144

10,729

65,873

The following table illustrates segmented adjusted EBITDA and normalized adjusted EBITDA for the year ended December 31 for the last two years of operations:

Year Ended December 31, 2022

Year Ended December 31, 2021

Canada

U.S.

Total

Canada

U.S.

Total

Period from January 1 to December 31

Net income for the period

76,263

14,797

91,060

150,104

17,095

167,199

Add back:

Income tax expense

29,626

3,198

32,824

53,702

319

54,021

Depreciation of property and equipment

19,117

1,735

20,852

15,995

1,277

17,272

Interest on long-term indebtedness

22,605

6,720

29,325

15,631

6,269

21,900

Depreciation of right of use assets

28,033

2,748

30,781

23,759

2,661

26,420

Lease liability interest

26,271

3,557

29,828

19,503

3,559

23,062

201,915

32,755

234,670

278,694

31,180

309,874

Add back:

Recoveries of non-financial assets, net

(8,691)

(8,691)

(39,846)

(39,846)

Share-based compensation (Used Digital Retail Division)

391

391

Loss on redemption liabilities

4,829

4,829

14,116

14,116

Loss on extinguishment of debt

9,860

9,860

1,128

1,128

Unrealized fair value changes in derivative instruments

(9,321)

(9,321)

(7,873)

(7,873)

Amortization of loss on terminated hedges

3,268

3,268

3,268

3,268

Unrealized foreign exchange losses

192

192

115

115

Loss on extinguishment of embedded derivative

29,306

29,306

Loss on termination of lease, net

427

427

Unrealized fair value changes on embedded derivative

(29,306)

(29,306)

Loss (gain) on disposal of assets, net

296

296

(40)

(40)

Adjusted EBITDA

232,045

32,755

264,800

220,683

31,180

251,863

Normalizing Items:

Less:

Canada Emergency Wage Subsidy

(4,388)

(4,388)

Canada Emergency Rent Subsidy

(336)

(336)

Forgiveness of PPP loans

(6,728)

(6,728)

Normalized Adjusted EBITDA

232,045

32,755

264,800

215,959

24,452

240,411


Adjusted EBITDA Margin

The following table illustrates adjusted EBITDA margin for the three-month periods ended December 31, over the last two years of operations:

2022

2021

Period from October 1 to December 31

Adjusted EBITDA

50,669

65,873

Revenue

1,388,206

1,195,782

Adjusted EBITDA Margin

3.6 %

5.5 %


Free Cash Flow

The following table illustrates free cash flow for the last eight consecutive quarters:

Q4 2022

Q3 2022

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2021

Cash provided by operating activities 

38,099

37,662

64,935

7,279

10,153

13,721

68,604

20,506

Deduct:

Purchase of non-growth property and equipment

(5,922)

(2,343)

(1,617)

(1,427)

(2,550)

(1,349)

(801)

(1,115)

Free cash flow

32,177

35,319

63,318

5,852

7,603

12,372

67,803

19,391

Free cash flow - TTM

136,666

112,092

89,145

93,630

107,169

118,806

159,878

144,632


Net Indebtedness and Net Indebtedness Leverage Ratio Reconciliation

The following table illustrates the Company's net indebtedness and net indebtedness leverage ratio as at December 31, 2022 and December 31, 2021:

December 31, 2022

$

December 31, 2021

$

Syndicated Credit Facility - revolving credit

178,588

63,842

Senior unsecured notes (including embedded derivative asset)

344,502

221,965

Mortgage and other debt

32,038

101

Total Indebtedness

555,128

285,908

Add back:

Embedded derivative asset

29,306

Total Indebtedness for net indebtedness purpose

555,128

315,214

Cash and cash equivalents

(108,301)

(102,480)

Net indebtedness

446,827

212,734

Adjusted EBITDA - pre-IFRS 16 - trailing twelve months

210,761

206,584

Net indebtedness leverage ratio

2.1x

1.0x


Conference Call

A conference call to discuss the results for the three months ended December 31, 2022 will be held on March 2, 2023 at 9:00am Mountain (11:00am Eastern). To participate in the conference call, please dial 1.888.664.6392  approximately 10 minutes prior to the call.

This conference call will also be webcast live over the internet and can be accessed by all interested parties at the following URL: https://investors.autocan.ca/event/2022-q4-conference-call/

About AutoCanada

AutoCanada is a leading North American multi-location automobile dealership group currently operating 82 franchised dealerships, comprised of 28 brands, in eight provinces in Canada as well as a group in Illinois, USA. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Ford, Infiniti, Nissan, Hyundai, Subaru, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, BMW, MINI, Volvo, Toyota, Lincoln, Acura, Honda and Porsche branded vehicles. In addition, AutoCanada's Canadian Operations segment currently operates 3 used vehicle dealerships and 1 used vehicle auction business supporting the Used Digital Retail Division, 11 RightRide division locations, and 10 stand-alone collision centres within our group of 25 collision centres. In 2022, our dealerships sold approximately 100,000 vehicles and processed over 900,000 service and collision repair orders in our 1,367 service bays generating revenue in excess of $6 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 this press release 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 press release.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at 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.

For further information: Casey Charleson, Vice President, Finance, Phone: (780) 509 2804, Email: ccharleson@autocan.ca