AutoCanada Inc. Announces Q3, 2016 Quarterly Results

EDMONTON, Nov. 3, 2016 /CNW/ - AutoCanada Inc. (the "Company" or "AutoCanada") (TSX: ACQ) today announced financial results for the quarter ended September 30, 2016.

Year-to-Date 2016 Financial Summary

The economic cycle presently in Alberta, and other resource based economies, have pressured the Canadian automotive industry as a whole. The new vehicle unit sales in Canada have marginally increased by 3.2% year-over-year1. This includes declines in Alberta of 8.5% and Saskatchewan of 6.6% for the nine month period ended September 30, 2016. The Company was consistent with market trend at a 1.4% increase in revenue and 1.5% increase in gross profit for the year-to-date.

  • EBITDA attributable to AutoCanada shareholders increased by $2.7 million or 4.2% to $69.2 million, from $66.5 million for the nine month period ended September 30, 2016 when compared to the same period in the prior year.

  • Adjusted EBITDA attributable to AutoCanada shareholders increased by $1.7 million or 2.5% to $69.8 million, from $68.1 million for the nine month period ended September 30, 2016 when compared to the same period in the prior year.

  • In October 2016, the Company purchased 100% of the voting shares of Wellington Motors Limited which owns and operates a flagship Chrysler Dodge Jeep Ram Fiat dealership in Guelph, Ontario.

Third Quarter 2016 Financial Summary

For the quarter, overall Canadian new vehicle sales declined by 1.7% with Alberta down 12.5% and Saskatchewan down 10.5%1. This correlates with third quarter results, as the Company experienced a decline of 3.6% in revenue to $753.2 million, and gross profit decline of 4.5% to $122.9 million, as compared to the same period in the prior year. We have a high concentration of dealerships in Alberta and Saskatchewan, representing 49% of total revenue and 52% of total gross profit.

  • EBITDA attributable to AutoCanada shareholders decreased by 9.6%, or $2.6 million, to $23.8 million in the third quarter of 2015 from $26.4 million in the same quarter in 2015.

  • Adjusted EBITDA attributable to AutoCanada shareholders decreased by 12.7%, or $3.5 million, to $23.7 million in the third quarter of 2016 from $27.2 million in the same quarter in 2015.

  • Free cash flow increased 106.1% to $30.9 million in the third quarter of 2016 or $1.13 per share as compared to $15.0 million or $0.61 per share in the same quarter in 2015. This increase is partially due to a $7.5 million tax refund. Excluding the tax refund, free cash flow increased by 56.0% to $23.4 million. Adjusted free cash flow increased 46.5% to $27.8 million in the third quarter of 2016 or $1.02 per share as compared to $19.0 million or $0.78 per share in the same quarter in 2015.

  • Pre-tax earnings attributable to AutoCanada shareholders decreased by 310.5%, or $53.1 million, to a pre-tax loss of $36.0 million in the third quarter of 2016 as compared to $17.1 million in the same quarter in 2015. This is due to an impairment charge of $54.1 million to intangible assets and goodwill recorded during the quarter, relating to eleven dealerships. This charge is non-cash in nature and $45.0 million is eligible to be recovered should the dealership results return to previous levels. Management determined it was prudent to re-evaluate the carrying value of certain dealerships, as a result of the downward pressure on the automotive industry from the economic cycle in the third quarter of 2016.

  • The Company generated a net loss attributable to AutoCanada shareholders of $32.6 million and a basic loss per share of $1.19, of which $1.57 relates to impairment expense and $1.40 is eligible for recovery. Net earnings attributable to AutoCanada shareholders is $10.7 million, without the non-cash charge of impairment, and was an 11.3% decrease from Q3, 2015, consistent with market results.

  • The Company generated adjusted net earnings attributable to AutoCanada shareholders of $10.3 million as compared to $12.5 million in the same quarter in 2015. Basic adjusted net earnings per share were $0.38.

  • Summary of results are as follows:






Three months ended September 30, 2016


Nine months ended September 30, 2016


2016

2015

% Change


2016

2015

% Change

EBITDA attributable to AutoCanada shareholders

23,842

26,379

(9.6%)


69,226

66,467

4.2%

Adjusted net earnings attributable to AutoCanada shareholders

10,327

12,535

(17.6%)


32,390

31,832

1.8%

Adjusted diluted EPS

0.38

0.51

(25.5%)


1.18

1.30

(9.2%)

Impairment loss, pre-tax

(54,096)

-



(54,096)

-


Net (loss) earnings attributable to AutoCanada shareholders

(32,619)

11,690

(379.0%)


(11,189)

30,182

(137.1%)

Basic EPS

(1.19)

0.48

(347.9%)


(0.41)

1.24

(133.1%)

 

"The economic pressures on Alberta, and other resource based economies, have been challenging for the automotive industry as a whole. AutoCanada has heightened our focus on areas where we can control, by monitoring, improving, and adapting to future trends of the market" said Chris Burrows, Chief Financial Officer. "Our Balance Sheet has further strengthened this quarter, most evidently in the increased turnover of vehicle inventory and increased cash flow."

"It was a challenging quarter for AutoCanada and the automotive industry.  However, we are continuing to focus on operational strategy and cost control in order to improve our business," said Steven Landry, Chief Executive Officer.  "We will continue to pursue our growth strategy to diversify across Canada, through acquisitions of flagship stores in major markets, while paying particular attention to opportunities which are financially accretive and strategically important."

1 DesRosiers Automotive Consultants Inc.  

Outlook

The fourth quarter is likely to continue to be challenging from an automotive industry standpoint. Accordingly we will accelerate our efforts at cost reductions to reflect the current economic reality. Despite the current economic headwinds, we continue to run profitable dealerships in all of our markets. Our continued focus on operational excellence, with specific management of both variable and fixed costs will provide improved financial results. By focusing on process in a down economy, we will be able to fully realize the operational and financial benefits during an eventual economic recovery.

SELECTED QUARTERLY 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.










(in thousands of dollars, except Gross Profit %,
Earnings per share, and Operating Data)

Q3
2016

Q2
2016

Q1
2016

Q4
2015

Q3
2015

Q2
2015

Q1
2015

Q4
2014

Income Statement Data










New vehicles

444,482

497,025

363,181

368,242

471,018

483,435

345,542

379,094


Used vehicles

179,582

208,016

180,108

167,100

179,270

194,956

163,243

148,579


Parts, service and collision repair

95,585

100,317

94,721

102,220

93,139

99,304

92,951

91,225


Finance, insurance and other

33,529

36,899

28,862

34,752

37,778

39,182

31,671

36,355

Revenue

753,178

842,257

666,872

672,314

781,205

816,877

633,407

655,253


New vehicles

31,578

34,410

27,267

27,482

34,300

34,861

25,765

29,325


Used vehicles

12,950

13,758

10,420

10,326

10,949

11,000

8,354

7,808


Parts, service and collision repair

47,676

52,957

47,669

51,760

48,336

49,859

43,913

45,687


Finance, insurance and other

30,733

33,577

26,353

34,354

35,088

33,955

27,407

31,109

Gross profit

122,937

134,702

111,709

123,922

128,673

129,675

105,439

113,929

Gross Profit %

16.3%

16.0%

16.8%

18.4%

16.5%

15.9%

16.6%

17.4%

Operating expenses

99,041

107,932

96,047

101,310

100,824

100,568

93,175

90,283

Operating expenses as a % of gross profit

80.6%

80.1%

86.0%

81.8%

78.4%

77.6%

88.4%

79.2%

Income from loans to associates

607

610

315

49

-

-

-

-

Impairment (recovery) of intangible assets and
goodwill

54,096

-

-

18,757

-

-

-

(1,767)

Net (loss) earnings attributable to AutoCanada
shareholders

(32,619)

14,158

7,272

(7,631)

11,690

13,523

4,969

14,240

Adjusted Net earnings attributable to AutoCanada
shareholders

10,327

13,466

8,597

8,441

12,535

13,957

5,261

12,797

EBITDA attributable to AutoCanada shareholders

23,842

27,072

18,312

23,353

26,379

27,397

12,687

24,605

EBITDA % of Sales

3.2%

3.7%

3.2%

3.5%

3.8%

3.8%

2.2%

4.0%

Free cash flow

30,897

37,922

4,045

9,066

14,995

17,776

(3,162)

39,822

Adjusted free cash flow

27,766

21,632

6,035

8,078

18,951

19,187

(7,420)

17,122

Basic (loss) earnings per share

(1.19)

0.53

0.27

(0.29)

0.48

0.56

0.20

0.60

Diluted (loss) earnings per share

(1.19)

0.53

0.27

(0.29)

0.47

0.56

0.20

0.59

Basic adjusted earnings per share

0.38

0.49

0.31

0.34

0.51

0.56

0.22

0.52

Dividends declared per share

0.10

0.10

0.25

0.25

0.25

0.25

0.25

0.25










Operating Data









Vehicles (new and used) sold

15,955

17,425

13,301

14,150

17,086

17,739

13,824

15,415

New vehicles sold

10,983

12,098

8,502

9,210

12,018

12,296

8,933

10,570

New retail vehicles sold

8,949

9,374

7,078

8,016

9,985

9,929

7,393

8,907

New fleet vehicles sold

2,034

2,724

1,424

1,194

2,033

2,367

1,540

1,663

Used retail vehicles sold

4,972

5,327

4,799

4,940

5,068

5,443

4,891

4,845










# of service and collision repair orders completed

209,912

227,446

209,194

230,772

202,692

215,142

199,096

216,427










Absorption rate

89%

90%

83%

93%

91%

94%

85%

85%

# of dealerships at period end

53

53

53

54

50

49

48

48

# of same store dealerships

33

27

27

28

26

24

23

23

# of service bays at period end

898

898

898

912

862

842

822

822

Same store revenue growth

(9.2)%

(3.2)%

(3.1)%

(12.1)%

(6.9)%

(2.8)%

(3.5)%

10.9%

Same store gross profit growth

(11.0)%

(5.3)%

(5.5)%

(14.3)%

(14.1)%

(11.0)%

(8.5)%

5.7%










*See the Company's Management's Discussion and Analysis for the period ended September 30, 2016 for complete footnote disclosures.

 

The following tables summarizes the results for the three and nine month periods ended September 30, 2016 on a same store basis by revenue source and compares these results to the same period in 2015.


Same Store Revenue and Vehicles Sold




For the Three Months Ended

Revenue Source

(in thousands of dollars)

September 30,
 2016

September 30,
 2015

% Change


New vehicles ‑ Retail

211,907

250, 363

(15.4)%


New vehicles ‑ Fleet

57,279

49,060

16.8%

Total New vehicles

269,186

299,423

(10.1)%


Used vehicles ‑ Retail

72,491

86,755

(16.4)%


Used vehicles ‑ Wholesale

35,177

30,772

14.3%

Total Used vehicles

107,668

117,527

(8.4)%

Finance, insurance and other

20,427

24,138

(15.4)%

Subtotal

397,281

441,088

(9.9)%

Parts, service

48,490

49,759

(2.6)%

Collision repair

3,888

4,297

(9.5)%

Parts, service and collision repair

52,378

54,056

(3.1)%

Total

449,659

495,144

(9.2)%





New retail vehicles sold

5,238

6,442

(18.7)%

New fleet vehicles sold

1,679

1,632

2.9%

Used retail vehicles sold

3,071

3,213

(4.4)%

Total

9,988

11,287

(11.5)%

Total vehicles retailed

8,309

9,655

(13.9)%

 

 

Same Store Gross Profit and Gross Profit Percentage




For the Three Months Ended


Gross Profit

Gross Profit %

Revenue Source

(in thousands of dollars)

September 30,
 2016

September 30,
 2015

% Change

September 30,
 2016

September 30,
 2015

Change


New vehicles ‑ Retail

16,850

20,689

(18.6)%

8.0%

8.3%

(0.3)%


New vehicles ‑ Fleet

812

884

(8.1)%

1.4%

1.8%

(0.4)%

Total New vehicles

17,662

21,573

(18.1)%

6.6%

7.2%

(0.6)%


Used vehicles ‑ Retail

6,356

6,019

5.6%

8.8%

6.9%

1.9%


Used vehicles ‑ Wholesale

952

408

133.3%

2.7%

1.3%

1.4%

Total Used vehicles

7,308

6,427

13.7%

6.8%

5.5%

1.3%

Finance, insurance and other

18,639

21,944

(15.1)%

91.2%

90.9%

3.0%

Subtotal

43,609

49,944

(12.7)%

11.0%

11.3%

(0.3)%

Parts, service

24,509

26,633

(8.0)%

50.5%

53.5%

(3.0)%

Collision repair

2,054

2,270

(9.5)%

52.8%

52.8%

- %

Parts, service and collision repair

26,563

28,903

(8.1)%

50.7%

53.5%

(2.8)%

Total

70,172

78,847

(11.0)%

15.6%

15.9%

(0.3)%

 

The following table summarizes the number of same stores for the period ended September 30, 2016 by Province:

Number of Same Stores by Province











British
Columbia

Alberta

Saskatchewan

Manitoba

Ontario

Quebec

Atlantic

Total

FCA

3

5

1

1

-

-

2

12

Hyundai

2

4

-

-

2

-

-

8

Volkswagen

3

2

-

1

-

-

-

6

Nissan/Infiniti

1

1

-

-

-

-

-

2

Audi

-

-

-

1

-

-

-

1

Mitsubishi

-

2

-

-

-

-

-

2

Subaru

-

1

-

-

-

-

-

1

BMW

-

-

-

-

-

1

-

1

Total

9

15

1

3

2

1

2

33

 

During the quarter, 6 stores moved from newly acquired stores and into the same store designation. Over the next quarter, 11 additional stores will move into same store.

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 three and nine month periods ended September 30, 2016, 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 the Company's performance. The Company provides these measures to assist investors in determining the Company's 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 interim MD&A: EBITDA; Adjusted EBITDA; Adjusted Net Earnings and Adjusted Net Earnings per Share; EBIT; Free Cash Flow; Adjusted Free Cash Flow; Adjusted Average Capital Employed; Absorption Rate; Average Capital Employed; Return on Capital Employed; and Adjusted Return on Capital Employed.

Conference Call

A conference call to discuss the results for the reporting period ended September 30, 2016 will be held on November 4, 2016 at 9:00am Mountain Time (11:00am Eastern). To participate in the conference call, please dial 1.888.231.8191 approximately 10 minutes prior to the call. A live and archived audio webcast of the conference call will also be available at the following:

http://event.on24.com/r.htm?e=1138785&s=1&k=71992EB23C7877EDC7B62D0F33310B90.

About AutoCanada

AutoCanada is one of Canada's largest multi-location automobile dealership groups, currently operating 54 franchised dealerships, comprised of 62 franchises, in eight provinces and has over 3,800 employees. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, KIA, BMW and MINI branded vehicles. In 2015, the dealerships sold approximately 62,800 vehicles and processed approximately 848,000 service and collision repair orders in 912 service bays during that time.

Dealerships derive their revenue from the following four inter-related business operations: new vehicle sales; used vehicle sales; parts, service and collision repair; and finance and insurance. While new vehicle sales are the most important source of revenue, they generally result in lower gross profits than parts, service and collision repair operations and finance and insurance sales. Overall gross profit margins increase as revenues from higher margin operations increase relative to revenues from lower margin operations. The Company earns fees for arranging financing on new and used vehicle purchases on behalf of third parties. Under agreements with retail financing sources, the Company is required to collect and provide accurate financial information, which if not accurate, may require us to be responsible for the underlying loan provided to the consumer.

Forward Looking Statements

Certain statements contained in this press release are forward‑looking statements and information (collectively "forward‑looking statements"), within the meaning of the applicable Canadian securities legislation. Forward-looking statements in this press release include but are not limited to the following: the ability of the Company to recover goodwill impairment charges in the future; the ability of the Company to continue to acquire and integrate additional cash flow generating dealerships; the stability of the new and used retail vehicle market in Canada and the ability of the Company to realize cost savings.   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 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, the Company undertakes 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 the 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.

Image with caption: "AutoCanada Inc. (CNW Group/AutoCanada Inc.)". Image available at: http://photos.newswire.ca/images/download/20161103_C7949_PHOTO_EN_811726.jpg

For further information: Christopher Burrows, Vice-President & Chief Financial Officer, Phone: 780.509.2808, Email: cburrows@autocan.ca

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