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Edited Transcript of ACQ.TO earnings conference call or presentation 8-Nov-19 4:00pm GMT

Q3 2019 AutoCanada Inc Earnings Call

Edmonton Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of AutoCanada Inc earnings conference call or presentation Friday, November 8, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin McPherson

AutoCanada Inc. - Director of Finance

* Michael Rawluk

AutoCanada Inc. - President & Director

* Michael A. Borys

AutoCanada Inc. - CFO

* Paul W. Antony

AutoCanada Inc. - Executive Chairman

* Tamara Darvish

AutoCanada Inc. - President of U.S. Operations

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Conference Call Participants

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* Christopher Allan Murray

AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst

* Maggie Anne MacDougall

Cormark Securities Inc., Research Division - Director of of Institutional Equity Research

* Matt Bank

CIBC Capital Markets, Research Division - Associate

* Michael Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* Stephen C.A. Harris

GMP Securities L.P., Research Division - Head of Research

* John Irwin

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Presentation

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Operator [1]

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Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AutoCanada Third Quarter 2019 Results. (Operator Instructions)

I would like to remind everyone that certain statements in this presentation and on our call are forward-looking in nature, including, among other things, future performance and the implementation of the Go Forward Plan. These include statements involving known and unknown risks, uncertainties and other factors outside of management's control that could cause actual results to differ materially from those expressed in the forward-looking statements. AutoCanada does not assume any responsibility for the accuracy and completeness of the forward-looking statements and does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

For additional information about possible risks, please refer to our AFI -- sorry, AIF dated March 14, 2019, which is on the SEDAR website as well as on our website within the Investor Documentation & Filing section.

I will now turn the call over to Kevin McPherson, Director of Finance. Please go ahead.

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Kevin McPherson, AutoCanada Inc. - Director of Finance [2]

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Thank you, Lisa. Good morning, everyone, and thank you for joining us on today's third quarter results conference call. For today's call, I'm joined by Paul Antony, our Executive Chair; Mike Borys, Chief Financial Officer; Michael Rawluk, President of our Canadian Operations, Tamara Darvish, President of our U.S. Operations; and Peter Hong, our Chief Strategy Officer.

We released our Q3 results after market close yesterday. A copy of our results is available for download on our website.

For today's call, we will be discussing the current state of the business, discussing the financial results and providing an update on both our Canadian and U.S. business.

With that, I'd like to turn it over to Paul.

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [3]

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Thanks, Kevin. Good morning, everyone. Thanks for joining us on today's conference call. I'm pleased to report that Q3 marked the second consecutive quarter of strong financial results as we delivered adjusted EBITDA of $32.5 million in Q3 on a pre-IFRS 16 basis. Our adjusted EBITDA for Q3 '19 was $21.8 million, a 35% improvement over the prior year.

These results are reflective of our continued efforts to drive operational performance at AutoCanada. In Canada, our Q2 performance carried into Q3 as we posted 9.1% growth in same-store new unit retail, clearly outperforming the market, which declined by 3% for the brands we represent.

Same-store gross profit increased by $15.3 million year-over-year. Further, we saw steady improvements across almost all geographies and lines of business. That's a testament to the impact of Michael's Go Forward Plan initiatives. These efforts culminated in our Canadian operations, delivering a second consecutive quarter of adjusted EBITDA in excess of $30 million, at $30.9 million in Q3. On a pre-IFRS 16 basis, adjusted EBITDA was $22.2 million, more than 30% improvement over the prior year.

In the U.S., we continue to see progress in stabilizing the business and Tammy's Go Forward Plan initiatives are beginning to lay the foundation for future profitability. Tammy Darvish and our new general manager team, which has now been in position for the better part of the last 2 quarters, continue to change the culture in our U.S. dealerships. With an emphasis on profitability, they have prioritized gross profit and disciplined cost management above all, resulting in adjusted EBITDA of $1.6 million. Stated on a pre-IFRS 16 basis, the U.S. came in at a negative $0.4 million adjusted EBITDA, near breakeven for the quarter. To put this in perspective, the same figure for Q2 '19 was negative $2.2 million and in Q1 of '19 was negative $7.4 million.

As mentioned last quarter, we continue our review of U.S. dealerships, which fall below our performance expectations. As a result of our ongoing review, we announced the closure of 2 loss-generating franchises this past week. They will be closed by November 15, next Friday. The 2 franchises alone were responsible for about $2 million in cash losses through the last 9 months. We believe this action will enable the team to better focus on and allocate resources to the rest of our U.S. dealership group.

Overall, I'm quite pleased with the progress we're making in the U.S. The Q3 results are yet another step in the right direction. Given that many have been focused on our bank covenants, I'd also like to comment on our balance sheet. The balance sheet has been and remains a high priority focus for the company, and I'm happy to report that since the beginning of the year, we have reduced net indebtedness by $100 million.

In this last quarter alone, we reduced net indebtedness by $70 million, which improved our credit metrics and ultimately, our financial flexibility. The progress made in Q3 should put to rest any concerns on this front as we are clearly focused on positioning the company for long-term success through appropriate capitalization.

I'll now turn the call over to Mike.

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Michael A. Borys, AutoCanada Inc. - CFO [4]

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Thanks, Paul, and good morning to everyone on the call. I'm happy to be having my first webcast with AutoCanada against the backdrop of a second consecutive strong quarter. In addition to the strong operational quarter at the dealerships, which Michael and Tammy will discuss, we significantly strengthened our balance sheet, reducing our net indebtedness by $70 million, taking us from $272 million at the end of Q2, to $202 million at the end of Q3.

While we were assisted by the sale-leaseback transaction completed in early August of $20 million, approximately half of the reduction in net indebtedness was driven by an improvement in our working capital management. We improved working capital management through 2 levers within our control, cash cycle management and our used floorplan facility utilization. For cash cycle management, it was about bringing focus to our existing receivables and payables practices, identifying metrics that are already tracked and driving towards improvement of those metrics. Specifically, for payables, we work to move away from discretionary approaches and more towards policy-driven directives on payment terms, always with an eye to protecting critical supplier arrangements.

Improvements in our used floorplan facility utilization were driven by increased discipline at the dealership level to purchase used vehicles through the floorplan facility rather than with cash.

These efforts resulted in used vehicle inventory as a percentage of used vehicle floorplan, shifting from approximately 60% at the end of Q2, to over 90% at the end of Q3. As floorplan financing is a component of accounts payable, movement here had a direct and immediate impact on our credit facility indebtedness. Further, there will be a beneficial reduction in cash interest expenses as floorplan financing is cheaper as compared to our credit facility. These actions fundamentally put greater policy and discipline to the management of our working capital. This is simply working capital management 101. Moreover, these are systemic and sustainable actions, not one-off puts. Our intention here is to hold these gains in the quarters ahead. I'll note here as well that because we were actively pursuing material changes in our debt position, we thought out a preemptive consent with our lenders to drop our current ratio covenant to 1.0 from 1.05.

Our lenders understood what we were doing, were very supportive and unanimously provided that consent. The 1.0 current ratio covenant will hold through Q4 2019. We ended the quarter with a current ratio of 1.06. As a result of strong operating performance, both here in Canada and in the U.S. and the actions focused on working capital, our total funded debt-to-bank-EBITDA covenant ratio improved from 4.01 at the end of Q2, to 2.84. Year-to-date, net indebtedness is down by $100 million and by over $170 million since Q2 2018. We will be disciplined in managing our balance sheet, debt levels and overall credit profile.

One last item I will call out here is about delivering accurate and transparent financial reporting to our external users of the financial statements and related disclosures. We are working to provide a clearer view of our results and the underlying drivers of performance. Readers of our MD&A will notice changes in some of the formatting and the manner in which we are presenting our results.

This will be an ongoing effort in the quarters ahead. Because we aligned our definition of adjusted EBITDA with most other issuers in the last quarter and heard there was confusion over alignment of previous quarter's performance against those new measures, we included an exhibit, Exhibit 21, with our Q3 MD&A, specifically to outline a reconciliation of results over the last 8 quarters so that everyone is comparing apples-to-apples on adjusted EBITDA.

And with that, I'll turn it over to Kevin to discuss our results.

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Kevin McPherson, AutoCanada Inc. - Director of Finance [5]

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Thanks, Mike. At the consolidated level, we saw improvements on many metrics. On both a revenue and gross profit standpoint, we had a good quarter with positive performance over the prior year. In Q3 2019, revenue was $981.9 million, an increase of $115 million or 13.3%. We grew our gross profit to $150.7 million, an increase of $15.9 million or 11.8%. Total vehicles sold were 19,652 in the quarter, an increase of 533 units.

Used retail vehicles are the key focus for both our Canadian and U.S. segments in Q3. We are very pleased to see that our used retail vehicles sold increased by 11.1%, totaling 7,384 units for Q3 2019.

Adjusted EBITDA for the quarter increased to $32.5 million, an increase of $16.3 million. Adjusting for the impact of IFRS 16, adjusted EBITDA was $21.8 million, an increase of 35% over the prior year. In order to fully understand the performance of our different operating segments, we've broken out the results between the Canadian and U.S. operations.

For the third quarter, the Canadian group generated higher revenues and gross profits against Q3 2018. Revenue was $871 million, up 20% over the prior year. Gross profit grew to $134 million, an increase of $18 million or 15.8% over 2018. In addition, adjusted EBITDA increased to $30.9 million, an increase of $14.4 million. Adjusting for the impact of IFRS 16 in 2019, adjusted EBITDA was $22.2 million, an increase of 34% over the prior year.

Total retail vehicles sold for Canada also increased to 15,253, which is 11.9% higher than the previous year. For our U.S. operations, revenue was $110.7 million, which did decrease from Q3 2018 by 21.9%. Total gross profit also decreased by $2.5 million or 13%. Used vehicle growth was a highlight for the quarter, increasing by $1 million, an increase of 105% over Q3 2018. Operating expenses is where year-over-year improvements have been highlighted, and total operating expenses decreased by $4.1 million.

I will now provide a recap of our significant financial transactions for Q3. On July 2, 2019, the company sold substantially all of the operating and fixed assets of Calgary Hyundai, located in Calgary, Alberta, for cash consideration. Net proceeds of $2 million resulted in a net pretax gain on divestiture of $0.4 million. This divestiture will have a marginal impact on our net earnings.

In our U.S. segment, related to the closure of the 2 loss-generating franchises, Chevrolet Lincoln Park and Cadillac Lincoln Park, a noncash restructuring charge of $13.4 million was taken in the quarter to reduce the carrying amounts of tangible assets to the recoverable amounts and to accrue a provision related to future unavoidable premises costs. We will also continue to actively market $23 million of unproductive real estate, and we're evaluating all uses and options for these redundant assets.

Lastly, we have declared a quarterly eligible dividend of $0.10 per common share on our outstanding common shares payable on December 16, 2019 to shareholders on record at the close of business on November 29, 2019.

I will now turn the call over to Michael Rawluk to discuss Canadian operations.

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Michael Rawluk, AutoCanada Inc. - President & Director [6]

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Good morning, everyone. We'd like to start with a big thank you to all of our team members, our dealers, head office support team. We're very proud of everyone for the performance they've produced this quarter. We'd also like to thank our OEM partners, our strategic partners and everybody that's helping this full team effort to improve operations. This is truly a group effort. We thank everyone.

We started the Canadian recovery process a year ago beginning with a full operational review, followed by the creation of the Go Forward Plan. Implementation started in the fall, and then we spent the winter building up new profit centers and getting comfortable with an adjusted operating methodology. While the early part of this year was soft for the overall market, momentum really built into the spring, and we saw that momentum on full display in Q2. And with our results here in Q3, we are showing a second strong quarter. We are seeing positive performance from our Canadian operations and the Go Forward Plan. Vehicle sales are growing in a down market.

On a same-store basis as compared to our results in Q3 2018, revenue increased by just over 20%. New and used retail unit sales increased by 12.7% to 14,226 units in the quarter. Gross profit is up by $15 million or 13.9%. New vehicle gross profit per retail unit grew 12% or $377 per unit. Used-to-new units sold increased to 0.73 from 0.67.

As a point of reference, in Q2 2018, when we started, the used-to-new ratio was 0.60. Used retail vehicles sold grew by 21.2% in the quarter. Finance & Insurance gross profit per retail unit was up 8.5% or $195 a unit. And parts, service and collision repair gross profit increased by 9%. Canada continued to outperform the market in the quarter and year-to-date.

AutoCanada new retail units on a same-store basis grew 9.1% as compared to market decline of 3% for those brands represented by AutoCanada. On a year-to-date basis, AutoCanada grew 1.9% as compared to a market decline of 6.2% on the same basis. Operating expenses as a percentage of gross profit improved by 10.8 percentage points in the quarter as compared to a year ago, going from 91.9% to 81.1%. This demonstrates responsible growth. We are happy with these results, but we'll continue to push for better.

Overall, adjusted EBITDA increased by 86.7% to $30.9 million. We are seeing traction with our F&I and business development center strategies within the context of our Go Forward Plan. F&I revenues were up 28% in the quarter. F&I gross profit is up just over 22% or approximately $6.5 million on a same-store basis. Part, service and collision revenues are up 4.7% and associated gross profit was up 9% or $4 million on the same-store basis.

We attribute a good part of this increase to our DealerMine call center initiative and business development center strategy within the dealership. F&I and BDC are the 2 breakout performers from our Go Forward Plan and will continue to drive incremental impact into 2020. We are not yet at an optimal run rate on either of these 2 initiatives. Beyond F&I and BDC, other initiatives within our Go Forward Plan are positively contributing to performance and include our Special Finance division, which has recently started marketing online to credit-challenged customers through RightRide.ca; a new Wholesale division that's capitalizing on arbitrage opportunities for used cars; our long-term initiative to sell more used cars, which we call "Project 50"; and a new strategy for collision centers. We are also spending much more time on developing strong relationships with our valued OEM partners.

We are meeting with every OEM on a regular basis and reviewing our performance to ensure full alignment with their strategy and balanced scorecard criteria. And it's having an impact on sales and profitability. The balanced scorecard approach underscores that it's not enough to just sell a car anymore. This is new. We only started this renewed engagement with our OEM partners in the last 12 months. As the results show, we are moving forward on a number of fronts, top and bottom line. We have lots of work still to do, and we must drive consistency of performance and ultimately, a string of strong quarters. Having said that, I'm very pleased with the progress that we've made in the first 9 months of the year. I believe that much better -- that we're much better positioned for the balance of the year and for 2020.

Tamara, over to you.

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Tamara Darvish, AutoCanada Inc. - President of U.S. Operations [7]

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Thank you, Michael. Good morning. I'm pleased to report that we've made good progress in the U.S. Go Forward Plan this quarter, and we're starting to see the early results reflected in our financial performance and importantly, in our day-to-day dealership operations. This core operational focus in Q3 included: first, the onboarding of key personnel with 5 new general managers; next, implementation of a better training in related processes, in particular, in our used vehicle and Finance & Insurance segments; also, there was a cultural shift towards a focus on the customer versus a focus on the sale; next, optimization of fixed operations, where we've implemented new systems as well; and thoughtful cost rationalization where appropriate.

Resulting highlights from the quarter include: improved total vehicle gross profit margins to 4.2%, up from 3.5% in Q3 2018; improved overall gross margins to 14.8%, up from 13.3% in Q3 2018; reduced operating expenses to $15.9 million, which is down from $19.9 million in Q3 2018. Operating expenses as a percent of gross profit declined to 96.6%, down substantially and a significant sequential improvement from 152.7% in Q1 2019 and 113.6% in Q2 of 2019. The same applies to adjusted EBITDA. We're on a pre-IFRS 16 basis. We delivered a negative $0.4 million in Q3. It's up from a negative $7.4 million in Q1 of 2019 and negative $2.2 million in Q2 of 2019.

As we haven't anticipated, these foundational operation changes did impact our vehicle sales volumes in the quarter, with Q3 volumes down 24% year-over-year from 3,400 in Q3 2018 to 2,600 in Q3 2019. Notably, however, our Q3 2019 vehicle sales volume of 2,600 represented a number that was more in line with Q1 2019's total of 2,400 units, which was a quarter that we lost $7.4 million on a pre-IFRS 16 adjusted EBITDA basis versus this quarter's $400,000 loss.

As a result, I'm very confident that our efforts bear fruit and volumes will begin to move forward towards more normalized levels. The operating leverage in the business will begin to show. While there is much more work to be done, we are making good progress, and we believe we are laying the right foundation for continued momentum heading into 2020. In addition, as noted earlier, we announced the closure of our Chevrolet of Lincoln Park and Cadillac of Lincoln Park in the downtown Chicago market just earlier this week.

We recorded over $2 million in cash losses associated with these dealerships through the first 9 months of 2019. We believe the closure not only improves our outlook in the U.S., but also allows us to shift our resources and focus on our other franchises that have shown great gains in the last couple of quarters. We value our General Motors brands and our relationship with them as we continue to operate their dealerships in the United States and Canada.

Lastly, our leadership team in the United States is now starting to benefit from our new team members placed in the past few months, specifically, our dealership leadership teams and our general managers. We continue to see real progress from the changes in our people and our processes, both of which continue to drive our progress.

I'd like to express my deep appreciation to our dedicated team members, our valued business partners and our OEMs, who continue to be the key to us for delivering on our U.S. Go Forward Plan, and I'm really honored to be able to continue to lead our team forward.

Now back to you, Paul.

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [8]

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Thanks, Tammy. Before we finish, I'd like to also thank our team of more than 4,000 hardworking AutoCanada team members who are key to helping us deliver in both Canada and the U.S. I'd also like to say thank you for all the support from our strategic partners, financial institutions, OEM partners, as Michael and Tammy have as well. These are now energizing times for AutoCanada, and I'm really proud of the momentum we've established in the last 2 quarters and the validation of our value-creation plan that it provides.

Leading AutoCanada hasn't been without its moments. And I think we all underestimated the amount of work required when we started this journey in late 2018. Operating in a constant state of defense was trying, but I do believe the foundation for our Canadian and U.S. business is mostly in place, and it is increasingly about playing offense and executing against our objectives. While significant work remains, and we will remain focused on operational improvement and responsible management of our balance sheet, I believe there's a new -- there's now an asymmetric upside to value creation within our business, and I look forward to playing offense as we head into 2020.

This includes reestablishing AutoCanada as a platform for market consolidation and an acquirer of choice in the category, which I expect we are able to return to by mid-2020, following continued organic performance in the coming months.

We'll now turn it over to the operator for your questions. Thanks.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Stephen Harris from GMP Securities.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [2]

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And congratulations on a very solid quarter, lots of good data points there. Just wondering if we can focus on one area that was maybe a bit of a surprise, which is on the used car segment, where I think your revenues were extremely strong, but your gross profit was actually down low year-over-year. I know there's a lot of changes going on in that group. Wondering if you can give us some color on what's going on there and what we can see develop in the next couple of quarters.

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Michael Rawluk, AutoCanada Inc. - President & Director [3]

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Yes. Thanks, Stephen. Michael here. It's a good question. That was a jump out of the page for us as well. The simple answer to that is that we're driving an incremental increase in our used car volumes. And the benefits of that are that we reconditioned the cars for parts and service, that we sell F&I products and also make money on the front end. So when we increased our volume by 20%, all of that drove a lot of the increases that we saw in our parts, service and F&I gross profit. But we still want to hold on to our front-end margins. This is a training opportunity for everybody. This is a new process. This is an incremental increase that we're looking for to try and balance our business. And we expect margins to return to normal as we get better and as we focus on training and structures that will support that business.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [4]

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Okay. And now I know you've put a lot of initiatives there. Is some of this related -- there must be people involved in hiring to support these new processes. Is some of this a cost issue? Or is it more of it just the case of earning less per car, just based on the math?

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Michael Rawluk, AutoCanada Inc. - President & Director [5]

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It's a combination. Like I would say that it's a combination of that we're keeping older cars that we used to send to the auction. And the gross profit opportunity on a $25,000 certified pre-owned BMW is a lot more than an $8,000 car that used to go to the auction. So some of it is with regards to our GPU. But a big part of it is that we're pushing for an incremental improvement in our used car business, and sometimes, that comes with some couple of steps forward, a couple of steps back. It's a new business.

Used car operation is very complex. It's the one part of the business that crosses all segments of the dealership. We have to actually go buy the cars, we recondition them, we market them. And when you're looking for a 20% to 25% annual improvement in used cars, there's some training and some knowledge that has to be built in the organization in order to check all the boxes.

Now we're happy that with the growth that, that strategy had or the impact in parts and service through the reconditioning and the F&I, we're not overall pleased with the reduction in the margins, and we think we can return those margins to normal levels and actually grow them. But as we tell our people all the time, it's progress, not perfection. We're learning new behavior. We're learning and building up new business strikes within the organization.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [6]

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Great. Okay. And then I just had one more on the U.S. side. Great to see the improvement in profitability. The decline in revenues that we saw there, it sounds like it was planned rather than accidental, but it's got to be a fair amount of turmoil for an organization to go through where you hit a reset and sales go down by 20-plus percent because ultimately, car salespeople, I have to believe, want to sell more cars. Can you tell us what's going on there and how the new strategy has been received and whether it's led to people turnover? And if so, do you think that as a positive or a negative? What's the on-the-ground feeling as you reposition the business?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [7]

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I'll take -- it's Paul here. I'll take the beginning, and Tammy can finish up. And so what I would say is we've replaced now and we're in the process of replacing every single general manager at every single store. And as you know, it all comes from leadership. And so we're making sure and we're confident that as we get the muscle to enable all of the stores to kind of participate in the culture that we want to advance forward, it's not an overnight -- to Michael's point in selling used cars, this is not an overnight hit. And so we consciously took a step back and said we're going to have to sell less cars. We're going to have to increase our gross profit, but we're going to have to reteach everybody in the U.S. how we want the business to go forward. And it's not acceptable for us to continue to sell cars at losses anymore just to get volume. It's important for us to hold on to growth, take care of our customers and do the right thing.

And so I would say that the culture has not been easy, and that's why we saw many months of kind of building this out. But as you're seeing right now the effects of that, Tammy and her leadership team are starting to take hold now. I'll hand it over to Tammy, if you'd like to add anything.

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Tamara Darvish, AutoCanada Inc. - President of U.S. Operations [8]

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Yes, I would just add that we had to really take a hard stop and step back to not only rebuild our entire organization and putting still the right culture to prioritize growth over volume. So in the meantime, yes, some volumes were sacrificed.

But as Michael even said, it is a training function versus a function of a quality transaction and quality customer service. It's training that has to become a habit, and it was absolutely necessary before we can begin to drive healthy volume, which now with a perfected sales process, it's really all about scaling. And it's a tough balancing act, but if we had done that in the reverse and started with volume and then tried to back into growth, we would have lost.

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Operator [9]

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Our next question comes from the line of Chris Murray from AltaCorp Capital.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [10]

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Just turning back to the operational performance on costs. And I'm looking forward into Q4, bringing that number down by about 11% year-over-year. Is it fair to think that allowing for some seasonality in Q4, that the pace that you're on in terms of your gross operating ratio should actually continue at that pace? Or should -- was there something unusual in the quarter that really stepped it down?

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Michael Rawluk, AutoCanada Inc. - President & Director [11]

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Yes. Yes, okay. Maybe I'll -- so -- and stop me if I'm not answering your question. But when it comes to margins and cost control, I'll just segue this into an overall discussion of EBITDA margin and where we're going. So just overall, EBITDA margin is always top of mind for us. We live and breathe it. We think about it all the time. There are 2 parts to this question. And the first part is about trending, are we getting better, and the second part is about destination.

With regards to trending, our EBITDA margin for Q3 2018 was 2.3% compared to Q3 2019, which was 2.6%. This improvement was made in spite of a significant negative impact to EBITDA from the sale-leaseback activity on a pre-IFRS basis. So we're going in the right direction.

Now for destination. We're all well aware of what our peer group metrics are, which ranges from mid-2s to high 3s. The difference among the U.S. peer groups are largely driven by gross profit margins and real estate strategies regarding own versus rent. We're happy with our performance in gross profit margins versus our peers. And actually, we lead the entire industry in specific segments on a gross profit margin basis. The opportunity continues to be with used vehicle operations. That being said, the path to peer group comparables is really -- and cost control and EBITDA margins and everything is all through rightsizing our sales mix.

Now allow me just to remind people that the dealership business consists of 5 distinct businesses, and each one of these businesses has their own distinct EBITDA margin profile. The new business is sub-2%, return on sales and EBITDA returns. Used is 7%. Service is 28%. Parts is 20%. And collision is 10%. The point here is AutoCanada is disproportionately dependent on new vehicle sales. And no matter how many more new vehicles we sell, we're not going to grow -- you -- we're growing part of our business that's generating a sub-2% return. So we're never going to get to where we need to if all we do is grow new cars.

The strategy for AutoCanada, which is foundational to the Go Forward Plan, is to grow the other areas of our business. As we grow used vehicles, service, parts, we will see the weighted average EBITDA profile change. Adding more revenue with a higher EBITDA return will solve all of our problems in margins and return on sales and EBITDA and everything. If you consider and compare our used vehicle gross profit as a percentage of our total gross profit, it becomes clear what the problem is, and it also becomes clear what the path to correct it is. This is a weighted average issue or a revenue mix issue. It's not a cost management issue. If it was as simple as cutting cost, we would have done that already.

In Q3 2019, our mix improved favorably as we continued to invest in building up other areas of our business. And the benefits of these investments, which many are onetime, and the focus on balancing our mix will continue to be realized in the future, and all of these margins will come into line.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [12]

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Okay. That's helpful. And then just a couple of questions about acquisitions and divestitures. So currently, is there any thought around timing on the sale of the 4 stores in the U.S.? And then I've got one other question on acquisitions, if you want to answer that one first.

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [13]

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So I'll answer the U.S. question. Look, when we first got into the U.S., as everybody knows, it was kind of hair on fire, and we were trying to solve for not even not making money, but just not losing much. And part of that strategy was divesting nonperforming assets.

And so the 2 stores that we ended up closing or are in the process of closing, we didn't see a path to profitability. And unfortunately, as much as we would have liked to have kept those 2 franchises, it didn't make financial sense. And again, if we can't see a path to profitability, we've got better uses of our time and investors have other -- better uses of their capital.

And so with that, we decided on 4 stores that were underperforming. And when we brought Tammy on, she knew very clearly that her job was to get to profitability in the United States. And we had identified 4 stores that were also nonperforming assets for us. That said, we've been running a sales process on those stores, but in the meantime, she's actually turning them around. And so it's forcing us to really reconsider actually selling them, which we'll do over the course of the next quarter. And so I would say that we don't plan on shutting any more stores down in the United States, and frankly, we're feeling much better about our assets that we actually have there to the point that we're seeing positive momentum in 2020 with the existing store -- store mix.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [14]

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All right. Okay. Fair enough. And then, I guess, my next question, and this is the thing that's just what's good and bad about the acquisition story. But I'll leave it as over its history, AutoCanada has had a bunch of different strategies on acquiring, which, in fact, kind of led to the U.S. operations in the first place. How should we be thinking about this management team's strategy on acquisitions? What is it that you're looking to achieve with it other than just pure growth? Is there something about you want to be in a certain part of the market, certain brand? Is it geography and balance? Anything or any of your thoughts you can give us about how you're going to be thinking about doing acquisitions and not really get us back into another Grossinger situation?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [15]

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Listen, I think we're kind of proving ourselves by not doing anything by sitting on our hands over the course of the last year. We've proven that we're being more and more disciplined. And frankly, while it's been difficult to not want to get into the acquisition game, just prematurely, it's allowed us to focus on operations and make sure that we have the proper machinery in place to accept more dealerships. And with that said, we see that over the course of the last year, our funnel is actually starting to fill up with stores where you have generational changes with ownership and families that actually want to sell their stores, and we had been forced to sit on the sidelines. And so that we think there's pent-up volume to come. And not to mention, as Michael stated, our relationships with the OEMs are getting to be much better because we're performing at a high level, where I think I can't call out the OEMs necessarily on their own. But we're actually -- we could show internally that we can actually take a -- like one of our larger brands and we can operate that at a higher efficiency than the average owner.

So all that to say we believe in ultimately having a platform to be able to accept new stores and bring cost down as a result of bringing on more stores, but we couldn't do that until we operationalize the business. And we don't see going out right now or tomorrow necessarily and buying. However, as I've mentioned, by Q2, we think that we're in a good position to start taking advantage of the cyclical nature of the business and overlaying our operational expertise on these stores.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [16]

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Okay. And any thoughts around -- do you look for certain brands, certain geographies or anything like that?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [17]

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Yes. I think we currently -- I guess I don't want to say -- let me just think about this for a second. I would say as far as geographies, we're going to diversify away from Western Canada right now. We've got a lot of Western Canada. So I would say, Ontario is a bit of a focus for us. As far as brands go, we -- we love the brands that we have, and we want to increase to all brands in Canada, and we think that's very doable over the course of the next year.

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Operator [18]

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Our next question comes from the line of Michael Doumet from Scotiabank.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [19]

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Just Mike, I want to get back to that revenue mix answer, Mike, that you talked about. Can you talk about the ideal mix that you're targeting? Could you sell one used car for every new car? And for the parts and service and F&I, do you have targets there as well?

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Michael Rawluk, AutoCanada Inc. - President & Director [20]

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Yes. So we do have targets. I'm not sure that we'll get into the exact numbers on this phone call, but I'll just give you a bit of a methodology. So what we really focus on for mix is if you take the peer group, all of the U.S. publics, and you look at the percentage that their gross profit contributes for each area as a total, you'll see that it really jumps out that we're deficient in parts and service. And the real jump out on the page is used vehicle gross profit contribution. And of course, those 2 are tied together. So that's why the Go Forward Plan was focused on growing our parts and service business and used cars, but there's a big job to do with used cars.

Now at the same time, as mentioned before, the EBITDA profile on the used car business is 7% and combined parts and service is probably, on a blended basis, is 25%. So as we lean into that business and we develop that skill set, not only do we stabilize our business through all economic cycles, but we dramatically change our EBITDA profile margin. That's the solution here. And steadfast, that if it was as simple as cutting costs, we would have done that already. This is a hard -- this is a heavy lift. This is about building and growing and developing and encouraging a part of our business, and everything will come in line when we do that. We've modeled it out. We live and breathe this. We focus on it all the time. We are well aware of all of the mix issues, the profit margins, EBITDA margin. We have gone through the stock in the floor, that's the solution to revenue mix.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [21]

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Okay. And then just to clarify, I mean, given the current footprint, there's nothing structurally that should prevent AutoCanada from hitting those or getting that similar mix, right, versus the peers?

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Michael Rawluk, AutoCanada Inc. - President & Director [22]

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I think that it's just what the focus has been. And when -- in the industry, when the economy is strong and the business is flying high, everybody just sells new cars. And when the economy turns on you, everybody wishes they knew how to sell used cars. And that's what we're going through right now, is that we're -- we can't rely on the economy to drive our growth. But if you look at companies like CarMax in the States, that goes to show you that stability of that used car earnings profile is so attractive and so profitable. And so we're in a position right now where we're growing that side of our business.

The growth potential is unlimited. We have a footprint from coast to coast. We have strong dealers. We have strong salespeople. We have an unbelievable world-class operating platform. And we're just focusing on that area of that business and building it up.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [23]

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Okay. And just to pass a little bit on the used gross margins in the quarter, would you consider that a low point, understanding that, eventually, this gets better? But just for the near term, is this -- is the Q3 number a low point?

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Michael Rawluk, AutoCanada Inc. - President & Director [24]

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I -- well, is it a low point? Yes. How fast it will recover? It will recover. It's -- we're not talking years or multiple months to recover. Q3 is the toughest quarter of the year for used cars because the Canadian Black Book changes over, all the new cars, the new model years get launched. And basically, it's the end of the used car year-end. And so it can be very hard on a used car operator from a depreciation standpoint because overnight, all of your used car inventory clicks over and it's 1 year old, 1 year older. And so we got disproportionately hit by that because we weren't ready for that rhythm of the used car business. We're just finding our rhythm as we grow and build that skill set. So I would say it's a low point. And I would say that in future quarters, I expect people will be quite pleased.

The nice part is, is that we grew our used car business from a sales side by 20%, and that drove the growth in our parts and service to a degree and it drove our F&I profit to a degree. So it's not just isolated to the used car retail, it's growing the entire business. It's creating momentum. And -- but it requires a massive resource from parts people to deal with reconditioning, to service advisers, to salespeople, the inventory. It's a big process to buyers. It's not easy, but we're finding our way there.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [25]

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Okay. No, that makes a ton of sense. And maybe just turning to the other Mike. You guys talked about working capital optimization. That was great to see in the quarter. Has that optimization fully played out in the quarter? Or is there a little bit more in subsequent quarters that we should be looking for?

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Michael A. Borys, AutoCanada Inc. - CFO [26]

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Yes. So it's Mike here. We got the greater amount of it in Q3. I think there's still some opportunity to go after a little bit on the AP side. There's a little bit of opportunity in terms of the floorplan component. But for the most part, we had laid out a target for what we were trying to do. We knew the money was there. And the thing with working capital is once you identified and you actually target people towards it, you get it. You get it within a week or you get it within a couple of weeks. So we're confident we can hold it. We know where our debt balance is today. We're actually better than where our debt balance was at the end of Q3, so we know we're holding it. And the bank balance is where we want it to be.

But I think you're going to see us continue to try to refine it, and we'll try to eke out a few more millions on the working capital front. But again, the bulk of it has been done.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [27]

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That was great work. And maybe understanding that you took a noncash write-down in the quarter in the U.S., what should we expect in terms of cash cost for the next couple of quarters as it relates to the 2 closures?

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Michael A. Borys, AutoCanada Inc. - CFO [28]

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And I'll maybe look to Kevin or someone to help on it. So of the $13.4 million noncash charge, it will be ongoing rent, utilities, nothing overly material over the next couple of quarters. That will be -- or the next -- or per quarter from a cash component. But is that about right?

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Kevin McPherson, AutoCanada Inc. - Director of Finance [29]

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Yes. Kevin here. So I'll just quickly -- if you look at the provision itself or the restructuring charge, there was a large component that was related to the operating cost of the premises. But on a monthly and quarterly basis, those aren't large cash stops, it's more about the term there. So you won't see a large cash cache as a result of this going forward.

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Operator [30]

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And our next question comes from the line of Matt Bank from CIBC.

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Matt Bank, CIBC Capital Markets, Research Division - Associate [31]

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Can I get you guys just to talk a little bit more about the drivers behind your success in the F&I strategy and BDC?

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Michael Rawluk, AutoCanada Inc. - President & Director [32]

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Sure. We'll deal with F&I's strategy first. So the F&I strategy is -- I would describe it as Moneyball. It's -- really, the baseball analogy is the best way to frame it. And it starts with data collection and superior metrics and performance and then building an in-house training team from scratch and going out and looking for those opportunities in those gaps and really training people to sell products and processes that start with the presentation to the customer all the way through.

So that's all the soft stuff behind it. As far as some of the more tangible items, it was about restructuring our relationship with our providers that was focused on 2 things, which is lowering our wholesale costs and also increasing the breadth of products that we have available in the business office. And so when you buy a car, you could just offer customers the extended warranty or you can offer them extended warranty plus your creditor insurance, or you can offer them extended warranty plus disability and life and critical illness and protection products. And so it was about increasing the entire breadth of products, which becomes very complex, which is again supported by foundational data and an in-house training system.

It's a very important part of our business. And that's one area where AutoCanada leads the industry, north and south of the border. I have personally not been able to find anybody that does a better job in F&I than AutoCanada this year.

Second component is BDC. And not -- there's no silver bullet to any of this stuff. The BDC really is about working with a strategic partner, being DealerMine, to create a call center where we constantly develop and connect with our database of customers.

One of the most valuable assets that we have in AutoCanada is our robust and deep database of customers that we have sold cars to and done business with over the last decade. And the BDC is a formalized approach to leveraging our scale and our national footprint to connect with these customers, to inform them of recalls, to remind them of service, to ensure that they're satisfied with the transaction and their relationship with us and just constantly, to mine that database and improve that relationship that they have.

At the same time, as we drive more business into our dealerships, there's this massive process of resourcing up in order to deal with the increased flow. That involves everything from hiring technicians, to adjusting our processes in the service drive-through, to more of a focus on a lean processing methodology, which is brand-new introduction for this year, and on and on and on. So it's complex, but hopefully, that gives you a little bit of a flavor.

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Matt Bank, CIBC Capital Markets, Research Division - Associate [33]

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And then you mentioned with both of them that you haven't hit mature run rates. Can you just put in context for us, how you think about timing of these 2 initiatives ramping up and the relative size of the opportunities?

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Michael Rawluk, AutoCanada Inc. - President & Director [34]

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So the Go Forward Plan is progressing well with no surprises. And I think that's the key. There are no surprises, and it's progressing as planned. The only variable continues to be time.

Of note, we are pleased, like you mentioned, we're pleased with our F&I initiative, which led gross profit growth of $195 per unit to an industry-leading number of $2,456. That's industry-leading. Our BDC initiative, which only completed the initial implementation stage in Q3, and I just want to repeat that, is we only implemented it. We finished our implementation in Q3 of this year, led our parts and service business to 9% improvement in gross profit. These initiatives resulted in strong growth, but are all in the early stages of implementation. And they represent only a small portion of the overall plan.

As we continue to keep an eye on our -- on the peers, which is the public automotive groups in the U.S., as we discussed, we are pleased and proud of our gross profit margin performance, and we're also confident that our strategic initiatives will continue to close the gap on key measures, most notably the increase of used car unit sales and gross profit associated.

The Go Forward Plan, and everybody has to remember, is the Go Forward Plan represents an intense change management process that involves a significant organizational restructure and a fundamental change in operational methodology, and it also included the addition of brand-new profit centers. All elements of the Go Forward Plan are now in place, and they're all at various stages of maturity. The plan has now become part of our culture and our operational DNA, and we're frankly saying it's no longer the Go Forward Plan, but it's rather how we do business.

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Matt Bank, CIBC Capital Markets, Research Division - Associate [35]

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I just want to turn to the balance sheet for a couple of questions, if I could. So first, on working capital and this current ratio covenant. So is it the greater usage of the floorplan facility that took the current ratio lower? Or if not, what is it? And then what would you have to do with the covenant if the covenant does revert back to 1x on January 1?

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Michael A. Borys, AutoCanada Inc. - CFO [36]

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Yes. We're okay with that. The greater amount of the working capital improvement was on floorplan. So if you look at working capital improvement of around $29 million or $30 million, we would ascribe approximately $25 million to increased use of floorplan. The balance, $5 million, is spread between AR and AP. So floorplan is the greater use of it.

The precautionary consent that we had was really just to ensure that we didn't cross over. Obviously, the lenders knew what we were going to be doing. When we talk to them about what the approach was, we actually didn't need the consent to be in place because with that, we were at 1.06. So we'll take it to the end of the year.

To be honest, it was not a hard -- obviously, it was not a hard consent to receive. If we determine that we needed to do something with it beyond the end of the year, we'd go back to our lenders. But right now, I think we're okay with in terms of understanding the levers and where our numbers are going to be. But we'll talk to the lenders if we think that we're going to need the consent to be extended again. And that was a positive. It's not a consent because we're in trouble. It's a consent because we were trying to be aggressive and actually just to play what I call working capital management 101. So it's not a concern on where we are.

Given the improvement of $70 million on our net indebtedness, and I know that there's always been, and I know Paul talked about it earlier, I know there's been concern over the overall covenant structure or the overall covenant in our performance. We just don't -- we don't see -- obviously, we had no issues in Q3. We don't see an issue going forward, just given where our balance sheet happens to be. So again, I think we're exactly where we need to be. We have Canada doing exactly what Canada needs to be doing with Go Forward. We have the U.S. moving towards that breakeven and profitability. And our balance sheet is getting in order. And we're seeing the overall leverage metrics improving, whether you're looking at a bank covenant metric or whether you're looking at net indebtedness or whether you're looking at a lease-adjusted debt leverage. It's moving in the direction that we want it to move, and we have confidence it will continue to improve.

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Matt Bank, CIBC Capital Markets, Research Division - Associate [37]

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Great. And then last one. How many -- or how are you thinking about sale leasebacks from here?

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Michael Rawluk, AutoCanada Inc. - President & Director [38]

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We don't have any sale leasebacks right now in the pipeline. So at this point, whether it's divestitures or sale leasebacks, we're not looking at any kind of measures to generate cash. We're good in terms of where we need to be. We have these -- sorry, the only other thing I would -- I'd note in this again as a positive is we have the redundant assets. And I think Kevin mentioned that in his opening comments. We've got about $23 million in redundant assets. And we actually feel pretty good about being able to liquidate a good portion of that over the near term. So that would be another source of cash and why we have that much more confidence with our overall position on indebtedness. So that's the last point I'd make on that. So we're good.

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Operator [39]

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Your next question comes from the line of Maggie MacDougall from Cormark.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [40]

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I was wondering if you could give us a bit of an overview of your plan to basically improve the sales profile of the U.S. dealerships going forward now that a lot of the costs have been reduced, and it sounds like you're basically in a position to achieve breakeven or better with the closure of the 2 major losing dealerships. So interested to hear how you view the opportunity for revenue growth there?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [41]

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Well, Maggie, I think I'll turn it over to Tammy. But I think we elaborated it was all about getting back to base camp. Tammy kind of reflected and said that it's no longer acceptable to sell cars at a loss for volume. So we've basically taken everything back to ground zero and started to rebuild an organization. And that comes with a new cost structure, a new team, new culture. It's exactly kind of what Michael has been doing. Tammy is kind of 3 from more like 4 issues behind Michael and he's in the fifth between this. And so I think you've heard a lot about basically building up the muscle and then the repetitive action just selling cars with gross margin in mind, gross profit in mind and basically restructuring our existing contracts and kind of operating at a higher level, like those stores.

As I said before, historically, we had first initially thought that we're in stores that would be too much work to turn around. When Tammy was given that initiative, she's actually turning them around and so causing us to reconsider if those stores actually need to be sold. So I'll -- I mean, Tammy, you -- feel free to answer anything else I think you'll get. But I think it's no different than Canada. We're just -- we're doing the same thing. We're just behind by several months.

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Tamara Darvish, AutoCanada Inc. - President of U.S. Operations [42]

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Yes. I agree. And the only other thing I would add is that when you have a habitual disciplined approach towards growth from the leadership team, and it's really the management of a dealership that controls the growth. And now through promotions or incentives or otherwise, we're able to step up and start to really go after that volume.

Now a lot of our improvement, when we talk about the gross profit improvement, was also on the F&I side, much like on our Canadian side. And a real shift on our F&I side was in presenting and being aligned with products that not only drive profitability, but equally as important, drive customer retention and drive customer service visits up by getting them to return back to our service department, not only for warranty repairs, but for their regular ongoing maintenance repairs and everything, while at the same time, it's really critical we keep our eye on that expense reduction.

As we said that our operating expenses as a percent of gross profit went from 152.7% in Q1, down to 113.6% in Q2 and are currently at 96.6%. Those expenses will continue to reduce as volumes and growth continue to increase.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [43]

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Okay. Great. And just to give us an idea of where you're at then in terms of progress. Are you through staffing the leadership team there? Are you now in the process of retraining? Like maybe just some color on where you stand.

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Tamara Darvish, AutoCanada Inc. - President of U.S. Operations [44]

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Yes. I think on the fixed operations side and some so-called specialty positions, and when I say specialty position, maybe in technology, maybe in digital marketing, some BDC leadership. But outside of that, I'm very comfortable with all but perhaps maybe one of our dealerships as far as who is actually sitting in the seat of the general manager. And most importantly, when we say our leadership team, too, we have now a vice president of operations that I work side-by-side with daily. His name is Alex Kaliakmanis. And unlike previous or past management style, we're actually out in the field and in our dealerships every single day as a resource, not so much as a leader, but as a resource to our teams so that they have that extra expertise themselves to help them progress in their own efforts.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [45]

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Okay. And then because the history of the U.S. business, since it's been owned by AutoCanada, is pretty volatile or I'm not sure what you want to call it, but we don't really have a good benchmark for that business in terms of what an appropriate target should be to fix it. And so would it be your view that, that division should be able to generate a level of profitability comparable to Canada? Or should we be thinking about that differently?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [46]

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Well, I'll answer that. Look, we -- I think either last quarter -- and I think it was last quarter, we said that we won't lose money in the U.S. in 2020. We 100% will not. That's not an option. And so while we're figuring out, we think we have a handle on it. But again, I don't want to give guidance, but we're cautiously optimistic that the U.S. can turn into a nice profit center for us, and we can actually turn this into a nice business.

And I will warn everybody that Q1 is seasonally tough in Chicago, and it has been traditionally. And I don't think that's going to change because we're turning the business around. But that said, I don't think it's going to be anywhere near the top as it has been in the past, and we actually see that path to profitability. And so for that, we're actually quite excited where -- when we first all joined this company, we were worried about how do we stem the losses here. Now we're talking about profit.

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Operator [47]

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Your next question comes from the line of John Irwin from Automotive News.

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John Irwin, [48]

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Kind of on the topic of U.S. -- the future of the U.S. stores. You talked a lot about expansion into Canada next year through acquisitions. Is that all on the table in the U.S. moving forward once you -- once things become profitable as you hope for? Or is that not on the radar at all? I guess what's the future of acquisitions in the U.S.?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [49]

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I think that our goal first is to get the U.S. profitable. And if we assume that the U.S. has the same level of profitability as Canada and is hitting its stride as Canada, then that gives us an opportunity to arbitrage whether we're buying in Canada or the U.S. But at this point in time, we're fully focused on getting the U.S. profitability, and that's our promise to our shareholders.

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John Irwin, [50]

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And talking about the 2 stores that are being closed. What -- I guess what was it specifically about them that has led to the decision that it needs to be closed? And obviously, you lost $2 million on them. But I guess what was it that made you realize that you couldn't, I guess, turn these stores around versus the others? And what made it, these stores, unsalvageable in your view?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [51]

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I think that the expense structure that we walked into in the business when previous management decided that this was the right opportunity to buy this dealer group, we just couldn't get a handle on trying to figure out a way to bring those stores into profitability. And I think that the volume for these brands in an urban market just, from our perspective, weren't conducive to the expense structure that we had, and we had to make a hard decision. It was definitely a hard choice. But with that said, that now gives us much more capability and ability to focus on the brands that we have remaining throughout Chicago and Greater Illinois.

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John Irwin, [52]

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Just one last question. You kind of mentioned this with the previous questioner, but is there a target, I guess, a time line, I guess, as to when the U.S. stores probably can be profitable? I know, in the past, you were saying 6 months in Q1 in Chicago tended to be a little volatile. But I guess is there a specific timetable that you're looking at for, I guess, earnings that you're supposed to watch?

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [53]

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Yes. Like we -- I have to be honest with you, we feel that this is mission-critical to turn these stores into profitability. We feel it from the perspective of our employees. We feel it from the perspective of our shareholder. We feel it from the perspective of our OEMs. We feel it from the perspective of our customers. It's our duty to turn new things around, and we're doing whatever we can in our power to do so and we'll expect for it to last.

So if I -- I know that's kind of an evasive answer, but I can't -- I will tell you, in 2020, as I said, we won't be losing money there. So that's what I'm comfortable answering.

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Operator [54]

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There are no further questions at this time.

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Paul W. Antony, AutoCanada Inc. - Executive Chairman [55]

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Okay. So with that, I guess I'll just want to thank everybody. We look forward to chatting with everybody on the next call and hope to give you equal or better results for the next round. Thanks, everybody.

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Operator [56]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.