AutoCanada Inc.

Good morning, everyone. Thank you for joining us on our fourth quarter and full year financial results conference call.

Copies of our results which were released yesterday after markets closed, can be found on our website along with the presentation we will follow on this call. Joining me today will be Paul Antony, our Executive Chairman; Michael Rawluk, President of Canada Operations; Tamara Darvish, President of our US Operations.

Before I turn the call over to Paul, as seen in the press release I resigned for my role as CFO. I want to assure everyone on the call that I resigned solely for family reasons.

I have more confidence today in AutoCanada and the company's ability achieved the Go Forward Plan ever did based on what I've seen over the last few months. They also have balance sheet headed in the right direction.

We have a $250 million real state that we're still holding. And an amazing team that's been stepping up and working -- anything I've ever seen on Bay Street.

That's just sad to have to leave AutoCanada for the company's about to take off. I also want everyone to know I will be staying on for a number of weeks until a new CFO can be found.

I'll make sure that there'll be an orderly transition so AutoCanada can keep moving forward with all of its initiatives. With that I'd like to turn the call over to Paul Anthony, Executive Chairman.

Thanks Raj. And thank you all for joining us today on today's conference call.

We last spoke on our third quarter conference call. We had formally communicated our Go Forward Plan.

We outline key priorities will position the company to excel for the years to come. While we're facing a more challenged macro-environment and concerns over the North American economy, we're making good progress on our Go Forward Plan to date.

We're also coming off several years of record-setting sales which make more challenging year-on-year compares. That said, we're taking the necessary steps today to transform AutoCanada into a best-in-class dealership with strong economics and deliver superior return on capital for our shareholders.

As we'll discuss later, we're surfacing value as we free up capital where we're not generating adequate returns and redeploying capital into initiatives we say excellent return potential and strong growth prospects. We're laser focused on increasing the contribution from our finance and insurance and parts and service divisions, as well as our collision centers.

We believe there's an incredible opportunity. We're also focusing our attention on our used vehicle business where we can inherently generate higher margins in comparison to new.

And I can say we see an early signs of strong adoption across our dealer network. The increased contribution from these initiatives will not only generate strong returns on capital, they offer the added benefit of being counter cyclical.

We previously disclosed that we expected to achieve a minimum of $100 million in EBITDA for 2019. We've been facing significant headwinds over the past number of months in Canada, but we've had taken this into account in disclosing such expectation.

However, the primary uncertainty at this stage in achieving the previously disclosed expected EBITDA is the performance of our US business. We're behind our predictions and turning this business around.

That said, we now fully understand what we have in the US and understand what we need to do to bring that business to profitability. We're confident we can achieve $100 million in EBITDA in Canada in 2019 and we still believe it's doable to do this on an overall basis, but there is some uncertainty with our performance on an overall basis after taking our US business into account.

We intend to report our EBITDA on Canada and the US separately in 2019 so that our investors can see the progress we make with our US business. The key to success with our US operations will be to create operational efficiencies.

Bill Berman was brought into our US operations in August of last year in order to assist with diagnosing and structuring our US business. Now assess it's become clear that we need to focus in on the US on creating operational efficiencies, growing revenues and reducing expenses.

The current expense structure is well in excess of industry norms on many levels. It's become clear that the US business could not support Bill.

Bill's expertise is more aligned with building a platform and at this time the more immediate need is to build a sustainable foundation with the US assets we currently own that can withstand the economic climate over the next few years. Consequently, we brought on Tamara Darvish a hands-on operator to head up our US operations.

Tamara has moved to Chicago and committed to being in our stores every day until she brings those stores to profitability. Her focus will be on creating operational efficiencies and not on building a platform.

Tamara brings significant industry experience where she was President of DARCARS Group, one of the largest privately held chains of retail franchise automotive dealerships in the United States with 36 locations across Maryland, Virginia and Florida. Tamara oversaw all aspects of DARCARS operations and grew their business from 3 to 35 franchises to over $1 billion in sales.

Tamara has a proven track record in maximizing an all area of store operation. With that I'd like to welcome Tamara to the AutoCanada team.

I'll now turn it over to Raj to go over our financial results.

We have provided detailed year-over-year performance data for both Q4 and the full year in today's presentation, the MD&A for your reference. But given the enormous changes to the business over the past year through the acquisition of our US group, the divestiture for four highly profitable GM dealerships in January 2018, the significant one-time non-recurring expenses is difficult to make comparisons across periods.

Instead as a management team, we've been focused on improving the business through our Go Forward Plan. Paul mentioned the Go Forward Plan is taking hold, results are showing in the numbers, best observed in our year-over-year performance for Q4.

Looking at Slide 7 on a same-store basis new vehicle retail sales declined 7.4% in the fourth quarter owing to a more challenging year-over-year comparable results. As we're coming off several years of record-setting new vehicle sales figures macro headwinds in Canada.

However, our focus on the other non-cyclical aspects of our business is starting to show through in the fourth quarter results. Specifically used vehicle retail sales are up 10.7% from the same period in 2017.

Our part service and collision repair revenue increased 5% over the same time. While our finance, insurance and other revenue declined 11.1 % in the fourth quarter, largely owing to softer vehicle sales.

I point out that our gross margin for the same store F&I is up 96% from 87.3% for 2017. Also although the margins on new vehicle retail compressed from 7% to 5.7%, this is to be expected when you're working in retail more cars.

Due to the dealership business is to retail more cars you can make more money on the back end. Our margins are 60% and 90%.

That we should need to focus on the total gross margins. In all, the combined effect of our go forward initiatives allowed us to hold the line in our gross margin at 17% in Q4 in comparison to Q4, 2017.

We know we only began implementing much of the Go Forward Plan in the later parts of Q4. Go Forward Plan will continue ramping up through Q1 and we expect to impacts the show materially in our Q2 and Q3 results.

If you turn to Slide 8, the reported certain metrics for the Canadian and the US business and to continue doing so going forward in 2019. The overburden cost structure is clearly highlighted here as the operating expenses needed gross profit by $10 million since our acquisition.

Furthermore, our variable expenses as a percent of gross profit are more than 25% higher in the US compared to our Canadian business. Our fixed expenses as a percentage of gross profit are double the level at which we operate our Canadian business.

We are working on bringing these expenses to normal spend levels. Now I'll go into more detail on our fourth quarter results on Slide 9.

The fourth quarter we reported total revenues of $782.8 million of gross profit for the quarter amounted to $128.2 million or 16.4% on a percentage of revenue basis. Adjusted EBITDA which includes losses associated with discontinued operations, management transition costs among other one-time or non recurring items amounted to $22.6 million for the fourth quarter, and adjusted free cash flow was $10.6 million for the quarter.

However, I note these results include gains of $9.2 million from a sale leaseback transaction in the fourth quarter. From a balance sheet perspective, our total funded debt to EBITDA ratio stood at 3.5 well within our covenant of 4.5 to 1 until June 30, 2019, 4 to 1 there after.

Turning to our full year 2018 results. Total revenues came in at $3.15 billion while gross profit was $507 million representing a 16.1% gross margin.

For 2018, adjusted EBITDA was $69.3 million while adjusted free cash flow was $9.7 million. We note that included in the 2018 adjusted EBITDA gains totaling $13.9 million from sale-leaseback transactions to dealership properties.

With that I'll turn the call over to Michael.

Thank you, Raj. 2018 has been a year of dramatic change, and we'd like to thank our dealers, associates suppliers and OEM partners for their support and hard work.

Their resilience and commitment is appreciated. Our collective goal is to be Canada's premier automotive retailer and we do believe that we're well on our way for 2019.

Beginning with our Finance and Insurance Division, this initiative is operating in line with our expectation and will continue to wrap up over the year. Early stage margin improvements are encouraging.

Last quarter we set up a special finance division to address the needs of individuals that require alternative financing where they don't qualify for traditional financing by the manufacturers or banks. Nationally, 35% of all credit applications do not qualify for traditional financing, but would qualify for a category called near-prime.

Our special finance division is assisting these customers with obtaining financing. By the end of this month, we will have 14 functional Commission based teams across the country set up to serve this segment.

We expect to sell at least 3,000 new and used vehicles in 2019 through this new division, and expect this initiative to add at least $3.5 million to our EBITDA in 2019. Over the first two months of this year, the special finance team has sold over 450 vehicles and we're confident we will meet our annual objectives.

As we have previously indicated, all of the financing is non-recourse from third-party lenders where we collect an origination fee. We have also set up a new wholesale division to take advantage of geographic --opportunities on used vehicles.

It is early days but we can say that we're capitalizing on opportunity so far this year and expect this initiative to be additive in the range of $2 million in 2019. With respect to collision, we believe we have significant opportunities on building out this aspect of our business over time, but in the near term we have negotiated supply contracts with key supplier partners as a unified company.

We expect cost savings of over $3 million in 2019. In addition, we are actively looking to acquire standalone collision centers in the areas where we have multiple dealerships, but no collision center presents.

The multiples in the amount paid for collision centers are very attractive and we expect this part of our business to be very accretive. Lastly, other initiatives that we have undertaken are on the used vehicle side where we ultimately want to sell one used vehicle for every new vehicle.

This will dampen the cyclicality of our business given that used car sales are less cynical than new. From a service standpoint, we've established a relationship with a third party contact center and have implemented a CRM system called Dealermine which we believe is best in class.

With this new partnership in place, we believe we have the right structure to increase the occupancy of our service base and are set up to eventually hit a 100% absorption rate over the next couple years. We believe our used car and service pay initiatives will add over $30 million of EBITDA in 2020 which will be over and above the Go Forward Plan.

I'll turn it over to Paul to go over the balance of our go forward strategy and look forward to reporting our progress in 2019.

Thanks Michael. I wanted to update everyone on the balance of our initiatives.

With respect to divestiture, we disposed the two non-performing dealerships in the fourth quarter. Specifically, we dispose of our North Edmonton Kia dealership for approximately $10 million and our Courtesy Mitsubishi dealership in Calgary for roughly $3 million.

Subsequent to quarter end at the beginning of March, we divested our Toronto Dodge dealership for proceeds of $5 million. These dealerships in aggregate we're losing money under our watch and we see a material pickup in profitability as a result of these divestitures.

As it pertains to our real estate strategy, we entered into a sale-leaseback transaction for four properties with Capital Automotive for approximately $53 million in December. As part of the transaction, Capital Automotive agreed to fund an additional $44 million in capital requirements which will allow us to continue to optimize our balance sheet.

We expect to execute on additional sale-leaseback transactions in the first half of 2019 for approximately $50 million to $75 million which will allow us to continue to unlock the value in our real estate and delever our balance sheet. Furthermore, as we indicated on our third quarter conference call, we identified non core real estate that was acquired for open point opportunities that we expect to dispose of in the first half of 2019.

We expect to surface the value over the coming quarters as we continue to execute on a Go Forward Plan. So stay tuned.

These initiatives will not only deliver improved organic growth with superior economics, they'll allow us to fund our inorganic growth strategy. While our primary focus is executing on a Go Forward Plan, grow through accretive acquisition will continue to be part of our DNA.

The fragmented nature of the automotive dealership sector will provide us the opportunity to diversify our brand portfolio and geographical presence, in addition to driving earnings growth. And as we indicated before in addition to dealerships, we view standalone collision centers as very attractive targets, where we can create significant value over time.

With that said, we're focused on our Go Forward Plan and optimizing all lines of our business. So we don't expect to make any meaningful acquisitions until the latter part of 2019 when our Go Forward Plan is fully implemented.

Before we finish, I'd also like to thank our hard-working associates who are delivering on our Go Forward Plan, as well as a support from our strategic partners, financial institutions and OEM partners. Without everyone's support, we wouldn't be on the trajectory we're on today.

As we continue down this bold path, we believe we have the right team and right culture in place to succeed, deliver better results as we progress through 2019. One final thing I'd like to add, it is a total bummer that Raj Juneja is leaving.

He's leaving us in probably the best shape this company has been financially over the last several years. And so we really, really appreciate his hard work and respect his ability to transition us to the next CFO.

With that I'd like to turn the call over for question.

Thanks. Good morning, folks.

Just I guess the question is around the $100 million target and maybe if we could just go through with a bit more granularity on some of the moving parts just now that we, I guess we have a base to think of. Can you go through how you think about the different components, the finance and insurance package, the financing and maybe give us some more color around the US stores and what kind of performance or drag you may think that they could be as we go through 2019?

So this is Raj. So in terms of the base EBITDA number, I think you're probably around base operations around $70 million.

Then we have the additions from all the Go Forward Plan items. The finance and insurance expect to be over -- as the special finance we expect to be $3.5 million.

Wholesale division at least $2 million. Then we have other items such as cost savings through contracts we entered into $3 million and $3.5 million.

And then we have a bunch of savings through some of the dispositions we've made where we were incurring losses --incurring cost another $2 million. So that's how we get to a minimum $100 million.

Okay. And thoughts around the US operation.

I mean I noticed in the quarter it was little surprising maybe is that there was $2 million for management restructuring. And I'm just trying to get an idea of maybe the core question is doesn't make more sense just to shut this down as opposed to trying to fix it and just end the pain.

So this is Paul Anthony. In my view, our US operations need to become profitable by the end of 2019.

And you can rest assured that we will consider all options that are on the table that are in the best interest of the company and shareholders. But that said, if you're pointing out specific items that are causing our cost structure to be out of whack.

There are many vendor relationships that have longer-term contracts that have surfaced over the last several months that we've basically put an end to.

Okay. I mean realistically, Paul, what do you think the drag from an EBITDA basis is looking like do you have a range that you guys are working to?

I mean is it -- you're going to keep losing this level of Q4 kind of run rating to zero by the end of the year? Is that the way we should think about it?

As I said, our goal is to make sure that these dealerships become profitable by the end of 2019. And so as I said, we're going to consider all options that are on the table that are in the best interest of company and the shareholders.

Okay, it's fair enough.

Chris, it's hard to give you that, it's one of the issues with that structure is, is become quite apparent is there's too many fixed costs that shouldn't be there in the room. We need to clean that up but [Technical Difficulty] right the car business quite cyclical and Q4 and Q1 in terms of --

Yes, hi. This is Alex here on a line for Derek.

Thanks for taking my question. So just on the $100 million EBITDA.

I don't want to linger on it too long. I just had a quick question do you expect on some those sale-leaseback transactions you're targeting to do in 2019, if there are any gains would you expect to record them in a similar way in adjusted EBITDA and would you be including that in the $100 million for 2019.

So I think Raj --I'm not sure that I can hear. Can everybody hear Raj?

I can't hear Raj now.

We're not in the same room. So it's a little bit of a technical glitch.

So maybe I'll just go on to another question, Paul, maybe if you might be able to answer then. So just on the-- I was wondering on the gross margin within the part, service and collision business.

We know it's just a bit of a year-over-year decline. Is there any color you could give us on that?

I'm going to try and get these guys back on line. So just bear with me.

Sure. Thanks.

I apologize everybody. We're not in the same office.

I'm just a little bit under the weather. So I don't want to give everybody the germs.

I just asked if the conference call coordinator muted the second line.

Interesting. They're going to redial in so just bear with us.

I apologize everyone. They are just dialing in now.

Anyone have easy questions for me? Back on.

Okay, thank you. So they're joining there, they should be on within the next minute.

Hello, can you hear us?

We've got you Raj.

Okay. So I think the question was --what sorry about that Alex, we had technical difficulties but the question was there's a $100 million included property gains and I confirm it does not.

Okay, thank you. And then just one other question if I could.

So within the part service and collision business we just noticed a compression in gross margins year-over-year. I was wondering if there was anything you might be able to talk to on that provided some additional color.

No. There's no additional color there.

We see that affected our business growing and over time we see that margin seeing around that range of not increasing.

Okay, that's fair. And then I guess just last one on the Go Forward Plan, I'm wondering throughout the rest of 2019, you talked about a little bit but how can we maybe expect some of those initiatives to flow through the income statement?

Be it may be where do you expect your absorption rate to get to? Stuff like that.

We've already seen some pretty good traction against it but I'm just wondering what else you're expecting for 2019?

I mean we've included in a $100 hundred million, it doesn't really include anything from the service department. Our hope is to get that absorption up and expect to be that substantially increase by 2020.

The one thing with service is we would put them on a new system which they're going to -- customers again call to make sure they're coming into the oil change, recalls, getting service with use to understand how car dealerships are doing but it takes time to adjust to that and dealers all sudden busier and they're getting comments on their performance and so we that's where Michael when he was speaking was giving predictions for 2020 in terms of service. But in terms of other aspects of Go Forward Plan should see finance and insurance continue to increase.

The more cars being sold and you can expect and further calls for us to give you updates like we were today.

Hey, good morning, guys. I just want to maybe get going on the US business here.

Can you and you've talked about it throughout the prepared remarks. Could you elaborate on the exact steps that you think you need to take to get the US business to breakeven at some point in 2019?

Yes. So let me it over to Tamara Darvish.

Good morning. I think the very first and foremost is that obviously the cost structure is unsustainable.

So we are working very diligently to focus on building efficiencies and across-the-board cost reductions renegotiation of all contracts with all vendors and business partners, including floor plan lenders and finance and insurance companies that we are currently doing business with. It really doesn't make sense if you look at these with it, you have great locations; you have great brands.

I've only been there for two weeks, but I certainly see a lot of upside on the potential of being able to write this operation.

So first I-- sorry go ahead.

No, I just want to say that a lot of the expenses that the organization has already incurred were related to the creation of a platform. And now we're really focused on creating sustainable foundation.

Okay, now that's helpful. I mean it sounds like it's primarily cost-cutting initially and then I mean is there anything that needs to get done on the revenue side to get the business to breakeven?

Certainly. We absolutely have to focus on growing the revenue.

Probably our quickest path to success in that in addition to increasing the volume of new and used retail sales is a much stronger focus on the use side of the operations and fixed operations which is your service and parts.

Okay. Thanks for that.

And maybe just switching it over to the collision expected improvements there? And you call that out of the longer-term driver, Paul or Raj, could you elaborate maybe on the moving parts there?

You've got the CRM there. Assuming you're hiring technicians how does --how do we sort of get to that $30 million and what's required?

And maybe just the timeline that we think is or that you think is realistic.

So are you referring to the $30 million that Michael was talked about for 2020?

Yes. Actually I think you're right.

I think Michael did mention it.

Yes. So what he was talking about for that one was he was talking about service and used cars.

On collision the number we included is more for efficiencies for entering into new contracts another thing. We have included numbers for that but we do expect the collision area to grow substantially.

And so but we haven't included the numbers yet. And for example one of the things we're looking at currently all our collision centers are part of dealerships.

And what we're looking at is acquiring standalone collision centers that are in areas where we have multiple dealerships, but no collision center. So we buy a collision center where we have multiple dealerships, get them, get the collision centers, OEM certified for the brands we have in that area; you have customers that you can start beating it into the existing business that collision center.

And so that's our strategy on the collision center.

Okay, no, thanks, sorry for the mistake there and maybe just one last question, obviously, a lot of noises in the numbers the US operations aren't where you'd like them to be. A number of the go forward initiatives just got started and there were also a few non-recurring costs on the quarter.

I guess the question here is when we see Q1 should those numbers be relatively clean and from those results should be apparent to us they you'll be able to achieve $100 million target for the Canadian business at least?

My expectation is the numbers will be clean. We're hopeful that we've identified all the things we needed to identify there brought up last year.

In terms of I think you will see the Go Forward Plan in these -- like you'll see the results improving as a result of the Go Forward Plan in Q1 but I think where you really going to see the difference are Q2. And a lot of what we're doing follows car sales and our car sales in the first quarter never that's strong and they're much stronger in Q2.

And that's where you're going to see it.

Okay and just to follow up. Is it a matter, Raj, just of seasonality or are the call it the more immediate initiatives such as F&I, the whole sale.

Is that still ramping up today?

It is still ramping up for sure. In terms of special finance, we're just getting teams placed and as Michael referred to there's new teams getting placed by the end of this month.

As you see in the presentation we launched new online site which is going to take some time to get rolling. On F&I, we're just bringing on some trainers, the trainer F&I managers probably across the country.

So that's only going to improve results. And in terms of the wholesale business that's just ramping up as well.

So we're definitely, there's two aspects. One seasonality and other aspect is we're still ramping up parts to Go Forward Plan although they're all in place.

So we are ramping u.

Hey, guys. So I guess first I mean you guys mentioned that the base operations are $70 million.

And but we can see that in 2018 if you back out divestitures, your EBITDA is closer to $50 million. Can you actually square that gap for me?

Yes. There's a substantial amount of non-recurring items that were not adjusted out of EBITDA.

Okay and are you able to give what US adjusted EBITDA were in 2018?

I have an estimate of what it was. I don't have number.

So I'd rather actually- if you don't mind I can give you a call later with that. So I don't want to put out a number that's not exact.

I don't have it with me.

Okay and then on just the general macro environment. I mean you've said in the past that it's all within your outlook and you mentioned that at the beginning of the call as well Paul, but it does seem like perhaps the outlooks a little bit more cautious on the macro and I'm just wondering if you could give an update on sort of your thoughts there and how that plays into 2019?

And then just to specifically turn to new vehicles which is sort of the most levers to that how do you see margins and sales sort of moving into 2019 on that line.

So I'll just basically give you the color that we have around the macro-environment. It's definitely more challenging this year than it was last year.

I think that's obvious. Our belief is that we're kind of in and I've talked to a bunch of people just so there's the same story that I would give you or we've given to everybody is that well we might be a peak auto.

We think that we're calling it 40% -50% operational efficiency. And so the room to grow within our own organization, there's just a lot of room for us to travel regardless of the macro environment.

And so obviously the macro environment plays a huge part of what's going on in the industry. And I'm sure you're listening to the same press that I'm listening to about autonomous and electrification and zero accidents and zero emissions.

And that's in many cases it's causing a lot of concern for a lot of generational car dealers that are looking to get out of the business just because of their uncertainty. We actually --we're of this position that that the industry strong and that there's still just tons of opportunity in the group that we have.

And then being able to take those operational efficiencies and spread that out across all of the other all assets that we will be able to acquire over the next call it one to three years, gives us an advantage that most other dealer groups don't have. As to other specific questions, operational questions that more put that onto Michael to the kind of answer.

Maybe if you just want to ask the question again to Michael just or as the operation.

Yes. So basically I just wanted to tie that into the new vehicle line.

So new vehicle gross profits were pretty soft in 2018. I'm just wondering are you guys expecting that to be flat even in a tough environment or are there operational initiatives that you can do to get that higher?

Well, I think that we feel confident that we can hold the overall margin line at 17% for Canada. And so we may get to that result in different ways.

For example on used cars, we're going to be selling some more used cars that could bring down the front end sales gross a little bit in an effort to take market share, but will also recover that in additional parts and service and finance and insurance grows profit on the other side. So the makeup of it is going to change a little bit, but the overall result of 17% is what we expect to hold.

Does that answer your question?

Okay, yes, sure, that's fine. And then just one more or if I could.

So the finance and insurance white label product. So if I'm reading it right that's only for used cars.

Just wondering what the F&I opportunity is for new cars? And has that plan changed at all as you've implemented it over the past few months?

The plan is adjusting but overall we see a lot of runway in selling more products, filling in gaps of our existing product offerings. We're tackling it through training.

We're lowering costs on some of the other --the other white label products. There's a very complex and robust strategy around F&I.

And we're seeing a lot of gain early on but as we as we look to grow market share and the car sale environment becomes more competitive. We're looking to support our overall margins through F&I so that's why we're building out the infrastructure to really support that.

The environment is changed. A couple years ago the whole market was growing and there was more than enough for everybody.

And today, it's very competitive. The cars we sell we have to take from somebody else.

And we believe we truly and passionately believe that we have the best dealers in the country. And it's a battle and we're going to win.

Okay. And then financially on this --on the F&I plan, should it be flowing through --it didn't do this in the quarter, but should it be flowing through in higher revenue per vehicle or as you guys pointed to in the quarter is it more about margin percentage?

Yes, both.

Good morning. Most of my questions have been answered already.

So just thought I would touch on what you're seeing Canada in your various markets either by brand or by region or perhaps both? Where there are pockets of strength for you on the macro side and where you are seeing some softening?

And then if you feel as though your business is performing generally in line with sort of the overall industry or if there is on the sale side if there's also a big gap up there as you refocus on the operations?

Okay. Michael here.

I would say that as far as strengths and weaknesses in the various pocket, we all read about Calgary has a high unemployment rate and that's a really tough market for us right now. Ontario strong, Montreal strong.

I would say overall like there's the odd market that's really soft, but overall it's --we're not really focused on the economy. We're focused on selling more cars and we realize that that when we sell more cars we have to take them from somebody else.

So our focuses on competing against everybody else.

The one comment I'll make on brands. The market numbers for FCA showed down last quarter 20%-25%.

You'll see in our numbers. You don't see that, FCA is actually done very well for us and we expected to continue to.

Yes. In addition to that follow-up we went through very in-depth exercise with all the numbers by brand and by province.

And on the new car side and we're --it's very clear, we're outperforming the markets in every province and in every brand. That's definitive but that's not good enough for us and we're not here to ride the economy.

We're here to win and we know we're going to have to take it from other people.

Good morning, guys. Just on -- I hate to beat a dead horse here but on the gross acquisition when was the last time it was profitable?

I will put that over to Raj. I actually can't answer that question.

Hi. It has not been profitable since their launch.

No. I understand that.

Do you know I mean presumably when the acquisition was made there were some finite, audited financial statements that were included with the deal? So I imagine that you have in your possession when the last time it was profitable?

Before we bought it on a whole the stores were profitable. There were some stores that were not and some there were.

But that it was profitable I think when we bought it the expense structure changed. And that's become an issue.

Just to be clear as a result of the transaction.

Yes.

Okay. So I mean it looks like it was about a $10 million, just north of $10 million drag in 2018.

You expect it to be profitable by the end of this year. So is it safe to say the maximum EBITDA drag from the US would be $10 million this year?

I think that's fair Raj?

It should be less. I mean you have a lot of one-time items in $10 million including $2 million in this quarter and additional amount throughout the year.

I understand. I understand.

I just want to make sure that to be the maximum. So I think it's probably safe to assume that overall EBITDA guidance should be in the range of $90 million to $100 million.

Does that-- is that fair to say as well?

I mean it's a difficult question. They shouldn't be lower than that's your question.

So we can meet that $100 million on overall basis, but there is some uncertainty as Paul mentioned earlier.

No. I understand, yes, I'm trying to get at the absolute minimum.

And I think from what I've been hearing it should the absolute minimum, you should do in 2019 and should be $90 million. Does that make sense?

Yes.

Okay, good. And then it hasn't been brought up and I know you can't talk a lot about the lawsuit that's been filed against the former CEO.

I just had a question with regards to the ability to make further acquisitions knowing that OEMs don't particularly like a lot of noise out of dealers. Do you think this would impact in any way your ability to make further acquisitions or to win further open points going forward?

I would tell you that from our conversation so far, we don't think that with the OEMs, we don't think this will impact our ability to acquire further source.

Okay and on the private side, do you think that would have an impact?

I'm sorry what do you --

Do you think dealer principles may shy away from possibly making a deal with AutoCanada?

Well, I can tell you that right now our funnel has never been more full with potentials for acquisitions. In fact, we --the volume has picked up significantly.

But as you --I think as we said we're focused on growing the business.

Good morning, gentlemen. And just two follow up questions.

Most of mine have been answered, but I'm just come back to the US and then Tamara maybe you can help us out a little bit there. When you look at these dealerships, the level of underperformance seems to be quite high.

We've been talking about them in aggregate as one group as though they're all performing equally badly. When you look at it are other individual areas and individual dealerships that are much worse than the rest?

And along the same lines in addition to cost-cutting are there people decisions that need to be made, leadership decisions needed to be made to in order to fix that business? What's your assessment at this stage?

Well, certainly I agree there's probably going to be some obviously some people decisions that have to be made. Some even at the level of the leadership.

I feel like having only been in there for a couple of weeks, it might be a little premature to make those predictions of who and which franchise at this time. But I can assure you that we are assessing everyone in our organization starting from the leadership on down and ensuring that incentives and compensation are very much performance driven.

Okay and in terms of the variations between the dealers within the Chicago area. Are they all performing equally badly or is there a wide range of performance between the various grade dealers?

Yes. I'll just step in.

I would tell you that from our experience there are 1.5 stores that are doing well. When I say 0.5 doesn't mean they can't do better.

And then the rest are not performing as we will need them to.

Okay, that helps. And my only other question was we're all sorry to see Raj go but I wonder if you can just elaborate a little bit on the recruitment and replacement process?

And when we could expect to see progress there?

We're going to -- it's really important to us to find somebody that gels with the team. And that is a high functioning corporate athlete like Raj.

And so we're going to be casting a fairly wide net to recruit for that position. And we're not about to settle as you've seen and you've met Raj.

It's important for us that-- that's one of the most important functions within the company. Well, they're all very important but it's very important to have strong financials especially being a public company.

And so I don't want to opine on how long it's going to take. It'll take whatever time it takes.

And we're going to get the right person for the role.

Hi, good morning. Raj, just wanted to follow up with the base for EBITDA in 2018.

Correct me if I'm wrong but the $70 million that includes the $9.2 million gain from the sale leaseback right?

No. There's I mean there are some dealerships we cleaned out.

So taken those losses out and then there is a number of non-recurring items early in the year that were never adjusted out of EBITDA for various reasons. For example, there's a consulting report in the first quarter that was just shy of $4 million all sorts of noise that and I can't figure out why they weren't adjusted.

Okay. So again the gain that is in Q4 is not part of that $70 million run rate?

That's right.

Okay. And then can you maybe comment on how we should be thinking about the non-cash working capital for 2019 on a consolidated basis?

That was quite a bit of a drag I think $3 1million for the year right.

Okay. So you are referring to like inventory levels or--

Non-cash working capital all in, there was a drag of $31 million on cash flow from operations. And I'm just wondering how you thinking about 2019 if that should be reversing or should we expect something similar?

So I would say 2018 was anomaly, there's just so much going on and excessive inventory levels for finals at top grade levels. And I think we'll see a more normalized situation in 2019.

Okay and then the comments around M&A. I mean right now is trading at depending on obviously forward numbers kind of eight to nine times PE so how do you think about accretion and an M&A in this type of environment?

I would say that at this point in time as I said we're not prepared to talk about M&A at least until the tail end of this year. So we'll see what happens with multiples and earnings and we'll see how we perform to the market,

Yes. Thanks guys.

Just one follow up. Raj, just the new IFRS 16 standard around leases.

Any early thoughts around what the right of use liability is going to be? And what EBITDA add back might look like in2019?

Yes. So on the rate of use probably about $150 million.

On the EBITDA, we haven't --I don't have a final calculation on what that's going to do, but everyone understands under IFRS-16, our operating leases are especially going to treat as financing leases. And the result of that is a lot of lease expenses that effectively can be treated interest and result in increased in EBITDA.

And just to be clear for the guidance we've given a $100 hundred million. We're not taking into account or that's different from the increase from IFRS-16.

The follow-up for modeling purposes. I was wondering if you can help us with the sales and margin profile of the dealerships that you divested in December and March.

Sure. So I think net those ones in particular are losing close to a couple million dollars.

Okay. And what sort of revenue did they have?

I don't have the revenue numbers with me, Maggie. End of Q&A

Listen, we really appreciate everybody's patience as we're really starting to understand the business; understand the environment. And again, we would all like to wish Raj the best as he helps us transition really take him for his time at AutoCanada really.

Really appreciate that. Thanks a lot and we'll talk to you at the next call.