AutoCanada Inc.

Good evening, everyone, and thank you for joining us. Before discussing our quarter, I want to begin with a few comments on the broader operating environment.

As we move through the first quarter and into the early part of the second quarter, the Canadian automotive market remained soft. Industry demand for new light vehicles continued to decline year-over-year as consumers faced elevated vehicle pricing, persistent affordability concerns, rising fuel costs and broader macroeconomic uncertainty.

Fuel prices are an important factor to monitor closely. Higher fuel costs can influence consumer appetite for vehicle purchases, impact discretionary spending on service and maintenance, which can sometimes be deferred and even affect kilometers driven, which has implications for collision demand over time.

While collision remains a resilient business, we are mindful that consumer behavior can shift in this type of environment. Against that backdrop, our first quarter results were largely as expected with adjusted EBITDA from continuing operations of $31 million compared to $43 million in the prior year.

The $31 million in adjusted EBITDA included a $5 million forfeiture of share-based compensation expense related to departing executives. These results are below our long-term expectations for the business.

That being said, we saw meaningful progress towards rebuilding sales productivity in our dealership business late in the quarter and into April, and I'm encouraged by the momentum being built by Fade and his team. We also continue to see growth in our core collision business despite the hail business lagging due to reduced storm activity and are set up well for continued collision expansion.

In the automotive retail business, the largest area of pressure continued to be used vehicle profitability. Used vehicle gross profit per unit was negative [ $48 ] in the quarter as we worked through aged inventory and operated in a broader used market that remained highly competitive and margin challenged.

We expect used gross profit per unit to improve sequentially over the year as we enhance the tools and analytics available to our buyers, which will improve sourcing, build better merchandising habits and increase the speed of our reconditioning. At the same time, there were several important positives in areas of progress during the quarter that reinforce why we believe the automotive retail business is moving in the right direction operationally.

The key theme for Q1 was restoring operational adequacy and stability. Since the leadership changes implemented in mid-February, we have taken decisive actions to simplify the organization and get closer to our core operations, improve accountability, strengthen operational oversight and refocus the business on execution fundamentals.

This work is still early, but we are beginning to see encouraging signs. March and April showed sequential improvement in used vehicle profitability trends, supported by stronger sales productivity and better inventory pricing and management.

We also added regional and functional leadership during the quarter who are both experienced Canadian automotive executives. They will focus on strengthening performance management and accountability at the dealerships.

Our view is straightforward. While macro conditions are outside of our control, operational execution is not.

Our automotive retail priorities remain centered on the key controllable drivers of the business. Improving sales productivity and conversion, rebuilding used vehicle margins, increasing fixed operation absorption and service utilization, improving inventory discipline and working capital efficiency and maintaining expense discipline while we grow our top line.

We believe these actions are establishing a stronger operational foundation that will allow the business to perform more consistently. Turning to collision operations.

This continues to be a strategically important part of the company. Collision gross profit increased year-over-year and margins remained strong despite a challenging comparison related to elevated hail activity in the prior year.

In the first half of 2025, we worked through a significant backlog of hail-related repairs stemming from the catastrophic Calgary storm in July 2024. The quarter was also impacted by the recent opening of 3 new collision centers, which are still ramping towards full utilization.

Together, the difficult hail comparison and the added costs associated with these new facilities account for approximately $2.5 million of the year-over-year decline in collision EBITDA this quarter. The underlying traditional collision business continues to perform well, supported by strong insurance-related demand, expanding OEM certifications and growing insurer relationships.

During the quarter, we completed the acquisition of Modern Autobody in Edmonton, which expands our regional density and enhances OEM certifications in an important market. Modern Autobody did not have any insurance partners at the time of closing, which is one of the areas of synergies we are focused on post-closing.

We continue to view collision as a highly attractive long-term growth platform due to its resilient margin profile, fragmented market structure and strong consolidation opportunities. Importantly, our strategy here remains disciplined, and we intend to continue pursuing targeted accretive collision acquisitions focused on regional density, OEM certification capabilities and long-term margin expansion.

Art and the team have demonstrated an ability to meaningfully improve both cost and revenue post-acquisition. Operationally, several important initiatives are also underway within collision, including expanding OEM certifications, increasing insurance ERP partnerships, scaling apprenticeship and technician development programs, advancing the national operating model, expanding higher-margin services such as diagnostics, calibrations and coatings and continuing the rollout of our national collision brand strategy.

These initiatives are intended to improve long-term operating leverage, margin stability and referral volumes across the platform. Turning to the balance sheet.

Strengthening financial flexibility and reducing leverage remained a major priority during the quarter. We continued to make meaningful progress on the divestiture of our U.S.

dealership portfolio. To date, we have received approximately $65.8 million in gross proceeds from completed transactions and continue to expect total proceeds of approximately $130 million upon completion of the remaining divestitures.

These proceeds are expected to be directed primarily toward debt reduction, further strengthening the balance sheet. Subsequent to quarter end, we also completed an amended and extended syndicated credit facility that improves our financial flexibility, extends maturity through 2028, simplifies the structure of the facility and provides additional operating flexibility while we continue executing our initiatives.

Our capital allocation philosophy is grounded in maximizing long-term shareholder value while protecting balance sheet flexibility. In the near term, this means prioritizing debt reduction, high-return operational investments, selective collision acquisitions and opportunistic share repurchases where appropriate.

We are approaching all capital decisions with a strong emphasis on return thresholds, liquidity preservation and strategic fit. As we look ahead, we expect 2026 to remain a transitional year for the dealership business and growth focus for our collision business.

Near-term market conditions are likely to remain challenging and consumer affordability pressures continue to impact demand trends. However, we also believe the company is approaching an operational inflection point.

The actions taken during Q1 to stabilize operations, improve leadership accountability, streamline costs, strengthen the balance sheet and sharpened strategic focus are beginning to create momentum inside the organization. Our focus remains squarely on creating value by stabilizing and improving the automotive retail business.

We believe the automotive retail business is beginning to stabilize, and we are seeing early signs of improvement, especially in used volumes and profitability and therefore, are cautiously optimistic about the quarters ahead, pursuing disciplined inorganic and organic growth in our collision business, our core collision business continues to grow. And even though we have seen reduced hail activity, we are well positioned for the hail season to start.

On the inorganic side, we continue to build our pipeline with many exciting opportunities, and we expect to be active on the M&A front this year. Improving the services provided by the store support center to our dealerships and collision centers, this will be one of the major priorities of the new CFO, who was just hired.

I'm looking forward to having Mike join the team. He will add a lot of horsepower.

Strengthening our recruitment and retention of top operational leaders across the country. As discussed above, we added seasoned automotive -- Canadian automotive talent to the team this year, and we will continue to focus on building and retaining the best operating team in the industry.

And lastly, maintaining a lean cost structure. We continue to identify and execute on opportunities to downsize our corporate costs while improving service levels to the operating business.

This relentless focus will build a stronger, more disciplined and more resilient AutoCanada, one with better operational consistency, a solid balance sheet, growing collision scale and improved long-term earnings quality. While there is still meaningful work ahead, we believe the foundation being established today positions the company to deliver stronger and more sustainable performance over time.

I want to end the call by thanking our employees. You are all AutoCanada, and I thank you for your commitment to our customers, stakeholders and to each other.

Together, we will build an iconic automotive company right here in Canada. With that, operator, please open the line for questions.

Maybe just starting with some of the unit metrics, both in terms of sales and GPU. You did mention in your script that you thought that Q1 was probably -- I don't know if a trough is the right way to describe it, but certainly at an inflection point, you were somewhat cautiously optimistic.

So a couple of pieces of this question. One, should we take these numbers as a bit of a flush, if you will, and we'll get back to more normalized numbers?

And then I guess the other piece of this is, at what point would you think you would be at least back at kind of market rates over the coming year?

Yes. Thanks, Chris.

Part of that question cut out for me. I'm not sure if that happened for everyone.

But I think you're asking, was this sort of a flush and when do we get back to sort of normal numbers? I believe that was the essence of the question, right?

Yes, that was it.

Okay. So as we discussed in March at year-end, this quarter was basically as expected.

It was a little bit better. Actually, March picked up volumes a little bit better than expected, which is why the sort of EBITDA was a little bit stronger than I would have thought in mid-March.

And those trends, those positive trends, especially on the used GPUs and volumes are continuing into April and May. So that's a very positive sign, which makes us cautiously optimistic.

And like I said back in March, what you're going to see in the short term is volumes pick up, GPUs are going to remain compressed in the first half of the year, although they're going to get better from here, right? Q2 will be better than Q1.

I think used GPUs will start to normalize in the second half. On the new side and the parts and service side, I think it will be more 9 to 12 months for those to sort of get back to normal conditions, build up the product knowledge.

We got to recruit more techs on the fixed ops side. We just hired a new team on the RVP side and on the fixed ops side that are just getting onboarded now.

So some time to sort of rebuild the cadence there. So going into 2027, we should be on a more normalized basis for sure.

But you'll see quicker improvement on the used side, like even next quarter. So hopefully, that answers your question.

Yes, the same as I said in March, basically.

Yes. And sorry that the question was -- I asked, it cut out.

But the other question was about inventory levels. And do you feel comfortable that you've kind of rightsized the inventory levels to give you enough inventory for sell-through as we go into Q2 and Q3?

Yes, great question. So the really impressive part of what the team has done, what the team has done is not only sort of got through sort of problem used cars, aged used cars, basically used cars that don't have enough profit on them.

We've actually improved the age at the same time and now have way better profitability in our used cars in April and in May and even in late March. So definitely going to see improvements there and the aging is getting better.

So in the second half of the year, it's going to be -- and going into the end of the year, it's going to be clean.

Okay. And the other question I had is kind of like a bigger, maybe strategic one.

You talked, I think the last call we did, you indicated that you thought it would be about a 12- to 18-month period for the turnaround, which would sort of put you into kind of later '27. It sounds like you're still thinking that's going to be the issue.

But how much of the turnaround is conducive or tied to kind of the broader economy? And how much do you really believe is within your control?

Yes. Listen, we can't control the macro, right?

The macro is soft, coast-to-coast, volumes are down. So we're running uphill.

But a lot of the improvements we're making internally are things that we can control in execution, right? Bringing in -- for the first time ever, bringing in a leader on the fixed side who can identify strategies around recruiting more tech, right, which will drive better service bay utilization, right?

We just don't have enough techs, right? And we didn't have the right focus on that.

That's a $20 million opportunity on the fixed side, and we control that. Used car side as well, right?

We -- how well we position them for sale and price them. So there's a lot of things in our control that we can make better.

And that gives me confidence. The macro will be what it is, Chris, but there's a lot that we can control to make the business better.

So when I say 12, 18 months, yes, that's right. The macro will do what it will do, but we will be operating in our normal cadence by then, and we can be judged against the market at that time.

Does that make sense?

Yes, it does.

Sam, I wanted to follow back the commentary that you had in your prepared remarks and then also, I think you talked about this in the MD&A, but the fact that the market was down -- I'm speaking on new vehicles, the market was down mid-single digits into April. When it comes to the mix, I know you just talked about it in response to Chris' questions there when it comes to the inventory.

But I'm thinking specifically when it comes to new vehicles and specifically when it comes to mix. I know in the past, that's been of a headwind when it comes to outperforming the Canadian market.

How much has that delta changed or collapsed, I guess, since now you've undertaken some efforts to clean up that inventory?

Hello, can you hear me?

Yes. Can you hear me, Sam?

Yes, I don't know what was happening there. Sorry about that.

All good. I'll just ask my question again, I guess.

Yes. What I was asking about is, so you talked about in your script that the market -- I'm just talking about new vehicles, the market was down mid-single digits in April.

And so I was just curious to know, I know before in the past, when it comes to the mix of brands that you have in new that had been a bit of a drag for you previously. Has that issue, I guess, been cleaned up?

Or I guess, really what the question here is, before AutoCanada has had a history of outperforming the new vehicle market, are you closer to doing that today than you were, let's say, 3 or 6 months ago?

We are closer. There's still more to do, right?

We've got to rebuild the team and the product knowledge. A lot was lost in the turnover in the last year.

And the other thing we need to do is get [Audio Gap] quite high. That is positive.

But the negative side of that is could we have sold more cars if we sort of let go a little bit more of growth, right? So [Audio Gap] volume on new and hitting our OEM targets with more consistency.

So yes, we're closer. I do still think you're not going to see it overnight on the new side.

As I said in the past, you'll see quicker improvements on the used side, new GPUs and then the new and parts and service more late second half of the year. But yes, we're closer for sure.

Okay. And then also, I want to follow up on the U.S.

divestitures. I know that there's been a change or there was a change in the past when it comes to the cadence of when you actually expect that cash to come in the door.

Last quarter, there was a change. Has there been any change since last quarter on when you actually expect to collect the cash here?

So there should be another deal that happens in the summer and then the rest should be in the fall.

Okay. And then just as far as the weighting, how much -- is most of that going to be coming in the summer, most of that going to be coming in the fall?

A big chunk is probably coming in the summer. The rest will trail in the fall.

Okay. Okay.

And then maybe last, used has been -- it feels like for a long time, there's been peaks and valleys, we'll say, in used. And I realize that there's a lot of moving parts.

There's a lot that's changed in the used part of the business. But I guess, specifically, what I'm trying to figure out is what is being done differently now on sourcing that's improved overall GPU.

I know there's a lot that's going on when it comes to reconditioning and maybe selling cars at better prices. But I'm curious -- yes, go ahead.

I'm just curious more specifically what has changed when it comes to sourcing vehicles that's allowed you to realize improvements in GPU.

Yes. No, great question.

So for example, in the past, there was -- are buying -- our used buyers, whether they are GMs or other people at dealerships, they were buying cars without the right analytics and tools to be able to ensure a minimum profit on the car, like a minimum standard of profit. So we've been rolling out buy box to all the stores that basically shows them the minimum acceptable profit that you can make on the car before you buy it.

So really, we're empowering the people buying cars with better data so they can make better decisions. That's helping a lot, right?

There's other tactics that we're looking at, whether it's through throttle or increasing trade-ins with service lane acquisitions, but a lot of it is really just better information to help them make better decisions.

Is there any change also when it comes to incentives, either there or elsewhere in the organization that helps bring in new talent?

Not incentives, no, but just people for sure are joining the team to help, but no big change in incentives, no.

Maybe just to start off, can you maybe give a little bit more color on what was behind the improvement in new vehicle GPU in the quarter, both sequentially and year-over-year. I think the MD&A references higher pricing as a factor, but was there anything else to call out, anything mix related or quarter specific?

And is this kind of a decent run rate for the rest of the year?

No, on the new side on the GPUs, I actually think they're a bit too high. I think probably if we let go a bit more of that number, we could have driven a lot more volume.

So I wouldn't take that as a run rate. I would expect that to come down over the year, and I expect our volume to increase.

I think we've got to capture more of the market and be a bit more aggressive on our pricing.

Okay. That's helpful.

And then maybe on used GPUs. I know earlier in the call, you laid out your expectation that you see some sequential improvement in Q2 and throughout the rest of the year.

But you also called out just some general market-related pressures on used vehicle profitability. So is there sort of an absolute level of used vehicle GPU that you're striving to get back to?

And what would that be? And when do you think you can get there?

Yes. Listen, I think on the front, we got to get back to around 1,000 at least the minimal acceptable standard.

I expect market depending. I can't control the macro all the time, but I expect to be there in the late second half of the year.

And it's not like -- it will be -- there'll be progression along the way, right? You'll see improvements in Q2 and then improvements again in Q3.

Okay. That's really helpful.

And then maybe just last thing. Can you clarify the comment earlier in the call?

I think you made a reference to the hail event representing around $2.5 million worth of the year-over-year decline in collision repair. Can you maybe just clarify that comment?

Sure. There was a catastrophic storm in July of '24 in Calgary, and there's a huge backlog of work for our hail business that carried us all the way almost through '25, honestly, to the point where our revenue was a record in hail.

We had to give a bit back on margin because we actually had to outsource some of the repairs because the volume was too high. But -- and now the storms have been really light in '25 and so far in '26.

So there's a drastic decrease in hail revenue. Like just for example, Q1 last year was around $8 million in hail revenue and this year was around $1 million for the quarter.

So hail was a big headwind. And then the other headwind is we have 3 new facilities, beautiful facilities that we've opened up.

We're really excited about them, but we're ramping them up to full utilization. So there's a bit of drag on margin as we ramp up those new facilities.

So that's that $2.5 million I was talking about. Our actual core collision business continues to grow, which is fantastic.

Thank you, everyone, for joining the call and looking forward to updating you next quarter. Have a good month.