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01:13 Thank you. Good morning, everyone, and thank you for joining us for Uni-Select’s third quarter conference call.

Presenting this morning are Brian McManus, Executive Chair and CEO of Uni-Select; and Anthony Pagano, Chief Financial Officer. Following their comments, we will open the call for questions.

Please note that all documents referred to in today's conference call, including this webcast presentation, can be found on our website at uniselect.com in the Investors section. 01:40 As noted on Slide two, I would like to remind you about the caution regarding forward-looking statements, which is applied to our presentation and comments.

All amounts are expressed in U.S. dollars except as otherwise specified.

01:53 With that, let me turn the call over to Brian.

01:57 Thank you, Max. Good morning, everyone, and thank you for joining us for our third quarter results conference call.

Let me begin on slide four. Recall that when I stepped into the driver’s seat at Uni-Select five months ago, I had four priorities.

Align the three businesses with our vision, focus on operational excellence, identify opportunities for growth, and rebuild the leadership team. 02:24 I am happy to report that we now have a completely new senior leadership team in place.

I would like to take a few minutes to introduce you to them. 02:33 Please turn to slide five.

You already know Anthony, our CFO; and Emilie, President and COO of CAG, who were introduced last quarter. Since then, we have strengthened our bench with Mike Sylvester, President and COO of FinishMaster.

I work closely with Mike during my days at Stella-Jones. 02:53 He is a senior executive with extensive experience.

He led the transformation of Stella-Jones in the U.S. while integrating a variety of acquisitions.

Mike’s skills and knowhow in this regard will be a tremendous asset for FinishMaster. 03:07 Mark Eburne, President and COO of TPA.

Mark was previously the CEO of Sigmat, a UK based building parts manufacturer. During his career, he led ambitious growth initiatives across a variety of industries.

Mark’s success by growing businesses and his knowledge of the UK market will be a great benefit for TPA. 03:27 And finally, Max Rogan, Chief Legal Officer, Max is a seasoned legal executive having spent a number of years in a variety of senior legal positions at CGI and WSP.

Earlier in his career, he was a partner at a leading Canadian law firm. Max has extensive experience and the execution of numerous M and A and financing transactions, both of which will be essential as we look to execute our plans going forward.

03:54 We now have a highly complementary set of executives with diverse experience across industries, including both transformation situations, as well as growth stories. With this team firmly in place, we are well positioned to focus on operational excellence, and to capture future growth opportunities.

04:13 As we mentioned last quarter, over the next year or so, we will focus on aligning the three businesses with our vision for the future. Each business unit will focus on the execution of select key priorities to successfully set the foundation for future growth.

04:29 After having numerous opportunities to tour various parts of our operations in North America, I was finally able to tour TPA, which gave me the chance to meet many of our team members and get a better feel for the operations. These visits have allowed me to see the energy and dedication of our teams.

And I am more convinced than ever of the potential for operational improvement that lies ahead in all of our businesses. 04:52 In parallel, we continue to identify avenues for growth, including the potential for consolidation further down the road, which we believe will be a component of driving our business to the next level.

05:04 Let me now turn to Slide six for the key highlights of the third quarter. Before I begin, I would just like to highlight that we changed our definition of adjusted EBITDA and adjusted EPS in the quarter, and the comparable periods have also been adjusted accordingly.

Anthony will provide more details on this in a few minutes. 05:24 We are very pleased with our third quarter results, which reflect ongoing operational improvement and continued recovery in our business.

While Q3 was somewhat impacted by supply chain issues, manifested through reduced fill rates from suppliers, our team has done a good job of managing the situation. 05:42 Consolidated sales for the third quarter were up eight percent to four twenty six million dollars from three ninety five million dollars last year, primarily attributable to organic growth of four percent reflecting continued recovery in all business segments.

Coupled with favorable impact from currency conversion. 06:02 While organic sales were positive for a second consecutive quarter, they remain below twenty nineteen levels, mainly as a result of slower recovery at FinishMaster.

In turn, adjusted EBITDA increased twenty five percent to forty two million dollars or a margin of nine point nine percent compared to thirty four million dollars or a margin of eight point five percent last year. 06:26 Excluding government assistant programs received last year.

The margin would have increased by two fifty basis points. This performance was largely driven by improved sales, additional vendor rebates in all segments, as well as price increases in CAG and FinishMaster.

These factors were partially offset by higher expenses related to a fully operational business and certain unfavorable variations in foreign exchange. 06:51 As a result of higher adjusted EBITDA and materially lower financing expenses due to the benefits related to our amended credit facility completed last quarter, our adjusted EPS more than doubled from zero point one nine dollars per share to zero point four zero dollars per share.

07:07 Given this greatly improved profitability, we generated solid cash flow from operations in the third quarter, which we use to continue to reduce our total net debt and reinvest in the business. 07:18 I will now turn the call over to Anthony to complete the financial review.

Anthony?

07:23 Thank you, Brian. I will direct participants to Page eight of the presentation.

Before I discuss the results from our three segments, I would like to highlight that we have reviewed our definition of adjusted EBITDA and adjusted earnings this quarter. We have also adjusted certain historic figures accordingly for ease of comparison.

07:42 You can find the updated definition in the MD&A, but in short, we are excluding stock based compensation from adjusted EBITDA and adjusted earnings as it creates substantial volatility and profitability due to movements in our stock price. By doing this, we are providing the investment community with a more comparable view of our operating and financial results.

08:06 On slide eight, we have broken out the impact of this new definition on adjusted EBITDA and adjusted EPS for the third quarter over the past three years. In the appendix of the presentation, you will find a reconciliation of the new definition to the previous definition over the past eleven quarters.

Both on a consolidated basis and by business unit. You will notice that the greatest impact is on consolidated results.

08:34 Turning now to slide nine. I would like to touch upon certain one-time items incurred in the third quarter.

First, we incurred severance expenses of three million dollars, primarily related to significant changes to our executive team. 08:50 Furthermore, we incurred charges of two point four million dollars related to the ongoing restructuring linked to our operational improvement initiatives.

The bulk of these expenses are non-cash and are related to the write-down of assets. All these expenses are one-time items and have been excluded from the calculation of adjusted EBITDA and adjusted earnings.

09:15 Note that we expect the bulk of one-time charges related to our operational improvements to occur by the end of twenty twenty one. Having said this, we do expect record further one-time charges into twenty twenty two.

09:29 Albeit to a much lesser extent than the past year. As we continue to implement our operational and cultural transformation.

09:37 Turning to page ten for FinishMaster. Both sales and organic growth increased seven percent to one hundred and seventy five million dollars, driven by a recovery in the market, with all regions contributing favorably.

09:51 Sales continued to improve sequentially, generating positive growth for a second consecutive quarter. Adjusted EBITDA also continued to improve reaching fifteen point nine million or a margin of nine point one percent compared to eight million or a margin of four point nine percent for the same period last year.

This significant improvement was primarily driven by additional sales volume and an optimized cost structure. 10:18 We also benefited from vendor rebates and price increases.

Despite a slower sales recovery compared to other segments, FinishMaster is reporting its best adjusted EBITDA performance over the last seven quarters, both in absolute dollars and in margin. This is a testament to our operational initiatives taking hold.

10:40 Our focus now is on ramping up our sales, and we will be working on optimizing our path to market over the coming months. 10:49 Turning to Page eleven for the Canadian Automotive Group.

Sales reached one hundred and forty four million dollars, up five point three percent from one hundred and thirty seven million dollars last year. This growth was driven by favorable currency conversion effects and acquisitions.

11:06 Excluding these factors, organic growth decreased by one percent. This decline is explained by exceptional performance in Q3 of twenty twenty as pent up demand was released abruptly due to the easing of lockdown restrictions.

11:22 Sales remains strong in Canada, but are slightly below twenty nineteen as supply chain challenges represent an ongoing headwind to growth. Adjusted EBITDA reached sixteen point eight million dollars [Technical Difficulty] our margin of eleven point six percent down from nineteen million dollars or a margin of thirteen point nine percent in the same period last year.

11:44 This decrease as a result of three point three million dollars of government subsidies in the twenty twenty period, as well as certain unfavorable foreign exchange variations in twenty twenty one. These effects were partially offset by the benefit of additional vendor rebates and price increases.

12:04 Excluding government subsidies, CAGs adjusted EBITDA margin would have slightly increased compared to last year. For the sixth consecutive quarter, CAG has reported a double-digit adjusted EBITDA margin.

Looking forward, we see further opportunities to improve our overall CAG operations. 12:26 Turning to page twelve for the Parts Alliance.

Sales reached one hundred and seven million, an increase of twelve point eight percent from the same period last year, mainly driven by the positive effect of currency conversion and organic growth of five point six percent. This represents the fourth consecutive quarter of sales increases.

12:47 Sales for TPA have now returned to twenty nineteen levels. Adjusted EBITDA reached eleven million dollars or a margin of ten point three percent, up from eight point eight million or a margin of nine point three percent last year.

This improvement is driven by additional sales volume, the benefit of cost savings and vendor rebates. 13:10 Since the low point of the second quarter of twenty twenty, TPA has steadily improved its adjusted EBITDA and related margin compared to the same quarter of the prior year.

Note, the TPA has recently rebranded as GSF Car Parts. A brand with an established presence in the UK that will allow the company to leverage a single trading name across its one hundred and seventy locations for the first time.

13:35 Operating nationally as one brand enables us to streamline more of our processes and to implement improvements across the business more quickly and efficiently. The business, which traded locally under thirteen historic brands acquired through the Parts Alliance, officially rebranded in November.

13:55 As Brian mentioned earlier, we are pleased with our operational results across all three of our businesses. And are encouraged by the growing list of opportunities for ongoing improvement.

And in particular, certain sales expansion initiatives being undertaken by the local teams. 14:13 I'll turn now to page fourteen for comments relating to our cash flow.

We generated forty three million dollars of cash flow from operations in the third quarter, compared to sixty two million dollars last year. While the headline comparison indicates a reduction in cash flow, we note that this is primarily attributable to a meaningful release of working capital in twenty twenty, driven by a rightsizing sizing of the balance sheet.

14:40 In Q3 of this year, we also benefited from a release of working capital, less so than in twenty twenty. After accounting for net investments in merchant advances, as well as CapEx and intangibles, we generated free cash flow of thirty seven million dollars in the third quarter versus sixty one million dollars for the same period last year.

This is primarily driven by the same factors mentioned earlier with respect to working capital. 15:09 I would note that this year, we made higher investments in the modernization of our vehicle fleet, as well as software development investments related to productivity initiatives.

We began to reinvest in strategic investments to grow the business. Our investments in CapEx intangibles and customer incentives are nearing pre-pandemic levels.

In summary, we are pleased by our cash flow in the quarter. 15:38 Turning to our financial position on page fifteen.

Given our active cash management and improved profitability, our total net debt decreased in the third quarter. As at the end of the quarter, our total net debt stood at three fifteen million dollars, including ninety eight million dollars of IFRS sixteen lease obligations.

This represents a decrease of thirty three million dollars versus three forty eight million dollars at the end of Q2 twenty twenty one, and represents our lowest debt level since Q2 of twenty seventeen. 16:13 Driven by our higher adjusted EBITDA and lower total net debt, our leverage ratio decreased to two point three times in Q3 from two point eight times at the end of Q2.

Furthermore, we had ample liquidity of about two forty five million dollars at the end of the quarter. 16:34 Turning to page sixteen for an update on our capital structure.

Starting with our credit facility. Note that Q3 is the first full quarter of benefits related to our revised credit agreement.

It represented interest savings of approximately three point five million dollars year over year when combined with the impact of lower debt levels. 16:55 In addition, given our ample liquidity, we partially repaid thirty five million dollars of our term loan.

The net effect of the repayment was a reduction in amounts available under the credit facility from five hundred million to four sixty five million. This will allow us to save on standby fees, while still leaving us ample headroom to operate and grow.

17:21 Now, turning to our convertible debentures. The company converted fifteen million dollars of convertible debentures into one point one million common shares at a price of thirteen point five seven dollars per share.

As at the end of the quarter, one hundred and fifteen million Canadian dollars of convertible debentures remained outstanding. 17:42 In addition, Uni-Select issued three hundred thousand common shares resulting from the exercise of stock options at a weighted average price of twelve point three four dollars per share.

17:55 As a result, at the end of the period, Uni-Select had forty three point eight million common shares outstanding, up one point four million shares from the end of December twenty twenty. 18:07 As a result of the appreciation and the market price of our shares, relative to the conversion price of the convertible debentures, we are also reporting diluted EPS this quarter in addition to basic EPS.

18:21 Finally, we were in compliance with all of our covenants at the end of the quarter, and are pleased with our ability to successfully leverage our improved financial position to reduce financing costs. 18:33 I will now turn the call over to Brian for concluding remarks.

Brian?

18:38 Thank you, Anthony. Please turn to slide eighteen.

In summary, we are pleased with the third quarter results. During the quarter, we implemented operational improvements, which are clearly taking hold.

We achieved substantial savings in financing costs and we brought down our debt to its lowest level since the second quarter of twenty seventeen. 18:59 This said, we are cautiously optimistic about the fourth quarter, given growing supply chain and labor challenges.

While our team has done a great job managing through these so far, we expect it will become increasingly challenging going forward. We recall that CAG and TPA are more likely to be impacted by global supply chain shortages.

FM for its part is also not immune from these challenges. 19:21 Based on what we currently see, we expect twenty twenty two to finish above twenty twenty one for adjusted EBITDA and adjusted EPS.

This assumes a muted improvement in sales, inflationary pressures and persistent supply chain and labor challenges in the first half of the year. 19:40 These factors are expected to be mitigated by a more optimized cost structure given our sustained efforts in that regard, as well as a strong focus on driving sales in our three business units.

19:51 To conclude, given our new leadership team, operational improvements taking hold and our progress on the balance sheet, we are well positioned to take advantage of growth opportunities in the coming quarters. Finally, I would like to thank all of our employees for their continued dedication and support.

20:08 This concludes our presentation. We are now ready to answer your questions.

20:52 Hi, good morning, everyone. And congrats on the good quarter.

20:55 Thank you. Good morning.

20:57 Good morning. So, my first question is, you've highlighted some of the key areas and one of them is operational excellence.

I'm just wondering if you can provide any additional color or any opportunities that you see in the short term and long term to sort of generate those operational excellence?

21:16 I don't want to get too much into the specifics, but I think what we're very encouraged about and even for us become more apparent as we were able to get over to the UK and see our operations there is that there does exist continued opportunities across all three business units. 21:34 We can, each one has, I would say slightly different opportunities that are present, but we continue to chase those as we look to improve and chase that operational excellence.

21:49 Okay. And just to, like, maybe get a better idea since you're just five months in the role, so it's fair to assume that now it's more of implementing those things rather than it's still figuring out a lot of stuff, what needs to happen, like how does that work?

22:04 Absolutely. And I think you can see in the results that some of the areas that we started to implement are already starting to take hold, we'll see more of that as the quarters progress, but you're absolutely right.

On top of identifying opportunities, we've also started to implement action plans on a number of them, and that will continue as we move forward.

22:27 I would probably add that the opportunities don't just appear on the P and L right. You see them also showing on the balance sheet, particularly with the strong quarter of cash flow.

22:39 Yes. No that's right.

And just maybe on the margin side, and the overall margins if you want dive into any one that's fair to, but I'm just trying to understand that this was really tough environment. There was a lot of supply chain issues, there were cost pressures.

I understand you guys did some price increases. I'm just wondering if these challenges normalize, would there be more opportunity for margin expansion?

And if all of those costs that you're incurring have been passed on or is there more room around it?

23:11 Well, you can expect that there's always a lag for cost increases to be passed along, but I think there's certain cost increases that are tougher to pass along. Labor price increase is an example.

So, I would say there are opportunities to continue to improve. That will be more on us to do that, but in the short-term, I think we're cautiously optimistic just because of some of the continued supply constraints that we see out there through all three business units.

23:47 Okay. That's fair.

And just one last one from my end. Your leverage or your balance sheet strength that substantially improved.

I think it was in the last quarter that you had mentioned that that's the priority area where you want to reduce the debt. I'm just wondering at what leverage level you'd be more comfortable and when it does not become like a priority and you can sort of do capital allocation towards other size of like M and A and probably dividend increase.

24:15 Yes. I think we've continued to – we've continue to invest in the business.

You would have noticed CapEx and the CI’s would have picked up a bit in the quarter. So, we remain conservative, but we're investing where we see attractive opportunities at good returns.

We don't have or we're not going to share a specific leverage target, but we do have capital available for interesting opportunities as they arise.

24:49 Okay. That's it from my end and once again congrats on the quarter.

24:53 Thank you.

25:01 Hi. Good morning everyone.

25:03 Good morning, David.

25:05 So, the inventory issues and supply chain issues have been pretty hot topic in every conference call that we've kind of sat in. And over last few quarters, if I take a look at your inventory levels, they've kind of decreased here, but at the same time, you've increased your churn.

So, kind of with that in mind, do you guys feel confident in the inventory levels that you have today to kind of maintain your sales pace or is that an area of concern for you guys as you kind of flag that as a caution for Q4?

25:34 I think I would certainly be cautious for Q4. The supply chain issues are a reality.

It has impacted the business. It's been natural.

It been a bit of a headwind to revenue growth. However, the decline in inventory that you see not are not purely due to a lack of ability to procure products, right.

25:58 I think there's been a lot of work that's been put in and in particular one of the divisions I won't go into the detail, around increasing the level of intelligence that we use in determining how much we procure, how much stock we hold and where we hold it. And that's driven a great deal of the improvement in inventory.

26:17 Okay. That's helpful.

And then, just kind of circling back on the questions as it relates to margins and specifically as it relates FinishMaster. It's pretty noticeable step-up in the margin profile here.

Can we use this as, sort of a base to improve on or is there going to be volatility from a quarter to quarter basis where you might see a step back?

26:38 I think you'll see a bit of, I think you'll see a bit of volatility David. I think what I would, as you know, having recently done a bunch of work to launch coverage.

All of our business generate – or generates some profitability from rebates from suppliers and naturally, if you look at FinishMaster last year, it wasn't really buying much. So, the inventory was coming down quite dramatically.

27:07 So, when you're not buying, you're not getting rebates, right? So, a certain amount of the improvement you see is a return to a normalized purchasing environment.

27:18 Okay, that's helpful. I'll hop back in queue guys.

27:21 Thanks.

27:21 Thank you.

27:28 Yes, good morning, everyone, and congratulations for the strong quarter.

27:34 Thanks, Benoit.

27:35 Yes, would it be possible to quantify the impact of vendor rebate and price increase? How strongly it was in the quarter?

27:46 No. Sorry for the brief answer, but it really just for competitive reasons Benoit.

27:56 Yeah. No, no, that's okay.

That's okay. And with respect to global supply chain issues, could you maybe quantify where we've seen the most impact either on the revenue on the cost side on your ability to provide a decent fill rate or the skews that you typically carry and actions taken to mitigate the impact going forward?

28:22 Yes. I don't want to get into too much specifics Benoit, again for competitive reasons, but I would say where we probably had the greatest challenges would be in CAG.

I will say our team has done a great job of mitigating that through many different factors from substitution of different brands to promoting more our private brands and things like that, but as we continue to carry on in terms of the supply chain issues, it gets tougher and tougher to mitigate some of these things. 28:54 So that's why, again, we're just cautioning over the next quarter or two that this will continue to be a bit of a headwind.

So, we're hopeful and in talking with a lot of our suppliers. We kind of see this starting to change once we get through Q1.

So, we're hopeful that we'll start to see some good improvement. So…

29:15 Okay. And in terms of free cash flow Anthony, obviously, very decent free cash flow in the quarter, how should we be thinking about your capabilities on the free cash flow side going forward?

How should we look at this?

29:30 I'm not going to give a bunch of guidance here, Benoit, I think what I told you last time, or there was a question I answered last time was sort of give an idea to the community around where we would end to year. 29:43 From a net debt perspective, the current thinking is, we would land slightly above current levels in terms of net debt going into year end.

29:55 Okay. It's still the case despite the strong performance in Q3 right?

30:02 Correct. And part of that, is just going to be, call it strategic buying as we near year end and are aware of these supply chain issues.

So, there's certain levers we’ll pull to help protect ourselves.

30:15 Okay. And when we look at your balance sheet, you don't want to provide specific targets, but is it fair to assume that the balance sheet is strong enough to pursue more growth opportunities either organic or through M and A or still bit early to discuss about them any, Brian?

30:36 Well, as Anthony pointed out, we're certainly pleased with how our balance sheet has strengthen up, where our leverage is now at a healthy level, I would say. So, we will be on the lookout.

However, as I kind of expressed last quarter, our near term focus still remains on ensuring that our house is order through all three business units. But that's underway well.

Our balance sheet is strengthening up. So, I would say we're going in the right direction.

31:11 Okay. Thank you very much for the time.

31:14 Thanks Benoit.

31:15 Thanks Benoit.

31:21 Good morning guys. First question is around market share and just given all the significant disruption we've seen from a supply chain perspective; would you have seen a change in who your customers are or would there be customers that have bought from you during this past quarter because you had inventory that maybe would not be normal customers?

I’m just really trying to flush out I guess, if some of the price increases and some of the volumes that have been happening currently are sustainable when the supply chains normalize and well some of those customers maybe go back two primary vendors?

32:01 Yes, It's a good question, Daryl. I think it's kind of a two part question.

I think first on the price increases, those are more related to inflationary pressures and what we've seen from our suppliers. So, I wouldn't call it opportunistic price increases that are out there that we're doing, but rather just a pass-through of cost increases we’re faced with.

32:26 In terms of market share, I won't specifically speak to market share, but certainly, when you have a tight supply chain, you may get customers that would not normally be buying from you, but the same goes that if we're short on something, we may have a customer that's forced to go somewhere else. 32:43 So, I think what we need, we've been very focused on given the best value we can to our regular customers and showing any new ones that come in what we're capable of doing.

So, hard to say where it settle out after, but we're hopeful that this may be an opportunity to attract some new customers.

33:05 Got it. Okay.

And then just secondly on the labor market, obviously, everyone's up against that, but are you seeing any of your delivery folks being poached or leaving or maybe just a quick update on what's happening there?

33:21 Well, it's something we're certainly dealing with and our team again is doing a good job of getting us through it. It's tough, but we're dealing with it as everyone else is.

33:36 Yes, fair enough. Okay.

That's all from me. Thanks guys great quarter.

33:40 Thank you, Daryl.

33:41 Thanks Daryl.

33:50 Good morning.

33:52 Good morning, John.

33:53 Following the recent realignments you’ve completed do you believe that you could service a twenty nineteen level of demand with the existing footprint?

34:05 Yes, definitely. And hopefully more.

34:11 And with the current labor capacity more importantly?

34:16 Yes. We're comfortable.

The market is tight, but we're meeting that labor demand.

34:25 Thanks. And on the supply chain challenges into Q4, have fall rates been off over Q4 to date?

I don't think, I won't speak to any progress made during the quarter, Jonathan, but continues – kind of continues to be a challenge, there certain product categories that are naturally more challenged than others. 34:53 We're aware from our views of the market place that it's not a phenomenon that's isolated to us.

It's broad reaching, but we're managing through it and we have a number of tools at our disposal to do so.

35:13 Thanks for your comments.

35:15 Thanks Jonathan.

35:30 Good morning, everyone. Congrats on the quarter.

35:33 Thanks Zach.

35:34 Thanks Zach.

35:35 Given your size in your various markets, are you seeing any kind of preferential access with suppliers that might help offset some of the supply chain issues?

35:48 I’d say that's a question we'd rather not answer.

35:52 Fair enough And then looking further ahead for FinishMaster and understanding that you're breaking out the crystal ball here, what's your view on the pace of recovery in end market demand over the next couple of years?

36:07 Well, we're certainly hopeful it's going to continue. We continue to see market demand come back, but of our three divisions, it's certainly the one that's been the slowest to bounce back.

So, we don't see any macro factors that would prevent it from eventually getting back to where it was.

36:24 Yeah, I think I would add on FinishMaster’s, it's a bit of a different dynamic than you would think of, right. When we think about supply chain issues or supply chain shortages in that business, it doesn't just impact us and the distribution of paint and related products right.

36:43 If a body shop is not able to procure a new fender or whatever it needs to get its work done then the car is also not getting painted. So, there's some knock on effects there in terms of supply chain shortages.

36:59 Great point. Thanks.

I'll turn it over.

37:02 Thanks Zach.

37:11 Thank you, operator, and thank you everyone for listening. We look forward to updating you on our progress during our next quarterly call.

Have a great day.