AutoCanada Inc. Announces Record Quarterly Results with 45.4% Increase in EPS, Management Realignment and Appointment of Director

EDMONTON, Nov. 6, 2014 /PRNewswire/ - AutoCanada Inc. (the "Company" or "AutoCanada") (TSX: ACQ) today announced financial results for the reporting period ended September 30, 2014.

In commenting on the third quarter of 2014, Pat Priestner, Chairman and Chief Executive Officer of AutoCanada Inc., stated that, "Our third quarter results are reflective of the acquisitions we've completed over the past 12 months and Management's continued focus on improving same store results.  We are very pleased to have achieved an 8.9% increase in same store revenue and an 11.4% increase in same store gross profit, which, along with new dealerships, contributed to the best quarterly results we've ever achieved."

We continue to be very pleased with the quality of dealerships we acquired during the quarter, which includes a part of the Hyatt Group of Dealerships in Calgary, our largest acquisition to date; Tower Chrysler Jeep Dodge Ram, a high volume dealership located in Calgary as well; Lakewood Chevrolet, an extremely well run dealership located in our home market of Edmonton; as well as Toronto Chrysler Jeep Dodge Ram, a metro-Toronto dealership which we believe will provide positive results for the Company." 

Mr. Priestner further added, "We thank our dealer partners, our dealership staff, and our staff here at dealer support services for their hard work and continued focus on improving our new vehicle retail sales volumes and improving the customer experience."

Third Quarter 2014 Highlights

• The Company generated net earnings attributable to AutoCanada shareholders of $17.8 million or earnings per share of $0.737 versus earnings per share of $0.507 in the third quarter of 2013.  Pre-tax earnings attributable to AutoCanada shareholders increased by $7.7 million to $22.6 million in the third quarter of 2014 as compared to $14.9 million in the same period in 2013.

• Same store revenue increased by 8.9% in the third quarter of 2014, compared to the same quarter in 2013.  Same store gross profit increased by 11.4% in the third quarter of 2014, compared to the same quarter in 2013.

• Revenue from existing and new dealerships increased 82.0% to $733.4 million in the third quarter of 2014 from $402.8 million in the same quarter in 2013

• Gross profit from existing and new dealerships increased 77.1% to $119.9 million in the third quarter of 2014 from $67.7 million in the same quarter in 2013.

• EBITDA increased 72.9% to $28.7 million in the third quarter of 2014 from $16.6 million in the same quarter in 2013.

• Free cash flow decreased to $6.3 million in the third quarter of 2014 or $0.26 per share as compared $7.1 million or $0.33 per share in the third quarter of 2013.

• Adjusted free cash flow increased to $22.1 million in the third quarter of 2014 or $0.92 per share as compared to $16.8 million or $0.78 per share in 2013.

Dividends

Management reviews the Company's financial results on a monthly basis.  The Board of Directors reviews the financial results on a quarterly basis, or as requested by Management, and determine whether a dividend shall be paid based on a number of factors. 

The following table summarizes the dividends declared by the Company in 2014:

On November 6, 2014, the Board declared a quarterly eligible dividend of $0.25 per common share on AutoCanada's outstanding Class A common shares, payable on December 15, 2014 to shareholders of record at the close of business on November 28, 2014.  The quarterly eligible dividend of $0.25 represents an annual dividend rate of $1.00 per share.

Eligible dividend designation

For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) (the "ITA") and any corresponding provincial and territorial tax legislation, all dividends paid by AutoCanada or any of its subsidiaries in 2010 and thereafter are designated as "eligible dividends" (as defined in 89(1) of the ITA), unless otherwise indicated.  Please consult with your own tax advisor for advice with respect to the income tax consequences to you of AutoCanada Inc. designating dividends as "eligible dividends".

Management Realignment

In response to the rapid growth of the Company, and the addition of both dealerships and Manufacturer partners, the Company announces effective 1 January 2015, the following:

1. Pat Priestner's five year employment agreement expiring 31 May 2019, has been amended to focus Mr. Priestner's time and attention on key drivers of long-term shareholder value including strategic initiatives, acquisitions, Manufacturer and Dealer relations, in the capacity of Executive Chair;
2. Tom Orysiuk shall become CEO in addition to President, with a focus on assisting the Executive Chair with strategy, Manufacturer and Dealer relations, and shall be responsible for overall operational direction and performance;
3. Steve Rose shall become Chief Operating Officer, assisting the President & CEO with a focus on operational direction and execution; and
4. Erin Oor shall become VP Corporate Development and Administration, with a focus on corporate development initiatives and oversight of certain administrative aspects of the business, and to continue with his general counsel duties pending appointment of his replacement in such regard.

Gordon Barefoot, Lead Director, stated that "Having grown to 46 dealerships and 12 Manufacturer partners from the original 14 and 3, respectively, the need to realign senior management duties became apparent if management was to continue to deliver above average dealership operational performance while simultaneously executing a growth plan. These changes recognize and formalize the evolution of the management team which began earlier this year with the appointment of Erin Oor as General Counsel and VP Administration in June, 2014, Chris Burrows as Vice-President & Chief Financial Officer in September 2014, and Jeff Christie, formerly VP Finance, as VP Operations, in September 2014, and which has culminated in the further appointments announced today, all of which best support the future growth and operations of the Company and better direct each Executive's time and attention on those matters which best drive long term shareholder value."

Pat Priestner, CEO, stated "I am very pleased with the realignment. Tom Orysiuk has worked closely with me over the past nine years and shall be an excellent CEO, being well grounded in both operations and the culture of dealerships, allowing me to focus on those areas where I can best drive long term shareholder value. Steve Rose has closely partnered with both Tom and myself during that same period and will continue to bring a broad and deep background in auto retail and business operations generally, while assuming a greater degree of operational responsibility to the Company. Both Tom and Steve have been integral to the growth and operational success of the Company, and with the appointment of Jeff Christie to Sales Operations, and the addition of Chris Burrows and Erin Oor, I believe we have the senior management team that we need to provide a sustainable operational and growth model that will drive long-term shareholder value."

Appointment of Director

Mr. Gordon Barefoot, Lead Director of the Board of Directors stated, "I welcome to the Board of Directors Mr. Barry James who, with more than 35 years as an experienced business professional with substantial board experience, will contribute significant counsel and expertise."

Barry was previously Managing Partner of the Edmonton office of PricewaterhouseCoopers LLP, a position he held for ten years. Barry received a Bachelor of Commerce (with Distinction) degree from the University of Alberta in 1980, qualified as a CA in 1983 and became a Fellow of the Chartered Accountants in 2007.  He joined PwC in 1977 and was admitted to the partnership in 1989. He was the Managing Partner of the Edmonton office from July 2001 to June 2011. 

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table shows the unaudited results of the Company for each of the eight most recently completed quarters.  The results of operations for these periods are not necessarily indicative of the results of operations to be expected in any given comparable period.

The following table summarizes the results for the three and nine month periods ended September 30, 2014 on a same store basis by revenue source and compares these results to the same period in 2013. 

The following table summarizes the results for the three and nine month periods ended September 30, 2014 on a same store basis by revenue source and compares these results to the same period in 2013.

ABOUT AUTOCANADA

AutoCanada is one of Canada's largest multi-location automobile dealership groups, currently operating 46 franchised dealerships in eight provinces and has over 3,600 employees. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, Kia, BMW and MINI branded vehicles. In 2013, our dealerships sold approximately 36,000 vehicles and processed approximately 364,000 service and collision repair orders in our 406 service bays during that time.

AutoCanada est l'un des plus importants groupes de concessions automobiles à établissements multiples du Canada. Elle exploite actuellement 46 concessions franchisées dans huit provinces et emploie plus de 3 600 employé(e)s. AutoCanada vend actuellement des véhicules de marques Chrysler, Dodge, Jeep, Ram, FIAT, Chevrolet, GMC, Buick, Cadillac, Infiniti, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, Kia, BMW et MINI. En 2013, nos concessions ont vendu environ 36 000 véhicules et traité environ 364 000 demandes d'entretien et de réparation par suite de collision à nos 406 aires de service.  D'autres renseignements sur AutoCanada Inc. sont disponibles sur le site www.sedar.com et sur le site Web de l'entreprise à l'adresse www.autocan.ca.  

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

FORWARD LOOKING STATEMENTS

Certain statements contained in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation.  We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward-looking statements.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "expect", "plan", "seek", "may", "intend", "likely", "will", "believe" and similar expressions are not historical facts and are forward-looking and may involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict.  Accordingly, these factors could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Therefore, any such forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document.

The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

NON-GAAP MEASURES

This press release contains certain financial measures that do not have any standardized meaning prescribed by Canadian GAAP.  Therefore, these financial measures may not be comparable to similar measures presented by other issuers.  Investors are cautioned these measures should not be construed as an alternative to net earnings (loss) or to cash provided by (used in) operating, investing, and financing activities determined in accordance with Canadian GAAP, as indicators of our performance.  We provide these measures to assist investors in determining our ability to generate earnings and cash provided by (used in) operating activities and to provide additional information on how these cash resources are used.  We list and define these "NON-GAAP MEASURES" below:

EBITDA

EBITDA is a measure commonly reported and widely used by investors as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric.  The Company believes EBITDA assists investors in comparing a company's performance on a consistent basis without regard to depreciation and amortization and asset impairment charges which are non-cash in nature and can vary significantly depending upon accounting methods or non-operating factors such as historical cost.  References to "EBITDA" are to earnings before interest expense (other than interest expense on floorplan financing and other interest), income taxes, depreciation, amortization and asset impairment charges.

Adjusted EBITDA

Adjusted EBITDA is an indicator of a company's operating performance and ability to incur and service debt prior to recognizing the portion of share‑based compensation related to changes in the share price and its impact on the Company's cash‑settled portions of its share‑based compensation programs. The Company considers this expense to be non-cash in nature as we maintain a share purchase trust in which we purchase shares on the open market as these units are granted to reduce the cash flow risk associated with fluctuations in the share price. Share‑based compensation, a component of employee remuneration, can vary significantly with changes in the price of the Company's common shares. The Company believes adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time.

Adjusted Net Earnings and Adjusted Net Earnings per Share

Adjusted net earnings and adjusted net earnings per share are measures of our profitability. Adjusted net earnings is calculated by adding back the after‑tax effect of impairment or reversals of impairment of intangible assets, impairments of goodwill, and the portion of share‑based compensation related to changes in the share price and its impact on the Company's cash‑settled portions of its share‑based compensation programs. The Company considers this expense to be non-cash in nature as we maintain a share purchase trust in which we purchase shares on the open market as these units are granted to reduce the cash flow risk associated with fluctuations in the share price. Share‑based compensation, a component of employee remuneration, can vary significantly with changes in the price of the Company's common shares. Adding back these amounts to net earnings allows management to assess the net earnings of the Company from ongoing operations. Adjusted net earnings per share is calculated by dividing adjusted net earnings by the weighted‑average number of shares outstanding.

EBIT

EBIT is a measure used by management in the calculation of Return on capital employed (defined below).  Management's calculation of EBIT is EBITDA (calculated above) less depreciation and amortization.

Free Cash Flow

Free cash flow is a measure used by management to evaluate its performance.  While the closest Canadian GAAP measure is cash provided by operating activities, free cash flow is considered relevant because it provides an indication of how much cash generated by operations is available after capital expenditures.  It shall be noted that although we consider this measure to be free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for distributions, re-investment in the Company, potential acquisitions, or other purposes.  Investors should be cautioned that free cash flow may not actually be available for growth or distribution of the Company.  References to "Free cash flow" are to cash provided by (used in) operating activities (including the net change in non-cash working capital balances) less capital expenditures (not including acquisitions of dealerships and dealership facilities).

Adjusted Free Cash Flow

Adjusted free cash flow is a measure used by management to evaluate its performance.  Adjusted free cash flow is considered relevant because it provides an indication of how much cash generated by operations before changes in non-cash working capital is available after deducting expenditures for non-growth capital assets.  It shall be noted that although we consider this measure to be adjusted free cash flow, financial and non-financial covenants in our credit facilities and dealer agreements may restrict cash from being available for distributions, re-investment in the Company, potential acquisitions, or other purposes.  Investors should be cautioned that adjusted free cash flow may not actually be available for growth or distribution of the Company.  References to "Adjusted free cash flow" are to cash provided by (used in) operating activities (before changes in non-cash working capital balances) less non-growth capital expenditures.

Adjusted Average Capital Employed

Adjusted average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada and is used in the measure of Adjusted Return on Capital Employed (described below).  Adjusted average capital employed is calculated as the average balance of interest bearing debt for the period (including current portion of long term debt, excluding revolving floorplan facilities) and the average balance of shareholders equity for the period, adjusted for impairments of intangible assets, net of deferred tax.  Management does not include future income tax, non-interest bearing debt, or revolving floorplan facilities in the calculation of adjusted average capital employed as it does not consider these items to be capital, but rather debt incurred to finance the operating activities of the Company.

Absorption Rate

Absorption rate is an operating measure commonly used in the retail automotive industry as an indicator of the performance of the parts, service and collision repair operations of a franchised automobile dealership. Absorption rate is not a measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, absorption rate may not be comparable to similar measures presented by other issuers that operate in the retail automotive industry.  References to ''absorption rate'' are to the extent to which the gross profits of a franchised automobile dealership from parts, service and collision repair cover the costs of these departments plus the fixed costs of operating the dealership, but does not include expenses pertaining to our head office. For this purpose, fixed operating costs include fixed salaries and benefits, administration costs, occupancy costs, insurance expense, utilities expense and interest expense (other than interest expense relating to floor plan financing) of the dealerships only. 

Average Capital Employed

Average capital employed is a measure used by management to determine the amount of capital invested in AutoCanada and is used in the measure of Return on Capital Employed (described below).  Average capital employed is calculated as the average balance of interest bearing debt for the period (including current portion of long term debt, excluding revolving floorplan facilities) and the average balance of shareholders equity for the period.  Management does not include future income tax, non-interest bearing debt, or revolving floorplan facilities in the calculation of average capital employed as it does not consider these items to be capital, but rather debt incurred to finance the operating activities of the Company.

Return on Capital Employed

Return on capital employed is a measure used by management to evaluate the profitability of our invested capital.  As a corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.  Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to ensure shareholder value is being achieved by these capital investments.  Return on capital employed is calculated as EBIT (defined above) divided by Average Capital Employed (defined above).

Adjusted Return on Capital Employed

Adjusted return on capital employed is a measure used by management to evaluate the profitability of our invested capital.  As a corporation, management of AutoCanada may use this measure to compare potential acquisitions and other capital investments against our internally computed cost of capital to determine whether the investment shall create value for our shareholders.  Management may also use this measure to look at past acquisitions, capital investments and the Company as a whole in order to ensure shareholder value is being achieved by these capital investments.  Adjusted return on capital employed is calculated as EBIT (defined above) divided by Adjusted Average Capital Employed (defined above).

Cautionary Note Regarding Non-GAAP Measures

EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP­.  Investors are cautioned that these non-GAAP measures should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Company's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows.­ The Company's methods of calculating EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed may differ from the methods used by other issuers.­ Therefore, the Company's EBITDA, EBIT, Free Cash Flow, Adjusted Free Cash Flow, Absorption Rate, Average Capital Employed and Return on Capital Employed may not be comparable to similar measures presented by other issuers. 

Additional information about AutoCanada Inc. is available at the Company's website at www.autocan.ca and www.sedar.com.

A conference call to discuss the results for the reporting period ended September 30, 2014 will be held on November 7, 2014 at 11:00am Eastern time (9:00am Mountain time).  To participate in the conference call, please dial 1.888.231.8191 or 647.427.7450 approximately 10 minutes prior to the call.  A live and archived audio webcast of the conference call will also be available on the Company's website www.autocan.ca.

SOURCE AutoCanada Inc.

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