AutoCanada Inc. Announces Q2, 2016 Quarterly Earnings Per Share of $0.53

EDMONTON, Aug. 4, 2016 /CNW/ - AutoCanada Inc. (the "Company" or "AutoCanada") (TSX: ACQ) today announced financial results for the quarter ended June 30, 2016.

• AutoCanada achieved basic earnings per share of $0.53 for the quarter, exceeding consensus estimates of $0.52.
  
  
• The Company generated net income of $16.7 million, exceeding net income achieved in Q2, 2015 of $15.8 million.
  
  
• The Company made improvements on the balance sheet, with inventory balances decreasing by $40.6 million from year-end, representing more efficient turnover, decreasing our carrying cost of inventory by $0.5 million compared to Q2, 2015.
  
  
• During the quarter we reduced our five year capital plan by 25% or $48.5 million from $193.8 million to $145.3 million. This reduction in future capital expenditures further allows us to implement our acquisition strategy while maintaining a strong balance sheet.

Second Quarter 2016 Financial Summary

• Revenue from existing and new dealerships increased by 3.1%, or $25.4 million, to $842.3 million in the second quarter of 2016 from $816.9 million in the same quarter in 2015.
  
  
• Gross profit from existing and new dealerships increased by 3.9%, or $5.0 million, to $134.7 million in the second quarter of 2016 from $129.7 million in the same quarter in 2015.
  
  
• EBITDA attributable to AutoCanada shareholders decreased by 1.2%, or $0.3 million, to $27.1 million in the second quarter of 2015 from $27.4 million in the same quarter in 2015.
  
  
• Adjusted EBITDA attributable to AutoCanada shareholders decreased by 4.7%, or $1.3 million, to $26.4 million in the second quarter of 2015 from $27.7 million in the same quarter in 2015.
  
  
• The Company generated net earnings attributable to AutoCanada shareholders of $14.2 million or basic earnings per share of $0.53. Pre-tax earnings attributable to AutoCanada shareholders decreased by 3.7%, or $0.7 million, to $18.4 million in the second quarter of 2016 as compared to $19.1 million in the same quarter in 2015.
  
  
• The Company generated adjusted net earnings attributable to AutoCanada shareholders of $13.5 million as compared to $14.0 million in the same quarter in 2015. Basic adjusted net earnings per share were $0.49.
  
  
• Free cash flow increased to $37.9 million in the second quarter of 2016 or $1.39 per share as compared to $17.8 million or $0.73 per share in the same quarter in 2015. Adjusted free cash flow increased to $21.6 million in the second quarter of 2016 or $0.79 per share as compared to $19.2 million or $0.79 per share in the same quarter in 2015.
  
  
• Same store revenue decreased by 3.2% in the second quarter of 2016, compared to the same quarter in 2015. Same store gross profit decreased by 5.3% in the second quarter of 2016, compared to the same quarter in 2015. Same store gross profit percentage decreased by 0.4% in the second quarter of 2016 compared to the same quarter in 2015.
  
  
• Same store new vehicle retail revenue decreased by 11.8%, or $23.2 million, to $174.0 million in the second quarter of 2016 from $197.2 million in the same quarter in 2015.
  
  
• Same store used vehicle retail revenue decreased by 4.4%, or $3.1 million, to $66.6 million in the second quarter of 2016 from $69.7 million in the same quarter in 2015.
  
  
• Same store parts, service and collision repair revenue decreased by 5.1%, or $2.2 million, to $40.6 million in the second quarter of 2016 from $42.8 million in the same quarter in 2015.

"Our focus on operational excellence, through both financial and sales metrics, and cost control at our current dealerships has achieved effective results in the quarter. Despite the economic slowdown in Western Canada, overall revenue and gross profit has increased from existing and new dealerships as compared to the same period in the prior year" said Chris Burrows, Chief Financial Officer. "Our focused effort on cost reduction has also began early in the year and has shown early success through the second quarter."

"Our acquisition strategy will be implemented during the remainder of the year. During a period of reduced economic activity, we have the ability to be opportunistic in our acquisition strategy and to focus on acquisitions that are accretive and grow our portfolio. We will diversify across Canada through the acquisition of flagship stores in major markets" said Steven Landry, Chief Executive Officer.

Dividends

On August 4, 2016, the Board declared a quarterly eligible dividend of $0.10 per common share on AutoCanada's outstanding shares, payable on September 15, 2016 to shareholders of record at the close of business on August 31, 2016.

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".

Outlook

While Management is satisfied with our results for the quarter, we look ahead to the rest of the year with further optimism.

Earlier this year, we implemented an action plan comprised of three levers: operational excellence, cost control and balance sheet strength, and acquisition strategy. These levers are the core of our 2016 action plan and will continue to shape our operations.

• Operational excellence, through both the financial and sales metrics, is important at each of our dealerships. During the quarter we saw growth in both revenue and gross profit. Going forward, we are looking to improve our margins at our dealerships and also focus on asset productivity, a key to our continued success.
  
  
• Cost control and balance sheet strength has been a focus throughout the year. Earlier this year we implemented a plan to reduce our costs throughout the company. With an annualized target of $15.0 million we expect operating expenses will decrease as a result of this initiative. In addition to decreasing operating expenses we are managing our interest expense on our inventories, managing our accounts receivables and accounts payables, and considering innovative ways we can save money through shared services and central purchasing. During the quarter, we have improved four of our seven key covenants as compared to the first quarter of 2016.
  
  
• Our acquisition strategy will be implemented during the remainder of the year. Over the past twelve months we have acquired five dealerships and have provided participatory loans for an additional two. During a period of reduced economic activity we have the ability to be opportunistic in our acquisition strategy and to focus on acquisitions that are accretive and grow our portfolio. Further diversification both geographically and through brand representation continues to drive our acquisition strategy.

Our focused effort on cost reduction began early in the year and has shown early success through the second quarter. Variable expenses, excluding $2.7 million in non-recurring senior management transition costs, as a percentage of gross profit has decreased by 1.3% in Q2 with total annual decrease of 2.2% year-to-date.

During the year-to-date, Alberta industry new vehicle sales decreased by 6.2% over the same quarter in 2015, while national industry new vehicles sales were up 6.0%. Industry experts expect 2016 Canadian new light vehicle unit sales to achieve 1.9 million units in 2016^1,2.

While our same store new vehicle metrics continue to lag the market in Alberta and British Columbia, we are pleased with our same store used vehicle sales for the quarter. Q2, 2016 represented an 8.1% increase in same store used car sales, and an increase of 23.9% in same store used car margins, as compared to Q2, 2015. This increase is due to the focus that management has had on improving used car inventory while increasing used vehicle sales in order to offset the decline in new vehicle sales.

We are optimistic that we are making headway in a difficult market and, over time, look to further improve our key metrics.

SELECTED QUARTERLY 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.

(in thousands of dollars, except Gross Profit %, Earnings per share, and Operating Data)		Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014	Q3 2014
Income Statement Data
	New vehicles	497,025	363,181	368,242	471,018	483,435	345,542	379,094	456,810
	Used vehicles	208,016	180,108	167,100	179,270	194,956	163,243	148,579	158,779
	Parts, service and collision repair	100,317	94,721	102,220	93,139	99,304	92,951	91,225	77,680
	Finance, insurance and other	36,899	28,862	34,752	37,778	39,182	31,671	36,355	37,267
Revenue		842,257	666,872	672,314	781,205	816,877	633,407	655,253	730,536
	New vehicles	34,410	27,267	27,482	34,300	34,861	25,765	29,325	35,086
	Used vehicles	13,758	10,420	10,326	10,949	11,000	8,354	7,808	9,637
	Parts, service and collision repair	52,957	47,669	51,760	48,336	49,859	43,913	45,687	38,913
	Finance, insurance and other	33,577	26,353	34,354	35,088	33,955	27,407	31,109	34,714
Gross profit		134,702	111,709	123,922	128,673	129,675	105,439	113,929	118,350
Gross Profit %		16.0%	16.8%	18.4%	16.5%	15.9%	16.6%	17.4%	16.2%
Operating expenses		107,032	96,047	101,310	100,824	100,568	93,175	90,283	90,695
Operating expenses as a % of gross profit		80.1%	86.0%	81.8%	78.4%	77.6%	88.4%	79.2%	76.6%
Income from investments in associates		-	-	-	-	-	-	-	359
Income from loans to associates		610	315	49	-	-	-	-	-
Impairment (recovery) of intangible assets and goodwill		-	-	18,757	-	-	-	(1,767)	-
Net earnings (loss) attributable to AutoCanada shareholders		14,158	7,272	(7,631)	11,690	13,523	4,969	14,240	17,765
EBITDA attributable to AutoCanada shareholders		27,072	18,312	23,353	26,379	27,397	12,687	24,605	28,674
EBITDA % of sales		3.7%	3.2%	3.5%	3.8%	3.8%	2.2%	4.0%	4.4%
Basic earnings per share		0.53	0.27	(0.29)	0.48	0.56	0.20	0.60	0.74
Diluted earnings per share		0.53	0.27	(0.29)	0.47	0.56	0.20	0.59	0.74
Basic adjusted earnings per share		0.49	0.31	0.34	0.51	0.56	0.22	0.52	0.71
Dividends declared per share		0.10	0.25	0.25	0.25	0.25	0.25	0.25	0.24
Operating Data
Vehicles (new and used) sold excluding GM		14,159	10,728	12,345	13,092	14,723	11,343	12,774	14,966
Vehicles (new and used) sold including GM		17,425	13,301	14,150	17,086	17,739	13,824	15,415	18,079
New vehicles sold including GM		12,098	8,502	9,210	12,018	12,296	8,933	10,570	12,821
New retail vehicles sold		9,374	7,078	8,016	9,985	9,929	7,393	8,907	10,686
New fleet vehicles sold		2,724	1,424	1,194	2,033	2,367	1,540	1,663	2,135
Used retail vehicles sold		5,327	4,799	4,940	5,068	5,443	4,891	4,845	5,258
# of service and collision repair orders completed		227,446	209,194	230,772	202,692	215,142	199,096	216,427	198,612
Absorption rate		90%	83%	93%	91%	94%	85%	85%	93%
# of dealerships at period end		53	53	54	50	49	48	48	45
# of same store dealerships		27	27	28	26	24	23	23	23
# of service bays at period end		898	898	912	862	842	822	822	734
Same store revenue growth		(3.2)%	(3.1)%	(12.1)%	(6.9)%	(2.8)%	(3.5)%	10.9%	8.9%
Same store gross profit growth		(5.3)%	(5.5)%	(14.3)%	(14.1)%	(11.0)%	(8.5)%	5.7%	11.4%
Balance Sheet Data
Cash and cash equivalents		77,582	72,878	62,274	77,071	77,676	66,351	72,462	64,559
Trade and other receivables		115,427	116,092	90,821	118,853	124,683	104,753	92,138	115,074
Inventories		555,957	628,641	596,542	581,258	620,837	625,779	563,277	471,664
Revolving floorplan facilities		532,283	600,578	548,322	550,857	607,694	601,432	527,780	437,935
	*See the Company's Management's Discussion and Analysis for the period ended June 30, 2016 for complete footnote disclosures.

The following tables summarizes the results for the three and six month periods ended June 30, 2016 on a same store basis by revenue source and compares these results to the same period in 2015.

Same Store Revenue and Vehicles Sold

	For the Three Months Ended
Revenue Source (in thousands of dollars)	June 30,  2016		June 30,  2015		% Change
New vehicles ‑ Retail		174,026		197,236		(11.8)%
New vehicles ‑ Fleet		57,953		52,312		10.8%
Total New vehicles		231,979		249,548		(7.0)%
Used vehicles ‑ Retail		66,630		69,714		(4.4)%
Used vehicles ‑ Wholesale		47,679		36,042		32.3%
Total Used vehicles		114,309		105,756		8.1%
Finance, insurance and other		19,084		21,154		(9.8)%
Subtotal		365,372		376,458		(2.9)%
Parts and service		38,013		39,522		(3.8)%
Collision repair		2,611		3,271		(20.2)%
Parts, service, and collision repair		40,624		42,793		(5.1)%
Total		405,996		419,251		(3.2)%
New retail vehicles sold		4,361		5,164		(15.5)%
New fleet vehicles sold		1,774		1,627		9.0%
Used retail vehicles sold		2,705		2,886		(6.3)%
Total		8,840		9,677		(8.6)%
Total vehicles retailed		7,066		8,050		(12.2)%

Same Store Gross Profit and Gross Profit Percentage

	For the Three Months Ended
	Gross Profit						Gross Profit %
Revenue Source (in thousands of dollars)	June 30,  2016		June 30, 2015		% Change		June 30,  2016		June 30,  2015		Change
New vehicles ‑ Retail		16,071		18,331		(12.3)%		9.2%		9.3%		(0.1)%
New vehicles ‑ Fleet		160		264		(39.4)%		0.3%		0.5%		(0.2)%
Total New vehicles		16,231		18,595		(12.7)%		7.0%		7.5%		(0.5)%
Used vehicles ‑ Retail		6,548		5,229		25.2%		9.8%		7.5%		2.3%
Used vehicles ‑ Wholesale		474		437		8.4%		1.0%		1.2%		(0.2)%
Total Used vehicles		7,022		5,666		23.9%		6.1%		5.4%		0.7%
Finance, insurance and other		17,586		19,359		(9.2)%		92.2%		91.5%		0.7%
Subtotal		40,839		43,620		(6.4)%		11.2%		11.6%		(0.4)%
Parts and service		20,454		20,920		(2.2)%		53.8%		52.9%		0.9%
Collision repair		1,371		1,648		(16.8)%		52.5%		50.4%		2.1%
Parts, service, and collision repair		21,825		22,568		(3.3)%		53.7%		52.7%		1.0%
Total		62,664		66,188		(5.3)%		15.4%		15.8%		(0.4)%

The following table summarizes the number of same stores for the period ended June 30, 2016 by Province:

Number of Same Stores by Province

	British Columbia		Alberta		Manitoba		Ontario		Atlantic		Total
FCA		3		5		1		-		2		11
Hyundai		2		2		-		2		-		6
Volkswagen		3		1		1		-		-		5
Nissan/Infiniti		1		1		-		-		-		2
Audi		-		-		1		-		-		1
Mitsubishi		-		1		-		-		-		1
Subaru		-		1		-		-		-		1
Total		9		11		3		2		2		27

Over the next two quarters, 17 additional stores will move from newly acquired stores and into same store designation and will be included in same store results.

MD&A and Financial Statements
Information included in this press release is a summary of results. It should be read in conjunction with AutoCanada's consolidated financial statements and management's discussion and analysis for the three and six month periods ended June 30, 2016, which can be found on the company's website at www.autocan.ca or on www.sedar.com.

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. The following "Non-GAAP Measures" are defined in the interim MD&A: EBITDA; Adjusted EBITDA; Adjusted Net Earnings and Adjusted Net Earnings per Share; EBIT; Free Cash Flow; Adjusted Free Cash Flow; Adjusted Average Capital Employed; Absorption Rate; Average Capital Employed; Return on Capital Employed; and Adjusted Return on Capital Employed.

Conference Call
A conference call to discuss the results for the reporting period ended June 30, 2016 will be held on August 5, 2016 at 11:00am Eastern time (9:00am Mountain time).  To participate in the conference call, please dial 1.888.231.8191 approximately 10 minutes prior to the call.  A live and archived audio webcast of the conference call will also be available at the following:

http://event.on24.com/r.htm?e=1138784&s=1&k=EE7FA7036CDA10AA13BB08D0140AA235.

About AutoCanada

AutoCanada is one of Canada's largest multi-location automobile dealership groups, currently operating 53 franchised dealerships, comprised of 60 franchises, in eight provinces and has over 3,700 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 2015, our dealerships sold approximately 62,800 vehicles and processed approximately 848,000 service and collision repair orders in our 912 service bays during that time.

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", "plan", "seek", "may", "intend", "likely", "will", "believe", "shall" 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.

Additional Information

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

SOURCE AutoCanada Inc.

Christopher Burrows, Vice-President & Chief Financial Officer, Phone: [phone], Email: [email protected]