AutoCanada Inc
TSX:ACQ

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TSX:ACQ
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Price: 18.87 CAD 0.37% Market Closed
Market Cap: 436.8m CAD
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Earnings Call Transcript

Earnings Call Transcript
2022-Q1

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Operator

Good morning, my name is Grant and I'll be the conference operator today. At this time I'd like to welcome everyone to the AutoCanada first quarter earnings call. [Operator Instructions]

I would like to remind everyone that certain statements in this presentation and on our call are forward-looking in nature including among other things future performance. These include statements involving known and unknown risks, uncertainties, and other factors outside of management's control that could cause actual results to differ materially from those expressed in the forward-looking statement.

AutoCanada does not assume any responsibility for accuracy and completeness of the forward-looking statements and does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. For additional information about possible risks, please refer to our AIF which is available on [indiscernible] and on our website within the investor documentation filing section. I will now turn the call over to Mike Borys, Chief Financial Officer. Please go ahead.

M
Michael Borys
executive

Thanks, Grant. Good morning, everyone, and thank you for joining us on today's first-quarter results conference call. For today's call, I'm joined by Paul Antony, our Executive Chair; Peter Hong, our Chief Strategy Officer; and Casey Charleson, our Vice President of Finance.

We released our Q1 results after the market had closed yesterday. A copy of our results is available for download on our website. For today's call, we'll be discussing the current state of the business, discussing the financial results, and providing an update on both our Canadian and US segment. With that, I'd like to turn over to Paul.

P
Paul Antony
executive

Thanks, Mike. Good morning, everyone. I'm pleased again to report the strong momentum of 2021 continued into Q1 where our team delivered yet another record-setting quarter. We continue to be very proud of the accomplishments of this team, and I'm even more excited to see what they'll do with the new additions to our leadership group joining the company in April. I'll speak more about them later on.

We recorded our highest ever Q1 revenue figure of $1.3 billion which drove adjusted EBIDTA of $62.2 million with the increase of 31.7% over the prior year. Normalizing prior year results for government assistance, we were up in Q1 by $23.5 million or 60.6%. These results were the products of strong performance across the board in all areas of our business on both sides of the border. To put it simply, this was an exceptional quarter. I'm not going to touch on some of the operational highlights for the quarter.

Our Canadian operations once again successfully executed resulting in record Q1 2022 results. For the 12th quarter of the last 13, we outperformed the Canadian new retail market by 6.6 percentage points. Our used segments saw continued strengths with a ratio of used to new retail units increasing to 1.5 from 1.29 in the quarter with our trailing 12-month ratio improving from 1.48-- from 1.01.

Used vehicles growth profit percentage also increased to 7% as compared to 6.7% in the prior year. F&I gross profits per retail unit average also increased to $3,368 in the quarter, up 12.7% for $379 per unit. Canada's adjusted EBITDA, a $53.4 million increased by 33.1% over prior year normalized adjusted EBITDA of $40.1 million. In the US, the story was much the same. Demonstrated by the fourth consecutive quarter of year over year growth in adjusted EBITDA.

Total retail unit sales increased a significant 77%. This included an increase of 1,718 units retail vehicles sold, up nearly 3 times over the prior year. This also drove an increase in used to new to 1.8 from 0.65. F&I gross profits per retail unit average increased to $3,583 per unit, up 62%, or $1,375 per unit. We reported first-quarter US adjusted EBITDA of $8.8 million, an improvement of $10.2 million over the prior year, when normalizing for government SBA loan forgiveness in the prior year.

We remain incredibly pleased with the ongoing progress that we're seeing in the US. Overall, our strong performance in Q1 reflects the ongoing sustainability of our business model as well as our ability to continue navigating a range of industry challenges, including production delays. I'm immeasurably quite proud of what we've built and the platform's ability to thrive in a variety of market conditions and drive industry-leading performance.

This strength has also allowed us to focus on M&A as evidenced by our acquisition of Audi Windsor and Porsche of London earlier this week. Our M&A pipeline remains robust. Our employees in Canada and the US have once again delivered excellent performance, and we can't thank them enough for their efforts, which are driving our performance. Thanks so much to our whole team.

I want to take a minute to thank Maryann Keller on behalf of our board and management team for her dedication and faithful guidance during her board tenure. She's retiring from a board of directors effective today. Maryann has been with us since May of 2015, including 4 years as our lead independent director. She's seen AutoCanada through numerous critical transformation, leaving us with a very strong foundation to pursue our growth strategy, and we wish her all the best. I'll come back to speak more about the outlook and strategy in my concluding remarks, but for now, I'll turn it over to Mike.

M
Michael Borys
executive

Thanks, Paul. Our operating model continues to perform. To reiterate some of what Paul just spoke about, we had yet another record quarter, and we continue to see strong results ahead of us. Our reported $62.2 million of adjusted EBITDA in the quarter represented a 61% improvement over prior years normalized results, an improvement of $23.5 million. Against that backdrop of a well-performing business model with good free cash flow generation, we remain disciplined in the management of our balance sheet and debt levels as we look forward to pursuing our organic and inorganic growth strategies.

In the first quarter of this year, we completed the refinancing of our 8.75% $250 million [indiscernible] and secured debentures with $350 million, a 5.75% paper with a 7-year tenure. Our timing allowed us to get ahead of both actual and anticipated rate increases by the Bank of Canada. If issued today we will be looking at coupon rates closer to 7%. Concurrent with this financing, we reset our 3-year credit facility agreement.

On top of our fixed-rate long-term debt, we also have $275 million in interest rate swaps that will protect us against future rate increases expected over the next 12 to 24 months. Combined and measured again reported drawn debt and floorplan debt at the end of the first quarter, our fixed-rate debt covers approximately 44% of outstanding debt. We will be prudent in monitoring our fixed or variable rate coverage over the coming months.

Working with our lending syndicates, we put in place a non-recourse facility that will allow us to add real estate to our portfolio at preferential rates to traditional sale-leaseback arrangements. This is a good risk management in that it allows us to build back our asset base while at the same time not having to sacrifice dry powder as we look to aggregate dealerships as part of our acquisition strategy.

Our gross lease-adjusted leverage, excluding cash, was 3.0 times at the end of the first quarter. We'll work to maintain a conservative hold at our gross [indiscernible] leverage, and note that S&P highlighted the potential for further upgrade to our B+ rating in the next 12 months if we can stay well below 4 times on a sustained basis in tandem with enhanced margin stability year 2021 levels.

Our TTM or Trailing 12 Month adjusted EBITDA margin to the end of Q1 improved to 5.3% as compared to a normalized 4.3% in the prior year. All of this positions the company well as we look forward to discipline the acquisition strategy. Our balance sheet at the end of Q1 and with a view to how we see 2022 coming in, supports between $500 and $600 million of dry powder based on netting out to a debt leverage of between 2 and 2.5 times.

Recall that we defined dry powder as the amount of capital we can deploy without having to raise equity and while staying within our target range of net debt leverage. In this case, we've tightened the range as noted in response to a rising rate environment. Of this amount, we have ready access to approximately $250 million through our existing credit facility and by leveraging our non-recourse line.

Our balance sheet discipline supports our acquisition strategy. We are continuing to build out our pipeline of opportunities, and we'll continue to focus on deploying capital to build out our foundation of dealerships across the country, though with a greater focus on Ontario to achieve that geographic diversification. We're happy to welcome our 2 most recent dealerships, Porsche of London and Audi Windsor. Together these dealerships are expected to contribute in excess of $80 million in annual revenues.

Before I turn it over to Casey, a brief update on our NCIB. As of May 4, the company had repurchase and canceled 1,358,921 shares under our NCIB for a total cost of $46 million. Under the NCIB approved by the TSX, we were authorized to purchase for cancellation up to 1,730,321 common shares. To date, we've repurchased and cancelled 78.5% of this amount. This is about actively managing our allocation of capital.

At the time of instituting our NCIB, we believed and stated as such that our shares were undervalued and based on the strength of our balance sheet, coupled with their long term outlook and the cash flows this business generates in the normal course, we saw an opportunity to create value for our shareholders while continuing to ensure we could execute against our M&A pipeline.

The NCIB's file remains in place to December 22nd, 2022, or such earlier date as the company may complete its purchases under the NCIB. I'll turn it over to Casey now to discuss Q1 results.

C
Casey Charleson
executive

Thanks, Mike. At the consolidated level, revenue came in at $1.3 billion, an increase of $373 million or 38%. Gross profit came in at $247.3 million, an increase of $79.7 million or 48%. Net income was $4.3 million versus $21.3 million in the prior year. Net income for the quarter included a loss in extinguishment of embedded derivative of $29.3 million, reversing the unrealized fair value gains on the embedded derivative recorded in 2021, and a loss in extinguishment of debt of $9.9 million associated with successful refinancing of the debenture.

Adjusted EBITDA came in at $62.2 million, which was an increase of $23.5 million, 61% head of normalized adjusted EBITDA in the prior year. In our Canadian operations, total retail vehicles sold came in at 19,077, an increase of 3,392 units or 22%. The Canadian operations generated revenue of $1.1 billion, an increase of 31% versus the prior year. Gross profit was $208.4 million, an increase of 37%. Net loss was $1 million versus net income $21 million in the prior year.

Again, the year over year change was impacted by the loss on extinguishment of embedded derivative of $29.3 million, and a loss in extinguishment of debt of $9.9 million associated with the successful financing completed in Q1. Adjusted EBITDA was $53.4 million, an increase of $13.3 million, 33% ahead of normalized adjusted EBITDA in the prior year. Other key highlights include the following. Same store gross profit increase by $33.8 million or 23%, and our gross profit percentage increased to 19.4% from 18.4%.

Same store used to new retail units ratio increased to 1.46 in the quarter from 1.19. Same store estimated gross profit for retail units increased to $3,702, up 20% or $617 per unit. Same store F&I gross profit dollars increased $11.8 million or 25%. In our US operations, revenue was $211 million, an increase in Q1, 2021 of 99%.

Gross profit was $38.9 million, an increase of 152%. Net income was $5.3 million, an increase of $5 million. Adjusted EBITDA was $8.8 million, an increase of 10.2 million over normalized adjusted EBITDA in the prior year. New vehicle gross profit increased by $9.2 million, and new vehicle gross profit percentage increased by 10.4 percentage points to 15.8%. Used vehicle revenue increased by 301% and used vehicle gross profit increased by 113%. The number of used retail vehicles sold increased by 192% to 2,615 units. I'll now turn the call back over to Paul to discuss our outlook and strategy.

P
Paul Antony
executive

Thanks, Casey. Our strong performance in Q1 speaks to the fundamental strength and resiliency of our team and business model. Our operational playbook allows us to be ready to deliver on our growth and acquisition strategies. A few additional comments before we wrap up. First on the organization. As I mentioned earlier, we're pleased with the recent expansion of our exec team, including Jeff Thorpe, President Canadian Operations, Brian Feldman, Senior Vice President Canadian Operations Disruptive Technologies, and Lee Wittick, Senior Vice President Operations and OEM Relations.

All 3 bring deep industry and operational knowledge running centralized services on large dealership platforms and mentoring people for success and growth. They also have extensive experience in dealership M&A and integration, a skillset we will leverage as we continue to grow. With these new executives in place, contemplating our existing operations leaders, I am confident we have the team in-depth of leadership to lead the next leg of journey as we execute on our growth initiatives.

Same store. I'd like to also welcome Rhonda English who has been proposed for election to the board of directors at our annual and special shareholders meeting this afternoon. She has over 20 years of executive experience helping companies drive growth and profitability in the automotive and insurance industries. Rhonda is currently Chief Marketing Officer of CAA Club Group. And her wealth of experience in the automotive industry will be a tremendous asset to AutoCanada.

Second, I'd like to touch on our RightRide and Used Digital Initiatives. When we began this journey we had a pretty simple goal internally, which is to build a platform that would allow AutoCanada to address a significant and high growth opportunity in digital retail, in particular with used vehicles, but to do so in a sustainable and profitable way. This requires and required a level of discipline given our sense of the market, at least at the time, were rewarding more of a high growth at any price approach.

Ultimately, we felt the existing scale, resources, and incumbency at AutoCanada would enable us to stay true to our goals. While I don't feel it fair or appropriate to comment on recent volatility in the digital retail category broadly, I'm incredibly pleased with the path that we have chosen. We don't intend to address the results from these efforts in granularity each quarter, but I felt it appropriate to share a few data points which reinforced my incredible optimism about where we are and where we are going.

Importantly, our divisions have already demonstrated strong profitability in the early stages of their development. Combined, they're up 20% in same store unit volume over prior year, and roughly up 100% factoring in the new location. Profitability has risen accordingly as our RightRide locations are achieving a run rate of approximately $1 million adjusted EBITDA per location, and we have exceeded near-term expectations on our used digital acquisitions.

By taking advantage of being part of AutoCanada's existing infrastructure, leveraging scale, domain expertise, and existing industry relationships across the country, the path to maintaining and rapidly growing volumes and profitability is clear. This will include both an expansion of our RightRide footprint to nearly 20 locations by the end of the year and ultimately, 75 locations over the next 3 to 5 years.

Digital sales and marketing strategies that cater to customers wanting to purchase vehicles anywhere in Canada represent huge opportunities for both RightRide and our used digital platform. Third and lastly, some perspective on the market. Market forces are reinforcing the strategy that we have embarked upon with regard to used vehicles. New vehicle production in North America in 2020 and '21 was down by approximately 8 million units, or roughly 25% to 30% from normal levels. The lagging production will continue to ensure pent-up demand remains strong and our margins remain elevated, creating favorable selling conditions for the foreseeable future, even in the face of rising interest rates and higher gas prices.

Even when new vehicle production returns to normal, the lag of production starting in 2020 will translate to not only a shortage of new vehicles but used vehicles as well with a desirable model range for some years to come. Said differently, new vehicles are the used vehicles of tomorrow. And until that new inventory works its way through the system, the shortage and use will persist. The used retail market will likely remain highly competitive under these conditions with margins expected to be elevated structurally by the lack of supply. We expect to excel under these conditions.

Our OEM dealerships are already leading used car retailers due to our focus on increasing used sales as a key foundation to our success over the last 3 years. By establishing our RightRide and used digital divisions to create a seamless omnichannel buying experience for customers that support in-store and online requirements for used vehicles, we're also going to be ready to service a customer base that increasingly wants to initiate sales online.

AutoCanada is ready to be the market leader in used vehicle retailing against the backdrop of a strong foundation that we've built. As we've said before, we continue to be proactive and vigilant as to what the future holds with any ongoing macroeconomic impact related to COVID and the Russian-Ukrainian war. We're going to continue to build on our positive momentum and focus on our strategic growth pillars to drive industry-leading performance and enhance shareholder returns, regardless of the changing market conditions.

We're excited about what the future holds for AutoCanada and remain poised to take advantage of the disruption and consolidation in the industry, and continue to blaze a new path forward in the evolution of the company. Now I'm just going to turn it over to the operator, but before I do so, I want to thank all of our associates, customers, and OEM partners. Without you, we would be nothing. Thanks and over to you, operator.

Operator

[Operator Instructions] The first question comes from Michael Doumet.

M
Michael Doumet
analyst

Yes, my first question's on the used car business. It's a near-perfect quarter, but the GP is normalized quite a bit quarter to quarter and maybe faster than some of your peers. Just curious as to what drove that into-- whether there was some deliberate action just in terms of growth versus margin trade-offs, or if there was anything else, and maybe just a comment on what we should expect for Q2 margins in the used side.

P
Paul Antony
executive

Mike, I'll let you take that. Maybe I can touch on it after you're finished.

M
Michael Borys
executive

Nothing. I mean, again, we built up our inventory I'm thinking more for Canada, more than double where we would have been last year. So, again, good inventory, ready to sell, and do as well as we did in the quarter. Again, nothing really unusual. We went through the winter buying program, margins were relatively flat on the same store basis so we were holding, so margins are healthy, and we'd expect to continue to perform as well as we've been performing given the environment that we're in.

P
Paul Antony
executive

Yes. I'd just add to that. And thanks, Mike. I would just add to that, that, you know, obviously, we had strong supply, echoing what Mike said, and against the backdrop of other dealers across the country which probably don't stock anywhere near the level that we do, gave us a preferred position relative to our peers.

M
Michael Doumet
analyst

Okay. Great. Any comments on maybe just what we should expect on a go-forward basis in terms of margins, you know, whether it would be closer to sort of the second half of last year or Q1?

M
Michael Borys
executive

I think it's difficult to say, Michael, like at this point in time, you know, these are all uncharted waters for us. And, you know, I don't want to say COVID, but I mean, it seems like there's always something, if it's not COVID, there's a war, there's something going on. And, you know, these are kind of-- we're all learning as we go. And, so, what I would say that you can count on us to do is continually pivot and outperform the market. And, so, I don't want to necessarily predict what it's going to look like. Other than that I would say that, well, the view from straight here is that everything is very strong. [indiscernible]

M
Michael Doumet
analyst

The second question is on capital allocation. I guess I'm looking at my screen today, not much love for your stock, well, today and the last few months, and it looks like you're, you know, 80% through your NCIB in about 6 months. I certainly appreciate, you know, the desire to acquire and round out the dealership footprint. So, you know, keeping dry powder there would make sense. But, I wonder, however, if there's an appetite, you know, for share repurchases, you know, over and above the 1.7 on your NCIB and what you guys are thinking there. [indiscernible] Yes, you're more than last year.

M
Michael Borys
executive

Yes. Michael, to your point, we do have another 400,000 shares under the NCIB to complete that out. And I think we've talked about this before on previous calls. The board's always going to be considering and discussing efficient capital allocation. And that does include, obviously, when we first did the NCIB it include the NCIB discussion, and it include the merits of doing an NCIB.

Obviously, it's something that the board is going to be discussing. I think the part that we have to balance it against is the growing and robust acquisition pipeline that Paul has referred to, and the associated returns of those acquisitions. So those are the balancing factors. And obviously, we're not going to kind of settle it on this call. But those are the things that we're looking at. I know, we sometimes talk about multiples of what our shares are trading at versus what we could be looking at purchasing acquisitions. But ultimately, when we're looking at acquisitions, its return based framework. And we're going to be evaluating returns.

Those are the, I guess, the counter forces that management and the board will be discussing as we think about capital allocation.

P
Paul Antony
executive

I'll just echo what Mike's saying, you know, we're basically-- we've got a framework for thinking about SIB versus, you know, buying our own stock versus buying dealerships. And, you know, it all boils down to return on invested capital.

Operator

Your next question comes from Chris Murray from ATB Capital Markets.

C
Chris Murray
analyst

Just maybe going back a little bit, maybe a different way to ask a similar question that Michael had, is just on inventory levels. So can we just talk a little bit about where you're at on inventory levels going into Q2.

And, you know, at least on its face, it looks like they're probably, I want to be careful how I say, almost normalized levels. But is there any thought about some of the price versus volume trade-off on just transacting and giving you like, maybe more opportunities, go forward to maybe gains, either maintenance or F&I and other lines of business? Or is it something that you think that the demand is such that, you know, you can price pretty aggressively and get all the ancillary along with it?

P
Paul Antony
executive

You know, so if you don't mind, I think I understand your question, but actually, I'm not 100%. So you're basically saying, are we trading off volume or growth [indiscernible] Is that how you were framing it?

C
Chris Murray
analyst

Yes, and given that you seem to have fairly healthy inventory levels, does it make more sense maybe you'd be less aggressive on price, increasing volume, but you bring in more ancillary with it [indiscernible].

P
Paul Antony
executive

You know, I personally think that we're killing it. So I wouldn't change a thing with what we're doing right now. Like we're outperforming the market. And so unless somebody else has a better view on how to operate and I think I-- my hat's off to the team. They're managing our inventory in a very, very disciplined way when prices on used they are going up, new are almost impossible to come by. I think it's very, very important that we evaluate every piece of inventory go forward.

And frankly, I wouldn't change a thing unless there's something going on that I don't know about, but I would say the results speak for themselves.

C
Chris Murray
analyst

Okay, and then maybe just a couple of cleanup questions, Mike, just a new facility for real estate, can you give us a bit of an explanation about what the thought process is there, and then I guess there are just been thinking about capital allocation a little bit. There have been some properties that you've sold, and then are leasing back. This has created an opportunity for you to maybe repurchase those properties, and then finance them through this new facility, and how do we think about how this facility gets used on a go-forward basis?

P
Paul Antony
executive

Mike, if I could just say something for a second?

M
Michael Borys
executive

Oh, sure.

P
Paul Antony
executive

Chris, a big thing, just to keep in mind and to everybody listening on the call, when we took this company over 3 and a half, well, 4 years ago, I can't believe it 4, but when we took it over 4 years ago, we started selling real estate, because if we didn't, we actually wouldn't be taking this call today. We did it out of necessity, and so one of the levers that we didn't have that most other dealers have as having a real estate division, and so if you think about the traditional dealer, they have an opportunity to sell new cars, they have an opportunity to sell used cars, they have a parking service business, and they have a real estate division.

For us, we didn't have the luxury of having that real estate division. So as you know, we ended up selling a bunch of our real estate to REIT, to finance our operation so we can actually put money back in the till to survive until today. Fast forward to today, we now have the ability to be to have optionality. We can buy real estate when it's available, and when it makes sense for us, and we can buy it using what Mike and the finance team have come up with, this non-recourse finance.

And that gives us the ability to be in the real estate market, which are wonderful returns as opposed to leasing at standard cap rates. And the reason we didn't do that before was that the leverage that we've put on a building and that we would acquire would then affect and potentially have a flying too close to the sun, and potentially kind of breaching our covenants.

And so what Mike and the team at finance have come up with were these non-recourse loans that are basically just financing the property but actually don't actually affect the operation. For us, that's just a terrific opportunity to get into real estate business where we weren't before. That said, we'll be very, very disciplined and by the way, also, we'll also be able to match to the rhythm of many of the sellers because many of the sellers want to stay today in the real estate business, but they want to sell their opco and sell the operations.

And so we have the ability to do both, all, either. We can buy the real estate, we can lease the real estate, we can buy the operations. We can do many things. To your other question, are we able to buy back some of our real estate that we sold off? We are looking at all of those things. In fact, we bought one of our properties back in Maple Ridge from the REIT. They were kind enough to allow us to own that property again. We put that back in the portfolio. Mike, I'll let you elaborate on that, but it's something I'm actually quite passionate about.

M
Michael Borys
executive

Yes, I know. I mean, that's 95% of the answer. Like ultimately, it gives us more flexibility, to Paul's points, about some of these sale lease-back arrangements that allows us to trade-off 7.5% financing for 3% to 4% financing. It allows us to preserve our revolver, to be focused on acquisitions for dealerships by having this separate, what we'll call the real estate or non-recourse line. It's over and above our revolver, so it does give us more capacity, it does not impact, not that we have to be worried about covenants right now, but it doesn't impact our covenants.

It's just a whole different form of debt and it just gives us all the flexibility in the world to look at deals differently to, you know, as Paul was indicating, we can take the real estate or we don't have to take the real estate, but we now have another tool that we could use to finance that real estate. So the intent is to use it more. We've covered off Maple Ridge, as Paul's indicated, and as we make more acquisitions that include real estate, the intent would be to roll it into this non-recourse facility.

I say facility, but each individual property will have its own mortgage, but we got to think about it as a REIT, currently $100 million car [indiscernible] of our-- or in addition to the revolver. But again, we expect that number is going to be increasing as we make amendments with the credit facility.

C
Chris Murray
analyst

Okay. And just to be clear, like the intent is to use it for internal purposes only, it's not intended to build a portfolio to either create a new standalone entity or anything like that?

P
Paul Antony
executive

Correct.

M
Michael Borys
executive

Yes. Correct.

C
Chris Murray
analyst

Okay. And I just want to clear. And then, Mike, one last question maybe, or whoever wants to take this one. Just, I know you don't report and adjust the DPS number, but in the quarter there were a couple of parts in the finance line that I think were tied to the debt transactions that you did in February. I guess a couple of quick questions for you, just, I'm assuming that those are just one-and-done type transactions.

I'm guessing they were non-cash or tied to the actual repayment of the structure, and then were there any tax impact on any of those loan repayments or the derivative of retirement?

M
Michael Borys
executive

Yes, so these are one-and-done, it all has to do with-- I think in Q4, we actually tried to alert the market because we didn't want to take credit and we booked a $24 million gain in Q4 associated with the upgrade that we had from S&P. So it all had to do with the embedded derivative and the ability to refinance at a lower rate. At that point in time, that $24 million gain brought the overall gain for the year to $29 million, and all we did in Q1 is we reversed it.

Once you actually do the financing, we switched to a rate of 8.75% paper with 5.75% paper, the accounting just simplifying it, but it just reverse itself so there's nothing on our balance sheet in terms of an embedded derivative. It's valued as nil because we actually actioned the financing so we call it one-and-done.

The only cash component that is an element of it within, not to $29 million, but the loss on the derivative associated with the debenture, and that has to do with the premium that we would have paid because it was a 2-year non-call, so we would have been paying a premium to pay out the debenture, so that's been captured as cash. Tax, I'm going to claim ignorance right now because I'd be guessing if I gave you a number on tax.

C
Chris Murray
analyst

Okay, thanks. I'll leave it there.

M
Michael Borys
executive

[indiscernible] but for sure, it's a one-and-done and yes, it’s the thing you have to be adjusting out of our results in Q1.

Operator

Your next question comes from Luke Hannan from Canaccord Genuity.

L
Luke Hannan
analyst

I wanted to start with F&I, if I can, and specifically what you guys have been able to do in Canada, $3,700 gross is pretty impressive. I'm just trying to think maybe 3, 6, 9 months down the road when we do have some rate hikes may be a more cautious economic environment, what sort of underlies your conviction, not the gains that you've been able to demonstrate in that line in particular over the last 14 quarters, how you'll be able to retain that given that economic backdrop.

P
Paul Antony
executive

It's actually interesting that we're talking about it. We actually debated this on Monday and we talked about how the products in F&I, would we as a team buy them ourselves? And the consensus was that we would, and frankly, the products and services that we're selling within our F&I portfolio actually make a lot of sense. Specifically when the skew is more towards used vehicles, but just generally it's high value. And so it's not like we're selling something that people don't need, we actually believe in the products and services that we're selling through our organization, and frankly, we believe that we're giving good value.

We have strong conviction around our F&I numbers. And frankly, so we've been surprised every quarter with what Michael [indiscernible] and his team have been able to do. We remain confident that those levels are very sustainable.

L
Luke Hannan
analyst

Okay. And then if we switch gears and look at the cost profiles in both Canada and the US, it does look like employee costs were up modestly relative to Canada and that sort of helped drive the OPEX versus the grosses to be a little bit higher in Canada. Was there anything structural there, and should we see that gap sort of close over time?

M
Michael Borys
executive

I think all of that is for Q1 in Canada. Now US kind of blew it out of the water. They made tremendous gains year over year in the quarter, but in Canada we would've probably had some one-off costs, so not costs that are going to be continuing, and that kind of took employee costs a little bit higher, but not costs that would be continuing moving forward.

Again, we've always indicated we should continue to be below that 50% employee cost, actually closer to 48% employee cost as a percentage of gross. As we continue to complete acquisitions, you're going to get that leverage from the [indiscernible] cost profile of the company that we are right now, and that we are geared towards acquiring it, we are geared towards growing to over double our size. So, you're going to get that leverage as we continue with acquisitions, but I'd say Q1 there was probably a couple of things that were one-off cost that would've taken it up a little bit.

L
Luke Hannan
analyst

Okay. Thanks for that. And last one maybe before I pass the line. I think it was mentioned last quarter that proforma normalized, adjusted EBIDTA was around $262 million for the year. You guys considered that to be appropriate floors of sort of how you're thinking about 2022 and we've seen that number come up with this quarter as well. Is that still the right way to think about it, that you see it as the floor and there's still lot to do in terms of synergies and other areas where you can take cost outs or-- like how are you thinking about that?

M
Michael Borys
executive

No, I guess I want to be cautious of not continuing to give rolling guidance over the quarter. So the guidance we gave in March was valid. We absolutely believe and I said we're going to beat the number, I think Paul said we're going to kill the number. We're certainly doing better after the first quarter. We're feeling confident. So, again, I'm going to hold back from providing a rolling guidance on updated proforma numbers because we're going to keep on giving updated proforma numbers, but to Paul's point, the environment that we're in right now with pent up demand, the lag in production, everything that is happening, elevated margins whether it's in the US or in Canada, I mean this is a great environment for us and we think we will excel and we think we will do extremely well. We're bullish on the year.

Operator

Your next question comes from Krista Friesen from CIBC.

K
Krista Friesen
analyst

More of a high level question here, just wondering how you think about growing consensus around an economic slowdown and rising rates and how you see that impacting demand over the near term here, or if you just think that the inventory shortage will completely mask any deterioration in demand.

P
Paul Antony
executive

Listen, that's a great question. That's probably the right question and I've flip flopped on this myself, but I've kind of come to a pretty good view on what I-- well, I believe it's a good view, or maybe no self-reflection here, but I would say that look, for the last 2 years, year over year there's roughly 6 million cars every year for the last 2 years that haven't been sold in North America.

This year it seems like we're going to have another year of 6 million cars that have not been produced for the market. And so that's roughly 18 million cars. And so I think that in order for the OEMs to actually hit that threshold and actually make up for the lost vehicles in the system, they're probably 2.5 years as they ramp back up because it's not going to happen overnight, even if they came back to a normalized number of 17 or 18 million units, and that's on the new car side, right?

And so that's why we've been getting into the used car business, and what we've all found is that as a result of us selling used cars as a substitute for new cars, the price of used cars have gone through the roof and almost approaching the price of new vehicles, very little discounting. What the other conclusion that we've come to, and I used to toggle back and forth between this thinking, you know, maybe in 3 years, we're in the golden age of automobile for the next 2 to 3 years.

But if you think about it, the new cars that haven't been built also means that there's used cars that also won't be built because those new cars are not in the system, and so the one input that I didn't have, when I was kind of thinking that we had a 2 to 3-year good run ahead of us, was that, you know, I contemplated that new cars were going to probably reach back to, you know, where we were in 2018-2019, that why I call it 25.

And so right now, used cars are at high prices as a substitute for new cars, because that's what we're doing. In our view and my view particularly, used cars will be at high prices in the next 2 to 3 years because there are no used cars. They never got made, just like the new cars, and so the way we're thinking about this is that we potentially have a 3 to 5-year run before things really, really return to pre-pandemic levels of 2017, 2018, 2019. At least that's the conviction we're getting right now.

K
Krista Friesen
analyst

Okay, thanks. That makes a lot of sense. And I was just wondering on the mix side, we're hearing from the OEMs that they've been prioritizing their higher-margin vehicles, their luxury vehicles, the pickup trucks, and presumably, as supply chain headwinds subside, we'll see mix normalized. Do you think that kind of opens up a whole other segment of a customer that hasn't really been able to participate in the market, or do you think that'll just shift from those people will move to the used market and maybe they'll come back to the new market?

Paul Antony Like again, it's all speculation, I would just say that what I am seeing, what we are seeing is that some of the highest demand is in, in the United States, 4 door sedans which has not happened in like years, and that likely has something to do with gas crisis. And so in Canada, we're not necessarily seeing that but I can't really comment on what people might do in the future. We'll operate to the rhythm of the market. And if people want to buy SUVs, we'll sell them SUVs, and if they want to buy pickup truck, we'll stock pickup trucks. We'll be very versatile.

Operator

Your next question comes from Maggie MacDougall from Stifel.

M
Maggie MacDougall
analyst

So first, this is hopefully an easy housekeeping question. I'm wondering if you can let us know the percentage of the used units that you've retailed either in Q1 or on Trailing 12 months basis that actually came through online channels?

P
Paul Antony
executive

That came through online channels, meaning that it originated online?

M
Maggie MacDougall
analyst

Yes, or were sold online, however you want to frame it. I'm just wondering what your web traffic is like.

P
Paul Antony
executive

Look, our web traffic I would say that most of our customers come to us, they begin their journey online. And so you could say that, you know, 90% of our vehicles are likely start online, whether it's a return customer that's shopping elsewhere, and actually going to the dealership and shopping our store and then making their way into the store, but I would say that it's easily 90% of customers, actually, start their journey online.

As far as complete, a full deal online without going into the dealership, like, I don't think-- frankly, I would say that even the online players that are fully online, still touch the person over the phone, and so nothing is truly all online contrary to what you might, you know, be reading or thinking.

M
Maggie MacDougall
analyst

Yes. Second question is on in parts, inflation and how you price jobs. So if I was to come in to get my car fixed, I'm paying whatever market rate for a part for my vehicle, I'm assuming. I'm wondering when you look at your inventory for parts and service and collision repair, and you look at inflation in automotive parts, if there's a read through there that we should be thinking about, alongside whatever demand increase we get as Canada has reopened subsequent March.

P
Paul Antony
executive

So I would say for the brands, if we're, for example, at our Chevy store, or our Ford store or Mercedes Benz store, we have published guidance to price jobs according to OEMs, and we live and die by those pricing methodologies. As far as pricing of, you know, brakes or tires and so on and so forth, there's a suggested retail price, so there's trade that you buy the part for.

For example, if at our Ford store, were putting on a set of brakes on a Chevy pickup, which might happen, we would actually price the part, we would get trade pricing and charge out at suggested retail and, you know, we know how many hours that we should be quoting according to many of the shop manuals, and we would actually price everything according to that. And so really it's set in stone, I guess I would say. And as they raise the price of parts, we raise the cost that we pay and we charge accordingly.

M
Maggie MacDougall
analyst

Okay, great. So it's good inflation passes through on parts. The other question I was going to ask is just around labor availability. We have seen unemployment rates go pretty low in Canada and they were already quite low in the US, but pretty low in Canada. Subsequent Q1 ending, wondering if you've had any difficulty in terms of retaining or attracting talent across the organization.

P
Paul Antony
executive

So, look, it's something that we've been focused on. I think we've talked about for the last 2 to 3 years, and we've got a recruiting engine that that's what we do, is recruit talent, train our technicians properly. We're actually growing that muscle and learning how to do that more so [indiscernible] as we have more stores. One of the areas of opportunity within AutoCanada is really parts and service.

It's probably some of the hardest stuff to do and probably some of the last things that we haven't really optimized. It's what I would call low-hanging fruit right now. Getting back to the other question, Maggie, that you asked around labor, you were asking the collision space. And I've also been watching some of the collision consolidators as well, specifically the public that are not doing as well because they're beholden to the DRPs and insurance companies.

The one thing about AutoCanada is that we're fixing cars safely and properly, not to say that other shops aren't, but we're very, very focused on fixing the cars the way that were built, the way the OEM prescribes versus using aftermarket salvage parts. And so usually when people come to our shops, again, we have prescribed pricing and set labor rates that we actually know that we have to charge, and so it's a lot different than necessarily operating for a DRP where they might have to cut corners on the way they fix a vehicle because they might not necessarily have the margin to be able to fix it the way we would safely and properly.

M
Maggie MacDougall
analyst

Okay. Thank you. And then just one final question. We'd like to understand better your exposure on the new light vehicle side given that you've been traditionally overweight more domestic brands. The context of the question is with regards to the lockdowns in Shanghai, he poor condition, and the likelihood that that's really going to start to impact supply of goods from Asia into North America in July, August, September timeframe this year, I'm wondering if having a larger sort of concentration in domestic new light vehicle brands may be somewhat an advantage through the summer and fall, just given the supply chain issues that I think are coming down the line.

P
Paul Antony
executive

Yes, listen, that's a great insight and we think that's likely the right way of viewing it and that people in market, if you're in market there are a function of people that will need to buy regardless of market and they'll pick brands that are actually on the ground versus having to wait, and so we think that's a bit of a competitive advantage for us.

Operator

Ladies and gentlemen, there are no further questions at this time. Please proceed.

P
Paul Antony
executive

I can't believe we've just put another quarter behind us. We really appreciate everybody's participation in the company. We're very excited with the management team. In fact, we've got-- from the operation side, we're all sitting in the same room right now. We've got the entire [indiscernible] team and it's actually exciting. You know, we've spent the last several days together.

Really, really exciting and I'm actually super energized and really, really pumped about what the future can bring for this company. So, I look forward to talking to everybody at the next conference call and meanwhile, we'll do some investor calls I'm sure along the way and really appreciate everybody's patience and partnership, so thank you very much. And until we meet again.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. Now could you please disconnect your lines.