AutoCanada Inc
TSX:ACQ
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AutoCanada Inc
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Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AutoCanada Third Quarter 2020 Earnings Call. [Operator Instructions]I'd 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 and implementation of the go-forward plan. 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 statements. AutoCanada does not assume any responsibility for the accuracy and completeness of 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 SEDAR and on our website within the Investor Documentation and filings section.I'd now like to turn the call over to Kevin McPherson, Director of Finance. Please go ahead.
Thank you, James. Good morning, everyone, and thank you for joining us on today's third quarter results conference call. For today's call, I'm joined by Paul Antony, our Executive Chair; Mike Borys, Chief Financial Officer; Michael Rawluk, President of our Canadian Operations; Tamara Darvish, President of our U.S. Operations; and Peter Hong, our Chief Strategy Officer. We released our Q3 results after the market closed yesterday. A copy of our results is available for download on our website. For today's call, we will be discussing the current state of the business, discussing the financial results and providing an update on both our Canadian and U.S. segments. With that, I'd like to turn it over to Paul.
Thanks, Kevin. Before we get started, I'll provide an update on our progress on recent initiatives. I'd like to start out by saying that I'm blown away with the performance in Q3. We achieved a historical quarter and the actions and measures taken to strengthen the business model and position the company for top-tier operating performance were evidenced in these results.Specifically, we reported an all-time record for quarterly revenue, exceeding $1 billion while gross profit also reached a record high of just over $179 million. This strong revenue and gross profit performance, combined with a much improved cost profile, led to a normalized adjusted EBITDA of $54.8 million, which excludes the Canadian emergency wage subsidy recognized in the quarter. This was also a record high and an improvement of 68.7% as compared to Q3 2019. The foundational work that has been accomplished since this management team took the reins just over 2 years ago, along with the strategic initiative we took early in the second quarter in response to COVID-19, focused on mitigating losses, managing inventory, reducing costs and preserving liquidity, allowed our organization to be well-positioned to deliver exceptional operating performance in Q3. Unparalleled execution, along with a strong recovery in vehicle sales across North America, provided us the opportunity for a complete business model to demonstrate strong capabilities and produce excellent results across all operational segments. As a result of all these actions taken to strengthen the business and the learnings we take with us from going through this pandemic, we feel better positioned than we've ever been in the history of the company to deliver industry-leading performance.I'll now touch on some operational highlights for the quarter. In Canada, Michael and his team continue to operate at a high level and deliver industry-leading results. For the seventh consecutive quarter, we've outperformed the Canadian market as same-store new retail units increased by 3.4% compared to a market decrease of 4.3%. Our used vehicle segment was also a key driver of the success in Q3 2020. Same-store used vehicle gross profit percentage increased to 9.9% as compared to 5.4% in the prior year. Our used to new retail units also -- ratio also increased to 0.86 from 0.72, the eighth consecutive quarter of year-over-year improvement and our trailing 12 months used to new retail units ratio improved 0.93 compared to 0.74 last year. Suffice it to say the go-forward plan and our retool business model has afforded us the privilege of delivering real strength through diversification, driving these strong results. In the U.S., we saw a marked improvement in performance. Tammy's initiative to focus on profitability and improvements to the expense structure, along with the easing of government restrictions imposed during Q2 of 2020 and improved market demand contributed to the U.S. platform reporting Q3 2020 adjusted EBITDA of $4.7 million, and that's an increase of $3.2 million over last year. This represents our fifth consecutive quarter of normalized adjusted EBITDA year-over-year improvement. With Tammy's initiatives continuing to gain traction, we're in line with where we plan to be with this business, and we're well-positioned in the U.S. going forward. Speaking to the Q3 balance sheet, we continue to successfully manage cash with a focus on preserving liquidity and our financial flexibility, reducing net debt by another $43 million in the quarter to $81.4 million. We generated strong free cash flow on a trailing 12-month basis of $178 million compared to $29.2 million last year. Lastly, achieving these results would be impossible without all of our fearless employees in Canada and the U.S. who have worked their b**** off and delivered excellent performance under challenging conditions. Thank you so much. We entered 2020 on a very solid footing. We remain well-prepared to face the current environment. I'll come back to speaking more about our business model and strategy in my concluding remarks, but for now, I'm going to turn it over to Mike. Mike?
Thanks, Paul, and good morning to everyone on the call. Over the last year, our focus has been on improving our financial flexibility, our level of debt and debt leverage. And with the progress we've made on stabilizing and strengthening our balance sheet, operations have been able to focus on what they do best, sell cars. With Q3, we had another impressive quarter where we substantively reduced net debt to $81 million, an improvement of $121 million from the end of Q3 2019. Free cash flow in the quarter was $53.4 million or $1.88 per share, which compares free cash flow of $54.8 million in the prior year. Notably, this was our fifth consecutive quarter of positive free cash flow. And on a 12-month trailing basis, free cash flow was $178 million. This compares to 12-month trailing free cash flow at Q3 2019 of $29 million, a positive swing of approximately $149 million. The key point, which we're immensely proud of against the market backdrop is that we have demonstrated solid consistency in our performance over these past 5 quarters, both from an operations and balance sheet perspective.Lastly, our net debt leverage based on the last 12 months to Q3 improved to 1.6x as compared to 3.7 in the prior year. Our lease adjusted net debt leverage improved to 4.9x at the end of Q3 compared to 5.5 at the end of 2019. This puts us well ahead of our target net debt leverage of 2.5 to 3.0x and just about on our target lease adjusted leverage target of 4.5. I'll end my [ PTO ] as I have with the last couple of quarters. We don't know what the future holds for us with COVID-19, but we feel we're very well-positioned with the actions taken to weather any outcome. With that, I'll turn it over to Kevin to discuss our results.
Thanks, Mike. At the consolidated level, revenue came in over $1 billion, an increase of $35.2 million or 3.6%. Gross profit came in at $179.4 million, an increase of $28.7 million or 19%. Adjusted EBITDA came in at $61.1 million, which was an increase of $28.6 million from Q3 2019, Normalizing for wage subsidies recognized in the period, adjusted EBITDA is $54.8 million, an increase of 68.7% versus the prior year.In our Canadian segment, total retail vehicles sold came in at 17,264, an increase of 2,009 units or 13.2%. The Canadian segment generated revenue of $912 million increase of 4.7% versus the prior year. Gross profit was $161.4 million, an increase of 20.1%. Normalized adjusted EBITDA increased to $50.1 million, an increase of $19.2 million. This is normalizing for the $6.3 million Canadian wage subsidy recognized in the quarter.In our U.S. segment, revenue was $105 million, which did decrease from Q3 2019 by 5.1%. Gross profit was $18 million, an increase of 9.7% over Q3 of 2019, which was driven primarily by previously implemented cost control measures. Adjusted EBITDA was $4.7 million, an increase of $3.2 million from 2019. I will now turn the call over to Michael Rawluk to discuss our Canadian operations.
Good morning, everyone, and thanks for joining us today. I want to start with a sincere thank you to all of our team members and our dealers and head office support team who continue to deliver outstanding results. We would also like to reinforce our appreciation to both our OEM and strategic partners for the continued and significant support they have provided us during these unprecedented times. Some key highlights of our record-setting quarter include the following. Overall, Canadian operations revenue was $912 million, an increase of 4.7%. We outperformed the Canadian market for the seventh consecutive quarter. Same-store new retail unit sales increased by 3.4% compared to the market decrease of 4.3%. Further adjusting to exclude brands represented by a single location, the Canadian new vehicle market declined by 9.6%, whereas AutoCanada increased by 3.6%. AutoCanada same-store used retail unit sales increased by 22.8%. The same-store used to new retail units ratio increased to 0.86 in the quarter from 0.7, which is the eighth consecutive quarter of year-over-year improvement. Same-store new retail vehicle gross profit percentage increased to 8.2% from 7.5%. Same-store used retail vehicle gross profit percentage increased to 10.9% compared to 6.8%.Same-store finance and insurance gross profit increased 14.9%, setting another all-time record and solidifying our leadership in this area. On a per unit basis, we finished the quarter at $2,521 per vehicle, up 3% or an additional $74 per unit. Same-store gross profit increased by 17.1%, and our gross profit percentage increased to 18.2% from 15.3%. Sales and gross profit performance were supported by our continued focus on OEM relationships and exceeding performance expectations in areas such as sales volume and customer satisfaction. Adjusted EBITDA for our Canadian operations increased 82.1% to $56.3 million, an increase of $25.4 million compared to the prior year. Excluding the Canadian wage subsidy, normalized adjusted EBITDA improved to $50.1 million, which is an increase of 61.9% year-over-year. We are extremely happy with these results. Furthermore, our strategy to focus on enhanced resiliency will ensure that AutoCanada will emerge from the current environment much stronger and more agile. There are many questions around the sustainability of the strong results and margin levels going forward. At this point, we're not prepared to take a position on this, but we can say for certain that we have fundamentally improved upon our processes and structure both before COVID-19 and after, and these measures have resulted in sustainable structural enhancements to our business model. The used margins we realized in Q3 were not an accident. Our export division was able to capitalize on market conditions, specifically the increased price index on pickup trucks in the U.S., which were at a premium in Q3, being able to realize substantial returns when opportunities like this arise, was the vision when export was created as part of the go-forward plan. In addition to the significant contribution from export, our renewed focus on used retailing and valuation strategies amplified used vehicle margins. The conditions to yield used vehicle margins as high as 10% may not be sustainable in the long term, but with continued focus on retailing used vehicles, partnered with our ability to use our export division as a hedge in the marketplace, future margins should be stronger than what we've historically shown. Other items relevant to our performance include increased demand for used vehicles, which was a key driver for improvements in used vehicle gross profit and gross profit percentage. Strong demand drove wholesale and auction prices to record highs as the supply of used vehicle inventory tightened. We believe the increased demand was driven by reduced demand for public transportation, lower interest rates, pent-up demand following closures in April and March as well as the entry of first-time buyers into the market. We don't see any issues with being able to meet consumer demand for used vehicles, and we continue to take advantage of our current dealer network to facilitate the buying and selling of specific inventory that is in high demand. Growth in new vehicle retail gross profit and margin expansion during Q3 was driven by a combination of stronger-than-anticipated market demand, tightened inventory supply, OEM supported programs, and low interest rate financing options for consumers. Although inventory levels are currently tighter than we have seen historically, this has not impacted our sales pace to date. As I read this note, we have over 100 days supply of new vehicle inventory, which is more than enough to sustain our sales pace. So although lighter than normal, we are not worried about inventory levels. Both new and used retail vehicle sales benefited from our evolved digital marketing strategy and the related increase in website traffic along with conversion of Internet leads, also known as iLEADS. The ability to quickly adapt to the shift in consumer buying needs and preferences, while increasing our digital presence, positioned us to capture a greater share of both in market and first-time used vehicle buyers. Compared to last year, we have seen a 2-fold increase in website traffic and Internet leads, which has supported rebounding sales figures as lock down measures ease. Both the current -- beyond the current quarter, we expect the strategies developed over the past year to strengthen our position in the Canadian retail digital space and allow us to maintain elevated levels of website traffic and iLEADS moving forward. In addition to our digital marketing strategy, optimizing our sales processes, ensuring appropriate inventory supply and the additional realignment actions we took during Q2 and Q3 2020, we are well-positioned in Q4 to compete and win.In closing, we continue to see good momentum across our operations in the fourth quarter as. Our dealership and head office teams continue to strengthen our business model, we believe that the go-forward plan is near 100% effective. Our progress is evidenced by the many all-time records set in the quarter, including multiple dealership net profit records, and first place brand positions in almost every region where we have representation. We are immensely proud of the AutoCanada team for delivering the biggest quarter in our history and cannot thank everyone enough for their strength and grit. Tammy, over to you.
Thank you, Michael. Good morning. I'm pleased to report our strong third quarter results in the U.S., demonstrating significant progress in our path toward profitability. I'll begin by speaking directly to the results in the quarter. Adjusted EBITDA increased by $3.2 million or 203.5% to $4.7 million as compared to $1.6 million in the prior year. These results are a reflection of our continued focus on cost management and profitability and improved market demand, all of which contributed to improved results for the U.S. platform. Other notable improvements in the quarter included new vehicle gross profit increased by $1.9 million and new vehicle gross profit percentage increased to 5.9%. The used vehicle revenue increased by 1.7%, and used vehicle gross profit percentage increased by 4.8%. Due to strong market demand and competition in-sourcing used vehicles, there was a thinning of used inventory supply available to our U.S. operations. Correspondingly, the number of used retail vehicles sold decreased compared to the prior year and the used to new retail ratio decreased to 0.57 as compared to 0.63. While retail volume declined compared to prior year, the adoption of both a more efficient retailing process and our ability to leveraging pricing opportunities driven by limited inventory supply, offset the reduced volumes and resulted in the increase in gross profit by 65.4% to $3.4 million. F&I gross profit percentage decreased to 94.2% as compared to 95.4% in the prior year. The decrease in gross profit percentage is largely due to the increase of lower interest rate customer finance options offered by both our OEMs and financial institutions. Bank reserves and other financing income are typically lower on low interest rate financing and will compress gross profit and gross profit percentage. We continue to focus on improving our formal financing and insurance structure and process certifications. The formal structure and training resulted in a shift in what we consider core products and ensures that products being sold drive customer retention by providing value for our customers. It's also noteworthy that these improvements were made even though we closed and seized operations at 2 of our franchises in the fourth quarter last year. We are taking disciplined actions to continue to improve upon our business model, including building on our recent successes, implementation of better training and related processes, particularly in our used vehicles and finance and insurance segments, a continued shift in culture towards a focus on the customer versus focus on the unit sale, continued strict discipline over all operational expenses, and finally, a focus on the optimization of our fixed operations. We are also improving working capital management and leveraging successful Canadian operational initiatives.I, too, would like to express my deep appreciation to all of our dedicated team members and our valued business partners and OEMs who continue to be the key to us for delivering on our U.S. performance, and I'm really honored to be able to continue to lead our team forward. Now back to you, Paul.
Thanks, Tammy. And again, thanks to our fearless, hard-working AutoCanada team members in Canada and the United States who are really the drivers of our vision. I'd also like to say thank you for all the continued support from our strategic partners, financial institutions, OEM partners and investors as Michael and Tammy have as well. As unimaginable as this period would have been just 1 year ago, I'm thrilled with the progress and continued momentum made against the priorities we've set for ourselves at the start of 2019, which have truly set us up for resiliency in the current environment. We continue to see strong operational improvement and related traction in Canada and the U.S., and we're generating strong free cash flow even in a challenging environment. These accomplishments speak to the strength of our operations, the foundations of our business model, and our disciplined focus on cash management, strengthening the bedrock of AutoCanada with a strong balance sheet and consistently outperforming the market, allows us to pivot and pursue an acquisition and innovation strategy. Speaking to M&A, we continue to advance our pipeline of strategic acquisition opportunities that optimize our brand and geographic diversification as evidenced by our 2 recent acquisitions. The first is Auto Bugatti, a BMW Mini certified collision center located near Montreal, Québec. This location allows us to leverage our existing dealerships in Québec, including providing support to our 2 BMW Mini dealerships in Montreal. And the most recent one, which we just closed a couple of weeks ago is Autohaus Peoria, a luxury dealership in Peoria, Illinois, with 4 franchises: Porsche, Audi, Mercedes-Benz and Volkswagen. This strategic acquisition further bolsters our presence in Southern Illinois and is highly complementary to the company's existing operations in Bloomington, Illinois, as both dealers are in close proximity to each other and serve similar luxury brand communities. More significantly, Autohaus Peoria represents the first Porsche dealership under AutoCanada management, and we look forward to further developing our relationship with Porsche. We also continue to refine and develop our digital retail initiative that we announced last quarter to drive diversification in vehicle sales. As you know, we've been focused on used vehicle sales for some time as part of the go-forward plan and our progress there, which has been echoed by the experience of our U.S. peers, has provided incredible validation to both this end market and our ability to execute. Our experience in Q3 reinforced the validity of the strategy across every metric, where our used business continues to accelerate. And as Michael mentioned, we saw very strong growth in web traffic and iLEADS, which support this initiative. We see this opportunity, providing us not only with the Canadian first-mover advantage in the category and a wealth of domain expertise, but the ability to build a digital retail operation with unit economics that should allow us to scale rapidly without meaningful cash burn. That's a notable difference from some of the digital retail players in the United States. And as we view ourselves as a platform for acquisition, we suspect this could apply to our strategy down the road as well. We continue to believe the digital retail strategy will be a foundational driver of performance for years to come and another example of AutoCanada leadership in the markets we serve. Realizing I might sound a little bit like a broken record, we still don't know what the future holds at this point with COVID-19. So we remain focused and disciplined. The battle training we received over the last 2.5 years and more specifically, the last 9 months force us to remain flexible with our business model and adapt to hopefully the new temporary new normal. We're confident that with our nimble and proactive focus, we'll be an industry-leading performer in any environment and that our complete business model, our balance sheet and our tireless team will position us to emerge even stronger as the economy recovers.Now I'll turn it over to the operator for any questions. Thanks a lot.
[Operator Instructions] Our first question comes from the line of Michael Doumet with Scotiabank.
Fantastic quarter, guys.
Thanks, Michael.
Thank you.
On gross margin, that was a great performance. And thanks for some of the comments on the sustainable factors there. But presumably, we will see GP moderate at some point. I wonder, I mean, are we seeing that already in Q4? Or do you expect that sometime next year? And when we all settle out here, should we expect used vehicle still to be the largest driver to the structural margin improvement?
Okay. Good question. The fundamentally, like, well, maybe I'll back up and say the primary question from this quarter for us and probably a lot of people is about margins and sustainability. Fundamentally, the way we see this quarter is validation for 2 years of hard work and sacrifice. That's what it is for us. It's validation that for the large automotive platform model, it's validation for building out the complete business model and it's validation for our original thesis. Now with regards to used cars, our original goal was 50 used vehicles per dealership per month. That's what we set out to do almost 2.5 years ago and that's exactly what we did this quarter. We did 50 retail used vehicles per dealership per month in the quarter. So how can we or anyone be surprised at that number. Again, everything for us is more validation than surprise. We look at new vehicle sales, we outperformed the market again. If you look at all the data from DesRosiers, there was no pent-up demand for used -- or from new vehicles, but rather return to normal sales. When you look at inventory levels, we have no issues going forward. And if anything, our fixed operations business continues to lag, which validates further upside to the business. So everywhere we see -- everywhere we look, we see opportunity and continued runway. Now will margins moderate a little bit? We'll see, but with October already under our belt, which represents 41% of Q4, I can say with complete confidence that anyone betting on this being a one-off quarter is going to be disappointed.
That's great color, Mike. I guess on the theme of sustainability or OpEx is the other piece of the margin expansion story, right, and given the scale of the profit improvements across the industry, a few U.S. peers have issued OpEx guidance that suggest that the improvement is structural. I mean do you share that view? And can we assume a baseline of OpEx as a percentage of GP for AutoCanada?
Well, I think I'll answer. If anyone else has a color, they can jump in later. But from my perspective, there is definitely structural improvements to the business. These are sustainable, the business has changed for us. Again, it didn't really change different than what we originally set out to do, but the current environment accelerated everything for us. It accelerated our expense strategies. It accelerated our shift from traditional marketing and sales to online sales. It accelerated our entry into the used vehicle space so basically, the way we look at it from an operations standpoint is that we were -- everyone was head down working hard for 2 years on the go-forward plan, trying to accomplish this end goal. And then over the last 6 months, we've had this incredible period of acceleration. And so now when we look at where we are, we believe we're where we wanted to be, but it's not a surprise where we wanted to be. It's -- again, I keep saying this, but it is absolutely true. When you go back to our original thesis on paper 2.5 years ago, what's going on right now is just simply validation for what we set out to do.
Got you. Maybe just 1 quick one for the U.S. Complementary acquisition there looks good. Does it bring the U.S. platform sufficient scale to perform in line with the Canadian business?
So the U.S. acquisition, we view that as basically strategic and kind of the way we think about it more than anything for what we paid for it. We view it as kind of like an open point where we didn't have to build. And so it allowed us to get into Porsche and kind of expand our Central Illinois footprint where we -- we're just in Bloomington and now kind of connecting the dots between Bloomington and Peoria. And so for us, more than anything, it was strategic. To say that it's going to perform at the same level as Canada. Again, we're -- our goal is -- and we're meeting that. We're exactly where we expected to be starting to get profitable there. I think it's still TBD on how ultimately the U.S. will perform as compared to Canada, but it's definitely as expected so far.
Got it. And then open point that you didn't have to build, does that mean you bought it at book? Is that how I should think about it?
I would just say that it was an immaterial acquisition for us. And so it really it was opportunistic and strategic.
Our next question comes from the line of Luke Hannan with Canaccord Genuity.
Congrats on a really strong quarter. Tammy, just a quick one for you to start off, I guess. If you look at the cost structure between the U.S. and Canada, it looks like U.S. is still a little bit, I guess, behind Canada. Is there any -- do you see any more levers to pull to get the cost structure, I guess, that's more in line with Canadian operations? And is there a lot of visibility for that?
Thank you. Yes. I mean we're continuing to work. Always cost structure is just a continuous improvement model. We began about a year -- a little over a year ago, really focused on any controllable expense that we have in all of our operations. And we've come a long way. But it is a continuous project, but we definitely have steadfast focus on that -- it's tie on our radar. And as demonstrated with this being our fifth consecutive quarter of year-over-year gains on a EBITDA.
We kind of view it as crawl, walk, run, and we're still in the -- between crawl and walk phase of the U.S. where -- as I said, we were excited actually in Q1 of this year to really blow it out this year for our shareholders and our team and obviously, the pandemic hit. And so we're not blaming it on that. We still did well even in the face of the pandemic. And so it's hard to quantify exactly where we're at. We're definitely on track, though.
Got it. That's helpful. And then, Paul, one for you. Just wanted to follow-up with your remarks at the end of the prepared remarks where you talked about the digital retail initiative. Unit economics would be, I guess, better than some of your publicly traded peers in the states. Can you, I guess, elaborate on what would be driving that difference while the unit economics would be more profitable for you guys here in Canada compared to the states? Is it just the competition elements or if you could expand there, that would be helpful?
I just think that our domain expertise in Canada. So I don't want to get into the exactly how we're going about doing this. It will be evident here within the next month or 2. And I think we intend to basically put on show what we've been building in the background. And -- but I -- obviously, to us, we look at the U.S. and the U.S. peers, where in the digital retail space, they're losing hundreds of millions of dollars, and that's not an option for us. And we think we've come up with a pretty elegant way to take advantage of our size and scale, our geographic diversity, our brands that we have and the growing reputation that we're building across the country to build up this platform, and we think that, that's going to supercharge this business.
Got it. Last one for me, and then I'll pass the line. And this one probably for Mike Borys. When we think about CapEx for next year, obviously, when the pandemic set in this year, you guys have to trend some of your cap expenditures and CapEx is included as part of that one. When we think about next year, obviously, with the balance sheet being where it is right now, should we think of it returning to more of a normal cadence? Should we expect some catch from maybe some projects that we've been able to execute this year? How should we think about that?
Sorry, those are the kinds of things that we'll be going through currently as we look at our budget and our capital budgeting process. So again, I kind of come back to reminding everyone around the last 3 years being approximately $29 million between maintenance and growth capital. We noted in this quarter, with the recovery that we were seeing and the strength of our balance sheet, we began picking up our capital spending. So we're certainly on different footing, and we'll take a look at all the projects and complete all of that planning over the next month or so as we complete our budget. So more on that, I guess, as we move into 2021.
[Operator Instructions] Our next question comes from the line of Chris Murray with ATB Capital Market.
So maybe going back to the gross margin performance. Just trying to understand a couple things. Q2, you guys did take some write-downs on used inventory. Does any of that kind of play into what you saw in Q3 in any way? And if you don't mind, can you give us an idea of how much the wholesale performance impacted the used margin?
Yes. Sorry, Chris, it's Mike. I'd probably comment on the margin -- or sorry, the vehicle write-downs we took on used and I'd kind of say the same thing about new. We're -- the appropriate write down is to get everything back to fair market value or mark-to-market at Q2. And then if I think about -- I know you were asking about used, but if I look at new, we did better on the margins not because we took the write-downs, but because of some of the things that Michael had already spoken to and what we had in the MD&A and that OEM incentives to retail customers, the strong demand ultimately allowed us not to necessarily discount as much on the front end, and that helped our front-end margins. I would say the same thing on used in terms of that we're pricing was. And then as to Michael's point, the export component helping along on the used car margins.
And how much would that have contributed if you think of the total margin in the quarter?
We actually -- that the -- I don't have a hard number. I'm going to -- actually I won't quote a number. We've got some stuff here, but I'll kind of hold off on putting out a specific number on export.
Yes. So -- but it's fair to think that you had really, really strong performance. So that we'll be skewing the number upwards, call it, unusual quarter?
Yes, yes.
Okay. And then on the other side, operational costs, when -- I guess should we think of Q3 as -- from an operational cost perspective as a clean quarter? I know there's been some things around some rent relief that you had earlier in the year and things like that. And is this sort of the way to think about a baseline for the business today? And along those -- you had talked about some deferrals and stuff like that, maybe some catch-up. How do you think that, that's going to impact your Q4 cash flows?
Yes. We pretty much worked through most of the deferrals. There's still -- there's going to be a little bit of material deferrals kind of coming into Q4, but for the most part, materially, kind of we've worked through that through Q3. So I don't see that as being an impact on Q4 working capital or cash flows. And then in terms of OpEx overall, again, I think it's against the market backdrop, I think it was a regular quarter, but again, we're going to be cautious in terms of calling out sustainability of all of the line items, but for what we've called out on used car margins and the higher-than-usual demand and where the pricing index went, we'll kind of keep coming back to what Michael has said in terms of the model keeps on getting stronger. We're continuing to push to go forward model in terms of Canada as well as the U.S., and that's what we'll hang our head on, and we're just going to keep letting our performance kind of speak for itself as we move through the quarters.
Okay. But again, just to clarify, there was nothing -- like there was no, like, lack of rent booked in the quarter or anything like that?
No, no, the -- yes, there was nothing unusual that would have popped our numbers and -- on operating expense other than what we highlighted on the Canada emergency wage subsidy, which we separately called out. Yes, there was nothing unusual that would have popped our numbers.
Next question comes from the line of Matt Bank with CIBC.
Could you share maybe a bit of the differences in how the U.S. market and Canada works with regards to inventory? It seems from what I read, it seems to be more of a challenge for U.S. dealers to source inventory, and I'm wondering if that's something about Canada or about your group specifically within the country?
I think -- well, definitely it's a Canadian thing, and I don't have the numbers in front of me right now, but if you look historically, Canadian dealers as a whole, carry a much higher days supply than their U.S. peers. So for example, if you look at, I believe, the AutoNation's Q3 report, they were calling out about 43 days supply for new vehicles, where, as I said, we're over 100. And so I don't think that's unique to AutoCanada, but it would be unique to Canada. And a lot of that is structural. The country is large. We don't have as many OEM provided compounds and warehousing and storage as they do in the U.S. So because there's so much space in between dealers, our -- we have to become more wholesalers than the U.S. dealerships that can pull from regional wholesale hubs, and they tend to be more retailers when it comes to stocking inventory. So in this specific situation, this has played to our favor. Is that helpful?
Yes. That helps a lot. And then a couple of follow-ups on things that were touched on earlier. So first, on the cross-border wholesale in used, I'm not sure if you tend to study this, is that an opportunity that continues into Q4?
Yes. So the opportunity does continue. So when people talk about used vehicle prices, it's really important to segment. Its not used vehicle prices, it's pickup truck prices. And all the data that you could see from all the auction, all the wholesale data from ADESA or Manheim will show you that. And so the used pickup prices in the states are at all-time highs because of the low supply of new vehicles. And again, I'll reference the previous comment about AutoNation calling up 43 days supply. And that situation is not going to change anytime soon for the U.S. So as long as pickup trucks are in high demand in the U.S. and as long as currency is roundabout where it is, then our export division should continue to perform.
Okay. And then the last one. On digital, you talked about kind of cracking profitability. I guess -- I know it's competitive, but is there anything you could share in terms of how you are able to grow that business profitably while, as you say, a lot of other larger players lose money doing it? And also, when would you expect the digital business to be it financially material?
Paul? I think that's a question for Paul. So maybe we'll, maybe he stepped away momentarily. We can come back to it.
Our next question comes from the line of David Ocampo with Cormark Securities.
My first question is on the collision center acquisition and the strategy going forward. When we think about future additions, how should we frame the balance between greenfields and acquisitions? Is it more tilted towards acquisitions initially to get your -- to better presence in the marketplace. And then as that develops, you roll out your greenfields?
So David, like high level, our strategy for collision is really to take advantage of our existing dealership network. And so we're really focused on the OEM certified business and where we have clusters of dealerships, we want a collision center. And that's just along with the theme of the go-forward plan, which is just building out the complete business. So we have many locations where we have 3 or 4 dealerships and no collision center right now. And we will have a collision center. So we'll start with acquisition. And if we can't find a suitable acquisition target, we're prepared to build.
Okay. That's great. And then my last one here. Paul mentioned in his opening remarks about ongoing discussions with other OEM brands to get a presence with them here in Canada. Are there any restrictions from the OEMs for you guys to own them in a public entity? Or is that argument just completely gone now?
Well, I'll take that unless Paul jumps in, but what I can tell you is that we're performing. And the OEMs have taken note of our performance not only are we performing, but we're aligning our business to their scorecards and their objectives. And I think that if you talk to any OEM that we represent right now, they would say that we're significantly better business partner than they were going to ask. And I can say with a lot of confidence that other OEMs that we don't currently deal with are taking notice of that. And so we don't see any hard lines anywhere, and that is something that we continue to work on. Yes. I will say, too, that Paul's having technical difficulties. So that's the issue. I apologize on his behalf.
And there are no further questions in queue at this time. I'd like to turn the call back over to Mike Borys.
Okay. Great. Thank you. Again, we really appreciate everyone's time today, and look forward to providing an update on Q4 in March of next year. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.