Uni-Select Inc. reported its financial results for the third quarter ended September 30, 2021, with revenues and profitability both up.

“We are very pleased with our third-quarter results which reflect ongoing operational improvement and continued sequential recovery in our business. While revenues increased 7.8% to $426.1 million, adjusted earnings(1) more than doubled to $17.2 million, or $0.40 per basic share, driven by significantly higher operational results in all three businesses and materially lower borrowing costs,” stated Brian McManus, Executive Chair and Chief Executive Officer of Uni-Select.

“This strong profitability combined with active cash management translated into free cash flows of $37.0 million which we used primarily to reduce our total net debt to $314.9 million, its lowest level since the second quarter of 2017, and we ended the period with a leverage ratio of 2.34x.

“Our near-term focus remains to align the three businesses with our vision for the future while identifying growth opportunities. We expect 2021 to be a good year overall but remain cautiously optimistic for the fourth quarter and next year as we manage through the ongoing challenges related to supply chain shortages and labour costs. With our new leadership team firmly in place, we are positioning the business for the long term and see many opportunities ahead in all three businesses,” concluded Mr. McManus.

THIRD QUARTER HIGHLIGHTS (Compared to the Third Quarter of 2020):

• Consolidated sales of $426.1 million, up 7.8%, driven by organic growth(1) of 3.9% primarily resulting from increased demand and prices as global markets continue to recover from the COVID-19 pandemic;
• EBITDA(1) increased 14.8% to $35.3 million or 8.3% of sales from $30.8 million or 7.8% of sales in 2020, as a result of improvements in gross margin and a reduction in operating costs; Adjusted EBITDA(1) increased 25.1% to $42.3 million or 9.9% of sales;
• Basic EPS of $0.28, up $0.17; Basic adjusted EPS(1) of $0.40, up $0.21 due to disciplined operational performance and lower interest costs as a result of the credit facility amendment completed during the second quarter of 2021; and
• Total net debt to adjusted EBITDA(1) ratio of 2.34x, driven by strong operating results, continued focus on working capital management and capital discipline.

THIRD QUARTER RESULTS

Compared to the Third Quarter of 2020:

Consolidated sales of $426.1 million for the quarter increased by 7.8%, mainly driven by organic growth of 3.9% and favourable Canadian and British currency fluctuations. Consolidated organic growth continued to improve in the quarter reflecting the global market recovery.

The Corporation generated EBITDA of $35.3 million for the quarter, which was impacted by special items of $5.4 million for severance and write-down of property and equipment, as well as by stock-based compensation of $1.6 million mainly due to the Corporation’s share price appreciation. Adjusted EBITDA and adjusted EBITDA margin increased by $8.5 million and 1.4% respectively to $42.3 million and 9.9% of sales, from $33.8 million and 8.5% of sales in 2020. This performance was largely driven by additional vendor rebates in all segments, as well as price increases in the Canadian Automotive Group and the FinishMaster U.S. segments. Furthermore, the quarter benefitted from scaling benefits linked to organic growth and a streamlined cost structure. These elements were, in part, offset by a higher level of expenses during the current quarter of 2021, as the third quarter of 2020 benefitted from government assistance programs, lower labour costs due to temporary employee lay-offs, reduction of working hours and the temporary closure of company-operated stores in response to the reduced demand effects of the pandemic. The current quarter of 2021 also had higher short-term incentive expenses, due to operational performance.

Net earnings for the quarter increased by $7.4 million to $11.9 million and adjusted earnings increased by $9.3 million or 117.9% to $17.2 million from $7.9 million in 2020. This performance is primarily attributable to increased sales, better scaling on operating costs as a result of disciplined operational performance, lower interest costs as a result of the credit facility amendment completed during the second quarter of 2021, lower debt levels and a lower effective tax rate.

Segmented Third Quarter Results

The FinishMaster U.S. segment reported sales of $174.9 million, organically increasing by 7.0%. This segment reported organic growth for a second consecutive quarter, stimulated by the global market recovery. EBITDA was $14.0 million for the quarter, compared to $6.5 million in 2020. Adjusted EBITDA and adjusted EBITDA margin improved by $7.9 million and 4.2% respectively to $15.9 million and 9.1% of sales, from $8.0 million and 4.9% of sales in 2020. This performance was driven by sales volume, increasing gross margin and improving fixed cost absorption, lower payroll costs, as well as the consolidation of company-operated stores. During the same quarter in 2020, this segment was affected by inventory obsolescence and higher professional fees. Starting in the third quarter of 2020, this segment has reported improved adjusted EBITDA in each quarter over the comparable quarter in the prior year, both in dollar and as a percentage of sales, as a result of measures put in place and a broader market recovery.

The Canadian Automotive Group segment reported sales of $144.5 million, an increase of 5.3% supported by the appreciation of the Canadian dollar and the impact of business acquisitions added to the network over the last twelve months. Organic growth declined by 1.0%, which is explained by exceptional performance during the third quarter of 2020, as pent-up demand was released abruptly due to the easing of lockdown restrictions. This segment reported EBITDA of $16.2 million for the quarter, compared to $19.0 million in 2020. Adjusted EBITDA and adjusted EBITDA margin decreased by $2.2 million and 2.3% respectively to $16.8 million or 11.6% of sales, from $19.0 million or 13.9% of sales in 2020. The variance is mainly related to government payroll subsidies included in the third quarter of 2020, representing $3.3 million or 2.4% of sales. Excluding this element, adjusted EBITDA margin increased by 0.1% and is mainly explained by additional vendor rebates and price increases, which were partially offset by higher short-term payroll incentive expenses in line with the operating performance of the segment, as well as by foreign exchange losses.

The Parts Alliance U.K. segment reported sales of $106.7 million, an increase of 12.8%, mainly driven by a strong British pound against the US dollar during the current quarter of 2021 and organic growth of 5.6%. Organic growth of the U.K. segment continued to improve during the quarter and sales were in line with 2019. This segment reported EBITDA of $10.8 million for the quarter, compared to $8.7 million in 2020. Adjusted EBITDA and adjusted EBITDA margin increased by $2.2 million and 1.0%, respectively, to $11.0 million and 10.3% of sales, from $8.8 million and 9.3% of sales in 2020. This improvement is attributable to additional sales volume, increasing gross margin due to higher vendor rebates and improved fixed cost absorption, as well as certain payroll savings. Starting in the third quarter of 2020, this segment has reported improved adjusted EBITDA in each quarter over the comparable quarter in the prior year, both in dollar and as a percentage of sales.

NINE-MONTH PERIOD RESULTS

Compared to the Nine-Month Period of 2020:

Consolidated sales increased by $107.1 million or 9.7% to $1,212.6 million for the period, mainly driven by organic growth of 5.4% as global markets continue to recover from the COVID-19 pandemic, the favourable fluctuations of the British and the Canadian currencies and business acquisitions. This performance offsets the adverse impact of fewer billing days and the expected sales loss from the consolidation of company-operated stores.

The Corporation reported EBITDA of $60.6 million for the period, which was impacted by a change in estimates of $20.6 million related to inventory obsolescence in the FinishMaster U.S. segment, special items of $21.9 million, mainly for severance related to changes to executive leadership, as well as stock-based compensation of $6.2 million primarily as a result of the strong appreciation of the Corporation’s share price. Adjusted EBITDA and adjusted EBITDA margin increased by $41.9 million and 2.9% respectively to $109.3 million and 9.0% of sales, from $67.4 million and 6.1% of sales in 2020. This performance resulted from improved gross margins due to additional volume rebates and price increases, a streamlined cost structure, as well as an improved fixed cost absorption related to organic growth. Furthermore, the results of the nine-month period benefitted from lower bad debt expense of about $7.0 million or 0.6% of sales. These elements were partially offset by a higher overall level of expenses in relation to the sales recovery and by higher short-term payroll incentives due to operational performance, while the same period of 2020 benefitted from actions in response to the reduced demand effects of the pandemic. For the same period last year, the Corporation benefitted from governmental assistance programs that were offset by additional obsolescence.

The Corporation reported a net loss of $8.1 million for the current period compared to a net loss of $26.5 million in 2020. Adjusted earnings for the current period increased by $37.8 million to $33.2 million from an adjusted loss of $4.6 million in 2020. This improvement in earnings was driven by increased sales, better scaling on operating costs as a result of disciplined operational performance, as well as lower interest costs as a result of the amendment to the credit facility completed during the second quarter of 2021 and lower debt levels.

Segmented Nine-Month Period Results

The FinishMaster U.S. segment reported sales of $504.3 million, an increase of 1.1%, driven by organic growth of 2.1%, or $10.5 million, in part offset by a lower number of billing days. This segment reported EBITDA of $15.9 million for the period, which was impacted by a change in estimates related to inventory obsolescence, special items and stock-based compensation, totalling $23.9 million. Adjusted EBITDA and adjusted EBITDA margin increase by $15.3 million and 3.0% respectively to $39.8 million and 7.9% of sales, from $24.5 million and 4.9% of sales in 2020. This performance is attributable to additional vendor incentives and price increases, cost reduction initiatives, including workforce optimization, company-operated stores consolidation, diligent control of overall discretionary expenses and a partial reversal of bad debt provision due to improved collection. During the nine-month period last year, this segment was affected by additional inventory obsolescence and bad debt expenses.

The Canadian Automotive Group segment reported sales of $404.9 million, an increase of 12.3%, driven by the appreciation of the Canadian dollar and organic growth of 3.8%. This segment reported EBITDA of $45.2 million for the period, which was impacted by special items and stock-based compensation. Adjusted EBITDA and adjusted EBITDA margin increased by $11.9 million and 1.9% respectively to $46.7 million and 11.5% of sales, from $34.8 million and 9.6% of sales in 2020. This performance is mainly attributable to additional vendor rebates and price increases, while the nine-month period of 2020 was affected by large foreign exchange losses. These elements were partially offset by an increase in short-term incentive expenses, due to the operating performance of the segment. Furthermore, the nine-month period of 2020 benefitted from government payroll subsidies, which partially offset additional bad debt expense, representing a net amount of $2.3 million or about 0.6% of sales.

The Parts Alliance U.K. segment reported sales of $303.4 million, an increase of 23.3%, mainly from organic growth of 14.6% and a strong British pound against the US dollar during the current period of 2021, exceeding the unfavourable variance in the number of billing days and the expected sales loss resulting from the consolidation of company-operated stores. This segment reported EBITDA of $26.3 million for the period, which was impacted by special items and stock-based compensation. Adjusted EBITDA and adjusted EBITDA margin increased by $15.6 million and 4.1% respectively to $29.5 million and 9.7% of sales, from $13.9 million and 5.6% of sales in 2020. This improvement was driven by additional sales volume, certain payroll savings, as well as improved gross margin from higher vendor rebates and price increases. During the nine-month period of 2020, results were affected by additional reserves for inventory obsolescence and bad debt, which were in part offset by governmental occupancy subsidies, for a net negative impact of about $1.6 million or 0.7% of sales.

PARTIAL REPAYMENT OF TERM LOAN
In August 2021, the Corporation voluntarily repaid $35.0 million of the $150.0 million outstanding under the term facilities, without penalty. Following this partial repayment, the aggregate amount available under the credit facility was reduced to $465.0 million.

PARTIAL CONVERSION OF DEBENTURES
In August 2021, CAD$15.0 million of the convertible debentures of the Corporation were converted into 1,105,380 common shares at a price of CAD$13.57 per share, which reduced the aggregate principal amount of issued convertible senior subordinated unsecured debentures to CAD$110.0 million.

REBRANDING ACCROSS THE PARTS ALLIANCE U.K. NETWORK
The Parts Alliance U.K. segment, which traded locally under thirteen historic brands acquired through The Parts Alliance, has officially rebranded as GSF Car Parts, a brand with an established presence in the U.K. market. This will allow the segment to leverage a single trading name across its 170 company-owned stores for the first time. Operating nationally, as one brand, will enable processes streamlining and will ease the implementation of various improvements across the business more quickly and efficiently.

CONFERENCE CALL
Uni-Select hosted a conference call to discuss its third-quarter results for 2021 on November 12, 2021, at 8:00 AM Eastern.
A recording of the conference call will be available from 11:30 AM Eastern on November 12, 2021, until 11:59 PM Eastern on December 12, 2021. To access the replay, dial 1 888 390-0541 followed by 399374#.
A webcast of the quarterly results conference call will also be accessible through the “Investors” section of the Uni-Select website at uniselect.com where a replay will also be archived. Listeners should allow ample time to access the webcast and supporting slides.

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