CA - AutoCanada Inc. (AOCIF) Q1 2023 Earnings Call Transcript
2023-05-04 21:51:08 ET
AutoCanada Inc. (AOCIF)
Q1 2023 Earnings Conference Call
May 4, 2023 11:00 AM ET
Company Participants
Paul Antony - Executives Chair
Azim Lalani - CFO
Conference Call Participants
David Ocampo - Cormark Securities
Chris Murray - ATB Capital Markets
Michael Doumet - Scotiabank
Tamy Chen - BMO Capital Markets
Krista Friesen - CIBC Capital Markets
Luke Hannan - Canaccord Genuity
Maxim Sytchev - National Bank Financial
Presentation
Operator
Good morning. My name is Collin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AutoCanada First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
Listeners are reminded that certain matters discussed in today's conference call are answers that may be given to questions and ask and could constitute forward-looking statements, which are subject to risks and uncertainties related to AutoCanada’s future financial or business performance. Actual results could differ materially from those anticipated in the forward-looking statements. The risk factors that may affect results are detailed in AutoCanada’s information form and other periodic filings and registration statements and you can access these documents at SEDAR database at sedar.com.
I'd like to remind everyone that this call is being recorded today, Thursday, May 4, 2023.
I'd like to introduce Mr. Paul Antony, Executive Chairman of AutoCanada Inc. Please go ahead, Mr. Antony.
Paul Antony
Thanks for that, and good morning, everyone, and thanks for joining on today's call. On the call today, we have Azim Lalani, our new Chief Financial Officer. I'd like to begin by welcoming Azim, who joined us March 27 following Mike Borys retirement. Azim is a seasoned executive and we're very pleased to have him as part of our management team.
We released our 2023 first quarter results last night after market close and you can access the news release, as well as our complete financial statements and management discussion and analysis on our website at autocannada.com. Our news release, financial statements, MD&A have also been filed on SEDAR. Today's call, we're going to discuss results for the period ended from March 31, 2023 and provide a general business update and then we'll open up the call for questions.
Throughout the first quarter, demand for AutoCanada's products and services remain strong, with our company achieving another revenue record and strong same-store sales growth. At the same time, new vehicle supplies remain constrained for most brands and consumer, preferences have shifted to lower price point vehicles, which caused both new and used gross profit margins to decline relative to historically record levels in the first quarter of last year.
So despite these headwinds, we saw a significant used car volumes continue. We've been building out our subprime and near prime muscle for the last five years and as consumers trade down, we're flexing this muscle, which helped us to grow our used car sales despite shifting consumer behavior. Additionally, demand for F&I parts and service, and collision repair was strong, with these divisions benefiting from higher used car sales.
During the first quarter, we recorded sales of $1.5 billion and that's a Q1 historical record. Adjusted EBITDA of $45 million and net earnings of $8.4 million. Sales grew 15% when compared to the same period of 2022, including a $226 million contribution from 27 acquisitions completed over the past two years.
Our same-store sales, which does not include acquired revenue and excludes foreign currency exchange, increased by 11.7% in the first quarter. Notably Canadian same-store new vehicle unit sales growth was 4.3% during Q1 and that's the first meaningfully positive growth in a quarter in almost two years. This is again a positive confirmation that new vehicle supply continues to come online.
Our Canadian same-store used vehicle units sold increased by 3% in the quarter, with the ratio of Canadian used to new retail units sold increasing to 1.72 from 1.5:1 last year. During the last 12 months, AutoCanada sold 31,171 new retail vehicles and 53,809 used retail vehicles in Canada. That's a ratio of 1.73:1. As you'll recall, when this management team came on board in 2018, this metric was 0.62:1 on an annual basis in Canada.
We're pleased with the trajectory of this ratio over the five years as this is a key focus metric for us given the used markets unconstrained nature which gives us a wide open runway to continue to grow our share of the used vehicle market in the future. Increasing used retail volumes also gives us more opportunities to generate higher margin parts and service growth through vehicle reconditioning and to utilize our best-in-class F&I department all of what – which saw continued strength in the quarter.
The U.S. division retailed 1,168 new units during the quarter. However, new gross margins declined 53.5% versus the first quarter of 2022. Recall that last year, the shortage of new vehicles resulted in U.S. dealers selling new vehicles for prices above suggested retail price, a practice that is not allowed in Canada and created outsized profitability in the U.S. new vehicle sales across the industry. This year, we have had a more typical start to the year for Chicago dealerships, with sales expected to pick up in Q2. Used to new ratio increased slightly to 1.7 -- 1.87 from 1.83.
Parts, service and collision repair experienced good demand with same-store sales growth of 3.1%. This translated into healthy profitability in the segment as customers hold on to their vehicles longer, requiring more service needs. Parts, service and collision repair gross profit increased by 7% and gross profit percentage increased to 54%.
F&I also had a very strong quarter against the backdrop of Q1 2022 being one of the best quarters ever in the industry of the car business. Same-store F&I revenues increased by 5%. Gross profit increased by 4.8% and gross profit percentage increasing to 93.7%. These results reflected are selling more product per deal.
Consolidated gross profit percentage was 16.6% down from 18.4% in the first quarter of 2022. The decline in gross margin was a result of a shift in consumer preference to lower price point vehicles compared to our inventory mix was leaning towards higher priced vehicles. The decline in gross profit margin due to this dynamic was partially offset by healthy profitability in both parts, service and collision, and repair and F&I divisions.
Operating expenses before depreciation for the first quarter were $212 million or 77.6% of gross profit compared to $194 million or 73.4% of gross profit in ‘22. The increase as a percentage of gross profit resulted from lower gross margins as discussed as well as an increase of $12.4 million in floor plan, financing cost, due to higher interest rates on these facilities and the inclusion of recently acquired businesses to our platform, which will be optimized in the coming quarters.
Adjusted EBITDA was $45 million, a decrease of 27.6% over the same period in ‘22. However, adjusted EBITDA per diluted share decreased by only 14.5% to $1.83 from $2.14, reflecting the 4.7 million shares repurchased during 2022, which has benefited our per share performance in this more challenging environment.
I'm now going to turn the call over to Azim to discuss our financial position. Azim?
Azim Lalani
Thank you, Paul. Good morning, everyone. As of March 31, 2023 we had $185 million outstanding on our $375 million revolving credit facility. Other debt also consisted of $350 million in seven year senior notes and $32 million in non-recourse mortgages on three dealership properties, as well as $1 billion in floor plan, which supports our inventory.
We also have unrestricted cash on hand of approximately $115 million. Excluding our floor plan facilities and our lease liabilities, our total net funded debt as of the end of Q1 was $465 million compared to $460 million at December 31.
Our total net funded debt to EBITDA covenant ratio of approximately 2.25 is below our 4.0 covenant limit. This compares to our total net funded debt ratio of 2.0 at December 31, 2022. During the trailing 12 months ended, March 31, 2023, we generated $181 million in free cash flow compared to $94 million for the same period in 2022.
During the quarter, our B plus credit rating was affirmed by our rating agency S&P. We continue to have access to over $300 million of liquidity under our revolving facilities and cash on hand as of the end of March. As we move through the coming quarters and continue to allocate capital, we expect the leverage ratio to remain consistent.
Our effective fixed rate portion of total debt includes swaps -- including swaps is approximately 40%. We will be focusing on opportunities to materially increase that portion from current levels over the coming quarters to add greater stability to the business given the current rate environment.
Our basic weighted average shares outstanding were 23.5 million shares as of March 31, 2023, which is a 13% decline compared to 27.1 million shares as of the end of the first quarter of last year. For the trailing 12 month period ending March 31, 2023, AutoCanada purchased and canceled approximately 3.8 million shares for a total cash consideration of $108 million, under NCIB and SIB at an average price of approximately $28 per share. We will continue to use share buyback strategically when appropriate, while maintaining a solid balance sheet and prioritizing high value growth objectives.
I will now turn the line back over to Paul to discuss the outlook.
Paul Antony
Thanks, Azim. Consumer preference for lower price point vehicles have so far persisted during the quarter. For context during Q1, our Canadian GPU for use was $1,151 (ph) versus $2,596 (ph) in the prior year, representing a significant decrease of first quarter variable gross profit in the Canadian operation. During Q1, we made a conscious decision to reconfigure inventory and what we are now seeing is that GPU has started to recover into Q2.
Our focus over the past five years has been to establish industry leading, new used, subprime, F&I, parts, service and collision repair businesses plus a significant real estate portfolio that support our operation. We now have multiple levers of sustainability built into our business model. As a result, we've meaningfully insulated ourselves from market volatility, so we can continue to focus on our long term growth objectives across all of our divisions. Conservative balance sheet, management and disciplined capital allocation decisions with a continued focus on best-in-class performance across all segments remain our priority.
Subsequent to the end of the first quarter, we announced the acquisition of Premier Chevrolet Cadillac Buick GMC, both the dealership and Collision Center in Windsor, which is a top performing Canadian Cadillac store and brings our store count to 83 franchise dealership locations across 28 brands, three used vehicle dealerships, one used vehicle auction business supporting the Used Digital Retail Division in 12 RightRide locations and 11 stand-alone collision centers within our group of 27 collision centers.
On May 1, we also acquired London Auto Collision. After acquiring Burwell Collision in London, Ontario in July of 2022, there has been a significant increase in volume at the shop such that it's now operating at full capacity. We acquired London Auto Collision on May 1 to handle the work overflow and continue scaling our collision operation in that market.
Our M&A pipeline is healthy and the pace of inbound inquiries from potential sellers remain really robust. We are beginning to see multiple compression in the private market due to normalizing operations and operating conditions following 2022, which was without a doubt the best year that the automotive retail industry has ever experienced. We intend to be very prudent in our capital allocation decisions.
Also subsequent to the quarter, we announced our expanded partnership with Kijiji, which furthers our online retail strategy. Kijiji has 11.8 million unique visitors per month, with 1.4 million for sale by owner cars, listed for sale every year on their marketplace and a consumer base that is presently unserved by finance and insurance products. It's too soon to provide guidance on the potential financial contribution from this initiative. However, we believe that it is a unique untapped opportunity that is now exclusive to AutoCanada.
That concludes our prepared remarks. At this time, I'd like to turn the call over to the operator to open up the call for questions-and-answers.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] One moment for your first question. And your first question comes from David Ocampo from Cormark Securities. David, please go ahead.
David Ocampo
Thanks. Thanks for taking my questions, everyone. Paul, maybe we could start on the US side of the business. In the MD&A, you guys called out focusing on quality over volume in the U.S. Just curious why the shift and can we expect that shift to happen in Canada as well?
Paul Antony
So with the U.S. we've learned a lot. Last year, that business created roughly over $20 million of earnings. And last year, what I would tell you, it was an anomaly. And so, if you go back to normal times, I don't want to say normal, like, when we bought it, that business was losing a lot of money in Q1. What we've come to realize is that normally in the U.S., in Chicago, January and February are usually months that those businesses lose money. And then March usually make up pretty close to January and February. And then, by April, you're kind of getting to escape velocity and getting profitable and that's precisely what's happening. And so what I would say is, things are turning into a more normal business in the United States versus what we had previously.
David Ocampo
Got it. And if I take a look at the used margins down south, they're quite a bit stronger than Canada. Just curious what's driving that and is it simply just a difference in inventory or market?
Paul Antony
And I'll talk more about this in Canada as well. So maybe just to kind of -- I'm sure, we're going to get this question from a lot of people about margin. Depending on the mix of inventory, because of the rising interest rate environment that we operate in, people that might have been funded on a vehicle for $50,000 and now qualify only to be able to buy a vehicle for $40,000. And so our dilemma internally is, do we compress margin and just roll the car and reconfigure our inventory to kind of match it with market demand or do we just hold on to inventory and try and sell it at the same premium we were before.
And so we made a conscious decision in Canada to go ahead and lower the price of the vehicles to make sure that people finance and actually move more cars. And you'll see that with our number. We had a historical March, I think we beat our July last year as far as volume goes by a significant number and we also had a record first quarter for used car sales. And what I'll point out is, we actually sold more cars in the quarter in Canada with roughly 3,300 less cars in stock. I'll come back to that in a second. In the United States, the configuration was a little bit different. So we had more of a cleansed inventory. And so we were able to probably hold margin more than in Canada.
David Ocampo
Got it. That makes a lot of sense. And then maybe my last one here is on the OpEx as a percentage of gross profit, obviously, that increased in the quarter. But how should we be thinking about your cost structure on a go forward basis? Do you think there's a lot of low hanging fruit out there that you can trim the cost to get your that profile closer to U.S. peers?
Paul Antony
So what I would tell you is, there's a lot of fruit. I don't want to say that, it's low hanging. This is the hard stuff. And this will happen over the course of the next one to two years. As we start this journey, there's a lot of opportunity for us. And so what we decided again internally was to move volume. We're really focused on moving volume because we can attach more F&I to those cars.
We can generate more parts and service repairs and actually just get more customers through our doors. And that's of the highest priority for us. And so we did that last -- as I said last quarter and part of the job also, we're very conscious to our expense structure. We know what needs to be done. But as I said, it's a journey and it's going to take -- it will take time. And so you'll see that kind of bearing fruit over the next year to two years, to even three years because it's going to be a longer process.
David Ocampo
Okay. That's perfect. Thanks a lot, Paul. I'll hop back in the queue.
Paul Antony
Yeah.
Operator
Your next question comes from Chris Murray from ATB Capital Markets. Chris, please go ahead.
Chris Murray
Yeah. Thanks, guys. Good morning. Paul maybe going back to the margin question. I think you made the comment that your GPU was a lot significantly lower. I guess a couple of parts to this question, I mean, one, are you able to get supply of call it lower value vehicles at the OEM, because the OEMs for a long time, were avert of been focusing on the best margin vehicles, which also had a tendency to high have a higher ticket price. So just wondering about your incoming supply if you have to rotate maybe to smaller vehicles or less expensive vehicles.
And then two, is there anything that you have available to you other than the F&I to bring that GPU up over the next couple of quarters?
Paul Antony
Yeah. So it's actually -- it's pretty simple, when the average -- so the impact of the interest rate and I don't want to blame things on the interest rate, but the impact of the interest rate is over $240 of increased interest cost per month for a consumer on average year-over-year. And so that money has got to come from somewhere and that came in compression on the GPU on our vehicles that we had in stock. And so it's up to us, as I said earlier to David, it's enough to us to reconfigure our inventory. It's not that we were overpriced on our inventory anymore. It's actually having inventory that's less in demand than lower priced cars.
And so for us, it's all about reconfiguring our inventory mix buying lower priced cars that I don't know if you've heard the term before, but booking out. And so when we refer to booking out like, what a car books out at, you're basically talking about how much will the bank loan against that car given the current interest rate environment and the credit profile of that customer. And so with more expensive cars, they don't book out as attractively because they're priced out of the market with a higher interest rate environment. And so that actually gets us. So hopefully that answers part two of your question.
So then the question is, where we're going to buy the cars from. In order to sell more cars in order to keep up that volume. I don't want to get into this in a meaningful way on this call, but we did sign a deal with Kijiji. They have 1.4 million active sellers that are selling cars in market in Canada to active buyer and there's an opportunity for those cars repurchased and those are kind of right in our wheelhouse.
Chris Murray
Okay. And then on new supply or -- sorry, on new supply, are you getting -- are you able to get or the OEMs producing enough of those lower cost cars for you?
Paul Antony
I think that the OEMs are producing whatever they can that they can produce it. And so we're starting to see volumes come back online. They're still not where they need to be. A lot of the import brands are not necessarily there yet. But on the new car side, I think we take, we get and we sell it as it comes. And so I don't think that's the issue. I think that's my opinion. I think the key for us is make sure we have a pipeline of strong, solid used vehicles to sell into this market.
Chris Murray
Okay. Fair enough. And then the other question is just around overall inventories and how you're dealing with those. I know we've been struggling a little bit and certainly, I guess there's a bit of a rotation going on with inventories now. How are you feeling going into the spring selling season? And then we saw the April numbers which were a little bit soft. I think they're 5% across the industry. How are you folks feeling about your inventory position as we kind of start to pick up this year?
Paul Antony
So I'll talk about both new and used. So if you'll recall on our last earnings call, we talked about one of our issues, which was getting vehicles reconditioned in a timely fashion. I think we said that the inventory or the industry standard is like 10 to 14 days and we were at 41 days. Originally when the guys got here that’s where the latest management team got here, and took over the helm were like 48 days. So we sold more used cars this quarter and I keep on coming back to this. We sold more used cars this quarter with 3,300 less vehicles than we had a year ago, which helps our floor plan but we're also now able to get these cars reconditioned to the front line in 27 to 28 days.
And so that's like a 13 day increase over last quarter. And as that number gets better, we're able to turn cars faster, so in other words, doing more with less. So on the used car side, we feel really good about it. On the new car side, again, we're kind of beholden to the OEMs and whatever they produce. We -- I think we're doing a really good job moving the inventory, keeping it profitable with what we have. And how do I feel about it? I feel like it kind of is what it is and we did well last year and we'll continue to do well this year. I'd say the U.S. is still struggling to find inventory and so we're really focused on used cars there.
Chris Murray
All right. Thanks. I'll leave it there folks.
Paul Antony
Thanks.
Operator
Your next question comes from Michael Doumet from Scotiabank. Michael, please go ahead.
Michael Doumet
Hey. Good morning, guys. Azim, welcome. Hey. Look, I mean, I think if I look at the quarter, the trends were -- I think, at least to me, largely expected or as expected except for two items, operating costs and U.S. EBITDA. I think Dave did a pretty good job of asking some of the questions there. But I'd like to get maybe a little bit more specific on those two items. So on operating costs, that was -- if I look at Q2 last year versus Q1 last year, about $20 million quarter-on-quarter.
I'm just wondering, if we should expect similar seasonality this year or if there's anything maybe that would make that a little bit different? And then on the U.S. side, you spoke about that pretty well. Should we expect profit normalization into Q2, but given maybe the better seasonality, not the same extent in terms of the dollar decline EBITDA wise year-on-year?
Paul Antony
So let me start with the last question first because that's the only one that I can remember right now. And so the U.S., I think this is all unchartered water force. And I don't know like -- not that I'm trying to cleanse myself of everything I've said every earnings call, but I am trying to cleanse myself of everything I said, since the earnings call. And so what I would say, if you recall, we keep on saying these are unnormal times. There -- it's COVID. We don't know where the market is going to be, and we're just doing their best [Technical Difficulty]
Operator
Hi. This is the operator. Paul, are you still there? Hello, Paul. I think there might have been a audio issues. I’m just checking into see if your still there.
Paul Antony
Yeah. Hopefully, you can hear it. Now we are back on hopefully. Operator, are you there?
Operator
Yes, I’m. Yes. You’re back, I can hear you loud and clear.
Paul Antony
And that’s our answer, Michael. Sorry about that, where did we lose here.
Michael Doumet
Pretty much right at the beginning.
Paul Antony
Okay.
Michael Doumet
Sorry, you might go all over to.
Paul Antony
So in the U.S., I would say, and I don't know where everybody heard too, but in the U.S., the issue was I guess let me actually -- so you asked the question, what is normal in the U.S. I think that's what you're trying to drive out, right?
Michael Doumet
So for the U.S., the dollar drop and kind of going -- so the dollar drop on EBITDA in Q1, just thinking whether or not we should expect something similar or not given there's a little bit better seasonality in Q2 and Q3.
Paul Antony
Right. Yeah. So I would just tell you, our experience and everything we're hearing and understanding operating five years in that environment in the States is that Chicago and Illinois in particular, is very difficult in January, February in the winter months. So we saw losses in those months in our stores. We raised alarm bells internally said to our operators like what's going on there. And they said, don't worry, March, this is more normal. March, things will pick up. And they did, they offset the losses in January and February. And we were told by April, we should start seeing more profitable months.
And I'm here to assure you that, that's what we're seeing. And so what we're seeing is more normal against the backdrop of what was very unnormal last year and even a bit of the year before. And so we made over $20 million last year. That's more of an abnormal year. And our expectation is, we're going to see more of a normal year, which is still going to be a very profitable business in the U.S. And that's what I would say. That's our expectation. Does that make sense on the question?
Michael Doumet
100%. And then maybe the first part of the question, which was 10 minutes ago. Yeah. OpEx, look, the OpEx is a part of the business you can control, right, where maybe everything else a little bit more challenging. So I'm just thinking, if I look at Q1, Q2 last year, whether or not we should expect similarities within that quarter-on-quarter jump in terms of OpEx?
Paul Antony
So what I told David, and I'll stand -- I'm going to say it again just for consistency purposes is that the next leg of the journey is going to be attacking OpEx and it's the harder stuff, and it's going to take time. And you will see that over the next year or two because there's a lot of things that we're actually now privy to that we didn't know before, where we say, if you look at our U.S. peers, they just have -- they have expenses far more in control. And so when you look at productivity and where we should be putting our resources, I would just say that we need to actually match the resources with to produce the highest productivity. And I'll kind of leave it at that. It's the harder part of the journey, and we're just embarking on it now.
Michael Doumet
Okay. It feels like I won't going a little bit longer, but this would be my second question. So one of the -- I guess one of the benefits to selling a lot of used is the incremental parts of service that you would capture [indiscernible] extended warranty, can you -- and look, we've seen obviously gross profit from parts and service move up quite substantially. Can you speak to maybe the capacity utilization of that business or maybe even the penetration rate of the car park, just to give us a sense of where that business could continue to go?
Paul Antony
Like the volume of used?
Michael Doumet
So the product support, so the parts and service, collision repair business, the gross profit continues to make new highs. Just wondering if this continued ability to grow that business on the back of used sales?
Paul Antony
Well, I think it's -- I think there’s -- it's very labor dependent on the collision repair and parts and service, right? And so that's something that we can actually scale up as we grow. We still have service bay occupancy, so we still have resources to actually handle more throughput. And our goal is just like a hotel or a rental car company to make sure that we get to 100% utilization. And so there's definitely a lot of opportunity as we grow that business. And for that reason, we're actually growing our used car business in a significant way. We want to become untethered to the constraints that we have of the new car business and selling just new cars.
And so there's a lot of knock-on effects of us selling used cars. There's a lot from customers for life to increasing product per deal to selling more finance, selling more insurance, selling more service. There's an opportunity for us to warranty vehicles and have customers that we didn't even sell the car to start coming back to our stores if we bring deductibles down to make it more advantageous for them to get their car serviced in our facility. So there's just a lot of opportunity that's untapped.
Michael Doumet
Perfect. Thanks for that, Paul. Appreciate the time.
Paul Antony
Great. Thank you, Michael.
Operator
Your next question comes from Tamy Chen from BMO Capital Markets. Please go ahead.
Tamy Chen
Hey. Thank you. Good morning. First question I had is, Paul, last earnings call, you alluded to potential strategic assets. There was some discussion about it. Obviously, you couldn't say much. And I'm just curious if you're able to -- to the extent that you can, give any update to that, like was that in reference to the Kijiji announcement?
Paul Antony
Yes.
Tamy Chen
Okay. Got it. And then so my second question is my understanding, you elaborate a bit more on this on this call, but the Kijiji announcement, I thought the opportunity was more so in facilitating F&I for the transactions that would happen on that platform. Now it sounds like from what you've said that, that is an opportunity, but the other much more meaningful. It sounds like opportunity is that you would essentially look to source some -- your used vehicles from the listings that are on the left side. So I have that understood, like are those the two primary opportunities for AutoCanada through this announcement?
Paul Antony
Yeah, those are definitely two of the primary opportunities. And I actually -- I don't want to wait one over the other, but I would say, given that we're kind of operating a best-in-class F&I business in the country, even North America. We see this as being a completely untapped market. And if we look at our penetration rate or our attachment rate that we're able to sell to, we think that that's just -- it's just a wonderful opportunity and one that nobody has actually gone after. And so we're actually quite excited by it.
Tamy Chen
And you mentioned exclusive. So you are the exclusive, I guess, in terms of if you wanted to source the vehicles from the listings on Kijiji, like that's an exclusive funnel for you then. Is that correct?
Paul Antony
I would say the way we're going about it is of an exclusive nature.
Tamy Chen
Got it. Okay. And then I was curious with respect to the dynamics between new vehicles and used vehicles. Like I know historically, there's nuance differences between the dynamics in both of these two channels. But as new supply will gradually come on perhaps more so later this year. Can you just talk a bit about how you're thinking of demand for used vehicles? I know it's still a key initiative to continue improving that used to new ratio. But just right now, what are you seeing or expecting with respect to used demand as we go through the rest of this year?
Paul Antony
So Tamy, I think that use is going to be off the chart for the next three to four years. And I'll tell you why I think this, and we've been saying this over and over again. And so hopefully, I actually hear other people starting to adopt it. So maybe I stole it from somebody and somebody will feel it for me. But look, we're short roughly 9 million to 10 million cars that weren't built for North America in the last three to four years, which means that we're short 9 million to 10 million used cars that haven't been built in the next -- in the last three to four years, which means that there's not only a shortage in pent-up demand that needs to be made up on the new car side, but there's also limited used cars out there.
So that would be data point number one. There's just a shortage of used cars. And in Canada specifically, a lot of our used cars end up getting exported to the United States. And so there's even more of a shortage because of the exchange rate arbitrage. So if you take that and if you kind of use that as your backdrop, then point two is the interest rate going up is having people kind of tilt more towards buying cheaper, more affordable vehicles. And so it's tough with new cars. The price of the average new car in the state, I think, is at $48,000.
In Canada, I'm not sure exactly as we just finished our Board meeting. That was a number that stuck out to me. And that's a lot of money for the average consumer. And given the fact they're going to pay an extra $250 per month just in interest rate charges, finding affordable vehicles that will suit the consumer is of high importance. And I don't know how quickly we're getting out of this higher interest rate environment. So it could be the new norm for at least the next three, four years or two to three years.
And so we're positioning ourselves to sell volume and to sell used vehicles in order to drive business through our shops and our dealerships that we think is more sustainable. And eventually, that used car customer, if we treat them right and service them well, they end up becoming a new car customer. And so it's actually just a whole cycle of the life cycle of the customer. Is that helpful, Tamy?
Tamy Chen
Yeah, that is. I appreciate it. One very small last housekeeping question is just on the OpEx, there is seasonality through the quarters, correct. I'm just thinking -- I think following on some of the other previous questions, like few this year, I think historically, like you've had some ebbs and flows through the quarters, I should say. Can you just confirm that there should be some seasonality. I think historically, is it Q4 might be one of the higher periods?
Paul Antony
That is correct. Yes.
Tamy Chen
Okay. Got it. Thank you.
Paul Antony
Thanks, Tamy.
Operator
Your next question comes from Krista Friesen from CIBC. Krista, please go ahead.
Krista Friesen
Hi. Thanks for taking my question. I was just wondering, if you could give some color as to how you think about your free cash flow priorities choosing between continuing to be active on the acquisition front versus being active on your share buyback.
Paul Antony
Yes. So I would say that's a great question. From our perspective, and we have alignment with our Board, when our multiple is trading higher and it makes sense to go and buy dealerships, both strategically and financially, the decision to actually buy dealerships is quite easy. And when our share price becomes -- gets to such a level as we see a way higher return buying our shares back versus buying dealerships, we actually shift the focus from M&A to being just all about capital allocation, right? And so I would just say that we are going to buy our shares back in a meaningful way when our share price is cheap. And when our share price is ahead of what we think it ought to be, we'll be looking to do more M&A.
And so at this point in time, I would tell you that we're not going to be advancing on M&A for a couple of reasons. Number one, it just doesn't financially make sense. And number two, our results are not just indicative of what we're doing in the market. They're indicative of everybody in the market. And so frankly, I think there's a lot of dealers that have to recalibrate what they think is the new normal, and that's going to take some time. And so until that time, we see this as being a tremendous opportunity for us to look at our own company to invest in.
Krista Friesen
Okay. Great. Thank you. I think everyone will take my other questions. So I'll jump back in the queue.
Paul Antony
Thank you.
Operator
Your next question comes from Luke Hannan from Canaccord Genuity. Luke, please go ahead.
Luke Hannan
Thanks. Good morning, everyone. Paul, I wanted to get your view. I know you said you didn't want to talk too much about it, but I just wanted to get your view or your opinion on why it is that there was no F&I partnership before -- that was in place with Kijiji, whether it's with regards to AutoCanada or some other more national F&I player before. It seems obvious what the benefits would be. So I'm just curious what your thoughts are on why that wasn't in place previously.
Paul Antony
I think we kind of -- like I wish I would say that we were smart enough and we looked at this and we figured it out. I think we kind of stumbled on it as a team. And we all kind of thought about it together and thought about the opportunity. And like, 20 years ago, there was no CARPROOF and everybody said that they had thought about that and wanted to do it. And everybody told us it was their idea and they were going to do it. And hopefully, we have the same outcome with this and everybody says, we were going to do this and nobody thought about it. And so everybody's got to think of something once and better to be lucky than good. So hopefully, we thought about it before everybody else.
Luke Hannan
Yes. Great. Switching gears, a little bit here. With car prices sort of pulling back a little bit here, I would imagine -- you can correct me if I'm wrong, but I would imagine that the amount of this equity that you are seeing out there has probably increased a bit. Can you remind us -- I mean, one, is that the case? And two, if it is, what are the best vehicles or best inventory that you have to be able to absorb that this equity and are you well represented with that inventory on your lots today?
Paul Antony
Well, I would just say, so the compression that you saw in the GPU in Q1 is a result of us shedding the mix of cars that didn't book out well, recall what I was saying about booking out and reconfiguring our inventory to cars that do book out well. And so are we well positioned? I would say we are better positioned. I would say, over the course of the next quarter or two, we should be in prime position. Because before, like I said, we were not selling cars. Everybody in the business was just taking orders.
Like we not -- I don't want to take away from our salespeople and our people that did a ton of work over the last two, three years during COVID because they've climbed an unbelievable hill. That said, it was the art of selling a vehicle and the whole way you actually go about selling a vehicle is going to change over the course of the next year, two years and three years. And instead of people just coming in and basically being jumping out of airplanes into your dealership and wanting to buy cars, where -- and us just filling orders, we're actually going to have to get back in the business of selling vehicles. And that's what we're positioning ourselves to do.
Luke Hannan
Okay. Thank you.
Operator
We have one more question that's coming from Maxim Sytchev from National Bank Financial. Maxim, please go ahead.
Maxim Sytchev
Paul, I was wondering if you might provide a bit of color in terms of how you think about interplay between, I guess, overall revenue growth versus profitability? Because when we look at some of the cohorts of U.S. players, definitely the less revenue growth, but holding it a little bit better in terms of the gross margins. And I'm wondering is this the question of geography or OpEx. Just what are your thoughts there again, how do you achieve maybe a better balance from that perspective. Thanks.
Paul Antony
Great. Is it to do with geography or which?
Maxim Sytchev
OpEx?
Paul Antony
Yeah. Listen, I think a lot of it has to do with OpEx. What we've learned with some of the executives that we brought on board was that our OpEx was too high, and we've got to cut OpEx. And so you could say you guys suck, or you could say, wow, you guys have a great opportunity. We're choosing to think that we have a great opportunity. And so where the guys in the states actually don't have that same opportunity because they've already walked this path. And so for us, it's exciting times.
And what I said stands, I think to David, I'll say it again, we have fruit, it's not low hanging. It's work, and this is going to be the tough stuff. The good news is the operators that we have in the chair now have just been through this. And so for them, there's some muscle memory where they're going to just do what they did in their groups they were in and kind of help us achieve what they achieved, which is what you're comparing us to.
So that's one thing. The one -- the other thing I will say, and I asked this question of our management team all the time, what's different between Canada and the U.S.? Like I'd probably say it so much, they think I have like dementia. But I'm asking because I keep on trying to understand the difference between Canada and the U.S. And the day supply of used vehicles is massively different in Canada versus the U.S.
And the way we deliver cars in Canada versus the U.S. is also markedly different. Like in the U.S., you can actually spot the liver a car. You buy a car, and we just talked about this in our board meeting yesterday and Jeff suggested you buy a car in the state, you're driving out with that car. In Canada, you have to license it, safe to check it. There's a lot of things that you have to do. And so there are nuanced differences between Canada and the United States.
And so we don't expect to be exactly the same as the U.S. to be compared against. However, there are a lot of learnings that we're getting now as a team where when we took over this company five years ago, I think we were like $72 million of earnings that year, and I think last year, we're over 200. So we've done a lot of work in five years, and we basically took the low-hanging fruit. And so that's why I say there's fruit there, but it's not going to be low hanging and it's going to be the tough stuff, but we're all signed up for it.
Maxim Sytchev
Right. And then a quick question in terms of small financing. Some of the commentary out of the U.S. is that because regional banks are sort of curtailing right now, the credit availability that could potentially lead to sort of higher rates on that part of the capital structure. Just wondering if you can maybe comment in terms of what you're seeing on the ground right now.
Paul Antony
Yeah. We're not seeing that issue at all. We've talked to our banks and everything seems to be status quo. I know I've heard the same, but it's not turning out to be reality for us.
Maxim Sytchev
Okay. Good to hear. And lastly, just in terms of can we have an update on CapEx plans for 2023?
Paul Antony
I think at that point, I think that's more of an Azim question. Azim has been in the chair for 1 month. I think I'm happy to probably answer that more on the next call, not that I'm trying to play hide the peanut. I just don't have an answer, and I don't know that Azim has out of fingertips.
Maxim Sytchev
Okay. Fair enough. That’s it for me. Thanks a lot.
Paul Antony
Thank you.
Operator
There are no further questions at this time. I'll turn it back to you.
Paul Antony
So I said it and I noticed that it wasn't in my script, and I want to say this again. I want to thank all of our OEM partners and everybody at AutoCanada for pulling together these are -- it's a changing environment, and we're very fortunate to have the team that we have from everybody in the dealerships to everybody at head office to our OEM partners, we're very fortunate. We are building something special. And I hope we look back at these times in the next couple of years, and we go, wow, was that ever a ride. So really appreciate everybody joining us. And thanks again. We'll talk to you next quarter.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
For further details see:
AutoCanada Inc. (AOCIF) Q1 2023 Earnings Call Transcript