Uni-Select Inc. has reported its financial results for the second quarter ended June 30, 2021.
“We are very pleased with our second quarter results which reflect strong market recovery from the worst of the pandemic and sequential improvement in the business. Revenues increased 38% to $416 million while EBITDA , once adjusted for special items and others, more than doubled to reach $34 million, or a margin of 8.2%,” said Brian McManus, executive chair and CEO of Uni-Select.
“This strong profitability combined with active cash management translated into cash flow from operations of $43 million, which we used primarily to reduce our total net debt, ending the quarter with an improved leverage ratio of 2.9x. In June, we successfully amended our credit agreement providing us with increased flexibility while meaningfully reducing our cost of borrowing. Had we amended the credit agreement at the beginning of the second quarter, we estimate our net finance costs would have been about $2 million lower.
“Our near-term focus is to align the three businesses with our vision for the future while identifying growth opportunities. We expect 2021 to be a good year but remain cautiously optimistic as we progressively recover from the continued uncertainty surrounding the pandemic and manage through the ongoing challenges related to the supply chain. We are positioning the business for the long term and see many opportunities ahead in all three businesses,” concluded McManus.
Second Quarter Results
Consolidated sales of $416.4 million for the quarter increased by 37.6% compared to the same quarter in 2020, mainly driven by organic growth of 28.5% and by the favorable fluctuations of the British and the Canadian currencies. This performance reflected a recovery from trough levels of business activity in the second quarter of 2020. Organic sales continued to improve sequentially, as all segments reported positive organic growth for the quarter: 62.6% by The Parts Alliance U.K., 28.4% by FinishMaster U.S. and 12.3% by the Canadian Automotive Group.
The corporation generated EBITDA of $0.5 million for the quarter, which was impacted by a change in estimates of $20.6 million related to inventory obsolescence in the FinishMaster U.S. segment and special items of $13.0 million, mainly for severance related to executive leadership changes. Once adjusted, the EBITDA and the EBITDA margin increased by $19.3 million and 330 basis points respectively to $34.1 million and 8.2%, from $14.8 million and 4.9% in 2020. This performance was the result of improved gross margins, improved fixed cost absorption related to organic sales growth, as well as a streamlined cost structure. The second quarter last year was affected by additional inventory and bad debt reserves of about $7.1 million or 240 basis points.
These elements were partially offset by a higher level of expenses, as the same quarter of 2020 had reduced expenses derived from temporary lay-offs, reduction of working hours and temporary closure of company‑operated stores in response to the effects of the pandemic. Moreover, the current quarter was affected by higher stock‑based compensation due to the recent appreciation of the share price and grants to new executives.
Net loss of $20.3 million was reported for the current quarter compared to $24.2 million in 2020. Adjusted earnings for the current quarter increased by $18.5 million to $8.8 million from an adjusted loss of $9.7 million in 2020, primarily driven by improved operational performance and profitability, while the second quarter of 2020 was impacted by the pandemic.
Segmented Second Quarter Results
The FinishMaster U.S. segment reported sales of $171.3 million, organically increasing by 28.4%, compared to the corresponding quarter last year, a recovery from trough levels of business activity in the quarter of 2020. This segment reported an EBITDA of $(7.7) million for the quarter. Once adjusted for change in estimates related to inventory obsolescence and for special items, EBITDA was $13.2 million or 7.7% of sales, compared to $4.5 million or 3.3% of sales in 2020, an improvement of 440 basis points. The current quarter results benefitted from additional volume of sales, increased gross margin and fixed cost absorption. In addition, this segment took advantage of price increases and a streamlined cost structure as a result of improvement plans. For the third quarter in a row, this segment reported an adjusted EBITDA exceeding the previous quarter, both in dollar and margin, the outcome of measures initiated during the 2020 year.
The Canadian Automotive Group segment reported sales of $145.3 million, an increase of 27.1%, compared to the corresponding quarter of 2020, driven by the appreciation of the Canadian dollar and organic growth of 12.3%, all distribution channels recovering from trough levels of business activity in the second quarter of 2020. This segment reported an EBITDA of $17.2 million for the quarter. Once adjusted for special items, EBITDA was $17.7 million or 12.2% of sales, compared to $12.9 million or 11.3% of sales in 2020, an improvement of 90 basis points, attributable to additional sales volume, savings from the workforce alignment, as well as additional vendor rebates, in part due to timing. Furthermore, the second quarter of 2020 was affected by additional bad debt expenses. Despite the context of COVID‑19, this segment generated, for a fourth consecutive quarter, improved adjusted EBITDA related to the respective comparable quarter, both in dollar and percentage of sales.
The Parts Alliance U.K. segment reported sales of $99.9 million, for an increase of 82.1% compared to the same quarter in 2020, propelled by organic growth of 62.6% and a strong British pound against the US dollar during the current quarter of 2021. This segment reported an EBITDA of $5.6 million for the quarter, and once adjusted for special items, EBITDA was $8.3 million or 8.3% of sales, an increase of $8 million or 770 basis points, compared to $0.3 million or 0.6% of sales in 2020. This improvement was driven by additional sales volume, savings from the rightsizing of the workforce, as well as an improved gross margin from price increases, while the second quarter of 2020 was affected by additional bad debt expenses. This segment generated, for a fourth consecutive quarter, improved adjusted EBITDA related to the respective comparable quarter, both in dollar and percentage of sales.
Six-Month Period Results
Consolidated sales of $786.5 million for the period increased by 10.7% compared to the same period in 2020, mainly driven by organic growth of 6.2%, the favorable fluctuations of the British and the Canadian currencies and business acquisitions. This performance offsets the adverse impact of a different number of billing days and the expected erosion from the consolidation of company-operated stores. On a year‑to‑date basis, both the Canadian Automotive Group and The Parts Alliance U.K. segments reported a positive organic growth, while the FinishMaster U.S. segment reported a slightly negative organic growth of 0.3%.
The corporation generated an EBITDA of $25.2 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 and special items of $16.5 million, mainly for severance related to changes to executive leadership. Once adjusted, the EBITDA and the EBITDA margin increased by $30.7 million and 340 basis points respectively to $62.3 million and 7.9%, from $31.6 million and 4.5% in 2020. This performance resulted from improved gross margins due to additional volume rebates and price increases, a streamlined cost structure related to the improvement plans, as well as an improved fixed cost absorption related to organic sales growth. The period of 2020 was impacted by additional inventory and bad debt reserves, foreign exchange losses in relation to the depreciation of the Canadian dollar and the British pound and a one-time charge, a total impact of about $12.4 million or 170 basis points. These elements were partially offset by a higher level of expenses, while the same period of 2020 benefitted from actions in response to the effects of the pandemic. Moreover, the current period was affected by higher stock-based compensation related to the recent appreciation of the share price and grants to new executive members.
Net loss of $20 million was reported for the current period compared to $30.9 million in 2020. Adjusted earnings for the current period increased by $26.5 million to $12.5 million from an adjusted loss of $14.0 million in 2020, essentially driven by improved operational performance and profitability, reaping the rewards of improvement plans and initiatives put in place, while the period of 2020 was impacted by the pandemic.
Segmented Six-Month Period Results
The FinishMaster U.S. segment reported sales of $329.5 million, a decrease of 1.8%, compared to last year, mainly due to an unfavorable difference in the number of billing days. On a year-to-date basis, this segment reported organic growth close to neutral, the performance of the current period offsetting the corresponding period of 2020, which was fully impacted by the effects of the pandemic during the second quarter. This segment reported an EBITDA of $1.9 million for the period, which, once adjusted for a change in estimates related to inventory obsolescence and special items, grew to $23.3 million or 7.1% of sales, compared to $16.6 million or 4.9% of sales in 2020, an improvement of 220 basis points, despite a similar level of organic sales. This performance was attributable to improvement plans and associated savings from reduced workforce and the consolidation of company-operated stores. In addition, this segment took advantage of price increases, a partial reversal of bad debt provision stemming from improved collection, and a reduction of discretionary expenses. During the period of 2020, this segment was affected by additional inventory obsolescence and bad debt expenses as well as a one‑time charge.
The Canadian Automotive Group segment reported sales of $260.4 million, an increase of 16.7% compared to the corresponding period of 2020, driven by the appreciation of the Canadian dollar and organic growth of 6.6%. This segment reported an EBITDA of $28.9 million for the period, which, once adjusted for special items, was $29.4 million or 11.3% of sales, compared to $15.6 million or 7.0% of sales in 2020, an improvement of 430 basis points. This growth was attributable to additional sales volume, savings from the workforce alignment, as well as additional vendor rebates, in part due to timing. Furthermore, the period of 2021 benefitted from a reduction of discretionary expenses in relation to the pandemic, while the period of 2020 was affected by large foreign exchange losses.
The Parts Alliance U.K. segment reported sales of $196.6 million, for an increase of 29.9% compared to the same period in 2020, driven by organic growth of 20.2% and a strong British pound against the US dollar during the current period of 2021, exceeding the unfavorable variance in the number of billing days and the expected erosion resulting from the consolidation of company‑operated stores. This segment reported an EBITDA of $15.5 million for the period. Once adjusted for special items, EBITDA was $18.2 million or 9.3% of sales, compared to $5.0 million or 3.3% of sales in 2020. The adjusted EBITDA margin increased by 600 basis points compared to the same period in 2020, driven by additional sales volume, savings from the rightsizing of the workforce, as well as an improved gross margin from price increases.
