Q3 2019 Earnings Call
Income from third quarter 2018 results conference call listeners are reminded that certain matters discussed in todays conference call for answers that maybe given two questions asked constitute forward looking statements that are subject to risks and uncertainties relating to the boy its future financial Arpus. This performance.
Actual results could differ materially from though as anticipated and these forward looking statements. The risk factors that may affect results are detailed in the boys annual information form and other parents, a periodic filings and registration statement.
And you can access these documents that scitor started they sound that fit our dot com I would like to remind everyone that this conference call us being recorded today Wednesday November 13, 2019, I would now like to introduce Mr. profitable book, Chief Executive Officer of the Boyd.
Group income fund. Please go ahead Mr. ballpark.
Thank you operator, good morning, everyone and thank you for joining us for today's call.
With me today or are Tim O'dea, our current President and Chief operating Officer, who will succeed me in the role of C. O <unk> in 2020, <unk> coffee Patty, our executive Vice President and Chief Financial Officer.
We released our 2019 third quarter results before markets open today, you can access our news release as well as our complete financial statements and management discussion and analysis on our website at Www Dot Boyd group Dot com.
Our news release financial statements and Mdna have also been filed on SEDAR. This morning.
On today's call, we will focus our discussion on the funds financial results for the three and nine month periods ended September Thirtyth 2019.
Comments on the proposed conversion to a corporate form and provide a general business update.
We will then open the call for questions.
Overall, we're pleased with our continued progress and results thus far in 2019.
In Q3, despite some challenges we had continued strong growth including growth in locations sales and adjusted EBITDA.
We remain focused on our long term goals of operational excellence and doubling the size of our business based on revenues on a constant currency basis over the five year period ending in 2020.
We added 34 locations during the third quarter of 2019, and an additional three locations subsequent to quarter end.
On a year to date basis, we have thus far added 92 new locations.
This quarter continues to build on our multi year track record of profitable growth.
Validated by the funding being named in September two the inaugural TSX 30.
Flagship program, recognizing the 30 talk performing TSX stocks over a three year period based on dividend adjusted share price appreciation.
Looking at our results for this past quarter, our total sales were $567 million, a 23.4% increase when compared to the third quarter of 2018.
This reflects an 89.5 million dollar contribution from 139 new locations.
Our same store sales, excluding foreign exchange increased by 3.3% in the quarter.
After adjusting for one additional selling and production day in both the U.S. and Canada in Q3 2019.
Same store sales increased 1.7% on a day's adjusted basis.
Foreign exchange increased sales by $4.2 million due to the translation of same store sales at a higher U.S. dollar exchange rate.
As previously commented on during our second quarter earnings reporting will demand for our services continued to be healthy and most of our markets Q3 did present, a number of challenges, including continued technician capacity constraints combined with strong comps the.
Challenges of vacation and softness in some markets.
Additionally, as the quarter unfolded, we also had some additional modest negative impacts from hurricane Dorian and the general Motors strike and all of these factors combined to result in much lower same store sales growth compared to what we achieved in the first half of the year.
Despite these challenges we were able to report positive same store sales growth that contributed to double digit increases in sales and adjusted EBITDA compared to the same period a year ago.
Gross margin was 45.3% in Q3 2019 compared to 45.4% achieved in Q3 2018.
Slight gross margin percentage decrease is primarily due to a higher mix of parts sales in relation to labor as well as lower de RP pricing, partially offset by a higher mix of retail blas sales.
Operating expenses for Q3, 2019 were $179.6 million were 31.7% of sales compared to 36.5% in Q3 2018.
Operating expenses for the for the quarter were significantly impacted by the adoption of I, FRS, 16, which removed $26.7 million a property lease expense from operating expenses.
If we normalize for the adoption of by up our F 16 for comparative purposes operating expenses would have been $206.4 million were 36.4% of sales.
Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments costs related to acquisitions and transactions and the impact of adoption of IRS 16 was $50.7 million an increase of 22.9% overall.
Q3 2018.
Adjusted EBITDA growth was primarily due to contributions from new locations and same store sales growth.
Adjusted EBITDA margin was essentially flat at 8.94% in Q3 2019 compared to 8.97% in the comparative period.
You will note that for 2019 reporting we have chosen to adjust out the impact to buy up our F 16 in reporting our adjusted EBITDA for comparative purposes.
Beginning in Q1, 2020, we will no longer be adjusting out the impact of by FRS 16.
Had we not chosen to exclude the impact of IRS 16 in calculating adjusted EBITDA for Q3.
Adjusted EBITDA would have been $77.4 million were 13.7% of sales.
Net earnings for Q3, 2019 were $14.8 million compared to 16.6 million in Q3 2018.
Impacting net earnings in both the current and prior year Q3 was the recording a fair value adjustments for exchangeable shares unit options and the non controlling interest put option.
As well as the recording of acquisition and transaction costs.
Net earnings amount into third quarter of 2009 team was also negatively impacted by the adoption of IRS 16, which reduced the net earnings by approximately $1.2 million net of tax or six cents per unit.
Excluding these impacts adjusted net earnings for the third quarter was $21.9 million or $1.10 per unit compared to adjusted net earnings of 20.4 million or a dollar for per unit for the same period in the prior year.
The increase in adjusted net earnings is the result of contributions of new location growth in same store sales growth.
Adjusted net earnings was also impacted by increased finance costs based on additional borrowing under the credit facility to fund acquisitions as well as increased tax expense due to the completion and filing of the prior years us tax returns, which were recorded in the third quarter.
2019.
Again, you will note that we have chosen to adjust out the impact of buyer for F 16, and reporting our adjusted net earnings for comparative purposes.
Although fair value adjustments continue to impact net earnings.
They are effect will continue to diminish as the remaining unit options have divested and are expected to be exercise before the ended the year. This exercise of unit options May also result in some insider unit sales following exercise as option holders may need to fund exercise costs and really.
The tax liabilities or for general estate planning purposes.
In Q3, 2019, we generated $20.6 million in adjusted distributable cash compared with 7.9 billion generated in the same period of 2018.
We paid distributions and dividends of 2.7 million, resulting in a payout ratio of 13.2% compared to a payout ratio of 33.2% in Q3 2018.
Our approach to distributions continues to be to maintained a conservative payout ratio to provide returns for unitholders, while preserving capacity to act on growth opportunities.
Based on our continued growth the strength of and confidence in our business, we announced today that we are again, increasing our distributions by 2.2% to 55.2 cents per unit on an annualized basis from their present level of 54 cents effective.
Number 2019.
This is the 12 consecutive year. So we have increased distributions to unit holders.
For the nine month period ended September 32019.
We reported sales of $1.7 billion, an increase of 23.9% over the same period of the prior year.
Driven by acquisition growth and same store sales growth of 4.6%.
Gross margin was consistent at 45.5% of sales on a year to date basis for both 2019 and 2018.
As already noted operating expenses were impacted by the adoption of the new leasing standard.
Removing this impact for comparative purposes operating expenses were 36.2% of sales compared to 36.3% in 2018, reflecting improved same store sales leverage.
Adjusted EBITDA was $159.2 million compared to 125.8 million.
When the impact of IRS 16 is removed from the 2019 results for comparative purposes.
For 235.8 million for the nine months ended September Thirtyth 2019 on a post I FRS 16 basis.
We reported a 4.5% increase in net earnings for the nine month period at $49.9 billion compared to 47.7 million in the same period of the prior year.
Removing the impact of fair value adjustments.
Acquisition and transaction costs net of tax and the impact of IRS 16 adoption net of tax adjusted net earnings per unit increased from $3.17 per unit to $3.81 per unit, a 20% increase.
At the ended the third quarter, we had total debt net of cash of $895 million compared to 232.1 million at the end of 2018 and 182.2 million at September Thirtyth 2018.
Total debt increased significantly in 2019 under the new I up our F 16 lease standard which resulted in the recording of additional lease liabilities of $488 million on January one 2019.
Normalizing for the impact of this new standard total debt net of cash would have been $377.3 million with the increase over December 31 2018.
Being the result of 2019 acquisition activity.
We continue to have a very strong balance sheet with conservative leverage at the end of Q3 of approximately 1.9 times adjusted EBITDA after removing the impact to buy up our F 16 adoption.
Even after considering our growth capital spend in 2019 to date, we continue to have over $250 million of dry powder available in cash and existing credit facilities to execute our growth strategy.
Entering the fourth quarter, there continues to be healthy demand for our services and most of our markets. However, our technician capacity constraints will continue to make a challenging to return to strong organic growth in the face of strong Q4, 2018 comps of 6.8%.
Were 5.2% on a day's adjusted basis.
Additionally, the continued effects of the GM strike have had some impact in Q4 sales to date.
Although it is early in the quarter. After one month, we are experiencing same store sales growth that is slightly below but in the range of Q3 levels still falling short of the strong same store sales levels experienced in the first half of the year.
Our ability to improve upon this level of same store sales growth as the quarter progresses, we will be primarily dependent upon our ability to grow same store technician capacity as the quarter unfolds.
We continue to have a high level of focus on our people initiatives and we are continuing to make progress and building a strong foundation that will better position us to attract and retain technicians and all other positions in the future.
Kim Moran, our new Chief HR Officer, who joined US in February leads these people initiatives and brings a wealth of HR leadership experience to our business.
And we are excited by the systems and process that she has already implemented in this critical area.
Notwithstanding this foundational progress we were not able to continue to grow our same store technician capacity and leading up to Q3 2019 sufficiently to achieve the strong same store sales growth that we hit achieved in Q1 in Q2.
We are working hard to address this and we have further heightened our focus on growing our same store technician capacity during Q4, but as already noted it will continue to be a meaningful constrained in Q4.
During the third quarter of 2019, the fund announced the proposed conversion from an income trust to a corporate structure effective January one 2020 pursuant to a plan of arrangement.
If approved fund unit holders would receive one publicly traded common share of the New Corporation old void Group services Inc. for each fund unit held by the unit holder.
The proposed conversion is subject to unit holder approval at a special meeting to be held on December 2nd 2019.
The reasons for and benefits of the proposed conversion include removal of the restriction of non Canadian ownership that the fun currently has as well as adopting a public company structure more typical more easily understood and therefore more accepted Blake by global investors and the capital more.
Markets.
For these reasons, we believe that under a more typical corporate structure, we should enjoy it in an expanded shareholder base, which in turn should result in greater liquidity and maximize Asian evaluation.
These and other benefits of the proposed conversion from an income trust to a corporate structure have been outlined in detail in the information circular that was mailed to all unit holders of the fund in October 2019, which is also available on SEDAR as well as the funds website at www.
You thought Boyd group Dot com.
Looking longer term industry dynamics continue to drive industry consolidation that is favorable to our business model.
Acquisition opportunities continue to be strong throughout our network and we expect to continue to convert these opportunities into new locations.
We remain confident that we will achieve our long term growth goal.
And as always operational excellence remains central to our business model.
And with our while operating way, we will continue to work to drive excellence and repair quality customer satisfaction and repair cycle times to ensure the continued support of our insurance partners and vehicle owners.
Therefore, we continue to be confident that we will maintain our progress toward our long term growth targets and operational plans.
We continue to add locations in new markets and expanded markets, where we have a presence today.
The ongoing investments that we're making and people initiatives technology equipment and training position us well for continued operational execution.
In summary in closing we continue to be very well positioned to continue to take advantage of the growth and market share gain opportunities within our industry.
Before we open the call the questions. As this is my last quarterly conference call as CEO .
I would like to personally. Thank all of you our unit holders research analysts advisors and other participants in boys capital market activities for the support advice counsel and trust and confidence in our business that you have all provided to us during my tenure as CEO .
You've all been absolutely terrific to work with and this is certainly made my job as CEO much easier and much more enjoyable than it might otherwise have been.
As I have commented many times I have the highest level of confidence in Tim as he moves into the role of CEO in January .
Tim with the support of our long tenured experienced senior leadership team will continue to lead Boyd to continued growth and success in the future.
And I very much look forward to continuing to be part of our team in my new role of executive Chair and as a board member.
With that I would now like to open the call the questions operator.
Ladies and gentlemen to ask a question. Please press star and the number one on your telephone keypad well pause for just a moment a couple of acuity roster.
Your first question comes from Steve Hansen with Raymond James Your line is open.
Good morning, Steve Good morning.
Just a quick one for me to start with on the Titian side.
I think we're about 18 months now into the shortage issues raised on numerous accounts you have mentioned in past quarters that you're starting to see some progress on that front, but it's still lingering.
Commentary suggest are there I guess the question is are there other strategies that you're starting to deploy now it will be deferred over the last 18 months or is there are some sort of shifted your thinking about how you can address the specific issue or is it just more blocking and tackling on what you've already started.
Yes, I would I would say that to first of all let me comment on sort of the.
The last 18 months.
When we started talking about this we started talking about the initiatives that we had undertaken that that included.
Better training HR training for our managers included finish a program.
Included.
An increase in the resources dedicated to root to recruitment.
We continue with all of those today, but but as commented on script.
In February we.
We brought in Kim, Iran, as our new Chief HR Officer, and Kim has been really focusing on putting what we would call more foundational sustainable processing systems in place in order to truly become an employer of choice long into the future. So.
I would say that we continue to work on those same three things that we've been working on for the past 18 months, but we're also I think stepping up our game in introducing more foundational systems and process that that are truly sustainable the other comment that I would make on on this is.
We don't think that Weve gone backwards in Q3 relative to the progress we've made on those foundational matters, but like many things.
You know you you in the short term you may have you may have an outcome that is not necessary consistent with the good progress that you're making.
And if you look back to Q3 and Q4 of 2018, we actually had done a very good job at the end of Q2 and early part of Q3 in building our technicians same store technician capacity.
That that was able to translate into meaningful same store sales growth in Q3 and Q4 of.
18, and Q1 in Q2 of 19.
But unfortunately, we weren't able to.
Grow that tech same store technician capacity sufficiently leading up to Q3 of 19.
In order to achieve the same strong same store sales growth, which we're now going up against those strong Q3 18 comps.
So again, it's it's not of a reflection. This outcome is not a reflection of lockup progress in the area I would call. It a short term setback.
Understood I think we can all appreciate the tough comps you've got it just wasn't for me if I may and this might be a question for Tim or abroad, but just as I look at the high level. Here you guys are quickly approaching your five year target to double your business as you survey the landscape today do you feel that theres, any particular impediments or even perhaps tailwinds.
Setting out a similar target over the next five years I'm not trying to front run the next strategic plan, but just trying to get a sense for whether the landscape today is conducive to something similar.
Around really growing the business over the next five years. Thanks.
Yes, this is Tim and I'll take that.
I believe that Theres plenty of opportunity to continue to grow our business. It's still a highly fragmented market. The tailwinds are still very much in our favor. So well we are prepared to communicate our next plan.
I think you can count on it included growth as a key component.
Okay, great guys I appreciate that color.
Thanks, Steve.
Next question comes from Chris Murray from Altacorp. Your line is open.
Hi, Thanks, good morning.
Hey, Brian Congratulations on on moving to the to the more executive chairman role.
Thank you I guess your first question I've got for you just just looking at some of the BLS data weve seen around.
Hi rates in in the growth in body work and also some of the changes in insurance rates across us.
Just.
Should be some pretty good.
Generation, you're capturing just even on inflation that I would think we'll be working into your your year over year same store sales growth numbers. Just wondering how you guys are seeing kind of pricing trends as we start moving into 20 in maybe with maybe with inflation kind of staying flattish maybe that historically the body work inflation.
There's kind of.
Tracking along the same CPI type levels, but I'm just wondering if there's something that's kind of disconnected that unlawful, while maybe technology or or something else going on.
No I think that we are seeing inflation in the average cost of repair that is.
That is essentially associated with.
More complex vehicle repairs, we have had from an industry perspective from a market perspective, we have had a slight decline and repairable claims.
Yes in the us nationwide in Q3.
And.
Chris I.
Fundamentally as it relates to our business I think that.
Unfortunately, the technician capacity constraint is limiting our ability to take full advantage of of of.
The market share gain opportunity and that inflation inflationary benefit that that may be available to us.
All right we will.
Sorry, we also see the the forward forecast is also for continued inflationary.
Tailwinds on pricing from a from a.
Average cost to repair perspective as at least that's the the outlook of CCC.
Okay. That's fair enough do you think the bid.
You did have to increase the cost around technicians.
Historically anyway, thats been sort of brought into your core pricing. You said, you think that will still be.
The condition I know, we've been seeing some wage inflation across a number of industries, but I would assume that you'd be additive as well.
I think that we would expect to be able to I mean absorb that if you look at our long sort of our.
Our historical track record of gross margins.
They haven't fluctuated significantly significantly we havent, we havent experienced significant margin contraction as a result of wage pressure insurance companies.
Generally recognize the fact that that there is that we are experiencing wage inflation and that has to be reflected in the prices that they pay us. It may not be in terms of lockstep pricing increases, but generally does track.
You know over over a longer terms. So we would we would continue to see the same thing going forward.
Okay fair enough.
And then just my second question just turning to.
The proposed transaction or I guess transition to a full corporate structure.
Any thoughts or have you received any feedback from investors that gives you any concern that there shouldn't be anything but a successful vote.
And at this particular point in your analysis, you have a rough idea what proportion of.
On the unit holders were will end up being fully taxable.
I would say that I'll answer the first question.
Or the second part of the question first.
I think we actually reported on this when we had our conference call on the restructuring in September .
We estimate that it's a small portion of.
Our investors that will be taxable that portion that are essentially.
That hold their units in taxable retail accounts and we weaker we currently sort of.
Based on the information we have we estimate that our retail investors represent about 25% of our units outstanding and we would also estimate that a meaningful portion of that 25% would be in registered non taxable accounts.
So.
However, you want to sort a slice the 25% it's probably in the neighborhood of yes. It could be it could be half of that that would have a meaningful tax, but but thats just a really a gas.
Based on some.
Some very limited pulling that we've done with some retail brokers as to what percentage of their clients.
Holdings are in registered versus non registered accounts the Chris yes.
The us investors.
On our subject to to this taxes. So you limiting this to Canadians and also the institution investors may not be subject to taxes. So we're talking about the small segment of Canadian retail investors, who have the holdings in the taxable accounts.
And we know the feedback that we've gone from the marketplace.
Chris has been very very positive.
I'd say that.
Particularly institutional investors are very supportive I will.
There has been.
I would say that we've had feedback from a very very small number of retail investors that while they're generally very very supportive avoid they don't like the fact that they'll have to pay some tax on this transaction, but after we explain it to the most the most of them understand that overall this is.
Net benefit transaction for our business and.
The reality of but is that they have to pay that their tax liability is associated with the fact that their investment has done so very well.
Okay. Thanks folks.
Thanks, Chris.
Your next question comes from David Neumann with it does guidance your line is open.
Gentlemen, and David.
And David on your yes, just on your.
On your guidance for for Q.
When you say that it will be sort of in and around where you were in threeq is that on the adjusted or the unadjusted basis, a 1.7 or the 3.3.
Yes first of all the it's not really we're basically stating were.
What we are experiencing thus far.
And then.
Identifying that sort of some of those capacity that some of the limitation limited limiting capacity constraints are still in existence. So.
But in answer to your specific question when we say that it is slightly below but in the range.
Of what we experienced in Q3, we are meaning on a day's adjusted basis got it not enough spaces, and if you do and attribution on an as hard to do Crystal ball, but if you had to look at it from you're facing very tough comps you do how the technician shortage, which has been pretty constant and then of course the.
Nuance of the EU ADW strike at GM, if you sort of had to put it in the buckets, what would you say the attribution or the causality the shortfall might be.
It's primarily technician capacity constraints with the lesser impact of the June strike, Okay, and how are you guys. Even on the backlog of GM related work in are you getting the availability of GM related parts at this juncture anywhere is there an inventory.
Jim is recovering fairly quickly from it theres still some impact, but I would say over the next few weeks.
Should be resolved.
Okay and that sort of begs the question the need the pile up of maybe collision work that pardon the pun the pilot collision work that you might to potentially be able to do.
As you kind of get through these pinch points are you seeing the backload backlog rise.
On the back and some of the challenges.
We saw an increase in the backlog some of that was attributable to the GM strike. Some of it is just a healthy business environment.
But but we're working our way through that.
Including the GM work.
Okay, and then guys the E flagged select markets being soft can you give little more granularity around certain markets, you're seeing and why.
We don't like to sort of because every quarter. We have we have a range of of organic growth performance. So we try not to get that granular, but I will say that you know the Alberta market is continues to be are very challenging market for us and I don't think that really should soon.
Hi, guys anyone given.
Given.
The economic state of the province, So that's by way of example, one market that is very challenging for us right now.
Okay last question from you guys. The on as you look at sort of your mix up parts versus labor.
Have you guys had come come to terms as to how you want to balance out I guess EBITDA dollars versus relative margins in other words, you want more dollars and Airseal impart help you kind of improve your Kate.
On a shop floor does that serve the more EBITDA dollars near do you kind of doing a bit of a balancing act between parts and labor.
Yes, I would say repair price will go up.
More because of parts than labor in the near term just the mix of parts on vehicles is higher.
We I really don't think about it in terms of how will improve our overall EBITDA dollars based on the parts increase we'd love to keep the balance really where it is but parts are likely to go up more in a big favorable to us as long as the labor hours don't decrease which we wouldn't expect.
They will take a longer term, even though we are focused on expanding the margin. So certainly the bid was has three plus a one of the opportunities we have.
On a relative basis right, yes, yes, feragen, alright, congratulations guys and congratulations Bracken, Tim and higher year behind the steering wheel and driving the bus going forward. So all the best.
Thanks, David.
Your next question comes from on Prem Jordan with Jefferies. Your line is open.
Hey, good morning, guys, Hey, Brett one of the growth.
Question on the OE certification programs I mean, certainly reading more about it in industry publications, but could you talk about maybe what percentage of your work are exposed to either to always certification and I guess is there a biased.
Parts replacement rather than repair in those programs.
Yes, I would say the majority of or work is not sourced as a result of what we certifications today, we really view. The efforts. We've moved to date is putting ourselves in the right position when the influence may shift or more of the work may be sourced through always certification programs.
Nothing we don't have any coming through it but I would say it's not significant.
Today.
As far as the approach to the repair I think all commitment is really to do a quality repair as cost effectively as we can.
We still will use alternative parts to you'll manage repair cost appropriately. There are some always certification programs that will put more emphasis on the use of OE parts.
To the extent that occurs and it's the right thing to do for the customer.
We would do that but I think we have an obligation to make sure that we're managing repair cost effectively.
Okay and then one follow up question on the regional performance are you seeing any change and the competitive landscape.
Sort of more in the U.S side of the business as some other episodes consolidate and do you see any moves I guess either competitive pricing around the ERP program was there anything and markets.
No I would say we've seen nothing to suggest that.
Okay. Thank you.
Thanks Robert.
Your next question comes from making Mcdougall Cormark. Your line is open.
Turning Maggie.
I wanted to ask on.
The comments.
Around the gross margin.
Good.
All lines of changing gear P. performance pricing arrangement had an impact on gross margin.
And I'm wondering if that is tied into the outlook section comment.
Which includes statement around performance based ERP program.
Valving with insurance companies, and so theres, a continuous need to improve customer parents cycle time.
So I guess my question is first are those two comments connected to each other.
And then second if you can elaborate on the nature of the change in TRP performed pricing arrangements.
The nature of the investment or strategy that you have to customary parents cycle.
I would say the two comments are connected but as I believe we commented in the first quarter.
Performance based pricing may create some variability, but it's not a structural change. So the variation you see is really a quarter to quarter variation.
Something that we would expect to move up and down not necessarily significantly, but it would shipped over shipped up and down overtime.
The targets that we have for our insurance clients.
Do not really vary quarter to quarter. Some of it is based on market performance.
But the will we continue to look for ways to keep repair costs down to fix cars more quickly reduced length of rental.
And improve customer satisfaction.
But those are really significant drivers of the variability pricing.
Okay, and then follow up Im curious, if there's any labor related constrained to improving.
Customer satisfaction cycle time.
More availability of labor would allow us to process some of our work faster, although we work to scheduled repairs in to manage our cycle times and keep length, burnell bone and customer satisfaction up so.
I'd say, it's more availability of throughput rather than significant changes to customer satisfaction or cycle time.
Okay.
And the second question I have is around the M&A landscape and I'm wondering if you can comment on.
Both the competitive situation as well.
Opportunity.
Sort of type of opportunity that youre seeing most prominently in your pipeline.
The really hasn't been any significant change in this in quite some time, our pipeline is very healthy and we have a mix of both multi shop opportunities as well as single shop, and even greenfield brownfield opportunities. So there has been really no shift in the environment on that front.
Okay, Great and then just finally.
Maybe I'm wrong on this but it appears as though there may be a bit of an acceleration in the numbers intake centers that you're opening.
So first is that accurate description of your if your recent activity and then.
Second what are your future plans with regard to that strategy.
Considering I think obviously there is an opportunity to do so with that you have some constraints.
Yes, the labor constraint is a concern you have seen I'd say very modest acceleration of it.
Partly due to labor constraint, but we do see opportunity there I think it ties in naturally to the always certification strategy that we have underway.
So I would expect will continue to increase the number of intake centers.
Particularly where we believe we have capacity available or where we have an opportunity to.
Maybe more rapidly improving that capacity expansion.
Okay. Thanks, very much for taking my questions.
Thanks, Thanks Maggie.
Your next question comes from Jonathan Lim rest with BMO capital markets. Your line is open.
Morning, torrential rain Jonathan.
Are there any specific HR initiatives being planned.
That we should be aware of as we think about margin expectations for next year.
So it's so HR it to maybe.
Try to get get further clarification on the question, you're asking if any of the HR initiatives going to translate into significant incremental costs that will that may be challenged compressed margins, yes is out there.
Yes.
No. We don't have any any specific plans that I would expect to have that impact.
Okay, Thanks, and Tim as you look to take over the CEO role have you looked at.
Its current organizational.
Structure and footprint.
And do you believe that.
Continues to support the next leg of growth or.
Boy would be kind of approaching.
A level.
I am growing out of it.
The.
Capabilities of the of the the current organization.
We've actually made adjustments to the organization over the past few years like last quarter, we talked about the fact that we've appointed Chief operating officer for US collision at the beginning of this year. We also have no appointed Chief operating officer of our Canadian operations.
As part of that Weve expanded in the the leadership on the operating side. So I'm very comfortable that we have a strong team in place to continue to execute on the strategy that we've been executing for the past several years.
Okay.
Just to be clear does it make sense to continue.
Being domiciled in Canada with yourself and Pat.
Being us citizens.
Yes, I think we have a very strong team in Winnipeg and critical functions that are performed here, obviously were treated traded on the Toronto stock exchange. So I fully expect will continue to be domiciled here and Pat and I will continue to spend a fair amount of time and in Winnipeg as well.
Thanks for your comments.
Thanks, Jonathan Thanks, Jonathan.
Your next question comes from Zachary ever shed with National Bank Financial Your line is open.
Good morning.
Zachary morning.
For the pace of acquisition. The addition of location has been quite a bit higher this year than historical levels could you outline for US again, the factors contributing to that acceleration.
The acquisition as you know that come in lumps. So you mean, obviously much acuity and it all up and sort and you'll see this boat in activities. So there's nothing unusual.
While we continued to expand our corporate development team and.
So two to meet our growth targets.
Excellent and given the level of leverage that you have obviously dry powder substantial amount available $250 million, but given leverage where do you see sustainable pace.
Locations added per quarter going forward.
Currently we pick 1.9 times net debt to EBITDA and as we indicated in the past we are comfortable.
Two to two and half times net debt to EBITDA.
From time to time for the right acquisition opportunities.
Might go beyond that level, but the touch the level of on as to the state visits with comfortable with.
That's helpful. Thanks, and his last one for me could you dive into the US tax returns completion of filing in the third quarter and the impact that that had on your tax expense.
Yes, we typically make a provision.
Each quarter and then typically in the third quarter you true up so depending upon what kind of provisions we have made the you'll see that a pickup or you'll see an additional charge. So last year in 2018, we had a pickup and this year, we have a charge it does the reason.
Okay.
The differential and we've disclosed in the footnote.
Yes, so unfortunately as Pat says unfortunately.
This year the true up adjustment was modestly negative, but it was bouncing up against the comp comp period of last year Q3 that was a positive adjustments. So we added we actually had.
Wider spread in the divergence of results as a result, it up and if you normalize so far the tax act to the distribution you would have been volatile team the current quarter and for the compatible quarterly Caribbean 98 cents. So.
Excellent I appreciate the clarification I'll turn it over.
Thank you thanks.
Your next question comes from then check with JMP Securities. Your line is open.
Good morning, Ben for Doug Good morning.
I just want to.
So congratulations.
Brunken, Tim for their new roles.
And I do have though and I do have one question. So you either brokerage timken can answer.
When and it's tied to an M&A landscape. So I understand that the pipeline is very robust.
But I was curious.
If there any slightly more intangible.
Factors when you look at the when you look at potential centre in terms of geography or parts of the United States, where where you want to sensors to meet coming from.
Or is it is it simply the.
The business case for each centered regardless of where where it's located.
I think as we're considering new markets, it's attractive defined a platform acquisition to new market.
After we close on it provides us with good opportunity for continued growth with single shop, or Greenfield acquisition or Greenfield growth. So I would say that would be a criteria.
Today, there is still a tremendous amount of open territory across the us market anyway for us to grow in so I think it's.
We have enough opportunity that we don't narrowed down to a particular geographic area, but obviously, we have areas, where we have relationships and opportunity that will focus on and it would be for those reasons a good platform with the opportunity to grow from it.
Okay. Thank you.
Thanks Ben.
Your next question comes from Daryl Young with TD Securities. Your line is open.
Good morning, though.
Just one quick one for me.
Average.
Cost of acquisitions per store has been trending higher is that mostly reflection of more emmis odious. This is done in 2019.
Historical.
That's correct, though.
And so valuations remain effectively in the ranges we've talked about.
It's kind of five thats right.
Yes, okay.
Yes.
Okay, great. Thanks, that's all for me.
Thanks, Phil.
Your next question comes from Mac Bank with CNBC. Your line is open.
One of Matt amounting.
Do you expect technician capacity pressure on comparable sales to continue into Q1 Q2 of next year, where you're also lapping strong comparable periods or do you see that people initiatives, making significant progress before then.
Well, we're we're certainly working hard to have the people initiatives put us in a position.
To deliver good same still the same store sales growth so.
I can't predict the future exactly how it will happen, but we have lots of effort and focus underway to build our technician count and I expect us to have some success.
Thats It for me thanks.
Thanks, Matt Thanks, Matt Thank you.
Hi, Ken to ask a question. Please press star one and your telephone Keypad. Your next question comes from Steve Hansen with Raymond James Your line is open.
Hey, guys, sorry, just one quick follow up.
Earlier, just wanted to circle back on the concept of Greenfield Brownfield site development.
In a significant part of your growth strategy over the last.
Here is just trying to understand what type of markets do you want to be deploying that it's going to be more prominent going forward relative to the past.
I would say I would've expected to be.
Bigger share of our overall growth.
And really in any market, where we have our core operations and leadership in place a greenfield or brownfield opportunity makes tremendous sense. We've got good client relationships the ability to bring the work in the opportunity to have a site that meets our specific needs. So it's a very attractive.
Opportunity to build out of market. So Steve typically we look at to the existing maucher. So typically it's going to be aboard pawn. So we can leverage the management infrastructure, we have in place and number two.
The focus has not been with the past pilot penniless to the focus is more recent on the brownfield and Greenfield just would like to probably the classification.
We do balance that we do balance the fact that the that the.
The cycle time for putting in a new greenfield brownfield as longer. So if we have an immediate need we may need to look at an acquisition but.
But thats just sort of a.
For the clarification on Tim and pads response.
Understood Thats good color guys. Thanks appreciate.
Thanks.
There are no further questions Kevin this how much in the call back over to management.
Thank you operator, and thank you all once again for joining our call today.
And we look forward to reporting our fourth quarter and year end results in March again, with Tim leading that call.
Thanks again, everyone have a great day. Thank you. Thank you.
This concludes today's conference call you may now disconnect.
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