Q1 2020 Earnings Call
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Good morning, everyone welcome to the Blade Group services Inc. first quarter 2020 results conference call listeners I reminded that certain matters discussed in todays conference call or answers that maybe given your question asked could constitute forward looking statements that are subject to risks and uncertainties relating to the boys.
But your financial or business performance actual results could differ materially from does anticipated in these forward looking statements you risk factors that may affect people's are detailed in blades anyone finishing blend and other periodic filings and registration statement and you can actually access you use documents at state.
Got to be found at state Dot com.
To remind everyone that this conference call. It being recorded today Wednesday may 13th 2020, I would now like to introduce Mr. Chemo date, President and Chief Executive Officer of the Blade Group Stephens Inc. Please go ahead Mr. every day.
Thank you operator, good morning, everyone and thank you for joining us for today's call on the call with me today [laughter] study, our executive Vice President and Chief Financial Officer brought full Buck our executive sure.
We released our 2021st quarter results for markets open today, you can access for our news release as was our complete financial statements and management discussion and analysis on our website at Www Dot Boy group Dotcom.
Our news release financial statements and Mdna have also been filed on SEDAR. This morning.
On today's call will comment any impact to cope with 19 on our business in the mitigating actions. We've taken we will discuss the financial results for the three months ended March 31st 2021, and then provided generally business. Okay. Well then open the call for questions.
During the last two to three weeks with the first quarter covert 19 pandemic brought significant disruption to the worldwide economy, almost immediately clause in demand for collision repair services to decline by 40% to 50% of normal levels.
They seem to significant decline demand along with the uncertainty as to the full extent or duration of depend demick impact boy took immediate action focused on enhancing financial flexibility and liquidity and reducing costs to both sustain the business through this pandemic and to ensure that we will carry the opportunities that lie ahead.
The actions, including drawing down on our credit facility to increase cash liquidity engaging in discussion with our bank syndicate covenant modifications implementing restrictions on capital expenditures pausing unfunded and closing on acquisitions implementing various cost savings initiatives, including staffing reductions.
Salary and other compensation adjustments lease payment concessions and reductions to other variable expenses and most recently issuing common shares in a bought deal offering.
Looking at our results for the first quarter, 2020, Q1 sales profitability and cash flow raw negatively impacted by the business slowdown caused by the Covidien 19 academic and that began in the last two to three weeks of March our sales were 628.4 million a 12.6% increase.
When compared to the same period of 2019.
This reflects a 75.4 million dollar contributions from 119, new locations our same store sales excluding foreign exchange decreased by one of the have presented in the first quarter 2020 Foreign exchange increased sales by 4.9 million due to the translation of same store sales at a higher.
He was dollar exchange rate.
Same store sales, excluding foreign exchange decreased by 3.1% on a day's adjusted basis, recognizing an additional selling and production days in the U.S. and Canada in 2020, compared the same period of 29 team. The decrease in same store sales percentage was negatively impacted by an estimated.
Four percentage points or $21 billion due to reduced demand caused by the cobot nicely pandemic.
Gross margin was 44.8% in the first quarter 2020, compared to 45.3% achieved in the same period of 19.
The gross margin percentage decrease is primarily due to fluctuations in GRP pricing as well those lower parts and labor margins, partially offset by favorable mix of labor sales in relation to parts.
Operating expenses for the first quarter of 2020 were $200 million worth 31.8% of sales compared to 31.3% of sales in 2019.
The increase as a percentage of sales was primarily due to the impact of negative same store sales levels on the fixed component of operating expenses.
Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was 81.4 billion an increase of 4% over the same period of 2019.
Adjusted EBITDA growth was primarily due to new country to contributions from new locations. Adjusted EBITDA was negatively impacted by an estimated $8 billion due to the reduced demand caused by the cobot 19 pandemic.
Net earnings for the first quarter 2020 were 22.7 million compared to 21.4 million in the same period of 2019.
Impacting net earnings in both the current and prior year was a recording of fair value adjustments as well as a recording of acquisition and transaction costs.
Excluding these impacts adjusted net earnings for the first quarter 2020 was 20.2 million a one dollar per share compared to adjusted net earnings of 28.1 billion. One dollar and 42 cents per share the same period of the prior year.
The decrease in adjusted net earnings as a result of negative same store sales growth and the resulting negative leverage on the fixed cost component of operating expenses, along with increased finance depreciation and amortization costs. Adjusted net earnings was also negatively impacted by an estimated $6 million due to.
Reduced demand caused by the cold in 19 pandemic.
At the ended the period, we had total debt net of cash of 949.9 million compared to 893.2 million at the end of 2019.
Total debt increased as a result of acquisition activity as result of the adoption of IRS 16 total debt net of cash included lease liabilities of 550.5 million as of March 31st 2020, and 513.4 million as of March 30, Onest 29 team.
We continue to have a very strong balance sheet conservative leverage at the end of the first quarter 2020, approximately 1.9 times adjusted EBITDA on a pre I as far as 60 basis.
During the first quarter 2020, we increased and extended our existing revolving credit facility to 550 million us with an accordion feature we can increase the facility to a maximum of 825 million new US accompanied by the addition of a new seven year fixed rate term loan a and the amount of one.
Third and 25 million us maturing on March 2025 in March 2027, respectively.
With these facilities, we now have over a $1 billion of dry powder available cash and existing credit for financial flexibility and growth.
As previously noted out of an abundance of caution during these uncertainty created by the Cobot 19 pandemic in late March we drew down on all of our available credit facilities other than the swing line credit facilities and the accordion feature providing us with significant cash balances of approximately 576 million at the end.
The first quarter.
Additionally, subsequent to the end of the first quarter, we announced the issuance on a bought deal basis, a 1.1 million common shares at a price of 183 per share and a may 11th the underwriters underwriters exercised their overallotment option committed to purchase an additional 160.
Five their shares at a price of $183, bringing total gross proceeds to 231.5 billion.
We have also amended certain financial covenants under our credit facility to provide additional covenant headroom and the amendment includes a suspension voids requirement to comply with its leverage and interest coverage covenants from July 1st of 2020 to December Thirtyth of 2020, as well as to provide more flexibility in the Kelly.
Relation of such covenants, beginning with the second quarter 2020, and through the second quarter of 2021.
During the suspension period, the company is required minimum liquidity covenant calculations, which given the company's cash position an undrawn revolver is not expected to be burdensome.
We continue to adjust and adapt to the ongoing changes as a result, the cold 19 pandemic.
Rapidly flexing Boyd's operating expenses and effectively managing working capital capital expenditures and investments in growth has enabled us to navigate this challenging environment, while preserving our ability to scale, our business lower if necessary and higher as demand increases our solid balance sheet and tremendous financial plans.
Building combined with our scalable reopening plan will allow us to take advantage of market opportunities as they present themselves.
As previously noted in the weeks just prior to the end of Q1 overnight team began to significantly impact boyd's business with reductions in demand ranging from 40% to 50% of normal levels.
However, despite the decrease in demand our April sales were down less than 40% as we drew down a month opening work in process and very recently, we're seeing new demand that have continued support similarly level of sales thus far in may.
As a result in select markets, we've begun to recall some of our laid off team members.
We continued to be very careful about near term capital expenditures prior to the cobot 19 pandemic for 2020, the company a plan to make cash capital expenditures, including those related to acquisition and development of new LOE, excluding those related acquisition and development of new locations within the range of one point.
6% to 1.8% of sales.
In addition to normal capital expenditures the company plan to invest in led lighting and corporate applications and process improvement efficiency projects. However, we paused on these planned investments due to the impact of coven 19, as the impacts of covert 19 become clear the pause will be reevaluated and critical and.
Hi value investments may be funded.
Growth in the 12 month for the end of the first quarter of 2020 brought Boyd within 97% of achieving its 2015 five year goal of doubling the size of the business based on a trailing 12 month revenue basis on a constant currency basis. However in analyzing the most recent quarter.
Oh boy is effectively achievers line.
As a result, we're closing out this goal as accomplished at the end of Q ones. Our current plan is to articulate our next level growth and operational goals in the second half of 2020, once we have greater visibility into the extend duration and longer term opportunities and challenges of Coca 19.
As has been our practice I would now like to comment on some potential for insider selling as we have previously disclosed Brock pullback moved into the role of executive Chair with my appointment to President and CEO on January 2nd of 2020.
He is no longer CEO, you may reduce its share ownership to a more appropriate level.
To reflect his new role and for general estate planning purposes.
In summary, and in closing.
Incredibly proud of the steps, we've taken including the recent bought deal offering the amendments to the credit facility covenants and the expense in capital spending reductions we put in place along with these along with the recent increase to our credit agreement. These steps position us well for the future. Our team has adapted to the current.
Women and allowed us to maintain our strong financial position.
We've been able to adjust our business to manage through this challenging situation will also preparing to ramp back up as demand for our services begins to rise and growth opportunities emerge.
Boy team members have demonstrated exceptional perseverance and entrepreneurial spirit to adapt our operating excellence strategy by developing and executing revised operating procedures that provide a safe and helpful work environment, while maximizing the business opportunities that exist.
We believe that there will be many opportunities that come from this crisis, both internal and external we're preparing to put ourselves in the best possible positions to come out of this price prices as a stronger company.
I'm humbled by the sacrifices our team members have made and look forward to being in a position to reinstate many of those who are laid off when the time as right. Our priorities remain taking care of the health and safety of our team members and customers will scaling our business appropriately during this pandemic as well is preserved.
Financial flexibility and preparing for the opportunities that lie ahead.
With that I would now like to open the call to questions operator. Thank you.
Reminded you ask a question you want me to press Star one on your telephone to withdraw your question has to ponder hash key please standby will the compared to Q any roster.
Your first question is from David Neumann with Asia again. Please go ahead. Your line is open.
Good morning Jen.
It.
Probably thought your first quarter might be a little bit easier, Tim but instead the world slipped on its head says one for the history books I would imagine.
First question I'm sure if you're going to bite on on this but I can ask anyway. It does look like if I look at your swing lines accordion, an equity raise that you could have over 1.2 billion Canadian is that is that correct.
That's correct, Okay, and I never look of the suspension of easing a covenants it seems that in terms of M&A.
You know single shops regional MSR shows, but are you looking at anything that might be larger and maybe perhaps enter into states, where you want to grow your market share.
David I would say, we don't have anything specific yet.
One of prepare ourselves.
To take advantage of opportunities when the time as right both from the market perspective, and certainly we put ourselves in a good position for that.
Okay. Tim So these this financing David this financing is going to probably not tremendous opportunity for us and.
Markets to know recover we will have a substantial competitive advantage compared to other made the players in the industry, so well position to take advantage those opportunities. Okay, and if you look at sort of the M&A sort of due diligence that you have to do and things like that.
I would assume that you are still burning up a telephone lines and.
Talking to potential party other parties Counterparties, but you mean you have to do your due diligence what do you guys look for in terms of reopening the economy, what criteria makes sense to resume.
The due diligence and kind of getting on their kicking the tires.
Well I think David the.
Biggest concern probably does not on how we conduct due diligence I mean that there will be challenges and that we really need to be in a position where we're comfortable that our team members that are.
Executing on the integration of businesses can do so safely which means they have to be able to travel we have to make sure that we've got to write operating practices in place. So that there were when they're in trading new team members. They can do it safely. So really I'd say those are probably the things were considering more than how do we.
Please the due diligence much much of the due diligence can be done remotely. Obviously, there are some onsite things, but much can be done remotely, but it's really more matter of getting the comfortable that team members can travel and be in the markets again.
Got it.
Okay, and then from a demand perspective, I mean as I look at the the situation in China, what's involved there.
And distracted driving more accidents near Valmont average and more families maybe taking staycations and then and in fact people in China in elsewhere, where they're opening up those economies, rather thing ill take public transit or staying in the cars and it's not only reach pre pandemic flu.
Levels, but exceeded it do you think there's a real opportunity that you might see a real increase here in demand for your services coming out of this.
I think it's too early to know that would with any certainty yet I do think we've all read a lot of the same articles I'm sure that there theres plenty of speculation that people are going to be concerned about using public transportation and that theyre not going to want to use air service at least not the same at the same level, we were at for quite some time and.
That could that combined with low gas prices.
Could allow for greater expansion miles driven that would be great for us, but it's difficult to predict that.
Okay last week by speaking I think David David is picked relating to think they're going to puts and takes in addition to what I can comment I think people could you elaborate that people might be working from home more productive reduce the commute to work. So I think it's difficult to comment at this point in time, so they're going to be pros and cons.
Good point.
Sorry, if I just might out as well its blockade we also house.
Actual for.
The the economic implications of this across across our markets. So there there are both pulp potential positive.
Outcomes as well as some significant negative outcomes that may influence ultimately miles driven into down in the future.
Okay last one from me guys I'm not sure reclassified some of your centered at intake centers, how how many of those and do you have you closed any facilities are reduced operating hours, maybe just a sense of what your network.
Right now in terms of physical locations.
We've consolidated production, we haven't closed facilities, but weve consolidated production to concentrate work.
To take advantage of the opportunity to reduce our costs by doing so.
So thats really been the primary tactic from that standpoint.
Excellent thanks, guys great moves.
Thank you thanks, David.
Your next question is from Faraz Ahmad with Laurentian Bank Securities. Please go ahead. Your line is open.
Hey, good morning.
Hi crush.
Just a question have you guys.
The impact and I know you mentioned, a little bit but in the GRP pricing since the pandemic began and have you had any kind of conversations with some of your insurance partners.
We've been in constant contact with our insurance partners.
Really no no comments at all on pricing I think.
The insurers have been incredibly gracious and.
Supportive of the collision repair industry.
No that their claim counts are way down and I would say that.
They are treating repairs very fairly on this.
Okay for example.
And just another one.
You mentioned that you are looking to recall many of the laid off workers in a in jurisdictions.
Of those that you all have most of them agreed to return or have a lot of them you know found work elsewhere.
Yes, I don't have.
I haven't studied that we have not had a problem with the very limited number of recalls that we've done but given the employment situation.
Im hopeful that it won't be an issue.
Okay.
Okay. That's it for me thank you.
Thank you thanks for us.
Your next question is from Jonathan remain with BMO capital markets. Please go ahead.
Good morning.
Hi.
And then Pat on the fixed costs and the adjustments that you've made.
Are you in a position this morning to walk us through the categories of fixed costs that have been adjusted to help us with our estimates.
Oh, no beyond walk the have disclose Jonathan yes, we don't want to get into more granular details.
At this point in time.
Understandable.
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Maybe domestic question a different way and the Mdna there was a comment.
Okay.
Jonathan any there.
Sorry can you hear me now now we can now we can give you yes.
Sorry about that in the Mdna there was a comment that the current level of sales will make it challenging or to consistently achieved more than modest levels and EBITDA.
Could you just explained the need for the word consistently and.
Is that just referring to employee compensation arrangements or is there anything else.
That would cause.
EBIT da to not continued to be modest at this level of sales.
I'd say, it's really just the reality of the fixed cost structure, the business and and sales very significantly we can make adjustments to fixed costs, but we can't adjust fixed costs adequately too.
Eliminating the impact of the sales reductions and that risk then could make it difficult to consistently deliver positive EBITDA.
So Jonathan as you know.
Cost of sales this variable backed into Opex, we have a fixed cost like occupancy.
I'd also like a part of the assortment and support you saw its a step function. So.
You might be able to reduce those things to be on range, but we didn't have ended its fixed so.
That's what we're trying to say that you have to absorb those fixed costs. So you can directly reduced the cost in proportion to the sales.
The other thing Jonathan I might out is that.
When you are dealing with a modest level.
EBITDA.
Any.
Any variability in the expenses that are different difficult to control and there is variability quarter to quarter.
Good.
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But what you on the other side of the breakeven ledger. So it's really just to caution readers should say look.
At the current level of sales.
You know there there could be an expectation is for modest levels of EBITDA, but.
But because when you're dealing with a modest level. It doesn't take much expense variation, which is normal quarter to quarter to tip the scales and go the other way.
Thank you.
One more topic.
Are there collision repair operations experiencing any disruption departs supply at this stage.
We havent seen any.
In a meaningful disruption on the parts supply side.
I will pass line. Thank you.
Thanks, Jonathan.
Your next question into me, Steve Hansen from Raymond James. Please go ahead. Your line is open.
Greetings good morning, guys.
Landing gear.
I don't know dry powder at this point I think is fairly suggestive of a strong M&A plan, but.
I'd like to focus if I could just on some of the other elements.
Thank you, Mike or taking here is there anything that you've been doing to take advantage of the crisis, whether it's in terms of it mission recruitment.
Are you seeing other smaller shops.
Show signs of distressed where the competitive environment broadly speaking in other words do you expect to see some capacity close in the system and does that allow you to be more aggressive on the other side of this I'm just trying to understand outside of just strictly M&A. What other elements you might be contemplating in terms of being more offensive here. Thanks.
Yes, I would say that.
On the recruitment side right now we don't I know, it's very unusual for me as soon as we don't have recruitment need right now we've got.
Plenty of people available to do the work that's available.
Hopefully that will change in the not too distant future in terms of the other impacts.
I would expect that there will be some players that may drop out as a result, this downturn and probably depends on the length of this the depth and the length of it but I think there could be some opportunities available for properties. As a result of this downturn that could be attractive an accretive to us.
Helpful and just what just one follow up if I may Tim you've mentioned in the past.
The content Greenfield as being a new part of the strategy is that's is that something in the current environment that still lies the fairways out I'm just thinking again, if you're not in a dry powder and the M&A focus relative to building out the sites do want to speak to that and how that might play into the new three or five year plan, we lay that out.
No we haven't really solidified our next three to five year plan. It I think greenfields will be a part of it but I think in the near term there are likely to be what we refer to really is brownfield opportunities or existing properties. It could be retrofitted and maybe even existing former collision repair businesses that can be reopen.
Under our brand.
Very helpful guys. Thanks, It's for me.
Thanks, Thank you.
Your next question is from Bret Jordan with Jefferies. Please go ahead. Your line is open.
Hi, good morning, guys.
Great are you seeing any change in ensure behavior on the GRP programs are they pushing volume away from repairers, they see as having liquidity crisis or maybe less able to withstand the shock.
I have not seen that breadth.
I think that ensures my my perception is that they're trying to be fair in the marketplace and keep.
Keep the system going I.
I don't have any any specific specific information that would suggest otherwise.
Okay, and then I guess.
Then the the the mix I think it sounds like maybe we've seen a little bit of a pickup in and crashed volumes are you seeing any meaningful switch where the jurors our totaling more cars I mean, its DCC was talking about.
Your speed crashes with less congested roads, creating greater severity or are you seeing any real change in your mix.
I would say, it's too early for us to be able to tell that those are things that will come out over a period of months and we're really just weeks into this so I would say at this point.
We've not seen that.
Okay, and then a final question I think it sounded as if maybe you were seeing some sequential pickup I think you'd said may was kind of flat with April but obviously, it's a.
Mix shift April was pulling forward some demand than may be more natural demand are you seeing sequential improvement in may.
We have seen some improvement in demand and I think in the comments I made we talked about April being up less than 40% measured in revenue and that.
Thus far in May.
Based on some improvement in demand.
Think despite the fact, we didn't come into may with a strong level of work in process that thus far in may we've been able to produce at levels similar than April.
Okay, great. Thank you.
Thanks, Greg Thanks, Brett.
Your next question insulation, making you make Doug we could you go from Stifel. Please go ahead. Your line is open.
Good morning, Meg and one I guess so good morning, guys wondering if you could help us understand how are you.
Have adapted in terms of your actual operation system to shop to.
Protect employees and create an environment that means that you can continue working despite some of the house precautions that people are having to take.
And then secondly, as demand recovery, how should we be thinking about any such precautions with regards to shop efficiency, both for yourselves and just industrywide funk.
Well on the adept in of the operations I think our operating team really combined with.
With HR has done an outstanding job of change in our operating practices to maintain a safe environment.
Some examples would be.
Shortly after the pandemic hit.
We shifted to what we call a drop in go model, which allows our customers to literally leave their car in the front parking lot dropped their keys in a box have no face to face contact with our team member.
We them would clean the vehicle.
So the did say per employee to enter.
Prepare the estimate or the repair plan and put it into work. So we've really set it up so customers really do not need to come in there on our offices for their service. We also implemented technology that allows us to right.
Estimates by photo.
The tool in the consumers can use to take photos and submit them to us and we can return their estimate to them electronically and then schedule the repair for drop off.
We've.
Done some of the things that basic things I think that you would expect we've got the right safety and cleaning supplies into our shops, which was not easy early on but we've got the right supplies in the shops protective equipment cleaning supplies hand sanitizer.
Sanitization products for the vehicles.
And we've trained our staff on those we put and communicated very consistently social distancing guidelines. Fortunately our shops are not high traffic and it's not difficult to have people stay at least six feet apart.
So we've done a number of things like that we're also evaluating as we scale back to more normal business levels, what additional processes and equipment will need to put in place to maintain a safe work environment.
In terms of shop efficiency.
The approach that we've taken as to concentrate production, which has provided for reasonable levels of shop efficiency.
We've done that in a way that scalable up and scalable down so as demand begins to return.
We would evaluate when to turn a current intake center into production facility and then we would begin to load that would work appropriately so that we could get reasonable scale out of it so any efficiency losses.
We might experience I would expect too.
Cover up over a period of weeks.
Does that answer your question Mega.
Yeah, that's really helpful. Thank you.
If were to think about.
Breakeven level for sale.
With regard to.
EBITDA margin.
You know just trying to think about where you where we're at with revenue down about 40% sounds like maybe high Thirtys 30.
Give or take and as the Superman recover.
Where would you anticipate that business started.
Breakeven point or or better.
Oh, Yeah, we don't want to.
Good day to the specifics Maggie.
You can you make it or assumptions, we've talked about the variability alpha the cost of sales and we've talked about within the 36% thoughtful Opex ward is fixed and what if we able so you can do your own modeling and you don't want to offer guidance about breakeven point.
Okay. Thanks, and then just one final question, which I think with touched on by another person, but maybe try to ask is different ways.
How do we square the guidance for sort of a pause on M&A in the near term.
Significant amount of dry powder that now.
And is is it primarily started an insurance policy in the interim and and preparing new for eventual return to growth or is there something else that we should read into that.
I think your first characterization of what was was fair I mean, we we're well prepared with a strong balance sheet to take advantage of opportunities when it's appropriate to do so and.
We don't yet know when that will be but we will be well per port when it occurs.
Thanks, a lot has a great money.
Thanks, Mike Thanks, Mike.
Again, if you like to ask a question for you.
Our one on your telephone keypad.
Our next question is from Murray with Altacorp capital. Please go ahead. Your line is open.
Yes, Thanks, guys 40 Kris.
Chris.
Thinking about.
Maybe restarting or how we get going I mean different states have different shelter in place rules in California give me a little bit different than Texas or say either on the other areas, where you may have some some operation. So I guess a couple of things one it feels like.
Will burn down a lot of the work in process.
Time that I guess, we start getting to return, but how should we be thinking about your ability to essentially restart the business.
When we get to whatever that point Mike.
Yep.
Chris when you talk about burned down work in process.
No we've talked about this on past calls, but we generally don't have massive amounts of work in process stacked up anyway of there could be times, a hailstorm or something like that causes at the local market area, but our work in process inventory or backlog isn't measured in months, it's measured in weeks or.
Even days.
So.
So I think in terms of restarting the business, though we've we believe weve.
Right size the business right now to the appropriate level.
For the work that we have available in the market and as things pick up we would reopen production facilities convert intake centers back into production facilities kind of as needed. We're monitoring the business very closely. So we know every single day, where the activity variance very.
Since our or whether it's up or down so.
Given the current environment, we're prepared to scale up.
Appropriately we can do so quickly we believe if we need to but it's likely to be gradual and we still have the ability to scale down if market slowdown.
Yes, I like manufacturing overhead that shut down to have to how to compensate you find to reopen OS is relatively easy we have to recall people and that's we've commented on supply chain has not been just update so it's a very scalable model.
And I might further out that it's scalable on a market by market.
Basis, So Chris you commented on different to recovery plans in different states in different markets will always recovery plan can be adopted to what's happening in specific markets. So we could be contracting in a particular market if things are bad there, but expanding in another market.
Alright fair enough.
And then maybe.
This is maybe a little theoretical but also goes to.
Having to having to think about the crisis first part of this question.
First of all are you, taking any or anything like a rent deferral or anything like that I know you lease a fair number your properties.
Are you are you able to take advantage of that or give any agreements that will let you from a cash flow perspective kind of take some of that haircut into Q2, maybe moving that to future periods and then the second part of the question and I think you kind of alluded to it does this.
Seller rate.
Use of intake centers, and maybe going to larger facilities, but that may be more efficient on a fixed cost basis.
In certain areas.
I would say on your first question Chris on the.
The rent side.
I would view the actions we've taken more generally is working hard to manage our expenses and working capital. So we've really looked at expenses across every part of our business and then made efforts to reduce or defer whenever we can I wouldn't talk specifically about red.
We really look and every quarter for every opportunity that we can identify to reduce our cost today and preserve our cash.
In terms of Pat do you have anything or Brock anything you want to add to that.
I think you kind of crazy well Tim.
Okay, and then on the Intakes Center I think Thats a good question is is.
Most of the people on this call no we have been increasing our use of intake centers.
Over the past couple of years, we think it's a model that's good for customers and good for insurance clients.
I would say the event we've gone through now.
They provide further validation of that but love to see what the how the market react to it once we come out of this.
Alright fair enough I'll turn the line. Thank you gentlemen.
Thanks, Chris Thanks, Chris.
You have a follow up question from Jonathan Lasik BMO capital markets. Please go ahead.
Thank you Tim could you just expand on your earlier comments about signposts that you're looking for I know that you said that.
The integration teams need to be able to travel safely on airplanes.
Are you being guided by.
Interstate.
Travel guidance there is the team.
Base within the U.S. already can you just expand on what you're looking for and what we should be monitoring for an outside.
Yeah, I would say that our acquisition integration team.
It is generally the majority of resources are in the U.S.. So we wouldn't if travel was safe and markets in the us.
Then we could deploy people from the us into markets to do that I think our current assessment is we're not there yet we're not at a point where were we be.
Comfortable that the environment or that the practices available to us make sense to do that but it would not require.
Generally people across between Canada and use.
So Jonathan I think.
It's not like we have an extremely object to create PDL one to 304 check box and then going to its going to judgment call. So we need to be comfortable knowing that it's the right thing to do.
And it's a matter of time, whether it be wonder do this in October if somebody it doesn't matter so be it in a long Jane and good about solution to take advantage of that.
That's how we look at it.
Okay. Thank you.
Thanks, Jonathan.
And we have a question from Steve Hansen with Raymond James. Please go ahead.
Yeah. Thanks, just a quick follow up if I may on the M&A environment it might be too early to tell but with the discussions you've been having thus far the last month or so how do you feel about multiple expectations on a go forward basis here do you perceive there to be any changes at all the whether it be downwards or upwards and just how do you think that.
Influences your willingness to pay going forward. Thanks.
I don't think we haven't perspective on that yet because the market really hasn't.
I've been reengaged.
I do think that there will be.
More of the brownfield opportunities that I mentioned earlier.
It could be very attractive so.
That may.
Shift our focus in the near term.
To those types of accretive opportunities.
And when you when you say brownfield, Tim just to clarify on on how that would be deployed is that is that really a backfills strategy, where you would be looking to backfill density in an existing geographic footprint or would that be punching in new markets presume, it's the former not the ladder.
Is likely to former I mean, we would if there was a compelling opportunity we would consider it the easiest compelling opportunity for that type of growth is in a market, where we already have existing leadership in operations.
Understood. Thank you that's it for me.
I, just sorry, Steve I, just might add to the comment on multiples and Tim as.
Tim.
Said, we really can't tell yet, but I mean intuitively.
The longer that's the.
Business is businesses within our industry are hurt by.
Current situation the intuitively one would think that.
The more stressed and distressed some businesses space the more.
The more eager they may need to look at strategic alternatives for their business. So that's an intuitive answer it's not a stock based validated answer, but I think directionally. We would expect that said there will be more motivated sellers.
No understood and actually just as a is it relation to that do you think you'll need to scale up Your Corp. Dev team then as you sort of contemplate the number of opportunities that might be available and in combination with your dry powder.
No we have.
Sufficient capacity now Steve if need be they can scale adopt easily.
Okay. Thank you.
Thank you.
You have a question from the line as making it difficult with Stifel. Please go ahead.
Thanks, just one follow up from me can you comment in in your opinion.
Right, what you believe that relationship between miles driven and closings will be.
I don't think we've ever really seen as big of a drop in terms of shopper traffic volumes, it's quite an unusual that so just trying to think through the relationship between the two variables and.
And I'm, assuming you're not linear but in your experience. If you could you comment on what you think that might have had that may work out. Thanks.
Yes, I think they are pretty closely linked begging the miles driven.
On a high level, that's all from broken out in the two components.
Kind of the commercial or longer haul truck component versus the balance of the market.
And in a recession, the long haul driving does tend to reduce more significantly than the more local or neighborhood, driving which is probably better for the collision repair industry, but there is a pretty close link between miles driven and accident frequency.
Okay. Thank you.
And we do have a question in the light MTV, namely the Shaygan. Please go ahead.
Just a quick follow up.
More for Pat if you look your fixed costs I mean, the definition of variable semi variable or fixture semi fixed or whatever.
Is the vast majority of what you would consider to be fixed cost pertain to the leases or is there something else out there. So if we're doing we're looking at the negative operating leverage that might occur in this environment, just trying to get a sense in the off pack.
If it's just really you're thinking about the leases.
No I think if you look at a day reading all the Opex we have.
Approximately depending upon the pre effort as opposed to up but it's how you want to measure but on a pre funded basis you should measures I don't 36%. So the occupancy you thought around 8% to 10% understood. My husband is a 12% to 14% and then all of the is the rest. So the first two components all Quincy I think towards that.
The rent utilities maintenance taxes, so that's pretty much fixed.
And obviously you may have a lucrative an attitude that bucket is pretty much fixed and the store does not so it might as maintenance support is a step function. So we do that they don't want me to fix but.
Total company to accomplish this hoping I'll call upgrade income.
He and advertising and things like that.
So so you can make a judgment calls about what is fixed and what is available in those elements actually that's very helpful. Thanks Pat.
Thank you David.
They are currently no further audio questions at this time I turn the call back over to the presenters.
Hi, good. Thank you operator, and thank you all at once again for joining our call today, we look forward to reporting our second quarter results in August.
Thanks, and have great day Bye bye.
This concludes todays.
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