Q2 2020 Boyd Group Income Fund Earnings Call
Mr. As a reminder, that certain matters discussed in todays conference call for answers and maybe giving the questions asked could constitute forward looking statements are subject to risks and uncertainties relating to boards future financial or business performance.
Actual results could differ materially from those anticipated these forward looking statements.
The risk factors that may affect results for the total Boyds annual information form another periodic filings. The registration statement you can access you documents at Cedars database.
Let's see dot com.
I'd like to remind everyone that this conference call is being recorded today Wednesday August 12 2020.
Oh, no like introduce Mr., Tim O'dea, President and Chief Executive Officer Wait Group services like please go ahead Mr. o'dea.
Thank you operator.
Good morning, everyone and thank you for joining us for today's call.
On the coal with me today, our pets that capacity, our executive Vice President and Chief Financial Officer, and brought full Buck our executive chair.
We released our 2022nd quarter results before markets open today, you can access our news release as was our complete financial statements and management discussion and analysis on our website 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 come in in the impact of Coca 19 on our business, we will discuss the financial results for the three and six month period ended June Thirtyth 2020, and provide a general business update we will then open the call for questions.
As was expected the second quarter 2020 was significantly impacted by the cobot 19 pandemic with the primary impact being a significant reduction in sales due to reduced demand for our services.
Throughout the quarter, we took proactive steps to continuously adapt to the new environment, including both financial management actions as well as increased health and safety practices, such as contact free customer drop off and pickup enhanced vehicle cleaning practices, social distancing and worried about.
Personal protective equipment.
Thus far boy, that's been able to successfully addressed and manage through the challenging situation that has arisen as result of the pandemic.
During the second quarter, we recorded sales of 426.5 million and adjusted EBITDA of 49.2 million.
However, while we were able to effectively manage down many operating expenses to mitigate the impact of the decline in sales certain expenses, which have a significant fixed component to them increased as a percentage of sales.
This along with the fixed in nature of depreciation and amortization as well as increased financing costs incurred with respect to the temporary drawdown of credit facilities contributed to an overall net laws and the second quarter of $7.1 million.
Looking further into our results for the second quarter 2020 sales were 426.5 million, which was a 25.5% decrease when compared the same period of 2019.
This reflects a 30.4 million dollar contribution from 79 new locations.
Our same store sales, excluding foreign exchange decreased by 33% and the second quarter would that decrease be negatively impacted by the slower economic reopening in Canada.
Foreign exchange increased sales by 12.2 million due to the translation of same store sales at a higher U.S. dollar exchange rate.
Gross margin was 46.8% in the second quarter 2020, compared to 45.9% achieved in the same period of 2019.
The gross margin percentage improved as result of higher labor margins at a higher mix of retail glass sales.
In addition, the recognition of the Canadian emergency wage subsidy and the amount of approximately $2.2 million helped to mitigate incremental cobot labor costs and also contributed to gross margin improvement.
Operating expenses for the second quarter, Twentytwenty were 150.4 million or 35.3% of sales compared to 31.9% in the same period of 2019.
The increase as a percentage of sales was primarily due to the negative impact of the cold in 19 pandemic.
Well, many operating expenses could be managed in relation to the decline in sales and in order to reduce the impact the pandemic on our business certain expenses, such as benefits, which were extended the step that was temporarily laid off as well as certain cost the could not be reduced such as property taxes and utility cost increased.
As a percentage of sales.
In addition, operating expenses benefited from the Canada emergency weighed subsidy and the amount of approximately $2.5 million, which helped to mitigate incremental Cobra 19 indirect wage costs.
Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $49.2 million a decrease of 30.6% over the same period of 2019.
The decrease was primarily the result of lower sales due to the impact of the cobot 19 pandemic and operating expenses the could not be mitigated.
Net loss for the second quarter of 2020 was 7.1 million compared to net earnings of 13.7 million in the same period of 2019.
The current quarter loss was impacted by the fixed nature, depreciation and amortization as well as increased financing costs incurred with disrespect to the temporary draw down on credit facilities.
The net loss and net earnings and both the current and prior year were also impacted by the recording of fair value adjustments and acquisition and transaction costs.
Excluding fair value adjustments and acquisition and transaction costs adjusted net loss for the second quarter of 2020 was 6.9 billion or 33 cents per share in comparison to net earnings of 23.5 billion or $1.18 cents per unit and the same period of the prior year.
For the six month period ended June Thirtyth reported sales were 1.1 billion a decrease of 6.7% over the same period of the prior year driven by same store sales declines of 17%, partially offset by contributions from new locations that had not been an operation for the full compare.
But a period.
Gross margin was consistent when compared to the period of 2019 at 45.6% of sales.
Operating expenses decreased by $7 million, when Kevin compared to the same period of the prior year, primarily due to coordinate team related cost reductions such as staffing reductions salary and other compensation adjustments and reductions to other variable expenses.
Adjusted EBITDA for the six month period ended June Thirtyth, 2020 was 130.6 million compared to 150.4 million in the same period of the prior year.
The 27.8 billion dollar decrease was primarily the result of the business slowdown caused by the cobot 19 pandemic, including operating expenses the could not be mitigated.
We reported net earnings of 15.6 million compared to 35.1 million in the same period of the prior year adjusted net earnings per unit decreased from $2.60 to 65% and adjusted net earnings per share. These amounts were significantly impacted by the coal that 19.
Pandemic.
At the ended the period, we had total debt net of cash of 708.7 billion compared to 949.9 billion at March 30, Onest 2020, an 893.2 million at the end of 2019.
At the onset of the pandemic, we faced significant uncertainty regarding the extent and duration of the impact of cobot 19 on our business.
In addition to acting quickly to reduce our expenses. We further address the uncertainty by drawing down on our credit facility and raising equity to ensure our balance sheet could withstand the impact of the pandemic and still be prepared prepared for growth as condition stabilized.
Total debt net of cash decreased as a result, the offering which was completed in may of Twentytwenty.
With greater confidence now in the extended the cobot 19 impact subsequent to quarter end, we repaid 167.5 million use of the revolving credit facility with available cash.
As a result of the adoption of I FRS 16 total debt net of cash included lease liabilities of 538.6 million compared to 550.5 million as of March 31st 2020, and 513.4 million as of December 30, Onest 29 team.
The company has resumed its capital investment plans and expects to make cash capital expenditures, excluding those related acquisition and development of new no new locations within the previously guided range of 1.6% to 1.8% of coal that affected sales.
In addition to these capital expenditures the company has invested during the first half the year approximately 2.9 million in led lighting of a planned 5 billion dollar investment in order to reduce energy consumption and enhance the shop work environment.
This investment will not only provide environmental and social benefits, but also achieve attractive returns on invested capital.
Additionally, the company plans to expand its while operating way practices to corporate business processes. The related technology and process efficiency project will result in a total nine to 10 million dollar investment over the next 15 months and will also be expected to streamline various processes as well as generate.
Economic returns after the project is fully implemented this initiative began in the third quarter 2020.
Thus far we've been able to successfully adjust and manage through the challenging situation that is a result arisen as a result, the cobot 19 pandemic.
Our efforts delivered positive operating cash flow during the second quarter notwithstanding the substantial decline in our revenue caused by the cobot 19 pandemic.
Recently, we've been able to increase our production capacity as demand for collision repair services rises and we're once again beginning to evaluate growth opportunities as they emerge.
Our capital raise.
Together with our revised credit agreement provides us with availability of dry powder of over $1 billion, which will allow us to take advantage of market opportunities as they present themselves.
The covert 19 pandemic continues to impact our business thus far in the third quarter 2020 same store sales activity is continued below normal levels at approximately 14% to 16% below the same period of the prior year.
With both fewer miles traveled and reduced traffic congestion impacting accident frequency.
As demand has gradually recovered from the lows experienced in early April we have converted many locations back from temporary and take facilities to full production facilities and were called many employees who had been temporarily laid off.
Notwithstanding the actions, we've taken and adjustments we will continue to make certain operating expenses and personnel costs along with the ongoing reduced demand for services will continue to impact the levels of adjusted EBITDA can be achieved during 2020.
As we look to our future we do plan to communicate our five year plan late this year likely in conjunction with our Q3 earnings release.
In summary, and in closing I continued to be incredibly proud of the steps we've taken to adjust to this new environment and to position ourselves well for the future.
We've been able to adjust our business to manage through this challenging situation and are beginning to evaluate growth opportunities as they emerge.
We continue to believe that there will be many opportunities that come from this crisis, both internal and external and we put ourselves in a good position to come out of this crisis as a stronger company.
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 as preserving financial flexibility and preparing for the opportunities that lie ahead.
With that I would now like to open the call the questions operator.
Thank you.
Like to ask a question. Please press Star then one on your telephone keypad again star one to ask a question.
The first question is from Steve Hansen with Raymond James Your line is open.
Yes, Brian.
Okay.
Just a question first of all on the employee base.
We had any difficulty in pulling employees back Tim it all at the hearing some accounts, but it's been difficult to get some conditions back into the shops.
To support growth programs in place just wondering thats impacting your recovery at all.
Most of our technicians would make more than what was offered through unemployment and as you may know at the end of July the additional federal unemployment supporting the use which was significant ended so our technicians 100 and far more work in than they would.
On unemployment now so I don't think that that's a driving factor.
Okay helpful.
Just on as you evaluate these temporary intake centers reverting back to full scale facilities do you think that all of them ultimately come back I only ask because of the hearing some accounts of people sort of trying to reassess that broader footprint and whether they need actual fullscale facility the everywhere or some in some cases these didnt take centers might be sufficient.
From an operational efficiency standpoint.
I would not anticipate permanent closures of the and take facilities.
Okay, Great and then just last one if I may as you described the the recovery process, where you stand today, 14% to 16% I think you suggested that is that started taper off at all if you've seen any sort of drawdowns in that in parts of your network due to the second wave.
In the U.S. does in particular are.
Or just how you're thinking about it for regional standpoint in terms the recovery.
We haven't provided any guidance or input on any regional differences.
Really all we can offer up at this point as what we've seen which is thus far in the quarter down and that 14% to 16% range.
Okay very good guys. Thanks.
Thanks, Steve.
The next question is from Chris Murray with VTB capital markets. Your line is open.
Yes, thanks, good morning.
Good luck.
First of all congratulations on managing through.
Pretty challenging quarter I think one thing it took me a bit by surprise was the fact that you were able to.
Mitigate some of your operating costs as well as you were.
Can you just walk us through.
How we should be thinking about your operating cost footprint, that's fixed versus variable.
I mean, I'm, assuming that you're going to we're going to have to have a similar impact in Q3.
Because I think it's also fair to say.
You may want to maintain the footprint that you have today.
Assumption that you move back full operations call it next quarter.
Yes, I think in in terms of how how you should think about it we I believe we've demonstrated that we have.
Reasonable flexibility to move our cost structure down.
Obviously, not complete flexibility and I've commented a couple of times that there are a number of expenses. The despite our best efforts, we don't really have any near term control over.
Some occupancy related costs.
Utilities taxes that will utilities, maybe modestly lower not not completely mitigated. So I think that it will continue to bear the burden of.
Fixed expenses it can't be fully absorbed until we're able to return to more normal sales levels, but I think what we accomplished in the second quarter is a pretty good indication of the plus that we had in the system.
Chris.
The we illustrated in all the flexibility are a part of our business model, Nick looking with we could convert the supranational send doesn't take centers and take some of the semi fixed costs down. So I asked me back up I think it's moved its good question to answer because you have a fixed cost net of fixed.
Variable costs, and then have semi fixed so targets, but I think I know you have to shades of gray and so as I've said and what we've tried to be prudent.
And then goes costing us a suite of color.
Okay Fair enough and then.
Well.
I guess thinking about.
You can call or whatever you want, but we're really going back to acquisitions and your ability to do acquisitions.
Im assuming that you'd mentioned the last couple quarters of pipeline was healthy certainly are well capitalized now with the opportunity to look at it.
What do you think your ability now is.
Over the next couple months about being able to actually close any sort of transactions of easily integrate them I think maybe more importantly.
I would say that we've developed plans that.
Have not yet been implemented.
To be able to support the integration of a new business into our company.
With more remote work I think most people that.
That have dealt with this pandemic have learned that more can be done remotely than maybe we ever imagined.
So well untested, we believe that we can effectively integrate.
With limited onsite presence.
Because the two aspects to live you pause. The first one is being financially prudent dunford ended his postpaid recorded 19 pandemic, we wanted to be a prudent and know what he cannot both uncertainties and will have come don'ts, Chile, or some sort them, but that's come down you have skip lets operations on the second one is what come alluded to in terms of health and safety I was employees and then.
It would be very prudent because we keep up has been safety on the front and center.
No I suppose I'm back up I think no that comes into play difficult to comment on the next quarter, but the long term fundamentals are very good consolidating this industry. So good story is intact.
Okay, that's fair.
Then last just maybe a bit of a housekeeping question few Pat.
We've had a number of companies talk about the fact that.
Cash flows.
There've been some unusual timing impacts in the quarter, some deferrals of things like taxes and other other adjustments.
Any any sort of thoughts around working capital in the second half that might see I call. It an unusual unwind or anything like that that would be more economical for other years.
No I think all you feel the two aspects one is another capped investment trying to think that we offer guidance so wrapped up.
Oh, Colby 19 impacted sales auditing ranges to 1.6 to 1.8 and then we have two special projects, So Tim alluded to and working capital obviously that bid tubing, both that is tools.
Payables, both in terms of the collection in times of the payments I Didnt console. So you will see the prudent.
Continuing you're writing talks about the taxes typically like if you look at last year, we paid approximately $19 million helpful. Cash toxicity go to the statement that's calculated the box meals that number ended the season the cut into quarter. So synchronoss cashcall, it's pretty close to a deal so to be received.
Then a tax benefits so to that extent that our deferrals.
And the timing Dot dot I think is going to depend on the the type off all the benefit offered under various programs. So I'll ask so the deferral slick vein. So then on tax cash outflows.
Well go back to normal levels.
You'll see the impact of those thanks.
Okay. Thanks folks that's my questions. Please.
Thank you thanks, Chris.
The next question is from Bret Jordan with Jefferies. Your line is open.
Morning, Brett Good morning, This is mark Jordan non for Brett.
Hi, Mark why.
I guess going back to the M&A I'm I'm just wondering if you can talk about maybe the scale of opportunities out. There are you seeing increase in perhaps distressed sellers and maybe if they're going to change any valuation expectations.
It's a little early to comment on Dakota, Mark Oh.
Because it's the PPP certainly benefited a lot of small businesses, including the Companys now industry. So we don't know the full impact of queried 19th.
Navigating through the seats, a little money to comment on the impacts of you're going to see decisis whatnot, but from all point to fuel get position excuse me, though I would drive toward an excess of a billion dollars. We have opportunities. If you can take full advantage of those opportunities.
Okay great.
And then I guess thinking about market share gains do you think is opportunity out there to take share I guess, particularly again some smaller appears as maybe the CRP programs might push volumes to I guess operators that are better positioned in the current environment.
I think we've over the years been able to consistently we believe gain market share whether that opportunity will accelerate as a result of what's going on.
I'm not clear on that yet.
Good.
Everybody has lower volume right now and is fighting for what's available, but certainly I think we're well positioned with our our clients to continue there are more business from them through good performance.
Okay, Great and just one last one from me.
Thinking about total loss trends I mean, we've been hearing that maybe less rail congestion combined with higher speeds. Prior to the equation has led to an increase in severity and associated total loss rates is that something you're seeing in your mix right now.
Well, we don't see it as much in our mix keep in mind that many total losses never get to collision shops, the insurers do a reasonably effective job and assessing those at time of loss.
So we have an old although we see the same data you do on total loss trends and there has been and increase over the past few years and the percentage of claims that are declared total losses.
Okay, great. Thank you very much taking my questions.
Thanks.
The next question is from for US on land with Laurentian Bank. Your line is open.
Come on for Us.
And black and gotten strong order.
Thank you.
First we just wanted to focus on M&A.
I was wondering coming out of it.
I think does normalize and you're right on the M&A front are you seeing any changes in terms of prices in the market.
I think pet really answer that one before it's a little too early for us to to know whether theres any change in price in the market at this point.
Okay.
And then I think.
Great.
Well as Pat mentioned, specifically the PPP loans in the fact that.
Many of the players in the industry will well propped up through that so I think the the support provided in the us to smaller businesses was pretty effective it.
Keeping them operating effectively.
Okay got it.
And then secondly, when it to the you mentioned that in terms of same store sales growth, Canada really wages down.
In terms of the recovery.
Overall numbers, you're seeing now with it being down 14%, Canada still lagging versus the.
Yeah that was kind of the point in my commentary that Canada has shown a slower recovery than the us and I think it was really just a more cautious approach.
And.
As you likely know, Ontario.
Just moved to phase three within the past couple of weeks.
So the the recovery has been slower in Canada.
The brought on to put under this yes to your question and again as Jim pointed out I think of within Canada, I think could that provinces. So that's a slower to recover than others. So sort of the Ontario is submitted shortly coloring I'll be having huge presence that and thats, having an impact on the candidate same store sales tool.
Okay and are you seeing you know.
Demand kind of deeper off well some of them dates that are shrinking the second weve last fall.
I think the only guidance will really provided on that is the thus far in the quarter were down 14% to 16%, but we haven't commented.
On any regional differences in that.
Okay got it and they just last one for me.
In terms of debt now that things are starting to kind of normalized you have any plans to pay down some of your revolver.
I mean your debt.
Yeah, we put us it'd be paid down quite a bit and in fact as we disclosed subsequent to the clock or Andrew page additional hardens 60 to 1.5 million bought a U.S.. We just 225, so all outstanding revolving credit facility is just wanted to commend all the U.S.
And we have told on a off 125, so we have $400 wonder lost the F. thoughtfully Evaluable plus not.
Quite enough children student dollar you ask plus you have cash on the balance sheet after being golf you could do the math, we disclose front ended the quarter, we had 510 and after being up to 25 attracts yourself proximity to 85 million Canadian of cash on the balance sheet. So we have apple pie in poverty fuel.
[music].
Okay got it think about that.
Thank you thanks Ross.
The next question is from David Neumann with dish or done let's open.
Morning impacts.
Yeah, David how are you very good.
I know you've got answered this margin question many different ways not funny, you asked a different different way because I look at the gross margin percentage that you.
The quarter and when I went back it was like the second best gross margin percentage were not mistaken.
2011, so it was kind of surprising gross margin.
And.
You did well on the obviously on the on the Opex, turning some semi semi variable into variable et cetera, but.
Using that as you look beyond what you rolled up in the in the filings as you kind of looked in the near and get a deep dive in your cost structure anything that surprised you and secondly, I think the Canadian a way to supplement program continues into the third quarter, if I'm not mistaking staying right. So you should be.
Hold on to some of these gross margins.
Overall, any any just high level thoughts on on as you looked at the cost structure.
I think our operating teams did an outstanding job at identifying the best way to manage the business.
And and manage our labor costs, and just did a tremendous job of that so that was a benefit on the labor margin side I don't think it's anything necessarily structural it's just a very tightly managed business. During a difficult time. We also did comment that we saw an improvement.
In the mix of our glass business, which.
The retail glass business has high overall labor margins. So those are really the contributing factors that.
You know glass sales retail glass sales were not as impacted as collision sales and thus the mix of retail glass improved.
Okay, and the benefit that you're going to see from the Canadian program, which subsidy program in third quarter, how much do you think that might add.
We havent.
Okay.
If you look at the previous quarter, we had approximately $2.2 million, especially gross amount and have to neck without all the people. We have fled retained so BDC you can look at the net them all and gain Bill. If you don't want to get you to last January Dts held back the second aspect dinner to think through either so you'd have more people.
The while you sort of if I could more in Q2 and they'll be less affected in Q3 and assumes two dogs Oh, they didnt image activate tootsie to Darko I think has.
Subsidies tied to the reduction of the Walliams I've got business.
Okay. So we expect to receive back to the amount is going to be lower than Q to make sense and last one for me just Tom along not financially, but just operationally as you sort of dug down is there anything that I mean, you guys already argued well known for a while operating Wayne doing things very efficiently on the shop.
Floor, but overall it actually looked at the operations can you guys. You had the time to or was there anything that you kind of discovered going forward that operationally you can do better.
Yes, I wouldn't say anything specific that we'll talk about but anytime you go through this sort of a crisis.
You look in every corner.
We do see opportunities could.
That will continue to work hard to maintain going forward. So it did it was a.
Forced opportunity to take a deep look at almost everything we do and I would say it was helpful helpful to us in that respect.
We weren't led since the crisis go base. So certainly we have not since launch end up they're going to implement them.
Excellent. Thanks, guys appreciate great quarter. Thanks, David.
The next question is from Sean the Lou throughout with Goldman Sachs. Your line is open.
Watch how many by guys Hi, This is John Neylan on behalf of Kate Mcshane. Good morning. Thank you for taking my question guys could you perhaps gives us some sense all cadence of comps within Twoq. Please.
[noise] cadence of Im not sure I understood. The question what was that a cadence as comps into second quarter monthly cadence.
Oh, we haven't provided any any monthly we did.
Previously the.
Toward the end of March we had communicated that inbound opportunities were down 40% to 50% and then toward the end of it.
End of April we communicated that we run the favorable end of that range and of course, we ended the quarter down about 33% overall so that's.
I'd say a few piece those together you can get some sense for it.
Right.
And then I guess you know my next question would be in terms of sort of understanding gets caught crowd.
Perhaps any sense of what portion of skilled employees are yet to be thought back I guess, what I'm trying to get at age.
What percentage of Q expense reduction is temporary worse, its permanent and as the business, France or how much of that cost come back. Thank you so much.
Yes, I think we've shown them we have.
Good variable cost structure in place.
And as the revenues have been picking up as demand has increased we've been bringing people back to service that demand on a pretty steady basis.
It has not been a onetime event, it's been slow gradual throughout the quarter. So it's pretty difficult from that to assess exactly what is.
What the permanent my my expectation over time as the.
We'll be back to the.
Back to around the same level of staff and we work for the level business. It is available to us as ever covers.
That's great. Thank you so much.
Thanks, Shannon Thank you.
The next question is from Megi Mcdougall with Stifel. Your line is open.
Good morning, I defer to order beginning.
I'm going to pull on the same Fred as everyone else, which I'm sure you're happy here.
So.
We have a tight labor market and.
It was difficult for you to get technicians heading in Chicago Edwin.
Turning to employment rates in the U.S. and.
You guys did a really good job reinvesting the U.S. tax cut into enhanced employee benefits now we're kind of in the opposite situation with regards to labor market at least at a high level. So I'm wondering if there's been any structural change to employee cost.
Given that the conditions in the labor market has changed significantly.
Yes, I think.
When you look at the segment of the market. The we're looking forward the skilled labor market.
Well it has changed.
I don't know that it's a long term structural change in that we still have a problem in North America with investing in in the education for trades.
So I don't believe that there's a long term impact from that we expect to continue to invest in our technician development program in fact as we communicated.
Early this year, we expect to expand that we did not do that during the height of the pandemic, but it isn't our plans to continue that program and in fact grow that program to try get in front of long term problems of skilled labor availability.
Thank you.
Second question relates to the competitive environment I understand that.
Some of your larger competitors have had.
Some funds injected in order to shore up balance sheets and.
However that being said still this has been quite a challenging operating environment and so I'm wondering if the brownfield opportunity that you discussed in Q1.
Has had any advancement.
Then secondarily. If this has provided any change in the competitive environment.
I think pack commented that.
Many repairs have been propped up, especially the smaller businesses by by the governmental assistance, but that's been available.
There are some locations of competitors that have.
Temporarily closed we don't know if there are permanent closures, but those could create some attractive brownfield opportunities, but we've really just begun to restart exploring the growth side of it. So I'd say, it's too early to know with any certainty what opportunity there might be in that area.
Yeah, we have an increased focus on the drawn from Greenfield last week nature of the past bucket. So too early to say what kind of opportunity set available because what happened with quoted.
Understandable, thanks, very much gentlemen.
Thanks, Megan Cody.
Your next question is from Jonathan Mairs with BMO capital markets. Your line is open.
Good morning, good morning, Jonathan.
You've touched on this.
Just to be clear could you update us on the pipeline of acquisition opportunities. Your team is evaluating now.
Versus may.
I think activity as a standstill.
Versus this time last year.
I think again, we don't to provide a lot of granular details of the pipeline.
Jonathan but Oh long term, we don't see.
Any changes so we see the opportunities available and losing we cannot comment is impact of clearly if the opportunity isn't going to be higher.
But small companies failed and you see an increase but because of the PPP. We don't know if that's the case I'm not so it's a little early to comment on that.
You phrase a substantial amount of capital from investors looking for you to deploy it on acquisitions.
You elaborate at all on the signposts, you're looking for to be comfortable acquiring again.
Are you looking for industry revenue to go back to 2019 levels with minus 10% be good enough.
No I mean, we haven't committed could it any specific number on that I think Pat did mentioned earlier that there were really.
Two factors that caused us to pause on growth one was just the significant uncertainty at the onset of the pandemic.
As to what the outcome of this would be I would say in large part we are comfortable that that we.
Continue to have a good long term business opportunity.
And the pandemic will it's highly disruptive.
We will get through this on the second one was being comfortable sending our people and for acquisition integration.
So I'd say the first one more over the second one we believe we are working through and getting comfortable with and Thats why weve now communicated that were back and looking at opportunities.
Thanks, I'd like to asking about the mark.
As as you turn the fixed expenses back on it'd be reasonable to assume that the operating margin.
In Q3 will fall somewhere between Q1 Q2.
Assuming.
Demand at current levels.
We have not probably did any guidance and let Jonathan endeavor did not quite correlate that we didn't want to comment on that.
That's a forward looking comment.
Maybe you could just comment qualitatively on.
How you're turning back on the fixed expenses, whether you are phasing them back in and alignment with.
Revenue like that.
Look I should comment it like a we had a number of locations and what they're doing to take centers. So but didn't take sentence you have a.
Very few people in those locations. So when you convert them back into production shops, obviously, you're bringing people back do you have this toward Amanda can support. So that's made we've talked about a semi fixed costs and in terms of occupancy occupancy is occupancy it's not going to change from lodge and then you have other.
Element, which is really a little like the advertising and things like that so that's spread and we have a lot more flexibility. So what you're talking used to the the middle layer. The semi fixed so some of it. It will help you wanted to kind of trying to it. So I guess that's rate, it's very difficult all for guidance it depends on the recovery.
Cody happened. So I certainly be then I think the yield ramp back up or if it's going to slower than they are going into more prudent.
And thank them back up.
Yes, I think it is my closer to say, though the womb when we converted facility back to production.
It won't be at full production on day, one it will take some time to.
Bring the cars and get production at normal levels.
Assuming the volume is there so.
There is some startup back.
Some cost related to starting the facility back up.
And also some capacity you chemistry shoes, because you want the operating at full capacity. It so to that extent you have to absorb those semi fixed costs. So you'll have those inefficiencies.
Okay. Thanks.
Thanks, Sean.
Thanks, Jonathan.
The next questions from Zachary ever said with National Bank Financial your line is open.
Good morning ever.
Good morning.
Uh huh.
Travel.
Covance improvements.
Correct.
I'm, sorry, I couldn't hear that's at Creek that you're breaking up exactly.
Oh.
Uh huh.
Decoupling between miles traveled embarked on collision frequency or is it about when that though.
Yes, Matt miles driven gets reported on a lag basis, we don't actually have data academy to just on the us, but I think there's typically a very tight correlation the one thing that could be somewhat different now is related to traffic congestion. So I think there are theres less congestion.
And during rush hour now than there would have been pre pandemic and I think in my comments.
At our opening I did comment that both vehicle miles traveled and reduce congestion or likely having an impact on frequency.
That's helpful. Thanks.
Do you think there's a backlog.
Parable vehicles out there who's owners are holding off on bringing given the work from home dynamics.
I don't think we know that I know in.
Past recessions, we have seen.
Data that would suggest that some people deferred ultimately complete repairs.
But this is not like a past recessions I think it's.
Very difficult to predict what might be happened in this time.
Thanks very much alternative.
Thanks I agree.
Your next question is from Daryl Young with TD Securities. Your line is open.
Good morning go morning, guys in Euro.
Just a couple of quick question for me on the on the insurance side and the GRP relationship in the past I think you said that you're not receiving any undue pressure from the insurance companies too.
To to grow scale and have the national presence per se.
Could you maybe just.
Reiterate or provide a recap on sort of how that metric or how those metrics are today.
In terms of what's the what's the key driver is if it's the GRP performance metrics versus versus scale and.
I think it's definitely GRP performance metrics I mean, there's still great competition out there for our services and our clients look for us to perform at a level that earns us the opportunity for more of their more of their work. So I think direct repair program performance is critical skills also.
Important, though because they want to be able to solve their problem across a geographic area.
Given our footprint, we can really keep their cost of administering claims or loss adjustment expense down by serving their claims across a fairly broad area. So it's really a combination for performance is critical.
Got it Okay, and then with the additional slack in the system currently does that change maybe the allocation of.
Of work flows from the insurance companies given.
Some of the larger players like yourselves still have excess capacity versus.
Certainly puts us in a position of being able to bring more work in be confident of our ability to services.
It's probably too early to know whether we gained share during that but.
But we continue to have really strong relationships with our insurance partners and so I think that has served us well through this crisis.
Okay, Great and debt and then just one last one has there been any change in terms of.
Mixed with with.
Mobile claim submission and claims processing in terms of how youre business could evolve.
Well, there's certainly been an increase of the percentage of claims that have been settled by photo.
During the pandemic.
There Theres also been a reduction in claims that would be settled directly by insurance adjusters, which is probably so the first one could be a modest negative to the RP program.
The second one is probably a positive most insurers pulled their people from the field.
And worked harder to get their claims settled through through body shops or through direct repair programs.
I don't know that Theres that that'll have a long term impact foetal.
Claim settlement had been increasing fairly steadily.
But I would keep in mind that many of those claims that are set will be a photo our repaired.
Indirect repair shops after the photo settlement.
Okay, great. Thanks, very much that's it from me congrats on good quarter guys.
Thanks.
The next question is from Michael will do met with Scotiabank. Your line is open.
Hey, good morning, guys. Thanks for sure what am I correct.
Morning, Michael.
I'm just thinking about what type of deals you guys will be looking at what you restart M&A.
Thank you know given where utilization rates are obviously start compressed across the industry.
I was thinking that maybe you guys will be more focused on larger.
Platform type deals and if that's the case.
Should we thinking about cost synergies strategic rationale.
The case of a large deal.
As you potentially consolidate some overlapping costs and focus on increase utilization certain shops.
No we don't want to offer guidance on the mix. So a small what's this and then so certainly.
Automatic we ended the pass on again would come to the new guidance for the growth or towards the end of the yield up but our commitment to close. This obviously it has to grow unless you have inorganic growth through acquisitions and organic growth, but we don't want to do the breakdown between the two bucking the very short Tom I'll focus is on the health and safety so to that extent.
We look at those acquisitions big people, who can travel easily provide the integration services.
Minimize the risk so so Doug and also the other thing is if the opportunity somebody attractive certainly know did they get higher priority.
Got it thanks.
Hey, just asking.
<unk> somewhat differently I mean, given more integration work will be completed remotely can you discuss meaning how comfortable you are immediately utilizing those new methods on potentially larger deals.
I'd say, it's obviously, it's on tested at this point, we haven't closed on a large deal since colvin.
So it remains to be seen.
But I think our team has done a very good job building plans to provide support we also have been very effective and putting.
Personal safety practices in place than our shops. So we're comfortable that we understand how to protect our team in terms of.
Protective equipment cleaning procedures and social distancing.
To create a safe work environment.
Even with the pandemic so.
But we're on tested on that yet in terms of integration.
Okay, well appreciate the answers guys. Thank you.
Thanks, Michael.
The next question is from that bank with CNBC. Your line is open.
Hey, good morning.
Yes.
The way insurance companies evaluate your performance changed at all during cold it.
And do you have any indication in terms of how your performance has trended versus peers. During this time.
Uh huh.
To answer your first question Theres been no change and how in insurance carrier would evaluate our performance the they do not change their method of.
Our performance abruptly they tend to use a scorecard in system with.
Components that were very aware of and hold ourselves accountable to so no change there in terms of the relative performance.
I would say that we don't see our competitors performance.
But.
When we have more capacity.
Our business performance from an operating metrics standpoint for our clients tends to improve just because there's so little pressure on the system. So we feel like we performed quite well but.
I suspect the market has.
Had that same opportunity.
Thanks, and then.
It's a parts supply chain completely back to normal.
Or is there is there any advantage versus smaller players because of your scale.
We've had very little concern expressed about parts supply disruption.
Well it has not been zero it has not been a material driver impact to our business.
And and as far as I can tell that would be true for most everyone in the industry.
Thank you.
Thanks, Matt Thanks, Matt.
Again that star one if you take to ask a question next question is from Steve Hansen with Raymond James Your line is open.
Yeah, Hey, guys just a quick follow up for me.
The nuance one until I apologize in advance seeking any color but.
On the M&A strategy, specifically as you look at the landscape today. Some regions are clearly still worse off than others I think in coastal versus into your just as a general statement, but you've made inroads into California recently, you made some inroads into Texas those two states have very different.
Pretty profile is right now do you treat those steep any differently as you look to deploy this large amount of capital that you didn't have it your hand, but you do you think there's better opportunities go after some of those states where the out of activity is still worse off or is that are you thinking.
I think that.
Long term.
We'll continue to focus on areas that we've said weve looked to growing in the past and that will include California and Texas.
It's really where the best opportunities are right now that we'll get our initial focus but I would say, we're not necessarily shying away from or focusing on any specific area due to the pandemic.
Is as I know, we've talked about the past.
Sometimes opportunities become available and we closed on a fairly quickly other time as it takes months or even years. So we have a fairly long term outlook on this.
Okay very helpful. Thanks.
Thanks.
I'm showing no further questions at this time, we'll turn the call back to the presenters for any closing remarks.
Great. Thank you operator, and thank you all once again for joining our call today, we look forward to reporting our third quarter results in November.
Thanks, again and have a great day.
Thanks, everyone.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
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