Q1 2022 Boyd Group Services Inc Earnings Call
Okay.
Good morning, everyone and welcome to the Boyd group.
First quarter 2022 results conference call.
I remind you that certain matters discussed in today's conference call or answers that maybe given to.
Questions asked could constitute forward looking statements that are subject to risks and uncertainties related to future financial or business performance.
Actual results could differ materially from those anticipated in these forward looking statements.
The rest of that.
Our detailed annual information form and other periodic filings and registration statements and you can access these documents.
At Cedar Dot com.
I like to remind everyone that this conference call is being recorded today Wednesday may 11 2022.
I like to introduce Mr.
President and Chief Executive Officer.
Group Services, Inc. Please go ahead Mr O'day.
Thank you operator.
Good morning, everyone and thank you for joining us on today's call on.
On the call with me today is Pat that's Paddy, our executive Vice President and Chief Financial Officer.
We released our 2022 first quarter results before markets opened today, you can access our news release as well as our complete financial statements and management's discussion and analysis on our website at Boyd group Dotcom, Our news release financial statements and MD&A have also been filed on SEDAR. This morning.
On today's call will discuss the financial results for the three months period ended March 31st 2022, and provide a general business update.
We will then open the call for questions.
During the first quarter of 2022, we saw strong same store sales growth in both Canada and the U S.
Demand for voice services continued to substantially exceed capacity in O U S markets during.
During the latter part of the first quarter, we experienced some modest recovery of demand for services in Canada as the remaining pandemic restrictions were lifted in most provinces.
The ability to service demand continues to be constrained by market conditions, including labor availability in the U S and parts supply chain issues throughout North America.
Early in the first quarter of 2022 omicron further negatively impacted capacity with increased levels of absenteeism.
Throughout the first quarter, we continued to experience cost pressures, including wages as well as inflationary increases in certain operating costs.
Together. These factors continue to impact margins that could be achieved in the first quarter of 2022.
During the first quarter, we recorded sales of $556 8 billion adjusted EBITDA of $53 8 billion and net earnings of 1.6 million sale.
Sales were $556 8 million or 32% increase when compared to the same period of 2021.
This reflects a $74 6 million dollar contribution from 119 new locations.
Our same store sales, excluding foreign exchange increased by 14, 7% in the first quarter, recognizing one additional selling and production day in the U S and Canada.
There are to the same period of 2021, which increased selling and production capacity by approximately one point per se.
Same store sales growth was a result of pricing increases and high levels of demand for services, although ongoing staffing constraints in supply chain disruption continued to impact sales levels that could be achieved during the first quarter of 2022.
Gross margin was 44, 1% in the first quarter of 2022 compared to 46% achieved in the same period of 2021 with the prior period, including the recognition of the Canada emergency wage subsidy of approximately $1.5 million.
The gross margin percentage was negatively impacted by reduced parts and labor margins as well as a higher mix of parts in relation to labor.
During the first quarter of 2022, we continue to face supply chain disruptions, which resulted in a negative impact on margin.
Higher percentage of parts were sourced from non primary suppliers in order to complete repairs and our mix of OE parts relative to alternative parts increased.
Well pricing increases began to flow through the results in the first quarter of 'twenty, two which resulted in a modest incremental improvement in gross margin from the fourth quarter of 2020, one labor margins were negatively impacted by the extraordinarily tight labor market, which continued to result in increased wage cost to both retain and recruit staff.
The shortage of Labor also resulted in a higher mix of card sales in relation to labor.
Operating expenses for the first quarter of 2020 to 191 6 million or 34, 4% of sales compared to $141 2 million or 33, 5% in the same period of 2021 with the prior period, including the recognition of the shoes of.
Similarly $1.9 billion.
The increase as a percentage of sales.
Due to Covid it was due to capacity constraints and supply chain disruptions, which impacted the sales levels that could be achieved during the first quarter of 2022 as.
As well as inflationary pressures and increased support costs related to the expansion of our Wow operating way practices to corporate business processes.
Adjusted EBITDA or EBITDA, adjusted prepare value adjustments to financial instruments and costs related to acquisitions and transactions was $53 8 billion an increase of one 9% over the same period of 2021 with the prior period, including the recognition of Suez of approximately three point.
4 million.
The increase was primarily the result of increased sale sales levels from same store sales growth as well as new location growth adjusts.
Adjusted EBITDA for the period was impacted by a technician capacity due to the tight labor market and the impact of absenteeism due to omicron during the first quarter.
Market conditions, including wage pressure, a tight labor market and supply chain disruptions are impacting the results that can be achieved in the near term.
Net earnings for the first quarter of 2022 was $1 6 million compared to 7.7 million in the same period of 2021 excluding.
Excluding fair value adjustments and acquisition and transaction costs adjusted net earnings for the first quarter of 2022 was $2 1 million or 10 cents per share compared to $8 3 million or 39 cents per share in the same period of the prior year.
The decrease in adjusted net earnings per share is primarily attributed to the lower gross margin percentage and the higher levels of operating expenses.
At the end of the period, we had total debt net of cash of $970 1 million compared to 957 7 million at December 31 2021.
Net of cash increased when compared to prior periods, primarily as a result of that acquisition activity, which resulted in increased lease liabilities.
During 2021, the company expects to make cash capital expenditures within the previously guided range of one 6% of sales.
This excludes those capital expenditures related to acquisition and development of new locations.
Demand for Boyd services is continuing to substantially exceed capacity, which has resulted in high levels of work in process.
The ability to service demand continues to be constrained by labor labor availability in the U S and parts and supply chain issues throughout North America, North America with the accompanying margin pressure continuing into the second quarter of 2022.
Thus far in the second quarter of 2022, the company has experienced an improvement in same store sales growth relative to the prior quarter.
Building on the success, we achieved in early 2020, 'twenty 2020 to Voip continues to negotiate an unprecedented number of meaningful price increases from clients, which contributed to a modest incremental improvement in gross margin percentage from the fourth quarter of 2021 to the first quarter of 'twenty.
'twenty two with continuing cost pressure impacting the level of margins we've experienced thus far.
We are experiencing pricing differences between clients, which is a key area of focus and continuing pricing discussions until these differences are dressed continuing wage pressure has an impact on boyd's near term ability to meaningfully improve labor margins.
In addition supply chain disruption has continued to impact the completion of many repairs and has resulted in a continued growth of work in process as.
As noted in our fiscal 2021 year end reporting it takes time for pricing changes to flow through our results we.
We believe that supply chain disruption is transitory and will normalize as the underlying manufacturing and distribution issues are resolved.
The company has not experienced an improvement in these conditions, thus far during 2022.
Given the record level of acquisition development activity that took place during 2021 and the impact of the current market conditions are having on the business recent growth activity has been more selective with greater emphasis on brownfield and Greenfield development.
This does not change our outlook on our long term growth that solving for the current business challenges provides a strong platform from which to grow to continue to grow our business.
We remain committed to addressing the labor market challenges through initiatives, such as our technician development program, including our commitment to more than double the number of trainees in the program to help me future needs. We were off to a good start and are confident that we will achieve this goal, which will help build our capacity over the long term.
As T. D. P is complete the program after 18 months.
We continue to increase recruitment support.
To improve lead generation and follow up proactively evaluate compensation levels and make appropriate adjustments.
To ensure the company remains competitive in a rapidly changing environment.
And drive high levels of execution for our Onboarding and orientation programs to increase retention.
In the short term, we are primarily focused on addressing the labor shortage for our core business. There is an urgent need to raise wage rates in order to attract talent to the industry and client pricing needs to reflect this market change.
Notwithstanding near term challenges Boyd remains confident in the business model and the company's plan to double the size of our business on a constant currency basis from 2021 to 'twenty twenty-five against 2019 sales with same store sales being a primary driver of growth in the very near term.
With that I would now like to open the call to questions operator.
Yes.
Thank you.
Good question.
On your telephone.
Okay.
Sure.
Great.
Yes.
Yeah.
And we'll take our first question from.
Michael.
Okay.
Or am I talking about.
Hey, good morning, guys.
The first questions on I guess the.
Margins really it's all focused on and I was wondering if you know you can talk about having received price increases for every insurance company beyond what you discussed on your Q4 call.
And understanding obviously that you're still dealing with inflationary pressures on the labor side have you seen any sort of moderation.
Quarter to quarter or month over month that you can talk about.
On the first question, we have continued to receive an unprecedented number of increases.
After we reported last quarter. So you know the activity.
The activity continues to be fairly steady on achieving price increases so.
That that has not slowed down.
On the wage pressure.
We really haven't commented on sizing that up but you know there continues to be wage pressure in the industry.
Not just boy, but the industry is short staffed.
So we're you know we're fighting for talent within the industry and the pull talent from other industries. So I think we can expect to see some continuing wage pressure, but I don't have a good metric for you Michael on the pace of it relative to the prior quarter.
Okay, that's really helpful and understanding theres a lag obviously in terms of how the price increases kick into the margins just trying to get a sense if you're at a point, where you know the price increases are outpacing the wage inflation, how we should think about the margins going forward.
Well, we did comment that we saw a slight improvement.
And margin for the quarter as a result of the price increases, but I think it is important to recognize that there is a lag from the time that we receive a price increase until it is realized in our results and that lag is a function of.
Two primary factors, one neat pricing out a repair.
Is really set at the time of the initial estimate.
Versus when we bring it in for repair and with a fairly sizable backlog of work. There is a lag time between when we receive an assignment when we estimated and when we bring it into process to work.
That's compounded by the supply chain disruption, which is causing a number of repairs to.
B B started but then the suspended while we await apart and the pricing on that work in process is generally an older levels or prior pricing which are as.
As well it takes time to flow through our results and see the full benefit of it.
The negotiated price increases.
Michael no longer.
We are very confident about getting back to the historical levels. So Tim commented on the labor side and on the POS side, that's pox operation issues improve that should revert to historical levels and the third one is painted materials and did it it'll be realizing got good margins and the fourth one I think I gave you.
You're not going to see the benefit in a very short term, but an extended period of time, you'll see margins.
Contributing from scanning and calibration so give them both drivers feel really confident about getting back to the historical gross margin. So what period of time not in the very short term.
Perfect.
I have other questions, but I'll get back in queue guys. Thank you.
Thanks, Michael Michael.
Well take our next question from Gary.
Davidson.
Hey, good morning, Gary.
Good morning, I was wondering if you can provide a bit more color in terms of the price increases we achieved in Q1, how much did it contribute to the $14, 7% same store sales growth as well.
Discussions with.
Sure Scott and maybe easier given they are able to get some rate hikes from state regulators.
Yeah on your on your first question, it's really difficult to access to assess the impact of the price change.
Our overall revenue is certainly the price changes that had a positive impact on same store sales. We're also seeing a mix change toward more parts I'd vehicles, and that's being driven both by technology maybe.
Maybe by a lack of some of the alternative parts.
And by a change in the mix of vehicles and there are probably a bit Ben.
A slight increase in the number of non drive up the vehicles being repaired in the market.
Fewer total losses because of I used car prices. So there are a number of different factors contributing to an.
An increase in the average cost of repair beyond just the the labor price our paint material pricing.
So I don't have a good answer for you on that one.
Gary, but it's certainly a contributor to our same store sales growth.
And I think your other question really related to the trend that we're seeing in the pricing.
And I would say that generally.
More recent price increases.
It had been higher than prior price increases.
And that's really a reflection of maybe a delay in some customers implementing price changes and by the time they implemented them. The market had moved further than what we've been seeing previously.
Okay great.
Great. Thanks for that and then maybe similarly on the same trend just curious.
Maybe in the medium the medium term.
Are there any appetite from yourself, where the industry to renegotiate these contracts with insurers to give you more flexibility in pricing and oil linked it to kind of wage growth at north CPI.
Well there is certainly an appetite on our part.
That's true that we had that power but.
I would say that based on the conversations that I've had with insurers they absolutely understand the need for the industry to receive higher rates.
And as you've probably seen.
Insurers are filing for rate increases it does take time for that to flow through.
But our our insurance partners to understand that we can't serve their needs effectively with the labor force. Its currently at our industry and we're gonna have to pay more as an industry to build our workforce to be able to serve them properly.
I don't know that we're renegotiating contracts the contracts don't really have set pricing in them.
As it is today the pricing is really market by market.
And as clients move up the market will move up.
Again, it depends on how you define the intermediate term, but certainly in the long term the industry dynamics are going to change so right now the the big eight of the top eight collision repair shops have 830% of the revenues.
Doug will expand what period of time, so that's one industrial dynamics are going to change.
Okay. Okay. Thanks for that and then just my last question just on the location added this quarter at 11 <unk>.
So far post.
Q1, it seems like the pace of slow can you provide a bit more context, there maybe outlook for the second half of this year and what you need to see to get more comfort with the ramp up on the back.
All right.
Yeah, I think the.
We did I did comment in my conference call script that you know our focus is on our core business right now we're continuing to grow we're pretty focused on Greenfield brownfield single shop development.
And I'd say, our pipeline is healthy on that.
But I really want our teams to focus on.
Increasing our technician capacity.
The pricing right and the industry getting the pricing right for our company. So we're not.
We're not slowing down our long term growth plan and we're committed to our five year goal.
We're gonna have increased emphasis on managing our core business in the near term.
You'll probably see less emphasis on growth, we're not projecting the second half of the year at this point, but.
But we're going to continue to add locations throughout the year, but our focus is on getting the right pricing and staffing in place.
Gary maybe just substantially little more our growth target envisions, 15% CAGR compounded annual growth rate right. If you look at our same store sales growth again, because I probably didn't unit guidance, but if you just take 10% based on what we have done in the last couple of quarters.
That leaves five per cent for acquisition growth on a $2 billion revenue that translates to $100 of revenues coming from acquisitions, depending upon your assumption about revenue by shop that transfer to third party shops. So if you look at what we have done we have done 13.
Four months have translated that actually exceeds that level number one and number two we were off to a great start last year. We added 127 locations. So that gives us more room. So we're highly confident about the longer term, but we see it in the very short term.
Back to the opportunities on the same store sales growth and the associated contribution margin that brings.
Okay, great. Thanks for connecting the Dot there okay. That's it for me.
Thanks, Gary.
Yeah.
Well take our next question from Steve Hansen.
<unk> with Raymond James.
Morning, Steve.
Good morning, guys I'm, just maybe a question on the parts issue specifically one of the large parts vendors in the industry had recently commented that the China Lockdowns have actually had the benefit of freeing up containers to source parts from other regions and even suggested that availability was actually on the rise from these other regions I E.
Just wanted to clarify that that's not been the case in your shop level discussions thus far.
Yeah, I think the.
Our parts mix is skewed more towards OE than what we've historically seen in the supply chain improvement I think it was a relatively temporary impact of shutdowns in China, and maybe some carbon cargo ship availability.
The alternative parts into the U S.
That would still need to get through the distribution channels in the U S. So there may have been a.
Ill pick up the availability of alternative parts.
But the issue that we face in terms of.
Slowing down repairs has more to do with the OE parts.
Because if an aftermarket or alternative parts not available to complete a repair we can rely on the OE part of the call.
Parts not available we have to set the repair side and look for other work to work on so.
The change that you would see with improved availability of aftermarket would be a reduction in our all your purchases and an increase in our aftermarket, but it wouldnt impact the.
Our ability to produce work.
Understood.
Way to benchmark, Tim or maybe just give us a sense for the shifts that we've seen in OE parts versus aftermarket over the past 18 months or 10 points higher today.
Certainly normal I'm, just trying to get a sense for how how big of a shift there, yes, I think I think C. C. C actually does publish some data on that Steve I don't have it in front of me, but.
10 points would be an overstatement for the industry, though it's it's single digits.
But I don't have the number in front of me, but it's it has an impact because the alternative parts generally are more profitable than the OE parts. So it is a margin impact.
But it's not a it's not a 10 point shift from.
From alternative to OE.
Sure, Okay, and just one last one then I'll jump the queue is just just on your in your capabilities or your annual capacity to add the brownfield and Greenfield sites.
Presumably acquired almost a different skill set in some regards.
What is the capacity to add there on an annual basis right now given the team that with staff to it.
Yes.
We have very good capacity on the Greenfield brownfield sites, so we're not necessarily limited.
Some of the work that we do with that can be outsourced.
So that gives us pretty good flex capacity on that.
So we've got we've got very good capacity on Greenfield brownfield.
We are not capacity constraint, Steve on the corporate development front.
Understood. Okay, that's great guys I appreciate that.
Thanks, Steve.
Well now take a question from Brett.
Jordan with Jefferies.
Hey, good morning, guys.
Good morning, Brandon.
On the comment about non drive all of our payers more major work driving some of that comp growth have you seen any shift I guess with some slight sequential softening of the manheim that insurers are maybe opting out of some of those very expensive repairs recently or is.
Is it too soon.
So it's probably it's too soon and I'm not sure how we would feel that I can tell you that as I visit our shops and talk to our teams were fixing vehicles today that two years ago would have been total losses based on those level of damage just because of the high cost of the high value of used cars.
And you.
There is no I'd say there is no clarity as to when used car prices are going to normalize at this point. So we'll likely continue to see some higher average dollar repairs as a result of used car prices. There may be some offset to that because if there's a serious supply chain issue and there may be a pause.
It won't be available for six months on insurer may choose to total vehicle out just because of the.
Cost of maintaining the claimant and a rental car for that period of time isn't worth it.
Okay.
And then I guess on.
Just given the sustained squeeze in industry profitability do you see that having any impact on M&A activity. Obviously, the big eight have a lot of share but is there either more interest on the seller side or less interest on the buyer side, just given the challenges in profitability now.
I only know for us and we see lots of opportunity for growth.
And we're going to work our way through that and make sure that we're selective in investing in the right growth. So there is still plenty of room for growth.
At the same time as we mentioned earlier, we're committed to making sure. Our management team is very focused on solving the core challenges of our business or pricing and capacity and we just got to balance those out to make sure that we do what's right for the company in the short term well.
Well maintaining.
A good growth engine for the long term.
Okay.
If you look.
If you look at the trends.
If we look at the other seven other than us at all owned by private equity there are high level data.
Rising interest rate environment.
That's going to pose some challenges for them so that talks about on the demand side also these.
Acquisitions on the supply side, the single shop, Guy, So I'm going to say more headwinds.
As we move forward so.
Opportunities wise do you see they're going to have plenty of opportunities.
You talked to us about what we have to choose in band.
Okay great.
Interesting and then one quick last question is around the comp is there a way to sort of think about car count versus price and that I know somebody earlier asked about what inflation was doing to that comp tailwind.
But is there some way to think about sort of maybe a comparable car count year over year.
Yes, we havent spent a lot of time talking about that in the past there probably is a way to do that Brett.
But the you.
The labor hours and the part cost are going up on repairs today.
Park cost is up pretty meaningfully and actually not just the average part cost but the <unk>.
A number of parts and repairs is going up.
We really look at it more from a labor capacity standpoint, and you know how many we may if labor hours go up we made fixed fewer units been have higher revenue.
So we haven't really focused on the car count aspect of it.
Okay.
Yes.
Thanks, Brett.
Thanks, Greg.
Okay.
I'll now take our next question from Jonathan Lamers.
Capital markets.
Good morning, Jonathan.
Good morning, Jonathan.
Tim just to pull on the pricing threat a bit more.
Once all the clients that have not yet raised prices do increase prices to the new normal level well another round of price increases from all the partners be required.
<unk>.
Yes.
<unk>.
Just to clarify Steve.
The vast majority and I mean vast majority of our clients have increased.
There are their pricing to us.
It's been happening over several months.
And in the level of price increase.
Yeah.
More recently, we've been able to identify that the pricing changes.
Had some variation so the near term opportunity, while we go back and look for further general price release relief from from the market across clients.
Near term or a short term opportunity is really those that may be moved early or it didn't move to market, we need to address them to get them to the new current rate and the market. While we continue to seek further increases that are necessary to attract the talent that our industry has to have to properly service our.
<unk>.
So as we think about.
Second quarter.
And I know you can't give guidance, but just directionally.
Well the investments in wages.
Looking now to improve your capacity.
Hmm.
Although it would be have a greater effect than the.
These near term benefits from.
Getting pricing from the remaining partners to catch up.
It's really difficult for us to.
Predict exactly.
When the price increases will come through and what will happen with the labor pricing in the short term. So we wouldn't I wouldn't have any guidance for you in the short term.
I do expect that we will can see continue to see it.
Proving price from our clients both.
Increases on an ongoing basis as we move forward and the realization of those price increases.
Our recognized revenue as the <unk>.
Move went through with old pricing. So I think we'll continue to see improvement in the pricing side that will help drive same store sales, but we're going to continue to be.
To be as aggressive as we can be to secure the labor we need to complete the repairs because we've got an abundance of work and we want to be able to serve our clients properly and process that work, but it's it would be very difficult to predict exactly when.
Selling price increases and wage increases will balance out but.
Confident that over time, they will but the timing is difficult to assess.
Right.
But <unk>.
Compensation is increasing.
Ahead of the next round of <unk>.
Rate increases due to address the backlog is that right.
I don't have good data to give you on that but we intend to be competitive in the marketplace to both retain the labor that we've got and attracts new labor.
And if you.
Pricing.
Doesn't keep up with that we will be able to process more work, but we're working hard to make sure that our clients understand.
Our need and that we get the pricing, we need from them and get it through our recognize revenue so that we improve our margins over time.
Okay.
Last question.
Is there anything you can give us on how quickly your technician capacity is increasing.
Do you have any thoughts on what would need to happen to reduce the repair backlogs back to a normal pre COVID-19 lengths.
I will be.
Clearly.
We've improved our capacity because we've generated.
Good same store sales gains.
So we are seeing an improvement in our capacity our ability to drive revenue.
Through our business.
It is.
The industry has a pretty significant challenge and there is some third party data that would suggest that the technical capacity of the industry.
Is down.
As much as 18% from pre pandemic to today.
So I think we've got a more efficient workforce and we've got some price and we're getting some gains I mentioned in my.
Conference call script that we're very pleased with what we're doing on our technician development program.
We've been adding to that steadily for several months now and expect to continue to add to that and I think that's really one of the longer term solutions to.
To the labor problem, but but it's an industry problem not just a boy problem.
I'll pass it there thank you.
Thanks, Jonathan.
Our next question will come from.
Okay.
Good morning.
Good morning, Pat.
So.
A lot of commentary.
How things could evolve over the next.
Yeah.
I suppose you my perspective on life.
In the near term sort of pricing flash margin.
Question and more interested in your view around the.
That would be.
Sure the structural labor issue that.
For some time, it's been compounded by.
Unemployment rate.
<unk>.
Richard.
Across a number of industry.
It has been an issue.
Even before the collision repair industry, even well before that was the case so.
I know you're doing a lot with regards to talent acquisition and retention, probably a lot more than your competitors.
Taking a realistic.
Do you think that price increases and wage inflation.
<unk>.
There will be enough to actually more of a structural change to that.
Problem for some time.
Well I don't think we're at pricing levels from the insurance industry today that is going to hell.
Help the industry draw the talented needs from competitive industries.
But we're working toward that.
So I think that I think we will get there.
Our insurance clients.
We need a healthy collision repair industry that has the capacity to serve their customers. The backlogs that we have raised their cost.
And create levels or dissatisfaction because of poorer speed of repair that does cause policyholders to change insurance companies. So it's really in everyones best interest for the industry to have sufficient capacity.
I think that from for Boyd.
Investments, we're making in our technician development program, we've got initiatives underway to improve efficiency in our shops, even absent things like our technician development program.
That I would expect to help us improve throughput. So we're not we're not focused.
Just time recruiting outside talent or even our T. D. P program, we are looking for opportunities exploiting the Wow operating way.
And looking at other solutions that can drive throughput, even without necessarily increasing our workforce. So we don't spend a lot of time talking about those in part for competitive reasons.
But we're not solely reliant on GDP or just paying more protect patients.
Okay. Thank you very much.
Thanks Maggie.
Our next question will come from.
National Bank financial.
Good morning, Tim Good morning, Pat Thanks for taking my questions. Good morning.
Exactly.
On the Q4 call you characterized the rate hike secured as bringing you up to Q3, 'twenty one levels of wage inflation.
Where are you now with the latest batch of increases.
Yeah.
Ah well through what we just reported we saw only modest improvement.
In our margins as you know.
But but we're ahead of that from a client negotiation price increase standpoint.
Because it does take time for those increases to flow through to our recognize revenue for the reasons that I talked about earlier about.
But I would say we're still.
We're still behind where we need to be to get to normal labor margins.
But where we did see an acceleration of the level of the increase.
Over the past few months compared to what we saw in the prior period. So I think.
Carriers are recognizing that.
And some of them were just later too to increase but our carriers are recognizing that the market has moved up more than what was recognized in the prior period.
That's helpful. Thanks, and then based on what you've seen in the quarter so far do.
Do you expect same store sales growth as a percentage in Q2 to significantly outpace Q1's 14, 7%.
No. We didn't say that we said that what we've seen to date and keep in mind that to date is the month of April .
Our same store sales were above what we experienced in Q1.
But we're not.
Given that it's only one month, we're not prepared to provide more color on that at this time.
Thank you very much I'll turn it over.
Thank you. Thank you.
Well take our next.
Question.
Yes.
Yeah.
Good morning, Thank you for taking my question.
Hi, good morning.
Just calling or Goldman.
My first question.
Is.
Given the well just circling back to the price hike.
<unk> taken in March.
Well this half or I guess.
Thanks.
Paul impacting <unk> or well all evenly Jeff, let's say half of the quarter well benefit from it given the lag.
Well, we've been receiving price increases steadily for.
At least six months, so they've been flowing into our revenue.
As we implement them and then we received new assignments in estimates and complete those repairs. So we've been seeing a steady increase in our selling price for several months now and it is the price changes flow through I would expect we will continue to see increased selling price going forward and.
I expect to receive additional price increases on an ongoing basis, because we're not yet to a labor selling price that is appropriate for for where our industry is cost structure is right. Now. So I think we'll continue to see improvement in selling price and we will continue to negotiate new increases.
Awesome.
You brought it up.
My last question is just given.
Given the abundance of work you guys have and also the current demand is higher than the available capacity at year end due to the technician to labor shortages.
<unk> are you in terms of where can you take all that.
What type of work that you can hang out with him.
Yes.
Work that we've said no two was really a.
Low margin.
Primarily fleet work.
And a N a.
In an economy, where we would have.
Excess capacity it makes sense for the incremental revenue.
The question is really related I think to if we have insurance clients that are below market relative to their peers would we defer their work and and I would say that we're working hard to make sure that all of our clients are paying us fairly and competitively. So that we do not have to do that.
And I feel confident that as.
As we demonstrate to our carriers that are not at the current market pricing I feel confident that they will move their market pricing up to retain access to our capacity.
And but in the long run or maybe even in the medium term if we had clients that.
We're unwilling to raise rates too mark current market levels.
We will have no choice, but to defer that work at some point, but this is a long a.
A long game insurance client relationships are very important to our long term success.
I think we'll take those actions, but we'll be fairly cautious to protect our long term relationships.
Okay awesome. Thank you very much.
Just back to the line.
Thank you.
Our next question from Chris.
Okay.
Yes.
Good morning, Chris So alright, thanks, Tim Good morning, Thanks for taking my question.
Just to follow up on that.
No comments there.
Do you see an opportunity.
The increase here at TRP partnerships because.
Other shops are maybe saying no to them, because they're lower margin business or because they haven't increased their rates yet.
There could be that opportunity, but our capacity is.
Constrained and I don't think we'd have great motivation to take on a new client at below market pricing.
Right.
Are you able to provide us any more detail around what the backlog looks like at the moment, maybe just I don't know how long it is or how it looks compared to the pre pandemic level.
I can give you some industry data, we don't really provide backlog data on our company, but I believe that CCC reported that prior to the pandemic the industry backlog was about 1.7 weeks.
And I think their recent data and Pat you can chime in if I'm off on this I believe it was reported to be four five weeks.
There is also a significant amount of work in our business today that we've started repair work on that because of a missing part that's critical to the repair we've not been able to complete so our investment in work in process or our investment in inventory is much higher.
Partly due to the labor supply challenge, but probably more primarily due to the parts supply issues, where we invest in a vehicle and invest in our repair but kept completed.
And.
That's actually been.
That number has been growing for the past couple of quarters, probably three quarters out.
Yeah.
Maybe just on the Cambodian market it sounds great.
Demand is recovering a little bit more there.
That looks like for you.
Labor as challenged in Canada versus the U S.
On the first question, we have seen an improvement in our.
Our revenue opportunity in our Canadian markets. So im pleased to finally see some progress there.
The labor challenges in Canada. Our are generally we're not seeing significant labor challenges right now in Canada.
That may change as the business continues to recover but right now we're generally able to service the available demand in Canada.
Okay perfect. Thanks, I'll jump back in the queue.
Thanks, Chris.
And once again that is star one if you would like to ask.
Question.
Next question will come from Daryl young with TD.
Gary.
Hey, good morning, Joe.
Hi, Darryl.
Just one quick one for me around the operating expenses and SG&A base. It looks like we took a bit of a step function higher.
In this period and I'm, just wondering if that's reflecting inflation.
At the corporate level as well.
Leases or exactly what's going on there. If there is any one time charges and then expectations for operating leverage going forward.
Over that operating expense base.
There are.
A few factors.
First one is as you pointed out are suddenly the inflationary pressures on wages and benefits is a.
Being an important role and the second one is technology.
Cost of Pizza have gone up meaningfully lately and the third factories.
We've commented on rolling out the wall operating way under our consulting fees associated with that initiative and that is getting expense through that line item. So those are the primary drivers.
Okay, so going forward that opex as a percentage of sales should we view that as a run rate going forward or.
Would you expect that to decline as the same store sales growth continues to ramp.
I think the as you see a higher volumes I think the operating expense ratio should come down and this consulting expenses like once the project is done I think that that should go away you can normally loud the techs.
All of the.
Cost and seasonal that'll continue.
Anytime the inflationary pressure on wages and benefits and al will abate. So so you should not expect that they usually need to mind what period of time integration.
I think we've also commented that during Q1, we do have some expenses that are higher out of the at the beginning of the year are our payroll taxes are significantly higher and we have some utility costs due to the northern climates that are seasonally higher in the in the first quarter.
Okay, great. That's good color thanks, guys.
Thanks, Rob.
Yes.
It is star one if.
I would like to ask a question and we will now take a follow up from Michael <unk> with.
Okay.
Hello, Thanks for taking the followup Hello again.
I wanted to follow up on the last question actually because pretty relevant I mean, if you look at the Q1 margins versus pre pandemic margins it actually it looks like.
Martin sat back comes more from Opex versus gross.
So I'm just wondering you know in terms of comfort and how recoverable that is and I'm, assuming presumably that comes from same store sales growth.
So a second kind of tie in question in terms of the four shop productivity.
Are the bottlenecks are feeling more so today on the labor side or the parts side and just kind of think about how that sort of on the lines in the next couple of quarters.
Yeah, I'd say in the in the U S market.
It's.
It's a combination but probably more on the labor side, we do have a pretty good investment in work in process that we've not been able to bill because we're missing apart. So we've made investments in work in process that are coming through in our recognized revenue.
But we have invested the workforce hours and it.
In Canada.
I'd say parts is a bigger constraint for whatever reason supply chain challenges in Canada.
A bit more acute than they are in the U S. Probably in part because we have a level of work in the U S that when we have to stop working on one vehicle, we've got others lined up that we can work on.
And that's a.
Less true in Canada.
Okay.
Got it okay, but I think to your question on the really the fixed cost issue is one.
Of absorption and growing same store sales and youre pressing through the available work will help us get back to the level of absorption that we need.
But Michael I think that observation is pretty straightforward right. If you look at our Opex ratio in 2019. It was 31 forward and get a 34. So it's like a 300 basis points and if you look at the 41 gross margin compared to 45 five to $1 four so.
You have got off now you do you have it but we should see an improvement on both fronts I'm pretty meaningfully what period of time.
Got it that makes sense and I guess tying into that last line in the press release, just as it relates to you.
In all of them.
The five year growth plan with strong same store sales in the very near term.
Im just trying to get a sense for whether.
You know that lose too higher volumes, maybe more inflation pass through or focus on Greenfield I'm, just trying to get a sense for maybe the comment there.
I think what we're really communicated is that we're committed to our five year growth target.
In the near term more of that.
Growth will come from same store sales gains given the level of work that we have and the price increases that we're expecting to negotiate.
So we will continue to grow unit growth, but in the short term, we'll probably see more of our revenue gains out of same store sales growth than what you've seen historically.
Got it and then just on the sales leaseback executed in the quarter was that sort of a onetime thing or are there.
Potentially other properties you guys are looking to divest as well.
Alright.
No.
Go ahead go ahead.
But the.
As as we've talked about Greenfields and brownfields had been a bigger part of our growth portfolio recently.
We've never intended to hold properties.
We're looking for.
Higher returns on capital than what you can get with properties. So as we've executed our greenfield brownfield developments and some single shop or multi shop acquisitions that.
They came with properties, we never had any intent to hold those properties long term. So really what we're doing is just.
Normalizing are following our strategy of being more asset light.
And selling the properties that we've been accumulating as part of our development efforts.
Pat do you have anything to add to that.
But we will try to pick them.
Perfect. Thanks, guys.
Thanks, Michael.
And it appears there are no further telephone questions I'd like to turn the conference back over to our presenters for any additional or closing remarks.
Thank you operator, and thank you all once again for joining our call today, we look forward to reporting our second quarter results in August Thanks, and have a great day bye bye.
Thank you.
Today's conference we thank you all for your participation you may now disconnect.
Yeah.
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Yeah.
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