Q3 2023 Boyd Group Services Inc Earnings Call

Speaker 1: Good morning, everyone. Welcome to the Boyd Group Services Inc. third quarter 2023 results conference call.

Good morning, everyone.

Welcome to the Boyd Group Services, Inc. Third quarter 2023 year results conference call.

Speaker 1: Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked

Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked.

Speaker 1: Could constitute forward-looking statements that are subject to this and uncertainties related to Boyd's future financial or business performance?

Could constitute forward looking statements that are subject to risks and uncertainties related to avoid to boyd's future financial or business performance.

Speaker 1: Actually the faults could differ materially from those anticipated in this forward looking statement.

Actual results could differ materially from those anticipated in this forward looking statements.

Speaker 1: The risk factors that may affect results are detailed in VOID's annual information form and other periodic filings and registration statements. And you can access these documents at CDER's database found at cderplus.ca.

The risk factors that may affect results are detailed in boyd's annual information form and other periodic filings and other station statements.

And you can access these documents at SEDAR database found at SEDAR Blessed at CA.

Speaker 1: I'd like to remind everyone that this conference call is being recorded today Friday, November 10, 2023.

I'd like to remind everyone that this conference call is being recorded today Friday November 10 2020.

Speaker 1: I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Void Group Services Incorporated. Please go ahead, Mr. O'Day.

I would now like to introduce Mr. Tim <unk>, President and Chief Executive Officer Boyd Group Services incorporated. Please go ahead Mr. Oldani.

Speaker 2: Thank you, operator. Good morning, everyone, and thank you for joining us for today's call.

Thank you operator, good morning, everyone and thank you for joining us for today's call.

Speaker 2: On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer.

On the call with me today is Jeff Murray, our executive Vice President and Chief Financial Officer.

Speaker 2: We released our 2023 third quarter results before Markets open today. You can access our news release as well as our complete financial statements and management discussion and analysis on our website at boygroup.com. Our news release, financial statements and MDNA have also been filed on Cedar this morning.

We released our 2023 third 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 Dot Com, Our news release financial statements and MD&A have also been filed on SEDAR. This morning.

Speaker 2: On today's call, we'll discuss the financial results for the three and nine-month periods ended September 30, 2023, and provide a general business update. We will then open the call for questions.

<unk>.

On today's call, we will discuss the financial results for the three and nine month periods ended September 32023, and provide a general business update we will then open the call for questions.

Speaker 2: During the third quarter of 2023, Boyd recorded sales of $737.8 million, adjusted EBITDA of $94 million, and net earnings of $20.5 million.

During the third quarter of 2023, Boyd recorded sales of $737 8 million adjusted EBITDA of $94 million and net earnings of $25 million.

Speaker 2: For the third quarter, sales were $737.8 million, a 17.9% increase when compared to the same period of 2022.

For the third quarter sales were $737 8 billion, a 17, 9% increase when compared to the same period of 2022.

Speaker 2: This reflects a $40.5 million contribution from 89 new locations.

This reflects a $45 million contribution from 89 new locations.

Speaker 2: Our same-store sales, excluding foreign exchange, increased by 11.8% in the third quarter, recognizing one less selling and production day when compared to the same period of 2022, which decreased selling and production capacity by approximately 1.6%.

Our same store sales, excluding foreign exchange increased by 11, 8% in the third quarter, recognizing one less selling in production day, when compared to the same period of 2022, which decreased selling and production capacity by approximately one 6%.

Speaker 2: Same store sales benefited from high levels of demand for our services, as well as some increase in production capacity related to technician hiring, growth in our technician development program, as well as productivity improvement, although ongoing staffing constraints continue to impact sales and service levels that could otherwise be achieved.

Same store sales benefited from high levels of demand for our services as well as some increase in production capacity related to technician hiring growth in our technician development program as well as productivity improvement, although ongoing staffing constraints continue to impact sales and service levels that could otherwise be achieved.

Speaker 2: Sales also increased based on high repair costs due to increasing vehicle complexity, increased scanning and calibration services, as well as general market inflation.

Sales also increased based on higher repair costs due to increasing vehicle complexity increased scanning and calibration services as well as general market inflation.

Gross margin was 45, 2% in the third quarter of 2023 compared to 45, 1% achieved in the same period of 2022.

Gross margin benefited from improved glass margins higher part margins and increased scanning and calibration.

Pricing increases resulted in improvement in labor margins, however margins remain below historical levels.

Certain performance based programs negatively impacted gross margin during the third quarter of 2023 as compared to the same period of the prior year.

Operating expenses in the third quarter were $239 9 million or 32, 5% of sales compared to $209 3 million or 33, 4% of sales in the same period of the prior year.

Operating expenses as a percentage of sales was positively impacted by improved sales levels, which provided improved leveraging of certain operating costs.

Including salary and wage costs.

Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $94 million an increase of 28, 7% over the same period of 2022.

The increase was primarily the result of new location growth improved sales levels and improved leveraging of certain operating costs.

Net earnings for the third quarter of 2023 was $20 5 billion compared to $11 9 million in the same period of 2022.

Excluding fair value adjustments and acquisition and transaction costs adjusted net earnings for the third quarter of 2023 was $21 5 billion or $1 per share compared to $12 1 million or <unk> 56 per share in the same period of the prior year.

Adjusted net earnings for the period was positively impacted by increased sales based on same store sales as well as location growth and improved leveraging of operating expenses, partially offset by increased finance costs and increased depreciation related to property plant and equipment.

For the nine months ended September 32023 sales totaled $2 2 billion, an increase of $410 8 million or 22, 9% when compared to the same period of the prior year driven by same store sales growth of 18, 3% as well as contributions from new locations that are not.

Been in operation for the full comparative period.

Gross margin increased to 45, 5% of sales compared to 44, 9% in the comparative period.

The gross margin percentage benefited from improved glass margins higher part margins and increased scanning and calibration.

Client pricing increases resulted in improvement in labor margins, however margins remain below historical levels.

Certain performance based programs negatively impacted gross margin during the first nine months as.

As compared to the same period of the prior year.

Operating expenses increased $123 1 million when compared to the same period of the prior year, primarily as a result of increased sales based on same store sales as well as location growth. In addition to inflationary increases.

Adjusted EBITDA for the nine months ended September 30 was $274 million compared to $198 8 million in the same period of the prior year to $75 2 million increase was primarily the result of improved sales levels and gross margin percentage, which also provided leverage.

<unk> of operating costs.

We reported net earnings of $67 6 million compared to $26 8 million in the same period of the prior year adjust.

Adjusted net income per share increased from $1 29 to.

To $3 25.

The increase in adjusted net earnings per share is primarily attributed to increased sales and improvements in gross margin percentage as well as improved leveraging of operating expenses.

At the end of the period, we had total debt net of cash of just over $1 billion debt.

Debt net of cash increased when compared to the prior quarter, primarily as a result of increased acquisition activity and other growth related capital expenditures.

During 2023, the company plans to make cash capital expenditures, excluding those related to acquisition and development of new locations within the range of one six to one 8% of sales and.

In addition to these capital expenditures the company plans to invest in network technology upgrades to further strengthen our technology and security infrastructure and prepare for advanced technology needs in the future.

The investment began in the second half of 2023, but the majority of the capital will be invested in 2024 and 2025.

During the nine months ended September 32023 incremental capital expenditures were incurred relative to the expected range for capital expenditures as a percentage of sales for the full year.

These capital expenditures included the purchase of certain real estate assets as well as non routine replacements and repairs. Excluding the impact of these incremental items capital expenditures remained slightly above the range of one six to one 8% of sales.

We continue to execute on our growth strategy. During 2023. The company has added 78 single locations.

The same time, achieving same store sales increases of 18, 3% for the year, thus far while quarterly same store sales increases have tapered from those experienced during the period following the pandemic and pandemic related disruptions. The company has posted average quarterly same store sales increases of <unk>.

Six 7% and five 9% over the past five and 10 year periods respectively.

Thus far in the fourth quarter.

Same store sales increases are lower than was experienced in the third quarter of 2023, but remain ahead of the five year same store sales growth levels.

Workforce initiatives continue to have a positive impact on capacity and ongoing investments in technology equipment and training positioned the company well for continued operational execution.

Client pricing increases resulted in improvement in labor margins over margins do remain below historical levels.

This remains a key area of focus for the company impacting both the gross margin percentage and adjusted EBITDA margin that can be achieved in the short term.

The United Autoworkers strike did not impact boyd's ability to source parts and complete collision repairs during the third quarter of 2023.

Despite the tentative settlement underway the duration of the strike has resulted in modest delays in supply chain of certain parts and therefore, the completion of a small number of repairs during the fourth quarter. It thus far.

Boyd has made investments in resources to support the growth for single locations Multilocation businesses or a combination of single and multi location businesses given to the company the best best flexibility on how to grow.

Operationally Boyd is focused on optimizing performance of new locations as well as scanning and calibration services and consistent execution the wall operating way.

Given the high level of location growth in 2021, and the strong same store sales growth. Thus far in 2022. The combination of same store sales growth on location growth buoyed remains confident that the company is on track to achieve its long term growth goals, including doubling the size.

The business on a constant currency basis from 21% to 25% against 2019 sales with that I'd now like to open the call to questions operator.

Thank you, ladies and gentlemen, we will now conduct the question and answer session.

If you have a question. Please press star followed by the number one.

Paul.

If you wish to cancel your request please press star two.

Your first question comes from.

Tommy Chen from BMO capital markets. Your line is now open.

Hi, Good morning morning, Tammy question good morning.

First on the clarification question, the 11.8% same store sale.

Thank you for that.

Thanks.

Same store sales.

Or is <unk>.

11.

That's the one.

Yes, it does.

It is 11 eight plus a one six.

Okay understood.

And then sticking with the comp could you talk a bit about some of the key moving pieces in there. So what are you seeing currently with respect to total loss rates are they starting to normalize I E.

Go up.

Sure Darrin.

Well, Gary and multiple curious about your level of backlog now I know, it's been elevated but presumably you've been making progress.

So if you can talk about those moving pieces, how baked them in this quarter versus the prior one or two quarters.

Yes from a repair of severity standpoint, we do continue to see increasing repair severity.

And I would expect that that will continue over time, if we look at vehicles that are being repaired that are newer vehicles say the one to three year old range. The average repair cost of those vehicles is meaningfully higher than you would see.

4% to seven and then eight plus.

So and Thats really reflection newer cars are more expensive to repair anyway, but the newer vehicles also have more technology. So I think thats a trend that <unk>.

Like it or not is more than likely to continue.

In terms of total loss rates I think over the last several quarters, we have seen total loss rates.

Moving up or not.

Not to levels that they were previously but they have have increased in terms of that maybe as it relates to demand, we've really seen no softening of demand and continue to have.

Robust levels of work available to us in virtually every market.

So we wouldn't anticipate that modest normalization of total loss rates.

Wood in the near term affect the level of work available to us.

Okay got it.

And then my other question.

I noticed in the press release.

John.

Inorganic growth touched a bit on multi shop location, which is something you haven't really.

Focus as much on overtime as much given the.

Bidding environment, the last couple of years and even more.

So our location.

Im wondering.

You look out in the landscape now.

Do you view changing a bit where perhaps the current rate environment.

Can you make some of the multi shop asset more attractive.

Yes, I think that we've always been very interested in acquiring Msos. In addition to our single shop growth strategy and as is clear from our balance sheet, we have the capital and the cash flow.

To do that we just need to make sure those acquisitions are accretive.

We felt like pricing in the marketplace had gotten quite high.

We will see over the coming quarters, whether or not that has normalized to a level that makes sense for Boyd.

But I think it is important to note that we've done a pretty effective job of deploying capital on a single shop growth strategy. We've opened a significant number of locations to date, we've beefed up our capability and we're delivering on that with our greenfield and brownfield openings.

So in terms of our confidence of achieving our 2025 revenue goal.

Quite confident and believe that that can be done even without acquiring multi shop businesses.

Alright thats it from.

Thank you thanks.

Thanks Tammy.

Your next question comes from.

<unk> from TD Cowen Your line is now open.

Yeah, Good morning, Tim and Jeff solid quarter morning, Derek Good morning.

Maybe I want to start maybe a scenario that doesn't get a whole lot of attention.

DNA talked about investments in Capex to glass repair business, maybe you can just talk about it.

It's been there and maybe the opportunity outlook you have for that business.

Yes, I think we've.

We've quietly grown our auto glass business in tandem with our collision repair business for many many years.

And in the auto glass business is a really important part of our company.

I think we see great opportunity over the past.

Probably a year and a half not only have we been growing it organically.

And there is some good tailwind and the auto glass business, including an increasing requirement for calibration of forward facing cameras windshields that we will that we replace.

And we've been active with modest acquisitions to enter new markets or build scale in existing markets and auto glass and I would expect that to continue.

I am pretty excited about our auto glass business and the opportunity that we have so we will we will continue to work to grow that kind of in tandem with our collision business.

Is there can you maybe just touch a bit more on sort of the M&A opportunities you see in this space.

Sure I mean, the auto glass business is dominated by one large player.

There are a few mid sized players such as Boyd are relatively small, but certainly scaled with the ability to serve our insurance partners more broadly.

The rest of the market, though is highly fragmented with small glass businesses.

Typically owner operated small glass businesses much like the collision repair industry. So we're able to acquire businesses at attractive multiples.

Build them into and integrate them into our business and that's part of the formula for growing our glass business. So I think there are a lot of similarities to it.

Two what we see in our collision business.

Interestingly the auto glass business was also primarily serving our customers customer. So I'd say, it's one of the strengths of Boyd.

Is to be focused on delivering value not judge it by just satisfying the vehicle owner, but also making sure we do it in a way that.

Keeps our insurance companies costs under control and it gives them a reason to give us more of their work.

Okay. Thanks for that and maybe just one last one for me before I re queue.

One of the bigger.

Insurance companies.

They started rolling out.

Comprehensive aftermarket program across the U S. It's still pretty early and guests will take time for new claims.

Three year backlog, but just curious.

<unk> on the program rollout.

Yes.

We support any program that allows us to repair repair vehicles more cost effectively and the use of alternative parts allows us to do that.

Over time, you would expect that to reduce things like total loss rates.

But also keep premium costs down for policyholders. So we're supportive of it and the impact on our business is not really very significant aftermarket.

<unk>.

We will lower our revenue because they do retail for less.

Tend to have a higher average margin than an OE heartwood. So we will see lower revenue, but higher gross profit margin, but the dollars are probably fairly comparable so I don't see it having a big impact on our business other than to better serve them.

Client that allows those parts.

By reducing their cost to prepare.

Okay. Thanks for that.

Thank you.

Your next question comes from Gary Ho from Desjardins.

Your line is now open.

Hey, guys good morning.

Hey, good morning.

First one I had <unk> gross profit margin expansion, a little bit, especially when we look out to 2024.

You've received price increases and improved labor margins, but it sounded like moist needed.

Some are more.

Controllable when you think about margin improvements such as <unk> scanning and calibration, while others are less controllable as youre asking for.

Our insurance partners for rate increases hopeful I'm hopeful that you can provide a bit more qualitative outlook.

And how quickly you can recover margins and second maybe help us bucket margin expansion between what's controllable and maybe.

Less controllable.

Yes.

First on the labor side I think we've we've made some reasonable progress on the labor side.

Part of the offset to that is that we continue to invest in people development with our technician apprenticeship program, which does burdened our labor margins and mitigates the impact of the success, we've had with client rate increases.

Having said that we know it's the right thing to do because ultimately building our workforce the industry doesn't have an adequate supply of technicians and the only way we're going to solve that problem is by making investments in people. So we've been pretty aggressive with those investments and we're confident that it's the right thing to do.

In terms of which levers on margin we have direct control over.

I suppose we could reduce our focus on our technician development program and benefit from that from a margin standpoint in the short run, but it would be a bad long term decision.

On the parts side I would say, we continue to better organize ourselves and leverage our scale.

<unk>.

Both negotiate the best available service and pricing terms that we can with our suppliers and then concentrate our purchases on those suppliers that have made that commitment to us.

Made good progress on that during 2023 and expect to continue that so that the parts is an area I think that.

As.

Somewhat or maybe largely within our control that we're working on.

Scanning and calibration is another one.

We still and we've talked about this but we still serve a substantial portion of our calibration needs with third or third party sublet services, we do own the calibration business and we've talked over the last few quarters about putting.

Putting the infrastructure in place this year that will allow us to grow that business in a controlled manner with the proper systems, we have implemented those systems now and.

We'll be focused on growing.

Our labor calibration capabilities that has two pretty meaningful benefits.

It will lower the cost to prepare for our customer because something that sublet tends to have the highest cost for a customer for example, if we have sublet a calibration out to a dealership we've got to transport the car to the dealership, we're going to pay a premium price to have that calibration done and then our profit is really.

A relatively modest markup, but it does drive cost up for our customer so as we internalize that where we can reduce cost for our customers and convert them from a third party a sublet operation to an internal labor operation.

So we've got opportunity to convert the business that we're already doing in addition to that the calibration market.

You can look at different industry data on this but the calibration market.

<unk> is expected to grow as more cars with <unk> equipment come into the marketplace.

So I would say that labor, we have a lever available to us if we wanted to slow down our investment, but we don't.

We should be able to continue to make progress in parts and I think calibration is a tailwind that we're pretty excited about maybe I'll just add the other element is the mix. The fact that we've got pricing.

Coming through and complexity of parts is driving more parts usage that can have a little bit of a dampening effect because of the mix element of that.

Just getting back to calibration to the extent that the calibration activity growth, but we have to use sublet.

It's really the rate that we can internalize it versus.

<unk> growth is.

The two levers really that can relate to calibration fix good point thanks, Jeff.

Hey, great. Thanks for that my next question.

So thanks for your comments on the UAW strike.

Strike implications just curious if you see any.

Increased site that they received it might not be a direct comparison by indirectly the 25% increase workers' get over four years do you see that as a risk at all to your talent pool any historical correlation between those workers and your technicians.

We've never observed a historical correlation to that I think where we're competing for others in the automotive aftermarket for that so we.

We don't have any data that would suggest that that should flow through to our cost structure and part of that those markets are specific markets theyre not broad.

Where the plants are I think it is a factor plus the ability that we have paid flat rate, it's not a directly comparable yes.

And if you look at the wages that are technicians learn they are actually quite attractive.

Even today, so what we'd like to make them better.

Our technicians do very well.

Okay great.

Great and then maybe I sneak one more and just numbers question.

Just in your <unk> same store sales growth to date, I guess youre pointing to roughly 6% to 12%. That's a pretty big range was wondering if you can update for us on a quarter to date basis on the upper end of that mid point, perhaps.

The challenge we have is that we're one month into the quarter and fairly early in November. So we're confident it will be in that range, but we haven't narrowed it down beyond that.

Okay. Okay. That's all my question. Thank you.

You.

Next question comes from Bret Jordan from Jefferies. Your line is now open.

Hey, good morning, guys.

Good morning, Brett.

The conversation is sort of diagnostics and.

Still substantial amounts of sole sourced.

Third parties could you quantify at all sort of what you pick up on our work.

Job that youre doing your own diagnostics versus outsourcing give us some sort of.

Defense posts around what kind of margin benefit, bringing it in house could be.

Okay.

Mitra, we publicly quantified that but I would say what we had been say Bret is that right now for that work we're really.

<unk> seen sublet margins up which our least attractive margin.

And when we converted to internal labor, we would see labor operation Labor margins.

So we're shifting from our lowest margin category to our highest margin category.

And and we May see some.

Degradation of revenue, because we're able to price it better.

But it's highly attractive to us.

And then I guess similarly on the auto glass business.

When you think about the fragmented market as the consolidation accelerating because the five year older younger cars got so much technology into glass. These smaller players cant do it or is that is the hurdle not that great, but they're not really getting forced out of the market.

Well I think it's early on in that but I do think servicing a vehicle with.

With a glass replacement that requires.

Static calibration, one that has to be done at a facility.

Glass business in the U S.

Been serviced.

Largely by mobile bands for decades, I think we're one of only two countries that the majority of the market is serviced that way, but as we.

As we evolve toward more static calibration those are going to have to be done in the building so unless.

Gas company has physical plant capacity.

Don't know, how they'll be able to do that they can sublet it to a dealer, although that's quite expensive and inconvenient for the customer. So our strategy has really been a combination of opening some locations for our glass business to service that need, but also partnering our collision and glass businesses together to take advantage of the.

Large footprint that we have on the collision side to also service glass customers. So I think it will be more difficult for smaller players without physical plant to service the needs as it continues to evolve.

Great. Thank you.

Your next question comes from.

Okay. So saracen from CIBC. Your line is now open.

Good morning, Chris Good morning, Thanks for taking my question.

And just a little bit more on that on the margins and the calibration.

As we think out I guess through kind of through the rest of this decade.

You got a continued progress on this calibration.

And you get the pricing you need from your.

From your insurance partners.

How should we think about margins like what is the opportunity there I have to assume that.

We'd be able to.

<unk>.

Pandemic margins when you when you bring this business in house.

We haven't we haven't provided any specific guidance on that but there is there is no question that.

As calibration grows it will be a tailwind for us.

We're in the right position because we're servicing the customer so we have the vehicle and all we really have to do to capture that revenue and services with our own labor.

Build our labor force on the calibration side, our Labor force.

There's obviously an equipment need their diagnostic tools and targeting systems.

And then to the extent that it is done.

Somewhat via mobile or we move technicians between sites there are mobile bands to to move that around.

But it's a I would call it a long term tailwind opportunity for our business as that continues to progress and we're I think we're we're not in the first inning of that journey right now.

But we're not deep into it either.

Okay, Great and as you look to grow that business is it are.

Are you looking to see that similar too.

How you've done so already by acquiring or acquire.

Acquiring these mobile scanning calibration businesses.

We'll consider that the our founding the company our founding business was in the acquisition and we've been growing growing the footprint of that acquisition.

Spanning from its base and growing into new markets. Thus far we were handicapped because we didn't yet have the.

The technology in place to grow rapidly in a controlled manner, we've solved that problem now.

We will consider where it makes sense acquiring assets to grow it more rapidly.

But.

But we can grow it organically, but I would say we are open to both organic and acquisitive growth in that segment.

Okay, Great and then maybe just update on Evs and you were talking about loss rates earlier.

In the call, but what.

Are you seeing in terms of total loss rates on Evs specifically.

We've kind of run a lot in the news lately about how expensive they are too to repair. So what are you seeing there and any comments on trends going forward.

I'm not sure I have good data on that Chris to tell you.

We repair a lot of evs.

Although it's still a pretty small portion of the total repairs that we do.

So I'm not sure that we have enough data ourselves, we'd probably rely on data from the information providers.

Because they would have a broader view of the marketplace for that.

Okay, great. Thanks, Thanks for the comments and I will jump back in the queue.

Thank you.

Your next question comes from Steve Hansen from Raymond James Your line is now open.

Good morning, Steve.

Thanks Suzanne.

The team there has been some concerns out there that.

Incremental price increases are going to be harder to get from the insurance carriers can you just maybe reinforce your view one way or another as to how you feel about the ability to keep getting price if labour rises.

We've continued to see.

Reasonable levels of price increases from our clients.

And in conversations I would say clients understand that.

There is going to need to be further increases for us to be able to build a workforce to service them.

So while we may not see the rate that we did early on.

I would say that I would expect we'll continue to see.

Right from key insurance clients, because the capacity that the industry has is not even close to sufficient to properly service the demand.

<unk> rental remains.

Well it has improved a little bit of remains very elevated I think service levels that we are able to provide or we would expect it to be and the solution to that.

Continue to build build our labor force, both Boyd and across the industry.

We will continue to see success.

Having said that the pricing pressure in the gap that existed.

Six or seven quarters ago.

We don't have the same gap today.

When we were receiving price increases a year 456 quarters ago. The increases that we're getting we were getting werent sufficient to even cover the cost increases that we'd already seen and we continue to go back I think at some point as inflation is under better control the labor market cools down a little.

The need for increases will not be as great and we will be able to continue to catch up.

Our progress on labor margins has been somewhat masked by our continued investment in TTP.

And I think we've tried to communicate in the disclosures is that we have made some progress on labor margin. The progress could have been more have we not had to make investments in our workforce, but we see no alternative but to make the investments that we're making.

That's good color thanks for that.

And just a follow up I wanted to go back to the NSO piece, one of the tradeoffs always with <unk>.

Single shops versus larger deals as multiple spread and multiple expectations in the market have you seen or.

A noticeable shift in expectations in the market that make the MSR deals.

More palatable at this point, they're always going to be a premium of course, but are they coming down into the strike zone I guess the question ultimately yes.

We are happy to pay a premium for a multi shop business although.

Im pretty pleased with what our team has been able to accomplish with the single shop growth, which has included.

New market entries, where we didn't have a presence and we built our presence up.

Through single sharp growth in Northern California would be the most mature example of that where a couple of years ago. We had no stores and now we have over 20, and we havent acquired any multi shop businesses to accomplish that so our old strategy, Steve was really based on.

Buying a platform foundational business and then growing from that so I think we proved that we can grow in different ways.

We do have capital, though and if we can find attractive multi shop investments.

We will pursue them and.

And we are willing to pay certainly a multiple above what we would pay for a single shop growth, but we want to make sure its accretive in.

It makes sense and we know we can accomplish our current stated growth goal.

Even without those MSR acquisition, so I think we're in a great position.

I appreciate that guys. Thanks.

Okay.

Your next question comes from Chris Murray from <unk> Capital markets. Your line is now open.

Yes, good morning, Chris.

Good morning.

Maybe a bit of a theoretical question, but something that has also impacted you in the past and thinking.

Thinking about the Florida insurance market, we spent a lot of discussion around several insurers starting to move out of the market are changing the way that they are going to cover damage.

I'm just wondering if you guys are starting to think of any changes to how you approach the business in areas, which are going to be hurricane impact global insurers are going to be a little more cautious on a go forward basis for that.

Having to increase marketing spend to go.

Direct to consumer or anything like that just any thoughts you may have about how this is justin.

Yes, I think the impact of this has less to do on the automotive side than it does on the on the homeowner side.

I know there've been some pretty.

Public exits from a market like Florida.

And I think and I believe in Florida, and somebody would have to confirm this but I believe that if you. If you write auto and home you can't exit for home without exiting for auto.

So I don't see it I mean, we've got our property risk in Florida, certainly because we've got a large presence in the hurricane markets like that but I don't see it really impacting our strategy around auto.

Okay.

Thanks.

And then just one other follow up question.

There was a question that I have.

Same one about the capital investment into the <unk> business.

Just a little more it can be little more specific about exactly what that investment actually entails a it looks like is that is that for <unk> systems and processes that you were alluding to or that more for calibration equipment. Just any more color you can give us on exactly where those dollars are going will be great. Yes, I would say the.

The investment that we're making in our glass business in our core glass business would be both some technology.

There is certainly equipment when you're calibrating vehicles that requires.

Tools and targeting systems as well as facilities, we're going to do our best to do that work.

Collision repair buildings, where we have capacity, but our auto glass business does operate in markets that we don't yet serve and collision, which means we need physical space for our auto glass business. So it's really tools equipment techs.

Technology, and then because it is still by and large a mobile service operation, but it is not as significant as the collision repair center no.

The van is typically the most expensive part of <unk>.

Adding and adding auto glass capacity today.

Okay.

I guess the other thing I think about when you think about greenfield expansion than when I hear you talk about glass and maybe the fact that you can co locate and do a little bit does that change your thinking or around the economics of.

Greenfield openings as we go into next year.

Well, certainly our our Greenfield design and.

Corporate's all of our businesses, including collision glass and calibration.

And you've seen us.

Expanding our our focus on Greenfield and brownfield locations and.

And we think Thats an important part of just preparing the business for the long term to make sure that we have more and more locations that can house all of the components of our business.

And I think that has the opportunity over time as we are.

Evolve that model to enhance returns on the physical plant that we built out.

Okay. That's helpful. Thanks, Bob.

Thanks, Chris.

Your next question comes from Zachary <unk> from National Bank Financial Your line is now open.

Thank you good morning Zach.

So maybe just maybe just a follow up on that last question on physical investments in Greenfields and brownfields taken hold all three businesses.

Does that impact your decision on real estate ownership at all or are you still pretty happy with the sale leaseback model.

We're still happy with the sale leaseback model of it.

Our focus is.

As to drive ROIC to do our best to drive up ROIC.

And as you know property investments typically have low ROIC.

So we will continue to do sale leasebacks on those properties.

Alright, perfect and then in the quarter, where we saw a little bit higher depreciation level is that just a timing issue on some of those sales.

Yes, it's primarily timing, it's there's been a little bit of a buildup over the last few quarters of some of the some of the maintenance capex and so you're seeing a little bit of that coming through but there is some variability quarter to quarter. So.

Okay. Good color. Thanks.

On the backlog given how much addressable works. There is is the impact from the strike on parts availability actually affecting the pace of sales at this point in time in Q4 or are you able to efficiently set those aside.

It Hasnt had enough of an impact that we're calling it out I mean, we do have.

A number of jobs in the company that are.

Our not being actively worked on because there is a an OE part that is not available but.

It's not material and it's nothing like what we experienced during kind of the peak of supply chain disruption. So I'm not overly concerned about it could have a small impact on Q4, it's possible, but I don't think it's anything that we're going to work.

Really concerned about.

Thank you very much and then just one last one more speculative give any comments on <unk> and you asked given some progress in some jurisdictions there.

Yes, there has been some progress on it I mean, obviously, we believe in the Reits are repaired.

Interestingly part of that is access part of the concern is the aftermarket having access to the systems in vehicles and.

And repair procedures.

Have great access to both I mean.

We have access to OE scan tools.

If needed for any vehicle that we repair.

And we can do that across every one of our locations at Boyd So.

We've got.

Built technology and access to those systems. So that we can properly repair vehicles. We also have access to repair procedures, either through third party tools or directly with the Oems.

So I don't feel like were handicapped by this right now but im.

Supportive of the aftermarket having access to all the information it needs to properly repair vehicles.

Yeah.

Great color, Thanks, I'll turn it over.

Thanks, Patrick.

Next question comes from Michael <unk> from Scotiabank. Your line is now open.

Good morning, Michael.

Hey, good morning, Tim Hey, Joss.

On.

On operating expenses, so the dollar amount.

This quarter was actually lower than the amount in Q2.

Which helped the margin.

And I guess, if you look back.

The last two three years, it's the first time, we see call it a decent step down quarter on quarter.

So I'm wondering what drove that if there is anything that we can take away from that.

Well I think the first thing that comes to mind is that one less selling day does have a significant impact on some of our variable costs and so that's that's probably one of the one of the reasons.

And so because really went backwards on our sales sales side as well so.

Other than that I wouldn't say I would read into it any more than that.

Okay. Thanks.

Thanks for that Jeff and then maybe just turning to your.

Your comment about the five year average same store sales growth rate, which.

Which I find interesting and I know you did see this specifically Tim.

But I wonder if you are signaling a same store sales growth trend going forward.

Given the fact that we will probably see some inflation higher parts mix technician adds the scanning and calibration. So just.

Any discussion around what you highlighted is.

Historical five year trend to how we should think about.

Beyond Q4.

Dan.

We werent trying to signal anything.

Anything specific on that Michael I think the.

The average repair cost has gone up.

It is related to.

At least in part it's related to vehicle complexity.

Higher used car prices and vehicle complexity.

<unk> earlier on the call that when we look at newer vehicles, they have a meaningfully higher average repair costs.

Vehicles and received three to five years old or four to seven years old.

So I think there is a trend that.

Is likely not easy to stop.

And it's not just the more complex vehicles, it's the shift in the vehicle population away from sedans to.

<unk> crossovers and trucks, which have always had a higher average cost to prepare.

And so I think that there's just.

A long term trend.

We're we're seeing come through in our revenue via the average cost of repair.

I'll leave it at that thank you guys.

Thanks, Michael.

Your next question comes from Derek Lessard from TD Cowen.

Your line is now open.

Hey, guys just a few follow ups for me is just curious on if there's any margin differences between the glass and auto repair businesses or are you agnostic between the two.

Glass is a bid.

Seasonal derik, but it does have higher gross margins.

And it is benefiting from growth in calibration, which has been a positive for margins in our glass business.

I mean, they're not wildly different but youll notice in our commentary our MD&A over the years that we've frequently commented during the second and third quarters.

The glass business has had a favorable impact on overall margins and.

In glass seasonally has higher revenues in Q2, and Q3 often related to just higher miles driven in those quarters.

Okay.

And this may be changing it up a bit could you maybe quantify.

The impacted the performance programs on the gross margin you called it out I think for the last two quarters.

How should we think about that going forward.

Youre going to see variability quarter to quarter dependent on how we perform.

For our clients. So I don't think that we weren't trying to point out any stark difference.

And we've been saying for about as long as I can remember that we will have quarterly quarter to quarter variation.

And our margin based on performance based pricing, but it's.

It's not something that I would say is.

Different we had less of it during the peak of the pandemic when we had no revenue but.

What we're seeing now is really pretty normal.

Okay and these are these are tied to the technicians.

It's typically tied it varies dependent on the relationship.

Tied to what what metrics our clients tell us is important to them.

Motivates us to focus on what they say is important.

Thanks.

Thanks, Eric Your next question comes from Jonathan Mairs.

Laurentian Bank. Your line is now open.

Yeah.

Good morning, Hi, Jonathan Good morning.

Could you update us on the demand situation, Tim are you continuing to see demand and excess of capacity.

Across your markets are you starting to see any pockets of softer demand.

Theres been no change demand remains very strong.

So as you look to 2024.

Do you have any visibility as to.

When we might see production capacity step up again.

I would expect it to be gradual improvement.

We obviously talk a lot about this but.

Our strategy around increasing our capacity has four elements to it.

First is to focus on retention and we've done a number of different things and continue to do things.

To drive retention.

We have stepped up and have a strong team that works with our operated where they're operating partners the HR and operating teams on recruitment.

We're aggressively recruiting in the market.

Third is really development and thats developing.

New technicians through our technician development program, which we've talked.

A lot about over the last.

A few years and then lastly, and this is one that we had not talked about as much previously but have started to introduce more clearly over the past few quarters.

We're looking to drive improved productivity for our existing workforce.

And we're doing that through training process and technology.

I think all four of those are opportunities for us to gradually improve our productive capacity.

And in service of business, that's available to us, but there is unfortunately, there's not a silver bullet that we can shoot today.

To solve the problem everywhere, but we're working hard on all four of those.

Key strategies.

To drive the improvement.

Great. Thanks for your comments.

Thank you thanks, Jonathan.

Your last question comes from <unk> Khan from RBC capital markets. Your line is now open.

Okay, great Thanks, and good morning.

Alright.

Greg a little bit of commentary around the expectations from potential targets are high around multiples on price and so forth, but I guess, if you think about the current rate environment.

There are potential offsetting maybe less competition for some of these assets, particularly from some of the larger platforms and also competitive environment, whether it's for Msos are for the one wanted to shop owners.

We find that most of the smaller acquisitions.

Are not competitively bid. So we just have to be fair with our offer and we.

Obviously, we've been very very successful with that.

We do wind single shop competitive bidding situations, though so it isn't it.

It isn't like we can step up and get the job done in a competitive situation, we do and have had a number of those situations.

Msos side, there hasnt been a lot of trading on Msos over the last several quarters.

I'm not sure whether that means that <unk>.

<unk> have come down and fillers haven't yet reconciled with that.

Or if there are other pressures in the marketplace, but we're going to continue to be involved in looking at any any asset that we think is it fit into our business and do our best to be competitive to acquire it but I would still reiterate that.

We can achieve our growth goals.

Even if that market isn't easily available to us and we intend on doing that.

And just kind of continuing on that conversation.

<unk> years ago, as we were in the pandemic, maybe coming out of it.

Some of the larger.

Financial sponsor back folks, we're in a bit of financial constraints somewhat consolidating of the view as maybe they might be out of the active consolidation space for a bit I guess has that all normalized how would you describe maybe the.

The activity levels amongst some of your competitors out there for assets.

I would say for the industry the activity levels in 2023 have probably been as low as they've been in quite some time.

On the other hand, we've grown.

On a single shot basis, we've grown more single shops than we have at anytime in our history.

I'd say were different in the marketplace and the marketplace has definitely seen some slowdown in that that's likely people getting their house in order to do to get ready to grow again.

Great. Thanks, so much for the color.

Okay. Thanks, Adam.

There are no further questions at this time, Mr. Tim Boddy. Please proceed with your closing remarks.

Thank you operator, and thanks to everyone once again for joining our call today.

We look forward to reporting our fourth quarter and year end results in March have a great day.

Yes.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.