Q4 2023 Boyd Group Services Inc Earnings Call
Okay.
Operator: Good morning, everyone. Welcome to the Boyd Group Service. Fourth Quarter and Year-End 2020 True Results Conference. Listeners are reminded that certain matters discussed in today's conference call, or answers that may be given to questions asked, could constitute forward-looking statements that are related to Boyd's future finances. Actual results could differ materially from those anticipated in those four. The risk factors that may affect results are detailed in the Annual Information Form and other periodic filings. You can access these documents in CDER's database, found at cderplus.org.
Good morning, everyone welcome to the Boyd Group Services, Inc, fourth quarter and year end 2023 results conference call.
Listeners are reminded that certain matters discussed on today's conference call or answers that may be given to questions asked could constitute forward looking statements that are subject to risks and uncertainties related to boyd's future financial or business performance.
Actual results could differ materially from those anticipated in those forward looking statements.
The risk factors that may affect results are detailed in boyd's annual information form and other periodic filings and registration statements and you can access these documents at Cedars database found at Cedar plus dossier.
Operator: I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 21. I would not like that. [inaudible] Boyd. Go ahead, Mr. O'Day.
I'd like to remind everyone that this conference call is being recorded today Wednesday March 20th 2024, I would now like to introduce Mr. Tim O D President and Chief Executive Officer of Boyd 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 the call with me today is Jeff Murray, Our executive Vice President and Chief Financial Officer, and Brian Kane, or our executive Vice President and Chief operating officer of collision.
Jeff Murray: Thank you, Operator. Good morning, everyone, and thank you for joining us on today's call. On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer, and Brian Kaner, our Executive Vice President and Chief Operating Officer of Collision. We released our 2023 fourth quarter and year-end results before markets opened today. You can access our news release, as well as our complete financial statements and management discussion analysis, on our website at boydgroup.com. Our news release, financial statements, and MD&A have also been filed on CDAR Plus this morning.
We released our 2023 fourth quarter and year end results before markets opened today.
You can access our news release as well as our complete financial statements and management discussion and analysis on our website at Boyd Group Dotcom, Our news release financial statements and MD&A have also been filed on SEDAR plus this morning.
Jeff Murray: On today's call, we will discuss the results for the three months period ended December 31, 2023, and provide a business update and discuss our long-term growth strategy. We will then open the call for questions. We are pleased with the strong financial results reported in 2023, once again achieving record sales and showing meaningful improvement in leverage and profitability when compared to the prior year. Demand for services remained high throughout 2023. We were able to continue successfully negotiating selling rate increases from our insurance company clients to better reflect the labor cost increases we've been experiencing, although further increases are necessary to bring our labor margins back into the normal range. During 2023, we added a record number of new single-location locations.
On today's call, we will discuss the results for the three months period ended December 31, 2023, and provide a business update and discuss our long term growth strategy. We will then open the call for questions.
We are pleased with the strong financial results reported in 2023, once again, achieving record sales and showing meaningful improvement in leverage and profitability when compared to the prior year.
Demand for services remained high throughout 2023, we were able to continue successfully negotiating selling rate increases from our insurance company clients to better reflect the labor cost increases we've been experiencing although further increases are necessary to bring our labor margins back into the normal range.
During 2023, we added a record number of new single locations. These new locations contributed to sales, but with a higher operating expense ratio limiting the amount of earnings that.
Jeff Murray: These new locations contributed to sales but with a higher operating expense ratio, limiting the amount of earnings that could have been achieved. As these new locations mature, financial performance will gradually align with the performance of the overall business. For the year ended December 31st, 2023, we reported sales of $2.9 billion, an increase of 21.1% over the prior year, driven by same-store sales increases of 15.8% and contributions from 186 new locations that had not been in operation for the full comparative period. Gross margin increased to 45.5% of sales compared to 44.7% in the comparative period. The gross margin percentage benefited from improved glass margins, higher paint and part margins, and increased scanning and calibration. Operating expenses increased $158 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.
Could have been achieved.
As new locations mature financial performance will gradually align with the performance of the overall business.
For the year ended December 31, 2023, we reported sales of $2 9 billion, an increase of 21, 1% over the prior year driven by same store sales increases of 15, 8% and contributions from 186, new locations that had not been in operations.
For the full comparative period.
Gross margin increased to 45, 5% of sales compared to 44, 7% in the comparative period.
Gross margin percentage benefited from improved glass margins higher paint impart margins and increased scanning and calibration.
Operating expenses increased $158 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.
Jeff Murray: Boyd has made incremental expense investments as well that are important to the long-term success of the business, including investing in key support functions. Adjusted EBITDA for the year ended December 31, 2023 was $368.2 million, compared to $273.5 million in the same period of the prior year. The $94.7 million increase was primarily the result of improved sales levels and Gross Margin Percentage, which also improved leveraging of certain operating costs. We reported net earnings of $86.7 million, compared to $41 million in the same period of the prior year.
Boyd has made incremental expense investments as well that are important to the long term success of the business, including investing in key support functions.
Adjusted EBITDA for the year ended December 31, 2023 was $368 2 million compared to $273 5 million in the same period of the prior year.
The $94 7 million increase was primarily the result of improved sales levels.
And gross margin percentage, which also improved leveraging of certain operating costs.
We reported net earnings of $86 7 million compared to $41 million in the same period of the prior year.
Jeff Murray: Adjusted net earnings per share increased from $1.97 to $4.18. The increase in adjusted net earnings per share is primarily attributed to increased sales, improvements in gross margin percentage, as well as improved leveraging of operating expenses. Certain costs, such as depreciation and amortization, are not variable, and same-store sales increases resulted in a decrease in depreciation and amortization as a percentage of sales during 2023. Now, moving on to our Q4 results. During the fourth quarter, we recorded sales of 740 million, a 16.2% increase when compared to the same period of 2022. Our same store sales, excluding foreign exchange, increased by 8.7% in the fourth quarter.
Adjusted net earnings per share increased from $1 97 to.
To $4 18 sets the.
The increase in adjusted net earnings per share is primarily attributed to increased sales improvements in gross margin percentage as well as the improved leveraging of operating expenses certain costs, such as depreciation and amortization are not variable and same store sales increases resulted in a decrease in depreciation.
The amortization as a percentage of sales during 2023.
Now moving onto our Q4 results.
During the fourth quarter, we recorded sales of $740 million or 16, 2% increase when compared to the same period of 2022, our same store sales excluding foreign exchange increased by eight 7% in the fourth quarter same.
Jeff Murray: Same store sales benefited from high levels of demand for services, as well as some increase in production capacity related to technician hiring, growth in the technician development program, as well as productivity improvement, although ongoing staffing constraints continue to impact the sales levels that could be achieved. Sales also increased based on higher repair costs due to increasing vehicle complexity, increased scanning and calibration services, as well as general market inflation. The quarterly same-store sales increase tapered from the levels experienced during the period following the pandemic-related disruption. Gross margin was 45.5% in the fourth quarter of 2023, compared to 44.3% achieved in the same period of 2022. Gross profit increased $54.4 million, primarily as a result of increased sales due to same store sales and location growth when compared to the prior period.
Same store sales benefited from high levels of demand for services as well as some increase in production capacity related to technician hiring growth and the technician development program as well as productivity improvement, although ongoing staffing constraints continue to impact the sales levels that could be achieved.
Sales also increased based on higher repair costs due to increasing vehicle complexity increased scanning and calibration services as well as general market inflation.
Good quarterly same store sales increase tapered from levels experienced during the period following the pandemic related disruptions.
Gross.
<unk> was 45, 5% in the fourth quarter of 2023 compared to 44, 3% achieved in the same period of 2022.
Gross profit increased $54 4 million, primarily as a result of increased sales due to same store sales and location growth when compared to the prior period the.
Jeff Murray: The gross margin percentage for the three months ended December 31st, 2023, benefited from improved glass margins, higher part margins, and increased scanning and calibration. The margin for the fourth quarter ended December 31st, 2023, is within the normal range, although labor margins remain below historical levels. Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was $94.2 million, an increase of 26.1% over the same period of 2022. The increase was primarily the result of higher sales levels and improved gross margin. Net earnings for the fourth quarter of 2023 were $19.1 million, compared to $14.2 million in the same period of 2022. Excluding fair value adjustments in acquisition and transaction costs, adjusted net earnings for the fourth quarter of 2023 were $20 million, or $0.93 per share, compared to adjusted net earnings of $14.6 million, or $0.68 per share in the prior year. The adjusted net earnings for the period were positively impacted by higher levels of sales and a higher gross margin percentage. At the end of the year, we had total debt, net of cash, of $1.1 billion, compared to $1.0 billion at September 30, 2023, and $963 million at the end of 2022.
The gross margin percentage for the three months ended December 31, 2023 benefitted from improved glass margins higher park margins and increase scanning and calibration.
The margin for the fourth quarter ended December 31, 2023 is within the normal range, although labor margins remained below historical levels.
Adjusted EBITDA or EBITDA, adjusted prepare value adjustments to financial instruments and costs related to acquisitions and transactions was $94 2 million.
An increase of 26, 1% over the same period of 2022.
The increase was primarily the result of higher sales levels and improved gross margin.
Net earnings for the fourth quarter of 2023 was $19 1 million compared to $14 2 million in the same period of 2022.
Excluding fair value adjustments and acquisition and transaction costs adjusted net earnings for the fourth quarter of 2023 was $20 million or.
Or <unk> 93 per share compared to adjusted net earnings of $14 6 million or <unk> 68 cents per share in the prior year.
Adjusted net earnings for the period was positively impacted by higher levels of sales and higher gross margin percentage.
At the end of the year, we had total debt net of cash of $1 1 billion compared to $1 8 billion at September 32023, and $963 million at the end of 2022.
Jeff Murray: Debt, net of cash, increased when compared to December 31, 2022, primarily as a result of increased acquisition activity and increased capital expenditures, including startup location growth. Based on the confidence we have in our business, we announced an increase to our dividend by 2% to $0.60 per share on an annualized basis in Canadian dollars, beginning in the fourth quarter of 2023. During 2024, the company plans to make cash capital expenditures, excluding those related to the acquisition and development of new locations, within the range of 1.8 to 2% of sales. In addition to these capital expenditures, the company plans to invest in network technology upgrades to further strengthen its technology and security infrastructure and prepare for advanced technological needs in the future. The investment expected in 2024 is in the range of $14 to $17 million, with similar investments expected in 2025. These investments align with Boyd's ESG sustainability roadmap to responsibly address data privacy and cybersecurity.
Debt net of cash increased when compared to December 31, 2002, primarily as a result of increased acquisition activity and increased capital expenditures, including startup location growth.
Based on the confidence we have in our business, we announced an increase to our dividend by 2% to <unk> 60 per share on an annualized basis in Canadian dollars beginning in the fourth quarter of 2023.
During 2024, the company plans to make cash capital expenditures, excluding those related to acquisition and development of new locations within the range of one 8% to 2% of sales. In addition to these capital expenditures the company plans to invest in network technology upgrades to further strengthen our <unk>.
Technology and security infrastructure and prepare for advanced technology needs in the future.
The investment.
Expected in 2024 is in the range of $14 million to $17 million with similar investments expected in 2025.
These investments align with Boyd's ESG sustainability roadmap to responsibly address data privacy and cyber security.
In November of 2020, we announced our new five year growth strategy, and which buoyed intends to again double the size of the business over a five year period from 21% to 25 based on 2019 constant currency revenues.
Jeff Murray: In November of 2020, we announced our new five-year growth strategy, in which Boyd intends to again double the size of the business over a five-year period from 21 to 25 based on 2019 constant currency revenues, implying a compound annual growth rate of 15%. Given the high level of location growth in 2021, the strong same-store sales growth in 2022, and the combination of same-store sales and location growth in 2023, we remain confident that we are on track to achieve our long-term goal. Boyd continues to execute on its growth strategy. During 2023, the company added 78 locations through acquisition and 28 through startup for a total of 106 new collision repair locations. In addition to location growth, Boyd was able to achieve same-store sales increases of 15.8%.
Klein a compound annual growth rate of 15%.
Given the high level of location growth in 2021, the strong same store sales growth during 2022, and the combination of same store sales and location growth in 2023, we remain confident that we are.
Are on track to achieve our long term goal.
Boyd continues to execute on its growth strategy.
During 2023, the company added 78 locations through acquisition and 28 through startup.
For a total of 106, new collision repair locations.
In addition to location growth Boyd was able to achieve same store sales increases of 15, 8%.
Heading into 2024, the company is facing strong comparative period same store sales results. Thus.
Thus far in the first quarter of 2024 same store sales increases while positive are lower than the average quarterly 10 year level of same store sales growth of five 9%.
Jeff Murray: Heading into 2024, the company is facing strong comparative period same store sales results. Thus far in the first quarter of 2024, same store sales increases, while positive, are lower than the average quarterly 10 year level of same store sales growth of 5.9%. Mild winter weather impacted demand for glass services, which are already seasonally low in the fourth and first quarters of the year.
Mild winter weather impacted demand for glass services, which are already seasonally low in the fourth and first quarters of the year. The same weather is impacting demand for collision repair services.
Performance of business during the first quarter of 2024 has been challenged by a number of factors. During 2023 Boyd added a record number of single new look new single locations, including 26 locations through acquisition and 11 startups in the fourth quarter.
Okay.
These new locations negatively impact earnings during the first several quarters of operation and typically mature to align with the overall company performance over a two to three year period will buoy continues to see pricing increases labor margins remain consistent with the previous quarter and below historical levels. This room.
Jeff Murray: The same weather is impacting demand for collision repair services. Performance of business during the first quarter of 2024 has been challenged by a number of factors. During 2023, Boyd added a record number of new single-location locations, including 26 locations through acquisition and 11 startups in the fourth quarter.
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 as.
As in prior years, the first quarter is burdened by higher payroll taxes that occur early in the year, while the fourth quarter of 2023 benefit in term expense accrual reductions.
Certain expense estimates were firmed up at amounts that were lower than previously estimated and accrued as a result, thus far in the first quarter. Adjusted EBIT dollars are trending slightly above levels achieved in the first quarter prior year, but below the level achieved in the fourth quarter.
Jeff Murray: These new locations negatively impact earnings during the first several quarters of operation and typically mature to align with the overall company performance over a two to three year period. While Boyd continues to see repricing increases, labor margins remain consistent with the previous quarter and below historical levels. This remains a key area of focus for the company, impacting both the gross margin percentage and the adjusted EBITDA margin that can be achieved in the short term. As in prior years, the first quarter is burdened by higher payroll taxes that occur early in the year, while the fourth quarter of 2023 benefited from expense accrual reductions, as certain expense estimates were firmed up at amounts that were lower than previously estimated and accrued.
Despite these challenges Boyd remains positive about the future of our business and the opportunities that lie ahead.
The pipeline to add new locations into expand into new markets is robust Boyd has made investments in resources to support growth through things through single location multilocation or combination of single and multi location acquisitions.
In addition investments have been made to support growth through startup locations. Together. These investments give the company flexibility on how best to grow operationally boy just focused on optimizing performance of new locations as well as scanning and calibration services and consistent execution.
Jeff Murray: As a result, thus far in the first quarter, adjusted EBITDA dollars are trending slightly above levels achieved in the first quarter of the previous year but below the level achieved in the fourth quarter. Despite these challenges, Boyd remains positive about the future of its business and the opportunities that lie ahead. The pipeline to add new locations and to expand into new markets is robust.
While operating way.
Given the high level of location growth in 2021, the strong same store sales growth during 'twenty, two and the combination of both same store sales growth and location growth in 'twenty. Three we remain confident the company is on track to achieve its long term growth goal, including doubling the size of the business on a constant currency.
Fee basis from 21% to 25% using 2019 as our base.
Jeff Murray: Boyd has made investments and resources to support growth through single location, multi-location, or a combination of single and multi-location acquisitions. In addition, investments have been made to support growth through startup locations. Together, these investments give the company flexibility on how best to grow. Operationally, Boyd is focused on optimizing the performance of new locations, as well as scanning and calibration services, and consistent execution of the while operating wave.
In summary, and in closing I continue to be incredibly proud of our team who are working hard to position us well for the future.
With that I would like to open the questions open the call to questions operator.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
We'll hear a three comp acknowledging your request and your questions will be pulled in.
Should you wish to your comments on the closing process. Please press star followed by the Q.
Sorry.
Paul Please lift the handset before pressing.
One moment. Please for your first question yes.
Your first question comes from Daryl Young with Stifel. Please go ahead.
Hey, good morning, everyone.
Good morning Darryl.
The first question is just around the demand environment and the weather and I guess I would've assumed that just given how strong the demand is banned in the backlogs across the year that.
Jeff Murray: Given the high level of location growth in 2021, the strong same store sales growth in 22, and the combination of both same store sales growth and location growth in 23, we remain confident the company is on track to achieve its long-term growth goal, including doubling the size of the business on a constant currency basis from 21 to 25, using 2019 as our base. In summary and in closing, I continue to be incredibly proud of our team who are working hard to position us well for the future. With that, I would like to open the questions, open the call for questions. Operator, followed by the number one.
You might have been able to continue to keep same store sales growth higher.
Even through the through the impacts of weather. So just wondering if there's anything going on there and I did note that north American collision claims were down almost 8%. So if theres any color you can give there that'd be great.
Yes, I think.
First of all it's a combination.
Weather impacts, both our collision and our glass business, our glass business as more of a demand service business, where we're replacing damaged windshields fairly quickly typically.
Within a day or two.
So when that market slows down we really see that immediately.
Immediately rather than being able to rely on our backlog to.
To kind of temper that on the collision side I think the industry has seen reduced claims.
Daryl Young: Hey, good morning, everyone. Good morning, Daryl. The first question is just around the demand environment and the weather. And I guess I would have assumed that just given how strong the demand has been and the backlogs across the year, you might have been able to continue to keep same store sales growth higher, even through the impacts of weather. So I was wondering if there's anything going on there. I did note that North American collision claims are down almost 8%. So if there's any color you can give it there, that'd be great.
I believe largely due to a very warm and mild winter.
And.
I would expect that that will normalize as we move into the into.
The next seasonal period.
But nothing really that we see thats different in the marketplace other than the impact of weather.
Okay great.
And then with respect to the margin drag in Q1 are you able to parse out for us what the impact of the accruals is versus the the drag on the new locations. Just so we can get a sense of the cadence of recovery across the year.
Jeff Murray: Yeah, I think, first of all, it's a combination. The weather impacts both our collision and our glass business. Our glass business is more of a demand service business where, you know, we're replacing damaged windshields fairly quickly, typically within a day or two. So when that market slows down, we really see that immediately rather than, you know, being able to rely on a backlog to kind of temper that. On the collision side, I think the industry has seen reduced claims, I believe largely due to a very warm and mild winter. And, I would expect that that will, you know, normalize as we move into the next seasonal period. But, you know, nothing really that we see that's different in the marketplace, other than the impact of weather. Okay, great.
Yes, I would say the <unk>.
Jeff you can comment on this afterwards, but I think the.
The bigger impact on a year over year basis.
It is really related to the new store openings.
As you know we opened.
Significant number of stores in Q4 and more of our openings are now Greenfield brownfield, which you'll have more early losses and take longer to ramp up so I think the.
More significant impact is really on new stores.
At least on a year over year basis.
Support that that comment and do as well.
We typically do have true ups year over year, and so you do see that there is a variability going from Q4 to Q1 that are typically affected by that.
You go back to the <unk>.
Jeff Murray: And then, with respect to the margin drag in Q1, are you able to parse out for us what the impact of the accruals is versus the drag on the new location just so we can get a sense of the cadence of recovery across the year? Yeah, I would say the, and Jeff, you can comment on this afterwards, but I think the bigger impact on a year-over-year basis is really related to the new store openings. And Daryl, as you know, we opened a significant number of stores in Q4, and more of our openings are now Greenfield and Brownfield, which have more early losses and take longer to ramp up. So I think the more significant impact is really on new stores, at least on a year-over-year basis. I would support that comment and view as well.
There are years Youll see that it sometimes it's less than other years, but.
I think more importantly is as the new store opening timing that we've seen especially with the amount of new stores opening in the fourth quarter and brownfield Greenfield switches are also.
Sort of a bigger component of the new stores that we've got right now.
And so that's also having an effect.
Might've been commented brownfields and Greenfields.
It would not be unusual for us to have.
Expenses in place in the period before opening.
Preceding staffing training.
Rent expense.
Those are more burdensome.
<unk>.
Acquisition typically would be.
Okay, Great and I guess, then as you ramp up the number of brownfields and Greenfields opening.
Jeff Murray: We typically do have true ups year over year, and so you do see that there's a variability going from Q4 to Q1 that is typically affected by that. If you go back through the number of years, you'll see that sometimes it's less than other years, but I think more importantly is the timing of the new store openings that we've seen, especially with the amount of new stores opening in the fourth quarter. And Brownfield Greenfields, which are also sort of a bigger component of the new stores that we've got right now. I might even comment that on brownfield and greenfield sites, it would not be unusual for us to have expenses in place in the period before opening, preceding staffing, training, and even rent expenses. So those are more burdensome than not, of Acquisition, typically.
Does it it's going to push out your 14% fewer recovery just sort of a 14% EBITDA margin going forward. It will just be a kind of a nagging drag.
It could be a drag.
On the 14% because we do intend to accelerate that.
Percentage of our openings that would be greenfield and brownfield on the positive side we.
Do expect Greenfield and brownfield locations generally to have higher returns on capital than acquisitions.
And I think the other thing to keep in mind as well it might be a bit of a drag to that to a 14% sort of level. They will be generating more EBIT dollars and so the more single locations and Bronco Greenfields. We can we can generate and bring them back really to maturity level It will drive.
Got it thanks, very much guys I'll jump in the queue.
Thanks Darryl.
Your next question comes from Derek Lessard with TD Cowen. Please go ahead.
Daryl Young: Okay, great. And I guess then as you ramp up the number of brownfields and greenfields opening, does it it's going to push out your 14% recovery to sort of a 14% EBITDA margin going forward? It'll just be a kind of a nagging drag. It could be a drag on the 14% because we do intend to accelerate the percentage of our openings that are Greenfield and Brownfield. On the positive side, we do expect Greenfield and Brownfield locations generally to have higher returns on capital than acquisition. And I think the other thing to keep in mind is, while it might be a bit of a drag to a 14% sort of level, they will be generating more even in dollars, and so the more single locations in Brownfield Greenfields we can generate and bring them back really to maturity level, it will drive dollars. Thanks very much, guys. I'll jump in the queue.
Yes, thanks, and congrats guys on a strong year.
I was curious to better to think I guess, two things with respect to your 2020 outlook in the first parties.
Do you think about the mix of organic growth versus M&A.
So getting to your goal of doubling that business in.
And I guess the second one is how should we think about you might have touched on it just in the Dallas question, but how do you think about the evolution of the margin over the same period.
Yes on the.
On the growth, we've never really guided for specifics, we kind of point to our historical.
Same store sales growth and obviously, whatever we don't accomplish that we need to fill in with inorganic growth.
But we're pretty confident.
We're obviously progressing nicely against our 2025 goal.
And feel quite confident with that.
But I would just point to our history in terms of same store sales growth. Obviously, our same store sales have been elevated more recently, both because of the impact of the pandemic and then the impact of inflation of the repair complexity.
Jeff Murray: Thanks, Daryl, and the rest of us. Yeah, thanks. And congratulations guys on a strong year. I was curious about two things, I guess, two things with respect to your 2025 outlook. And the first part is, how do you think about the mix of organic growth versus M&A to get to your goal of doubling that business? And I guess the second one is, how should we think about, you might have touched on it just in Daryl's question, but how do you think about the evolution of the margin over the same period?
Including.
Growing market for calibration services.
It should be a tailwind towards same store sales growth.
In terms of your second question was on margin recovery.
Yes.
Yes.
We expect to continue to make progress with price increases with clients.
We've been pretty clear.
Despite.
Really good price increases from our clients.
We have not yet been able to recover labor margins to historical levels in the industry has not been able to attract sufficient talent.
Jeff Murray: You know, on growth, we've never really guided for specifics; we kind of point to our historical, you know, same store sales growth. And obviously, whatever we don't accomplish that, we need to fill in with inorganic growth. But we're pretty confident, you know, we're obviously progressing nicely against our 2025 goal. And I feel quite confident with that.
To serve this normal work volume. So I think we're going to continue to see the need to invest in people the need to raise wages to attract people to the industry and to get client pricing to help offset that allowed the industry to properly service them.
I also would say that the growth of the calibration market, which is.
Jeff Murray: But I would just point to our history in terms of same store sales growth. Obviously, our same store sales have been elevated more recently, both because of the impact of the pandemic and then the impact of inflation, but repair complexity, including, you know, a growing market for calibration services, should be a tailwind for same-store sales growth. It was, yes.
A tailwind to margin because it is a labor operation provides.
Provides us some inc.
Incremental opportunity to improve margin over time.
Okay. That's helpful and maybe one on your on your technician development program.
But curious on how the new grads program have been performing and sort of what kind of retention rate you are seeing and do you think the scale.
The program is appropriate or do you expect to invest more to expand that.
I'm going to let Bryan had 11, yes. So I mean, obviously, we remain committed to developing the.
Brian Kaner: Yeah, so I, you know, we expect to continue to make progress with price increases with clients, as we've been pretty clear, despite achieving really good price increases from our clients, we have not yet been able to recover labor margins to historical levels. And the industry has not been able to attract sufficient talent to service normal work volume. So I think we're going to continue to see the need to invest in people, the need to raise wages, to attract people to the industry, and to get client pricing to help offset that to allow the industry to properly service them. I also would say that the growth of the calibration market, which is a tailwind to margin because it is a labor operation, provides us with some, you know, incremental opportunities to improve margin over time. Okay, that's helpful. And maybe one on your technician development program.
The future generation of technicians through our technician development program.
We have seen.
<unk> 50 of those were actually very impressed with the productivity of those graduates coming out of the program, which gives us which gives us confidence.
The content of the program and how we're developing people.
And I would say as it relates to <unk>.
All of the program itself.
We think right now it's probably at about the level that we would maintain maybe slightly high compared to what we would keep in the long run but.
But so far very pleased with the outflows that we're experiencing and as it relates to retention.
We historically have commented on retention rates.
Certainly as your retention rates.
Early on a portion of that program.
Maybe a little higher than what we would've we'd like to see but once people are graduating we're seeing retention rate is much lower than.
What we experienced with the general population of tax.
Yes, I think we've kind of in that over the last few quarters that.
Brian Kaner: But curious about how the new grads from the program have been performing and sort of what kind of retention rate you're seeing. And do you think the scale of the program is appropriate, or do you expect to invest more to expand it? I'm going to let Brian handle that one.
But we have an opportunity to improve retention and the earliest phase of the program through a better selection.
Identifying people that make sure they have the right skill set.
So that's a pretty big area of focus right now it is the most expensive component of the program.
So that's really an area of focus for us, but we're pleased with the program I'm pleased with the productivity of the individual's when they graduated from the program and what the retention rates post graduation.
Brian Kaner: Yeah, so I mean, obviously, we remain committed to developing the future generation of technicians through our technician development program. We have seen the productivity of those. We're actually very impressed with the productivity of those graduates coming out of the program, which gives us confidence in the content of the program and how we're developing people. And as for the scale of the program itself, we think right now it's probably at about the level that we would maintain, maybe slightly high compared to what we would keep in the long run, but so far, very pleased with the output that we're experiencing. And as it relates to retention, I don't think we historically have commented on retention rates. We certainly see retention rates, you know, in the early portion of that program, maybe a little higher than what we would like to see, but once people are graduating, we're seeing retention rates much lower than what we experienced with the general population.
Thanks, gentlemen, ill re queue.
Thank you.
Your next question comes from Jonathan Lamers with Laurentian Bank. Please go ahead.
Good morning, Jonathan.
Hey, good morning, Tim.
A question about the investments being made in network infrastructure first.
Making these are you planning ahead to support a business that could be double again and overall scale. How are you thinking about those and can you describe a bit more.
So you're referring to the it infrastructure guidance.
Yes, so it looks like Youre investing.
A bit more than historically, there. So I'm just wondering how youre thinking about creating a platform for the next.
For a business that's larger in scale potentially as you play on that.
Well, yes, that's absolutely a driving factor as to as to why we're making that making that investment.
It really related to the infrastructure equipment that are in the shops.
Periodically that needs to be upgraded it doesn't it doesn't have an extremely long lifecycle and we are at a stage now where we need to upgrade it in order to have the connectivity.
Our existing connectivity, but also to support additional connectivity as new new technologies come into come into the market that we want to take advantage of so.
Brian Kaner: Yeah, I think we've commented over the last few quarters that we have an opportunity to improve retention in the earliest phase of the program through better selection or, you know, identifying people that make sure they have the right skill set. So that's a pretty big area of focus right now, because it is the most expensive component of the program.
I would say absolutely its intended to give us a platform for a number of years, although not not forever because technology is always advancing so it's an area that we'll continue to keep keep an eye on but we do believe that the current.
Current investment that we're planning is going to set us up well for the next little while.
Okay. Thank you.
Brian Kaner: So that's really an area of focus for us. But we're pleased with the program, pleased with the productivity of the individuals when they graduate from the program, and with the retention rates of postgraduates. Thanks, gentlemen. I'll greet you.
And Tim I know you touched on.
Carrier securing rate increases and where labor margins are.
Could you comment on how constructive those rate discussions have been over the past few months.
Versus the past few years.
Jeff Murray: Thank you. Morning Jonathan. Good morning. A question about the investments being made in network infrastructure. By making these, are you planning ahead to support a business that could double again in overall scale? How are you thinking about that?
Yes.
Whether it's possible for us to see another <unk>.
<unk> margin is same store sales stay around the current rate.
Greenfields and brownfields continue to be added.
We think it's very important to get labor margins back to normal levels and we're pursuing that on a consistent basis with our clients. We've continued to see.
Jeff Murray: Sorry, you're referring to the RIT infrastructure guidance? Yes, so it looks like you're investing a bit more than historically there. So I'm just wondering how you're thinking about creating a platform for the next, for a business that's larger in scale, potentially, as you plan that. Well, yeah, that's absolutely a driving factor as to why we're making that investment. It's really related to the infrastructure equipment that is in the shops, and periodically, that needs to be upgraded. It doesn't have an extremely long life cycle, and we're at a stage now where we need to upgrade it in order to have the connectivity we have, our existing connectivity, but also to support additional connectivity as new technologies come into the market that we want to take advantage of.
Solid rate increases from clients not like it was two years ago, when we were well behind where we needed to be the gap is not as large as it was then but theres still a gap.
Believe our clients understand that and they understand that for Boyd and for others in the industry to properly serve them, we have to be able to attract and retain the skilled labor.
<unk> repair today's vehicles.
I feel I feel very good about our client's receptivity to further increases.
It will take time, but I think we've made some really good progress, but there's more work to be done in the wage pressure, while it's not what it was there is still wage pressure.
Jeff Murray: So I would say, absolutely, it's intended to give us a platform for a number of years, although not forever, because technology is always advancing. So it's an area that we'll continue to keep an eye on, but we do believe that the current investment that we're planning is going to set us up well for the next. Okay, thank you. And Tim, I know you touched on this.
War for talent out there.
Okay and a question about your.
The outlook going forward.
Record number of new collision centers added last year of 106.
Do you think you can add a similar number in 2024.
Maybe second parts of the question just on mix.
Do you think about three quarters acquired locations in one quarter startup says.
A good run rate going forward or are you shifting.
Jeff Murray: Barriers securing rate increases and where labor margins are. Would you comment on how constructive these are? Rate discussions have been over the past few months, versus the past few years, whether it's possible for us to see another, "Lion Up and Margin," for sales to stay around the current rate, you know, green fields and brown fields continue to be. We think it's very important to get labor margins back to normal levels, and we're pursuing that on a consistent basis with our clients. We've continued to see, you know, solid rate increases from clients. Not like it was, you know, two years ago when we were well behind where we needed to be; the gap is not as large as it was then. But there's still a gap.
Start up similar to the Q4.
On the total number question.
We're pretty focused on acquiring the right locations.
No.
Thinking less about quantity than I am about quality of revenue acquired when we're thinking about acquisitions. We also do expect to continue to gradually increase our mix on Greenfields and brownfields.
One of the key benefits to the Greenfield or brownfield site that we can build a facility that meets the long term needs of our business and what we can often find that in an acquired site.
Our prototype design would have dedicated space for glass and for calibration. So that we can operate all of our businesses under one roof and really leverage that investment.
Jeff Murray: I believe our clients understand that, and they understand that for Boyd and for others in the industry to properly serve them, we have to be able to attract and retain the skilled labor that's necessary to repair today's vehicles. So I feel very good about our clients' receptivity to further increases. It will take time, but I think we've made some really good progress. But there's more work to be done. And, you know, the wage pressure isn't what it used to be. There is still wage pressure and a war for talent out there. Okay, and a question about the outlook going forward. A record number of new collision centers were added last year, 106.
I think for that reason.
And as well as others, but yes, that's one of the main reasons that Greenfield and brownfield development will continue to be a richer part of the total mix.
Thanks for your comments I'll pass the line.
Thanks, Jonathan.
Your next question comes from Chris Murray with Keybanc capital markets. Please go ahead.
Thanks, Good morning folks.
Good morning, Chris.
Maybe turning back to the.
The additional investments.
The $14 million to $17 million and in some infrastructure should we be thinking that's going to be running through the capex line or intangibles or is that going to impact.
Jeff Murray: Do you think you can add a similar number in 2024 and maybe the second part to the question just on mix? Think about three-quarters acquired locations and one-quarter startup. A good run rate going forward, or are you shifting to more startups similar to Q4? You know, on the total number question, we're pretty focused on acquiring, you know, the right location. So I'm thinking less about quantity than I am about quality and revenue acquired when we're thinking about acquisition. We also do expect to continue to gradually increase our mix of Greenfield and Brownfield sites. One of the key benefits of a Greenfield or Brownfield site is that we can build a facility that meets the long-term needs of our business, and while we can often find that in an acquired site, our prototype design would have dedicated space for glass and for calibration so that we can operate all of our businesses under one roof and really leverage that investment.
Some of your operating cost this year.
It's primarily capex maintenance capex.
Okay.
Just wanted to confirm that.
And so Tim going back maybe to the last question about the mix of Greenfield Brownfield and I. Appreciate you made the comment about the.
The utility of Greenfield and brownfield stores and being able to layer in all the different service offerings.
But at the same time, we've also called out. The fact that these stores are slower than they may have a drag both on revenue and margin as we get going.
Is there anything that you can do.
Thinking about how you launch these stores.
And I'm sure. This is this is something that comes up around.
Getting those stores up to speed.
A little quicker or is it really a function of you just talked a lot. These mature over a year or two before they are really at what you would call the average run rate.
Jeff Murray: So I think for that reason, as well as others, that's one of the main reasons that Greenfield and Brownfield development will continue to be a richer part of the total mix. Thanks for your comments. Thanks, Jonathan. Thanks. Good morning, folks. Good morning, Chris.
I think it's a little bit of both there are certainly we have done fewer of these over the last decade.
We gain experience I think we will refine process and do a better job of getting them up and running sooner.
But even with that it will still take time to build the revenue up.
Jeff Murray: Um, maybe turning back to the, you know, the additional investments, the 14 to 17 million in some infrastructure, should we be thinking that's going to be running through the CapEx line or the intangibles line? Or is that going to impact some of your operating costs this year? It's primarily CapEx. Yeah, maintenance. Okay, cool. Um, just wanted to confirm that.
So I think it's a little bit a little bit of both Chris we can do a better job than we've done.
But there is just a natural growth curve that we're going to have to live with.
Okay. Thank you I'll leave it there.
Okay. Thanks, Chris.
Your next question comes from Tami, Chen with BMO capital markets. Please go ahead.
Hi, good morning, everyone.
Hi, Ken.
So I wanted to go back to your comment about.
The comp sales.
Jeff Murray: Um, and so, Tim, going back to the last question about, you know, the mix of Greenfield and Brownfield, and I appreciate you making the comment about the utility of Greenfield and Brownfield stores and being able to layer in all the different service offerings. But, you know, at the same time, we've also called out the fact that these stores are slower, and they have a drag both on revenue and margin as they get going. Um, is there anything that you can do in thinking about how you launch these stores? And I'm sure this is something that comes up around, you know, in getting those stores up to speed a little quicker. Or is it really a function of you just have to let these mature over a year or two before they're really at what you would call the average run rate? I think it's a little bit of both.
<unk> in Q1.
Thank you.
Backlog, we can see industry average backlog.
Bill I think double what it was pre pandemic so Lucas.
Milder weather I guess I'm still just confused why.
That would be called out because.
Backlog since they'll be there and it looks like the industry backlog is double what it was pre pandemic.
Again, I still would have thought the comp could have been.
Better so far in Q1, so are you able to just elaborate a bit more on that this is still a bit confused on that part.
Yes.
I'm not sure I haven't seen any recent industry data on backlog.
So it will be interesting when CCC, we'll probably publish something on that in the next month or two.
And we'll take a look at that but.
I think when you think about the industry being backlog. It doesn't mean that every single location in every market as backlog and what we have the ability to move some work around I think a general slowdown will still likely or will impact our ability to process as much work as we would like to have.
Jeff Murray: There certainly are, you know; we have done fewer of these over the last decade, and as we gain experience, I think we'll refine the processes and do a better job of getting them up and running sooner. But even with that, it will still take time to build the revenue. So I think it's a little bit of both, Chris.
The impact on that is more pronounced on our auto glass business than it is on the collision business as I commented on earlier.
But historically it kind of before this period that we've gone through over the past few years historically, if we had a mild winter it would have an impact on Q1 results and even spill into Q2 a bit.
Jeff Murray: We can do a better job than we've done, but there is just a natural growth curve that we're going to have to live with. Okay, thank you. I'll leave it there. Thanks, Chris. Hi, good morning, everyone.
So I am not sure I can completely reconcile it tammy.
We remain busy.
The backlogs wood will not be what they were or what they would have been have we had a normal winter.
Jeff Murray: Hi Tim. So I wanted to go back to your comment about, so far in Q1. The thing is, backlog, we can see the industry average backlog is still, I think, double what it was pre-pandemic. So, milder weather, I guess I'm still just confused why that would be called out because the backlog should still be there, and it looks like the industry backlog is double what it was pre-pandemic. So, again, I still would have thought the comp could have been better so far in Q1.
And I know there were some comments that there were a lot of storms, but the storms were really concentrated.
Mostly in the northeast, maybe some in Colorado, but across much of the country.
There was a pretty limited amount of snow activity, even across Canada and much of the U S and that is really what is a driver of frequency during the winter.
Okay.
Okay.
Okay got it.
Yes.
And then on the.
So opex.
The drag from the startups I just wanted to clarify that.
Jeff Murray: So are you able to just elaborate a bit more on that? I'm just still a bit confused on that part. Yeah, well, I'm not sure.
It's more a function of.
Mix in new locations.
For Q4, that's what we can point to.
More of that was in start ups that in some of the previous quarters and because theres more start ups the absolute dollar opex.
Jeff Murray: I haven't seen any recent industry data on backlog, so it'll be interesting when CCC will probably publish something on that in the next month or two, and we'll take a look at that. But, you know, I think when you think about the industry being backlogged, it doesn't mean that every single location in every market is backlogged. And while we have the ability to move some work around, I think a general slowdown will still impact or impact our ability to process as much work as we would like to have. The impact of that is more pronounced in our auto glass business than it is in the collision business, as I commented earlier. But, you know, historically, kind of before this period that we've gone through over the past few years, historically, if we had a mild winter, it would have an impact on Q1 results and even spill into Q2 a bit.
Because of their longer rapid.
You're referring to.
It's not that the startup you're you're opening.
Your line rats, and this cohort that you've opened in Q4 is underperforming the cadence of the ramp that you saw in sorry got Hugh you open.
A couple of quarters before so I just wanted to comes on it's more that you're just more so the drag is larger is that the case.
Yes, I think its opening more.
It's more greenfield brownfields, which we're going to have a greater drag than an acquisition.
A lot of them did happen in the fourth quarter.
Got a very long history of acquiring or opening locations and we've watched historically the the return on investment and the EBITA margins of those grow over a two to three year period of time.
Jeff Murray: So I'm not sure I can completely reconcile it, Tammy. But, you know, while we remain busy, the backlogs will not be what they were or what they would have been if we had a normal winter. And I know there were some comments that there were a lot of storms, but the storms were really concentrated mostly in the northeast, maybe some in Colorado.
And there is nothing unusual about the recent cohort that.
That would suggest we would.
Experienced anything differently than what we've historically experienced.
Okay understood. Thank you I'll leave it there.
Jeff Murray: But across much of the country, there was a pretty limited amount of snow activity, even across Canada and much of the U.S. And that is really what is a driver of frequency during the winter. OK. You got it. And then on the. So all, drag from the startup.
Thanks Tommy.
Your next question comes from Gary.
Please go ahead.
Good morning.
Hi.
Back to the weather question.
Just wondering if you can help us.
Perhaps kind of normalize.
Jeff Murray: I just wanted to clarify that it's more a function of... You're mixed in new locations, particularly Q4. That's what we can point to. More of that was in startups than in some of the previous quarters. And because there are more startups, the absolute dollar drag from OPEX because of their longer wrap is what you're referring to. Like, it's not that.
The impact of.
Kind of what Youre seeing in Q1 versus the average quarterly 10 year level of five 9%, maybe give us a proxy of how that is.
Impacting our Q1 same store sales question. So far maybe provide some comments is that and imagine its combination of less frequency and a bit on the severity side as well as the repairs.
Jeff Murray: Startups, you're opening on the underlying ramps in this cohort that you opened in Q4 is underperforming the cadence of the ramp that you've seen in startups you opened a couple of quarters before. So I just wanted to confirm this more that you're just opening more, so the drag is larger. Is that the case?
It's probably too early to comment on the severity side.
Although I do think that thats likely because there would.
Would be less whether we're likely to see fewer severe.
<unk>.
It's primarily a frequency issue though.
Likely not the severity.
Okay.
Jeff Murray: Yeah, I think it's opening more. It's more greenfield brownfields, which are going to have a greater drag than an acquisition. And a lot of them did happen in the fourth quarter.
And then the other question I had was you mentioned your pipeline for new relocation and expansion into new markets remain robust.
<unk> added resources to back that.
I think quarter today, but when we added 10 locations in Q1 off a very strong Q4.
Jeff Murray: We've got a very long history of acquiring or opening locations, and we've watched historically the return on investment and the EBITDA margins of those grow over a two to three year period of time. And there's nothing unusual about the recent cohort that would suggest we would experience anything differently than what we've historically experienced.
Is that just the lumpiness from quarter to quarter, how should we think about the number I guess you talked about the number of locations, but can you talk a little bit about the expanding into new markets.
Yes.
The 10 quarters that is absolutely just related to Lumpiness, we've got lots of opportunities on the go so really no concerns.
Jeff Murray: Okay, understood. Thank you. I'll leave it there.
At all with that.
Jeff Murray: Okay, thanks, Jimmy. Thank you. Gary O, good morning. Good morning.
I would expect it will continue to grow at a good steady pace in.
In the <unk>.
<unk> for the future it may not be 2000 locations at quarter, or 25% or 15, it'll bounce around but we've got lots of good opportunities in a number of greenfield brownfield in the pipeline.
Gary Ho: Hi, just going back to the weather question, just wondering if you can help us perhaps kind of normalize the impact of what you're seeing in Q1 versus the average quarterly 10-year level of 5.9%. Maybe give us a proxy of how that is impacting your Q1 same-store sales posters so far, and maybe provide some comments. Is it, I imagine, a combination of less frequency and a bit on the severity side as well as the repairs? It's probably too early to comment on the severity side, although I do think that that's likely because, with the less weather, we're likely to see fewer severe accidents.
Typically take.
On the low end, probably eight to 10 months for brownfield two even as much as 24 months for Greenfield.
Okay can you also comment on the new markets that I think you referenced in the outlook.
Sure well, maybe I can just jump in and we do have I was going to add we have a lot of markets that we have build out plans for and so we've been working on really development plans and build out plans for a number of key markets that we believe are great opportunities for us, but with that and choosing whether or not it's going to be a bra.
Jeff Murray: It's primarily a frequency issue, though, likely not the severity. OK. And then the other question I had was, you mentioned, you know, your pipeline for new locations and expansion into new markets remains robust, you've added resources to back that, yet, I think, quarter to date, you've only added 10 locations in Q1 off of a very strong Q4, is that just the lumpiness from quarter to quarter? How should we think about the number?
For a greenfield or a larger location, that's established or maybe a smaller location.
Each of those markets have their own plan and that ties back into the Lumpiness is that we don't want to force force any market. We're not just trying to hit numbers along the way we're trying to build these markets out.
In a careful and plan full way and so sometimes that does make the lumpiness happening.
Jeff Murray: I guess we talked about the number of locations, but can you talk a little bit about expanding into new markets? Yeah, the 10-quarter date is absolutely just related to lumpiness. We've got lots of opportunities on the go, so really, no concerns at all with that. And I would expect it will continue to grow at a good steady pace in the future. It may not be 20 locations a quarter or 25 or 15.
Okay got it that's all my questions. Thank you.
Thanks, Gary.
Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Hi, Good morning, guys. Thanks, Thanks for the time.
Look I'll try one more time on the weather issue Tim can you just remind us maybe how large the glass business is in aggregate as a percentage of the total and then just what kind of drag you've seen on that glass business specifically.
In the front quarter, thus far I think we're trying to understand is just what kind of drag that is having on same store sales growth for Q1 in aggregate.
Jeff Murray: It'll bounce around, but we've got lots of good opportunities and a number of greenfield and brownfields in the pipeline that typically take, you know, on the low end, probably eight to 10 months for a brownfield to even as much as 24 months for a greenfield. Okay, can you also comment on the new markets that I think you referenced in the outlook? Um, Sure, well, maybe I can just jump in.
The glass business is a bit under 10% of our revenue and we've talked about that over the years the one.
Dynamic in glass.
Probably not well understood is that while in collision our workforces largely.
Commission based.
On the hours that they produce are.
Jeff Murray: We do have, I was going to add, we have a lot of markets that we have build-out plans for, and so we've been working on really development plans and build-out plans for a number of key markets that we believe are great opportunities for us, but with that and choosing whether or not it's going to be a brownfield, greenfield, or a larger location that's established, or maybe a smaller location, you know, each of those markets have their own plan, and that ties back into the lumpiness, is that we don't want to force any market, we're not just trying to hit numbers along the way, we're trying to build these markets out in a careful and planful way, and so sometimes that does make the lumpiness. Okay, that's it. Those are my questions.
Glass business has a much greater fixed labor component.
And we tend to carry.
Extra labor in Q4 and Q1.
Because we need that labor in Q2, and Q3, because the market is driven way up in those quarters.
So when you have a softer quarter in glass.
Impact.
Gross margin is more pronounced than it would be in collision.
And the operating expense side because of that reduced revenue against a higher labor and fixed cost base.
Does that help Steve.
Gary Ho: Thank you. Thanks, Gary. We'll see you next time. Oh, yes. Morning, guys.
Yes that is helpful. I appreciate that and just a follow up on the Greenfield or brownfield. How many are planned for 24 specifically.
Steven P. Hansen: Thanks for the time. Look, I'll try one more time on the weather issue, Tim. Can you just remind us maybe how large the glass business is in aggregate as a percentage of the total? And then just what kind of drag you've seen on that glass business specifically in the first quarter thus far? I think we're trying to understand just what kind of drag that's happening on the same sort of sales growth, if you want an aggregate. You know, the glass business is a bit under 10% of our revenue, and we've talked about that over the years. The one dynamic in glass that is probably not well understood is that, well, in collision, our workforce is largely commissioned based on the hours that they produce.
We haven't disclosed the number.
They can be a little bit tougher.
To predict just because of different things that can impact the opening.
But I think what Youll see is a growing mix of those.
Over the next number of years.
Okay Fair enough and then just going back lastly, just maybe to scanning calibration again, and just kind of what should we think about for the developments in that business through 'twenty, four and perhaps even into 'twenty five in terms of the rollout of your capabilities sit there I think last quarter, you talked about accelerating that rollout. After some of your initial investments have been made to help you.
Scale, but where are we at and where are we going for the balance of 2004 and into 2005.
Yes, Steve it's Brian Thanks for the question.
Steven P. Hansen: Our glass business has a much greater fixed labor component, and we tend to carry extra labor in Q4 and Q1 because we need that labor in Q2 and Q3 because the market is driven way up in those quarters. So when you have a softer quarter in glass, the impact on gross margin is more pronounced than it would be in collision and on the operating expense side because of that reduced revenue against a higher labor fixed cost base. Does that help, Steve?
So look you Tim has talked about previously we have throughout 2023 made the investments in the infrastructure needed for us to really rapidly grow that business.
And so far on a year to date basis, we have we have.
Almost increased the tech workforce in that in that business by close to 50% and we will continue to do that throughout the rest of the year. So I would expect.
Jeff Murray: Yeah, I know that it's helpful, Tim. I appreciate that. And just to follow up on the greenfields or brownfields, how many are planned for 2024 specifically? We haven't disclosed the number, and they can be a little bit tougher to predict just because of different things that can impact the opening.
At least a doubling of that business the internalization of that business by the end of the year.
As we talked about it at your conference I would expect over a two to three year horizon for us to be in a position where we're taking.
Taken care of at least 80% of the volume that we're producing as.
Jeff Murray: But I think what you'll see is a growing mix of those over the next number of years. Okay, fair enough. And then, just going back, lastly, maybe to scanning calibration again, and just kind of what should we think about for the developments in that business through 24? And perhaps even to 25 in terms of the rollout of your capability set there? I think last quarter, you talked about accelerating that rollout after some of your initial investments had been made to help you scale, but where are we? And where are we going for the balance of 24 and into 25? Yes, Steve. It's Brian.
As Gideon calibration internally versus externally today.
Okay very helpful. Thank you.
Yes.
Thanks, Steve.
Your next question comes from Bret Jordan with Jefferies. Please go ahead.
Hey, Good morning, guys. This is Patrick Buckley on for Brent Thanks for taking our questions.
Hi.
Following up on that the skin and calibration there.
As you look at the typical tack there how much more qualified or trained as that need to be and how much.
Does that roll compared as far as filling it.
Yes.
Yeah, Patrick Thanks for the question this is Brian.
Right now we're finding that the.
The majority of our taxes are coming from the mechanical space, which is as you guys well know is a much larger pool of technicians.
Brian Kaner: Thanks for the question. So, look, as Tim has talked about previously, we have, you know, throughout 2023 made the investments in the infrastructure needed for us to really rapidly grow that business. And so far, on a year-to-date basis, we have...
We tend to find are some some some text.
We are finding the mechanical side to be a little bit more tax and other bodies. So they've got the technical capabilities, but.
Brian Kaner: I've almost increased the tech workforce in that business by close to 50%, and we'll continue to do that throughout the rest of the year. So I would expect, you know, at least a doubling of that business, the internalization of that business by the end. And as we talked about it at your conference, I would expect, over a two to three year horizon, for us, to be in a position where we're taking, you know, we're taking care of at least 80% of the volume, and Scanning and Calibration Internally versus Externally. Okay, very helpful.
Would prefer the option to be working more with <unk>.
Computer then there then the tools the flip side of that is we also have some remote scanning technicians, which which are able to do count some calibration services remote.
That group of people tends to be.
A little less a little less need for tech.
Technical orientation, and a lot more need for just <unk>.
Very good and computer strokes and so we've tapped into some game or population there.
So it's been it's actually opened up quite a nice pool of people for us in a much less I would say a much less competitive pool of people.
Steven P. Hansen: Thank you. Yep. Thanks, Steve. Thank you. Hey, good morning, guys. This is Patrick Buckley on for Bret.
And it's given us the ability to more rapidly grow that business.
Patrick Buckley: Thanks for taking our questions. Following up on that, the scanning and calibration there, you know, as you look at the typical tech there, you know, how much more qualified or trained is that technique to be, and how much, you know, how is that role compared as far as filling it? Thanks for joining us. Yeah, Patrick, thanks for the question. This is Brian.
And then how has demand for OE versus aftermarket parts trended as of late do you see any opportunity there for wider adoption are to ship more on your mix to aftermarket parts to help or at least sustained margins. While also helping on the repair cost side.
Well.
As you probably know Patrick and there was a major U S insurer that.
Brian Kaner: You know, right now, we're finding that the majority of our techs are coming from the mechanical space, which is, as you guys well know, a much larger pool of technicians. You know, what we tend to find are some techs that are finding the mechanical side to be a little bit more taxing on their bodies, so they've got the technical capabilities but would prefer the option to be working more with a computer than with their tools. The flip side of that is we also have some remote scanning technicians who are able to do some calibration services remotely. And that group of people tends to do so.
Opened their program to the use of aftermarket.
<unk> metal in the fourth quarter of last year. So that's been a positive for us in terms of our ability to reduce average repair cost for that client and increase the use of aftermarket parts.
Say, though that the longer term trend.
Probably not that direction that repair complexity more complicated parts that.
That have maybe less of an opportunity for the aftermarket to develop in the near term could cause us to use a higher mix of OE parts absent that one.
Brian Kaner: All right. All right. All right. You know, a little less need for technical orientation and a lot more need, you know, to be very good at computer strokes. And so we've tapped into some of the gamer population there.
Program change.
Got it Thats all for us thanks, guys.
Thanks, Patrick.
Your next.
Question comes from Zachary <unk> with National Bank. Please go ahead.
Is asking everyone.
Good morning.
Could you give us a refresher on the timeline between launching in Greenfield and brownfield and when they are profitable and after how long they reach full maturity and satisfactory margins.
Brian Kaner: And so it's actually opened up quite a nice pool of people for us, and I would say a much less competitive pool of people, and it's given us the ability to more rapidly grow that. And then, how has demand for OE versus aftermarket parts trended as of late? Do you see any opportunity there for wider adoption or to shift more of your mix to aftermarket parts to help or at least sustain margins while also, you know, helping on the repair cost side? As you probably know, Patrick, there was a major U.S. insurer that opened their program to the use of aftermarket sheet metal in the fourth quarter of last year.
We would expect in year, three or certainly by the end of year, three and we would expect them to be mature sales and profitability levels.
So that would on the.
First question.
In terms of when that would become profitable.
Will vary, but we would expect it to be.
At a minimum breakeven before the end of the first year.
But that's just to clarify that would be sort of after the buildout.
The buildout of brownfield Greenfield can take between six to 12 months even beyond.
Jeff Murray: So that's been a positive for us in terms of our ability to reduce average repair costs for that client and increase the use of aftermarket parts. I would say, though, that the longer-term trend is probably not that direction, that repair complexity, more complicated parts that have maybe less of an opportunity for the aftermarket to develop in the near term could cause us to use a higher mix of OE parts, absent that one program change. I got it.
12 months too and so during that time as you mentioned earlier there's also.
Some costs that go into that as well, so theres sort of a lead up here and then there is the first year of actual performance. It takes it takes a year to get to breakeven and then after that.
That's great. Thank you.
In terms of industry labor rates, how much do you think is left to go.
So the upside to stabilize your labor margins and on the flip side, how much do you need to attract talent to the industry to have the productive capacity you need to service existing demand and are those the same level of pricing.
Patrick Buckley: That's all for us. Thanks, guys. Thanks, Patrick.
Operator: Your next question comes from Zachary Evershed with National... Hey Zach, could you give us a refresher on the timeline between launching a greenfield and brownfield and when they're profitable, and after how long they reach full maturity and satisfactory margins? We would expect, in year three, or certainly by the end of year three, we would expect them to be at mature sales and profitability levels. So that would, on the first question, in terms of when that would become profitable, it will vary, but we would expect it to be at least break even before the end of the first year. But that's, just to clarify, that would be sort of after the build-out. I mean, the build-out of brownfield greenfields can take between 6 to 12, even beyond 12 months, and so during that time, as you mentioned earlier, there's also... some costs that go into that as well. So there's sort of the lead-up year, and then there's the first year of actual performance.
On the second question, there's an organization called Tech Force.
That.
Does some research in this area and Tech force believes that the industry is 25000 technicians short.
Right now I'm.
Not sure it's the numbers that large but there is no question. We continue to be short on the labor margin front, we've made good progress on labor margins.
We're just not back to where we need to be.
We need to account for the fact that attracting labor to the industry is going to require better compensation. Some of that we can get done through improving productivity driving that while operating way.
Being more effective with how we operate but some of it is going to have to come through price. So I think that.
We haven't given an exact number of what we need but I would expect that.
Jeff Murray: That's clear, thank you. And in terms of industry labor rates, how much do you think is left to go? The upside to stabilize your labor margins. And on the flip side, how much do you need to attract talent to the industry to have the productive capacity you need to service existing demand? And are those the same level of price?
That will make gradual progress, but we're also going to see some gradual increase in our cost as well and we're going to have to outpace that to get back to normal margins.
Got you thanks, and it sounds like negotiations are fairly productive with clients, maybe we could dive into the specifics of more difficult markets like New York and California, What are you seeing there.
Jeff Murray: Well, on the second question, there's an organization called TechForce that does some research in this area. And TechForce believes that the industry is 25,000 technicians short right now. I'm not sure that the number is that large, but there's no question we continue to be short. On the labor margin front, we've made good progress on labor margins. It's just not back to where we need to be.
Yes.
We refer you to the fact that the insurance carriers have struggled to get the rate increases.
<unk> been seeking although they've made some good progress on those as you I'm sure you've read over the past quarter or so, but I don't know that we see significant differences market to market. Despite the insurance client pressure on break that they would get from their customers. It's really.
Jeff Murray: And we need to account for the fact that attracting labor to the industry is going to require better compensation. Some of that we can get done through improving productivity or driving the while operating way, being more effective with how we operate. But some of it's going to have to come through price. So I think that we haven't given an exact number of what we need, but I would expect that we'll make gradual progress. But we're also going to see some gradual increase in our costs as well, and we're going to have to outpace that to get back to normal margins.
The market for our services is reasonably competitive and carriers need to keep up with there appears to be able to secure the capacity that they need.
Thanks, and maybe just one last one.
Investment dollars per start up in 2023 were significantly higher in 2022.
Is that mostly timing the result of the investments upfront that you mentioned or are there. Some other factors at play there.
Yes.
Jeff Murray: Gotcha. And it sounds like negotiations are fairly productive with clients. Maybe we could dive into the specifics of more difficult markets like New York and California. What are you seeing there?
There are some other factors I would say as we as we build out, especially some of the brownfield Greenfield and even some of our other single locations that we acquire we might acquire the real estate initially and then flip it to a REIT. After in and then there is also some construction costs that happen. After the fact that relate to branding or even just improving.
Jeff Murray: You know, you're really referring to the fact that the insurance carriers have struggled to get the rate increases that they've been seeking, although they've made some good progress on those, as I'm sure you've read over the past quarter or so. But I don't know that we see significant differences market to market, despite the pressure from insurance clients on the rates that they would get from their customers. It's really, you know, the market for our services is reasonably competitive, and carriers need to keep up with their peers to be able to secure the capacity that they need. Maybe just one last one.
The layout of the front area et cetera. So there can be cost that can build up and then we ultimately do most of those costs to the right and put it into the rent factor, but there can be timing differences, which I would say is the main driver right now of what youre seeing in that increase.
Perfect. Thanks.
All right I'll turn it over.
Good Thanks Zack.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.
Jeff Murray: Investment dollars per startup in 2023 were significantly higher than 2022. Is that mostly timing the results of the investment up front that you mentioned? Or are there some other factors at play there?
Your next question comes from Derek Lessard with TD Cowen. Please go ahead.
Yes, just a couple of follow ups for me I just wanted to I was wondering if you could maybe give us a sense around the difference in return on invested capital for a newbuild.
Jeff Murray: There are some other factors. I would say as we build out, especially some of the brownfields and greenfields and even some of our other single locations that we acquire, we might acquire the real estate initially and then flip it to a rate after. And then there's also some construction costs that happen after the fact that relate to branding or even just improving the layout of the front area, etc. So there can be costs that can build up, and then we ultimately do move most of those costs to the rate and put them into the rent factor, but there can be timing differences, which I would say is the main driver right now of what you're seeing in that. Thanks. All right, I'll turn it over.
M&A and then maybe some details if you could on what the actual startup cost or investment is in a newbuild.
In terms of the returns our expectation.
By year, three is that a new build or a brownfield would have a higher return on invested capital. Although generally I would say that they have higher occupancy expense because of the nature of <unk> and cost of a brand new building, but.
But we would expect them to have.
As a portfolio to have higher returns on capital.
Your other question was related to <unk>.
<unk> expenses for those.
Right.
Yes so.
Derek J. Lessard: Good. Thanks, Zach. Ladies and gentlemen, as a reminder, should you have a question..., star, followed by. Our next question comes from Derrick Lessard with TD.
With those new locations that we don't acquire obviously, we're not acquiring a staff.
But it needs to be staffed the day, we open certainly not fully staffed but we would be recruiting hiring and training people in.
Jeff Murray: Yeah, just a couple of follow-ups for me. I was wondering if you could maybe give us a sense of the difference in return on invested capital for a new build versus M&A and then maybe some details if you could on what the actual startup costs or investment is in a new build. You know, in terms of returns, our expectation by year three is that a new build or a brownfield would have a higher return on invested capital. However, generally, I would say that they have higher occupancy expenses because of the nature of and cost of a brand new building.
In the period prior to opening.
Can be probably starts about 16 weeks before opening it doesn't mean, everybody start 16 weeks before opening but.
But those are the types of expenses dependent on when we get occupancy. There are also times will more pain.
Property taxes utilities, and other expenses on the properties prior to being able to generate revenue.
Okay. Thank you.
Thanks, Eric.
Your next question comes from Zachary <unk> with National Bank. Please go ahead.
Jeff Murray: But we would expect them to have higher returns on capital. Your other question was related to startup expenses for those, right? Yeah, so with those new locations that we don't acquire, obviously, we're not acquiring a staff, but it needs to be staffed the day we open, certainly not fully staffed, but we would be recruiting, hiring, and training people in the period prior to opening. That could be, that probably starts about 16 weeks before opening. That doesn't mean everybody starts 16 weeks before opening, but those are the types of expenses depending on when we get occupancy. There are also times when we're paying rent, property taxes, utilities, and other expenses on the properties prior to being able to generate revenue.
Hey, guys just a quick follow up on that I think in the past you've discussed at 25% return on capital for M&A.
Much higher do you benchmark Greenfields and brownfields.
Yes.
Yes.
I would say, we'd be targeting greenfields and brownfields typically to be 30 or above.
That's helpful. Thanks.
And then if I could just get your opinion on the current rate for repair debates going through.
Legislative Assembly south of the border here.
We certainly support right to repair.
But we really have access to the information today that we need to properly repair vehicles. If you look at the collision repair market only about 15% of the revenue in the collision repair market in the U S is serviced by OE dealers. The vast majority is served by the aftermarket and it is.
Derek J. Lessard: Okay, thank you. Thanks, Gary. And our next question comes from Zachary Evershed with... I think in the past you've discussed a 25% return on capital for M&A. How much higher do you benchmark greenfields and brownfields?
In the best interest of the consumer and the original equipment manufacturer to make sure that we have the tools and information that we need to properly repair vehicles. So we have.
Jeff Murray: I would say we'd be targeting greenfields and brownfields to be 30 or above. That's a lot. And then, if I could just get your opinion on the current right to repair debates going through some of the legislative assemblies south of the border here. You know, we certainly support right to repair, but we really have access to the information today that we need to properly repair vehicles. If you look at the collision repair market, only about 15% of the revenue in the collision repair market in the U.S. is serviced by OE dealers. The vast majority is served by the aftermarket, and it's in the best interest of the consumer and the original equipment manufacturer to make sure that we have the tools and information that we need to properly repair vehicles. So we have fairly, well, we have ready access to OE repair procedures, which are critical. We have access to OE scan and calibration tools through our calibration business or our partners.
While we have ready access to OE repair procedures, which are critical.
We have access to OE scan and calibration tools through our calibration business or our partners.
So we support the open marketplace.
But it isn't really hampering our ability to properly fixed cars.
Excellent alright, thanks, that's all for me.
Thanks, Ed.
Jonathan Lamers: Your next question comes from Jonathan <unk> with National Bank. Please go ahead.
Jonathan Lamers: Thanks, one follow up question on the disclosure.
Jonathan Lamers: So in the MD&A, you would give us the sales contribution year over year from new locations in aggregate.
Would it be reasonable for you to begin providing.
Jonathan Lamers:
Or parsing that between <unk>.
Speaker Change: Greenfield brownfield locations versus acquired locations.
Jonathan Lamers: We will give that some consideration we havent thought about that although as you know historically greenfield brownfield has been fairly low portion of the mix. So we'll take that away Jonathan and consider it.
Yeah perfect. Thank you.
Speaker Change: Thanks for taking my questions at this time. Please proceed.
Speaker Change: Yes.
Jeff Murray: So, you know, we support the open marketplace, but it isn't really hampering our ability to properly fix cars. Excellent call. And that's all for me. Thanks, Zach, for the next question. Thanks. One follow-up question on the disclosure. So in the MD&A, you give us the sales contribution year over year from new locations and aggregates.
Operator: Alright, well good. Thank you operator, and thanks to all of you for joining our call today and we look forward to reporting our first quarter results to you in May have a great day.
Operator: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating please disconnect your lines.
Operator: Yes.
Okay.
Operator: [music].
Jonathan Lamers: Would it be reasonable for you to begin providing, um, for parsing that between Greenfield and Brownfield locations versus acquired locations? We'll give that some consideration. We haven't thought about that, although, as you know, historically, Greenfield-Brownfield has been a fairly low portion of the mix.
Operator: Yes.
Operator: Yes.
Operator: [music].
Jeff Murray: So, we'll take that away, Jonathan, and consider it. Yeah, perfect. Thank you. There are no further questions that... All right. Well, good.
Operator: Sure.
Operator: Sure.
Operator: Okay.
Operator: Thank you, operator. And thanks to all of you for joining our call today. And we look forward to reporting our first quarter results to you in May. Have a great day. And this concludes your conference call.
Operator: Yes.
Operator: Yes.
Operator: Yes.
Operator: [music].
Operator: Okay.
Operator: [music].