Q3 2024 Boyd Group Services Inc Earnings Call
Good morning everyone. Welcome to the Boyd Group Services Inc. 3424 Results Conference Call. The 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 subject to risks and uncertainties related to Boyd's future financial or business performance.
Actual results could differ materially from those anticipated in these forward-looking statements.
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Peter: Hi, I'm Peter.
Speaker Change: How's it going? Operator?
Speaker Change: that
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Speaker Change: [inaudible]
Speaker Change: Apologies for the delay, Mr. Dave, please begin your conference.
Mr. Dave: I'm going to be a little bit more nervous than I thought.
Mr. Dave: or business performance.
Mr. Dave: Our results could differ materially from those anticipated, but would look the same.
Mr. Dave: I hope you enjoyed the video and would like to see more in the future.
Mr. Dave: flow operator.
Speaker Change: Hello, Operator?
Mr. Dave: Thank you.
Speaker Change: Good morning, everyone. Welcome to the Boyd Group Services, Inc. 3rd Quarter 2024 Results Conference Call.
Speaker Change: 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 subject to risk and uncertainties related to Boyd's future financial or business performance.
Speaker Change: from those anticipated in these forward-looking statements.
Speaker Change: The risk factors that may affect the results are detailed in Boyd's annual information form and other periodic filings and registration statements, and you can access these documents at CDAR's database found at cdarplus.ca.
Speaker Change: I'd like to remind everyone that this conference call is being recorded to date Tuesday, November 5th, 2024. And I would like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boyd Group Services. Please go ahead, sir.
Tim O'Day: Thank you, operator. I apologize for the delay, everyone, and good morning, and thank you for joining us for today's call. On the call with me today is Jeff Murray, our Executive Vice President and Chief Financial Officer, and Brian Koehner, our President and Chief Operating Officer.
Speaker Change: We released our 2024 third quarter results before markets open today. You can access our news release as well as our complete financial statements and MD&A on our website at boydgroup.com. Our news release, financial statements, and MD&A have also been filed on CDOT Plus this morning.
Speaker Change: On today's call, we'll discuss the financial results for the three- and nine-month periods ended September 30, 2024, and provide a general business update. We will then open the call for questions.
Speaker Change: Third quarter results continued to be impacted by low claims volumes.
Speaker Change: Although we're disappointed with the third quarter results, the company continues to perform better than the industry and continues to be well positioned for the future.
Speaker Change: During the third quarter of 2024, Boyd recorded sales of $752.3 million.
Speaker Change: Adjusted EBITDA of $80.1 million and net earnings of $2.9 million.
Speaker Change: During the third quarter, the industry experienced higher total loss rates, as well as a deferral in repairs and an increase in non-filed claims driven, we believe, by significant insurance premium inflation and overall economic uncertainty.
Speaker Change: Industry sources report a year-over-year decrease in repairable claims of 12.6% for all losses and 9.5% excluding comprehensive claims.
Speaker Change: Boyd outperformed the industry, posting a year-over-year same-store sales decline of three and a half percent.
Speaker Change: For the third quarter of 2024, sales were $752.3 million, a 2% increase when compared to the same period of 2023. This reflects a $41.3 million incremental contribution from 94 new locations.
Speaker Change: As mentioned earlier, our same-store sales, excluding foreign exchange, decreased by 3.5%.
Speaker Change: The third quarter recognized one additional selling and production day when compared to the same period of 2023, which increased selling and production capacity by approximately 1.6%.
Speaker Change: Gross margin was 45.7% in the third quarter compared to 45.2% achieved in the same period of 2023.
Speaker Change: Gross margin percentage benefited from increased internalization of scanning and calibration, improved performance-based pricing, and improved glass margins, partially offset by reduced labor margin and part margins.
Speaker Change: Labor rate increases have added to sales and gross profit dollars, however, margins remain below historical levels.
Speaker Change: Gross margins are within the normal historical range for mix and margin changes period to period.
Speaker Change: We
Speaker Change: Operating expenses for the third quarter of 2024 were $263.4 million or 35% of sales compared to $239.9 million or 32.5% of sales in the same period of 2023.
Speaker Change: Operating expenses as a percentage of sales was significantly impacted by the decline in same-store sales and new locations which contributed sales but with an operating expense ratio that was higher than the operating expense ratio of same stores.
Speaker Change: Although operating expenses as a percentage of sales was positively impacted by reductions in staffing made to better align with current levels of demand, as well as reduced incentive compensation and recruiting costs, these impacts were more than offset by the fixed costs on existing and new locations.
Speaker Change: On a sequential basis, operating expenses as a percentage of sale increased from 34.1% to 35% from the second to the third quarter of 2024.
Speaker Change: During this period, operating expenses as a percentage of sales was significantly impacted by the decline in sales on a quarter-over-quarter basis.
Speaker Change: Bye.
Speaker Change: Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was $80.1 million, a decrease of 14.7 percent over the same period of 23.
Speaker Change: The decrease was primarily the result of a decline in repairable claims, which resulted in same-store sales declines and a high ratio of operating expenses as a percentage of sales.
Speaker Change: Net earnings for the third period of 24 was $2.9 million compared to $20.5 million in the same period of 23.
Speaker Change: Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the third quarter of 24 was $3.2 million, or $0.15 per share, compared to $21.5 million, or $1 per share, in the same period of the prior year.
Speaker Change: Net earnings and adjusted net earnings for the period was negatively impacted by the decrease in adjusted EBITDA, as well as increased depreciation expense and increased finance costs.
Speaker Change: Depreciation and finance costs were negatively affected by investments in growth and investment in network technology upgrades during a period of lower sales and adjusted EBITDA.
Speaker Change: For the nine months ended September 30th, 24, sales totaled $2.3 billion, an increase of $112 million or 5.1% when compared to the same period of the prior year.
Speaker Change: driven by $152.4 million in incremental contributions from 142 new locations that had not been in operation for the full comparative period.
Speaker Change: Our same-store sales, excluding foreign exchange.
Speaker Change: decreased by 1.8% for the nine months ended September 30th, 24, recognizing one additional selling and production day when compared to the same period of 23, which increased selling and production capacity by approximately half a percent.
Speaker Change: Gross margin decreased to 45.4% of sales compared to 45.5% in the comparative period, while gross profit increased to $1,051,000,000 from $1,003,000,000 compared to the same period of the prior year.
Growth profit increased as a result of increased sales due to location growth when compared to the prior period.
Speaker Change: Gross margin percentage decreased due to several factors, including lower contributions from a greater number of new locations, and labor rate margins which remained below historical levels.
Speaker Change: These negative impacts were partially offset by the benefit of increased internalization of scanning and calibration, improved glass margins, and improvements in performance-based pricing.
Speaker Change: Operating expenses increased $70.7 million when compared to the same period of the prior year, primarily as a result of location growth and inflationary increases.
Speaker Change: Operating expenses as a percentage of sales were 34.5 percent for the nine months ended September 30th, which compared to 33.1 percent for the same period of 23.
Speaker Change: Adjusted EBITDA for the nine months ended September 30, 2024 was $251.4 million, compared to $274.0 million in the same period of the prior year.
Speaker Change: The $22.6 million decrease was primarily the result of declines in comparable claims for services, which resulted in same-store sales declines and a high ratio of operating expenses as a percentage of sales.
Speaker Change: Although operating expenses as percent sales was positively impacted by reductions in staffing made to better align with current levels of demand, as well as reduced incentive compensation and recruiting costs, these impacts were more than offset by the fixed costs on existing and new locations.
Speaker Change: We reported a net income of $22.1 million compared to $67.6 million for the same period of the prior year.
Speaker Change: Adjusted net earnings per share decreased from $3.25 to $1.15.
Speaker Change: The decrease in adjusted net earnings per share is primarily attributed to the decrease in adjusted EBITDA as well as increased finance costs.
Speaker Change: increased depreciation related to location growth including additional health real estate assets and our investment in network technology upgrades.
Speaker Change: At the end of the period, we have total net of cash of $1.2 billion.
Speaker Change: Debt net of cash before lease liabilities increased from $399.2 million at December 31, 2023 to $486.2 million at September 30, 2024.
Speaker Change: Net of cash before lease liabilities increased as a result of location growth, including increased real estate assets that pertain to startup locations.
Speaker Change: The company's strategy has been not to hold real estate except where it is necessary for growth opportunities.
Speaker Change: Certain startup locations necessitate short-term holding of real estate.
Speaker Change: until the bill is complete and operations have begun. During the third quarter of 24, the company completed sale leaseback transactions for proceeds of $31.9 million.
Speaker Change: The sale of these back transactions allowed the company to replenish capital that can be redeployed to further grow the business.
Speaker Change: At September 30th, 2024, the company has held real estate assets totaling $66.3 million.
Speaker Change: During 2024, the company plans to make cash capital expenditures, excluding those related to network technology upgrades and acquisition and development of new locations, within the range of 1.8% to 2.0% of sales.
Speaker Change: Excluding these expenditures, the company spent approximately $52.1 million, or 2.2% of sales on capital expenditures, during the nine months ended September 30, 2024.
Speaker Change: The company spent $45.1 million, or 2% of sales, on capital expenditures for the same period of 2023.
Speaker Change: The current rate of capital expenditures as a percentage of sales has been trending above these percentages due to the decreased level of sales that the business is currently generating.
Speaker Change: The current industry and market conditions are continuing to impact demand for services thus far in the fourth quarter, which has resulted in same-store sales experience in line with third quarter results. Similar to the third quarter, the fourth quarter has also been modestly impacted by hurricane activity.
Speaker Change: In this challenging environment, the company continues to focus on maximizing value to customers and shareholders through initiatives to improve controllable metrics.
Speaker Change: including sales, with a focus on improving capture rates.
Speaker Change: leveraging insurance company relationships, and adding and expanding fleet relationships.
Speaker Change: Boyd is committed to improving gross margin through initiatives such as the internalization of Scan and Calibration Services.
Speaker Change: executing on Boyd's repair-first strategy, and focusing on the use of cost-effective alternative parts, which also deliver strong value by lowering repair costs for the company's customers.
Speaker Change: While management took a number of cost-related actions during the third quarter, the continuing softer level of demand has caused us to further examine the company's cost structure.
Speaker Change: as well as cost-saving initiatives to drive improvement in operating expenses as a percentage of sales. And we are confident opportunities exist.
Speaker Change: The sales and gross margin initiatives, along with a heightened focus on and a full review of Boyd's operating expenses, will help mitigate the impact of the current environment and put Boyd in the best possible position if conditions improve.
Speaker Change: On a year-to-date basis, Boise has added 41 new locations.
Speaker Change: In the current negative claims environment, Boyd has placed additional focus and attention on the core business.
Speaker Change: As a result, acquisition activity is running at a slower pace than was the case one year ago. However, VOID is continuing to identify and pursue opportunities, and the commitment to growth remains.
Speaker Change: Growth through startup locations is also continuing, in spite of the longer development cycle, ramp-up period, and additional initial capital investment required when compared to single shop locations.
Speaker Change: Startup locations offer a number of advantages and as a result the company plans to continue increasing the proportion of growth using this approach.
Speaker Change: Well, the company has been successfully executing a boy's long-term growth goals. The current year has brought with it some unanticipated economic and industry conditions.
Speaker Change: The company is focused on increasing value to our customers and shareholders, and has consistently performed above industry, with a focus on emergence from these conditions in a strong position.
Speaker Change: In spite of the initiatives in place, current market conditions may cause a slight delay in Boyd achieving its long-term goal of doubling the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales.
Speaker Change: Management remains firmly committed and cautiously optimistic that the company will achieve its long-term goal.
Speaker Change: In the long term, management remains confident in its business model and its ability to increase market share by expanding its presence in North America through strategic acquisitions alongside organic growth from Boyd's existing operations.
Speaker Change: Accretive growth will remain the company's long-term focus, whether it's through organic growth, new store development, or acquisitions.
Speaker Change: The North American collision repair industry remains highly fragmented and offers attractive opportunities for industry leaders to build value through focused consolidation and economies of scale.
Speaker Change: As a growth company, Boyd's objective continues to be to maintain a conservative dividend policy that will provide the financial flexibility necessary to support growth initiatives while gradually increasing dividends over time.
Speaker Change: The company remains confident in its management team, systems, and experience. This, along with a strong financial position and financial opportunities, positions bode well for success in the future.
Speaker Change: With that I would now like to open the call to questions. Operator?
Speaker Change: Thank you, sir. Ladies and gentlemen, if you do have a question, please press star followed by one on your touch-tone phone. You will then hear a prompt acknowledging that your hand has been raised.
Speaker Change: And if you wish to decline from the polling process, please press star followed by 2. And if you're using your speakerphone, you will need to lift the handset first before pressing any keys. Please press star 1 now if you have any questions.
Speaker Change: And your first question will be from Sabat Khan at RBC Capital Markets. Please go ahead.
Sabat Khan: Thank you. Good morning, Sal. Good morning. Thanks. I guess maybe just with a higher level question and to the extent you can comment on it, just in terms of... Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.
Sabat Khan: Kind of a Q4 outlook and the moderation and continuing that into 2025
Speaker Change: You know, how are you viewing 2025? You know, are the market conditions at a point where you think we could see some level of sequential improvement in first sales? Like is this, how, just I think the overall question is how long do you expect the current industry dynamics to maybe continue? And when could we see the demand environment turn somewhat to the positive? Thank you.
Speaker Change: Yeah, it's a difficult question to answer.
Speaker Change: We can't really predict the future
Speaker Change: The third quarter claims volume was down significantly, as I communicated, the 12.6%.
Speaker Change: including comprehensive losses, and 9.5% excluding comprehensive losses.
Speaker Change: That was a bit of a surprise. The Q3 of the prior year was down 4.1%.
Speaker Change: Now, Q4, as you may recall, was down 10% last year.
Speaker Change: We don't have any Q4 data yet. We do expect to get some monthly data as we go through the quarter, but we don't have that yet. But I believe that we must be approaching, if not at the bottom, but time will tell.
Speaker Change: Great. And then just in terms of some of the cost actions, can you maybe just highlight, as you said, there are some potential opportunities, just some areas. And, you know, are there opportunities that you've already executed on and we could see the benefits later, or is it still early in the process to adjust the cost base somewhat?
Speaker Change: Yeah, we actually began to take action in q2
Speaker Change: normalized staffing to really match the levels of demand that we expected.
Speaker Change: And we have further opportunity given the current level of demand.
Speaker Change: But more broadly than that, we're really the management team is taking a look more broadly at cost structure to see what other opportunities we've had.
Speaker Change: We've done some of that assessment. We definitely see opportunity and we'll take some action on that opportunity, although it won't necessarily impact the business overnight, but there are a number of actions.
Speaker Change: I alluded to this in the script, but there are a number of actions that we have taken that have had a positive impact, but it's hard to see that with the decline of repairable claims.
Speaker Change: And then just one last one, you indicated in your release that there was a focus on the core business and maybe a bit less on M&A and just new store.
Speaker Change: openings versus historical levels, just what are your thoughts on sort of that side of the business going into 2025? Do you expect to maybe return to historical levels of, you know, non-inorganic growth as we look into the next year? Thanks.
Speaker Change: I would say that is my expectation. It will depend in part on market conditions. One of the things, Sabah, that we're seeing is that sellers that we may enter into a letter of intent with
Speaker Change: When we start the due diligence, the performance of their business isn't what may have been represented, and that's really by and large due to current market conditions.
Speaker Change: And we're committed to continuing to grow, but we also want to make sure we do it accretively.
Speaker Change: and if the business isn't what it was represented to be.
Speaker Change: then we either need to reprice it or defer on it temporarily. So I think the growth, the slowdown is partly market conditions with sellers.
Speaker Change: I don't know if you recalled it, during the pandemic.
Speaker Change: Sellers price expectation despite drops in volumes
Speaker Change: did not seem to change much.
Speaker Change: I think we're seeing a bit of that now, but we remain very committed to and expect to be able to grow at historical rates in the not-too-distant future.
Speaker Change: Great. Thanks very much for the call.
Speaker Change: Thanks, Simon.
Speaker Change: Next question will be from Derek Lessard at TD Cowan. Please go ahead.
Derek Lessard: Yeah, good morning, Tim, Jeff, and Brian.
Derek Lessard: Good morning. I just maybe wanted to follow up on Sabit's question. Obviously, I just wanted to get maybe your take on the higher total industry loss rates.
Derek Lessard: And whether or not, is it just a function of, you know, the used car prices normalizing post-COVID? Or is there any other sort of underlying forces at play?
Speaker Change: Yeah, well, total loss rates in the most recent quarter are pretty close to where they were in 2019.
Speaker Change: They changed year-over-year by 180 basis points.
Speaker Change: And I would say the vast majority of that.
Speaker Change: Is related to lower US car prices making those.
Speaker Change: less economical to repair.
Speaker Change: a year ago.
Speaker Change: when the total loss rates were quite low, although they...
Speaker Change: elevated a little bit from where they bottomed out. We were repairing vehicles that historically, we would not have seen in our business. Well, total loss rates have increased and that's part of what we saw in the nine and a half percent repairable claims decline excluding comprehensive claims. They really aren't elevated from historical levels.
Speaker Change: Okay, that's helpful
Speaker Change: of cautiousness to your 2025 outlook. I was just wondering if maybe you can speak to some of your assumptions and the thought process there and just maybe talk about what your expectations around M&A were to set that benchmark.
Speaker Change: Yeah, I think the
Speaker Change: First of all, we're optimistic that we can achieve the goal, but we're also faced with market conditions that we didn't anticipate.
Speaker Change: When we went into the third quarter, I think we expected claim volumes to begin to return to normal. So, we're really just saying that we're going to continue to grow both organically and inorganically.
Speaker Change: We believe we have an opportunity to achieve the goal as scheduled, but there's some risk given current market conditions, if claim volumes
Speaker Change: don't begin to return to normal levels in Q4 or worse, it persists to some degree in Q1. It may make it more challenging. So we're not giving up on the goal and we remain committed to it, but we also felt an obligation to say that there is some risk.
Speaker Change: Awesome, and maybe I'll squeeze one last one in here. On your same-store sales growth outlook,
Speaker Change: You didn't know, obviously, Q4 was so far in line with Q3. I was just wondering, is this inclusive of the hurricane impact? And I guess while we're on it, I was wondering if you could maybe give us the Q3 hurricane impact on Ibida or Marjan.
Speaker Change: Yeah, first of all, I would say that our guidance on what we've seen thus far in the quarter, given that it includes the hurricane period, would have included the impact of the hurricane on Q4.
Speaker Change: the
Speaker Change: What was your second question, Chris? Yeah, I was wondering, you gave the revenue or the same-store sales impact on Q3. Just wondering if you have it for EBITDA or margin. Yeah, it's difficult to know exactly what the impact was. We said it was less than $4 million on the revenue side. We did also incur some expenses for property damage.
Speaker Change: and wages for our team members who were impacted by it. We do pay people.
Speaker Change: when they have to evacuate for a hurricane. So we have both some damage-operated expenses, some wage-operated expenses, and lost revenue, but it wasn't material enough to separately disclose.
Chris: Okay, thanks for that.
Speaker Change: Thanks, Eric.
Speaker Change: Next question will be from Tammy Chen at BMO Capital Markets. Please go ahead.
Speaker Change: Morning, Tammy. Hi.
Tammy Chen: Hi, Sam. Good morning. Thanks for the question. So I just want to revisit and confirm on the Q4 guide, I'm a little confused. You said in an earlier question that so far you've got no monthly data on Q4. Did I hear that right? Because I'm wondering then how you came with the expectation that right now it's similar same-store sales than Q3. So I just wanted to first clarify that.
Speaker Change: Yeah, we don't have any visibility over repairable claims data in the market thus far in Q4. We do have visibility over our revenue trends internally.
Speaker Change: Okay, got it. Thanks for the clarification here.
Speaker Change: The other question is, on the OPEX, going back to that, yes, I can see that the dollar amount...
Speaker Change: Slightly came off sequentially, you know q3 from q2. I assume that
Speaker Change: That is the several actions you've taken, but just the magnitude of the deleveraging was quite material here. So how should we think about that? Is there anything else?
Speaker Change: to call out here. I heard startup costs as well. Is this the drive that you've previously talked about now that you've got these cohorts of Greenfield, Brownfields, they're adding to this and we should expect this when we think about your EBITDA margin going forward?
Speaker Change: Hi, Jami, it's Jeff Murray here. So what you can see is that we've continued to add locations, and so adding locations does add some layer of fixed costs. We've also seen, you know, seen store sales declines across the entire network, and there's a significant fixed cost base there as well. So you're right, we did take actions.
Speaker Change: which have helped and have come through to a minor degree, but not sufficient really to offset what we're seeing with the high fixed costs that the business has.
Speaker Change: and the sales levels that we're currently operating at. So we need to get back to positive same store sales to help us get there. But having said that, we also know that we do have other opportunities to look at and so we'll be focused on that going forward.
Speaker Change: And these other opportunities, how are you thinking about this? Is there a target of we're aiming for this?
Speaker Change: OPEX rate of sales that you're going for. I think any sort of quantification you can give when you talk about these additional actions would be helpful. It's just difficult for us to gauge the magnitude of these additional opportunities that you feel are there in the OPEX line.
Speaker Change: Thank you.
Speaker Change: Tammy, I would say our objective is to move back toward a 14% EBITDA margin.
Speaker Change: and that will take meaningful expense leverage to achieve that.
Speaker Change: During the quarter we undertook
Speaker Change: to have a comprehensive look at our expense base.
Speaker Change: and see where we have opportunities to help, you know, make progress toward that. We've identified a number of areas that we feel confident over time we can drive better expense leverage, and we'll be working on that really in the fourth quarter and throughout probably the next, you know, 12 to 18 months.
Speaker Change: And why not, the last question for me here is, on new stores on the M&A side, you mentioned
Speaker Change: Part of the slowdown is when you do further due diligence, the operations of the stores, not what was represented, but largely because of the current environment, which would suggest it's.
Speaker Change: it's temporary. So I'm curious, why not look to possibly accelerate some M&A in this macro environment? Thanks.
Speaker Change: Yeah, it's a great question. We've considered that internally.
Speaker Change: No, not only do we see sellers with less revenue than what they...
Speaker Change: may have believed that they had.
Speaker Change: But we also know in the current market environment, it's harder for us to leverage our relationships and drive rapid incremental revenue after we close on a business.
Speaker Change: because the business is being spread.
Speaker Change: across, you know, there is less business to spread across the network. So, it's both. We're very capable of stepping up the M&A activity rapidly.
Speaker Change: We've still got the team in place. We've got a pipeline of opportunities. So we can restart the M&A activity at higher levels. We're not stopping the M&A activity at all, but we can restart it and move to higher levels rapidly.
Speaker Change: So, I think we'd like to focus on the core, make sure that we're making progress against our expense ratios.
Speaker Change: It's hard for you and others to understand the impact of the news stories, but as we've communicated over several quarters now, they do have an impact.
Speaker Change: And we need to balance out our energy on driving the performance of our business overall with the growth side, but we remain very committed to growth.
Speaker Change: Thank you.
Speaker Change: Bye.
Speaker Change: Thank you. Next question will be from Gary Ho at Desjardins Capital Markets. Please go ahead.
Speaker Change: What a year
Gary Ho: Morning. Thanks for taking my questions. Maybe just continuing on that theme of location ads. So it feels like it's slowing down the last couple of quarters in that 10 to 13 location ads per quarter.
Gary Ho: and you've talked about focusing in on the core business.
Gary Ho: Can we see a further slowdown to maybe single-digit range when you look out, and can you maybe provide some comments in terms of what your other larger MSOs are doing in the current environment at a similar strategy in terms of slowing down their M&A? Any commentary on that would be helpful.
Speaker Change: Now on your second question, I think what we you know, we don't have perfect visibility over what our competitors are doing
Gary Ho: But I would say the intelligence in the industry is that growth generally has slowed down. In our case, it's a choice based on priorities and current market conditions.
Gary Ho: In other cases, there could be capital constraints related to growth as well. But on your question on whether the deterioration of the count may continue, I would not expect that. As we've talked over the last several quarters, we've been stepping up our efforts to build new sites.
Gary Ho: We have a number of new sites in the pipeline, many under construction, many ready to go under construction, and even without acquisitions, those would provide a fairly steady stream of growth going into the future.
Speaker Change: Okay, that's that's helpful. And then maybe as a related question to your comments there, I know there's a op ex ratio difference between your new locations and your existing ones.
Speaker Change: Anyway, you can maybe divvy up the different cohorts and kind of shed some color in terms of how the two varies, whether it's on a relative basis or absolute.
Speaker Change: Are you talking, Gary, like, on the call, or are you talking in the future disclosure?
Speaker Change: Maybe just on today and what you're running at in terms of your new locations, your OPEX ratio difference between your existing stores and new locations.
Gary Ho: I mean, it does have an impact. Obviously, the lower sales that you have on a new store that's building does affect that individual OPEX ratio for those locations in that cohort. But if you look at the breakdown of new locations compared to the total, it's...
Speaker Change: It's maybe roughly back to the envelope 10 percent.
Speaker Change: And so you're looking at 10% versus the 90%. And so there's still right now a significant impact in the core stores that are not achieving their sales objectives either. So I would definitely skew it to the core stores in the current environment.
Speaker Change: Okay.
Speaker Change: And then maybe just a final question, just going back to the OPEX questions. Any color you can provide in terms of your buckets you mentioned?
Speaker Change: Staffing, you mentioned incentive comps. Could you perhaps look at curtailing your technician training program? Any examples that you can give would be great.
Speaker Change: I, you know, I think the technician training program we've talked about prior quarters.
Speaker Change: When we were growing that rapidly, our level one technicians, which is the
Gary Ho: component of the program that's the most expensive.
Speaker Change: and had the highest turnover.
Speaker Change: We had a significant investment in level one technicians that we have reduced the number of people in level one with an intense focus on making sure that when they enter level one we feel good about their ability to get to them.
Gary Ho: you know, level two and ultimately graduate. So we've already taken some action to reduce our costs for TDP.
Gary Ho: But we are still committed to it, and we have a number of people in level 2 and level 3. I'd say our focus was really making sure that
Gary Ho: We more thoroughly vet entrance into level one. We've done that in part by moving most of the people that move into our technician development program now have been employed in a different position in the company for some period of time before they move into our training program.
Speaker Change: Okay. That's helpful. Thank you very much.
Speaker Change: Thanks, Kerry.
Speaker Change: Next question will be from Chris Marie at ATV Capital Markets. Please go ahead.
Speaker Change: Thanks, and good morning, folks.
Chris Marie: Good morning. So Tim, kind of maybe trying to think about this, some of your industry competitors have talked about
Speaker Change: A lot of this, the volume is being driven a little bit by consumer behavior and insurance levels. There's also been some discussion about...
Tim O'Day: You know, um...
Speaker Change: perhaps PNC rates might actually start reversing next year. But you also made the comment that, you know, at least your feel for, you know, what's going on, even though we don't have, like, exact quarterly data, is that we're closer to the bottom.
Speaker Change: than not. You know, you've been in the industry a long time, and I guess, you know, I'd like you, if you could, maybe your perspective.
Tim O'Day: maybe broader on
Tim O'Day: You know, is there something kind of...
Tim O'Day: long-term broken here or is this just kind of a kind of a reaction to kind of high inflation high insurance costs because we've seen these cycles before so just you know any thoughts about kind of the viability the longer-term strategy maybe is a way to think about it
Speaker Change: Yeah, thanks for the question, Chris.
Speaker Change: I guess when you think back to the Great Recession, we saw consumer behavior that was similar, deferring repairs, cashing out deductibles, but the level of inflation of premiums back then was pretty modest.
Speaker Change: So that really wasn't the driver of it. I think now we have some economic uncertainty. Obviously we have an election today. I think that's probably impacted consumer behavior.
Tim O'Day: the shock of premium increases were mid-upper teens, even into the 20 plus percent range in some cases. I think it's just caused.
Tim O'Day: a disruption that I wouldn't have anticipated and I have not seen it before.
Tim O'Day: I would expect that as people absorb that, claims will return to more normal levels. One thing that we do see in the data is that liability claims are down.
Speaker Change: significantly less than collision claims and a liability claim would be for the party that was not at fault.
Speaker Change: would suggest, you know, it helps to confirm the deferral component of the claim. That did happen during the Great Recession, so we've seen periods where that's occurred before. So I would expect that to normalize. I think the other piece is that, you know, if you look at a year and two years ago,
Speaker Change: Consumers in the market were fairly flush with cash. There'd been a lot of money poured into the economy.
Speaker Change: And now we have one where there's political uncertainty.
Speaker Change: And I think consumers are just generally a bit nervous. So I think as we go through the next few months, hopefully that will be resolved and we'll begin to see a more, you know, return to more normal behavior. On your comment on premiums coming down, I hope that happens. I think that would be good for consumers.
Speaker Change: But I do know that in the reports that I read that there's a record number of consumers that are shopping their insurance to look for better premiums, which, you know, if the claims volumes are lower, you would think that insurers may respond to that with lower premiums.
Speaker Change: Okay, that's helpful. And I guess maybe following on a little bit on this, we've been going through a few quarters I guess, where it almost feels like you are kind of protecting
Speaker Change: the core in the operating margins on the expectation that this is going to normalize. Is there a certain point that where
Speaker Change: you kind of get to the recognition or that you have to be a little more aggressive in right-sizing the business.
Speaker Change: Bye. Bye.
Speaker Change: Well, I think we've been in a period, coming out of the pandemic, we've been in a period of demand that we couldn't service.
Speaker Change: And I do think that, you know, what we're seeing now is maybe it's not normal, but it is closer to what we would have seen over many years with just, you know, moderate growth available to us and looking to take market share.
Speaker Change: But, as we looked at the business, I would say that we are confident that we have opportunities to leverage our EBITDA margin up, not just through revenue.
Speaker Change: And, you know, those aren't necessarily extraordinary things that we need to do. I think it's just prudent management of the business and we are absolutely committed to that.
Speaker Change: Okay, I'll leave it there. Thanks, folks.
Speaker Change: Thanks, Chris.
Speaker Change: Next question will be from Kate McShane at Goldman Sachs. Please go ahead.
Kate Mcshane: Hi, good morning. Thanks for taking our questions. Our first question, just with the outperformance versus the industry during the quarter, can you help us understand how much was driven by better volume versus price?
Kate Mcshane: The price did not move much in the quarter. It was, for the industry, Fred, do you recall those, up two and a half year to date through the second quarter?
Speaker Change: So price is not the driving factor, and as we've suggested in our disclosures...
Speaker Change: We've had significant efforts underway for initiatives that are good for our gross profit margin and actually gross profit dollars, but not good for revenue.
Speaker Change: including the internalization of calibration which
Speaker Change: We've made great progress on, and it does reduce the average cost of a calibration operation. We also have increased our alternative part usage, and we outperform the industry pretty meaningfully in the use of alternative parts.
Speaker Change: And we've continued to make progress on our Repair First strategy, which is focused around plastic repairs, which means we're reducing our reliance on parts.
Speaker Change: increasing our repair operations, which is also really good for our customers.
Speaker Change: and reduces the average cost of repair, but puts further pressure on same-source sales. So price is not, we've gained share on units available to drive the outperformance.
Speaker Change: Okay, thank you. And that actually dovetails nicely with our second question where you did talk about your improved glass gross margins in the corner. Was that from?
Speaker Change: the calibration or was it driven by something else? And just given some of the changes we've seen in the competitive market, what are you seeing right now when it comes to glass?
Speaker Change: Yeah, the improvement of glass margin year over year is in part related to growth of calibration in that business, but it's also some more effective buying of parts.
Speaker Change: by our glass retail team that's helped to drive that improvement.
Speaker Change: And in terms of what we're seeing in the auto glass business, I think similar to what the major competitor in the US is seeing.
Speaker Change: The auto glass market has also contracted a bit, and so we've seen pressure on our revenue growth in auto glass as well. It has not been impacted to the same extent as the collision business.
Speaker Change: but it's been under pressure as well this year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question will be from Krista Friesen at CIBC. Please go ahead.
Krista Friesen: Good morning. Thanks for taking my question.
Krista Friesen: I was just wondering, as we think about what's going on in the industry right now and the deferral of some claims, would you anticipate that there would be a catch-up at some point in time, whether it's kind of first half or back half of 2025?
Speaker Change: You know, I think when we came out of the Great Recession, there was some evidence of some catch-up of claims, so I'd say that's a possibility.
Speaker Change: but but there's not great data on that. Obviously for people that have a vehicle that's leased
Speaker Change: and it's had minor damage and chosen to repair. When it gets turned in from its lease, they'll either have to repair it or they'll pay for the cost of it anyway. So I think there is some opportunity for that.
Speaker Change: Okay, great. And then maybe just on the EBITDA margin.
Speaker Change: Should we should we think of Q3 as as maybe
Speaker Change: bit of a floor and just given the the initiatives that you've enacted in the quarter and it sounds like more initiatives that you'll enact in Q4 would you would you expect your your margin to at least hold or be able to to improve from there?
Speaker Change: I think you could assume that. We've seen a pretty serious reduction in the overall market in terms of the volume of claims. We're going to be lapping those weaker comps starting really in Q1. I think it's probably reasonable to think that we're not going to continue to see that.
Speaker Change: Yeah, I think, you know, one of the dynamics of the fourth quarter last year is the claim volumes.
Speaker Change: And this was before we had the data readily available to us. The claim volumes were down about 10% in Q4, but our revenue was actually pretty solid because we had a buildup of work in process.
Speaker Change: from the period where demand was very, very high.
Speaker Change: So, when we get to Q1, we'll be facing a period that demand was relatively low, and if we start to see a recovery in claims volume, that'll be a positive for us.
Speaker Change: Okay, great. Thank you. I'll jump back in the queue.
Speaker Change: Thanks, Chris.
Speaker Change: Next question will be from Brett Jordan at Jeffreys. Please go ahead.
Brett Jordan: Good morning, Gary, Brett.
Brett Jordan: Could you talk about this outperformance and alternative parts, you know, what is your mix there and what is the margin delta between that and traditional?
Brett Jordan: to drive repair costs down. From a gross margin standpoint, the analysis that we've done would say that our gross profit margins would be a bit better because of the use of aftermarket parts.
Speaker Change: but the gross margin dollars are fairly comparable. So, you know, when we shift to an aftermarket part, it's a lower price, but the dollar amount of the gross profit's pretty similar.
Speaker Change: Okay, and then I guess as we think about I think the beginning of this year a lot of folks were pointing to weather to explain The week first quarter, but it seems to be more than that, you know with a few quarters of Experience since then I guess what do you think you're lapping in the first quarter of 25?
Speaker Change: you know, consumer behavior shift versus weather, and is that likely to be an inflection, or do you think we still sort of bounce on the bottom?
Speaker Change: It's tough to predict, Brett, but there's no question that weather last year was a negative factor for our business. As we talked about when we reported Q4 and Q1, particularly Q1, there was almost no weather in the northern markets.
Speaker Change: Assuming that we have a more normal winter, we would expect some pickup from that.
Speaker Change: But as far as the consumer behavior and when that really impacted it, it's difficult to know for sure. But I would say that given that Q4 was down 10 points, there was weather and consumer behavior changes in that number.
Speaker Change: And loss rates. And total loss rates, yeah.
Speaker Change: Okay, great. And I guess one question, sort of big picture, I think you called out total loss rates being sort of back to pre-pandemic levels. Are you seeing any impact on crash rates around ADAS? Is there anything, obviously, if total loss rates are not the structural change, is there something else going on in vehicle technology that is somehow structurally limiting the business?
Speaker Change: No, in fact, I appreciate that question because our perspective is that you know the impact of ADAS
Speaker Change: Which you know net of mile an increase of miles driven we believe will have about a one point impact on claim volume
Speaker Change: That's continued and we don't see any change in that.
Speaker Change: The issues that we're dealing with, you know, the lower claims volumes.
Speaker Change: The kind of abrupt change in total loss rates over a year due to the decline in used car prices.
Speaker Change: and the consumer behavior in particular, and the weather, we don't view those as long-term issues at all. So structurally, we feel really good about the industry, where we are and our opportunity to continue to execute on the strategy that we've been successful with.
Speaker Change: Great, thank you.
Speaker Change: Thanks, Brett.
Speaker Change: Next question will be from Steve Hansen at Raymond James. Please go ahead.
Steve Hansen: Brian, do you want to comment on the activity levels across the network and how consistent is it? It sounds like the data, well it appears the data across the industry is highly variable lately, even conflicting in some cases. Is Canada performing? How are the different regional markets in the U.S. performing? How should we think about that from a broader network perspective?
Speaker Change: Yeah. So, on the U.S. side, we obviously see the biggest impact from the decline in repairable claims that Tim articulated.
Speaker Change: Canada is slightly better than that, although there are similar signs of weakening in terms of the overall demand in Canada.
Speaker Change: And then our glass business remains, you know, fairly consistent with.
Speaker Change: you know, with words than at historic levels.
Speaker Change: which is, you know, kind of at this point it's kind of flattish.
Speaker Change: And then, obviously, on the scanning and calibration side, we have – we're experiencing tremendous growth, albeit most of that is just internalizing revenue that we had previously had been doing externally.
Speaker Change: If we think about the Greenfield strategy, which is clearly evolving, how long does it take for you guys to get up to a rateable pace?
Speaker Change: Should we expect that to be consistent on a quarterly basis? Does it typically end up being back-and-loaded, or is the goal to ultimately have five a quarter or seven a quarter? I don't know what the number is ultimately, but can we get to a rateable, consistent pace there?
Speaker Change: Yeah, that is absolutely the target. I think, you know, given the timing of which we, you know, by which we started, I would expect that, you know, we'd be meaningfully in that pace by this time next year.
Speaker Change: Okay great and just maybe just for a broader perspective because I think one of the common pushbacks we all face...
Speaker Change: around the greenfield. There's this ramp-up issue that's part of it, but I think the bigger issue or the question often comes up is you're adding capacity to an industry as opposed to taking some capacity through M&A. How do you feel about that pushback and what would you point to as being the key benefits to building greenfield versus buying?
Speaker Change: Our Greenfield strategy is really focused on densifying markets that we already have a strong presence in, so our belief is that we can take
Speaker Change: you know, volume.
Speaker Change: out of the market.
Speaker Change: and frankly put it into a box that fits the criteria that.
Speaker Change: You know, drives long term success for us. It's the right size box. It's more. It's easily, you know, it's a lot easier for us to attract talent to the location.
Speaker Change: It allows us to get all three lines of business in. So I do think that just given the fact that it's, again, it's really focused on the densification of a market that we have a strong presence in.
Speaker Change: You know, I think that that gives us confidence that, you know, we can take the share from the market as opposed to just adding capacity to a market that right now feels like it's, you know, obviously, you know, capacity is exceeding demand.
Speaker Change: And Brian, I would say that what our experience today would support that. While it takes time, our greenfield locations are, despite the current environment, I would say we continue to make good progress on our greenfield locations.
Speaker Change: Thank you.
Speaker Change: Okay, appreciate that, guys. Thanks.
Speaker Change: Thanks, Steve.
Speaker Change: Next question is from Zachary Evershed at National Bank Financial. Please go ahead.
Zachary Evershed: Good morning, everyone.
Zachary Evershed: How much of a gap still remains on labor rates and are your insurance partners still cooperating there?
Speaker Change: We continue to see received labor rate increases every quarter, so I would say that you know there's there's still cooperation. The gap is narrowed from where it was, but we still have work to do to get it back to where we expect it to be.
Speaker Change: Gotcha, thanks. And then while you guys are focused on cost control, do you think that'll have an impact on the pace of bringing scanning and calibration in-house?
Speaker Change: Absolutely not, nope.
Speaker Change: The calibration business, Zach, is very creative, I mean it lowers cost for our customers.
Speaker Change: That's clear, thanks. And then last one for me, as you're adding and expanding fleet relationships, does that revenue come in at lower gross margins?
Speaker Change: Not really. I mean, we're really focused on some fleet relationships that, you know, we're kind of resetting the, you know, the customer expectation on what we're willing to do that work for, and really focused on a better customer experience for them, you know, but at, you know, maybe slightly below, but certainly not at the levels that it's been historically.
Speaker Change: Good, Kali, thanks. I'll turn it over.
Speaker Change: Thanks, guys.
Speaker Change: Next question is from Daryl Young at CIFO. Please go ahead.
Daryl Young: Hey, good morning, everyone.
Daryl Young: Just wanted to follow up on Keith.
Daryl Young: follow up on Kate's question around price versus volume and maybe ask a little more directly.
Daryl Young: Are there signs of competitors getting more aggressive on price to take market share? Is there anything they can offer to your insurance partners that might be more aggressive that would stimulate share loss in the future?
Daryl Young: Or is it still pretty much the core KPIs on the DRPs that are driving those market share wins?
Speaker Change: I think it's still core KPIs. I mean, price, you know, when you talk about negotiating at a labor rate or whatever it might be, that isn't what drives...
Daryl Young: you know, great results from a total cost for repair standpoint. It's really effective use of alternative parts, repairing what can be properly repaired. You know, the offset is that companies like Boyd would be at a higher level on
Daryl Young: Scanning and calibration just because we have the tools and systems that does drive repair cost up
Daryl Young: But what I think is important to our clients is that we make our customers happy, which we do, that we repair their cars quickly, which we do an excellent job of, and that we do it at a competitive total cost of repair, not necessarily related to delivery or other elements of pricing, but by the business practice.
Daryl Young: we've got. So that's what our clients care about and that's really where we place our focus.
Speaker Change: Got it. And then one last one, just dovetailing on that fleet question, are there other initiatives out there that you can turn back on, such as the Dealer Intake Centre, that would accumulate greater volumes going forward, or are we pretty much back to sort of 2019 initiatives?
Speaker Change: I know, I mean, there may be some there may be some other opportunities right now we're focusing really heavily on is.
Speaker Change: improving the capture rates within the stores that we, you know, that we operate today. We have, that's part of the reason for the over or the outperformance of the industry is we're just getting a lot more aggressive at taking what is coming to us. You know, dealer intake centers.
Speaker Change: when demand is soft.
Speaker Change: I'm not sure that that's going to provide a meaningful opportunity for us. It certainly has provided some good coverage for us in Canada, but frankly wasn't as effective in the U.S. as it is in Canada. And we continue to use it in Canada.
Speaker Change: Got it. That's great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: And at this time, Mr. O'Day, we have no further questions. Please proceed.
Tim O'Day: All right well thank you operator and thanks to all of you for once again joining our call today and we look forward to reporting our fourth quarter and year-end results in March. Have a great day.
Speaker Change: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.