Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services Inc. First Quarter 2021 Results Conference Call. 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 answers related to Boyd's future financial or business performance. Actual results could differ materially from those anticipated in these 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 CDAR's database found at cdar.com. I'd like to remind everyone that this conference call is being recorded today, Wednesday, May 12, 2021. I would now like to introduce Mr. Tim O'Day, 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 for today's call. On the call with me today are Pat Pappapatti, our Executive Vice President and Chief Financial Officer, and Brock Wolbach, our Executive Chair. We released our 2021 first quarter 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 this morning. On today's call, we'll discuss the financial results for the three-month period ended March 31st, 2021, and provide a general business update. We will then open the call for questions. The first quarter of 2021 continued to be significantly impacted by the COVID-19 pandemic, as business and mobility restrictions continued to impact demand for collision repair services. We continue to focus on health and safety practices such as contact free customer drop off and pick up, enhanced vehicle and facility cleaning practices, social distancing, and wearing personal protective equipment to keep our employees and customers safe. All of which has been very important given the significant surge in COVID infections that occurred during the quarter. We continue to follow key practices that include deep cleaning facilities where an employee or potential or confirmed case of COVID-19 is identified, as well as defined processes for quarantining and testing in situations of potential exposure to help prevent the spread of the virus. As was previously communicated, beginning on January 1, 2021, Boyd is reporting results in U.S. dollars. This change has been made in order to better reflect the company's business activities given the significance of the U.S. denominated revenues. During the first quarter, we recorded sales of 421.6 million, adjusted EBITDA of 52.7 million, and net earnings of 7.7 million. Sales were 426.6 million, a 9.9% decrease when compared to the same period of 2020. This reflects a $19.4 million contribution from 36 new locations. Our same store sales, excluding foreign exchange, decreased by 14.2% in the first quarter. Same store sales, excluding foreign exchange, decreased by 12.6% on a days adjusted basis, recognizing one less selling and production day in the US and Canada in the first quarter of 2021 when compared to the same period of 2020. Same store sales declines in Canada were much more significant than same store sales declines in the US and unfavorable when compared to the fourth quarter of 2020. The first quarter of 2021 was impacted by a significant surge in COVID-19 infections and the reinstatement of restrictions in many markets, especially Canada. Production challenges, including technician capacity constraints in select markets, weather events in southern states, and supply chain disruptions compounded the demand challenges we faced. Gross margin was 46% in the first quarter of 2021, compared to 44.8% achieved in the same period of 2020. The gross margin percentage improved as a result of higher labor margins, including the recognition of the SEWS of approximately $1.5 million. The gross margin percentage was also positively impacted by higher retail glass sales margins, partially offset by a higher mix of parts in relation to labor. Operating expenses for the first quarter of 2021 were $141.2 million, or 33.5% of sales. and John Wysseier. is the seasonality of certain operating expenses, such as employee payroll taxes, which are typically highest in the first quarter of the year. In addition, continued location growth has resulted in increased operating expenses as a percentage of COVID impacted sales. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $52.7 million, a decrease of 12.8% over the same period of 2020. The decrease was primarily due to operating expenses that could not be managed in relation to the reduction in sales and additional operating expenses incurred, along with continued location growth as well as costs incurred to begin rebuilding and supporting the workforce. In total, adjusted EBITDA in the first quarter benefited from the SEWS in the amount of $3.4 million, and as is the objective of the program, Boyd continued to employ and incur costs for employees that would have been laid off or furloughed absent this wage subsidy. Net earnings for the first quarter of 2021 was $7.7 million compared to $17 million in the same period of 2020. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the first quarter of 2021 was 8.3 million or 39 cents per share compared to adjusted net earnings of 15.2 million or 75 cents per share in the same period of the prior year. The decrease in adjusted net earnings per share is primarily attributed to the operating expenses and fixed costs such as appreciation and amortization that could not be reduced in relation to the decline in sales due to the COVID-19 pandemic. Adjusted net earnings per share for the three months ended March 31st, 2021 include 1.265 million shares issued in the public offering, which was completed in May of 2020. At the end of the period, we had total debt net of cash of 539.9 million compared to 538.5 million at December 31, 2020. We continue to have financial flexibility with our conservative balance sheet and more than $875 million in dry powder to take advantage of opportunities as they arise. During 2021, the company expects to make cash capital expenditures within the previously guided range of 1.6% to 1.8% of sales. This excludes those capital expenditures related to acquisition and development of new locations, the investment in environmental initiatives such as LED lighting, and the investment in the expansion of the WOW operating waste practices through its corporate applications and process improvement efficiency project. During the first three months of the year, the company has invested approximately $1.4 million in environmental initiatives, of a planned $4 million investment during 2021. These investments will not only provide environmental and social benefits, but also achieve accretive returns on invested capital. Additionally, the company is expanding its while operating weight taxes to its corporate business processes. The related technology and process efficiency project will result in a total of $4 to $5 million being invested before the end of the year and will also be expected to streamline various processes as well as generate economic returns after the project is fully implemented. This initiative began in the third quarter of 2020. Early in the pandemic, the company moved quickly and decisively to take aggressive action to both preserve liquidity and to reduce expenses in preparation of the demand and revenue decline anticipated as a result of the pandemic. This included converting a large number of production facilities to skeleton staffed intake centers, in most cases, staffed with a single employee. In late Q4 of 2020, Boyd made the decision to prepare for the higher post-pandemic demand levels expected in 2021. This was a major factor contributing to our lower adjusted EBITDA margin versus Q3 and Q4 of 2020. We're excited and optimistic about our positioning for the future. We've converted all of our temporary intake centers in the US back to full production facilities, and we've added back most of our indirect and support staffing resources in anticipation of a return to normal demand for our services. Although we are still in the process of the more difficult task of adding back technician capacity and re-engaging in the initiatives that we'd undertaken pre-COVID, to address technician capacity constraints, including but not limited to our technician development program. This may result in us experiencing technician capacity constraints in some markets in the near term, notwithstanding the continued improvement in demand in most of our U.S. markets. This, combined with worsening demand in Canada, as restrictions either continue or are tightened, has resulted in overall sales performance to date in Q2 that is only marginally higher than our Q1 sales. We continue to execute on our growth plans with 35 locations open year-to-date, the majority being single-shop growth. Our pipeline, including acquisitions as well as Greenfield and Brownfield locations, is healthy and we are confident in our ability to achieve our five-year plan. As vaccination rates increase and as market demand returns to normal levels, We are well positioned for the future with our leadership position, our growth pipeline, and many business initiatives, including our WOW Operating Way, Scalable Technician Development Program, scanning and calibration, OE certifications, and NHIC Center strategy, to name a few. As always, operational excellence remains central to our business model. With ongoing investment in our WOW Operating Way, we continue to drive excellence in repair quality, customer satisfaction, and repair cycle times to ensure the continued support of our insurance partners and vehicle owner customers. For me personally, and on behalf of the Board, I would also like to acknowledge Al Davis' retirement from the Board of Directors. Al has served on the Board since 2005 and is independent chair since 2011. He has helped to guide our strategy for many years and I personally appreciate the support and guidance that Al has provided to me during my tenure as CEO and I wish him well in his retirement. In summary and in closing, I continue to be incredibly proud of the steps that we've taken to adjust to this constantly changing environment and to position ourselves well for the future. We continue to believe there will be many opportunities to come from this crisis, both internal and external, and we've put ourselves in a good position come out of this crisis as a stronger company. Our priorities remain taking care of the health and safety of our team members and customers, enhancing shareholder values through accretive acquisition growth, building our capacity as demand returns, as well as preserving financial flexibility and preparing for the opportunities that lie ahead. With that, I would now like to open the call for questions. Operator?

Thank you, sir. At this time, we would like to take any questions you might have for us today. In order to ask a question, simply press star, then the number one on your telephone keypad. We have our first question from the line of David Newman from Big Jordans.