Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services Inc. Second 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 risk and uncertainties 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, August 11th, 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 Pathapatti, our Executive Vice President and Chief Financial Officer, and Brock Bulbock, our Executive Chair. We released our 2021 second quarter 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 BoydGroup.com. Our news release, financial statements, and MD&A have also been filed on CDAR this morning. On today's call, we will discuss the financial results for the three and six month periods and the June 30th, 2021, and provide a general business update. We will then open the call for questions. Comparing the second quarter of 2021 to the same period of 2020, demonstrates how significantly the business was impacted by the pandemic one year ago and how far we've come since that time. During the second quarter, we saw infection numbers and restrictions decrease while vaccination levels increased. We achieved strong same-store sales growth in the quarter, which resulted in increased adjusted EBITDA margins and net earnings both in the quarter and on a year-to-date basis. Although we continue to experience reduced demand in certain markets at the beginning of the second quarter, demand accelerated in most U.S. markets as the quarter progressed. By the end of the second quarter, demand in the U.S. was at meaningfully higher levels than we experienced in Q1 of 2021. By contrast, demand in Canada remained significantly lower than the pre-pandemic levels and below the levels experienced in the first quarter of 2021. As was previously communicated, beginning January 1st, 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 U.S. denominated revenues. During the second quarter, we recorded sales of $444.6 million, adjusted EBITDA of $58 million, and net earnings of $10.5 million. Sales at $444.6 million showed a 44.4% increase when compared to the same period of 2020. This reflects a $28.3 million contribution from 72 new locations. Our same-store sales, excluding foreign exchange, increased by 34.5% in the second quarter, recognizing the same number of selling and production days in the U.S. and Canada Thank you. Thank you. Thank you. Gross margin was 46.1% in the second quarter compared to 46.8% achieved in the same period of 2020. The gross margin percentage was negatively impacted by reduced parts and labor margins, as well as variability in direct repair program pricing. Operating expenses for the second quarter of 2021 were 147.1 million, or 33.1% of sales, compared to 108.5 million or 35.2% of sales in the same period of 2020. The increase in operating expenses was primarily the result of growth in the number of locations as well as the COVID-19 related cost reductions that impacted the second quarter of 2020. The decrease as a percentage of sales was primarily due to increased sales in the second quarter of 2021 as compared to the same period of the prior year, which was significantly impacted by the COVID-19 pandemic. Increased sales levels provided improved leveraging of certain costs such as property taxes and utilities. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $58 million. an increase of 62.7% over the same period of 2020. Adjusted EBITDA was positively impacted by improved sales levels, which also provided improved leveraging of certain operating costs. In total, Adjusted EBITDA in the second quarter benefited from the Canadian Emergency Wage Subsidy in the amount of 3.6 million as compared to 3.4 million in the same period of the prior year. 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 the wage subsidy. As a result of the steady progress toward more normal business conditions in the US, EBITDA margin percent improved 50 basis points compared to Q1. Net earnings for the second quarter of 2021 was 10.5 million compared to a net loss of 5 million and John Wysseier. which also provided improved leveraging of certain operating costs and other relatively fixed costs such as depreciation and amortization that could not be reduced in relation to a decline in sales due to the COVID-19 pandemic during the second quarter of 2020. For the six-month period ended June 30th, 2021, we reported sales of 866.3 million, an increase of 11.7% over the same period of the prior year, driven by same-store sales growth of 4.9% or 5.7% on a day's adjusted basis, as well as contributions from new locations that had not been in operation for the full comparative period. Gross margin increased to 46.1% of sales compared to 45.6% in the comparative period. The gross margin percentage was positively impacted by improved retail glass margins and a higher mix of glass sales in relation to collision sales, partially offset by variability and direct repair pricing. Operating expenses increased $30.8 million when compared to the same period of the prior year, primarily due to the growth in the number of locations, as well as the COVID-19-related cost reductions that impacted the prior year. adjusted EBITDA for the six-month period and the June 30th, 2021 was $110.7 million compared to $96.1 million in the same period of the prior year. The $14.6 million increase was primarily due to improved sales levels, which also provided improved leveraging of certain operating costs compared to the prior year period that was much more significantly impacted the pandemic. We reported net earnings of $18.2 million compared to $12 million in the same period of the prior year. Adjusted net earnings per share increased from 51 cents to 92 cents. These increases are primarily attributed to improved sales levels, which also provided improved leveraging of certain operating costs and other relatively fixed costs, such as depreciation and amortization, that could not be reduced in relation to the decline in sales due to the COVID-19 pandemic during the second quarter of 2020. At the end of the period, we had total debt net of cash of 671.1 million compared to 539.9 million at March 31st, 2021. 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 our while operating way practices through the corporate applications and process improvement efficiency project. During the first six months of the year, the company has invested approximately 2.4 million in environmental initiatives. These investments will not only provide environmental and social benefits, but also achieve accretive returns on investing capital. Additionally, the company is expanding its while operating way practices to its corporate business processes. The related technology and process efficiency project will result in a total of two to three million of additional investment before the end of this 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. As has been our practice, I would now like to comment on some potential for insider selling. For personal or estate planning reasons, some insiders, although excluding myself, may choose to sell some of their void holdings during the balance of the year, but in any event, will continue to hold ownership of Boyd's shares at levels well above those required by the company's share ownership policies. While the COVID-19 pandemic significantly impacted Boyd's business over the past year, we experienced increased demand in most US markets during the second quarter of 2021, as restrictions continued to ease during this period. Thus far, in the third quarter of 21, Although still below pre-pandemic levels, demand is exceeding our capacity in all U.S. markets, which has resulted in high levels of work in process. The process of adding location-level administrative staff and technician capacity to address this constraint remains a work in process and is resulting in increased wage pressure. By contrast, demand in Canada remains significantly lower than pre-pandemic levels. Demand in Canada in Q3 is building very slowly in comparison to Q1 and Q2 as restrictions are eased and removed. Looking to the balance of 2021 and beyond, we continue to be confident that we will maintain progress toward our long-term growth targets and operational plans. We have added 100 locations on a year-to-date basis, and our pipeline to add new locations in existing markets and to expand into new markets is healthy. The recent acquisitions of John Harris Body Shops and Collision Works, which added a combined 51 locations with quality leadership, are strategically opportunistic and better position us to execute on our comprehensive plans for a creative market build out in and around these platforms. For these reasons, Boyd paid toward the upper end of our historic multiple range for similar strategic growth platforms. In addition to taking time to execute on our build-out plans, as with many acquisitions, especially those of larger size, it will also take time to integrate and achieve our expected synergies and the resultant earnings from these acquisitions and other new locations, especially given the continuing impact of the pandemic. We continue to have financial flexibility with our conservative balance sheet and more than $600 million in dry powder to take advantage of opportunities as they arise. Notwithstanding our strong growth and positioning for the future, the previously mentioned factors are contributing to adjusted EBITDA margin pressure with very modest sequential quarterly same-store sales gains in the third quarter to date. We are excited and optimistic about our positioning for the future. 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 market demand returns to normal levels in all areas of our business and we build our staffing capacity, 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 Intake Center Strategy, to name a few. As always, operational excellence remains central to our business model, and with ongoing investment in our WOW Operating Way, we continue to work to drive excellence in repair quality, customer satisfaction, and repair cycle times to ensure the continued support of our insurance partners and vehicle owners. With that, I would now like to open the call to questions. Operator?

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. Okay, your first question comes from David Newman from Desjardins. David, please go ahead.