Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services Inc. Third Quarter 2023 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 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 VOID's annual information form and other periodic filings and registration statements. And you can access these documents at CDER's database found at cderplus.ca. I'd like to remind everyone that this conference call is being recorded today, Friday, November 10, 2023. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Void Group Services Incorporated. Please go ahead, Mr. O'Day.

Thank you, Operator. Good morning, everyone, 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. We released our 2023 third quarter results before markets opened today. You can access our news release, as well as our complete financial statements and management 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'll discuss the financial results for the three and nine month periods ended September 30th, 2023, and provide a general business update. We will then open the call for questions. During the third quarter of 2023, Boyd recorded sales of 737.8 million, adjusted EBITDA of 94 million, and net earnings of 20.5 million. For the third quarter, sales were 737.8 million, a 17.9% increase when compared to the same period of 2022. This reflects a $40.5 million contribution from 89 new locations. Our same store sales, excluding foreign exchange, increased by 11.8% in the third quarter, recognizing one less selling and production day when compared to the same period of 2022, which decreased selling and production capacity by approximately 1.6%. Same store sales benefited from high levels of demand for our services, as well as some increase in production capacity related to technician hiring, growth in our technician development program, as well as productivity improvement, although ongoing staffing constraints continue to impact sales and service levels that could otherwise be achieved. Sales also increased based on higher repair costs due to increasing vehicle complexity, increased scanning and calibration services, as well as general market inflation. Gross margin was 45.2% in the third quarter of 2023, compared to 45.1% achieved in the same period of 2022. Gross margin benefited from improved glass margins, higher part margins, and increased scanning and calibration. Client pricing increases resulted in improvement in labor margins. However, margins remain below historical levels. Certain performance-based programs negatively impacted gross margin during the third quarter of 2023 as compared to the same period of the prior year. Operating expenses in the third quarter were 239.9 million, or 32.5% of sales, compared to 209.3 million, or 33.4% of sales, in the same period of the prior year. Operating expenses as a percentage of sales was positively impacted by improved sales levels, which provided improved leveraging of certain operating costs, including salary and wage costs. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $94 million, an increase of 28.7% over the same period of 2022. The increase was primarily the result of new location growth, improved sales levels, and improved leveraging of certain operating costs. Net earnings for the third quarter of 2023 was $20.5 million, compared to $11.9 million in the same period of 2022. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the third quarter of 2023 was $21.5 million, or $1 per share, compared to $12.1 million, or $0.56 per share, in the same period of the prior year. Adjusted net earnings for the period was positively impacted by increased sales based on same store sales as well as location growth, and improved leveraging of operating expenses, partially offset by increased finance costs and increased depreciation related to property, plant, and equipment. For the nine months ended September 30, 2023, sales totaled $2.2 billion, an increase of $410.8 million, or 22.9% when compared to the same period of the prior year, driven by same-store sales growth of 18.3%, as well as contributions from new locations that had not been in operation for the full comparative period. Gross margin increased to 45.5% of sales, compared to 44.9% in the comparative period. The gross margin percentage benefited from improved glass margins, higher part margins, and increased scanning and calibration. Client pricing increases resulted in improvement in labor margins. However, margins remain below historical levels. Certain performance-based programs negatively impacted gross margin during the first nine months as compared to the same period of the prior year. Operating expenses increased $123.1 million when compared to the same period of the prior year, primarily as a result of increased sales based on same-store sales, as well as location growth in addition to inflationary increases. Adjusted EBITDA for the nine months ended September 30th was $274 million compared to $198.8 million in the same period of the prior year. The $75.2 million increase was primarily the result of improved sales levels and gross margin percentage, which also provided leveraging of operating costs. We reported net earnings of $67.6 million compared to $26.8 million in the same period of the prior year. Adjusted net income per share increased from $1.29 to $3.25. The increase in adjusted net earnings per share is primarily attributed to increased sales and improvements in gross margin percentage, as well as improved leveraging of operating expenses. At the end of the period, we had total debt net of cash of just over $1 billion. Debt net of cash increased when compared to the prior quarter, primarily as a result of increased acquisition activity and other growth-related capital expenditures. During 2023, the company plans to make cash capital expenditures, excluding those related to acquisition and development of new locations, within the range of 1.6% to 1.8% of sales. In addition to these capital expenditures, the company plans to invest in network technology upgrades to further strengthen our technology and security infrastructure and prepare for advanced technology needs in the future. The investment began in the second half of 2023, but the majority of the capital will be invested in 2024 and 2025. During the nine months ended September 30th, 2023, incremental capital expenditures were incurred relative to the expected range for capital expenditures as a percentage of sales for the full year. These capital expenditures included the purchase of certain real estate assets as well as non-routine replacements and repairs. Excluding the impact of these incremental items, capital expenditures remained slightly above the range of 1.6% to 1.8% of sales. We continue to execute on our growth strategy. During 2023, the company has added 78 single locations while at the same time achieving same-store sales increases of 18.3% for the year thus far. While quarterly same-store sales increases have tapered from those experienced during the period following the pandemic and pandemic-related disruptions, the company has posted average quarterly same-store sales increases of 6.7% and 5.9% over the past five and 10-year periods, respectively. Thus far in the fourth quarter, same-store sales increases are lower than was experienced in the third quarter of 2023, but remain ahead of the five-year same-store sales growth levels. Workforce initiatives continue to have a positive impact on capacity, and ongoing investments in technology, equipment, and training position the company well for continued operational execution. Client pricing increases resulted in improvement in labor margins. However, margins do remain below historical levels. This remains a key area of focus for the company, impacting both the gross margin percentage and adjusted EBITDA margin that can be achieved in the short term. The United Auto Workers strike did not impact Boyd's ability to source parts and complete collision repairs during the third quarter of 2023. Despite the tentative settlements underway, the duration of the strike has resulted in modest delays in supply chain of certain parts, and therefore the completion of a small number of repairs during the fourth quarter thus far. Boyd has made investments in resources to support the growth through single locations, multi-location businesses, or a combination of single and multi-location businesses, giving the company the best flexibility on how to grow. Operationally, Boyd is focused on optimizing performance of new locations as well as scanning and calibration services and consistent execution of the WAO operating way. Given the high level of location growth in 2021 and the strong same-store sales growth thus far in 2022, the combination of same-store sales growth and location growth, Boyd remains confident that the company is on track to achieve its long-term growth goals, including doubling the size of the business on a constant currency basis from 21 to 25 against 2019 sales. With that, I'd now like to open the call to questions. Operator?

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touchstone phone. If you wish to cancel your request, please press star two. Your first question comes from Tammy Chen from BMO Capital Markets. Your line is now open.