Boyd Group Services Inc.

Welcome to the Boyd Group Services, Inc. Fourth Quarter and Year-End 2020 True 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 those forward-looking statements. 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 CEDAR's database found at cedarplus.ca. I'd like to remind everyone that this conference call is being recorded today, Wednesday, March 20, 2024. 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 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. On today's call, we'll discuss the results for the three-month period ended December 31st, 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'd 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 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 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. 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. 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 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 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. 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 disruptions. 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. The gross margin percentage for the three months ended December 31, 2023, benefited from improved glass margins, higher part margins, and increased scan and calibration. The margin for the fourth quarter into 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 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 $0.93 per share, compared to adjusted net earnings of 14.6 million or 68 cents per share in the prior year. Adjusted net earnings for the period was 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 30th, 2023 and 963 million at the end of 2022. Debt net of cash increased when compared to December 31st, 22, 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 60 cents 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 1.8 to 2% 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 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. 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 during 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 had 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 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. 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 locations, including 26 locations through acquisition and 11 startups in the fourth quarter. 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 where pricing 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 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. As a result, thus far in the first quarter, adjusted EBITDA dollars are trending slightly above levels achieved in the first quarter prior year, but below the level achieved in the fourth quarter. Despite these challenges, Boyd remains positive about the future of our business and the opportunities that lie ahead. The pipeline to add new locations and to expand into new markets is robust. 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 performance of new locations, as well as scanning and calibration services and consistent execution of the WOW operating way. Given the high level of location growth in 2021, the strong same store sales growth during 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. We're working hard to position as well for the future. With that, I would like to 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. You will 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 the two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. This question comes from Daryl Young with People. Please go ahead.