Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services, Inc. First Quarter 2024 Results Conference Call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to the questions asked could constitute forward-looking statements that are subject to risks and uncertainties related to VOID's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. These risk factors that may affect results are detailed in VOID's annual information forms 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 call is being recorded today, Wednesday, May 15 of 2024. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boy 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 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 2024 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 Plus this morning. On today's call, we will discuss the financial results for the three-month period ended March 31, 2024, and provide a general business update. We will then open the call for questions. First quarter results were disappointing, with sales of $786.5 million, adjusted EBITDA of $81.7 million, and net earnings of $8.4 million. Following several quarters of demand for services exceeding capacity, the first quarter was significantly impacted by mild winter weather with claims and appraisal volumes experiencing decline while used car pricing returned to more normal levels, increasing the frequency of total losses. As reported by industry sources, repairable claims were down 8% during the quarter, with a greater share of that decline in the month of March, which was unanticipated when the company last reported. As a result of the decline in demand, the cost structure and workforce that Boyd had in place exceeded the level of demand and placed pressure on the level of adjusted EBITDA the company could deliver during the first quarter of 2024. For the first quarter of 2024, sales were $786.5 million, a 10% increase when compared to the same period of 2023. This reflects a $55.9 million contribution from 121 new locations. Our same-store sales, excluding foreign exchange, increased by 2.2%, in the quarter, recognizing the same number of selling and production days when compared to the same period of 2023. Gross margin was 44.8% the first quarter of 2024, compared to 45.7% achieved in the same period of 2023. Gross margin percentage decreased due to several factors, including variability due to performance-based pricing, investments made to support higher demand, and lower contributions from a greater number of new locations. Labor rate increases have added to sales and gross profit dollars. However, margins remain below historical levels. These negative impacts were modestly offset by the benefit of increased internalization of scanning and calibration. Operating expenses for the first quarter of 2024 were 270.9 million or 34.4% of sales compared to 242.4 million or 33.9% of sales in the same period of 2023. Operating expenses as a percentage of sales was negatively impacted by the decline in demand as the cost structure and workforce that Boyd had in place exceeded the level of demand and placed pressure on the operating expense leverage that could be achieved during the first quarter. In addition, operating expense leverage was negatively impacted by inflationary increases not fully absorbed by the lower same-store sales and, as expected, the performance of new locations. Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was $81.7 million, a decrease of 3.5% over the same period of 2023. The decrease was primarily the result of mild winter weather, which impacted demand, including an unanticipated decline in March, as well as reduced gross margin percentage from variability in performance-based pricing and lower contributions from a greater number of new locations. Net earnings for the first quarter of 2024 was $8.4 million compared to $20.8 million in the same period of 2023. Excluding fair value adjustments, acquisition, and transaction costs, adjusted net earnings for the first quarter of 2024 was $9.4 million, or 44 cents a share, compared to $21.2 million, or 99 cents a share, in the same period of the prior year. Adjusted net earnings for the period was negatively impacted by the decrease in adjusted EBITDA, as well as increased finance costs and increased depreciation related to location growth. At the end of the period, we had total debt, net of cash, of $1.2 billion. Debt, net of cash, increased when compared to prior quarter primarily as a result of acquisition activity and increased capital expenditures, including new location startups. In addition, startup locations have resulted in a temporary increase in real estate assets held. 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. During the first quarter of 2024, the company spent $4.8 million on network technology upgrades. The continuing mild weather and resulting low demand environment has impacted demand for services into the second quarter. This, along with strong comparative same store sales, has made it challenging to deliver same store sales growth thus far in the quarter. As is typical during the summer months, the company anticipates miles driven to increase and the claims volume and demand for services to increase. While the company expects claims volume and demand for services to normalize as the year progresses, Boyd is prepared to take steps to address the challenges the business is currently facing should the current softer demand continue. Boyd has made meaningful progress towards our goal of internalizing scanning and calibration services to drive down costs to our customers and to convert a sublet operation to an internal operation. During 2024, the company has increased the amount of scanning and calibration services Boyd is able to perform in-house by increasing its workforce in this area by over 60% and expanding the footprint of states the company is able to serve while continuing to increase the remote services Boyd is able to offer. Given the combination of same-store sales growth and the location growth in 2023, The location grows thus far in 2024, and the commitment of the Boyd team to improving performance throughout the remainder of 2024, the company remains confident that Boyd is on track to achieve its long-term growth goals, including doubling the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales. 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. Creative growth will remain the company's long-term focus, whether it's through organic growth, new store development, or acquisitions. 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. As a growth company, Boyd's objective is to continue to maintain a conservative dividend policy that will provide the financial flexibility necessary to support growth initiatives while gradually increasing dividends over time. The company remains confident in this management team, systems, and experience. This, along with a strong financial position and financing options, positions buoyed well for success into the future. With that, I would now 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 one in your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Steven Hansen, of Raymond James. Your line is already open.

Tim, when you describe things where sales growth is being hard to deliver thus far in the quarter, I'm just trying to interpret that a little more clearly. Is that to suggest you're getting zero growth thus far or that it's still negative?

As you know, it's very early in the quarter, Steve, and so it's too early to get a read on the full quarter. The soft winter weather and actually even continuing mild weather into the spring, fewer hail events, fewer storms, I would say continues to put pressure on our same sort of sales growth opportunity.

Okay, fair enough. And if we think about the decision to make adjustments to the workforce, I'm just trying to understand. I mean, I know labor has been one of your scarcest resources for the past couple of years, right? I have to imagine you're a little bit reluctant to let anything go if you don't have to. So, I mean, have you started to see any sort of inclination that things are turning in May thus far, like specifically through May, or is that too early to tell? And I guess maybe as a derivative point, at what point do you decide to make that decision to start adjusting the workforce size?

Well, I would say that, you know, we expect demand to normalize as miles driven increases through the normal summer driving season. So we're not anxious to make those adjustments, Steve. We're really just prepared to do what we need to do to make sure that we properly manage the business. We will look to make sure that where demand is at levels that they are right now, if we need to move some people around or make some adjustments, we would be prepared to do that. But I wouldn't call it significant at this point. We're still optimistic and expect claim volumes to recover. Okay, very good.

I'll jump back in the queue. Appreciate it. Thanks, Steve.

Your next question comes from Derek Lezard of TD Cohen. Your line is already open.

Good morning. Good morning. This is Cheryl sending for Derek. Thanks for taking our questions. No problem. So our first question is just around demand outlook. What would you say was the biggest factor impacting demand in a quarter? Was it weather? And how concerned are you with respect to the other industry demand drivers? You did call out moderating used car values this quarter. I'm just curious what has changed since the past few quarters.

Yeah, I would say the primary issue by far is the weather and repairable claim volumes were down significantly And it was largely driven by weather. There was an increase in total loss rates, which is related to used car values becoming more in line with where they've historically been. So total loss rates ticked off. But the real issue was the lack of winter weather across many of our markets.

Okay, that's very helpful. And then just looking ahead, if the demand challenge persists, I'm curious what kind of steps would you have to take to mitigate that? I think you did mention labor. I'm curious if there are any other levers that you would expect to pull.

Well, obviously, we'll look at any expenses that we can defer on that won't hurt our business. to try and take appropriate action to mitigate the EBITDA margin loss. In some cases, if demand were not returning, I would say we would be overstaffed in some areas, and we would need to make adjustments to staffing. But as I said to Steve, we're not at that point yet. Miles driven in the first quarter was actually up over prior year. And I would expect it to continue to increase. So I'm anticipating demand will return to normal levels as we get into the summer driving season.

Okay, that's very helpful. And then just one more, if I may, before I reach you. I just wanted to get more clarity on comments around the gross margin. You did call out variability due to performance-based pricing and investments made to support higher demand. And just curious if you could explain those, please. Thank you.

Well, the performance-based pricing is something that we've talked about for a number of years now. And so that's not really unusual, although I would say the impact on our first quarter results was more unfavorable than normal. And that's really just kind of the movement of performance-based pricing up and down on a quarter-to-quarter basis. I don't think there's anything significant that's changed. with the one possibility of during the kind of the worst part of the pandemic, most of that performance-based pricing was eliminated. And as some of it has come back in, that would have an impact year over year. So that's on the performance-based pricing. On the expense absorption, it's really just, I'm sorry, I'm the, go ahead, Jeff.

Yeah, I was just going to say, you know, I think the other part of the question is around margin in terms of what may be some behind some of the margin impacts and I would say there was an element of just productivity, lots of productivity, just due to the fact that we're just not busy in the stores and in all the stores really without having enough throughput, there's inefficiencies that creep in. And so that's part of what's putting pressure on the margin as well.

Okay. That's very helpful. Thank you.

Thank you.

Your next question. comes from Michael Domet of Scotiabank. Your line is already open.

Good morning, Michael. Good morning, Tim. Hey, Jeff. You know, so far the weather in May seems to be at least more, you know, in line to seasonal patterns, especially versus March and April. So just a clarification, when you discuss the same source sales trends so far in Q2, are you referring to, you know, The revenue is through to today or as at the end of April? And, you know, have you noted any improvements so far, you know, in May versus April?

Yeah, Mike, we really are focused on what we know, which is May, or sorry, April, which is what we know so far. And so really that's what we're referring to is what we've seen so far. And it's essentially been, it's going to be a challenge to get to same store sales growth based on what we've seen so far. Okay, so you're not specifically referring to May. Okay. No, but I guess I'd say that May, you know, we really haven't seen anything that would show us in terms of storm activity in May that would really, you know, change what we've been seeing in terms of a trend. And so we're going to have to wait and see until really miles driven picks up. We did not have the carryover that we might normally have during the winter season that would carry us through April and the start of May. So... Really, we're going to be looking for miles driven and more accelerated driving activity to create more volume.

I would also say, Michael, that last year we had had more hail activity in the markets in which we operate than we've seen this year. Even that aspect of some of the drivers of our business seems a little bit lighter this year, which is surprising because it's – There's lots of inclement weather, but we just have not seen as much hail activity this year.

Perfect. Appreciate the comments there. And then you talked about the potential response to costs from slower same-store sales growth. What about a potential response from the strategy for greenfields and brownfields?

You know, I don't think that my perspective on that will change. We still see normal maturing of our newly opened stores, whether they're acquisitions or Greenfield and Brownfield. And as we've discussed, you know, often over the last several quarters, we know those take time to mature, but we've got good experience with watching those mature and get to normal levels of revenue and EBITDA contribution in our business. So I wouldn't allow, you know, short-term what we view to be likely weather-related issues. to get in the way of our long-term strategy.

Perfect. Makes sense. Thanks, guys.

Your next question comes from Kate McShane of Goldman Sachs. Your line is already open.

Good morning. Thanks for taking our question. I know there's just been a lot of discussion on weather and the impact it's having on same-store sales, but We wondered if you could talk about what you're seeing in the competitive environment currently and if there are any competitive pressures that might be emerging as a result.

You know, I wouldn't say that there are any unusual competitive pressures that are new. You know, what I hear from industry sources is that what we've been experiencing is being experienced broadly. And, you know, you can look at other public companies that have reported and commented on kind of similar factors for their results that we're seeing. But, no, I haven't seen any change in the behavior of competitors. No, you know, I think you might be thinking about are there market share shifts or things of that nature, and I would say I have not seen anything like that.

Maybe, Kim, I'll add to that that – What we're seeing is not unusual from what we've had in our past history, although the recent history has been very different. Over the last few years, coming out of the pandemic, we've not had the capacity to be able to handle the volume. But prior to that, there were lots of variations, quarter to quarter, depending on things like weather. And I think our business model holds up very well compared to competitors, based on our ability to drive throughput. and provide high customer satisfaction and high-quality repairs.

Thank you. And is it fair to assume that the underperformance of the newer locations is being affected by this as well, or is there anything else to flag with the newer locations and the underperformance of the newer locations?

I would say there's not much else to flag on it. You can assume that a softer quarter for the business overall would impact all of our operations, including new stores. Having said that, I think we have more newer stores in the mix, more newer single shops in Greenfields and Brownfields than we've ever had. So that has some impact, but it's really not the issue that we're facing. It's really an overall demand issue.

Thank you.

Thank you.

Your next question comes from Chris Murray of ATB Capital Markets. Your line is already open.

Yeah, thanks, guys. Good morning. Good morning. You know, sort of turning it around, it feels like Q2 is going to be a bit of a tough comp and we're going to maybe have to struggle through that. As we think about the second half of the year, So when you think about getting back to kind of normal cadence on same store, is it fair to think that that would put you back in kind of low single digit type of call it historical level of growth? Or is there anything that you're seeing that is structurally going to be different in the industry, assuming you get a normal level of intake?

I don't see anything structurally different, Chris. I think we've got low claims volume right now, obviously, slight uptick in total losses, which could have a corresponding impact on average total cost of repair, just because you're taking some vehicles that a year or two years ago may have been repaired. But the vehicle complexity, more ADAS on newer vehicles, You know, more parts, more sophisticated, more expensive parts on newer vehicles are all tailwinds that have been underway for some time, and that's a trend that can't stop because as the car park, you know, as new cars come into the car park with that equipment and need to be repaired, they will be more expensive to repair than cars that didn't have that equipment.

Okay. And then I guess the other piece of this, too, is that, you know, the same story is kind of returning back to call it historical levels, to get to that kind of call it 15% number that helps drive the doubling. Just thinking about M&A growth and not even single store Brownfield, Greenfield, but actually like larger M&A, there's been some fairly large transactions in this space. as of late, and I'm wondering, you know, your thoughts about maybe getting more into doing acquisitions because, as you said, I mean, if you guys are having these issues, I'm sure other stores are having these issues or other owners are having these issues, so that might open up some opportunity. And then alongside that, you know, I guess the other piece of this is maybe looking – which I know you guys shut down because you just couldn't handle the volume, but if volume is part of the issue, do you revisit that as part of the acquisition or growth strategy?

First of all, on the first question related to maybe larger opportunities, I think we've been pretty clear for the last several quarters that we're open to and interested in larger opportunities as long as they are accretive to us and can be bought at a value that makes sense to us. So we'd be open to participating in virtually any opportunity that comes to the market. We'll remain disciplined so that we don't hurt value, but we are interested in those. So I think you can – I can't tell you that we'll be able to get one done, but we will pursue them. As far as the intake center strategy, I think it's a great question and something that we've been talking about internally. We know the model works. If the lull in demand continues, we'll use all of the levers that we have available to drive incremental demand into our production facilities.

Okay. That's helpful. Thanks. I'll leave it there. Thanks, Chris.

Your next question comes from Gary Ho of Desjardins Capital Markets. Your line is already open.

Good morning, Gary. Hey, good morning, guys. Just wanted to touch on kind of previous question here. Just want to ask about the location ads. So seven that's added kind of quarter to date. That pace is a bit slower than what we've seen in the last year. So just curious to hear, you know, if that's just timing or or are you taking a slower approach just given the milder weather we've had or perhaps kind of market dynamics for deals, if there's any change, multiple valuations, et cetera?

It's simply timing. You know, we've got a great pipeline of opportunities that we're pursuing. We're not slowing down our pursuit of those opportunities because of the soft winter weather. So it's really a matter of time. And you will recall that if you look back at Q3 and Q4 of last year, we had a pretty significant surge of opportunities that we closed on, but we expect to continue to fill and close on deals throughout the year.

Okay, perfect. And then my next question is, I guess one of your peers mentioned that because of the higher insurance premiums, customers have also increased their deductible and not necessarily repairing cars. Have you experienced this and maybe impacting kind of lower ticket repairs? Maybe speak to any read-throughs from the high insurance premiums that you're seeing to your business, if at all.

Yeah, we actually looked at some data in response to that question, and the data we looked at did not show a significant shift in the level of deductibles across policies in force. So we don't really see that as a driver of the short-term lull that we've seen. I know insurance premiums are expensive, but you also need to consider that the cars that are typically in collision repair shops are newer model cars than the overall car park. Most of them are going to have loans, and if you have a loan on a vehicle insurance, you're obligated to to have insurance, you're actually obligated anyway. But, you know, the people that might not carry insurance with lower value vehicles wouldn't end up in our shops anyway.

Okay, that's helpful. And if I can sneak just one more in, just on the scanning calibration, starting to see more active you guys in acquiring those businesses. Can you share kind of what those economics are like, multiples or, you know, how they compare to mom and pops that you acquire on the collision repair side? Any targets you can share with us would be great.

Yeah, I mean, right now, this is Brian. Right now, what we see in the marketplace is because we have the ability to internalize that, and as Tim's described, it shifts it from a, you know, a sublet margin to a labor margin, which is our highest margin category, the returns decrease. The returns are actually very favorable. We're, you know, as we target opportunities out in the marketplace, what we're really looking for is people who have a high concentration of their business with us already to just get that, basically to get that arbitrage. And so it does provide pretty high returns. And I would say even higher than, you know, frankly higher than our average single store acquisitions.

Okay. That's really helpful. Okay. Thanks, guys. Thanks, Gary.

Your next question comes from Krista Friesen of CIBC. Your line is already open.

Hi, Krista. Good morning, Krista.

We'll proceed to the next His name is Daryl Young from Stiefel. Your line is already open.

Hey, good morning, guys. Hi, Daryl. Good morning. I just wanted to dig in a little bit on, I guess, some of the factors you're considering that why demand may stay lower for longer. And I guess it's just a bit perplexing to me why you talk about potentially cutting the cost structure in response to software for longer demand. So is there something there that you're seeing that, you're worried about or thinking about beyond just, you know, the weather because the weather seems pretty transitory? Or is it just your way of kind of telegraphing that margins at current levels are probably not going to stay this low?

Well, I think it's – we don't say that we think that volume is going to remain low. We really expect it to return to normal levels and to, you know, put our business back on the track that it was on. So we're not anticipating that. And I don't think the market's anticipated it. However, if demand did stay soft, I think we'd feel an obligation to make sure that we're managing the business prudently and we'd be prepared to take steps to do so. But that's not what we're anticipating or expecting.

Okay. And then I guess just following on that, on the total loss ratios dynamics, we talked a lot about the used car prices, but is the other side of it just the increasing cost of the average repair that maybe is leading to more write-offs? I think we've seen a long-term trend of total write-offs increasing for the last, effectively, decade. So is that maybe creeping into the story more rapidly? Yeah.

I don't think so. I think, you know, as used car values have normalized, total loss rates have gone back up. I think they're actually not at pre-pandemic levels yet. So I think this is just a normal reaction to used car values normalizing.

Okay, perfect. That's a good color. And then maybe just one last one. I think last quarter on the new location growth and the green-filled, brown-filled, you mentioned you're being very strategic in mapping out where those are being opened. Is part of this to drive a better hub and spoke strategy longer term? And is there an argument that margins could be a step function higher as these stores really open up in earnest over the next few years?

We haven't said that. Certainly it is strategic, and we're looking at placing greenfield and brownfield locations in particular in market areas that give us access to that hub and spoke, the ideal facility for calibration for glass and collision all under one location. We don't need every location to be able to do that, but we do need locations strategically placed to be able to accomplish that. We haven't signaled that we expect higher EBITDA margins over time. We have said that we expect better returns on capital with Greenfield and Brownfield locations, but not necessarily higher EBITDA margins.

Okay. That's great, Tyler. Thanks very much, guys. Thanks, Daryl.

Your next question comes from Brett Jordan of Jefferies. Your line is already open.

Hey, good morning, guys.

Morning, Brett.

Do you have an internal view on where total loss rates are headed? Is there a secular risk that more and more cars will be written off rather than repaired, and we're just going to limit industry volumes as a result of repair cost inflation and value decline?

I don't think that we're not necessarily experts on that, Brett, so I wouldn't say we have an internal view. Total loss rates prior to the pandemic had been gradually increasing. And really, as you know, it's an economic decision for an insurer as to whether they repair a vehicle or buy a replacement vehicle based on the cost of repair versus the value of the vehicle. Newer cars have pretty high value because of the technology on them, which I think allows insurers to invest more in a repair. But it would be difficult to predict exactly where that will fall out.

Okay. And I guess in past years where we've had historically mild winters, like 2017 or 2012, you know, pre-pandemic, how long did that impact last into the year? I guess the volume, the demand that might have been created in an ice storm, would that have been seen through Q2 or Q3? I guess sort of when do we think we were back to ex-hail storms, normal flow relative to weather? Yeah.

You know, I think over many years looking at it, Brett, I would say that we usually rely on strong winter to kick off a stronger Q2. But by the end of Q2 historically, I would say we see, you know, summer driving really being the key component of demand is the quarter progressives. And then Q3 would be pretty normal. So I would say that, you know, the carryover into Q2 is making at least the beginning of the quarter challenging, as we've communicated. But as summer driving picks up, I would anticipate that we would get back to normal in Q3. Okay.

And the housekeeping, did you say of the 2.2 car, how much was price versus car count?

We didn't. We did say that repairable claim volume was down about 8% for the quarter according to industry sources. Okay.

All right. Thank you. Thanks, Brett.

Your next question comes from Tammy Chen of BMO Capital Markets. Your line is already open. Hi, Tammy.

Hi, hello. Hi, it's Riyad. Yeah, thank you for the question. My first question was in relation to the margin. And so, like, if you could quantify how much of the year-over-year decline or quarter-of-the-quarter decline is actually a result of the operational and everything that you've seen, and how much was from the drag of having a lot of startups and technical missions?

I couldn't hear you very well. I know you were asking a margin-related question earlier,

I think the way I interpret it was, is there sort of a breakdown in terms of the impact of the various components affecting gross margin? And I would say we don't typically provide that level of detail. We would comment on things in the size of their significance in terms of the order that we would talk about them.

But other than that, we don't provide any further detail.

Right. So we commented that performance-based pricing was one of the key drivers of the margin change. new stores was, I think, the third component that we mentioned. Does that help clarify your question?

Yeah, that's very helpful. Hopefully you can hear me a bit better now.

Yeah, we can.

Yeah, perfect. Yeah, that's very helpful. Thank you for that. And then in terms of the gross margin, and I'm rebounding on one of the questions that was asked previously as well. So would it be possible – for you to rank in terms of the magnitude of the different elements, or is it also like the same that you've provided in terms of performance-based pricing first than investments to support demand and lower contribution from new locations?

Yeah, that's all the detail that we're providing on that. But those are the three primary drivers in the order of impact. Okay. Yeah.

And could you give us a bit more color on what part of your performance is currently not meeting insurers' KPIs, and what are these investments to support demand?

Well, the investments to support demand are really simply the fact that we are staffed to service a level of demand that is higher than what's available right now, which puts some pressure on margins, just the inefficiency of the workforce. The performance-based pricing really varies quarter to quarter. Not all of it – the performance-based pricing doesn't all indicate poor performance. There's some built-in performance-based pricing even with good performance, and you can mitigate it. So I would say we're performing quite well for our clients, but that doesn't completely eliminate the performance-based pricing.

Okay, great. Thank you. If I could back up.

Your next question comes from Zachary Evershed of National Bank Financial. Your line is already open.

Hello, Zach.

We'll proceed to the next questioner. His name is Steven Hansen from Raymond James. Your line is already open.

Thanks, guys. Just a couple quick follow-ups. As it relates to the calibration ramp-up in particular, was there any drag at all in the P&L or the margin associated with the cost to spool up the operations that you've been ramping? And just as a second part, is it possible to baseline how many states you're now up and running in and where you expect to be by the end of the year?

Yeah. The first question, there actually is not a drag because we know As we add the investments, we know where, you know, the predominant amount of calibration services are, so we can be very surgical about where we add. And it really becomes just a function of how quickly we can add, as we've discussed before. Relative to the next question around the state coverage, we're not preparing or we're not prepared to share that at the moment. But as you know, we're ramping to a place where we want to cover as much of our internal volume over the next two to three years as possible.

Okay, great. And then just one last follow-up is just around the TDP program. I presume it's too early, but I'll ask anyways. Is there any implications to this lower workflow to the broader training and development program internally? Do you think you would want to spool it down or maybe right-size it as we go through the year, add less applicants, or is it still status quo for now until we'll see any more long-term changes if they've come?

Yeah, well, I would say we remain committed to our technician development program. we will consider adjusting the quantity of people on level one as we kind of progress through this slower period of time. But we don't want to, you know, damage our ability to continue to graduate a sufficient number of, you know, skilled technicians out of the program over time. But we do have some ability in the short term to slow it down or to tweak it.

Okay, that's very helpful. Thanks, guys. Thanks, Steve.

Your next question comes from Krista Friesen of CIBC. Your line is already open.

Hi, can you hear me?

We can hear you, Krista. How are you?

Okay, perfect. Good, thank you. I just wanted to follow up on some of the questions. I'm just surprised that... that given weather seems to have been the biggest impact in Q1 and into Q2 here, that it's causing you to kind of reevaluate the cost structure maybe. And is this typical that during difficult times of weather that you feel nimble enough to adjust your cost structure in response to that or – Or is it also taking into account the other factors of used car pricing and total loss rates?

I think we may have communicated something and overstated it. It is not our intent to significantly impact our cost structure based on the short-term softness of the market. What we were really trying to communicate is that if that continued – we would be prepared to take appropriate action. We don't believe that that's appropriate or necessary right now based on a soft winter season, and we anticipate the demand as we get into the summer will return to normal. Now, we've seen, I guess the only other color I would add to it is, you know, we've seen several quarters of very high same-store sales growth. and scrambling to service demand. And when demand slows down or even returns to more normal levels, I think that's when organizations should look at their structure and say, is there any cost that we put in place that isn't necessary to service normal demand, but it's not something that I would say is disruptive or dramatic?

I think the only thing I would add to that is, the only thing I would add to that is, more of our focus is on non-productive labor. I mean, we understand the precious nature of our productive labor. And, you know, as we look to the cost structure, it really is more on the, you know, the front side of the equation, not the back side of the equation, which, again, we're not – at this point, we're not doing anything to disrupt the production capacity within our environment.

Okay. So would you say that – your outlook for the back half of the year is unchanged than, say, what you were thinking about in January for the back half?

I would say that our expectation is that claims volumes are going to normalize and we're going to continue to perform and grow as we have been. We don't know exactly what's going to happen, but we see nothing structural yet. that should change that once we get through the impact of a really mild winter and even a fairly mild weather in the spring.

Great. And then maybe just one on the calibration businesses that you've acquired. Should we think about calibration in the same way you've talked about the collision centers in that you might look to do more greenfield or is that going to be more of a focus on acquisition?

Well, I mean, on the calibration side, I mean, I guess you could consider the adding of a technician to be the, you know, the adding of a tech in a market to be the greenfield. You know, so that is on that side of the equation. That's how I would think about it. From an acquisition perspective, as I said earlier, I mean, we're really targeting – you know, acquisitions as a strategy to get into the markets more quickly. So as somebody has a significant concentration of business with us, we have the option to either enter a market by adding technicians, i.e. a greenfield, or enter a market more quickly by acquiring the one that does business with us. And, you know, the economics are positive either direction. So, I mean, that's That's how I would interpret the, you know, that opportunity.

Yeah, I might just add to that. One of the benefits of some strategic acquisitions is that it could bring additional leadership to help us grow and manage that calibration operation as it expands. But we don't need to do acquisitions to grow it. I think we commented last quarter that the availability of technicians to service that kind of work is not a constraint like it is on the collision repair side. And most of the growth that we're seeing is organic or what Brian referred to as greenfield.

Perfect. And if I can just sneak one more in here, and you may have mentioned it before, but the softness in demand, is that generally speaking across the whole network, or are there certain regions where it's noticeably softer than others?

I would say there's general softness, but we did see more of it in kind of a typical cold weather, you know, snow and ice type markets.

Perfect. Thanks.

I'll jump back in the queue. Thanks, Krista.

Your next question comes from Zachary Evershed of National Bank. Your line is already open.

Good morning, everyone. We've got tech issues wrapping up the call here. So where do you think we are on the wage front in terms of achieving a balanced technician supply? And what's the latest trend in carrier pricing adjustment willingness?

We've continued to see a steady flow of carrier price increases during the first quarter that would be consistent with, it might have even been slightly above what we've been seeing prior to that. So I think we're still receiving price. If you follow the carriers, you'll see that they've gotten price by and large in most states that they operate in and have returned to profitable books of business in most cases on the auto side. So we expect to continue to pursue price increases because our labor margins have still not normalized. And while the softness takes away some of the sting of not having enough technicians, we still expect over time that we're going to need to bring in and retain more people in the industry.

And any speculation on the gap between

wages now and what's required to achieve that uh we haven't quantified that in the past you know we've made progress against the gap that we have but more progress needs to be made gotcha thanks and just one last one i guess asking daryl's questions slightly differently

We have seen normalizing used vehicle prices for a while now. So any difference in this quarter's decline versus prior declines that would have affected the total loss rate unduly?

You know, nothing that I'm aware of. If there was anything, it may be that the lack of severe weather and snow and ice may have had somewhat of an impact. But there's nothing that I'm aware of that's really – changed in that.

That's helpful. Thanks. I'll turn it over.

There are no further questions at this time. I would hand over the call to Mr. Tim O'Day for closing comments. Please go ahead.

Very well. Thank you, operator. And thanks again to all of you for joining our call today. We'll look forward to reporting our second quarter results in August. Have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.