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.