Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services, Inc. Second Quarter 2024 Results Conference Call. Listeners are reminded that certain matters discussed in today's conference call are answers that may be given to questions as 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 VOID's annual information form and other periodic filings and registration statements, and you can access these documents at CDERplus database found at cderplus.ta. I'd like to remind everyone that this conference call is being recorded today, Thursday, August 8, 2024. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of VOID Group Services, Inc., Please go ahead, Mr. O'Day.

Thank you, Operator, and good morning, everyone, and thanks 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, who I'm pleased to announce has been appointed President and Chief Operating Officer of Boyd Group Services, Inc. In his expanded role, Brian will have operating responsibility for the entire company. Concurrent with this change, I will remain Chief Executive Officer of However, relinquish the title of president. This change is being made to position Brian with company-wide operating oversight, responsibility, and influence. We released our 2024 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 Plus this morning. On today's call, we'll discuss the financial results for the three and six-month periods ended June 30th, 2024, and provide a general business update. We'll then open the call for questions. During the second quarter of 2024, Boyd recorded sales of $779.2 million, adjusted EBITDA of $89.6 million, and net earnings of $10.8 million. As reported by industry sources, repairable claims continued to be down approximately 7% during the second quarter of 2024. By contrast, the company's same-store sales experienced a decline of only 3.2%, demonstrating Boyd's ability to gain market share even in a difficult environment. Under normal conditions, the decline of repairable appraisals due to ADAS and higher total loss rates would be more than offset by the increased miles driven and increased costs of repair. However, weather-related factors, changes in consumer behavior due to economic uncertainty and higher insurance premiums resulted in the deferral and non-filing of claims, which further negatively impacted repairable appraisals in the second quarter. The internalization of scanning and calibration services, progress in Boyd's repair-first strategy, and focus on the use of cost-effective alternative parts delivered strong value by lowering repair costs for the company's customers, and consequently reduced sales that could have otherwise been achieved while benefiting gross margin percentage. This resulted in a significant sequential improvement in gross margins and adjusted EBITDA as a percentage of sales, moving from 44.8% and 10.4% in the first quarter to 45.6% and 11.5% in the second quarter, respectively. For the second quarter of 2024, sales were $779.2 million, a 3.4% increase when compared to the same period of 2023. This reflects $50.9 million of incremental contribution from 109 new locations. As mentioned earlier, our same-store sales, excluding foreign exchange, decreased by 3.2% in the quarter, although repairable claims continued to be down approximately 7%. The second quarter recognized the same number of selling and production days when compared to the same period of 2023. Gross margin was 45.6% in the second quarter of 2024, compared to 45.5% achieved in the same period of 2023. Gross margin percentage benefited from increased scanning and calibration, higher parts margins, improved glass margins, and improvements in performance-based pricing. Labor rate increases have added to sales and gross profit dollars. However, margins remain below historical levels. Operating expenses for the second quarter of 2024 were $265.9 million, or 34.1% of sales, compared to $247.3 million, or 32.8% of sales in the same period as 2023. Operating expenses as a percentage of sales was negatively impacted by the decline in same-store sales and new locations, which contributed sales but with a higher operating expense ratio. Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was $89.6 million, a 6.1% decrease over the same period in 2023. The decrease was the result of lower same-store sales, partially offset by improvements in gross margin percentage. Net earnings for the second quarter of 2024 was $10.8 million compared to $26.3 million in the same period of 2023. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the second quarter of 2024 was $11.9 million or $0.56 per share compared to $27 million or $1.26 per share in the same period of the prior year. Net earnings and adjusted net earnings for the period was negatively impacted by the decrease in adjusted EBITDA, as well as the increased finance costs and increased depreciation related to location growth. For the six months ended June 30, 2024, sales totaled $1.6 billion, an increase of $97.5 million, or 6.6%, when compared to the same period of the prior year. driven by 109.2 million incremental contributions from 132 new locations that had not been in operation for the full comparative period. Our same store sales, excluding foreign exchange, decreased by seven-tenths of a percent for the six months ended June 30th, recognizing the same number of selling and production days when compared to the same period of the prior year. As reported by industry sources, repairable appraisals were down declining 7% to 8% on a year-over-year basis. Gross margin decreased to 45.2% of sales compared to 45.6% of sales in the comparative period, while gross profit increased to $708 million from $669.7 million when compared to the same period of the prior year. Gross margin percentage decreased due to several factors, including variability due to performance-based pricing, and lower contribution margins 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 and improved glass margins. Operating expenses increased 47.1 million compared to the same period of the prior year, primarily as a result of location growth and incremental expense investments. In addition, new locations contributed to sales, but with a higher operating expense ratio. Closed locations lowered operating expenses by 700,000. Adjusted EBITDA for the six months ended June 30th was 171.3 million, compared to $180.1 million in the same period of the prior year. The $8.8 million decrease was primarily the result of declines in repairable claim volumes for services. We reported net earnings of $19.2 million compared to $47.1 million in the same period of the prior year. Adjusted net earnings per share decreased from $225 to $1. The decrease in adjusted net earnings per share primarily attributable to the decrease in adjusted EBITDA, as well as increased finance costs and increased depreciation related to new 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 the prior quarter, primarily as a result of acquisition activity and increased capital expenditures, including new location startups. In addition, startup locations have resulted in an increase in real estate assets. The company's strategy has been not to hold real estate except where necessary for growth opportunities. Certain startup locations necessitate short-term holding of real estate until the build is complete and operations have begun. 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% of sales. Excluding these expenditures, the company spent approximately 31.9 million or 2% of sales on capital expenditures during the six months ended June 30th, 2024. The company spent 28.7 million or 2% of sales on capital expenditures excluding those related to acquisition and development during the same period of 2023. The company has a number of initiatives underway to ensure the business is well positioned for long-term success. Boyd has made progress in improving gross margins and keeping costs down for the company's customers in the second quarter of 2024. The continued claim softness has impacted demand for services thus far in the third quarter, which is resulting in similar same store challenges that we experienced during the second quarter of 2024. While claim volumes and demand for services are currently below prior year levels, Boyd views these as short-term trends and remains highly confident in the underlying fundamentals of the business over the longer term. On a year-to-date basis, Boyd has added or acquired 30 new locations. While this activity is running at a slower pace than was the case one year ago, opportunities, and Boyd's commitment to growth remain. The company has a robust pipeline of new location growth, including greenfield and brownfield development sites. While startup sites experience a longer development cycle and ramp-up period when compared to single shop acquisitions, these facilities offer a number of advantages, and as a result, the company plans to continue increasing the proportion of growth using this approach. Despite the recent same-store sales growth challenges, 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 21 to 25 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. Accretive 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 continues to be 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 its management team, systems, and experience. This, along with a strong financial position and financing options, positions Boyd for success well into the future. With that, I would now like to open the call for questions. Operator?

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. And if you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the star followed by the number two. One moment, please, for your first question.