Boyd Group Services Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 12 speakers on the call.

Operator

Good morning, everyone. Welcome to the Boyd Group Services Inc. 2nd Quarter 2024 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.

Operator

The 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 SEDAR Plus database found at sedarplus. Ca. 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 Boyd Group Services Inc.

Operator

Please go ahead, Mr. O'Day.

Speaker 1

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, however, relinquish the title of President. This change is being made to position Bryan with company wide operating oversight, responsibility and influence.

Speaker 1

We released our 2024 Q2 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 boyntgroup.com. Our news release, financial statements and MD and A have also been filed on SEDAR Plus this morning. On today's call, we'll discuss the financial results for the 3 6 month periods ended June 30, 2024 and provide a general business update. We'll then open the call for questions.

Speaker 1

During the Q2 of 2024, Boyd recorded sales of $779,200,000 adjusted EBITDA of $89,600,000 and net earnings of 10,800,000 dollars As reported by industry sources, repairable claims continued to be down approximately 7% during the Q2 of 2024. By contrast, the company's same store sales experienced decline of only 3.2%, demonstrating Boyd's ability to gain market share even in a difficult environment. Under normal conditions, the decline in repairable appraisals due to ADAS and higher total loss rates will 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 2nd 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.

Speaker 1

This resulted 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 Q2, respectively. For the Q2 of 2024, sales were 779,200,000 a 3.4% increase when compared to the same period of 2023. This reflects $50,900,000 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 2nd quarter recognized the same number of selling and production days when compared to the same period of 2023.

Speaker 1

Gross margin was 45.6% in the Q2 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 sales and gross profit dollars. However, margins remain below historical levels. Operating expenses for the Q2 of 2024 were $265,900,000 or 34.1 percent of sales compared to $247,300,000 or 32.8 percent of sales in the same period as 2023.

Speaker 1

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 $89,600,000 a 6.1% decrease over the same period in 2023. The decrease was a result of lower same store sales, partially offset by improvements in gross margin percentage. Net earnings for the Q2 of 2024 was $10,800,000 compared to $26,300,000 in the same period of 2023. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the Q2 of 2024 was $11,900,000 or $0.56 per share compared to $27,000,000 or 1.26 dollars per share in the same period of the prior year.

Speaker 1

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 6 months ended June 30, 2024, sales totaled $1,600,000,000 an increase of 97 $500,000 or 6.6 percent when compared to the same period of the prior year, driven by 109,200,000 dollars 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 0.7 percent for the 6 months ended June 30, 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 percent of sales in the comparative period, while gross profit increased to 708,000,000 dollars from $669,700,000 when compared to the same period of the prior year.

Speaker 1

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 $47,100,000 compared to the same period of the prior year, primarily as a result of location growth and incremental expense investments.

Speaker 1

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 6 months ended June 30 was $171,300,000 compared to $180,100,000 in the same period of the prior year. The $8,800,000 decrease was primarily the result of declines in repairable claim volumes for services. We reported net earnings of $19,200,000 compared to $47,100,000 in the same period of the prior year. Adjusted net earnings per share decreased from $2.25 to 1 primarily attributable to the decrease in adjusted EBITDA as well as increased finance costs and increased depreciation related to new location growth.

Speaker 1

At the end of the period, we had total debt, net of cash, of 1,200,000,000 dollars 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 start ups. In addition, start up 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 start up 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.

Speaker 1

Excluding these expenditures, the company spent approximately $31,900,000 or 2 percent of sales on capital expenditures during the 6 months ended June 30, 2024. The company spent $28,700,000 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 Q2 of 2024. The continued claim softness has impacted demand for services thus far in the Q3, which is resulting in similar same store challenges that we experienced during the Q2 of 2024.

Speaker 1

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 1 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 start up sites experience a longer development cycle and ramp up period when compared to single shop acquisitions, these facilities offer a number of advantages.

Speaker 1

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.

Speaker 1

As a growth company, Boyd's objective continues to be maintained 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?

Operator

Thank you. And your first question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.

Speaker 2

Great. Good morning, Sabahat. Good morning. This kind of theme of folks now bringing their cars for repair seems to come up a lot across a couple of calls across the ecosystem in autos. From your perspective and sort of the confidence that you have on 2025, is your expectation that as the macro improves, whether it's early, mid, kind of just through 2025 and onward, that the pattern of bringing cars in for repair when damaged and making insurance claims, that sort of normalizes.

Speaker 2

So is that something that we should read as being just tied to the macro environment and pocketbooks being a little bit tight?

Speaker 1

Yes, absolutely. I think it's a combination of the probably some concern over the economic environment, Insurance premiums haven't gone up significantly over the past couple of years and a reluctance on the part of some vehicle owners to file a claim in part for fear that it may further increase their insurance rates. I would say that as over the years as we've seen periods of economic uncertainty, It's pretty common for people to defer a claim or to cash out a claim rather than repair it. But generally that behavior bounces back the other direction over time.

Speaker 2

Okay. And then I guess just the impact of this sort of with your insurance partners, I guess is it making just the volumes going down, the cost for them may be going down. Is that making pricing discussions any easier? Or how are they reacting to this dynamic?

Speaker 1

I don't think there's been a significant change in that dynamic. Certainly, it would be easier for them to make pricing concessions when they're profitable. And if you look at those that have reported have had significant swings in profitability. So we're going to continue to aggressively pursue price increases to make sure that we're treated fairly in the marketplace. And we really have never hesitated on that.

Speaker 1

That's been ongoing.

Speaker 2

Great. And then just one last quick one on the scanning and the calibration side as you continue to internalize that. Is that something that when we look ahead to the next 1, 2, 3 years, something you build at a steady pace or could there come inflection point where you maybe dedicate a larger proportion of your CapEx and just maybe OpEx to getting that internalization going? Thank you.

Speaker 1

Yes, I would say that we and what we didn't comment at specifically this quarter or last quarter, we did comment on the significant growth in employee count we'd had in that business. And we continue to grow up pretty rapidly. What we've been saying is it'll take us 2 to 3 years to get to the point where we're servicing the vast majority of that business. And I would say that still holds true, although we're interested in accelerating that to the extent that we can probably properly manage that growth. We've made great progress on that.

Speaker 3

Thanks, Pavel. Appreciate the color.

Operator

Thank you. And your next question comes from the line of Christa Friesen with CIBC. Please go ahead.

Speaker 4

Hi, thanks for taking my question. I was just wondering, how are you thinking about the technician development program at this point, just in terms of maybe pulling back on it for cost savings or maybe the labor environment isn't as tight. So just how are you thinking about that through this year and next year?

Speaker 5

Yes. Kristen, it's Brian. Look, we continue to be committed to the technician development program. We have pulled back on the level 1 portion of that program, which is, as you well know, is where the predominant amount of cost is just based on the environment that we're in right now. But in the long run, we believe that that's still the right way for us to develop the next generation of technicians in our business and remain very committed to as volume starts to come back remain very committed to continuing to grow that program.

Speaker 4

Okay, great. And just the comment on pulling back kind of at the level one part of it. Did that start in Q3 or did you kind of start to pull back a bit in Q2?

Speaker 5

We pulled back a bit in Q2 as well. We're really focused on graduating the 2s and 3s that we have in the program right now. And right now given the volume situation, it's much more it's better for us to keep feeding the techs that we have, our body techs that we have in the shops today as opposed to spreading that out across more people.

Speaker 1

I'd just add to that Christa that the we talked even throughout last year about the fact that we were dissatisfied with the level of turnover in the first level of the program, which is the most expensive level. So some of the fine tuning we've done is really to be more selective. You'll recall that when we built this program up 3 years ago, we went from almost no one in it to several 100 people over a couple of years. And I think this pause has given us the ability to be more selective at who goes into level 1, which will result in more level 1 trainees getting to level 2 and ultimately graduating, at a lower overall program cost.

Speaker 4

Okay, great. That makes sense. And just one last one for me. On the acquisition front, as you noted, running at a bit of a slower pace this year, should we think of this pace as kind of a good run rate for the rest of the year?

Speaker 1

No, I wouldn't say that. I think that acquisitions have always been lumpy and it's hard to predict exactly when deals will get done. But I feel really good about our pipeline and I would expect to see stronger activity in the last half of the year than we've seen in the first half of the year as we successfully close on deals. We also are and I mentioned this in my prepared comments, but we are building our pipeline of greenfield and brownfield facilities. And we feel really good about what that will do for us in the long run-in terms of giving us the facilities and the capacity we need to service all aspects of our business and markets.

Speaker 1

So we remain very committed to growth and still see great opportunity.

Speaker 4

Okay, perfect. Thanks. I'll jump back in the queue.

Speaker 1

Thank you.

Operator

Thank you. And your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

Speaker 6

Yes. Good morning, guys. Good morning, Steve. First question is just around the same store sales growth. Can you the risk of maybe being too granular, can you maybe just give us a sense for the cadence on how it performed throughout 2Q?

Speaker 6

Just trying to get a sense for whether it had sort of bottomed earlier in the period or intra period or where how things have basically trended through that period. Just to give us a bit of insight into the Q3 recognizing, of course, that you're suggesting similar levels?

Speaker 1

Yes. I wouldn't say that we saw a trend that would be a clear down X, down Y, down Z that was favorable. I think the lower claims volume for the reasons that I commented on earlier were fairly stable through the quarter.

Speaker 6

Okay, that's helpful. And then just if I'm jumping back over to the margin side. In the last quarter, performance based pricing was a bigger hit. You've recognized that there's less of an impact there, but it sounds like it's still part of a drag on margins. How should we think about sort of that specific element going forward on a margin basis?

Speaker 1

Yes. I think that beginning in Q3 of last year, we had an uptick in performance based pricing. So there may have been a modest headwind in Q2 as a result of kind of lapping that change year over year. But overall, our performance with clients was excellent the Q2 and that had a favorable impact for us. Helpful.

Speaker 1

And just one last one,

Speaker 6

if I may, is just around it strikes me that the performance across the continent is actually quite diverse or variable. And at the same time, it sounds like the larger players, yourselves included, are taking share. I'm just trying to get a sense for whether or not you think that creates an opportunity to accelerate M and A as the pressure becomes more apparent on the smaller players? Or does that present too much of a risk in a pausing environment where you might be adding capacity that's not necessarily full and hard to fill. So to try to weigh those 2 off to each other pressures building, it should create opportunity, but

Speaker 1

It's a really good question. I think we need to continue on our planned level of growth to build our business and accomplish our goals, but be sensitive to the fact that we have a challenging short term environment. But we're not going to act in a short term manner as it relates to growth because of what we're facing today. We remain committed to growing units and ultimately to driving organic growth in whatever way we can. So I don't think it really changes our plan at all.

Speaker 6

Okay. Appreciate the time. Thank you.

Operator

And your next question comes

Speaker 7

from the line of Daryl

Operator

Young with Stifel. Please go ahead.

Speaker 8

Hey, good morning. Good morning Daryl.

Speaker 9

Just wanted to touch on margins and specifically, I'm not sure if you can give this level of granularity, but what would the 4 wall economics look like for the mature collision repair locations? And just trying to get a sense of how are they trending from a margin and profitability perspective relative to 2019? And I guess what I'm really getting at is just trying to strip out the impacts of a lot of these corporate level initiatives around greenfield ramp ups and scanning and calibration and the technician development program, but just sort of drilling down to the 4 wall economics of those mature locations? Yes, sure. I can take that one.

Speaker 9

It's Jeff here. Yes, I would say certainly it's part of the answer is that the drag from the new locations is affecting. And if you take that out, it does make a difference in terms of getting us back to where we were if you just look at the 4 wall of the existing ones. But it wouldn't get us all the way there. I would say it might get us about halfway of the distance.

Speaker 9

So there's still some work to be done in terms of getting our leverage at the right level for the existing stores as well.

Speaker 1

Got it. Okay.

Speaker 9

And then in terms of Boyd's thinking around the ADAS headwinds, I think in the past you said it's about 100 basis point impact annually of the ramp up of the new technology. Is that something you expect to accelerate in the years ahead? Or is that sort of 100 basis point impact annually something you expect to be stable for the next few years?

Speaker 1

Yes. The 100 basis points is really miles driven going up by about 1 point a year and ADAS for the next several years having likely around a 2 point impact netting to that 100 basis points. And I don't see that accelerating. In some ways, the lack of new car sales may even slow it a bit. But we do expect that as that unfolds, the cost of repair because of those systems will more than offset the decline in claim volume per mile driven.

Speaker 2

Got it. Okay. That's helpful. Thanks guys.

Speaker 1

Thanks, Joe.

Operator

Thank you. And your next question comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Speaker 1

Good morning, Tammy.

Speaker 7

Hi, guys. Good morning, Tim. Yes, so a couple of questions from my end. First is, I'm just curious, the volume you saw, so industry claim volume down about 7% in the quarter. Would have trace in there too.

Speaker 7

So I'm just wondering, is it fair to say your volumes in Q2 was similar to the industry decline or was it not as bad?

Speaker 1

No, I wouldn't say that. It's interesting that when you take the 7% reported repairable claims volume, that is further eroded by claims that are made where people choose not to repair. So the 7% is the repairable claims filed, not necessarily what was offered up to the collision industry for repair to the extent that people choose to defer or not repair at all. We also saw a pretty significant softening of average repair cost increase during the quarter. Some of that was likely market, some of it was impacted by our own actions of increasing the use of cost effective alternative parts, internalizing scanning and calibration services, which allows us to deliver it at a lower cost for our customers, and an increase in our tendency to repair, particularly as it relates to plastic repairs, which we have a committed initiative that you can see in our ESG report to drive plastic repairs up.

Speaker 1

All of those drive cost down for our customer, although they shift to labor operations or a higher margin alternative part. So it is generally favorable for gross margin. So in the environment that we were in, while I'm really disappointed with the same store sales decline, I think our teams actually did a pretty good job of taking advantage of what was available in the market.

Speaker 7

I see. Okay. So the volume offered up for to the repair shops sounds like it was lower than that. Okay, that's helpful to understand. And I remember, just 3 or so months ago on your Q1 call, I think at the time, you said you weren't really seeing this consumer behavior dynamic that it was more so the mild winter weather.

Speaker 7

So are you saying at some point in the second quarter, your network saw more of this consumer behavior come to fruition. And I noticed you're describing it as deferral. So do you think that this part will come back and we'll have some catch up when the macro part improves?

Speaker 1

Yes. Well, there are 2 questions here. One is, did the consumer behavior change starting Q2? And I would say, looking back now, our assessment is that it started before that, but we couldn't attribute it to that. We didn't have any information that would allow us to attribute to it.

Speaker 1

So we believed the majority of it was weather related, which I do think we still believe that the majority of the impact in Q1 and Q2 was weather related. But this consumer behavior change is causing some disruption. As for deferred or not repaired, I would say historically, some portion of those claims will ultimately be repaired, but some will probably just not be repaired and there will be damaged vehicles that will never be addressed by the collision repair market.

Speaker 7

Got it. And last one for me is the Q3 so far, so we should take that as the it's not gotten worse sequentially, it's similar pace of headwinds as you saw in Q2?

Speaker 1

That's what we've seen thus far, yes.

Speaker 7

Okay. Thank you.

Speaker 1

Great. Thanks, Tammy.

Operator

And your next question comes from the line of Derek Lessard with TD Cowen. Please go ahead.

Speaker 8

Yes. Good morning,

Speaker 3

Tim, and congratulations, Brian. I just I actually had a question regarding the management change and maybe if you could add some color to, I guess the thinking behind that decision?

Speaker 1

Sure. I think just as part of growing Brian's responsibility and impact on the organization, I as well as the Board felt it was appropriate to expand his area of responsibility to allow him to exert the same influence over our broader business that he has over our U. S. Collision business. And while you may not feel it in some of our results, I can tell you that we've made some great strides in our Collision business over the past couple of years that I'm pretty proud of.

Speaker 1

So I think that that's really the primary reason for it. And I'm looking forward to working with Brian in his new role to continue to drive the business.

Speaker 3

Okay. And just maybe one last one for me. I was curious about how your backlog has trended so far and how you feel about the size of your labor force compared to the backlog and volume?

Speaker 1

Well, we it pains me to say it, but we have labor capacity that we're not fully utilizing now. And that's pretty unfamiliar territory with us. Having said that, when we analyze it, I would say that the backlogs that we see in the business are pretty consistent with what we were experiencing prior to the pandemic. So this isn't new territory for us, but we need our teams to focus on taking care of our customers, making sure that we're delivering for our insurance clients and capturing opportunities that come available to us more aggressively than what we've had to as we've gone through the significant surge in demand. But this is territory that we need to change our behavior to take advantage of it or to make the most of it.

Speaker 1

But we have good experience in this.

Speaker 3

Thanks everybody and good luck.

Speaker 1

Thanks Derek.

Operator

And your next question comes from the line of Gary Ho with Desjardins. Please go ahead.

Speaker 1

Hi, Gary. Hi, Gary.

Speaker 10

Hey, good morning. So my first question, just on going back to the same store sales growth, you still expect that to be down year over year in Q3 so far. Just wondering what environment do you think it will take you to move that back to the positive territory? Is it stabilization in the used car prices, total loss rates or stabilization in kind of insurance premiums? Just wondering what variables we should be tracking to see that inflection point?

Speaker 1

I'm not sure I have a great answer for you on that. I mean, the certainly, as we begin to lap the consumer behavior change, you would expect that we would start to see more normal growth in the market. There is no question that the weather impact in Q4 and Q1 were pretty meaningful and I wouldn't expect that to recur. Even in Q2, we experienced less cat volume, like hail volume, than we had in the prior year. So there were a few different headwinds that are unusual.

Speaker 1

But I would expect as we lap the consumer behavior change, which looking back, I think probably began in Q4, maybe was most pronounced in Q1, that we'll start to see a return to more normal patterns.

Speaker 10

Okay. That's helpful. And then my next question, just on the location adds. I know you year to date, you've added 30 locations with 5 that are considered startups, which is lower than the mix for startups last 2 years. I'm guessing you have some better line of sight in terms of startups like this more controllable on your side.

Speaker 10

So as you look out the next kind of 12 months, should we see more of those looking out? Any color you can provide?

Speaker 1

Yes. I think you the next 12 months is a pretty short period of time. We have a number of them in our pipeline that will open up over the next 12 months. But we also have a very concerted effort to identify and build out more of those. So and I know we've commented on this in the past, but we expect greenfield development and brownfield to be a higher portion of our mix of growth in the future years than it has been historically.

Speaker 10

Got it. And then just maybe just last one, high level, just given the softer same store sales growth environment, has that impacted the M and A valuation at all, just whether that's single shop or MSOs by any chance? Just want to get an update on that front.

Speaker 1

I would hope that it does, but I can't tell you that we've seen a material impact or change in that. But I also think it takes time for sellers to adjust to a new market. But we'll certainly be disciplined and looking for opportunities to pay fair valuations given the market environment.

Operator

And your next question comes from the line of Bret Jordan with Jefferies. Please go ahead.

Speaker 8

Hey, good morning, guys. Good morning, Brett. On the, I guess, the consumer demand change, do you see that a lot of deductibles have been increased to offset the higher insurance premiums and maybe with a higher deductible, we've just taken out the low end repair? Or is it just

Speaker 1

I didn't get that data this quarter, Brett, but I did get it last quarter. And while there has been a bit of a creep up in the deductibles, $500,000 moving to $1,000 moving to $2,500,000 It didn't look that significant. So I actually don't think that that's a primary driver of it. I think it's more likely that people are either concerned about their jobs or concerned about the economy or concerned about filing a claim and having higher insurance premiums even more than what they've had to absorb over the past 18 months.

Speaker 8

I guess on that same sort of trend then, do you see consumers coming in and getting an appraisal and then pocketing the check and not coming back for the repair?

Speaker 1

In talking with our teams in the stores, they are telling me that they're seeing more of that. They're also seeing more customers come in with repairs that are in excess of their deductibles and paying out of pocket to avoid having to file a claim.

Speaker 8

Okay. Those are probably

Speaker 1

on the edge, but

Speaker 3

Yeah. Okay.

Speaker 8

And then on alternative parts mix, you sort of called out things that were driving margin. What's the dollar spend in alternative parts in average repair now?

Speaker 1

We don't disclose that. CCC provides some data on that. J. Rice:] Yes. We've seen a meaningful increase in our mix of aftermarket U.

Speaker 1

S. Over the past quarter year over year in the quarter. Some of that is driven by a large U. S. Insurer that shifted their policy toward aftermarket parts or the use of aftermarket parts.

Speaker 1

Some of it is just our teams are getting even better at identifying and using parts to keep repair costs down for our customers.

Operator

Thank you. And your next question comes from the line of Zachary Evershed with National Bank Financial. Please go ahead.

Speaker 8

Good morning, Jack. Good morning, everyone.

Speaker 11

So as used vehicle prices come down, what do you think the worst case scenario is for spiking total loss rates and how does that play out in Boyd's same store sales growth and margins?

Speaker 1

Well, the higher total loss rates are definitely part of the drop in repairable appraisals. It probably accounts for, I think it was 1.6 points of the 7 point drop in repairable appraisals. And that's directly tied to the decline in used car values. So it certainly has an impact. It probably has an impact on our average cost of repair as well because some of those would have been higher value repairs.

Speaker 1

I would expect total loss rates if you looked over a very long period of time, they've kind of crept up gradually. We've gone through a cycle of a significant downturn in total loss rates as used car values ramped up and then ticking back up to pretty close to historical levels or pre pandemic levels now, maybe even slightly above. It's hard to predict, but I don't think total loss rates are going to move dramatically. And so I would expect it to continue to have a small gradual impact, but be offset by increase in miles driven and increasing claim cost.

Speaker 11

That's good color. Thanks. And then what's the impact on the network of Hurricane Debbie thus far?

Speaker 1

We haven't fully assessed it. I can tell you that there it wasn't as impactful from a flood standpoint, I'm told, as what many hurricanes are. There was probably more wind damage, which is it's probably better for us. Flood damage doesn't generate much more for the collision repair industry, but wind damage and trees and debris can impact it. So, yes, I would expect that we'll have some favorable impact on the markets as it came through.

Speaker 11

Thank you very much. And then last one for me on Brian's expanded responsibilities. Tim, do you feel that frees up bandwidth for you to address other issues?

Speaker 1

Yes, I think it does. It will free up some time for me to focus on kind of our long term strategic direction. One thing that I plan to spend a lot of time on is our one company strategy, which is really important to us. And I also think that the way we're organizing ourselves, we're getting the right leadership in place to drive some things that will be very good for our business. We see synergy opportunities both with our Auto Glass business and our calibration business.

Speaker 1

And those are key areas that, as you know we've spent a lot of time talking about over the past couple of years. We've made great progress and I think we have more room to make progress in those areas and this will allow us to do that.

Speaker 11

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

Speaker 1

Thanks, Zach.

Operator

Thank you. And there are no further questions at this time. I would like to turn it back to Mr. Timo Day for closing remarks.

Speaker 1

All right. Thank you everybody for joining us on today's call. I appreciate your questions and your investment in Boyd and look forward to giving you an update when we report Q3 in November. Have a great day.

Operator

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.

Powered by Quartr

Key Takeaways

  • Leadership update: Brian Kaner was appointed President and Chief Operating Officer, expanding his oversight to company-wide operations while Tim O’Day remains CEO.
  • Sales & market share: Q2 sales reached $779.2 million (+3.4% YoY) with same-store sales down only 3.2% despite a 7% industry decline in repairable claims, demonstrating Boyd’s ability to gain share.
  • Margin improvement: Gross margin rose to 45.6% in Q2 (from 44.8% in Q1) and adjusted EBITDA margin increased to 11.5%, driven by internalizing scanning/calibration, a repair-first strategy, and greater use of cost-effective alternative parts.
  • Earnings pressure: Adjusted EBITDA fell 6.1% YoY to $89.6 million and adjusted net earnings declined to $11.9 million ($0.56/share) due to lower same-store volumes, higher finance costs, and depreciation from store growth.
  • Growth strategy: Despite near-term demand softness and same-store sales headwinds into Q3, Boyd added 30 locations YTD, plans to accelerate greenfield and brownfield development, and remains committed to doubling its 2019 sales by 2025 through organic and acquisitive expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Boyd Group Services Q2 2024
00:00 / 00:00