BOYD GROUP SERVICES INC.
INTERIM REPORT TO SHAREHOLDERS
First Quarter and Three Months Ended March 31, 2024
BOYD GROUP SERVICES INC.
REPORT TO SHAREHOLDERS
_____________________________________________________________________________________________
To our Shareholders,
First quarter results were disappointing, with sales of $786.5 million, Adjusted EBITDA1 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 appraisals were down 8% during the quarter, with a greater share of 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.
Total sales in the first quarter of 2024 were $786.5 million, a 10.0% increase when compared to the $714.9 million achieved in the same period of 2023, with same-store sales increasing 2.2% and new locations that were not in operation for the full comparative period generating $55.9 million of incremental sales. Demand for services and the associated level of same-store sales growth that could be achieved during the first quarter of 2024 was significantly impacted by the decline in demand, particularly during the month of March.
Adjusted EBITDA for the first quarter of 2024 was $81.7 million, or 10.4% of sales, compared with $84.7 million, or 11.8% of sales in the same period of 2023. The $3.0 million decrease was primarily the result of the mild winter weather which impacted demand for glass and collision repair services. 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. In addition, Adjusted EBITDA was impacted by the reduced gross margin percentage from variability in performance based pricing, investments made to support higher demand, and lower contributions from a greater number of new locations.
BGSI posted net earnings of $8.4 million in the first quarter of 2024, compared to $20.8 million in the same period of 2023. Impacting net earnings were acquisition and transaction costs and fair value adjustments on contingent consideration. After adjusting for these items, Adjusted net earnings for the first quarter of 2024 was $9.4 million or 1.2% of sales. This compares to Adjusted net earnings of $21.2 million or 3.0% of sales in the same period of 2023. 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. Adjusted net earnings for the three months ended March 31, 2024 was $0.44 per share, compared to $0.99 per share in the same period of 2023.
With respect to the balance sheet, at March 31, 2024, BGSI held total debt, net of cash, of $1,163.8 million, compared to $1,114.5 million at December 31, 2023 and $1,008.8 million at March 31, 2023. Debt, net of cash before lease liabilities increased from $399.2 million at December 31, 2023 to $438.5 million at March 31, 2024.
- Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, adjusted for the fair value adjustments related to contingent consideration, as well as acquisition and transaction costs), adjusted net earnings, adjusted net earnings per share and same-store sales are non-GAAP financial measures and ratios and are not recognized measures under International Financial Reporting Standards ("IFRS"). Management believes that in addition to net earnings and cash flows, the supplemental measures of adjusted net earnings and Adjusted EBITDA are useful as they provide investors with an indication of earnings from operations and cash available for distribution, both before and after debt management, productive capacity maintenance and non-recurring and other adjustments. Management believes that, in addition to sales, the supplemental measure of same-store sales is useful as it provides investors with an indication of the increase in sales without accounting for location growth and the impact of fluctuations in exchange rates during the period. Investors should be cautioned, however, that Adjusted EBITDA, adjusted net earnings and adjusted net earnings per share should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of Boyd's performance. Investors should also be cautioned that same-store sales should not be construed as an alternative to sales in accordance with IFRS as an indicator of Boyd's performance. Boyd's method of calculating these measures may differ from other public issuers and, accordingly, may not be comparable to similar measures used by other issuers. For a detailed explanation of how Boyd's non-GAAP financial measures are calculated, please refer to the section titled "Non-GAAP Financial Measures and Ratios" in Boyd's MD&A filing (dated May 15, 2024) for the period ended March 31, 2024, starting on page 4 of this Report. A copy of Boyd's MD&A for the period ended March 31, 2024 can be accessed via the SEDAR+ Web site (www.sedarplus.com).
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Debt, net of cash, increased 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.
While the Company expects claims volumes 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 level of demand continue.
Boyd has made meaningful progress towards our goal of internalizing scanning and calibration services to drive down cost to customers and 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 the workforce in this area by over 60% and expanding the footprint of states that the Company is able to serve while continuing to increase the remote services Boyd is able to offer.
Given the high level of location growth in 2021, the strong same-store sales growth during 2022, the combination of same-store sales growth and location growth in 2023, the location growth 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.
On behalf of the Board of Directors of Boyd Group Services Inc. and Boyd Group employees, thank you for your continued support.
Sincerely,
(signed)
Timothy O'Day
President & Chief Executive Officer
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Management's Discussion & Analysis
OVERVIEW
Boyd Group Services Inc. ("BGSI"), through its operating company, The Boyd Group Inc. and its subsidiaries ("Boyd" or the "Company"), is one of the largest operators of non-franchised collision repair centers in North America in terms of number of locations and sales. The Company currently operates locations in Canada under the trade names Boyd Autobody & Glass and Assured Automotive, as well as in the U.S. under the trade name Gerber Collision & Glass. The Company is also a major retail auto glass operator in the U.S. under the trade names Gerber Collision & Glass, Glass America, Auto Glass Service, Auto Glass Authority and Autoglassonly.com. In addition, the Company operates a third party administrator, Gerber National Claims Services ("GNCS"), that offers glass, emergency roadside and first notice of loss services. The Company also operates a Mobile Auto Solutions ("MAS") service that offers scanning and calibration services. The following is a geographic breakdown of the collision repair locations by trade name and location as at May 14, 2024.
952 locations
47 | 823 | ||||
locations | locations | ||||
Alberta | 16 | Florida | 78 | Maryland | 14 |
British Columbia | 14 | Michigan | 76 | Missouri | 14 |
Manitoba | 13 | Illinois | 66 | Pennsylvania | 14 |
Saskatchewan | 4 | California | 52 | Minnesota | 13 |
New York | 42 | Tennessee | 12 | ||
82 | Washington | 39 | Kansas | 11 | |
Georgia | 38 | Oregon | 11 | ||
locations | |||||
Texas | 37 | Alabama | 10 | ||
Ontario | 82 | Wisconsin | 37 | Nevada | 8 |
North Carolina | 36 | Hawaii | 6 | ||
Indiana | 34 | Kentucky | 6 | ||
Ohio | 34 | Utah | 6 | ||
Oklahoma | 28 | Iowa | 5 | ||
Arizona | 25 | Arkansas | 3 | ||
Louisiana | 23 | Nebraska | 3 | ||
Colorado | 22 | Idaho | 1 | ||
South Carolina | 19 | ||||
The above numbers include 33 intake locations. | The above numbers include 2 intake locations | ||||
and two fleet locations co-located with collision repair centers. | |||||
Boyd provides collision repair and glass services to insurance companies, individual vehicle owners, as well as fleet and lease customers, with a high percentage of the Company's revenue being derived from insurance-paid collision repair services.
BGSI's shares trade on the Toronto Stock Exchange under the symbol TSX: BYD.TO.
The following review of BGSI's operating and financial results for the period ended March 31, 2024, including material transactions and events of BGSI up to and including May 14, 2024, should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024, as well as the annual audited consolidated financial statements, management discussion & analysis ("MD&A") and annual information form ("AIF") of BGSI, as filed on SEDAR+ at www.sedarplus.com.
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SIGNIFICANT EVENTS
On March 15, 2024, the BGSI Board of Directors declared a cash dividend for the first quarter of 2024 of C$0.15 per common share. The dividend was paid on April 26, 2024 to common shareholders of record at the close of business on March 31, 2024.
On March 27, 2024, BGSI extended its existing revolving credit facilities in the aggregate amount of $550 million for a four- year term, with an accordion feature which can increase the credit facilities to a maximum of $850 million (the "Facilities"). The Facilities will mature in March 2028. The existing $125 million Term Loan A maturing in March 2027 remains unchanged.
The Company completed and opened the following number of collision repair acquisitions and start up locations during the periods listed:
Number of locations | |||
added through | Number of start-ups | Total | |
acquisition | |||
January 1, 2024 to March 31, 2024 | 12 | 1 | 13 |
April 1, 2024 to May 14, 2024 | 6 | 1 | 7 |
During the three months ended March 31, 2024, the Company opened four start-up glass locations. During the three months ended March 31, 2024, the Company acquired a calibration business in Nebraska. From April 1, 2024 up to the reporting date of May 14, 2024, the Company acquired a calibration business in Minnesota.
OUTLOOK
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 appraisals were down 8% during the quarter, with a greater share of 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.
The continuing mild weather and resulting low demand environment has impacted demand for services into the second quarter. This, along with strong comparative period 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 volumes 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 level of demand continue.
Boyd has made meaningful progress towards our goal of internalizing scanning and calibration services to drive down cost to customers and 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 the workforce in this area by over 60% and expanding the footprint of states that the Company is able to serve while continuing to increase the remote services Boyd is able to offer.
Given the high level of location growth in 2021, the strong same-store sales growth during 2022, the combination of same- store sales growth and location growth in 2023, the location growth 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
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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. Accretive growth will remain the Company's long-term focus whether it is 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 well for success into the future.
BUSINESS ENVIRONMENT & STRATEGY
As at May 14, 2024, the business environment of the Company and strategies adopted by management remain unchanged from those described in BGSI's 2023 annual MD&A.
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CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Statements made in this interim report, other than those concerning historical financial information, may be forward-looking and therefore subject to various risks and uncertainties. Some forward-looking statements may be identified by words like "may", "will", "anticipate", "estimate", "expect", "intend", or "continue" or the negative thereof or similar variations. Readers are cautioned not to place undue reliance on such statements, as actual results may differ materially from those expressed or implied in such statements.
The following table outlines forward-looking information included in this MD&A:
Forward-looking Information | Key Assumptions | Most Relevant Risk Factors |
The stated objective of generating growth | Opportunities continue to be available and are | Acquisition market conditions change and repair shop |
sufficient to double the size of the business | at acceptable and accretive prices | owner demographic trends change |
over the five year period from 2021 to 2025, | ||
based on 2019 revenues | Financing options continue to be available at | Credit and refinancing conditions prevent or restrict the |
reasonable rates and on acceptable terms and | ability of the Company to continue growth strategies | |
conditions | Changes in market conditions and operating environment | |
New and existing customer relationships are | ||
expected to provide acceptable levels of | Significant decline in the number of insurance claims | |
revenue opportunities | Integration of new stores is not accomplished as planned | |
Anticipated operating results would be | ||
accretive to overall Company results | Increased competition which prevents achievement of | |
Growth is defined as revenue on a constant | acquisition and revenue goals | |
currency basis | Initiatives to increase production capacity take longer than | |
Initiatives to increase production capacity are | expected or are not successful | |
successful | ||
Boyd remains confident in its business | Re-emergence of stability in economic | Economic conditions deteriorate |
model to increase market share by | conditions and employment rates | |
expanding its presence in North America | Loss of one or more key customers or loss of significant | |
through strategic and accretive acquisitions | ||
New and existing customer relationships are | volume from any customer | |
alongside organic growth from Boyd's | ||
expected to provide acceptable levels of | ||
existing operations | Decline in the number of insurance claims | |
revenue opportunities | ||
The Company's customer and supplier | Inability of the Company to pass cost increases to | |
relationships provide it with competitive | customers over time | |
advantages to increase sales over time | Increased competition which may prevent achievement of | |
Market share growth will more than offset | revenue goals | |
systemic changes in the industry and | ||
environment | Changes in market conditions and operating environment | |
Anticipated operating results would be | Changes in weather conditions | |
accretive to overall Company results | Inability to maintain, replace or grow technician capacity | |
could impact organic growth | ||
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Stated objective to gradually increase | Growing profitability of the Company and its | BGSI is dependent upon the operating results of the |
dividends over time | subsidiaries | Company |
The continued and increasing ability of the | Economic conditions deteriorate | |
Company to generate cash available for | ||
dividends | Changes in weather conditions | |
Balance sheet strength and flexibility is | Decline in the number of insurance claims | |
maintained and the dividend level is | ||
manageable taking into consideration bank | Loss of one or more key customers or loss of significant | |
covenants, growth requirements and | volume from any customer | |
maintaining a dividend level that is supportable | ||
over time | Changes in government regulation | |
During 2024, the Company plans to make | The actual cost for these capital expenditures | Actual expenditures could be above or below 1.8% to 2.0% |
cash capital expenditures, excluding those | agrees with the original estimate | of sales |
related to acquisition and development of | ||
new locations, within the range of 1.8% and | The purchase, delivery and installation of the | The timing of the expenditures could occur on a different |
2.0% of sales. In addition to these capital | capital items is consistent with the estimated | timeline |
expenditures, the Company plans to invest | timeline | |
in network technology upgrades to further | BGSI may identify additional capital expenditure needs that | |
strengthen our technology and security | No other new capital requirements are | were not originally anticipated |
infrastructure and prepare for advanced | identified or required during the period | |
technology needs in the future. The | BGSI may identify capital expenditure needs that were | |
investment expected in 2024 is in the range | All identified capital requirements are required | originally anticipated; however, are no longer required or |
of $14M to $17M, with similar investments | during the period | required on a different timeline |
expected in 2025. | ||
Boyd has made good progress with many | Price increases will be negotiated and agreed | Inability of the Company to pass cost increases to |
clients, but has not achieved the level of | upon by key clients | customers over time |
pricing that will return labor margins to | ||
historical levels. | Demand for services will continue to grow, | Decline in the number of insurance claims |
allowing Boyd to focus on higher margin | ||
business | Loss of one or more key customers or loss of significant | |
Wage inflation will return to historical levels | volume from any customer | |
and will not outpace pricing increases | Changes in market conditions and operating environment | |
Internal training and development programs, | Wage inflation continues in excess of historical levels and | |
including the Technician Development | outpaces pricing increases | |
Program, will improve staffing availability | Internal training and development programs do not improve | |
staffing availability | ||
We caution that the foregoing table contains what BGSI believes are the material forward-looking statements and is not exhaustive. Therefore, when relying on forward-looking statements, investors and others should refer to the "Risk Factors" section of BGSI's Annual Information Form, the "Business Risks and Uncertainties" and other sections of our Management's Discussion and Analysis and our other periodic filings with Canadian securities regulatory authorities. All forward-looking statements presented herein should be considered in conjunction with such filings.
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NON-GAAP FINANCIAL MEASURES AND RATIOS
EBITDA AND ADJUSTED EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a calculation defined in International Financial Reporting Standards ("IFRS"). EBITDA should not be considered an alternative to net earnings in measuring the performance of BGSI, nor should it be used as an exclusive measure of cash flow. BGSI reports EBITDA and Adjusted EBITDA because they are key measures that management uses to evaluate performance of the business and to reward its employees. EBITDA is also a concept utilized in measuring compliance with debt covenants. EBITDA and Adjusted EBITDA are measures commonly reported and widely used by investors and lending institutions as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric. While EBITDA is used to assist in evaluating the operating performance and debt servicing ability of BGSI, investors are cautioned that EBITDA and Adjusted EBITDA as reported by BGSI may not be comparable in all instances to EBITDA as reported by other companies.
CPA Canada's Canadian Performance Reporting Board defined Standardized EBITDA to foster comparability of the measure between entities. Standardized EBITDA represents an indication of an entity's capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible and intangible capital assets, which vary according to their vintage, technological age and management's estimate of their useful life. Accordingly, Standardized EBITDA comprises sales less operating expenses before finance costs, capital asset amortization and impairment charges, and income taxes. Adjusted EBITDA is calculated to exclude items of an unusual nature that do not reflect normal or ongoing operations of BGSI and which should not be considered in a valuation metric or should not be included in an assessment of the ability to service or incur debt. Also included as an adjustment to EBITDA are acquisition and transaction costs and fair value adjustments to contingent consideration, which do not relate to the current operating performance of the business units but are typically costs incurred to expand operations. From time to time BGSI may make other adjustments to its Adjusted EBITDA for items that are not expected to recur.
The following is a reconciliation of BGSI's net earnings to Standardized EBITDA and Adjusted EBITDA:
ADJUSTED EBITDA
Three months ended | ||||
March 31, | ||||
(thousands of U.S. dollars) | 2024 | 2023 | ||
Net earnings | $ | 8,381 | $ | 20,823 |
Add: | ||||
Finance costs | 16,122 | 12,064 | ||
Income tax expense | 3,147 | 7,456 | ||
Depreciation of property, plant and equipment | 16,400 | 11,916 | ||
Depreciation of right of use assets | 29,659 | 25,777 | ||
Amortization of intangible assets | 6,559 | 6,102 | ||
Standardized EBITDA | $ | 80,268 | $ | 84,138 |
Add: | ||||
Fair value adjustments | (7) | - | ||
Acquisition and transaction costs | 1,446 | 556 | ||
Adjusted EBITDA | $ | 81,707 | $ | 84,694 |
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ADJUSTED NET EARNINGS
In addition to Standardized EBITDA and Adjusted EBITDA, BGSI believes that certain users of financial statements are interested in understanding net earnings excluding certain fair value adjustments and other items of an unusual or infrequent nature that do not reflect normal or ongoing operations of the Company. This can assist these users in comparing current results to historical results that did not include such items. The following is a reconciliation of BGSI's net earnings to adjusted net earnings:
Three months ended | ||||
March 31, | ||||
(thousands of U.S. dollars, except share and per share amounts) | 2024 | 2023 | ||
Net earnings | $ | 8,381 | $ | 20,823 |
Add: | ||||
Fair value adjustments (non-taxable) | (7) | - | ||
Acquisition and transaction costs (net of tax) | 1,070 | 411 | ||
Adjusted net earnings | $ | 9,444 | $ | 21,234 |
Weighted average number of shares | 21,472,194 | 21,472,194 | ||
Adjusted net earnings per share | $ | 0.44 | $ | 0.99 |
SAME-STORE SALES
Same-store sales is a measure of sales that includes only those locations in operation for the full comparative period. Same- store sales is presented excluding the impact of foreign exchange on the current period. Same-store sales is calculated by applying the prior period exchange rate to the current year sales. The following is a reconciliation of BGSI's sales to same- store sales:
Three months ended | ||||
March 31, | ||||
(thousands of U.S. dollars) | 2024 | 2023 | ||
Sales | $ | 786,547 | $ | 714,941 |
Less: | ||||
Sales from locations not in the comparative period | (58,563) | (2,624) | ||
Sales from under-performing facilities closed during the period | - | 7 | ||
Foreign exchange | (190) | - | ||
Same-store sales (excluding foreign exchange) | $ | 727,794 | $ | 712,324 |
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Boyd Group Services Inc. published this content on 15 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 May 2024 12:09:43 UTC.