Boyd Group Services Inc. (BGSI) Q3 2022 Earnings Report, Transcript and Summary

Good morning, everyone. Welcome to the Boyd Group Services, Incorporated. Third Quarter 2022 Results Conference Call. Listeners are reminded that certain matter 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. 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 on SEDAR's database found at sedar.com. That’s SEDAR.com. I'd like to remind everyone that this conference call is being recorded today, Wednesday, November 9, 2022. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boyd Group Services, Incorporated. Please go ahead Mr. O’Day. Timothy 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 Pat Pathipati, our Executive Vice President and Chief Financial Officer. We released our third 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, and our news release, financial statements and MD&A have also been filed on SEDAR this morning. On today's call, we will discuss the financial results for the three and nine month period ended September 30 and provide a general business update. We'll then open the call for questions. During the third quarter of 2022 we delivered record sales and adjusted EBITDA for the second quarter in a row despite the negative impact of Hurricane Ian near the end of the quarter. The results were primarily supported by strong same-store sales growth in both Canada and the U.S., as well as contributions from new location growth. Demand for Boyd Services continued to substantially exceed capacity in all U.S. markets, while Canadian markets continue to experience recovery of demand as conditions continue to normalize. While the ability to service demand continues to be constrained by market conditions, new technician training and other initiatives are providing some improved capacity. However, the path to achieving historical levels of performance continues to require additional labor capacity, pricing increases and further easing of supply chain pressure. Over time the improvement in these conditions will result in reduced levels of work in process and improved absorption of fixed costs. During the third quarter, we recorded record sales of $625.7 million, adjusted EBITDA of $73.0 million and net earnings of $11.9 million. Sales were $625.7 million, a 27.6% increase when compared to the same period of 2021. This reflects a $35.4 million contribution from 84 new locations. Our same-store sales, excluding foreign currency exchange, increased by 21.9% in the third quarter, recognizing the same number of selling and production days in both the U.S. and Canada when compared to the same period of 2021. Sales benefited from pricing increases and high levels of demand for services, as well as some increase in production capacity related to technician hiring and growth in our technician development program, although ongoing staffing constraints and supply chain disruption continued to impact sales levels that could be achieved during the third quarter of 2022. Sales also increased based on higher repair costs due to increasing vehicle complexity, increased scanning and calibration services, as well as general market inflation. Same-store sales in Canada continue to recovery albeit from low comparatives during the third quarter, but this recovery has continued to be impacted by supply chain disruption. Gross margin was 45.1% in the third quarter of 2022 compared to 44% achieved in the same period of 2021. The gross margin percentage benefited from pricing increases including performance based credit relief to address the constraints caused by current market conditions and higher retail glass sales margins, as well as improved part margins. These benefits were partially offset by reduced labor margins as well as a higher mix of part sales in relation to labor. While pricing increases continue to flow through the results in the third quarter of 2022, labor margins were negatively impacted by the extraordinarily tight labor market, which continue to result in increased wage costs to both retain and recruit staff. Increasing vehicle complexity also resulted in a higher mix of part sales in relation to labor. Operating expenses for the third quarter of 2022 were $209.3 million or 33.4% of sales compared to $164.2 million or 33.5% of sales in the same period of 2021. Operating expenses as a percentage of sales benefited from sales increases, which provided improved leveraging of certain operating costs. This was partially offset by wage and other inflationary increases as well as increased costs to support related recruitment and training, and to support costs related to the expansion of the WOW Operating Way practices to corporate business processes. Adjusted EBITDA or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions was $73.0 million, a 41.8% increase over the same period of 2021. The increase was primarily the result of improved sales levels, which also provided improved leveraging of certain operating costs. Adjusted EBITDA for the period was constrained by technician capacity due to the tight labor market, as well as some minor impact due to Hurricane Ian. Market conditions, including wage pressure, a tight labor market and supply chain disruption are impacting the results that can be achieved in the near term. Net earnings for the third quarter of 2022 was $11.9 million compared to $0.4 million in the same period of 2021. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the third quarter was $12.1 million or $0.56 per share compared to $2.4 million or $0.11 per share in the same period of the prior year. The increase in adjusted net earnings per share was positively impacted by increased sales and an improved gross margin percentage. Net earnings was negatively impacted by the recording of adjustments related to completion and filing of the prior year U.S. tax returns, which increased income tax expense by approximately $2.0 million during the third quarter of 2022. At December 31, 2021, Boyd recorded approximately $7.6 million in income taxes recoverable. As returns were finalized and filed, this amount was reduced by approximately $2 million, primarily due to certain state and franchise tax payments. For the nine month period ended September 30, 2022, sales totaled $1.8 billion, an increase of $438.8 million or 32.3% when compared to the same period of the prior year, driven by same-store sales growth of 19.5%, as well as contributions from new locations that had not been in operation for the full comparative period. Gross margin decreased to 44.9% compared to 45.3% in the comparative period. The prior period included the recognition of CEWS of approximately $3.2 million. The gross margin percentage was negatively impacted by reduced parts and labor margins as well as a higher mix of parts in relation to labor. During the first nine months of 2022 Boyd faced supply chain disruptions which resulted in a negative impact on margins. While pricing increases flow through the results in the first, second and third quarters of 2022, labor margins were negatively impacted by the extraordinarily tight labor market which continued to result in increased wage costs to both retained and recruit staff. The shortage of labor also resulted in a higher mix of part sales in relation to labor. The nine months ended September 30, 2022, benefited from performance-based credit relief to address the constraints caused by current market conditions. Operating expenses increased to $153.9 million when compared to the same period of the prior year, primarily due to increased sales based on same-store sales growth as well as location growth. The prior period included the recognition of CEWS of approximately $4.3 million. Operating expenses were negatively impacted by the extraordinarily tight labor market, which resulted in increased wage and benefit costs to both retain and recruit staff. Also impacting the first nine months of 2022 were increased support costs related to recruitment and training, including costs associated with the technician development program, as well as support costs related to the expansion of the WOW Operating Way practices to corporate business processes. Adjusted EBITDA for the nine month period ended September 30, 2022, was $198.8 million compared to $162.2 million in the same period of the prior year. The prior period included recognition of CEWS of approximately $7.5 million. The $36.6 million increase was positively impacted by improved sales levels, which also provided improved leveraging of certain operating costs. We reported net earnings of $26.8 million compared to $18.6 million in the same period of the prior year. Adjusted net earnings per share increased from $1.03 to $1.29. The increase in adjusted net earnings per share is primarily attributable to increased sales, partially offset by a lower gross margin percentage and higher levels of operating expenses. At the end of the period, we had total debt net of cash of $940.8 million compared to $973.7 million at June 30, 2022. Debt net of cash decreased when compared to prior periods, primarily as a result of higher earnings, changes in working capital balances and lower levels of acquisition activity. During 2022, the company expects to make cash capital expenditures within the previously guided range of 1.6% of sales. This excludes those capital expenditures related to acquisition and development of new locations. Entering the fourth quarter, Boyd continues to experience strong demand for services. However, technician capacity, as well as the impact of inflation on costs and ongoing wage pressure continued to impact the results that can be achieved. Boyd continues to negotiate and receive price increases, which are necessary in order to support the attraction of talent to the industry and the retention of the current talent pool. Boyd continues to make progress, but further increases are needed to address ongoing wage pressure. During recent quarters, Boyd has benefited from performance-based credit relief put into place to address the constraints caused by the current market conditions, which continue to impact the business. Although, it is early in the quarter, Boyd is experiencing same-store sales growth that is modestly below that experienced during the first nine months of the year. The pipeline to add new locations in existing markets and to expand into new markets is robust -- workforce initiatives, such as the technician development program are having some impact and ongoing investments in technology, equipment and training positioned the company well for continued operational execution. Boyd remains committed to addressing the labor market challenges through initiatives such as the technician development program, which we have doubled in size since the beginning of 2022. We now have approximately 400 apprentices in this program as of early November. In addition to addressing the labor shortage for the core business, Boyd plans to increase location growth during 2023 in relation to 2022. Boyd is focused on optimizing performance of new locations as well as scanning and calibration and consistent execution of the WOW Operating Way. Given the high level of location growth in 2021, combined with the strong same-store sales growth thus far in 2022, Boyd remains confident that we are on track to achieve our long-term goals, including doubling the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales of U.S. $1.7 billion. Before we open the call to questions, as this is Pat's last quarterly conference call as Executive Vice President and CFO, I'd like to personally thank him for the important role he has played in Boyd groups growth and success since joining us in 2015. While we have every confidence that the company will continue to execute against a solid business strategy, supported by excellent long tenured leadership. Pat's contributions have been appreciated throughout his time at Boyd, and he will certainly be missed when he retires. At this time, the previously announced searched to succeed Mr. Pat Patty in the role of Executive Vice President and Chief Financial Officer, is proceeding along planned timelines and will be announced upon its conclusion. At this time, I'd like to turn the call over to Pat to comment on his upcoming retirement. Pat?

Thanks, Tim. I want to thank the outstanding team at Boyd that I have had the privilege of working with during my eight years as Executive Vice President and CFO. I would also like to personally thank all of you, our shareholders, research analysts, bankers, advisers and other participants in Boyd's capital market activities for the support, advice, trust and confidence in our business. It has been wonderful to work with, and this has certainly made my job as CFO enjoyable. It has been a great ride through my eight years at Boyd and I believe the company is very well positioned for continued success. So with that, I would like to open the call to questions. Operator?

Thank you. [Operator Instructions] We'll take our first question from the line of Michael Doumet with Scotia Bank. Timothy O’Day: Good Morning, Michael.

Good Morning, Michael.

Good morning, guys. I was just -- first question, I guess, on the margins. As we think about the balance of the margin normalization, any way you can discuss you think are the most important variables specifically? Still -- is it still largely dependent on external factors that's higher labor rates versus wage inflation and better part supply? Or are the internal factors such as the TDP and the corporate initiatives, is that supposed to drive a meaningful improvement as well? Timothy O’Day: I wouldn't expect TDP to necessarily drive margin improvement, but it will increase our capacity and throughput and help absorb our fixed operating costs. So that's really more to drive additional same-store sales growth. And we are seeing signs of that now that we're very pleased with. I think to recover margin back to normal levels, we'll require probably three things. One is -- and this is probably the least impactful, but the normalization of the supply chain will help our margins and be a part of the solution. And we reported last quarter that we were seeing early signs of that, but there's still lots of room for that to recover. More importantly, we need to continue to get price from insurance clients, both to recover labor margins, but also to cover continuing cost increases and get margins back to normal. We have been very successful at that. I think I'm pleased with the progress we've made, and I expect we will continue to make progress on that front.

One additional factor, Michael, in terms of the production capacity as our production capacity exceeds, so we'll have an opportunity to enhance the mix from replace to repair and margins on labor are substantially higher than the parts margin. So to that extent, we can improve the gross margins by managing the mix and that's tied to our production capacity.

Perfect. That's really helpful. And then you commented that you were receiving performance-based credit relief due to the market conditions. Do you still expect those as far as market conditions remain constrained, and I guess I will also asking for clarity on whether -- the potential removal of that and create kind of a two steps forward, one step back as conditions improve. Timothy O’Day: Yes. I think we've always said that margin improvement won't necessarily be a straight line up. But I think we've been getting an adequate number of increases in labor rates and paint material rates to continue to build margin, and I expect that to continue to happen. But it won't necessarily be a straight line, as historically we've reported, we've seen margin variation quarter-to-quarter. And I think that we're not projecting that those conditions still exist in our business and could be the case.

That's helpful. And just the last comment for Pat, all have enjoyed our conversations best of luck going forward.

Thank you very much, Michael.

[Operator Instructions] We'll take our next question from the line of Kate McShane with Goldman Sachs. Timothy O’Day: Good morning, Kate.

Good morning, Kate.

Good morning. Congratulations again to you, Pat.

Thank you.

We just had two quick questions, and I'm sorry if I missed this, but just on the quarter-to-date and the fact that it's under pacing a little bit what you saw for the first nine months of the year, what do you think is some of the driver of that? What is the driver of that? Timothy O’Day: I guess we -- are you talking about the EBITDA margin, Kate?

I think you mentioned that same-store sales were trending slightly below that of the first nine months of the year. Timothy O’Day: Yes. My comment was that in Q4 to date, quarter-to-date, which is obviously very early in the quarter. Our same-store sales that we've realized are running modestly below what we've experienced on a year-to-date basis. But I think we were also building our sales as we progressed through the year last year.

Yes, Kate, when you measure the same-store sales, as you know, we basically compare to the prior year. And also, like if you look at the second and third quarter, we had very strong same-store sales growth. So year-to-date it's 19.5. And we are comparing to 19.5 the rate. And so this is on the top of what we accomplished in Q4 of last year. So it's going to be still very healthy. But yes, it's not going to be like what we did in Q3, which is 21.9%. But you see, it's going to be still very healthy, very robust.

Okay. Thank you. And then our second question was just how much of a tailwind was pricing during the quarter? And how should we think about the benefit in the fourth quarter? Timothy O’Day: Pricing was certainly one of the benefits. I think there are a number of things that are driving same-store sales growth. We did comment that we have increased our production capacity. So we've been able to grow our workforce and we're building our TDP program. I think an important milestone was getting the TDP program up to our target number of 400. And while that group doesn't produce initially as that program as they mature in the program, they do add to our capacity. So a component of it is that there is some price inflation. The labor rate increases that we've seen would be part of that. The other piece is mostly related to parts and some paint materials. We've seen price inflation on paint materials. On the parts and the overall repair complexity, we're seeing noninflationary benefits related to repair complexity, more complex parts, more hours to install those parts. And we're also seeing increases in our scanning and calibration revenue, which is also related to repair complexity.

Thank you. Timothy O’Day: Thanks, Kate.

Thanks, Kate.

We'll take our next question from the line of Steve Hansen with Raymond James.

Hi. Good morning, guys. Thanks for the time. Maybe I'll just dovetail on your last comment there, Tim. My understanding is the calibration opportunity is one that could be sizable for the industry over time. Do you want to maybe just give us a sense for where you're at in that strategy and maybe just in inning terms? Are we in the second inning here, third inning, I'm just trying to get a sense of where you're at? And how big of an opportunity do you ultimately think that is as you sort of cast out a couple of years. Timothy O’Day: Yes. We haven't publicly sized the opportunity, Steve. But as vehicles have more ADAS technology on them and really everything being produced today has ADAS technology, and in fact, most vehicles produced over the past several years have had at least some form of ADAS, but that's going to continue to grow. Those systems are more complex, they require both a scan, which we do in virtually every vehicle we pre-impose scan. And often, they require calibration services. So as the car park matures and more ADAS comes into the car park, that segment of our revenue will continue to grow. We did make an investment about 1.5 years ago in a mobile service company. Many of these calibrations are complex, and it requires different technical skills. So we've made an investment in that company and we continue to grow that company to make sure that we're able to capture as much of that service work internally. And we do have opportunity to expand that company across our network. It's not easy and it's not quick, but there's absolutely a very good opportunity for us.

Yes, just to complement that Tim -- Steve, there are two components. The first one is the quality. This really enhances the quality of the repair. So I think that's how we look at it primarily. And the other prism is I think what you're talking about is, yes, this has a significant opportunity. We have not publicly sized, but it's a significant opportunity and the margins are excellent for providing both scanning and calibration.

No, that's helpful. Thank you. And maybe just to dovetail on that again a follow-up. Is the new revenue opportunity in celebration specifically, but if I think about rate increases to go with that and some other perhaps enhancements to the business, is it fair to say that same-store sales growth will remain elevated more consistently for a longer period of time? Is that the way to think about that? Timothy O’Day: I think repair severity is expected to continue to increase because of the vehicle complexity and there are -- when you look at repairing a late model car versus a car that's five or six years old, late-model cars have more parts to be replaced when it gets into an accident, and there are more calibration operations. But there are also more labor hours. So in terms of using our available labor capacity those repairs will take more labor capacity. But I do think there's a tailwind on the average cost of repair and that that will continue to increase. I think the other component is that, it does require some investments and specialization to service some of these vehicles. Historically, we've talked about aluminum structural damage needing to be -- those repairs needed to be in a site that has the equipment and the technician talent and training to do that. As ADAS systems are adopted or are more common in the car park, we'll use our hub-and-spoke network. This will be true with EVs as well to move vehicles to where they can be properly fixed. And as a multi-shop operator with good density in the markets in which we operate, we'll have the ability to better leverage our investments and service really all repairs versus having to specialize in a segment of the market.

Okay. Great. Appreciate the time. Thanks. Timothy O’Day: Thanks, Steve.

We'll take our next question from the line of Gary Ho with Desjardins Capital Markets. Timothy O’Day: Good morning Gary.

Good morning Gary.

Good morning. Thanks. Just first question, just on your comments about M&A pace picking up next year. I guess a two part question. Are you talking about gentle pickup from this year's levels or something more meaningful? And then second, what gives you confidence in ramping M&A back up again? Is it a better handle on the supply chain, labor issues? Is it better valuation? Just thoughts on that would be helpful. Timothy O’Day: Yes. We -- I would say we don't provide annual guidance on the M&A, but we are committed and confident in our five year goal to double the business by 2025. So you'll have to make your own decision as to when that growth occurs. This year was a light year of growth for us. That was intentional as we focused on the labor issues and kind of the challenges in our core business. We have never stopped our business development team. So we still have been growing this year. We see a very strong pipeline, good opportunity, reasonable valuations. We also have our greenfield, brownfield strategy well in place. And will those take longer to open, we've got a number of those in the pipeline. So you can definitely expect to see incremental growth next year relative to '22 and us tracking toward our 2025 goal.

Okay. And then second question, I guess, we've seen a slight pickup in terms of open positions, you and your peers as well. Can we get an update on this, how has retention been and maybe ability to higher the markets that you're operating? Timothy O’Day: We don't provide specific numbers on that, but I did comment and we do have in our MD&A that we have successfully increased our repair capacity, both with experienced technicians and through our technician development program. But it remains a very competitive market and kind of throughout my comments and throughout our MD&A, we do reference the continuing wage pressure to both retain staff and to recruit and the need for further increases from our clients to build our workforce, frankly, to be able to properly service them. Length of rental is still at historically high levels. And it's difficult for our industry right now to provide the level of service of -- really vehicle owners need and expect.

Yes. Gary, just to complement couple of things. You're absolutely right. I think we are certainly focused on retention. We are continuously enhancing our retention strategies to improve that. In terms of the recruiting, we do have normal channels where we recruit directly technicians. But the other one we explicitly commented about the technician development program, and we've been successful in hitting that 400, doubling the number from the beginning of the year, ahead of the schedule initially, we commented that we're expecting before the end of second quarter, and we were able to accomplish before the reporting period. So that's going to provide substantial capacity for us moving into next year as the graduates become technicians. Timothy O’Day: And just a reminder, that's an -- our program is an 18-month program. And when our apprentices graduate, they're very competent technicians and they build those skills throughout that 18-month period.

Got it. Okay. And then just last one for me. We saw a spike in used car prices back half of last year into early this year. And then a [indiscernible] pretty dramatic drop, I think we're sitting at roughly 10% lower year-over-year. Can you give me quick refresher on how this may benefit or hurt parts of your business if this trend continues? Timothy O’Day: Yes. If used car prices dropped meaningfully, it would increase total loss rates, which would reduce the number of repairable vehicles. The -- and I'm sure there are different forecasts out there on it. But the supply of new vehicles has been pretty low for the past few years, which is part of what's been driving used car prices up. And that supply is not expected to improve significantly in the near future. So, while we've seen some decline in the price of used cars, they're still pretty elevated, and that's making more vehicles repairable. And as we've been commenting, demand is not really an issue for our business. We have excessive amounts of demand available to us.

Okay. Great. That's it for me. And Pat, congrats on your retirement again and best luck.

Thanks, Gary. Timothy O’Day: Thanks, Gary.

We'll take our next question from the line of Bret Jordan with Jefferies.

Hi. Good morning, guys. You guys give a bit more detail on the spending for tech development, sort of quantifying it? And then is there a moment where that sort of flips and this 18-month apprentice program becomes productive labor and it not only is the tech spend lower, but the productivity is higher at some point in '23. Timothy O’Day: Yes. We haven't provided any specific numbers on it. But we view the program as a three phase program. The first phase is a big investment on our part, both in training and the wage cost of the apprentice. So that's the most expensive phase of it, and it's when they're least productive, maybe not at all productive in the early going, but by the end of Phase 1, they're at least adding to the productivity of the shop that they're located in, although not substantially. The second phase would be where their productivity is growing, and they're less impactful on our overall expenses, although we continue to invest in significant training to build their skills, including hands-on training, which is relatively expensive to deliver. The third phase, they're generally producing and likely accretive to margin in most cases and really preparing to graduate. When they graduate our experiences that -- well, they're not producing at the level of a seasoned technician, they're producing at levels that are very acceptable, and we continue to work with them to build their skills in the months after they graduate. So it is a fairly expensive program, but it is creating repair capacity for us.

Yes, Greg, generally, like semester 1 they are dilutive, in semester 2 they are neutral and semester 3, they're accretive. The other important thing is the retention for this TDP graduate is substantially better than normal technicians. So that's not other benefit we get, not only well-qualified technician, but have a mentor within the company and retention is much better.

Okay. Great. And then a question on your parts margin. You commented it had improved. Is that price mix? What was the driver on that parts margin improvement? Timothy O’Day: I think it's -- there's probably a little bit of supply chain improvement in there and better disciplines around our buying practices. We're still having supply chain challenges. But when they first came up, I think we weren't as well prepared to make sure we were focusing our buying efforts on trusted suppliers.

And also we're implementing some strategies to enhance the parts margins within the company. And yeah, right now, we're not disclosing, but we have issued some new strategies.

Okay. Because I think you were buying more OE parts from nontraditional suppliers in the past year? Is that -- is your supply chain, I guess, back to maybe closer to what it was pre-pandemic? Timothy O’Day: I wouldn't say it's back to where it was pre-pandemic. But we are in better shape with that now, partly because we've learned how to manage it more effectively. But there has been an increase in the OE part mix relative to the aftermarket part mix. Some of that is aftermarket part availability. Some of it is increased repair complexity and the higher and more complex repairs tend to have fewer, if any, aftermarket options. So we're seeing an increase in the OE part mix as a percentage of the total part mix. And that may well continue.

Okay. Great. Thank you. Timothy O’Day: Thanks, Bret.

Thanks, Bret.

We'll take our next question from the line of Daryl Young with TD Securities.

Good morning, everyone. Just following up on Bret's last question there. So in terms of the preferred vendor rebates, would you be back at a level consistent with 2019 levels? Or are you still below those vendor rebate levels for preferred vendors?

We're really -- I'm not sure where you get the rebate concept. We negotiate our pricing as a discount from list. And when we saw the margin challenges on parts starting a little over a year ago, it was because we were having to buy a higher percentage of our parts from suppliers that we had either a secondary or in many cases, no relationship with. So our discount from the list price was nominal, and that pressured our overall part margins.

Got you. Okay. Yes, that's great. Sorry, that's what I was referring to, rebate wrong word. That’s it from me. Thanks. Timothy O’Day: Thanks, Daryl.

Thanks, Daryl.

We'll take our next question from the line of Zachary Evershed with National Bank Financial. Timothy O’Day: Good morning, Zachary.

Good morning.

Good morning, everyone and congratulations, Pat.

Thank you.

Would there be any value in increasing the size of the technician development program again? Timothy O’Day: We're going to evaluate that, now that we've accomplished this goal. I will say that we're very pleased with what we've accomplished. It does come at a cost. But the industry is woefully short of the number of technicians required to service demand. And so I think that it's important that we evaluate that and continue to look at what's the right thing to do. Certainly, as we grow our company, I would expect growth of TDP as we grow our company. But we're going to evaluate kind of look back on what we've accomplished with where we are now and consider whether it's something that we ought to invest further in. We're really, really pleased with the program.

And then in terms of the long-term view on the dynamics between insurers and collision shops, customers are going through this period of dissatisfaction with their carriers because it's taking so long to get vehicles serviced, where does that bring the industry going forward as premiums rise substantially just to get people to come back to the industry and get the results back to where they should be. Any views on that? Timothy O’Day: Is the question whether views on what premiums we are going to do insurance premiums, what's going to be required to?

Sorry, whether that will fundamentally change the nature of the relationship with carriers between collision shops. Timothy O’Day: I don't think so. I mean we obviously need our insurance partners, and they need us to service their customers. We're going through a difficult period right now with the lack of capacity to properly service them. We're working hard to build that capacity, but the model of direct repair and insurance referral continues to be a really effective way to service vehicle owners with damage. And I don't want to overstate the challenge. I mean, our customer satisfaction levels are still quite good, but they're not as good as they would be if we had all the capacity we needed.

Got you. And then finally, we're hearing some pushback from local bodies like insurance commissioners on the rate at which auto premiums are rising. But of course, you guys aren't yet at a level where you can hire enough to get the needed capacity. Do you think that will become an issue going forward that will put a cap on how high premiums can go? Timothy O’Day: I mean, insurers have to be able to underwrite and make a profit on what they do. And cars are more expensive, they're more complex, and they are going to cost more to repair. So I think it's hard to stop what's happening right now. We can work hard to repair what we can repair to keep cost down and be reasonable with judgment times, and we do that. But the insurance companies have to be profitable. And if they can't get the rate they need after some period of time, they would probably stop writing in a state where it certainly up their underwriting standards. They can't go on losing money in their book of business. So I don't think it's a barrier, but the reality is, insurance is going to be more expensive for consumers.

And also exactly like [indiscernible] supply and demand, at the end of the day, if there's more demand for our services than the supply, it's going to have an impact. And that's actually what we are trying to convince our insurance partners about the need for price increases, so we can get sufficient capacity and process the work that further enhances the customer satisfaction. So they're all interrelated, but we are well positioned to address our customers' needs.

Great color. Thanks.

Thank you.

Our next question comes from the line of Krista Friesen with CIBC.

Hi. Thanks for taking my question. Just a quick one here. Can you provide us with an update on where your backlog is sitting? And I guess just how long it's taking the rate increases that you're getting to flow through to new business? Timothy O’Day: We don't provide -- we don't disclose our backlog, although we have said that it's elevated, and that's across really all U.S. markets, and we are seeing some signs of that in Canada now as well. I think the -- some industry publications have said that the overall backlog for the industry was -- Pat, your call was in five weeks or so?

Yes, five weeks, yes. Four to five weeks, yes, Timothy O’Day: Four to five weeks. So the industry is fairly backlogged right now, and we would -- we wouldn't vary significantly, I don't think from the industry.

Okay. Great. Both of my questions have been answered, and congrats Pat.

Thank you, Krista. Timothy O’Day: Thanks, Krista.

We have a follow-up question from the line of Steve Hansen with Raymond James. Timothy O’Day: Hello again Steve.

Yeah. Thanks guys. I'm not sure if you can answer this, Tim, but to what degree, if at all, have you been deemphasizing or dropping certain insurance carriers in your program? You've been pretty vocal about going after price increases. But my understanding is, some carriers are more reluctant than others to offer those increases. And so, do you have an ability to deemphasize volumes from those laggards? Have you been dropping any carrier specifically? Or how do you manage that tension? Timothy O’Day: The only significant action we've taken was to stop doing business with the large fleet companies and that was relatively low margin business. Steve, overall, I'm very pleased with the increases we've gotten from client and there is not a single client that hasn't provided, at least one and in most cases two and in a few cases three increases over the past 12 months. So our clients are generally being very responsive. There are still gaps and we've talked about that before. There are fewer gaps today than there were six months ago. So we're going to continue to work those gaps and make sure that we maintain productive long-term relationships with our clients.

Okay. That's fair. And then I'll just sneak in one last one [indiscernible] is just around the M&A environment. You've referred to going after some more locations next year. That sounds logical. How have the multiples been faring in the landscape of late. There's been some obviously high-profile transactions out there. It feels like activity has slowed a little bit. Are you seeing that reflected in multiples at all so far? Or do you anticipate it? Thanks. Timothy O’Day: I think we've said for the past few quarters that our focus on growth is targeted toward greenfield, brownfield developments and single shop and not that we would avoid a multi-shop transaction. But we see lots of opportunity and good valuations on the single shop acquisitions and on greenfield and brownfield. You would expect though that given market conditions and interest rates that the bitters for assets that were going at levels that may not have made sense to us. You would think that those -- the pricing on that may normalize in these conditions, but we don't have anything specific to report on that.

Okay. Thanks for the time, guys. Appreciate it. Timothy O’Day: Thanks Steve.

Our next question comes from the line of Sabahat Khan with RBC Capital.

Good morning, Sabahat. Timothy O’Day: Good morning.

Good morning. Just a question just on the way the TDP works, I guess. It sounds like it's sort of an apprenticeship type model. Do you take people in sort of as they come sort of one at a time? Or is it something like classes that moves through the system? Is that 20 people start at the same time, 30. How does the, I guess, just the program work? And is it -- or is it just pretty free-flowing people graduate 18 months after the day one? Timothy O’Day: It's a very structured program with specific training and experiences required throughout the 18-month period. So for somebody to move from Level 1 to Level 2, they need to have completed specific training assignments successfully, and they need to demonstrate competency with specific repair tasks. And those trainings and competencies increase as they go through the program. It's a distributed model that's centrally supported. So we have a team of people that work with a mentor. The mentors are formally trained in the program, and they were selective about the mentor. So they need to have the skills to -- skills and patients to teach. Our mentors are absolutely outstanding. We do this in every market in which we operate in the U.S. Our Canadian -- the Canadian system is different. The apprenticeship program in Canada is a different system. It's based in each province. But it's a highly structured, very effective program, and we recruit new people into it every single week.

Is there like a concept of a graduating class on thinking as we think about the third semester when people start to be accreted to margins, I think do a 100 graduates come into the workforce and start adding value, but how does the -- in terms of the graduation, is that more structured like classes or? Timothy O’Day: No. It's -- this is based location by location. So when somebody has completed all of the competencies, which should take about 18 months, we might have some people graduate a bit earlier than that. We may have some of that drag a little bit later than that. But we would see graduates coming out of the program really as it matures, we would see weekly graduates coming from the program across different parts of the country.

Great. Thanks very much.

Thanks, Saba. Timothy O’Day: Thanks, Saba.

It appears there are no further questions at this time, Mr. O'Day. I'd like to turn the conference back to you for any additional or closing remarks. Timothy O’Day: Well, thank you, operator, and thanks to all of you once again for joining our call. We look forward to reporting our fourth quarter and year-end results in March. And Pat, once again, congratulations to you.

Thanks, Tim, and thanks all of you. Have a great day.

This does conclude today's call. Thank you for your participation. You may now disconnect.